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$5.00
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IEG Holdings Corp. Page
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Ticker: IEGH CEO, Paul Mathieson www.investmentevolution.com
BioLargo, Inc.Retweet Page
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Ticker: BLGO CEO, Dennis Calvert www.www.biolargo.com
Millennium HealthCare, Inc. Page
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Pressure BioSciences, Inc. Page
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P R O F I L E D C O M PA N I E S mbleUpon Digg
pe
Tube
Endexx [18] Gespeg Copper [26] Highpower International, Inc. [50] Technorati Cutting Edge Superconductors [66]
Rick Rule – Sprott Global [6] Jeffrey Kraws – Crystal Research [39] S. Jeffrey Jones – HJ & Associates [42] Steven M. Shelton – Cornerstone Global Group [58]
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Ticker: MHCC CEO, Dominick Sartorio www.MillenniumHCS.com
Ticker: PBIO CEO, Richard Schumacher www.pressurebiosciences.com
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E D I T O R I A L In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft
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his year the MicroCap stock market had increases in volume, a huge amount of funding events, and an enormous increase in investor interest in emerging growth companies. A good indication of the remarkable microcap investor surge is the increasing attendance at the growing number of financial conferences across the globe, the growth in social media, and the new subscribers to our print and digital magazine. Aside from a few road bumps, 2014 should finish out in spectacular fashion … famous last words. The S&P, NYSE, NASDAQ and OTC Markets have given record-breaking performances and the microcap stock market has mirrored the trend and roared to its own new record highs. The increasing numbers of emerging growth companies due to IPOs, APOs, and reverse merger activity gives investors new ideas, new investment choices and opportunities, but investors searching for data are finding it increasingly difficult to source timely and accurate information, and independent research to differentiate between one MicroCap company and another. MicroCaps are the magic in the market that can grow like Apple, Amazon and Google that all started in a garage. MicroCap Review Magazine, the Official magazine of the MicroCap Stock market, provides readers with original content and market information regarding public and private microcap emerging growth companies. This issue includes information about exciting MicroCap companies, the changing landscape and embryonic financial ecosystem including private company start-up and ramp-up companies to incubators and accel-
erators, from the crowd-funding community to angel investors, venture capital, private equity and Bitcoin. For MicroCap companies it’s about raising capital; from seed money to expansion capital; from organic growth to financing acquisitions. The importance of market awareness and visibility to investors has never been more in demand as companies attempt to attract investment. Over the last few years in the U.S., several favorable laws and methods to finance issuers became available including general solicitation through new Rule 506(c) under Regulation D. This issue contains advertising pages permitted by Rule 506(c), which allows private companies, or their placement agents, to publicly advertise a securities offering using any instrumentality of media. General solicitation and advertising permits a company, or its placement agent, to: 1. reveal that the company is offering securities, 2. specify that the investment is limited to accredited investors only, who will need to have their status verified; and 3. indicate where qualified investors can obtain complete disclosure information, such as a private placement memorandum or other disclosure documents. In a MicroCap bull market there are peaks and valleys to buy, sell or hold your positions. Even the experts self admittedly cannot pick tops and bottoms. So be smart. Stay informed. Check out our websites. Invest with your head not just your heart. Use the best tools available like the MicroCap Review and lastly never fall too deeply in love with any stock. n
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CONTENTS WWW.MICROCAPREVIEW.COM Summer/Fall 2014
6 We’ve Been through the Pain... Will We See a Gain? By Rick Rule 12 Fallen Angels By Holmes Osborne 14 Activist Investing By Elizabeth Kopple 16 Bitcoin By Andrei Serpik 28 Interest for Hong Kong Listing Remains Active – Outlook Strong for 2nd Half By Leslie Richardson 39 Independent Research By Jeffrey Kraws 40 For Micro-cap Firms, Perception Is Reality–4 Ways to Use PR to Improve Your Reality By Joy Schoffler 52 Seizing Opportunity, Embracing Change at the Growth Capital Expo By Brett Goetschius 54 Decoding Online Alternative Marketplaces By Alon Goren
57 Paradigm Shift in the Treatment of Gastric Cancer By Dr. Frank Grossman 58 How are MicroCaps Affected by What Happens with the Small, Mid and Large Cap Stocks? By Steven M. Shelton 62 Exploration Insights By Brent Cook 68 Biotech: Year in Review 2013/14 and MidYear 2014 Outlook By Seth Yakatan 70 PortTech By John Dmohowski 75 Semi-Annual Adds & Subtracts of FINRA Members By David Alsup 87 A Primer on Public Company Disclosure Through Social Media Websites By Lawrence G. Nusbaum 92 Silver in 2014 By David Morgan
Accounting Corner 42 Post Reverse Merger Pitfalls By S. Jeffrey Jones
Comic Strip 13 WallStreet Chicken - Episode 10
Legal Corner 44 A Look Back at General Solicitation and Advertising under Rule 506(c) By Lance Jon Kimmel 45 Blue Sun Energy Inc. – Rule 506(c) 46 Dynamics Capital – Rule 506(c)
Compliance Corner 76 Capital Raise Red Flags – The Top Four Financing Scams on Securities Issuers By Russell C. Weigel, III
Commodity Corner 80 Waking Up to the Coffee Market By Mark Shore
Opinion
Financial Puzzle 25 SNN StockWord Puzzle
Profiled Companies 8 18 22 26 30 34 50 66
IEG Holdings Corporation Endexx Corporation Millennium HealthCare, Inc. Gespeg Copper Resources Inc. BioLargo, Inc. Pressure BioSciences, Inc. Highpower International, Inc. Cutting Edge Superconductors Inc.
84 Ombudsman By Jack Leslie www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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F E AT U R E D A R T I C L E
We’ve Been through the Pain… Will We See a Gain?
W
hen we look back over the last two years, our experience has not been pleasant. And yet, I am extremely positive going forward. This is not my first bear market in natural resources; in fact, I have experienced four bear markets through my career in the sector. When I remember the recovery that happened after each bear market – and the substantial rewards to investors in the sector –, I am extremely optimistic about the future.
‘bIg Money’ enterIng the sPace… There are a few reasons to be optimistic. As an example, we should look at my employer, Sprott Inc., which is one of the largest
financial firms in the world focused almost exclusively on natural resources and precious metals. Last year, I told audiences about ‘big money’ circling the natural resource market. Today, I would say that some of that money has found a home. Recently, we have won a couple of large mandates to manage money in the resource space. One mandate is with Zijin mining, which is the largest publicly-owned nonferrous mining company in China, who has contributed $100 million to a partnership with Sprott. Zijin believes that some of the largest financial firms in China will contrib-
n BY RICK RULE
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ute substantial additional capital. The other ‘big money’ source comes from the South Korean Electric Power Company and the South Korean National Pension Service. These Korean investors have committed $750 million to be managed in partnership with Sprott. The ‘big money’ that was circling last year is ‘landing,’ which is very bullish for the sector. Due to their cheapness, natural resources have attracted the attention of these extremely long-term investors looking for the opportunity to enter the sector. This is strategic, long term capital from investors with the required sophistication, means, and patience to make money in the sector.
Issuers still holding back on financing… Where will these new funds, which will likely total around $1 billion, end up? We see lots of opportunity in the current market, but we do not want to deploy this amount of capital all at once. Instead, we want to structure specific transactions in the view of becoming stakeholders in companies where we feel comfortable taking a longterm position. The pricing of deals that the issuers gave to investors in the period from 2003 to 2010 was ludicrously optimistic. Part of the problem today is that many of the issuers are still set in the mind frame of the bull market years. They have yet to face the reality of the current market for exploration and mining capital when it comes to deals and pricing expectations. For lack of a better expression, the precious metals sector is ‘bombed-out’ both in terms of sentiment and participation. Nobody likes the sector. The issuers need to have a reality check.
Why we should stick around… Although I believe issuers are too optimistic today, I agree with them that precious metals www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Investors need to decide for themselves whether the proposition upheld by governments and other collective forces is appealing. and natural resource markets are attractive. A market that has fallen in price by 80% is arithmetically more attractive by 80%. This move down in the precious metals prices from the 2010 highs is not unprecedented. You will recall we had a 50% cyclical decline in a secular bull market for gold back in 1975 and 1976. The snapback from these cyclical declines in secular bull markets can be extremely rewarding. When will the tides change? Investors need to decide for themselves whether the proposition upheld by governments and other collective forces is appealing. They have to ask themselves whether manipulated interest rates are really in the best interest of society; whether liquidity is a substitute for solvency; and whether US Treasuries are really a better investment than gold, silver, platinum and palladium. When it comes to physical precious metals markets, we found when we launched our own Physical Trusts that even our relatively modest amount of institutional buying could have some effect on the metal price. Large institutions are the main players on the futures exchanges, which have mostly been on the short side. I think it would take a relatively modest amount of physical buying from institutions to unbalance those futures markets, giving the short sellers a truly ‘religious’ experience. Most of you are likely natural resource and precious metals investors to some extent. Most of you have therefore had a very rough ride in the last three years. Having hung around for the pain, why not stick around for the gain? To read more regular opinion and commentary from Rick Rule and other thought leaders in the natural resource and precious metals
sectors, sign-up for our regular, thrice-weekly e-mail “Sprott’s Thoughts” here. Mr. Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As Director, President, and CEO of Sprott US Holdings, Inc., Mr. Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management. Mr. Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics. He is frequently quoted and referred by prominent natural resource oriented newsletters and advisories. Mr. Rule and his team have long experience in many resource sectors including agriculture, alternative energy, forestry, oil and gas, mining and water. Mr. Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, prepublic and public companies. Sprott US Holdings, Inc. is a holding company made up of three separate and distinct companies: Sprott Global Resource Investments, Ltd., a FINRA Registered Broker/Dealer; Sprott Asset Management USA Inc., an SEC Registered Investment Adviser offering managed accounts; and Resource Capital Investment Corporation, an SEC Registered Investment Adviser managing partnerships. These three companies make up the US Subsidiaries of Sprott Inc. and are active in securities brokerage, segregated account money management and investment partnership management involving both equity and debt instruments, across the entire spectrum of the natural resource industry. n
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PROFILED COMPANIES
Ieg holdings corporation ticker: Iegh
dba “Mr. amazing loans” – global leader in consumer finance led by ceo Paul Mathieson
orIgIn/background:
CEO Paul Mathieson
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Paul Mathieson is the Chairman/CEO and Founder of IEG Holdings Corporation with over 19 years’ finance industry experience in lending, funds management, stock market research and investment banking. Paul founded and established a similar business in Australia in 2005 that lent approximately $48 million to over 11,500 customers. Paul permanently relocated to the US in 2008 to replicate the successful business model, utilizing cash flow from the runoff of the Australian loan book to fund US setup. On the back of the success of the Australian Mr. Amazing Loans business, Paul was awarded Ernst & Young’s 2007 Australian Young Entrepreneur of the Year (Eastern Region). Paul Mathieson is a born entrepreneur, starting his first computer business at age 12 and trading stocks and options at 14. By the time he celebrated his 19th birthday he was
an institutional stockbroker and research analyst. “I came from a small country town in Australia but I was always driven to succeed in the global finance world.” he says. “I enrolled in an accelerated Bachelor of Commerce degree program and did three semesters a year, graduating by the time I was 19.” During his 20s Mathieson went to work for Daiwa Securities, the second-largest Japanese brokerage firm, and then took a position as Head of Research for a boutique stock brokerage in Australia before becoming an Investment Banker at ING Barings. “I was heavily involved in researching industrial companies, running IPOs and underwriting committees, and preparing prospectuses. After a short period doing M&A and corporate advisory work for ING, I was approached by a company in the consumer finance space with multiple offices offering personal loans. I spent a month doing due diligence with a view to conducting a potential IPO and that opened my eyes to the industry. Unfortunately, the deal couldn’t proceed because that company lacked the professionalism and the systems to become a fully reporting public company.” At 25 he started his own significant funds management business. He managed over $130 million of client funds for 5 years and made investors returns via a structured derivatives product he created based on stocks that he researched. A considerable amount of his time was spent building networks of investors and business contacts, and as his 30th birthday approached he was contemplating multiple opportunities. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Meanwhile, a university friend working at PricewaterhouseCoopers called and said he was advising a company in the consumer finance space and thought Paul should have a look at it. “I didn’t think much about it until a couple of weeks later when a neighbor also approached me randomly and said he and his friend wanted some advice about a franchise they wanted to buy that was, coincidentally, in the same lending business that my friend was involved with. I guess you could say it was fate or destiny as there were too many coincidences that led to this sector capturing my attention, so I suggested that my neighbor and his friend consider putting $200,000 into a brand-new business instead of buying into a franchise. I believed I could set it up and do better than competitors with superior branding, professional management and a much more cost effective and fairer structure that was affordable to consumers. So, on the first of February 2005, Mr. Amazing Loans was formed.”
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MARKET SIZE: According to Mr. Mathieson, “We estimate our targeted consumer finance market to be approximately $50 billion plus per annum in the US equating to approximately 100 times the size of the Australian market where we previously captured 10% market share. Our product is significantly cheaper at 19.9% to 29.9% per annum than the long established payday lending market that have been charging over 300% for many years. There are a lot of people against the
payday loan industry and while the Federal Government doesn’t have authority to stop it, seventeen states have enacted doubledigit rate caps which basically restrict their ability to operate. Some companies use loopholes but the government is closing in on those too. The Consumer Financial Protection Bureau is implementing measures that apply pressure on unfair practices, and a number of states are increasing regulation of the industry. New York, for example, just shut down the whole payday loan industry and said if you charge more
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than 25 percent you’re out of business. They also forgave all outstanding payday loans. The Mr. Amazing Loans business is fully compliant with the regulators and positioned to capitalize on the regulatory pressure on the payday lenders.” “A payday lending product is designed around a consumer needing $500 and being required to pay it back within two weeks at an exorbitant rate. If you haven’t got the $500 one week how are you going to find it the next? Our $3,000 loan costs the borrower $22.23 a week over a five-year period. They can pay it off early with no extra penalties and no extra fees. And if our customer can’t make payments, we can put them on hold until they get back on track. It’s the convenience of what we are doing at a fair rate and it works for everyone. Their payment is so low that it makes very little difference to their weekly budget. That is our selling proposition. These other businesses are based on short-term high returns whereas we set up a model where we are helping the consumer and doing what the government intends. We have received a lot of support for our model and the consumers appreciate the differences. People come to us trapped
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in a debt cycle from payday loans and we help them out and offer them a much more sustainable position. My philosophy is to try to continually lower our rates as our cost of funding goes down.”
COMPETITION: Due to the significant regulatory barriers to entry, there are only a handful of direct competitors to Mr. Amazing Loans. They are OneMain Financial (less than 10% online), SpringLeaf (less than 10% online), Avant Credit (online only but charging significantly higher rates), Lending Club and Prosper (both online only but peer to peer rather than direct lender). The indirect competitors are credit cards, payday lenders with multiple storefronts, online high rate lenders and tribal lender companies operating via tribal exemptions. The competitive advantages over these lenders include significantly lower overhead with a highly lean online model, superior branding, targeted marketing strategy, affordable weekly repayments, a strong management team and regulatory compliance ensuring long term success.
STRONG GROWTH STRATEGY: Carla Cholewinski, the Chief Operating Officer of IEGH stated “The current economic conditions provide the perfect time for Mr. Amazing Loans to be expanding across the US and rapidly growing our loan book with demand for our loan product at an all-time high. It is rewarding to be able to provide our personal loans to consumers that are neglected by mainstream lenders such as banks and to be part of such a dynamic high-growth organization.” IEGH is a Finance/Technology company that has established and refined its online operational platform, added more efficient customer online acquisition partners and secured increased funding. IEGH launched online lending in July 2013 with cumulative loan volume rising 765% from $237,000 at June 30, 2013 to $2,050,001 as at June 27, 2014. Loan volumes have grown dramatically due to the recent engagement of seven top national online lead generators with additional lead sources in short term pipeline. In addition, the launch of the new substantially improved www.mramazingloans.com www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
website has significantly increased customer click conversions. Sam Prasad, the IEGH VP of Corporate Finance stated that “Mr. Amazing Loans continues to set monthly loan volume records and expand across the United States. The platform is now in place for rapid further growth in the second half of 2014 and we look forward to making Mr. Amazing Loans a household name for online personal loans.” IEGH’s record June loan volumes have grown by approximately 1800% to around $750,000 compared to January’s $40,000 and nearly doubled May’s $410,001 monthly volume. The rapid loan volume growth is being driven by leading online lending website www.mramazingloans.com, new joint venture arrangements with low acquisition cost lead sources and aggressive state license expansion. IEGH recently received lending licenses in the states of Georgia, Virginia, Missouri and New Jersey and began offering loans online to consumers in these states in late May 2014. The new licenses increased the previous 4 state coverage (Nevada, Illinois, Arizona and Florida) to 8 states and increased the population coverage by 81% from approximately 42 million people to approximately 76 million people. IEGH has submitted applications for licenses in Texas (26.5 million population) and California (38.3 million population). The Company also plans to apply for an additional 23 state licenses over the next 6 months including other large population states of New York, Pennsylvania and Ohio. IEGH’s target is to increase US population coverage by a further 274% from the current 8 states and 76 million people to 33 states and 284 million people encompassing approximately 90% of the US market in the next 6 months.
Paul Mathieson is a proven entrepreneur that has recognized a problem and provided a solution. This niche market has been under regulatory scrutiny due to capital greed by competitors, but Paul seized the opportunity to provide a solution fairly using a practical sensible model. FUTURE OF IEGH:
SNAPSHOT:
IEGH is an emerging growth microcap company in the truest sense and although it still needs to further ramp up its volumes in the US, it has proven the business model works. Paul Mathieson is a proven entrepreneur that has recognized a problem and provided a solution. This niche market has been under regulatory scrutiny due to capital greed by competitors, but Paul seized the opportunity to provide a solution fairly using a practical sensible model. As IEGH expands and executes the Mr. Amazing Loans strategy, increasing corporate revenues will elevate the growth which will increase shareholder value. “The business of Mr. Amazing Loans is not rocket science, the growth is driven by consistent management execution utilizing our leading online loan platform combined with cost effective customer lead acquisition, thorough and highly efficient underwriting and the ability to access appropriate debt and equity funding. My 5 year vision is to be licensed and lending in most states of the US and also successfully operating online under the Mr. Amazing Loans brand in Australia, Philippines, Canada and United Kingdom. We would like to be the McDonalds of small loans across the world. We aim to be NASDAQ listed with a $1 billion plus global loan book continuing to provide a great product for our customers and fantastic returns for our investors.”
IEG Holdings Corporation (“IEGH”) is an OTC Pink Sheet listed US public company providing direct online consumer finance in 8 US states with plans to expand to a total of 33 US states by late 2014 • Provides $3,000 - $10,000, 4 to 5 year, unsecured, online personal loans at 19.9% APR – 29.9% APR with zero application fees, establishment fees or prepayment penalties • Affordable weekly Principal & Interest repayments: $22.23/week for a $3,000 loan and $37.04/week for a $5,000 loan • Offers loans under the consumer brand “Mr. Amazing Loans” via www.mramazingloans.com • State-licensed online installment lender regulated by US state Financial Institutions Divisions; compliant with all laws and the “spirit” of the regulations unlike payday lenders, tribal lenders or other fringe lenders • Funds new loan originations via $10m senior revolving credit facility and secured a $5m equity line Dec 2013 • Commenced lending in Georgia, Missouri, Virginia and New Jersey in late May 2014 • Conducting a 1:100 reverse stock split/filing S-1 in July 2014 and intends a NASDAQ up-listing in April 2015 For more information about IEGH, visit www. investmentevolution.com, www.mramazingloans. com, www.otcmarkets.com/stock/IEGH, email info@investmentevolution.com or call Paul Mathieson Chairman/CEO at +1702-227-5626 n The company paid consideration to SNN or its affiliates for this article.
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F E AT U R E D A R T I C L E
Fallen Angels How has ever great stock picker made a fortune? At one point in their career, they bought a fallen angel. These are great companies that have fallen from grace, often to the point of trading less than a $1 a share. Buffett did it with GEICO and bought at $2. Do you remember when Krispy Kreme (KKD) was trading for less than $1? It’s now $27. How about Ford (F) at $2? What are the parameters for making money in fallen angels? The first is to buy at the point where there is very little downside. At $1 or $2 a share, they can’t fall much further. The sheer mathematics is what makes these so attractive. If a $1 stock goes to $10, it can pull the value of your entire portfolio up with it. You are not going to make a fortune buying IBM (IBM) at $100 and selling it for $150. A 50% profit is nice but not enough to smooth out your losers. The second parameter is that these companies have to stay in business. There can be a multitude of reasons why a company has fallen. Perhaps its industry is out of favor (like gold miners right now). Maybe management has done something untoward. When you buy a fallen angel, imagine what people will be saying in five years. Look at old articles when a stock is a $1 a share. Nothing but bad news. Examine debt levels and see if the company can maintain bond payments. If they can, these are the types of companies that can turn around. In 2008, I had the good fortune of buying Finish Line (FINL) at less than $2. The
n BY HOLMES OSBORNE
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markets were worried that a law suit from a failed merger with Genesco (GCO) was going to bring the company down. Finish Line had no debt and companies with no debt rarely go out of business (Circuit City being the exception). I sold at $8. If I’d held on longer, I would have made even more as it was at $30 recently. When was the time to buy internet stocks? Was it in the late 1990s when they were sky rocketing? No. It was when they crashed and were trading at less then what they had in cash in the bank. Of course, the pundits weren’t telling you to do this. You have to figure this out on your own. Fallen angel investing can be quite lonely at times. These fallen angels don’t always work out. I remember people buying Washington Mutual at less than $2 a share. Guess what? It went to $0. Don’t put too much in any one issue. There is risk involved. Remember, stocks that trade less than $5 a share are by definition penny stocks. So at one point in time, Ford and Bank of America (BAC) were penny stocks. If their market caps fall below $500 million, they are considered micro-cap. Investing in falling angels is an exercise in behavioral finance. It’s being able to buy something when everyone else is running for the door. Brains aren’t always going to help in these situations. A stomach lined with iron will serve you much better. Typical research doesn’t always help in these situations. Often times, the financials look awful and you are having to look into the future. They can be attractive if they trade at a huge discount to book value or even better, net asset value (the true value of assets minus liabilities). Buying at the right time is key. I bought Pier One (PIR) at $8, gave up, and sold at $5. It bottomed out at $1 and was at $25 not too long ago. Darn. Missed that one. When markets crash, you can assemble an
entire portfolio of fallen angels. 2001 and 2009 gave investors some chances of a lifetime. If we have another big market pullback, you may have another opportunity. In the mean time, what is on sale? Miners look very interesting. Market Vectors Junior Gold Miners ETF (GDXJ) might be a great investment if you want to diversify. It’s off its 52 week low of $28.82 and is trading at over $34. A look at its holdings shows a lot of producing miners trading in the doldrums. These microcaps are greatly levered to gold: a small movement in the price of gold could portend an enormous jump in the stock prices of miners. Uranium is another beaten down sector. The disaster in Fukushima, Japan, looked temporary but nuclear power has been out of favor ever since. The Global X Uranium ETF (URA) was trading at $65 just three years ago and is now $14. A look at its holdings shows some great microcaps that are down and out: Energy Resources of Australia (ERA.AX) and Paladin (PDN.AX) both trade in Australia which is one of the top uranium producing countries in the world. Ever hear of buy and hold? How about buy and forget. That might be a better strategy on some of these. Look at the list of stocks trading at 52 week lows. This is a great place to do some bottom fishing. The challenge with investing right now is that the market has been on a tear for the last five years. A pull back is going to bring these down even further. Remember when I pointed out how a $1 stock going up can do wonders for your portfolio? A stock going from $2 to $1 can hurt it too. If you like fallen angels, keep your fingers crossed. There may be a fire sale soon. Holmes Osborne is principal of Osborne Global Investors, a money management firm. Holmes holds a bachelor’s in finance from Syracuse University and the Chartered Financial Analyst designation. Holmes has spoken frequently on the topic of the economy and financial markets and previously had a television program on public access. Publications that his articles have appeared in include: The Motley Fool, TheStreet.com, Seeking Alpha, and Investopedia. He was the featured advisor in the April 2013 online edition of the Wall Street Journal. Holmes has also served as an expert witness in court cases involving financial ethics. n www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
F E AT U R E D A R T I C L E
Activist Investing The Need for Small Cap Activism
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mall cap and micro cap activist investing plays an important role in maximizing shareholder value for this sector. In many ways, activism is more valuable at small public companies than at large caps.
n BY ELIZABETH KOPPLE
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A small cap company may not get the same press when it makes a bad business decision. Operating activities can be less transparent to investors. Board members are more likely to be friends of management who were placed on the board to be agreeable. Finally, smaller companies often have shareholders with less buying power. The smaller funds and investors may not have the resources or the expertise for a proxy fight. Without an activist partner, these investors cannot gain the publicity and the public pressure needed to convince management to agree to improve things. Investors should consider activism when all other efforts have failed. When they have reached a wall. Typically, fund managers have watched their investment drop in value for years. Management has promised earnings figures and failed to deliver quarter after quarter. Perhaps compensation is not tied
to company performance. Or management should return surplus cash to shareholders in the form of a dividend. A CEO may be investing valuable resources in a pet project that has no chance of success. A division is worth more if it is sold off. If a majority of investors believe in a critical change, management needs to listen to their suggestion and carefully consider its implementation. Some activist targets have taken advantage of investors to a degree that is almost comical. In one of my contests, a CEO built a swimming pool at company headquarters for the exclusive use of his family. In another case, a key executive did not come into the office for three full years. In yet another company, a board voted to award bonus payments based upon estimated revenue numbers. After the bonuses had been paid, they announced that they had missed sales forecasts. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
What makes a stock a good candidate for activists? Here are some of the patterns for successful activist targets: • Wide shareholder support for changes to the board and management team • Large executive salaries rewarding poor performance • Insiders own less than 10% of the company • Cash is being spent on frivolous acquisitions • Quality employees are leaving due to poor management • Management has lost its focus and is not driving growth • Management is misstating financial results • Valuable patent portfolio value is being squandered • The company is trading for less than the sum of its parts Proxy contests can be expensive for those without expertise. Investors can reduce their costs by working in partnership with an experienced activist investor. Experienced activists can often reduce this cost substantially. They are high volume clients who have formed special relationships with expert legal advisors and proxy solicitors. Certain shareholder demands are more likely to generate a positive investment return. Hedge funds are usually better at implementing plans that can be crafted with publicly available information. This includes selling an asset or paying a dividend. Funds have not been as successful, on the whole, when they create new business plans that require confidential, inside information1. Once an activist investor team has decided to move forward with a proxy contest, they must work through a specific process. First, shareholders must be contacted and convinced to support the activists. You will need to have detailed presentations demonstrating the changes you suggest and your credibility to implement these changes. Next, investors must reach out to proxy advisory firms such as ISS and Glass, Lewis and explain the key issues. These proxy advisory www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Activists need a focused plan for improving the company that they can sell to investors. It is not enough to point out the weaknesses of the current Board or management team. firms can choose to recommend that shareholders vote in support of your proxy. It is critical to have support from ISS and/or Glass, Lewis. It sends a powerful signal to incumbent management, board members as well as investors. Next, activists usually nominate representatives to join the Company board. These nominees must be experienced, capable executives with industry experience. Finally, a form DEF 14A must be filed with the SEC and a proxy letter must be written to shareholders and the incumbent board. It can be challenging to gain a majority of shareholder approval. First, it is helpful if the management team owns less than 10% of the stock. This usually means that management is more worried about their salary and perks than the stock price. It is important to find the connectors within the shareholder base. The connector could be a small individual investor who knows the largest shareholders and keeps them all connected. He may post regularly on the message board and send specific alerts to shareholders when something is amiss. Again it is sometimes the smaller shareholders that wield the most power. Activists need a focused plan for improving the company that they can sell to investors. It is not enough to point out the weaknesses of the current Board or management team. Demonstrate what you can improve. For example, an activist may present the following outline and then provide details on how they will execute: • Focus on free cash flow • Reduce corporate overhead • Attract and retain talent • Exit unsuccessful businesses • Pay for performance
Throughout the entire process, investors should be open to negotiating with management and agreeing to reasonable terms for a settlement. It is much better when management agrees to terms before the proxy contest is completed. Sometimes the credible threat of a proxy contest is enough to settle the dispute with management. And that credible threat is the reason small cap activism is critical to ensuring investment returns and maintaining efficient markets. 1. Bratton, William W., Hedge Funds and Governance Targets: Long-Term Results (September 8, 2010). University of Pennsylvania Institute for Law & Economics Research Paper No. 10-17 Elizabeth Kopple is a Director with IDWR MultiFamily Office, an organization that invests its own capital in small cap proxy contests. She can be reached at ekopple@idwr-office.com. Ms. Kopple is also a member of The Activists Association: www. activistsassociation.com n
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FEATURED ARTICLE
Bitcoin Tech’s New Darling
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first bought Bitcoins in 2012 when they were worth around $14 dollars. I had just begun my second year of law school and was looking for emerging fields where my newly found knowledge might one day prove to be useful. At the time crypto-currencies were new, flashy, and completely unregulated. While some people were vehemently anti-regulations (and remain so today), most people including myself understood that some type of oversight was inevitable, and I was fascinated by the opportunity to witness the birth of a brand new, unique regulatory framework.. In 2012, Bitcoin was much more underground and ideological then it is today, but it was quickly gaining momentum. It was unclear if or how the current securities laws would be applied to something that wasn’t technically a security, or whether Bitcoin would last long enough for it to even matter. The speed of Bitcoin’s evolution since 2012 has been staggering. With the price skyrocketing to over $1,000 per coin in 2013, serious investors and institutions with funding and business experience have begun to take notice, and this attention may be the
n BY ANDREI SERPIK
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very push this decentralized crypto-currency needs. The only exchange when I first started buying Bitcoins was MtGox. The exchange was moving thousands of Bitcoins even before the Bitcoin protocol became a truly disruptive technology. As with anything new, hiccups will occur – as those records disappeared along with 700,000 Bitcoins, when MtGox shut down its trading engine and filed for bankruptcy protection in February 2014. The problem with Bitcoin in the past was that no one was taking it seriously. Not even the most devoted believers ever thought the price would break $1,000. It started as an experiment, and all the tech-heads jumped aboard. Unfortunately, these tech-heads didn’t have business or PR experience. When coins were worth less than $10 dollars, these shortcomings could be ignored, but with the current eight billion dollar market cap, these qualities are vital. Of course exchanges and the people that run them are really not needed for Bitcoin. The whole point of Bitcoin is that the currency is supposed to be decentralized. People could trade coins with each other while cutting the exchange out of the equation; this way there could be no central point of failure. However, Bitcoin did not evolve this way. Instead, people fled
to established exchanges (MtGox controlled over 80% of traffic at one point), which made a decentralized currency centralized once again. This would not be a huge problem if the exchanges acted with integrity and transparency, but as we saw with MtGox, many of them did not. MtGox was run by a twenty-something-year-old coder, who was rumored to have Asperger’s Disease. BitStamp and BTC-E, currently the two leading exchanges, are faceless, non-transparent entities run out of Eastern Europe. The failures of MtGox and other exchanges (like Flexcoins) were not necessarily malicious. They were simply the product of management that was not equipped to deal with such large volumes of traffic and money – the infrastructure was simply lacking. Luckily, I believe this is all about to change. With the soaring prices of Bitcoin, 2013 brought crypto-currencies into the limelight, and in 2014 it seems that VC’s and investor whales are finally jumping on board. In April of last year, the Winklevoss brothers bought $11 million- worth of Bitcoins and are now launching a Bitcoin trust. Andreessen Horowitz, a leading venture capital firm, announced that it had led a $25 million fund-raising round for Coinbase, a Bitcoin start-up in San Francisco. In March, Perseus Telecom and Atlas ATS announced www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
a partnership to launch a first-of-its-kind exchange geared toward high-frequency trading, paving the way for large institutions to become involved in Bitcoin on a deeper level. At the end of July, venture capitalist Tim Drapper won the highest bid for 30,000 government auctioned bitcoins (currently valued at $18 million) that were seized from the underground illicit market place, The Silk Road, earlier last year. He has pledged to use these coins as liquidity for exchanges he plans to develop in emerging markets. What does this mean for the average Bitcoiner? Well, for starters, it means that the Bitcoin protocol is evolving from an experiment to a widely recognized wellfunded machine. It is getting more difficult to claim that Bitcoin is just a fad as more
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companies are willing to adopt the protocol. Overstock.com was the first major retailer to start accepting bitcoins and has already received over $1 million dollars’ worth of bitcoin transactions in the first month. Overstock.com has quickly been followed by Dish Networks, Dell and Newegg. The trend does not seem to be slowing down, as more household names continue to enter the Bitcoin ecosystem. It also means more financial instruments will start emerging based on Bitcoin. Bitcurex.com already has a derivatives market for Bitcoin, and this is just the beginning. We must remember that Bitcoin is an open-source protocol. It’s potential is infinite and relies on the users to develop new uses for it—where the only limit is what can be imagined. At the end
of the day, I believe that while the coders are still in control of innovation, the influx of funding and managerial experience will ensure a robust, well-managed and widely accepted low-fee payment system. Andrei Serpik is a recent graduate of Washington University School of Law and a long time bitcoin proponent, enthusiast, and trader. Andrei has been actively trading as well as using bitcoins since early 2012 and has been attending crypto-currency conferences both in California and in St. Louis where he has lived for the last three years. Andrei has also been an active investor in alternative currencies including Litecoin, NameCoin, NovaCoin and DRKcoin. Andrei plans to use his law degree to enter the field of securities regulation with an emphasis on emerging crypto-currency regulation and litigation. n
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ticker: edxc
Technology Solutions Technology forSolutions the Growing for the Cannabis Growing Industry Cannabis Industry
Technology Solutions for the Growing Cannabis Industry
M3Hub: the Compliance M3Hub: the Standard Compliance forStandard the Cannabis for the Industry Cannabis Industry
he path to marijuana The legalization path to marijuana is through legalization regulations, is through traceability, regulations, compliance traceability, and administrative compliance and oversight. administrative The oversight. The ght to be a participant right to in the be acannabis participant industry in thecomes cannabis at the industry cost of comes compliance. at the cost As barriers of compliance. to entryAs become barriers more to entry become more tringent so do the stringent rewards. soLicense do theholders rewards. have License the unique holders opportunity have the unique to make opportunity a lot of money, to make provided, a lot ofthey money, provided, they nvest in tracking, compliance invest in tracking, and quality compliance control and processes. quality control processes.
ailure to comply isFailure guaranteed to comply to cease is guaranteed your opportunity to ceasetoyour generate opportunity revenues to generate and profitability, revenues especially and profitability, in the especially in the annabis industry. Like cannabis the passing industry. of Like prohibition, the passing the legalization of prohibition, of cannabis the legalization will bring of cannabis government will mandated bring government mandated M3hub: the coMPlIance In search of omplexities to the complexities industry thattowill thecreate industry opportunities that will create for compliant opportunities forward for looking compliant companies. forward looking M3Hubcompanies. may be M3Hub may be arly, but it is rightearly, on target. but itM3Hub is rightisonthe target. futureM3Hub of the iscannabis the future industry’s of the cannabis compliance industry’s standard. standard. standard forcompliance the cannabIs plement its
growth sector niches to comdiversified portfolio acquisiIndustry tion strategy, Todd Davis, CEO of Endexx Corporation, has developed and nurtured ndexx Corporation Endexx Beginnings Corporation Beginnings The path to marijuana legalization is since 2011 through business associations n search of growthInsector search niches of growth to complement sector niches its diversified to complement portfolio itsthrough diversified acquisition portfolio strategy,acquisition Todd Davis, strategy, CEOcompliance ofTodd Davis, CEO of networking, a human resource collecregulations, traceability, and ndexx Corporation, Endexx has developed Corporation, and has nurtured developed since and 2011nurtured throughsince business 2011associations through business and networking, associations a human and networking, a human and administrative oversight. The right to esource collective resource composedcollective of industry composed professionals of industry and consultants professionals with and many consultants years ofwith experience many years in their of experience in theirtive composed of industry professionals and espective fields and respective an in depth fields understanding and an in depth of the understanding challenges and of the specific needs and of the specific marijuana needs industry. of the marijuana industry. be challenges a participant in the cannabis industry consultants with many years of experience in comes at the cost of compliance. As barriers their respective fields and an in depth underMr. Davis realized that Mr. Davis the most realized pressing that prerequisite the most pressing for theprerequisite marijuana industry for the marijuana to developindustry and mature to develop in the face and mature of in the face of entry become more stringent so do the standing of the challenges and specific needs he great legal challenges the great was legal to focus challenges on standardization, was to focus on security standardization, andtocompliance. security and compliance. rewards. License holders have the unique of the marijuana industry. aking clues from the Taking pharmaceutical clues from the industry, pharmaceutical and in partnership industry, with and in supply partnership chain management with supply chain developers management with a developers with a opportunity to make lot of money, pro- Tracking Mr. Davis realized that the most pressing ackground in “seed background to sale” management in “seed to sale” solutions management for agricultural solutions application for agricultural (wineries), application a Clouda(wineries), based Tracking a Cloud based ystem was developed system thatwas formed developed the basis thatfor formed the M3Hub the basis concept. for the The M3Hub M3HUB concept. is specifically The M3HUB configured is specifically to reflect configured to reflect vided, they invest in tracking, compliance prerequisite for the marijuana industry to ach market’s needs each andmarket’s adapt toneeds any regulatory and adaptenvironment. to any regulatory environment. and quality control processes. develop and mature in the face of the great uring both the biotech During and both thethe dot-com biotechbooms, and the investors dot-comspeculated booms, investors on concepts speculated that didn’t on concepts come tothat fruition didn’t forcome 10- to fruition for 10Failure to comply is guaranteed to cease legal challenges was to focus on standardiza0 years. Some of these 20 years. became Somehuge of these success became like Amgen, huge success Genentech, like Amgen, AmazonGenentech, and Google. Amazon The cannabis and Google. industry The cannabis industry your opportunity to generate revenues n the other hand has on the already otherreached hand has early already stagereached successes early being stageboth successes tangible being and viable both tangible today. Aand keyviable to today. A key totion, security and compliance. nlocking the valueunlocking and benefits the value of thisand industry benefits will of come this from industry development willand comeprofitability, and frominnovations development from and the innovations massive from the especially in the cannabismassive Taking clues from the pharmaceutical alent pool found intalent American pool entrepreneurial found in American spirit entrepreneurial and intelligence. spirit When and intelligence. a new industry When is born, a new there industry is a is born, there is a industry. Like the passing of prohibition, the prosper, industry, and in partnership with supply pawning of new millionaires, spawning ofeven newsome millionaires, billionaires. evenHowever, some billionaires. along with However, a perceived along right withtoafinancially perceived prosper, right to financially so so ome the rules, regulations come theand rules, government regulations control. and government Abuse of the control. ruleslegalization leads Abusetoofathe very rules unhappy leads ending. to a very unhappy ending. of cannabis will bring govern- chain management developers with a backment mandated complexities to the industry ground in “seed to sale” management soluthat will create opportunities for compliant tions for agricultural application (wineries), rom Cartels to Legalization From Cartels to Legalization forward looking companies. M3Hub may be a Cloud based Tracking system was devels the cannabis market As the inexorably cannabis shifts market from inexorably an illegal shifts market fromtoan a fully illegal legalized market to is a legitimate fully legalized and legitimate state and industry, andthat formed the basis for the M3Hub early, but and it right onindustry, target. M3Hub is the state oped ocal laws and regulations local laws areand designed regulations to circumvent are designed federal to circumvent laws. This leads federal to laws. disparity, This fragmentation leads to disparity, in the fragmentation in the of the thehave cannabis industry’s compliance concept. The M3HUB is specifically configegulatory landscape regulatory and creates landscape local enforcement and creates issues local enforcement which have future hampered issues which development hampered ofthe a standardized development of a standardized nfrastructure. However, infrastructure. within theHowever, last few within years, the States lastlike fewColorado years, States and Washington like Colorado are and leading Washington legalization are leading legalization standard. ured to reflect each market’s needs and adapt momentum and shifting momentum this now and legal shifting multi-billion this nowdollar legal market multi-billion into the dollar most market compelling into the new most business compelling opportunity new business opportunity to any regulatory environment. endexx corPoratIon During NDEXX CORPORATION ENDEXX C ORPORATION 5855 E. S URREY D R. 5855 E . S CURREY AVE CREEK, DR. A Z. 8 5331 CAVE CREEK, AZ. 85331 Page 1 Page 1 both the biotech and the dot-com begInnIngs booms, investors speculated on concepts that didn’t come to fruition for 10-20 years.
Like the passing of prohibition, the legalization of cannabis will bring government mandated complexities to the industry that will create opportunities for compliant forward looking companies.
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in the last 25 years in North America.. Recognizing both the challenges and opportunities of this industry, Endexx created the M3Hub platform which brings standardization, security, transparency and compliance to the cannabis industry and provides the tools for industry participants to cost effectively manage their workflow processes.
Some The of these huge success like Washington are leading legalization momen- the cost of nonCost became of Non-Compliance Amgen, Genentech, Amazon and Google. tum and shifting this now legal multi-billion coMPlIance In a benchmark study of 46 international organizations by the Ponemon Institute titled “The True Cost of The cannabis industry on the other hand dollar market into the most compelling new Compliance”, the cost of non-compliance has been found to be 2.65 times greater than the cost of compliance. The has already reached early stage successes business opportunity in the last 25 years in In a benchmark study of 46 internationmajor consequences of non-compliance for businesses include business disruption, productivity loss, revenue loss, al organizations by the Ponemon Institute being fines both tangible and viable today. A key America.. Recognizing the chaland penalties, legal fees, and moreNorth specifically to the marijuanaboth industry, the loss of license and of the right to to unlocking the value and benefits of this lenges and opportunities of this industry, titled “The True Cost of Compliance”, the be in business. industry will come from development and Endexx created the M3Hub platform which cost of non-compliance has been found to innovations from the massive talent pool brings standardization, security, transpar- be 2.65 times greater than the cost of compliance. The major consequences of nonfound in American entrepreneurial spirit ency and compliance to the cannabis Medical Marijuana: A “Growing Industry” – Market Size and intelligence. When a new industry is industry and provides the tools for industry compliance for businesses include business disruption, productivity loss, revenue loss, born, U.S. theremedical is a spawning of new to cost effectively marijuana salesmilliontotaled an participants estimated $1.5 billion in 2013manage and aretheir forecasted to grow to $7-$8 billion by 2018. Presently, medical marijuana sells for $1600-$4500 per pound (depending on market and strain). Each plant fines and penalties, legal fees, and more speaires, even some billionaires. However, along workflow processes. 0.5-0.75 per growth cycle and each plant produces 3-5 yields per life cycle. Therefore, each plant yields a with ayields perceived right lbs. to financially prosper, minimum of $4800 and a best-case scenario of $22,500. so come the rules, regulations and government control. Abuse inofthe theworld rules does leads this to aat such a low cost of goods? In most supply chains, many components are What product very unhappy ending. assembled to make a product, constantly escalating the price of a good. At each product level, mark ups are added to the product, including profit margins, taxes, regulations, shipping, packaging and so on. In the medical marijuana Compliance Lease arena, one plant is separated into and transformed into many products, creating a quantitatively more complex froM cartels to 8% 5% supply chain. legalIZatIon
As the cannabis market inexorably shifts Labor from an illegal market to a fully legalized 14% and legitimate industry, state and local laws and regulations are designed to circumLighGng vent federal laws. This leads to disparity, 17% ENDEXX CORPORATION 5855 E. SURREY DR. CAVE CREEK, AZ. 85331 fragmentation in the regulatory landscape and creates local enforcement issues which have hampered the development of a standardized infrastructure. However, within the last few years, States like Colorado and
Materials 56% Page 2
M3Hub Technology: The Science of Medical Marijuana Management – Standards and Practices MicroCap Review Magazine 19
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M3Hub brings pharmacy grade compliance and standardized technology solutions to the medical marijuana
Chain of Custody: “Seed To Sale” Seed > Grow Cycle > Processing > Lab/Testing > Packaging > Transportation > Dispensary > Gateway > Patient
HIPAA compliance, the HiTech Act (Health Information Technology for Economic and Clinical Health Act), Patient Privacy, Patient Care and follow through. Through verification, privacy, legal and transparent controls, the M3Hub platform legitimizes the entire transaction process.
chaIn of custody: “seed to sale” Seed > Grow Cycle > Processing > Lab/ Testing > Packaging > Transportation > Dispensary > Gateway > Patient
ENDEXX CORPORATION 5855 E. SURREY DR. CAVE CREEK, AZ. 85331 cifically to the marijuana industry, the loss price of a good. At each product level, mark of license and of the right to be in business. ups are added to the product, including profit margins, taxes, regulations, shipping, MedIcal MarIjuana: a packaging and so on. In the medical mari“groWIng Industry” – juana arena, one plant is separated into and Market sIZe transformed into many products, creating a quantitatively more complex supply chain. U.S. medical marijuana sales totaled an estimated $1.5 billion in 2013 and are forecasted M3hub technology: to grow to $7-$8 billion by 2018. Presently, the scIence of MedIcal medical marijuana sells for $1600-$4500 per MarIjuana ManageMent – pound (depending on market and strain). standards and PractIces Each plant yields 0.5-0.75 lbs. per growth cycle and each plant produces 3-5 yields per M3Hub brings pharmacy grade compliance and standardized technology solulife cycle. Therefore, each plant yields a minimum of $4800 and a best-case scenario tions to the medical marijuana industry and full accountability through “seed to of $22,500. What product in the world does this at sale” inventory management and tracking. such a low cost of goods? In most supply The M3Hub is designed to adapt, integrate chains, many components are assembled to and facilitate all transactions and manage make a product, constantly escalating the patient concentric data and incorporate
M3Hub brings pharmacy grade compliance and standardized technology solutions to the medical marijuana industry and full accountability through “seed to sale” inventory management and tracking.
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M3hub “Seed to Sale” is customizable to each unique business or client need, and Page 3 can be adjusted on a state-by-state or government-by-government basis to meet any unique regulatory requirements. Tracking • Sales Chain • Process Tracking • Work Flow • Deep-Tracking - Business Process Analysis • QR & Bar Coding - Automated Document Management Management • Integrated CRM - Workflow Automation • Business Groups - Administrative oversight • Geo-Synchronization • Dynamic report generation in multiple formats • Enterprise Systems - Cloud and APIs Synchronization • Portal Controls Sales • Purchase Orders • Manifests • POS Systems • Pricing - Items, Batches, Wholesale, Retail • Merchant Processing - Payment Gateway, POS Integration
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Security • HIPAA Compliant • Administrative Permissions • WatchDog Firewalls • Zero-client Server Spoofing • Real Time Threat Assessment Autospense™ is an industrial grade, vaultlike, hightech automated dispensing system that is specifically designed to control transactions and manage inventory. Features • Unmatched flexibility and security • Handles wide variety of sizes and types of items • Average dispense time under 10 seconds • Holds 780 unique items or SKUs • ID Verification • Debit or cash transactions • Powerful screen search capability • High inventory density • Purchase or lease (36 months) • Displays items pictures • Displays lab testing data for each item • Shopping Cart technology for single checkout and payment • Secure access control • Tracking of item, lot, patient, expiration date • 174 standard reporting functions • Reports emailed automatically to PC or tablet Benefits • Provides a safe, legally compliant and professional access to medical marijuana • Real time management of inventory and distribution • Enhances business efficiency • Enhances security, accountability, supply chain management and profitability
Sustainability and Alliances The medical marijuana and recreational
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A persistent, national movement has generated unstoppable momentum towards public acceptance and adoption of cannabis as both a viable therapeutic treatment and a responsible adult choice recreational consumer product. marijuana industry growth rate is on a dramatic upside curve. Sustainability for the industry requires standardization and reliable compliance methodology. No one company can do everything, rather, an alliance network within the industry collaborating together will assure the longevity and success of this industry which is still in its infancy. The M3Hub platform incorporates multiple service channels including: Consulting, Financial Solutions, Insurance, Security Monitoring, Vending, Distribution Controls, RFID Tracking, Taxation Collection Service, POS Management, Biometric Protocols, Applications, Doctor Referral and Verification, Centralized Lab Testing, Quality Control Management, POS, CRM and Vending/Dispensing Services. The M3Hub also fosters an outer layer service providing Referral Networks, Policy and Legal association, Social Media, News and Scientific literature distribution and collective industry affiliation partners.
The Medical Marijuana Movement
of this new industry. As with all lucrative industries, government oversight becomes inevitable and the cost of making money rises. Investing in compliance and industry standards will build the foundation for a worldwide growth industry for the next several decades. Endexx Corporation embraces the responsibility and opportunity presented and will continue to provide both guidance and products throughout the cannabis eco system and work toward the establishment of industry and regulatory accepted standards and practices. The M3Hub technology has been thoroughly tested and given a “Seal of approval” by key policy makers and marijuana enforcement officials through our collaboration partners at Vicente Sederberg LLP. Endexx is working diligently on becoming the standard technology platform that regulators and all marijuana growers, processors and retailers will adopt to reliably meet all their compliance needs regardless of their legislative landscape. n The company paid consideration to SNN or its affiliates for this article.
A persistent, national movement has generated unstoppable momentum towards public acceptance and adoption of cannabis as both a viable therapeutic treatment and a responsible adult choice recreational consumer product. Now as a multi-billion dollar industry it is necessary for Endexx Corporation to provide the efficiencies and methods to sustain the quality and growth
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ticker: Mhcc
PROFILED COMPANIES
Millennium healthcare Why Is Millennium healthcare bringing the Most Potentially advanced life-saving diagnostics to Patients for little to no cost?
S
everal years ago, Dominick Sartorio’s mother went to her doctor because she felt pain in her abdomen. After performing a routine examination and finding nothing, the doctor dismissed her pain as a common stomach ache and sent her home. She left the doctor’s office, and died later that day of a heart attack. Deeply scarred by the loss of his mother from a misdiagnosis, Dominick made it his mission to help bring more advanced testing and preventative diagnostics using innovative technology to better help physicians detect disease early so something like this would never happen again. As a result, he assembled a consortium of cardiologists, oncologists, surgeons, medical device manufacturers, reimbursement specialists and legal experts in a concerted effort to provide physicians with lifesaving, non-invasive diagnostic tests that could cost patients little to no out of pocket expense, while being reimbursable to physicians by both private
doctors are eager to sign up for Millennium’s exclusive diagnostics because they can help save lives at little to no cost to their patients and be a profitable new revenue stream for their practices. CEO Dominick Sartorio
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insurance and Medicare. Soon afterward, Mr. Sartorio became the CEO of Millennium HealthCare (Ticker: MHCC). One of the first items he and his team analyzed was the regulatory and reimbursement changes occurring within healthcare and how these changes may affect primary care physicians, cardiologists and their practices. MHCC’s management researched, studied and analyzed the operations of physician practices, healthcare clinics and hospitals to better understand and become more proficient in their organizational infrastructure and cash flows. With this knowledge, they became an experienced, highly qualified team, and began specializing in credentialing, medical billing and coding, with emphasis on ICD-9conversion to ICD10, which requires the use of a very costly and complex system of over 100,000 codes. Millennium learned that primary care physicians can commonly be the lowest paid physicians in the industry and their practices can often experience potentially weak cash flow. The irony of this is that the primary care physician has a very significant impact on the healthcare industry with approximately 400,000 physicians/practices. After identifying and working closely with
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primary care practices, clinics and hospitals, MHCC’s management determined that affordable, accurate, non-invasive diagnostic tests for the early detection of heart disease and cancer were likely key components in the successful reduction of healthcare costs. These very specifically profiled diagnostics immediately became the foundation of Millennium’s business model. The Company, led by Mr. Sartorio, began to focus its efforts on identifying diagnostic devices that had the potential to greatly reduce long-term medical costs. These diagnostics had to fit Millennium’s highly specific criteria, including being FDA cleared and approved, having established billing codes for reimbursement and being primarily used for , the early detection of common diseases, such as cardiovascular disease or cancer. Additionally, to protect, enhance and benefit Millennium and its shareholders, these devices and diagnostics would have to be exclusive to Millennium. The first products Millennium identified and pursued were OralCDx™, for the early detection of oral cancer, and DermCDx™ for the early detection of skin cancer. Oral cancer is one of the fastest growing diseases because it is one of the most untested and undetected diseases. Skin cancers, like melanoma, can quickly become life threatening if not detected or treated early. Oral and skin cancers are currently detected through a chunk biopsy; a procedure that requires using a scalpel for deep cutting and stitches to close the wound. Chunk biopsies are typically accompanied by pain, patient recovery time and sometimes infection, particularly if the wound is in the mouth, which has a high bacterial count. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Much like the Pap smear that revolutionized the diagnosis of cervical cancer, OralCDx™ and DermCDx™ use a noninvasive brush to contact and collect samples of any visible dysplasia (red or white spots in the mouth, tongue and throat or suspicious spots that may appear on the skin). The OralCDx brush obtains a complete transepithelial biopsy specimen collecting cells from all three layers of the epithelium: the superficial, intermediate and the basal layer. Specimen samples from the brush are placed on a glass slide for analysis for which lab results have shown a 98% accuracy in the detection of cancer and pre-cancerous cells. Millennium has successfully secured the exclusive rights to these revolutionary diagnostic tests. Medicare is also currently trying to control unnecessary referrals from primary care physicians to expensive cardiologists and other specialists for very expensive tests that may yield negative results. Millennium believes they have identified a potential solution to this problem through their second product offering VasoScan™, a simple but highly innovative cardiovascular test developed at MIT. In three minutes, this technology, using
an LED fingertip sensor with sophisticated algorithmic software, can accurately assess and diagnose patients for cardiovascular disease whether they are symptomatic or not. According to Mr. Sartorio, “Being able to detect heart disease for early intervention and treatment could potentially help the 600,000 people who perish annually from cardiovascular disease in the United States.” VasoScan™ appeals to Medicare and reimbursement agents because it can provide evidence to support a patient’s referral to a specialist, where high diagnostic costs are typically incurred. Prior to VasoScan™, these costly referrals were based on EKG’s that often provided inadequate or incomplete data; family history; weight; blood pressure; cholesterol data; diet; and smoking habits. These metrics are essential, but insufficient for optimal patient assessment and diagnosis. VasoScan™ is more accurately predictive and a more reliable assessment of cardiovascular health because it measures the elasticity and stiffness of a patient’s blood vessels as well as the biological age of the arteries and changes in blood pressure, blood flow and velocity. OralCDx™, DermCDx™ and VasoScan™ are expected to be powerful diagnostic tools to aid the healthcare industry in accurate preventative diagnostic testing, but are only the beginning. Millennium continues to identify new and innovative devices and preventative tests and diagnostics that fit the same model for breast cancer and other common diseases. Subsequent to Millennium securing the
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exclusive sales and marketing rights to these “state-of-the-art” diagnostics, they started to introduce them to physicians, practices and large physician groups such as ACO’s (Accountable Care Organizations), IPA’s (Independent Practice Associations) and MSO’s (Managed Service Organizations). The overwhelming clinical need combined with little or no cost to patients and the additional potential revenue stream sufficiently peaked physicians’ interest to cause them to engage and ultimately contract with Millennium in order to implement and provide these devices and tests within their practices. Initial distribution and market testing of these products are resulting in overwhelming interest and early adoption. Millennium began offering its diagnostics only 6 months ago in December of 2013 and since then have contracted with 1,300 physician office locations. They potentially have another 1,000 locations currently evaluating formal contracts, and several thousand more expressing high levels of interest. There are over 400,000 primary care physicians/practices in the U. S. today with an average of between 2 and 5 physicians per practice. Each physician can see an average
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of up to 40 patients per day. The average physician, nurse or medical assistant can perform approximately 10 to 20 tests per day, with some multi-physician offices performing up to 100 tests per day. A physician can be reimbursed an estimated $150 to $240 per test. Mr. Sartorio says, “We want to strategically manage our growth and expect to reach up to 5,000 contracted locations within 3 years.” Mr. Sartorio added, “We can recover most, if not all of our unit cost in approximately 30 days of its implementation and self-fund growth from sales after that. With anticipated growth of this magnitude, we need to focus on implementation and control of our first few thousand practices before we look to offer our products to the entire marketplace.” Millennium is currently evaluating various options to finance additional equipment/capital expenditures and further product rollouts. With the current trend of consolidation of practices and practices merging into ACO’s IPA’s and MSO’s, it is anticipated that the process for Millennium to reach large numbers of physicians and their practices and patients will be streamlined and more effi-
cient than ever before. Instead of speaking with a single physician office one at a time, Millennium can now deal with one or several ACO’s, IPA’s or MSO’s that represents dozens or hundreds of practices and negotiate a large number of locations in a relatively very short time. Dominick Sartorio’s dream and passion to provide physicians with potentially lifesaving, early detection diagnostics and services is now a reality with positive patient outcomes already being realized. According to Mr. Sartorio, “Early results from participating practices with VasoScan™ for nonsymptomatic patients have already resulted in successfully identifying patients with cardiovascular issues”. Millennium’s state-of-the-art diagnostics have a very real potential to save lives and contribute enormous savings for the healthcare system. Their diagnostics are currently reimbursable by Medicare and insurance carriers making them available to patients for little or no cost and are extremely attractive to physicians as they can substantially increase practice income without any capital investment. You are invited to www.MillenniumHCS. com n The company paid consideration to SNN or its affiliates for this article.
OralCDx Brush
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StockWord Puzzle
TM
Across
41. If a stock price is under $5 per share it’s known as a 43. Friends and family 3. PPM acronym stands for 45. Form 10-K 4. Not interest but still income 52. Jeff Jones new column 6. Precious metal found in very few locations 53. Higher valued stock than common shares 7. Reverse split of shares which reduces shares has this 54. If you borrow stock you are affect on stocks 55. Bit ‘ 9. Water company in this issue 58. These funds trade electronically 10. This stock category is under $300 Million in market 60. Venture Capital capitalization 61. This is a measure of a stocks volatility 15. New method in producing oil 62. Sprott Global US expert 16. Most important criteria when investing in any ompany 65. Short player slogan 18. Company sit down with investors at conferences 67. lEG Holdings is in this business 20. This index has hovered around 1700 this year 68. Wall Street Chicken had this kind of meeting 21. Seed capital source 71. Long term options 23. IPO syndicator 72. Super sector in 2014 24. Junk bonds are 74. Gespeg resource 25. Who’s newsletter helps building my hard asset portfolio 75. Commodity featured 27. VPR is an acronym for this 77. Jeff Christian writes on this 29. A way to go public but not an IPO 78 The Asia market author 31. Search engine optimization 79 No investor has ever lost money in history doing this 35. More valuable resource than platinum 80. Specializing in wire 37. These expire after ninety days 81. Phase 1, 2, or 3 trials take place mostly in this sector 39. OTC stocks are traded by 82. SNN flagship website www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com 40. 506c is part of this SEC Reg 83. Increasing trading volume
Down
41. Larry Nussbaum 42. Fund assets minus liabilities 1. Penny stocks trade under 44. MicroCap Financial Conference in April in Las Vegas 2. I can find microcap company information in every 46. Buying illiquid stocks usually result in this issue of this magazine 47. Your have to be this to invest in crowd funded equity 8. Very popular way for funds to meet issuer managers 48. Board takeover is a business 9. Marketmaker advertising in this issue 49. Jeff Kraws Crystal Research is well known for this 10. Official website of the MicroCap stock market 50. Most sophisticated investors do this with their 11. Lenders with a key marketing plan marginable stocks 12. Dominick Sartorio 51. OTC companies seek to do this when they achieve 13. A way for accredited investors to invest in companies higher market capitalization 14. Legalization is responsible for this growth industry 56. Bio on cover 15. Osborne writes about 57. Subject of Joy Schoffler’s article 17. Use these to find out scuttlebutt 59. Get real time stock quotes here 19. An exit strategy is one of these for investors 63. Inexpensive method for an issuer to raise capital 22. Not really green products 64. Medical marijuana administrative company 26. Fundamentalist advice to investors 66. Buy low 28. A way for startup companies to begin operations 68. Alternative trading system that does not display 30. Most under performing sector in 2014 bids and offers in quotes 32. Units usually comprised of common stock & these 69. Leverage is 33. Russell writes this column 70. Highpower’s business 34. Traders advice 73. Jack Leslie column 36. Parent company of this magazine is 76. Convertible debt converts into 38. This company helps in identifying molecules MicroCap Review Magazine 25
PROFILED COMPANY
ticker: gcr
Gespeg Copper Resources Inc. G
espeg Copper Resources Inc. (“Gespeg”) is an exploration company listed on the TSX Venture Exchange under the symbol GCR. Gespeg concen-
trates its exploration efforts in the Gaspe Peninsula region of eastern Quebec. The Gaspe Peninsula has had multiple producing mines historically, one of them being the Gaspe Copper Mine (“Gaspe Copper”) in Murdochville, which produced approximately 141 million tons @ 0.85% copper from 1954 to 1999 under Noranda.
Over the last 14 years, Gaspe Copper changed hands multiple times, being owned periodically by Falconbridge, Xstrata and now owned by Glencore\Xstrata. A resource of 180 million¹ tons is still present in the Murdochville camp. ¹ (non 43-101 source MB95-44) The properties are divided in 5 different sectors: Vortex, In Between, Port Daniel, Murdochville A-B, R-Jean. Vortex is a project in the sector of copper, molybdenum and gold. Located 25 kilometers west of Murdochville with 130 claims and having an area of 68 square kilometers. This project is seperated in five blocks Madelaine de Vercheres, Courcy, B-O,Sullipeck East and Sullipeck which is historically known for its 5.5 Mt at 0.88% non-compliant with Rule 43-101 and shared with X-Strata. Over 46.535 meters of drilling spread over 347 surveys indicates the presence of Skarn and the possibility of open pit operation. Sullipeck occupies only 0.15 square kilometers of Project Vortex, which comprise of Sulipeck East where an announcement in 2012 showed a
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discovery of 29m @ .94 % copper at 5.20m from surface this property hosts a similar geologic environment as Gaspe Copper. Originally claimed in 2011, In Between covers 517 sq/km and 920 claims. An airborne survey was flown in 2012 and followed in 2013 by a soil survey to determine the sectors with potential. These surveys led us to divide In Between into four distinct blocks: the Landry block, the Wares block, the MacNeil block and the McDonald block,which now consists of 200 sq/km and 315 mining claims. Additionally, geophysics and soil surveys were completed in 2012 and 2013, and the portion between Sullipek East and Gaspe Copper, the MacNeill Block, is showing multiple new targets for further exploration and drilling The properties are part of NTS 22A13 and 22H04 In fall of 2013 Gespeg acquired the PortDaniel property located inside the Gaspésie Peninsula, along the portion of Baie des Chaleurs at approximately 15 km north of the Municipality of Port-Daniel. It overlaps the northern border of the Port-Daniel
Wildlife Reserve. Gespeg recently completed a sampling program with assays pending. The property is included in the NTS 22A07. The Murdochville property is located inside the Gaspé Peninsula, at approximately 2 km east of Murdochville and the former Gaspé Copper Mines. It overlaps the NTS 22A/14 map sheets, as well as the Holland township. It is subdivided into two adjacent blocks: the Murdochville block and the B block. The R-Jean property is located inside the Gaspé Peninsula in Quebec, at approximately 10 km south of Murdochville and the former Gaspé Copper Mines. It overlaps with the NTS 22A/13 and 22A/14 map sheets, as well as BonneCamps and Holland townships. The lithostratigraphic formations, as well as the presence of magnetic signatures on the property, make it a prime target for exploration. These are similar to those that may be seen in the Gaspé Copper Mines environment and have not been subjected to major exploratory work in the past. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Gespeg is managed by an experienced team and a very high level board of directors.
toM MacneIll, chaIrMan Mr. MacNeill is the Founder, President and CEO of 49 North Resources Inc., a Canadian resource investment company headquartered in the Province of Saskatchewan. (TSXVenture symbol FNR). As the first entity of its kind in the Province’s history, 49 North is a pioneer in what is rapidly becoming one of the world’s most renowned resource jurisdictions. As a third generation resource developer with over 25 years of direct experience in resource investment and corporate finance, Mr. MacNeill has extensive connections both in Canada and internationally. Tom is a wellrespected member of the resource industry and part of a worldwide network of exploration professionals and resource developers which enables him to source and structure projects
sylvaIn laberge PresIdent & ceo, dIrector Sylvain became part of a new company founded in 1999, Renmark Financial Communication an enterprise specialising in Investor Relations, where he became Vice –President and develop an interest for emerging companies and especially mining exploration. Having an entrepreneur spirit and wanting to achieve new goals Sylvain founded S.D.N.L. Financial Communication in 2007 where he is still President.
bernard-olIvIer(b.o) Martel geo. vIce PresIdent exPloratIon Bernard-Olivier Martel graduated from the University of Quebec in Montreal in 1999. He is a member of the Order of Quebec Geologist and act as a Qualified Person under Canadian standard 43-101. His experience includes government services, engineering and geological and mineral explowww.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
The lithostratigraphic formations, as well as the presence of magnetic signatures on the property, make it a prime target for exploration. These are similar to those that may be seen in the Gaspé Copper Mines environment and have not been subjected to major exploratory work in the past.
ration. Before and after his graduation, he worked on various mapping projects for the Department of Natural Resources of Quebec. Subsequently, as a founding member of an engineering laboratory, he became an expert specializing in pyritic backfill and mitigation of negative impacts on the foundations. Since 2004 he works exclusively for the mining industry as a consulting geologist for various exploration companies throughout Quebec and Ontario. As a geologist responsible for work of exploration for Threegold Resources Inc. for projects in Gaspesie, Bernard-Olivier Martel has acquired the knowledge and expertise essential to mineral exploration in this region.
andreW davIdson, ca – cfo, secretary and dIrector A graduate of the University of Calgary (BComm), Mr. Davidson is a Chartered Accountant with Certification in both Saskatchewan and Alberta. Mr. Davidson’s extensive experience in Canadian and international financial reporting standards has been gained through years of experience in public practice accounting in both the Alberta and Saskatchewan markets, focusing specifically on assurance for publicly listed enterprises. Mr. Davidson is currently the Chief Financial Officer and Secretary of 49 North, an Exchange listed issuer under the stock symbol FNR. He also sits as a director of Allstar Energy Limited, Prairie First Energy Inc., Olympic Resources Inc. (TSXV: OLA and Vicarage Capital Ltd.
tIM terMuende – IndePendent dIrector Mr. Termuende is a professional geologist with over 25 years’ experience in the mineral exploration industry. Since obtaining his degree in Geological Sciences at the University of British Columbia, Tim has worked on exploration projects throughout North, Central and South America and has inspected mineral deposits in the former Soviet Union. Mr. Termuende is currently the President and CEO of Eagle Plains Resources Ltd. (TSX-V: EPL), and currently oversees a broad range of ongoing exploration projects located throughout British Columbia, Saskatchewan, the Yukon and Northwest Territories.
denIs cleMent – IndePendent dIrector A graduate of Sir George Williams University, the University of Ottawa and the London School of Economics, Mr. Clement has 27 years of experience in corporate finance, law and management. Mr. Clement is currently a director of CGX Energy Inc. (an Exchange listed issuer under the stock symbol OYL), Azabache Energy IncTSX-V AZA), Vena Resources Inc. (TSX:VEM) DNI Metals as well as a number of private oil and gas and mining companies. n The company paid consideration to SNN or its affiliates for this article.
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F E AT U R E D A R T I C L E
Interest for Hong Kong Listing Remains Active – Outlook Strong for 2nd Half
H
ong Kong’s IPO market kept its place as one of the top global markets in the first half of 2014. The exchange raised $11.5 billion on 48 deals for a 187% increase over the first half of 2013. Aiding Hong Kong’s strong momentum was HK Electric Investment (HK:2638), the largest global IPO during the first quarter which raised $3.1 billion. Other major listings
include China CNR Corp (HK:6199), the world’s largest train maker by sales which raised $1.2 billion, Harbin Bank (HK:6138) which raised $1.1 billion, Tianhe Chemical
n BY LESLIE RICHARDSON
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(HK:1619), which raised $654 million and Qingdao Port International (HK:6198) Co, which runs the world’s eighth largest container port and raised $377 million. The top performing IPOs so far this year are Perfect Optronics Ltd (HK:8311), Wang Tai Holdings Ltd (HK:1400) and real estate company Redco Properties Group Ltd. (HK:1622) which are up 217.0%, 89.5% and 31/0%, respectively, from their IPO price. In February, the first Chinese stock delisted in the U.S. went public. Listed in the U.S. as Gushan Environmental Energy Ltd., the company raised $70.5 million in net proceeds in Hong Kong through its holding company China Metal Resources Utilization Ltd. (HK:1636). The company’s founder and chairman, Yu Jiangqiu, paid $21 million to take Gushan private in October 2012, he then transformed the company’s strategy to increase focus on building its copper recycling business while reducing focus on its biodiesel operations. China Metal Resources Utilization Ltd., raised almost 10 times its take-private valuation as the IPO was oversubscribed by over 17 times with more than 4,000 subscribers signed up for shares. Even though the stock fell over 6% on its first day of trading, as of June 30, the stock is up 8.2%. Following the China Metal Resources IPO, another previously U.S. listed Chinese company, the Chinese display advertising company, Focus Media, announced its plans to list in Hong Kong. Focus Media, was taken private in May 2013 by a consortium of private equity investors in conjunction with company management, is expected to list towards the end of 2014 or early 2015 and raise up to $1 billion. The privatization deal valued the company at $3.8 billion. While the HKEX saw an increase in funds raised during the first half of the year, the exchange did experience a few major setbacks including Alibaba’s announcement to list on the NYSE and the postponement of highly anticipated IPOs from WH Group and AS Watson. The world biggest pork producer, WH Group, decided to postpone www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
its planned April listing after cutting the deal by two-thirds from around $5.3 billion to $1.9 billion on weak demand. Retailing unit AS Watson switched from its plan to raise $6 billion through a public listing to sell a $6 billion stake in its company to Singapore’s Temasek. In spite of the setbacks, expectations are for a stronger IPO market in the second half of the year due to improved global liquidity, sustained recovery of European economies and continued strong performance in the U.S. capital markets. Noteworthy IPOs includes $2 billion offerings by China General Nuclear Power Corp, China Railway Materials Co, the Bank of Shanghai and China National Biotec Group, as well as a proposed $5.5 billion listing by China Guangfa Bank. Two Chinese dairy firms, Shengmu Organic Milk Ltd. and Beijing Sunlon, are planning to raise as much as $1.3 billion combined through an IPO this year, tapping into investor demand for access to China’s fast-growing dairy industry. Smaller size deals include Chinese property management company, Colour Life Services Group Co. (HK:1778), which is seeking to raise up to $148 million and Tian Ge Interactive Holdings Ltd., operator of a social-media video platform with live video content ranging from music to talk shows, which is raising up to $208 million. China Auto Rental, China’s top car rental site and service, recently filed to raise $400 million in Hong Kong with the intention of using about 70 percent of the proceeds to purchase new cars. The company, which is 20 percent owned by Hertz (NYSE:HTZ), has expanded to 55,400 self-drive rentals from just a few hundred in 2009. Beijing-based Guorui Properties Ltd is hoping to raise $242 million from buyers who are interested in China’s real estate market. China hotel trust Jinmao Investments and Jinmao (China) Investments Holdings (HK:6139), recently started taking orders for its $437 million IPO in Hong Kong, and Yida China Holdings and the developer of the successful chain of Dalian Software Park (DLSP) projects across China is planning a
listing that could bring in as much as $219 million. Hong Kong has been widely known for some time as actively promoting itself as a gateway to China for foreign investors as there are more than 800 PRC companies listed on the HKEX with a total market capital of $1.76 trillion. With the recent introduction of the Shanghai-Hong Kong Stock Connect pilot program and the availability of mutual stock market access between Hong Kong and the Mainland, Hong Kong is poised to make substantial headway in consolidating its position as the gateway for Chinese outbound investment. Furthermore, China’s IPO market has been on again, off again during the year as it started out with a boom of new listings after a 15-month freeze during which the China Securities Regulatory Commission (CSRC) tried to overhaul rules. The CSRC allowed 48 companies to list in January and February before again halting new listing to implement some key amendments. China has since reopened its IPO market stating that it was planning about 100 new listings this year, for a total of 150 IPO for 2014 or only half the number originally anticipated by investors. Currently there are around 670 companies awaiting approval for first-time share sales, according to EY. The long queue of companies waiting to list could drive more IPO candidates to list in overseas markets such as Hong Kong. Additionally, CSRC said it is considering abolishing a policy requiring mainland companies planning a listing in Hong Kong to first seek approval from the regulator making it easier and faster for mainland companies to raise capital on the Hong Kong stock exchange in the future. n
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ticker: blgo
PROFILED COMPANIES
Is biolargo’s “aos filter” the World’s Most valuable technology?
W
ater is now being called ‘the new gold’ because usable water is growing scare and is arguably our planet’s most valuable resource. We use it to produce oil and gas. We power our cities and run our factories with it. We grow crops and feed livestock with it. Like the air we breathe, water is essential for life. Relative to the seemingly endless supply of water, ‘usable water’ is becoming more difficult to find while demand continues to increase. Two thirds of the surface of our planet is
CEO Dennis Calvert
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MicroCap Review Magazine
covered with water, but 97% is saltwater and not usable for consumption, agriculture or most other industrial purposes. There are countless desalination plants around the globe, but there is no technology that con-
BioLargo’s AOS Filter: A Scientific Breakthrough In Treating Contaminated Water
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Proof of Claim Bench Scale Model
verts salt water to fresh water cost-effectively and in the vast amounts needed. Of all the water on the planet, less than 1% is fresh water. That freshwater is found in rivers, lakes and groundwater, but flooding, natural disasters, and industrialization are rapidly polluting much of that and reducing it even further. One of many sources of water pollution comes from the recovery and refining processes to produce the oil and gas we need for our homes, our cars and our factories. It is estimated that oil production will have to double in the next 20 years just to keep up with the increased demand. That may seem like a challenging but achievable objective, but with the advent of non-conventional, but essential supply sources like oil sands and shale gas, meeting that goal could require 4 gallons of water to produce one gallon of oil from oil sands or fracking, and another 4 gallons of water to refine one gallon of gas. In light of the heavy water requirements, the heavy water pollution, and the growing opposition to water pollution, the goal to expand energy production suddenly becomes daunting. There are two formidable obstacles related to the water that is absolutely essential to www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
the oil industry. First, there is a shortage in many regions that is already acting as a restraint on production. Second, the enormous amounts of wastewater produced from the recovery process is increasing the threat of toxic contamination of rivers, lakes and groundwater, and is becoming an economic and political barrier to further oil and gas production until more usable water can be found and until the toxic wastewater can be decontaminated quickly, cost-effectively, and safely returned to the earth. The massive amounts of wastewater from oil recovery, fracking and refining are problematic, but are only the tip of the iceberg. According to EPA estimates, oil & gas and mining use about 1% of the useable water supply while agriculture uses about 37%. The wastewater from oil & gas and mining is highly toxic, but the wastewater from agriculture also contains large amounts of toxic chemicals and nutrients that are polluting much of the remaining usable water. Furthermore, the United Nations estimates that up to 90% of toxic wastewater in developing countries is sent untreated into rivers and open water bodies. Agriculture and oil and gas are not the only source of contaminants threatening
our water supply. Mining, industrial manufacturing, chemicals, and pharmaceuticals greatly add to the problem. Evidence of the enormous scope of contaminated water is supported by the fact that there are close to a hundred different wastewater treatment technologies. If any of the traditional solutions were truly cost-effective at a scale capable of tackling these high volume needs, then there would be no problem. We would have ample clean and safe water for all our needs, but the simple truth is that not one of these traditional technologies works well enough
Version 1 Pilot Scale Model
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to solve the entire problem. They are often too costly and they typically do not process adequate volumes in a short time frame. With the high cost and lengthy time of current water treatment technologies, supply shortages and price increases for clean water seem inevitable. The Global Water Intelligence reports that water is estimated to be a $360 billion-dollar industry and that fact helps explains why there are so many competing technologies. Just one tiny little sliver of $360 billion is a lot of money. Clearly, a technology that could cost-effectively decontaminate water from agriculture, oil and gas, industrial, and mining operations would be extremely valuable. Biolargo’s Patented AOS Filter was recently validated in proof of concept testing at the University of Alberta. It was shown effective at dismantling recalcitrant contaminants (the most difficult and hard to manage) in seconds versus hours, and, further, it accomplished the task at 1/20th the power consumption of the nearest competitor, pointing to its future as a disruptive contender in just about every water industry segment. Iodine is the broadest and most potent disinfectant known. BioLargo’s AOS Filter combines iodine with well-understood technologies like carbon filter media, ceramics or membrane technologies to extract contaminates from a water-flow. The BioLargo AOS Filter converts a traditional filter mechanism into a reactor by adding electricity and oxidizing chemistry across the surface area of the filter media. The device delivers powerful oxidization to dismantle contaminants as they flow through the filter, all the while consuming an incredibly low level of energy. The device features high rates of oxidation, low power, high speed and a continuous flow. The dismantled contaminants are small enough in size that most of them pass through the filter without clogging. AOS therefore greatly extends the filter life. The net result is expected to yield unparalleled cost effectiveness.
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BioLargo’s AOS Filter is Well Positioned University of Alberta has begun a pilot study to design and build a commercial version of BioLargo’s AOS Filter to prove scalability as well as optimize its functionality for use in the oil sands and across a host of other water treatment segments. BioLargo recently announced it achieved another important milestone in the pilot testing of the device successfully replicating earlier proof of claim results and it confirmed the role of advanced oxidation within the AOS Filter reactor. This recent pilot work included bench-scale testing of contaminated water taken from actual field operations and it has proven the AOS Filter’s effectiveness at dismantling and removing targeted naphthenic acids, which are considered high-value and hard to contain contaminants of keen interest to the oil sands industry for more than 15 years. Professor Lynn McMullen at the Department of Agricultural, Food and Nutritional Science at the University of Alberta, recently agreed to expand the AOS Filter pilot testing into areas of interest in food processing and agricultural production, including livestock related areas. The initial targets include clean in place (CIP), carcass and food washing and animal drinking water applications. BioLargo is a founding member of a research chair sponsored by NSERC, Natural Sciences and Engineering Research Council of Canada, which organized in 2011 to solve the wastewater tailings ponds problem. Other founding members joining BioLargo include Suncor Energy, Syncrude Canada, Shell Canada, and Canadian Natural Resources, EPCOR, Environment Canada and Alberta Innovates. BioLargo’s CEO, Dennis Calvert commented, “Our business is very exciting and certainly dynamic. Our patented technology is right on the leading edge and our AOS Filter has recently opened up a huge commercial opportunity for BioLargo. Our company’s culture is entrepreneurial at heart
and we thrive on the challenge and adventure to create, validate and commercialize our break-through technologies. Our Chief Science Officer, Kenneth Reay Code continues to set the technical performance bar to the highest standards and his discipline has proven invaluable as we introduce new technology to industry and gain acceptance. Our team is comprised of an impressive list of associates that are both leaders and patent holders from the top ranks of industry. Our future is quite bright.” BioLargo’s mission is to make life better. It has the technology, the team, and the driving purpose to succeed. BioLargo is a platform technology company that expects to generate the bulk of is revenues through licensing its AOS Filter and other platform technologies it developed that have important application in water, healthcare, energy, and consumer products segments. The AOS Filter is expected to have a powerful impact on all uses of water around the world. BioLargo (Symbol: BLGO) is an emerging technology company with world-class science that has been validated by a leading university and that is expected to have a dramatic impact on large industries, the environment; and to substantially increase the world supply of safe usable water. Any technology that cleans water efficiently, costeffectively, and in unlimited flow rates will be one of the world’s most treasured and valuable technologies. n WWW.BIOLARGO.COM The company paid consideration to SNN or its affiliates for this article.
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ticker: PbIo
PROFILED COMPANIES
Pressure biosciences, Inc.
P
ressure BioSciences, Inc. (“PBI” or the “Company”) is a publicly-traded company (OTCQB: PBIO) located approximately 30 miles south of Boston, with nine fulltime employees. The Company’s founder and CEO, Mr. Richard T. Schumacher, is a seasoned entrepreneur, having founded or co-founded three previous publicly-traded companies with a combined market capitalization of over $1 Billion. that refers to a wide range of activities that precede virtually all forms of scientific analysis. Sample preparation is often complex, time-consuming, and one of the most error-prone steps of scientific research. It is nonetheless a ubiquitous laboratory undertaking whose requirements drive a large and growing market, worldwide.
PrimaryPressure Sample Preparation Biomolecular Analysis: CyclingforTechnology (PCT) Cell Lysis
What Is Pressure cyclIng technology - Pct
9
Figure C
Mr. Richard T. Schumacher, CEO
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The remaining officers of PBI all have advanced degrees in their areas of expertise, which they combine with many years of hands-on, highly successful experience in the life sciences marketplace. In addition to Mr. Schumacher, the Company’s Board of Directors is comprised of four outside directors, each of whom is a successful entrepreneur who has also had great success as a life sciences business leader. The Company is focused on solving the challenging problems inherent in biological sample preparation, a crucial laboratory step performed by an estimated 500,000 scientific researchers worldwide working in the biological life sciences. Sample preparation is a term
PBI has developed and patented a novel, enabling technology platform that can exquisitely control the sample preparation process. It is based on harnessing the unique properties of an entirely new dimension in thermodynamics for life sciences laboratories – cycled hydrostatic pressure. This cutting-edge process, called pressure cycling technology (“PCT”), uses alternating cycles of hydrostatic pressure between ambient and ultrahigh levels (up to 100,000 psi) to safely, conveniently, and reproducibly break cells and release important biomolecules (e.g., DNA, RNA, proteins, and lipids) from the samples to be studied(e.g., cells and tissues from human, animal, plant, and microbial sources). Figure C shows a cell being broken and the biomolecules being released for study. For the purpose of reference, the pressure at the bottom of the Marianas Trench, at six miles down the deepest part of any ocean on earth, is approximately 16,000 pounds per square inch (“PSI”). See Figure 1.
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Pressure Cycling Technology (PCT): 16,000 psi, Marianas Trench
PBI equipment reaches pressures up to 60,000 psi in <1 second. Complex mul?cellular life exists at a depth of 10,000m on the boBom of the Marianas Trench Figure 1
Market sIZe PBI believes the overall market for biological sample preparation products is very large. Virtually every laboratory engaged in any form of biological research is faced with the necessity of routinely preparing samples prior to testing and analysis. The Emmes Group (2008) estimated that this market is comprised of up to 80,000 laboratories and 500,000 researchers worldwide. A report produced by BCC Research LLC,
a well regarded provider of market intelligence, estimated that the global market for sample preparation reagents and products used in life science research was $4.6 billion in 2012, will grow to $11.5 billion by 2018, and register a five-year compound annual growth rate (CAGR) of 16.3% from 2013 to 2018. Recently, important data have been presented by independent scientists from the US and international research communities on the advantages of PCT compared to
Professor Wayne Hubbell - UCLA Distinguished Professor of Chemistry & Biochemistry, and Jules Stein Professor at UCLA "Protein flexibility is the new frontier in understanding protein function and regulation. The study of proteins under pressure has great ability to reveal salient features of protein flexibility, and hence provide new insights into protein function and rational drug design. In my opinion, high pressure will play a central role in the discovery process that lies ahead in the exciting field of protein science, and the PBI hardware will make major contributions to this field.” December, 2012
existing, competing methods for biological sample preparation. These presentations have been in the areas of biomarker discovery for cancer, stroke, heart disease, diabetes, Alzheimer’s, and a number of infectious diseases; drug development; forensic sciences; counter-bioterror; soil and plant biology; extraction of biomolecules from microorganisms (i.e., oil-eating bacteria); and PCT-enhanced protein digestion. Data from these various applications have been presented at meetings by scientists from a number of leading research groups, including ThermoFisher, Pacific Northwest National Laboratory (“PNNL”), Amgen, the United States Army Medical Research Institute for Infectious Diseases (“USAMRIID”), the U.S. Department of Agriculture (“USDA”), Harvard School of Public Health, Lawrence Berkeley National Lab, the University of North Texas, Merck, and Target Discovery. These presentations are part of over 100 scientific publications and testimonials that can be found on the PBI website. (See Figures D and E)
Pct used In the dIscovery of bIoMarkers In saMPle PreParatIon The Company’s primary efforts are focused on the development and sale of PCT-based
Dr. Henry C. Lee Professor of Forensic Science and founder of the Forensic Science Program at the University of New Haven; founder of the HC Lee Institute of Forensic Sciences; and former Commissioner of Public Safety for the State of Connecticut. “We are excited about this opportunity to collaborate with Pressure BioSciences to examine the potential applications of their PCT Platform in improving the collection of forensic evidence, particularly DNA, in several important areas of forensics…such collaborations not only provide new, effective technologies for forensic DNA testing of samples that have been difficult or unsuitable using today’s standard techniques, but can also provide new and more effective ways to reexamine old biological evidence in cold cases.”
Figures D & E www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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products and applications for the preparation of samples used in the discovery of biomarkers. The discovery of biomarkers is a primary focus of thousands of scientific researchers worldwide. These researchers work in academic, government, biotechnology, and pharmaceutical laboratories. A 2012 market research report by ASD Reports has estimated the worldwide market for biomarkers to be approximately $26 billion. Biomarkers are molecules (e.g., genes, proteins, lipids) found in tissue (e.g., cells) or body fluids (e.g., blood) that correlate – directly or indirectly – with the presence or absence, the progression or recurrence, and/or the effects of treatment on a disease or a disorder. Examples of biomarkers are PSA (prostate cancer), LDL Cholesterol (coronary heart disease), Her-2/neu (breast cancer), and anti-HIV (AIDS infection). The primary instrument used in the discovery of protein biomarkers is the mass spectrometer, a powerful laboratory instrument that is playing an increasingly important role in the analysis of biological samples in life sciences research. Mass spectrometry is e s t i m a te d to b e a multi-billion dollar market. PCT has been shown to offer significant advantages in speed, quality, and overall performance, compared to other techniques used in the preparation of samples for mass spectrometry.
Recent Noteworthy Events Over the past year, the Company reported a number of noteworthy achievements, including: (i) five consecutive quarters with revenue exceeding same quarter previous year; (ii) the release of the long-awaited high throughput Barozyme instrument, a gamechanger for PBI; (iii) the development with a Harvard-led research team of a novel, non-invasive, PCTenhanced method for lipid analysis using fecal material; (iv) the presentation by UCLA scientists of an advanced, pressure-based method offer-
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ing new insights into protein structure and function for use in biomarker discovery and rational drug design; (v) the closing of two Private Placements, each for a total exceeding the goal of the financing; (vi) initiation of equity research coverage on PBI by Merriman Capital and See-ThruEquity; and (vii) the publication of an Executive Informational Overview on PBI by Crystal Research Associates, led by top-ranked Wall Street veterans Jeffrey Kraws and Karen Goldfarb.
PCT Based Products and Intellectual Property PBI has developed a number of PCTbased products for use by the life sciences’ market, including five pressure generating instruments, or “Barocyclers” (e.g., Figure 2 is the Barocycler NEP2320 and Figure 3 is the Barocycler HUB440), a unique patentpending, mechanical sample homogenization device, the “PCT Shredder” (Figure 4), six different unique, single-use processing containers, PULSE Tubes (Figure 4.1), MicroTubes, BaroFlex 8-well processing strips, Shredder Tubes, and the novel micropestle: a patent-pending, single-use device for the rapid and reproducible extraction of biomolecules from small, biopsy tissues (Figures X and Y), a number of different reagent kits (Figure A), and several dozen ready-to-use, application-specific protocols. Many of these products are covered by claims in our 24 issued US and foreign patents. On June 15, 2014 PBI launched the newest Barocycler instrument, the firstin-class, high throughput Barozyme HT48 for the enhanced preparation of proteins for mass spectrometry (protein) analysis. See Figure B. The bench-top Barozyme HT48 is capable of processing up to 48 samples simultaneously using the Company’s new and proprietary BaroFlex 8-well processing strips. Figure B. The BaroFlex strips were
designed and manufactured to the industrystandard micro-titer plate format, which the Company believes will allow the new Barozyme HT48 system to integrate well with the automated, standardized, high throughput liquid handling robotic and analytical systems installed in tens of thousands of biological research laboratories worldwide. The Company believes the Barozyme HT48 High Throughput System can significantly fuel growth and increase revenue for existing and new PCT-based applications and products and greatly facilitate the commencement of new strategic partnerships.
PCT vs. Existing Methods There are a number of existing methods used by scientists for biological sample preparation, including mortar and pestle grinding, sonication, homogenization, and bead beating. P B I believes that PCT
Figure 2
Figure 3
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Figures X & Y
Figure 4
Shredder Tubes) and reagent kits, and from instrument service contracts, replacement instrument parts, and grants. The Company also derives revenue from the sale of pressure-based cell disruption instruments and associated consumables used for larger scale sample processing. These pressure-based products are provided to PBIs by one of our strategic partners, Constant Systems LLC, from the UK.
offers significant advantages over these methods, including safety, speed, reproducibility, versatility, and ease-of-use, often with a substantial increase in the quality of the final results. There are currently over 100 scientific publications and presentations from independent laboratories that highlight and confirm these clear advantages of PCT over other current methods.
Sales Growth
Industry estimates suggest that there are approximately 80,000 laboratories worldwide that require the extraction of DNA, RNA, proteins, lipids, and small molecules from biological samples for their research studies. Based on market research results to date, and the fact that PCT is a novel cutting-edge technology currently uncontested in the field of small volume, high pressure preparation of research samples, it is expected that a large number of these laboratories will benefit from the
Although the Company has nine employees, with just one in a fulltime sales capacity, PBI has nonetheless installed approximately 250 PCT Sample Preparation Systems (Barocycler instruments plus required consumables, or “PCT Systems”) through June 30, 2014. Revenue for FY 2011 was approximately $988,000. Revenue for FY 2012 was approximately $1,238,000. Revenue for FY 2013 was approximately $1,503,000, a 21% increase over revenue for the same period in 2012. During 2013, the Company posted record quarterly highs for total revenue, products revenue, and consumable product sales. Revenue for the first two quarters of FY 2014
Figure A
Figure B
Worldwide Market
Figure 4.1
advantages of the PCT Sample Preparation System. The Company believes it can capture a reasonable share of this existing market over the next 3-5 years and become a highly successful and profitable life sciences instrument and consumables provider.
Company Revenues PBI derives revenue from the sale, lease, or rental of all of its five Barocycler instrument models, as well as from the recurring purchase of consumables required for the PCT process, including single-use processing containers (PULSE Tubes, MicroTubes, BaroFlex 8-well processing strips, and www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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(enhanced anti-bioterror, Lyme Disease, and food-borne disease testing); and agriculture (better detection of disease causing organisms) There is also the potential of using PCT for enhanced enzymatic reactions in the area of bio-fuel development, using PCT for the inactivation of pathogens in the development of vaccines, and in other important areas of sample preparation. These strong positions lend themselves well for potential technology spin-offs and licensing possibilities.
In Summary
Figure B1
was approximately $712,000, all of which was derived from product sales. These results represented a 70% increase in product revenue compared to the same two quarters in 2013. During this same period, consumable product sales increased 93%, year-over-year.
Customers Current customers include a number of top nucleic acid (DNA, RNA) and protein research laboratories in the U.S. and Europe, including government agencies and research institutions such as the Food and Drug Administration (FDA), Federal Bureau of Investigation (FBI), National Institutes of Health (NIH), Centers for Disease Control (CDC), US Department of Agriculture (USDA), the VA Hospital System, and Pacific Northwest National Laboratories (PNNL). PBI has also installed PCT Systems in academia, such as the Harvard School of Public Health, UC–San Diego, UCLA, George Mason University, Thomas Jefferson University School of Medicine, the Barnett Institute of Northeastern University, Vanderbilt University, Florida International University, the University of New Hampshire, the University of Kentucky, the University of Wisconsin, the University of North Texas, Montana State, and Lawrence Berkeley National Laboratory. P B I also has diagnostic, biotechnology, and pharmaceutical customers, including Amgen,
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Novartis, Biogen, Merck, Monsanto, Bristol Myers-Squibb, Thermo Fisher Scientific, Regeneron, Takeda Pharmaceuticals, and Target Discovery. In the coming months of 2014 the Company expects to continue the development of an aggressive sales and marketing strategy, which includes increasing the Company’s internal direct sales and marketing staff during the second half of 2014, combined with the sales and marketing capabilities of one or more strategic partners in specific areas of the life sciences. PCT is well suited for partnerships with companies already in the spectroscopy (NMR, EPR, CD, Mass Spec) and forensics areas; the Company is currently talking with significant players in these areas.
Pressure BioSciences’ management’s vision is to further develop pressure cycling technology and the PCT-based product line with its collaborators and customers so as to increase the quality of research and speed the time to scientific discovery, which in turn will improve healthcare and save lives, worldwide. n The company paid consideration to SNN or its affiliates for this article.
Future New Product Growth Although PBI expects to maintain a sharpened focus on short and long-term business goals going forward, primarily in the area of biomarker discovery for drug design and development), the Company has strong IP and proprietary positions in other areas, such (i) forensics (better processing of bone DNA and enhanced rape kit testing); (ii) infant healthcare (non-invasive methods for the analysis of gut function to enable a better understanding of the gastrointestinal system); (iii) public health applications www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
F E AT U R E D A R T I C L E
Independent Research In a highly competitive environment where companies compete to have investors aware of what their company offers, being heard correctly and in an unbiased factually accurate manner is of critical importance. It is not enough to just have investors hear a message; rather the information right down to the source needs to be factually accurate and credible so that investors can build their knowledge base with confidence, making decisions to take further steps with a company wherever that may lead them. Every investor knows that the market involves risk. Nobody expects a guaranteed profit. But what every investor expects and deserves is honest investment analysis that is untainted by conflicts of interest. “The old model of stockmarket research is changing” “Independent research outfits offer an alternative. Though small, their share of the ‘research vote’, an estimate of market share produced by Greenwich Associates, has grown since 2011. They are untainted by the conflicts of interest that bedevil banks offering research on clients, and that led to a 2003 settlement enforcing stricter separation of investment banking and research in America.” - the Economist, Sep 21, 2013 Conflicts of interest pose significant dilemmas for research coverage, beginning with research analysts themselves. As analysts write research reports and make buy/sell/hold recommendations, their analysis may be influenced by financial (and career-related) incentives to directly or
n BY JEFFREY KRAWS
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indirectly support investment banking business initiatives on behalf of their employers. While some major financial institutions endeavored to challenge these accusations by separating their investment banking and research units, an even more radical proposal has taken root: a separate research entity, funded by the settlement payment from several firms under investigation. This entity acts as a liaison between investors and the firms in which they hold interests. By eliminating the financial obligation, the industry hoped to eliminate the potential for biased analysis and coverage. This goal was laudable and honorable, but the reality is that many worthy and important companies are being overlooked in the keen competition for analyst attention. In some cases the only viable option for companies will be to pay a third party to provide the needed coverage and exposure. Paid-for analysis thus represents a clear example of highly subjective recommendations based upon direct financial incentives. To this end, time and again, great stories have gone unrecognized because subjective and inherently biased ratings/target prices leave the financial community questioning the objectivity, validity, and integrity of the analysis. As a result, many of these paid-for stock reports are discarded by investors and even banned from many reputable PR and financial distributors for being promotional rather than credible. From this example, it may appear that there is no feasible way to avoid the numerous pitfalls of tainted research. We believe the answer, therefore, is not in the affiliation, but in the content of the reports. Independent research attracts and entices the investment community by providing them with the necessary tools and information with which to make sound investment decisions. We believe the best reports distill and present only the essential facts of the covered company: no projections, no buy/sell ratings, no overwhelming financial jargon or highly technical information,
and no siren call of stock price prognosticators. This type of research allows investment professionals to make fully informed and educated investment decisions based on the most important recommendation: their own.
the natIonal Investor relatIons InstItute (nIrI) The National Investor Relations Institute (NIRI) concurs with this model of independent research. “...Such reports should contain factual research conducted by a qualified analyst and should avoid the expression of opinions about the company’s prospects and must not contain a recommendation that one should acquire the stock.” Those on the buy-side are already working to accommodate the need for this type of independent coverage. Several investor-sponsored entities have been established to report analystfree coverage aimed at providing investors with unbiased research. While still performing on a relatively small scale, the demand for this type of research is growing. Small-cap companies must seek out independent research firms that can undertake the same type of fact-based analysis or face the consequences in the intense competition for outside investor funding. By implementing a new and innovative style of independent research, it will be possible to put these conflicts of interest in the background and bring about reform in a way never thought possible. The unyielding call of investors for truly independent research in its purest, most untainted form would then be answered. Crystal Research offers paid for research, but is paid for its time to insure what the reader reads is factually accurate. This approach of utilizing only facts and solid due diligence, plays a meaningful role in helping companies legitimize their offerings and in educating the world about what it is that they do. n MicroCap Review Magazine
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F E AT U R E D A R T I C L E
For Micro-cap Firms, Perception Is Reality—4 Ways to Use PR to Improve Your Reality
M
ost people have heard the saying that perception is reality, and in the micro-cap world, where the C-suite is constantly looking to increase performance and push value, this is especially true. While the use of investor relations firms is common practice in the micro-cap world, the engagement of financially savvy public relations firms to increase a company’s overall brand awareness is occurring on a much smaller scale, giving those who change the way they are perceived in the market a much nicer reality. Investor relations and public relations are often used interchangeably, and while there are some similarities, there are key differences as well. Broadly speaking, investor rela-
n BY JOY SCHOFFLER
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tions is a branch of public relations, where public relations is an umbrella term for any and all sorts of communication between a brand and the public, including investors. For many, investor relations evokes visions of road shows, shareholder meetings and investor calls, all activities geared toward increasing, stock volume, liquidity and share price. However, the picture of how public relations can affect investors’ perception remains unclear for many. Public relations include all public-facing communications, which includes media relations, analyst outreach, crisis communication, reputation management, newsletters and other external communications. It is the practice of controlling a brand’s message and overall perception in the public eye—because if you don’t control it, someone else will. On the surface it may appear like just one more line item on a budget, however, if done well a good public relations strategy can make everything from sales to employee communication to raising capital much easi-
er –without ever stepping over the bounds of generally soliciting. Large consumer-facing companies by nature tend to merge investor relations and public relations well. They marry regular shareholder communication and analyst outreach with content marketing, high-value media placements and other brand-building items that give investors the feeling of stability and security they need to be confident in the company. In large companies, investor relations tends to be a division of public relations, working hand-in-hand with the overall public relations strategy, directing sensitive messaging, crisis communication, and even evaluating the overall appearance of leaders when health or other sensitive issues arise to ensure the company is putting its best foot forward. Microcap companies, not under the same intense scrutiny as a Fortune 1000 company, tend to benefit just as much—if not more— from well-executed public relations campaigns. Since the Great Recession, investors www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
are eyeing their holdings and investment advisors with increased skepticism. Stability, growth and market leadership are items every company needs to be concerned with, especially in the microcap world.
Good Public Relations Strengthens Investor Relations Efforts Learning why and how to effectively combine investor relations and public relations is something I learned during the first half of my career working on the buy side of a private equity firm, which grew from four to75 employees in one and a half years, making the Inc. list twice. Sourcing high-quality commercial real estate assets in a competitive market and educating investors on new acquisitions as a young private equity firm was often an uphill battle. I found, however, when the firm secured media coverage, my job got a whole lot easier. At that time general solicitation was illegal, we had to promote with caution ensuring high quality content that did not cross the line into investment promotion. Through the process of using public relations in the microcap world a few key lessons about the power of the pen emerged: Digital Presence Enhancement. There are few items less critical for a company than its digital presence when raising capital. With many investors starting the due diligence process with a good “old-fashioned” Google search, the quantity and quality of search results matter. Do you look like the leader in your industry? Is your C-suite out on top of current news and trending topics for the industry? Are the investment publications talking about you? Do you look like you’re running a hot company? Perception is reality—what is the perception when Googling your company and CEO? Lead Generation. The private equity world is a competitive business, in addition to fighting for investor dollars, deal flow is also up for grabs. An article placed in the right publication with the right message can www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
direct targeted traffic to a business—even if it is not planning on utilizing the new general solicitation laws to market securities offerings. Investor Marketing Materials. During the capital raising process, one of the most challenging times is after the executive summary and other investment documents have been sent to prospective investors. If you don’t go for the close, you won’t raise the capital. At the same time, pushing too hard can give off the appearance of desperation. Having a stream of high-quality press mentions that weave in market data and other facts that are interesting to a company’s stakeholders arms the investor relations team with tools that allow them to do a strong outreach to prospective investors. Winning the Mind Game. There is a whole psychology to the investor relations process, and making the wrong choice has ramifications that go way beyond loss of capital. No one wants to make a poor decision, especially not one that involves loss of their nest egg. While all good press coverage
in the world will not fix past fraud, poor management and over-aggressive projections, it will help good companies with a good track record and realistic projections look like a more serious player. In the end, public relations is simply a conduit to reach, communicate and engage with a company’s target audience. It is a process that identifies what is important to a company’s audience, develops messages that speak to these targets and delivers these messages through a variety of media channels. In this way, a company of any size can have the tools to improve its perception, and therefore its reality. Joy Schoffler is the award-winning founder and principal of Leverage PR, a strategic communications firm specializing in the finance and technology industries. She is a nationally recognized author and speaker on the topics of investor relations and marketing, public relations strategies and investment crowd funding. Prior to launching Leverage PR, Joy consulted and worked with a number of growth-phase firms, including serving as director of acquisitions for The PPA Group, an award-winning investment firm. n
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ACCOUNTING CORNER
Post reverse Merger Pitfalls O ften times the last person that gets consulted about a reverse merger is the auditor. This article will attempt to convey, from an accounting viewpoint, some of the potential pitfalls of a reverse merger. HJ & Associates specializes in auditing of small and emerging public companies. We have seen a myriad of different approaches to reverse mergers. Invariably each reverse merger comes with unintended consequences.
n BY S. JEFFREY JONES
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Some of the most common problems include: 1) Not being able to get the audit completed within a 71 day period when the merger is with a company that is not deemed to be ‘shell’ filer, or within 5 days when the merger is with a ‘shell’ filer. 2) Not realizing that an audit is required for a reverse merger. This is particularly the case when assets, but not the stock of a company, are purchased. The SEC has long taken the position that if the assets are integral to the operations of a business, then the operating history of those assets needs to be presented. 3) Completing the merger before the private company is audited and then finding out that the private company is not auditable, or that the results of the audit are not as expected. 4) Not having the infrastructure in place to continue public company filings in a timely manner. There are deadlines and time tables that are in place which are often new to the management of the operating company. Many times these deadlines conflict with family or personal plans such as vacations. 5) Not realizing that the Company is now immediately subject to Sarbanes-Oxley rules prohibiting related party advances or loans. There can be no new loans or advances to related parties and any advances outstanding at the time of the reverse merger need to be paid back in a consistent and timely manner. 6) Not having the infrastructure in place to be able to complete managements’ assessment of internal controls in a timely manner. With a reverse merger, the operating com-
pany is deemed to be the reporting company and thus continues to carry the requirements for the quarterly and annual assessments. The Company auditors need to be consulted early and often when a reverse merger transaction is going to occur. Instead of considering auditors to be a necessary evil and another hurdle to get over, they should be considered to be a valuable part of the team. An auditor’s expertise and insight can save a company thousands of dollars and assist in avoiding regulatory pitfalls. This article is not an attempt to dissuade persons from the use of a reverse merger, they can, and do, work effectively when they are approached in the proper manner and when management is aware of potential problems. One key to a successful reverse merger transaction is to consult with the auditors early. Take advantage of their expertise and insights Ask questions and make sure that the Operating Company has an infrastructure in place to support the required financial reporting requirements going forward. S. Jeffrey Jones, CPA has been in public accounting for 18 years specializing in SEC reporting companies including first time audits, reverse mergers and registration statements. He is a founding partner with HJ & Associates, LLC located in Salt Lake City, Utah. In his spare time, he enjoys running and spending time with his wife and three daughters. Jeff can be reached at 801-328-4408 or at jjones@hjcpafirm.com n
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LEGAL CORNER
A Look Back at General Solicitation and Advertising under Rule 506(c)
A
s we approach the first anniversary of the ability to use general solicitation and advertising for private offerings to accredited investors, we have learned that the advent of what is now called Rule 506(c) has been neither overly intrusive into the private affairs of investors nor the revolution in private capital formation that some anticipated. Instead, Rule 506(c) has been an evolution - taking its place as one more strategy in private offerings - and a logical extension of the long-held SEC view that accredited investors are largely able to fend for themselves. The concept behind Rule 506(c) is simply stated – an issuer or its placement agent can now find investors who were previously not individually known to them by means of any modality of general solicitation and advertising. All the Rule
n BY LANCE JON KIMMEL
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does is liberalize how to locate investors. It does not change the fundamentals of private capital formation. It does not change the need to provide full and fair disclosure – PPM, business plan wrap or the equivalent. The Rule does change the way to determine the accredited investor status of an investor. The introduction of this need to “verify” accredited investor status produced weeks of hand-wringing and webinars in Fall 2013 with endless speculation that this requirement would result in a stillborn Rule. No such thing happened. Verification has gone along its merry way, with accredited investors producing the income and/or asset documentation that they have long produced to their mortgage brokers, commercial banks and other financial institutions. Investment bankers have approached the new Rule tentatively. In most cases, placement agents already have connections with a large pool of investors and many firms do not need to run an offering with general solicitation and advertising. Still, there are benefits in introducing new potential investors to a firm’s products and services and, once first contact is made, those investors will have a pre-existing relationship with the firm in subsequent dealings. Investment banking firms have neither run toward nor run away from Rule 506(c). They use it when it makes sense to do so. As a result, several investment banking
firms – and others – have been exploring the development of on-line and other platforms to promote their own – and others’ – Rule 506(c) offerings. The platforms can be as vast as the methods of general solicitation and advertising itself – anything from traditional print and broadcast media to the latest instruments of social media. As more issuers, and placement agents, engage in direct offerings under Rule 506(c), these platforms can be expected to multiply as a way to drive investor traffic to deals about which they might not be aware and match issuers doing direct offerings to investors they do not know how to reach on their own. All of this has led to a mischaracterization in many quarters that Rule 506(c) is a form of crowdfunding. It is not, and the SEC never once used the word “crowdfunding” in referring to Rule 506(c). For one thing, accredited investors are likely not going to be “crowded” into any investment – they are almost universally thoughtful and deliberate in reviewing investment opportunities. While many investors are young and tech savvy, many more are older and may not know how to respond to a tweet about a hot new investment; and if they knew how to respond, the issuer might not want to hear what the investor had to say about such a message. As noted, all Rule 506(c) does is create a new way to find accredited investors. But that is quite enough as capital formation continues to evolve under the JOBS Act. n www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
FOR ACCREDITED INVESTORS ONLY
Blue Sun Energy Inc. is pleased to announce the offering of 6,000,000 shares of its Common Stock at $2.50 per share in a private offering pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933 ____________________ Offering is made to accredited investors only, and is subject to prior sale or termination of the offering and various other terms and conditions contained in the offering documents ____________________
To receive more information and offering documents contact: John Reilly Managing Director of Investment Banking at WestPark Capital, Inc. jreilly@wpcapital.com | 310-203-2905
To: Jason Enterline <enterlinedesign@mac.com> Reply-To: "Unitron Media (tony)" <tony@unitronmedia.com> 1 Attachment, 23.7 KB Tony, This ad has the correct numbers which are 2500 not 25,000 and $10,000 not $100,000
FOR ACCREDITED INVESTORS ONLY
is pleased to announce the offering of 2500 shares of its Real Estate Investment Opportunity at $10,000.00 per share in a private offering pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933 ____________________ Offering is made to accredited investors only, and is subject to prior sale or termination of the offering and various other terms and conditions contained in the offering documents ____________________ To receive more information and offering documents contact: Karim Jaude www.dynamicscapital.com Phone: (310) 471-‐0650 Fax: (310) 471-‐2815
The New Column Coming to StockNewsNow.com An excerpt from our chat with Barry O’Dowd of IDA Ireland: Let’s start with an overview of IDA Ireland. What does your organization do? IDA Ireland (Industrial Development Agency) is responsible for the attraction to and development of foreign investment in the Republic of Ireland. IDA provides a range of services and incentives, including grants that are available to those considering foreign direct investment in Ireland. In particular, it offers a free one stop shop ‘hand holding’ concierge service to its clients. Why Ireland? What are the benefits of moving to a city in Ireland? Forbes voted Ireland the number one location for business, in December 2013. Why? Because it’s an easy place to do business. Companies can register their company within a few days with the company registration office and Irish Revenue (our equivalent of the IRS). Additionally, Ireland is a very young and educated country Nearly 50% of the population (4.5m) is under 35 years of age and the average age (35 years) is the youngest in the EU. We have a large supply of educated talent as we have a free education system from elementary school right up to university level. Plus, because Ireland is a member of the EU, we have access to a large talent pool of 500 million people, visa free! In their Dublin office, Google employs over 2000 people
comprising 71 different nationalities. 75 percent of their staff has relocated from overseas to work in Ireland. Lastly, Ireland is the only English-speaking member of the Eurozone countries. Which industries whether technology, healthcare, or manufacturing would distinguish Ireland the most desirable country in the world? All of those sectors, plus financial and business services, have been successful in Ireland. For example, Ireland can boast the presence of: 8 of the top 10 ICT companies, 9 out of the 10 top pharmaceutical companies, the top 10 global “born-on-the-internet” companies (i.e. Facebook, Linkedin), a world class medtech industry cluster Many early stage technology companies are selecting Ireland as their European headquarters such as New Relic, Zendesk, Adroll, Twitter, Gilt Group. They are either using Ireland as a location for their shared services or business development activities (Hubspot, Dropbox, Qualtrics) or software development (Gilt Group, Zendesk) or customer contact centre (Viagogo, Gilt Group). Many of the operations are multilingual where Ireland offers global standard multicultural talent.
Read the full interview at StockNewsNow.com
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and Presenting Companies Presenting Companies
ticker: hPj
PROFILED COMPANIES
highpower International side dishes aside
F
ollow news flow around south China-based rechargeable battery maker Highpower International (NASDAQ: HPJ) and you might think
earnings performance is driven by battery sales for electric vehicles, initial sales to Costco, and the growing adoption of ‘wearable’ electronics.
n BY MIKE KOBAL
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These are all appetizing aspects to the drivers behind the rechargeable battery business, and they’ve helped boost HPJ’s shares almost 300% over the last twelve months. At the same time these are very prospective, rendering any forecasts based on them highly speculative. Recently we took our skepticism on a visit to the company, meeting with senior management and touring each of the company’s subsidiaries in Shenzhen and Huizhou. (We were also invited to the company’s new battery recycling company in Ganzhou, Jiangxi Province, but elected to save that for another time.) Electric vehicles, mass retailers, and wearable electronics are all mouth-watering stories, and we get the appeal. The company is selling into these segments, and each provides exciting prospects. Still, we were surprised to find a much more promising, near-term earnings driver –meat amid the side dishes. Capital Investment Highpower is, at its core, a manufacturing company. It develops products that feeds these emerging markets with power. The company is largely industry-trend agnostic, with flexibility to go in a number of different directions / applications depending on what
customers require of it. Hence, the focus on new applications of their battery products. However, for the company to grow it needed to expand and was at the forefront of our initial hesitancy in visiting their facilities. Since 2010 HPJ has been investing about US$30 million to build and equip a new facility that, with some additional production lines added in phases, is poised to enable double-digit revenue and earnings growth over the next several years. In 2013 the company’s original Shenzhen facilities ran at near capacity, so the capacity addition is overdue. But that isn’t the exciting part: the facility is part of an effort, already visibly underway, to scale up for larger customers and production runs, and focused on higher-margin lithium polymer batteries. For this the company has also been investing in recruitment of experienced leadership and technicians for the plant, R&D, sales and marketing. These operating expenses, more accurately thought of as investment in the new capacity launch, have weighed on profitability over the past few years. Since 2009 HPJ’s profits have actually fallen at a double digit rate even as revenues grew at a 17% CAGR. This trend is poised to reverse as
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HPJ leverages this investment. We see revenues continuing to grow at double digit rates, but for earnings to accelerate and grow over 40% per annum from their current low base as they rebound with force from depressed levels. Rising above the U.S. Listed, Small-Cap Fray That HPJ has been able to bring this capacity online this year is no small feat. The last several years have not been easy for growing small-cap Chinese companies, and particularly for those listed in the US. Not only has the Chinese government kept a tight lid on lending to the private sector, but reputable and legitimate Chinese companies have found it increasingly difficult if not impossible to raise capital in the US, where investors have been burned by a succession of fraudulent listings. Like the Energizer Bunny, HPJ invested in Huizhou by bootstrapping internal cash flow and inexpensive short-term lending, only recently (April ’14) selling about 1.0mil in shares for $5.05 in order to help finance operating needs as production ramps at the new plant. Our tour started early in the day at Shenzhen Highpower, the company’s original Ni-MH rechargeable battery plant. This plant has capacity to produce batteries for what seems to be every company in the space including Energizer, Rayovac, and … well, you can fill in the blanks. It would likely be more challenging to find a rechargeable battery brand NOT being produced at Shenzhen Highpower. These are the rechargeable batteries one is likely to find on sale at every North American retailer. This plant runs at near capacity, currently generating gross margins just shy of 19%. Nearby we visited Springpower Technology, which was the company’s first foray into offering Lithium batteries. Here the company can produce up to 2.5-mil batteries per month, including both cylindrical and polymer types. This facility has also been running near full capacity for almost two years. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Lithium-based batteries, used in both portable electronic devices and electric vehicles among other applications, is where the most promising growth opportunities exist. Lithium-polymer is particularly suited for the demands of smaller, lighter, portable consumer electronics. Lithium-based batteries, used in both portable electronic devices and electric vehicles among other applications, is where the most promising growth opportunities exist. Lithium-polymer is particularly suited for the demands of smaller, lighter, portable consumer electronics. Not only do the batteries pack increased energy density, but their form factor is malleable to the particular needs of the product in which they are encased. It is in lithium-polymer that the new Huizhou facility is focused. In Shenzhen we also visited subsidiary ICON Energy System which develops more complete battery systems for new products. Here we saw a number of products from well-known brands – including some battery powered gloves meant for very cold weather conditions, various hand-held communication devices – simply a wide assortment of products requiring portable battery power. In Huizhou, which only launched production in 1Q14, manufacturing was much more highly automated, the clean-room spec significantly more stringent. Here we met key leadership with experience designing batteries for many of the world’s leading portable device manufacturers. A key requirement for winning large orders for tablet and handset batteries is obviously scale, something HPJ has lacked until this point. During our visit the company’s first production line in Huizhou was churning out mobile device batteries in high volume. Personnel at the plant related how many of the largest Taiwan-based electronics man-
ufacturers, some of whom manufacture on an OEM basis for the world’s most highly regarded electronics brands, had all recently visit the Huizhou facility and explored a new or growing relationship. Amid booming demand for portable devices, naturally OEMs will seek to diversify their supply of key components. Having spent several years in Taiwan following local electronics manufacturers, we have a fair sense for how they think about bringing on a new supplier like HPJ: ‘Yes!’ For investors, getting caught up in ‘sexy’ ideas can be exciting, but it is also dangerous. In HPJ we found the buzz around recent hot sectors like electronic vehicles has overshadowed something more fundamentally important for investment performance: the meat is cooked, and it is about to hit the table. Mike Kobal is a Chartered Financial Analyst who has spent over a decade in China, Taiwan, and SE Asia conducting bottom-up fundamental research on companies in the region. He has worked both independently and for well-known sell side research teams including Jardine Fleming, JPMorgan (Taiwan), and Arete Research (Asia). He speaks fluent Mandarin, and currently splits his time between China and the US Pacific Northwest. In the US: 1-425-328-9393 In China: +86 1500-286-2197 n The company paid consideration to SNN or its affiliates for this article.
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Seizing Opportunity, Embracing Change at the Growth Capital Expo Investors, Executives and Advisers Meet for Three Days of Education, Presentations and Dealmaking
A
n atmosphere of optimism and excitement pervaded the hallways and forums at the microcap growth market’s newest national conference, the Growth Capital Expo. Emerging growth company management teams and investors explored capital investment opportunities at the event, and learned from leading experts of the innovations in investment and capital formation that are transforming the market. More than 400 emerging growth company investors, bankers, executives and professionals came together at Caesars Palace in Las Vegas on April 29 to May 1, 2014, to discuss the latest market trends in equity private placements, initial and alternative public offerings, and private growth capital. Management teams from more than 60 public and later-stage private emerging growth companies made presentations and participated in over 350 one-on-one meetings with investors and placement agents over the two-
day Expo. Many joined the pre-conference IPO Bootcamp on April 29 to get insight and practical advice on navigating the goingpublic process, choosing the right option for their companies, and preparing for life in the public markets. The conference took place against a backdrop of strong market performance in the year’s first half that imbued the event with energy and a focus on dealmaking. Emerging growth issuers midway through 2014 raised $6.2 billion in 349 transactions for an average deal size of $17.6 million, a year-overyear increase of $1 billion in dollar volume growth while the number of transactions grew by 40, according to PlacementTracker, a service of Sagient Research. So far, the equity private placement (EPP) market is on pace to match or surpass the dollar and deal volume of $11.6 billion and 642, respectively, posted in all of 2013. Biotechnology companies were by far the
most active emerging growth issuers in the first half of the year, riding the industry’s IPO momentum generated in the last half of 2013, despite a pullback in the stocks early this year. Biotech companies raised $1.7 billion in 76 transactions in the first half of 2014 for an average raise of $22.4 million. That’s only $300 million short of the total proceeds raised by biotech firms in all of 2013 in 124 transactions. Asia-based U.S.-listed companies were a resurgent area of emerging growth equity investment in the first half of the year. Issuers from China and Singapore raised $105 million in 11 EPPs in the first half of 2014, four more deals and $35 million more in proceeds than the same period last year. The booming IPO market drove interest in the Expo’s pre-event workshop, the IPO Bootcamp. More than 100 pre-IPO and early-stage public company executives packed the room for the half-day session
thank you for PresentIng at groWth caPItal exPo 2014
n BY BRETT GOETSCHIUS
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on preparing for, executing, and thriving after a going-public transaction. The workshop was keynoted by small cap corporate board adviser and former emerging growth fund manager Adam Epstein of Third Creek Advisors. Epstein, author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small Cap Companies (New York: McGraw Hill, 2012), noted that going public can be a “huge benefit” for companies with the right management, internal controls, financial visibility and corporate governance in place – but “an expensive, business jeopardizing waste of time” for those which do not. Epstein outlined the key elements of a successful going-public transaction, noting the avoidable yet repeated mistakes company boards make during the process: thinking public status will ensure access to capital (access is earned by performance he says), using stock as ready currency for acquisitions (the greater fool theory in action), or that an IPO will provide a ready exit for early investors and management (maybe, and maybe not), among the most common. Epstein joined public offerings experts from the emerging growth banking, legal and investment worlds to lead the workshop’s afternoon panel discussions. The panels offered the attending executives advice, tips and tools for deciding whether, when and how to go public; the essential preparation period, executing the transaction, and succeeding in the post-public aftermarket. The first day of the Expo’s general session was devoted to trends and issues impacting the institutional emerging growth equity
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market. The morning featured discussion panels on equity private placements, registered direct offerings, confidentially-marketed public offerings (CMPOs) and at-themarket offerings (ATMs). The discussions were led by representatives from the leading investment banks and law firms active in emerging growth company finance, including Lazard, Cantor Fitzgerald, William Blair, Lowenstein Sandler and Goodwin Procter. The afternoon sessions focused on litigation and enforcement issues, alternative public offerings, depository trust clearing and chill issues, and investor activism in small cap companies. Legal counsel from top-ranked securities practices at Venable, BuckleySandler, Schulte Roth & Zabel, Ellenoff Grossman & Schole, and Mintz Levin joined with investor relations experts from Sharon Merrill and Sitrick & Co. to offer advice and analysis to attendees. Day Two of the Expo was devoted to the changes being thrust onto the emerging growth company finance market by the JOBS Act. Howard Leonhardt of the California StockXchange keynoted the day, speaking on the “New Age of Deal Marketing” the Act has ushered in with the repeal of the ban on securities marketing and the advent of crowd finance via online investment portals. The morning sessions focused on the new requirements for employing general solicitation to market equity investments online to both accredited investors and the general public via Rule 506(c) offerings. Leading legal experts and crowd finance entrepreneurs from Davis Wright & Tremaine, Troy Gould, MicroVentures, and IssuWorks explored the opportunities and pitfalls of
this brave new world with forum attendees. Later Day Two sessions focused on the proposed expansion of Reg A offerings to allow companies to raise up to $50 million with reduced reporting requirements, led by Cromwell Coulson of OTC Markets Group, and examples of successful earlymovers in the race to develop institutionalquality online funding platforms, including David Manshoory of AssetAvenue, Alon Goron of Invested.in, Scott Jordan of HealthiosXchange, and Adam Hooper of REALCrowd. The last panel of the Growth Capital Expo 2014 proved to be one of the most popular of the conference, as investors and senior executives of public companies in the legal marijuana market held forth on the opportunities and risks of operating in this booming industry. Troy Dayton of the ArcView Group moderated the discussion with Dr. Lawrence May of Tauriga Sciences, Justin Hartfield of Ghost Group, Kurshid Khoja of Greenbridge Corporate Counsel, Dr. Mark Rabe of Medical Marijuana Sciences, and Doug Leighton of Dutchess Capital. The Growth Capital Expo returns next April to Las Vegas for its second year. Information on the event program, dates and venue will be announced soon at GrowthCapitalExpo.com. n
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Decoding Online Alternative Marketplaces How Investors Can Benefit
I
n its annual survey of alternative funds under administration, eVestment reported a 6.23 percent growth in assets from the second half of 2013, compared to the first half of 2013, due to increased investor demand. The survey ranked hedge, private equity and real estate funds as the expected top asset gainers in 2014. Against this backdrop, a new alternative fund distribution channel has emerged as a viable option. Since the passage of the 2012 JOBS Act, which lifted the ban on general solicitation, online platforms have appeared that allow financial advisors and investors to invest directly in hedge, private equity and real estate funds. The platforms match accredited investors with alternative funds in their active fundraising phase and offer many benefits to investors.
n BY ALON GOREN,
CEO OF INVST
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First, they eliminate the need to search for funds and determine which funds are open to investments. This can be extremely time-consuming for financial advisors and do-it-yourself high-net-worth investors. Most alternative fund managers have strong, established relationships with institutional investors and approach those investors first when they are raising money for a new fund. This leaves many investors chasing funds that no longer have capacity. An online marketplace eliminates this problem. Managers only list funds on the site that are open to investors. At INVST (http://inv.st), an online marketplace, launched this month, we have been able to attract premier managers to our site, which lists institutional-quality funds. Managers are drawn to the platform because it attracts high-quality investors. Secondly, good platforms perform extensive due diligence on fund managers before listing funds on the site. INVST (http://inv.st), for example, has partnered with a number of former E*TRADE executives at Carillon Capital, LLC, and Bendigo Securities, LLC, to serve as financial advisors to the platform, provide financial services expertise within the fund management business and act as registered broker-dealers for the site. These partners verify an investor’s accredited status, perform alternative fund manager due diligence and ensure compliance with regulatory and legal requirements. Thirdly, successful sites offer time-savings capabilities to investors, fund managers and fund marketers. This is important in that these benefits attract participants to the site and keep them there. INVST provides
investors with a dashboard that allows them track their investments, research fund performance and invest in new deals. Marketers have access to a sophisticated customer relationship management system and can track deal flow right from the site. Fund managers can communicate to investors and alert them to new investment opportunities. As online platforms continue to proliferate, it’s important that investors perform due diligence on these sites before participating. In particular, it’s essential to research who’s behind the site. Be wary of sites that have strong technical expertise but no financial services experience, or vice versa. Both are needed for success. It’s also important the site is associated with a reputable broker-dealer. Without one, investors may as well invest offline and perform their own due diligence. Online platforms offer significant benefits to investors. Transparency, cost savings and risk management are among the most powerful. Choose your platform wisely and then sit back and reap the benefits of the post-JOB ACT world. Alon is CEO and co-founder of Invested.in and INVST (http://inv.st). He has developed technology that powers websites and financial transactions for Fortune 500 companies and well-known foundations such as Coca-Cola, ATB Financial and Global Philanthropy Group. He also created a white label fundraising portal for individuals and businesses seeking to crowdfund ventures independently of major platforms. His support of the JOBS Act and day-to-day interactions with investors and financial professionals inspired him to create INVST (http:// inv.st), an online platform that matches investors with hedge fund managers and marketers. Invested. in was named “Best Marketplace Platform” by the Los Angeles Venture Association in 2013, and Alon was named to the Socaltech 50 for his work with Invested.in. n
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F E AT U R E D A R T I C L E
Paradigm Shift in the Treatment of Gastric Cancer
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astric cancer is an aggressive disease with largely unmet medical needs. Every year, approximately 200,000 patients are diagnosed with gastric cancer in the European Union and the United States. Up until now, stomach tumors are only diagnosed in late stages with a very inaccurate macroscopic-endoscopic examination that captures location, tumor size and offers histological confirmation. Treatment options are limited and very expensive, invasive and painful. To ensure adequate elimination, a massive resection of the stomach has to be performed, independently of the size of the lesions. Additionally, patients have to undergo a combination of radiation therapy, chemotherapy and/ or immune therapy, which have severe side effects. Patients’ quality of life is severely compromised and their five-year survival rate is below 20%. These facts show the imminent need for new screening techniques that allow for early and reliable diagnosis of gastric cancers and an affordable treatment with increased survival rates.
n BY DR. FRANK GROSSMAN
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Small biotech companies and start-ups are driving innovation in Orphan (rare) disease Orphan Drugs have exciting growth rates driven by regulatory benefits such as extended marketing exclusivity, tax benefits and accelerated approval procedures. In the past years this has led to increased interest by large pharmaceutical companies to enter into this area. Nevertheless, innovation in this field is still driven by small, independent and innovative biotech companies. One of them is Orphanbiotec, a socially responsible, research-based pharmaceutical enterprise specializing in rare diseases. The company is currently working on a project that could revolutionize the treatment of gastric cancer. Orphanbiotec‘s research pursues a smart photodynamic approach that combines cancer selectivity with anticancer mechanisms. It allows for early detection of gastric cancer through the selective delivery of diagnostic imaging. The therapy agent removes malignant tumors while sparing healthy tissues. Orphanbiotec’s approach represents a paradigm shift in cancer treatment for patients and medical specialists. Studies in Japan suggest that early diagnosis of gastric cancer would increase the survival rates to 98%. There are several major advantages of this new approach compared to today’s treatment: 1. Accurate and early detection of cancer at an early stage 2. Studies show that early detection and treatment can increase the survival rate to up to 98% (compared to only 20% at present) 3. Diagnosis and treatment is minimally
invasive – no need for surgery. 4. The tumor is removed completely without damaging any healthy tissue. 5. No radiation therapy or chemotherapy is needed 6. Quality of life is massively improved 7. Duration and cost of treatment are much smaller compared to today’s treatment This approach, which is being developed together with the Steinbeis Center Heidelberg and the University of Zurich, also opens up possibilities for the development of additional therapies.
oPPortunIty for IMPact Investors Having funded the initial research and development through a grant from the Swiss Federal Commission for Technology and Innovation CTI, the next steps of the project development are to be financed through impact investment. This allows socially committed investors worldwide to participate and invest in the development of new innovative treatments and help patients in a sustainable manner. Another benefit is that all participants turn into a built-in marketing team, which helps to promote the gastric cancer project within a broader network. Orphanbiotec plans to start the impact investment round this autumn. Find more information at: www.orphanbiotec.com n
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How are MicroCaps Affected by What Happens with the Small, Mid and Large Cap Stocks? • When equity and junk bond markets begin to falter, I believe they are reflecting the attitudes of market participants in mass who then react behaviorally in a framework of fear or greed or both, fear being the strongest • Historically, they tend to view large cap consumer staple stocks with dividends more favorably than smaller cap stocks during times in which their attitude (mood) is becoming negative • In this case, which I believe is slowly forming now, small cap stocks tend to underperform the large caps, as investors sell out of fear that they will decline more than large caps and out of greed to capture profits
n BY STEVEN M. SHELTON
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• During that time, IPO’s may become very difficult, as risk is off and sometimes, as in 2007-2009 and beyond, risk was way off • In my opinion, micro-cap stocks are the most speculative and therefore more volatile with the potential for more downside pressure and very wide bid/ask, if such even exists • I would expect volume to dry up even more with micro-caps as compared to other larger cap stocks, with downside volume greater as compared to upside volume, very lopsided • However, I do believe that during times of duress, such as in the 2007 and beyond, micro-caps eventually come back strong as inventors and entrepreneurs become even more creative and focused • That potentially offers great potential for investors who enter after a confirmed low so as to decrease risk, with more upside than perhaps large caps on a percentage basis but with more risk, as it should be • However, the probable limited downside to near zero on these inexpensive stocks is worth noting • Note that during the 2009 slide, some expensive large caps were in danger of being delisted, as they dropped and kept dropping! • In summary, I believe global markets and economies are so connected that as large caps are hit, the smaller the capitalization of the stocks, the more probable the weakness and with less stability • That is simply my opinion and one could say that if a stock gets so cheap, some may just sit on it and see if it comes back
• At the same time, the product or service that the micro-cap makes is paramount to the downside potential but remember that in behavioral markets, up or down, market particpants move them too far and then they eventually over time revert to the mean • Now, mean reversion should resonate in this global market but who is talking about it, as this is the “New Normal”……heard that before only it was stated “It is different this time”! • Perhaps, in all this opinion, there is a response which you may or may not agree with The purpose of this article from Cornerstone Global Group LLC is to provide a general sense of global market direction and intermarket relationships. Analysis is subjective and is not mathematically or model derived. This article is not to be used for buysell signals and is not providing investment advice to any specific person or portfolio and should not be considered by anyone or any entity as providing such. Its accuracy cannot be guaranteed. Investing carries the risk for substantial losses. Past performance is not indicative of future returns. Investing in bonds (or any security product) that carries fees for investing will affect return. Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., respectively, 226 W. Eldorado St. Decatur IL 62522, 217-425-6340. Cornerstone Global Group LLC is not affiliated with Investment Planners, Inc. or IPI Wealth Management, Inc. Cornerstone Global Group LLC does not offer securities advice and is not a member of FINRA/SIPC. Material is only intended for use with institutional investors and not intended for use with retail investors. All contents copyright ©2014 Cornerstone Global Group LLC. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden. n
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mi路cro路cap
[mahy-kroh-kap]
A private or publicly traded company that has a market capitalization under $300 million. The smaller the market capitalization, the riskier the investment, and the greater the potential returns.
microcapreview.com
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on behalf of you, our subscribers and readers, additional information about companies in this issue will be forwarded to you by checking the box and submitting your request. Information will be forwarded to you by mail or email. q 144 Opinions q A Look Back at General Solicitation and Advertising under Rule 506(c) – Lance Jon Kimmel q A Primer on Public Company Disclosure – Lawrence G. Nussbaum q Accounting Corner - Post Reverse Merger Pitfalls – HJ & Associates, LLC – S. Jeffrey Jones q Activist Investing: The Need for SmallCap Activism – Elizabeth Kopple q BioMaryland – From Reasearch to Reality q Biotech Year in Review – Seth Yakatan q Bitcoin – Andrei Serpik q Blue Sun Energy, Inc. 506(c) – Advertisement q BMA Securities q Caveat Emptor – Shelly Kraft q Challenge Athletes Foundation – Roth Capital q Commodity Corner: Waking up to the coffee market – Mark Shore q Compliance Corner: Russell C. Weigel III Esq. q Crystal Research – Jeffrey Kraws q Cutting Edge Superconductors, Inc. q Decoding Online Alternative Marketplaces: How Investors Can Benefit – Alon Goren q Editorial – Shelly Kraft, Publisher q Exploration Insights – Brent Cook q Fallen Angels – Holmes Osborne q FireRock Conference q For MicroCap Firms, Perception Is Reality - 4 Ways to Use PR to Improve Your Reality – Joy Schoffler q Gespeg Copper Resourses Inc. – GCR q Growth Capital Expo Conference q Highpower International, Inc. – HPJ
q How are MicroCaps Affected by Small, Mid and LargeCap stocks – Steven M. Shelton q IEG Holdings Corporation – IEGH q Interest for Hong Kong Listing Remains Active – Leslie Richardson q Investment Opportunities in Sustainable Fracking – Shelley Goldberg q Is BioLargo’s “AOS Filter” The World’s Most Valuable Technology? – BLGO q LAVA – Los Angeles Venture Association q Lowenstein Sandler LLP q Marcum LLP q Merriman Capital, Inc. – MERR q Millenium Healthcare, Inc. – MHCC q MicroCap Review Magazine q MZ Group q New Formations – Fishbowl Strategies – David Alsup q New Orleans 2014 NOIC Conference q Ombudsman – Jack Leslie q Oswald & Yap q Paradigm Shift in the Treatment of Gastric Cancer – Dr. Frank Grossman q PortTech: A Market-Centric Approach To Clean Tech Innovation – John Dhombrowski q Pressure BioSciences, Inc. – PBIO q QuoteMedia, Inc. – QMCI q SNN Q & A IDA Ireland q Seizing Opportunity, Embracing Change at the Growth Capital Expo – Brett Goetschius, Partner q Setting the Stage for the Big Move – David Morgan q Stock News Now q Technology Solutions for the Growing Cannabis Industry – EDXC q WallStreet Chicken – Episode 10: “The Due Diligence Meeting” q We’ve been through the pain… Will we see a gain? – Rick Rule
please take the time to answer some simple survey questions so that we may provide the most comprehensive information, stories of interest, investment ideas, and industry analysis in future issues of Micro-cap review. we thank you in advance for your participation. 1. What is your microcap investor profile? q I’ve invested $500,000 to $1,000,000 in MC stocks q I’ve invested $250,000 to $500,000 in MC stocks q I’ve invested $100,000 to $250,000 in MC stocks q I’ve invested under $100,000 in MC stocks 3. would you invest in a microcap medical marijuana company? q Yes q No q Need more information 5. would you use bitcoin to purchase the following: q Merchandise q Professional services such as legal or accounting fees q Yes, whenever I can q What is bitcoin?
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F E AT U R E D A R T I C L E
Exploration Insights: Turning Rocks Into Money
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or a virtual letter titled Exploration Insights, we seem to devote an inordinate amount of text to mining, metallurgy, infrastructure, discounted cash flows, social license, permitting and, working capital.
n BY BRENT COOK
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source: John Timmer: Building a better way to Understanding Science, 2009.
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Not today. Today we want to consider minerals exploration, a scientific process that is largely intuitive and that is being degraded by an over reliance on snappy technology and the blind rush to make an easy buck. John Timmer’s diagram above provides some insights into the complexity and iterative processes behind true exploration and discovery. Minerals exploration is essentially the scientific method applied to a particular field of science (geology) in which many of the underlying observations, assumptions, and facts are subject to variable interpretations because: 1) More often than not the subject of scientific inquiry is under a pile of rocks, swamp, or jungle. Hard data is extremely limited. 2) The “control group”, meaning the deposit type on which you are basing the research, is generally out of control. Each mineral deposit is the result of multiple geologic events imposed on differing rock types over a considerable period of time, and, therefore, no two deposits are exactly the same. It is not uncommon for even the actual genesis of a deposit type to be in contention amongst the experts. Battles still rage over how two of the most important gold deposit types, Carlin and Witwatersrand, formed. One of the byproducts of the inherent uncertainty associated with minerals exploration is an entire industry based out of Vancouver that survives, nay, profits, from the hunt for hidden treasures that very few really understand. The lack of both scientific consensus and explicitly defined parameters for success means the average speculator in this industry believes (hopes) that the discovery process is little more than punching a hole or two into a target that was presented with sexy colored maps by a hotshot geopromoter. But, you may ask, how hard could it be to find a gold deposit? Actually, really hard. An in-house study by Newmont Mining determined that, in www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
One side wants to turn a quick buck or submit a positive quarterly report, while the other gets bogged down in esoteric geologic discussions that have very little relevance to turning a profit. round numbers on a yearly basis, 1 in 1,000 prospects turn up an economic deposit and 1 in 10,000 become a major gold deposit of over 4 million ounces. Many of the reasons behind such a poor success rate have been posted on the EI website and covered in our letters, namely geology, metallurgy, deposit depth, infrastructure, social realities and politics, ad infinitum. The disconnect between the scientific method and speculators’, and all too often mining companies’, desire (need) for immediate gratification is another major reason for the statistically poor rate of discovery. For the most part, the two goals are fundamentally incompatible. One side wants to turn a quick buck or submit a positive quarterly report, while the other gets bogged down in esoteric geologic discussions that have very little relevance to turning a profit. Exploration is a process during which concepts are tested, using someone’s money, in the search for economically viable mineralization. The process needs time to play out, for ideas to ferment and be revised based on the interpretation of new data. It takes years, not months, to understand what Earth did to a deposit during and after its formation. Success requires: 1) The ability to conceptualize a legitimate target that offers the possibility of a meaningful economic deposit. 2) Teamwork and open minds to revise and adjust the exploration target concept based on new data. 3) Money, plus an investor base that is willing to let the exploration process play out. 4) The ability to rapidly recognize and accept failure and walk away from a project
that once held great potential. To me, item number 4 is probably the single most important skill any exploration team can possess, and is the determining factor in buying into an exploration company. We know the odds are long, money is tight, and exploration costly, so it is critical to cut bait ASAP. However, all too many geologists and companies either view their work as a science experiment and treasure hunt, or don’t have the experience or courage to tell their shareholders, “We struck out”. They persist in literally throwing money down a worthless hole. That, my friends, is not the way to make serious money in exploration. Although there are over 1,000 publically traded junior exploration companies, I’ve found that very few possess the four qualities listed above. Additionally, because most speculators don’t have the technical background to differentiate a prospect with legitimate, world class potential from worthless moose pasture, hard earned money goes almost indiscriminately to these 1,000 or so junior exploration companies—at least in a bull market. The net result is that good money is wasted on improbable geologic concepts and properties that, even if “successful”, aren’t worth much. We know this to be a fact; the statistics bear it out. In my consulting years, maybe 70% of the projects I was sent to evaluate were obvious dogs that needed little more than a day on the ground to reject. The fatal flaws were either overlooked by all too enthusiastic geologists, or ignored by fast talking, highly incentivized, promoters. This is how we make money… We also know (and have expounded MicroCap Review Magazine
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Disclaimer
(Gold discoveries 1991 to 2013. Source: Blackrock Natural Resource Team and Bloomberg. Note there is a lag in discoveries and time)
upon many times in past EI issues) that the gold mining industry is not replacing what it mines with new economic deposits (Fig. 2 below). Exploration budgets have been decimated, and fewer and fewer junior companies have the technical and financial resources to afford the time it takes to make a discovery. The pipeline of new deposits is shutting down-- to the point where, eventually, the few companies left standing in this Dust Bowl of a market will be valuable in their own right. If they can find something of economic importance, all the better. Today, and probably through at least the end of 2014, the junior mining and exploration markets are in real financial trouble. The gold price is down, profits almost nonexistent, exploration and development expenditures severely curtailed, and new money extremely hard to come by. The macro questions that investors into this sector need to answer are: 1) Will metal demand increase over the next few decades? 2) Will mining companies need new deposits to replace what is being mined? 3) Will discov-
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eries keep up with production? If the answers to those questions are yes, yes, and no, then, it seems obvious to me that all one has to do to make serious money is to accumulate shares in the best deposits and most competent explorers, and wait. The mining sector has always been cyclical; when we come out of the market bottom, the pressures and issues we have covered above tell me it is going to come out hard and strong. That’s the way I see it.
This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. This letter/article reflects the personal views and opinions of Brent Cook and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Research that was commissioned and paid for by private, institutional clients are deemed to be outside the scope of the newsletter and certain companies that may be discussed in the newsletter could have been the subject of such private research projects done on behalf of private institutional clients. Neither Brent Cook, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/ article. The information contained herein is subject to change without notice, may become outdated and my not be updated. The opinions are both time and market sensitive. Brent Cook, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Brent Cook. Everything contained herein is subject to international copyright protection. n
Brent Cook Economic Geologist and Author Exploration Insights. Brent Cook, a renowned exploration analyst and geologist, is the author of Exploration Insights, (www.explorationinsights.com). He has over thirty years of experience providing economic and geologic evaluations to major mining companies, resource funds and investors. He was principal Mining and Exploration Analyst to Global Resource Investments from 1997 through 2003 where he provided analysis to retail brokers and two in-house funds managed by Rick Rule. He has worked in over 60 countries on grassroots through mine feasibility projects evaluating virtually every mineral deposit type. Exploration Insights is an independent newsletter that discusses what Brent is buying, selling and avoiding in the junior mining and exploration investment sector. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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PROFILED COMPANIES
bringing next generation cryogen-free 1.5t MrI to Market next year, 2015
C
utting Edge Superconductors Inc. is a unique technology company and the story begins with its founder, Mr. Yong-Jihn Kim. Mr. Kim, a Physics Professor at the University of Puerto Rico, Mayaguez Campus, has been working on superconductivity for more than 20 years. Mr. Kim has identified the superconducting mechanism of the new superconducting material, MgB2. In November 2011, Mr. Kim founded Cutting Edge Superconductors Inc. to commercialize his worldwide patented technology and provide industry with the next generation cryogen-free 1.5T and 3T MRI. Cutting Edge produces MgB2 powders, wires, and tapes. These products are used to manufacture magnets for next generation cryogenfree 1.5T and 3T MRI. Our The company’s MgB2 wire technology and products replace NbTi superconducting wire technology in MRI equipment.
cuttIng edge technology benefIts and IMProveMents on current technology The benefits of our product over the currently used ones are the following: 1. The resulting MRI is simple and almost maintenance-free, increasing the lifetime of MRI from 5-7 years to 10-20 years 2. The resulting MRI allows more versatile designs, including the completely open MRI, eliminating claustrophobia of some patients 3. The resulting MRI is helium cryogen-
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free, reducing the installation cost significantly 4. MRI scan cost will be reduced up to 40%, significantly enhancing public health service The current 1.5T (Tesla) MRI uses an old material NbTi which requires 1,700 liter of expensive liquid Helium to operate at a very low temperature, 4.2K (Kelvin). Therefore it is complicated and easily broken, leading to 5-7 years of lifetime and high MRI scan cost. In 2001, a new higher transition temperature superconducting material, MgB2, was found, promising Next Generation Cryogen-free MRI. Indeed, in 2007, three Italian companies produced MgB2-magnet based 0.5T Open MRI. It is in the market now, with a limited success due to lower image quality than that of the current 1.5T MRI. The
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global MRI market size is about $6 Billion in 2014. Cutting Edge Superconductors (CES) has a worldwide patented technology for improving MgB2 wires and tapes, enabling Next Generation Cryogen-free 1.5T MRI. In 2013 and 2014 National Science Foundation (NSF) awarded CES Small Business Innovation Research (SBIR) funding of $180,000 for the feasibility test of the technology. Puerto Rico Science, Technology, and Research Trust provided a matching fund of $210,000. For that purpose CES is collaborating with LUVATA, the leading superconducting wire company, and GENERAL ELECTRIC (GE), the leading MRI company. The following figure shows the MgB2 wire, drawn by LUVATA. Late July, 2014, Cutting Edge Superconductors has successfully proved the
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feasibility and scalability of its worldwide patented technology for next generation cryogen-free 1.5T MRI. The following figure shows the current carrying capacity, i.e., critical current Ic, of its tape as a function of magnetic field, compared to that of Columbus Superconductors. The test was done at the Applied Superconductivity Center at National High Magnetic Field Laboratory at Florida State University. Columbus Superconductor produced MgB2 tapes for the cryogen-free 0.5T MRI. The data was from Braccini et al., Physica C 456, 209 (2007). The tape of CES shows higher critical currents for any magnetic fields and better magnetic field dependence. Better quality control of the manufacturing process of MgB2 wires and tapes will increase Ic a few times easily, leading to Next
Generation Cryogen-free 1.5T MRI. Currently Cutting Edge Superconductors has business partnership with LUVATA and GENERAL ELECTRIC (GE) to manufacture next generation cryogen-free 1.5T MRI. CES desires to provide its license to most MRI companies, such as Siemens, Philips, Toshiba and Hitachi, and most wire companies, such as Columbus Superconductors, Hypertech Research, Bruker EST, and KISWIRE, shown below. Cutting Edge Superconductors announces that the Next Generation cryogen-free 1.5T MRI will hit market next year, 2015. The advantage of Next Generation MRI is almost maintenance-free and 40% reduction of MRI scan cost. In 2013 Cutting Edge Superconductors won the Frost & Sullivan Innovation Leadership Award for Superconductor Technology for MRI. CES business will continue to partner with mass production partners for its patented MgB2 powders, wires and tapes. For more information, please see http://ceswire. com or call Yong-Jihn Kim, President and CEO at 787-955-4361. n The company paid consideration to SNN or its affiliates for this article.
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F E AT U R E D A R T I C L E
Biotech: Year in Review 2013/14 and Mid-Year 2014 Outlook 2013: year In revIeW It is clear that 2013 was one of the best years ever enjoyed by the Biotechnology industry, in the financial markets, ever.
equIty Markets US Biotechnology equities out-performed the broader financial markets which soared to record highs in 2013. Both the AMEX and NASDAQ Biotech indexes almost doubled the performance of the broader exchanges. The share prices of 81 biotechnology companies more than doubled in 2013. In excess of 55 life sciences companies went public on US exchanges last year, representing the largest grouping of such initial public offerings in well over a decade.
Therapeutics companies, which composed 75% of the offerings, increased an average 39.7% from their IPO price. After a blazing hot summer for these new issues, when 20 companies completed IPOs, many of which were upsized, oversubscribed, and likely overvalued, the pace of IPOs cooled towards the end of 2013. Overall financing proceeds generated from IPOs increased by 241.8% from 2012 to 2013, while proceeds from follow-on offerings more than doubled during the period.
Mergers and acquIsItIons Even more amazing is that value of mergers and acquisitions of biotech and medical technology companies climbed more than 20% over the levels seen in 2013, to repre-
n BY SETH YAKATAN
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sent in excess of $131.8 billion in transaction value. Thermo Fisher Scientific’s $13.6 billion acquisition of Life Technologies and Amgen’s $10.4 billion takeover of Onyx Pharmaceuticals were the biggest deals of the year. The top 100 deals alone had a combined value of $150 billion, with 26 deals having a value of or exceeding $1 billion. Most 2013 M&A deals involved big biotech and big pharma companies snapping up smaller companies in order to bolster pipeline and capabilities, a trend which has been a constant theme for the last decade..
Partnering activities continued win the biotechnology area during 2013 as pharmaceutical companies continued to externalize their research operations, gain product pieline, and offset patent losses. 2014: Year to Date
While the public market and M&A activity was at an all-time high in 2013, it was still difficult to raise private capital. Burrill & Co. reported that private life sciences companies raised $11.5 billion globally during 2013, only a modest 2.1% percent more than in 2012. Early-stage financings continued to be difficult.
The biotech sector had a fantastic 2013 (NBI: +65%; S&P: +29%) driven by strong demand for the sector’s key products, many positive phase 3 studies and a wave of successful IPOs. While 2013 was extremely robust from a pubic capital markets and mergers and acquisition perspective, it was about average from the perspective of private capital raises and partnerships. This robust performance has left many investors and participants in the sector seeking more capital and more molecules. It has left many inside and outside the industry wondering what will 2014 bring?
Partnering
Equity Markets
Partnering activities continued win the biotechnology area during 2013 as pharmaceutical companies continued to externalize their research operations, gain product pieline, and offset patent losses. Of the $35.4 billion in potential value of partnering deals with disclosed values, $14.2 billion were discovery or pre-clinical collaborations, often with an option to license when the compound achieved proof-of-concept. The majority of the top 50 largest licensing deals during 2013 were for molecules at Phase II stage of clinical development. In 2013, the top 50 collaborations, partnerships and licenses cost an average of $99 million in upfronts and $641 million in total deal values. Unsurprisingly, up-front payments in 2013 were directly proportional to the stage of development, with less money being paid out for early-stage deals. The question that looms for 2014 is will these trends continue?
Conventional wisdom would provide that the boom seen in 2013 cannot be sustained. Through mid-July 2014 the bull marches on! Q1 2014 saw a record-setting first quarter for the sector which brought in $2.1 billion in biotech IPOs. However , drug developers have had a rough go on Wall Street in recent weeks. Last month, one company pulled the plug on an $86 million offering due to unfavorable market conditions, and three others failed to complete planned offerings that would have totaled nearly $400 million. Now, r 6 additional life sciences companies are lining up to go public this in late July. If all are successful, they’ll bring in nearly $300 million, getting the third quarter out to a promising start.
Private Financings
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Mergers and Acquisitions
companies will be buyers as a way to bolster pipeline with more branded components. Already in 2014 we have seen Actavis is extending its deal spree when it agreed to buy Forest Laboratories for about $25 billion. Given its management troubles and the second-lowest valuation among the 11 major global generics makers there is much speculation that Teva Pharmaceuticals will be taken over during 2014. Drug companies have actively pursued acquisitions and lower tax rates in recent years. Now AbbVie appears to be near a deal for Shire ($SHPG) that would trim its effective tax rate to 13% from about 22%, and medical device giant Medtronic has signed up to acquire Irish rival Covidien in search of similar savings. Seth Yakatan recently joined Invion, Ltd. as Vice President of Business Development. Seth brings more than 24 years of experience as a life sciences business development and corporate finance professional, actively supporting small cap and major companies in achieving corporate, financing and asset monetization objectives through the successful structuring and management of strategic transactions and investments totaling more than several billion dollars in value. Prior to Invion, over the past fiteen years as a cofounder of Katan Associates, Seth has successfully structured and managed strategic alliances and deals, based on his insight and expertise in the US and Global Life Science sector, including numerous buyand sell-side M&A transactions. Seth has authored several publications and lectured and guest lectured at corporate workshop and universities on valuation theory and real-world practice and case studies, and consulted to several state and provincial governments worldwide on commercialization and capital access initiatives. Seth holds an MBA in Finance from the University of California, Irvine and a BA in History and Public Affairs from the University of Denver. Seth enjoys being a Dad to his two children, participating in triathlons and cycling. n
Already this year we see one trend continuing, specialty pharmaceuticals and generics MicroCap Review Magazine
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FEATURED ARTICLE
Porttech a Market-centric approach to clean tech Innovation
A
ccording to the Cleantech Group of San Francisco: “Clean technology represents a diverse range of products and services and processes, all intended to provide superior performance at lower costs, while reducing or eliminating negative ecological impacts, and at the same time improving the productive and responsible use of natural resources.”
n BY JOHN DMOHOWSKI
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Although the economic, environmental and sustainability benefits of clean technologies are accepted and appreciated; key success factors necessary to commercialize these technologies are not as well understood. Clean tech entrepreneurs must overcome a unique set of challenges and constraints in order to develop a marketable physical product and viable business. The difficulties and length of time to adopt new technologies in legacy infrastructure and traditional markets is a long, complicated process due to extended sale cycles and a preference for incremental changes instead of true innovation. Entrepreneurs also do business with industries that often require large-scale infrastructure upgrades while meeting strict regulatory demands. These market challenges are compounded by the fact that engineer founders are focused more on product and technology and not enough on business models, customer development and understanding their potential markets. They lack the institutional knowledge an existing company already has about the marketplace. Within the current investing environment,
businesses with clean tech products are not as attractive as businesses with pharmaceutical and information technologies. The business models, rapid scaling potential, effects of low marginal costs, revenue trajectories, capital efficiency and risk profiles of biotech and IT industry sectors are understood. Investing in clean tech is relatively young with approximately 85% made in the last eight years. In 2013 almost $30 billion of venture capital was invested in approximately 4,000 deals. A little over $7 billion of that was in internet specific deals according to the PwC Shaking the MoneyTree Report. For the last decade, venture capital investors have put almost 25% of their capital into software and slightly more than 17% into biotechnology. Clean technology entrepreneurs are in the business of building things. Actual products require raw materials, mechanical drawing packages, make/buy decisions, parts lists, testing, bills of materials and access to manufacturing facilities that are limited and potentially expensive. In the best cases, the first prototype is good enough to test. In many cases, flaws in design or lack of an
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engineered part or difficulty manufacturing the product or part as designed cause a return to the lab and drafting table. A prototype needs to be produced for proof of concept and often causes a return to preprototype state to be redesigned and tested again. A significant milestone is reached when a startup is ready to produce the first products for pilot projects. Even when designs are solid and prototypes provide the anticipated results, there is no guarantee of startup success. Clean technology entrepreneurs invariably find themselves needing the last and most crucial element – an additional influx of funding after developing a successful pilot process. Access to capital through traditional means isn’t readily available. As clean technology entrepreneurs take on thousands of dollars in debt to reach marketability, attracting angel investors and venture capitalists becomes problematic as the path to profitability extends further into the future. At this point entrepreneurs have exhausted all of their resources.
The Valley of Death, Osawa and Miyazaki, 2006 This prolonged stage from proof of concept to production and market acceptance is www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
commonly referred to as the Valley of Death. While the progression of events from design to marketability is arduous, it’s crucial to creating a clean technology with productmarket fit. Clean technology entrepreneurs take on great financial burdens and must overcome investor hesitation to bring technologies to market. That’s where PortTech Los Angeles steps in to help.
PortTech’s Competitive Advantage PortTech is a commercialization center and incubation program dedicated to creating sustainable technologies that enable ports and maritime-related businesses to meet their environmental, energy, security and transportation goals. Our non-profit orga-
nization brings together entrepreneurs, strategic partners and investors to accelerate innovation, advance clean technologies and create economic opportunities. PortTech provides standard incubator services including management guidance, technical assistance and consulting tailored to emerging-growth companies. PortTech also gives clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services and assistance in obtaining the financing necessary for company growth. After five years, businesses that were nurtured in a business incubator have a survival rate of 87% compared to a 44% survival rate for start-ups without incubator support. Furthermore, 84% of companies that graduate from an incubator stay in the communities where they were incubated. — National Business Incubator Association estimates However, PortTech goes beyond traditional incubator services to address the Valley of Death clean technology entrepreneurs face, which starts with connecting entrepreneurs to the marketplace and potential customers during early stages of development. Instead of going through ideation and research in isolation, PortTech clients have access to port representatives, maritime executives, industry experts, academics and government leaders through trainings, events and oneon-one meetings. PortTech hosts workshops on Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR)
PortTech is a commercialization center and incubation program dedicated to creating sustainable technologies that enable ports and maritime-related businesses to meet their environmental, energy, security and transportation goals. MicroCap Review Magazine
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Entrepreneurs showcase their clean technologies each year during the PortTechEXPO, an event that draws more than 600 people to explore emerging technologies and network with business prospects at Southern California’s ports. grants that feature government representatives who share insider knowledge on how to navigate the federal application process. Bi-monthly forums bring entrepreneurs in direct contact and conversation with service providers, port representatives and investors to discuss technology advancements, business opportunities and needs in the maritime markets. Entrepreneurs showcase their clean technologies each year during the PortTechEXPO, an event that draws more than 600 people to explore emerging technologies and network with business prospects at Southern California’s ports. In conjunction with the EXPO, PortTech holds an Entrepreneur Pitch Competition. Participants receive free coaching from a panel of judges that includes investors, business consultants and representatives from both the Port of Los Angeles and the Port of Long Beach. Past finalists have received greater exposure for their products, won California Energy Commission grants and developed business relationships that led to new opportunities. In addition, PortTech provides entrepreneurs with access to experts at some of the world’s great research universities, including the University of Southern California, the University of California Los Angeles and the California Institute of Technology. PortTech works closely with the Port of Los Angeles’ and Port of Long Beach’s Technology Advancement Program, which is tasked with the responsibility of evaluating and helping fund technologies that support the Ports’ Clean Air and Clean Truck Action Plans.
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PortTech serves as a conduit between the ports and maritime industries helping entrepreneurs become a part of a much greater and interconnected business ecosystem. Many PortTech clients are at the prototyping phase of development, an expensive time-consuming process with limited access to manufacturing facilities. To accelerate the rate at which the market accepts new clean technologies—and thereby accelerate economic development and job growth—this year PortTech expects to launch a collaborative manufacturing and rapid prototyping facility adjacent to the Port of Los Angeles to support entrepreneurs as they move toward product commercialization. According to a study by the University of Michigan, incubator services designed to assist clients with production processes were statistically significant as related to 14 measures of improved client performance. At the top of this list are manufacturing assistance and access to specialized equipment. The prototyping and manufacturing center will reduce the amount of time and money it takes for clients to transition from prototyping to pilot projects where they gain crucial market validation and receive feedback and acquire onsite sales. This will in turn allow entrepreneurs to reduce debt, de-risk product development and help them traverse the Valley of Death. By 2020, PortTech plans to be the nexus of a thriving technology and advanced manufacturing-based business cluster focused on addressing the global challenges and opportunities of Port and maritime-related
industries worldwide while providing an economic development engine in the Los Angeles region surrounding the Port complex of Los Angeles and Long Beach. PortTech’s secret sauce is a set of tailored practices, partnerships, events and connections to investors, customers and industry leaders with a vested interest in clean tech startup success. These methods, relationships and activities enable PortTech clients to accelerate product development, product launch and market acceptance in maritime oriented enterprises—as difficult a market space as most startups will encounter. It is driven by the recognition that these types of startups need to generate revenue as soon as practical and do so as effectively as possible. It is by design that entrepreneurs and companies graduating from PortTech emerge on the upslope of the Valley of Death intact, generating revenue and growing smartly. John Dmohowski is a serial entrepreneur, early stage executive, leader, designer, developer and startup guru in technology-based businesses. He has over 20+ years of founding, developing and managing technology-based enterprises. His expertise in founding and consulting extends from concept through fundraising to launch for a dozen start-up organizations and advisor to dozens of start-ups and emerging growth companies. Through these companies, he has raised $40M+ in institutional investment and participated in two liquidity events. He currently sits on the Board of Directors of the Los Angeles Venture Association (LAVA). Among his many associations, John co-chairs the Green LAVA special interest group. n
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Semi-Annual adds & subtracts of FINRA Members Jul 2014, as of 30 June
compiled by DAVID ALSUP Financial Industry Broker Dealer data Aggregator
2014 Jan-June: 84 New Formations... and 119 Withdrawals. 2013 Jan-June Stats 58 New formations… and
125 Withdrawals
(The three-year average is 10.6↑ New Formations and 22.3↓ Closures per month.)
84 New Firms were admitted. (Jan-June)
24 Firms admitted will trade equities 46 firms admitted were Private Placement firms 9 firms admitted were classified as “Other” 5 were Mutual Fund firms
119 Firms Withdrew (Jan-June) 65 were equities trading firms.
28 were Private Placement firms 19 firms were classified as "Other" 9 were Mutual Fund/MF Sponsor firms 62 firms had less than TEN reps 13 firms were involved in a CONSOLIDATION
Monthly chart showing the number & types of firms admitted.
Monthly BDW Chart showing the number & types of firms that are closing.
As of June 30, 2014, there are 4187 FINRA Member firm CRD Numbers. (Note: There are some bankrupt firms still carried in CRD, such as Lehman Bros, & MF Global.) The above data has been sourced from regulatory agencies publications' and statistics, along with some independent third parties. While it is believed to be reliable there can be no guarantee of the accuracy of the data. The numbers have been cross-checked for accuracy, and they should be within plus/minus two percent. For example, there may be as many as 8 firms NOT included in these statistics and NOT reported that filed for a BDW prior to June, 2014. David Alsup 949-468-0111 david@fishbowlstrategies.com
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MicroCap Review Magazine
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COMPLIANCE CORNER
Capital Raise Red Flags – The Top Four Financing Scams on Securities Issuers
C
ompany executives, do not let your desperation for operating cash blind you to these four typical financing scams
perpetrated by finance promoters: the Rule 504 offering, the debt-conversion, the “backdoor offering,” and the Section 3(a) (9) court-approved offering.
Each financing scenario is legitimate in a properly conducted transaction, but each method is frequently misused at the expense of the issuer. Fueling the deception on company executives is the probability that they have heard of these financing terms or transactions and therefore assume their propriety. However, finance promoters have misused the legitimate techniques to trick issuers into participating in illegal unregistered stock distributions. In each scenario stock issuers are duped into issuing pur-
n BY RUSSELL C. WEIGEL, III
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portedly “free-trading” stock, which often enables the promoters to reap large returns from dumping cheap stock but exposing the issuers and distribution participants to SEC enforcement actions.
the rule 504 offerIng. In December 2012, the SEC took the position in litigation that “Minnesota” Rule 504 offerings conducted for the purpose of issuing free trading stock are illegal in circumstances where the stock issuance transaction is not registered in Minnesota. News of this situation is not widely known. Rule 504 for many years has provided that stock issued in accordance with its requirements may be free trading if it is registered in a state where advertising and general solicitation of the offering is permitted, or where the buyer’s state does not require registration when the stock is issued to an accredited investor in a transaction that allows advertising and
general solicitation of the sale. Without any prior published guidance to my knowledge, the SEC took the position in litigation that Minnesota’s blue sky provisions did not meet the requirements of Rule 504. Therefore, the issuer had issued stock in an illegal Rule 504 transaction in violation of the federal registration requirements. Minnesota was the last state to my knowledge that arguably qualified for the Rule 504 free-trading result. Issuers should beware promoters or financiers promoting Rule 504 transactions and claiming that free-trading stock can be issued. Being on the wrong side of this scenario can result in an enforcement action against all participants in the transaction, including the issuer and its management.
the debt-conversIon. The debt-conversion transaction is often pitched to issuers by a financier who claims to have purchased the Company’s corporate www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
debt and now wants to exchange the debt for free trading stock. Rule 144 permits a swap of debt for equity provided that the original security has been held for at least one year. Trade debt, however, is not the investment security envisioned by Rule 144. Thus, an issuer that issues its stock in exchange for trade debt can only issue restricted stock to the trade debt-holder. Issuing unregistered stock without a qualifying transactional exemption from registration, of course, is illegal. The debt-conversion transaction is often coupled with a promise by the financier to loan the issuer some part of the proceeds from the ensuing sale of illegally issued stock as additional inducement.
the “backdoor offerIng.” The backdoor offering is a transaction typically involving a promoter, an existing company shareholder, and a public company. The shareholder is induced to sell his free trading shares, usually directly through his brokerage account, and remit the proceeds to the promoter and the public company in exchange for receipt of replacement restricted shares. This backdoor offering is deemed by the SEC to violate the spirit of the registration requirement because the selling shareholder acts as a conduit for the account of the issuer and not for his own account. It is therefore an illegal transaction that violates the registration requirement.
Each of these four scenarios is real. Before engaging in an unsolicited financing transaction, no matter how badly your company needs working capital, consult competent securities counsel before leaping at a financing offer. ing requirement of Rule 144. The issuer is required to sign court-documents which may well be filed with a court for “settlement-approval.” These transactions rarely are properly conducted in accordance with applicable SEC guidelines, although courts may well authorize the transactions. Even if a court approves the transaction, an improperly conducted transaction may still subject the issuer to the risk of an enforcement action for unregistered stock sales. Each of these four scenarios is real. Before engaging in an unsolicited financing transaction, no matter how badly your company needs working capital, consult competent securities counsel before leaping at a financ-
ing offer. The cost of a legal review is far less than the cost of hiring defense counsel to fight SEC charges, and fighting unregistered stock sale charges brought by the SEC are difficult or impossible to defend. Just be smart. Doing business as InvestmentAttorneys, the law firm of Russell C. Weigel, III, P.A. practices corporation and securities law nationwide and specializes in taking companies public, helping public companies prepare SEC filings and stay compliant with federal and state securities laws, preparing transaction and disclosure documents for Rule 506 offerings, and defending issuers and other securities industry participants from SEC and FINRA enforcement actions and from customer arbitrations. Russell C. Weigel, III, was a branch chief and special counsel at the U.S. Securities and Exchange Commission and served during the years 1990-2001. n
StockWord Puzzle answers TM
the sectIon 3(a)(9) courtaPProved offerIng. Section 3(a)(9) of the Securities Act of 1933 classifies stock as exempt from registration if it is issued in a transaction approved by a court. Debt-conversion transactions in which otherwise restricted stock are properly issued in exchange for trade debt are frequently consummated with a proviso that a court must approve the transaction. The game here is to convert the restricted stock immediately into free trading stock and thereby avoiding the one-year holdwww.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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COMMODITY CORNER
Waking Up to the Coffee Market
W
e drink it every day; we love the flavor in various foods and beverages, we use it to wake up in the morning and we “grab” a cup for meetings.
Coffee also known as Coffea, is one of the largest commodity markets in the world, but what do we really know about it? It is believed coffee plants originated in the Ethiopian province of Kaffa. By the 15th century, via the port of Mocha, coffee was cultivated in Yemen. By the late 1600’s coffee was discovered by consumers around the world with the Dutch often given credit for introducing the product to various countries. By the 1830’s Brazil became the largest producer of coffee. By the early 1900’s Colombia became a global producer. The opening of the Panama Canal was influential to Colombia’s exporting. According to the Commodity Research Bureau Yearbook, Puerto Rico and Hawaii are the only two areas of the U.S. for sizeable coffee production. It is a slow production cycle as the coffee plant will not produce the
first full coffee bean crop until it is five-years old. After 15 or 20 years the plant loses productivity. In an average year, a coffee plant produces enough beans to make an estimated 1 ½ pounds of roasted coffee. Interesting to note, wine was the first known drink made from coffee cherries, honey and water.1
In some less developed countries, coffee exports may account for more than 50% of the country’s foreign exchange earnings. In some coffee producing countries, the product is considered second in value only to crude oil as a source for foreign exchange.2 A few historical notes; the Boston Tea Party
Chart 1: NY Coffee (KC) monthly nearest futures contract basis May 2014 from February 1989 to February 2014.
n BY MARK SHORE Source: www.barchart.com
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Table 1: Lists the top 10 countries of coffee production 2010—2011 crop year, ranked by thousands of bags. One bag weighs 60 kilograms (132 pounds). Total Beans Brazil
Arabica Beans Brazil
54,500
41,800
Robusta Beans Vietnam
18,150
Vietnam
18,725
Colombia
9,500
Brazil
12,700
Colombia
9,500
Ethiopia
4,400
Indonesia
7,950
Indonesia
9,325
Honduras
4,000
India
3,600
India
5,100
Peru
4,000
Cote d’Ivoire
2,100
Ethiopia
4,400
Guatemala
3,900
Uganda
1,900
Honduras
4,000
Mexico
3,500
Malaysia
1,000
Peru
4,000
Nicaragua
2,000
Thailand
900
Guatemala
3,910
El Salvador
1,700
Cameroon
525
Mexico
3,700
Costa Rica
1,575
Togo
525
Total
117,160
Total
76,375
Total
49,350
Source: Bloomberg News http://www.bloomberg.com/news/2011-08-19/world-s-top-10-coffee-producing-countries-in-2010-2011-table-.html and USDA
futures prices over the last 25 years of New York Arabica coffee. As noted, the volume and open interest continues to increase, especially since 2002. Coffee, similar to other commodity markets is a mean-reverting market. It tends to rally to quick spikes of high prices and then gradually falls back to an average or equilibrium price. 2014 started the year with a rally. As of February 13, 2014 Coffee is up 26.2% in 2014.4 According to the International Coffee Organization5, Coffee is part of the Rubiaceae botanical family. Arabica coffee (about 60% of world production) and Robusta coffee,
was planned in a coffeehouse, the NYSE, the Bank of New York and London Stock Exchange began in coffeehouses. In 1882 coffee futures began trading on the New York Cocoa Exchange. Later part of the New York Board of Trade and acquired by the Intercontinental Exchange (ICE) in 2007. Arabica coffee futures are traded in NY and at the Brazilian BM&F Bovespa. Robusta contracts are traded at the NYSE-LIFFE London exchange. Spreading strategies of the contracts are common between these exchanges.3 Chart 1, contains the monthly nearest
economically are the two most important of at least 25 known species of coffee. Lesser known and grown on a smaller scale are Libercia coffee and Excelsa coffee. Coffee plants cover the spectrum from small shrubs to large trees. The leaves tend to be dark green, yellowish, bronze or with some purple. After viewing Table 1, you may ask yourself, I hear the terms Arabica and Robusta all the time, and drink it often, but what is the difference? Arabica and Robusta were first described about 1753 and 1895 respectively. Robusta plants tend to be more resistant to
Table 2: Lists the differences between Arabica coffee and Robusta coffee Arabica
Robusta
Time from flower to ripe cherry
9 months
10 to 11 months
Flowering
After rain
irregular
Yield (kg beans/ha)
1,500-3000
2,300 to 4,000
Root System
Deep
Shallow
Optimum temperature (yearly average)
15-24° C
24-30° C
Optimal rainfall
1,500 to 2,000 mm
2,000 to 3,000 mm
Optimum altitude
1,000 to 2,000 m
0 to 700 m
Caffeine content per bean
0.8% to 1.4%
1.7% to 4.0%
Shape of bean
flat
oval
Brew characteristics
Acidity
Bitterness, full
Body
Average 1.2%
Average 2.0%
Source: http://www.ico.org/botanical.asp
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MicroCap Review Magazine
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Table 3: Top 7 countries and regions of coffee consumption and import in the 2012/13 crop year 2012/13 Yea Crop Yearr
Consumption
Import
European Union
43,805 European Union
44,890
United States
23,447 United States
23,360
Brazil
20,615 Japan
7,460
Japan
7,450 Switzerland
2,340
Philippines
4,275 Canada
2,330
Russia
4,070 Russia
2,025
Canada
3,555 Algeria
1,900
three decades, especially in the last 10 to 15 years. As long as consuming countries are importing similar numbers as they are consuming, it causes constant pressure for exports to be maintained and for commercial end-users or distributors to hedge their commodity price risk. The next time you sit down for a cup of coffee, or “java” or “joe” with some friends, you can discuss how this simple drink is such a meaningful commodity both in history and to several producing countries.
Source: USDA http://apps.fas.usda.gov/psdonline/psdHome.aspx
disease than Arabica. The Arabica coffee plant tends to be a large-sized bush with dark green oval leaves and oval fruit. The flat seeds inside the fruit are the coffee beans. The plants are commonly grown in Latin America, Central and East Africa, India and to a lesser degree in Indonesia. The Robusta plant may be either a shrub or a small tree. The fruits are rounded and the seeds are oval. Robusta is commonly grown in West and Central Africa, South-East Asia and to a lesser degree
in Brazil. As noted in Table 3, the largest consumers of coffee tend to be the largest importers. They will import about as much as they consume each year. Any negative supply shocks will likely influence an upward price movement. Many commercial distributors of coffee, such as retail stores tend to hedge in the futures or forward markets to reduce commodity price risk. Chart 2 demonstrates both coffee production and exporting is growing over the last
Chart 2: Coffee production and exports from 1979/80 to 2012/13 crop year per thousands of bags
Source: USDA
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MicroCap Review Magazine
(Endnotes) 1 http://www.barchart.com/commodityfutures/ Robusta_Coffee_10-T_Futures/profile/RM*1 2 h t t p : / / w w w. i co. o r g / co f f e e _ s t o r y. asp?section=About_Coffee 3 https://www.theice.com/publicdocs/ICE_Coffee_ Brochure.pdf 4 www.signalfinancialgroup.com 5 http://www.ico.org/botanical.asp Copyright ©2014 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. His research is found at www.shorecapmgmt.com Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a graduate level managed futures/ global macro course. He is a board member of DePaul University’s Arditti Center for Risk Management and a frequent speaker at alternative investment events. He is a contributing writer for the Eurex Exchange, CBOE Futures Exchange, Reuters HedgeWorld, Yahoo.com, Examiner.com and Micro-Cap Review. Prior to founding Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM) in NYC, where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, he was the Chief Operating Officer of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($250 million AUM) of Morgan Stanley. Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy. Mr. Shore graduated from DePaul University with a degree in Finance. He received his MBA from the University of Chicago. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions. n www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
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V I E W P O I N T S n BY JACK LESLIE
ombudsman T
he crossroads for the
economic growth of the U.S. is at a critical point.
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MicroCap Review Magazine
The crossroads for the economic growth of the U.S. is at a critical point. In order for the cycle to stay on course, vigilance is imperative. Regulatory agencies have sent mixed signals to the market. Crowd funding is being presented as a solution to the troubled equity raising dilemma of emerging growth companies. The Broker Dealer community must abide by strict guidelines to advertise and market their services must pass exams and constantly face regulatory scrutiny which requires recurrent training to maintain their licenses. What training is required for someone to put up a site and offer a service to the potential client that wants to raise funds through crowd funding? I have recently attended a few seminars that offer services to the executives trying to raise capital. The “expert” presenters were not licensed, some provided tax advice, some gave legal advice, some simply ask for money for the company to list on a website that would be set up for them. The concept that initial funds must come from families and friends was presented in a meeting in recent weeks by a company attempting to sell their services as a provider for crowd funding was very interesting to me. When does a solicitation to raise money require a license and when does it require some credential verification of the parties offering these services? Who will come to the aid of an investor or the company paying for these services if the service provider misrepresents the company? What about verification of the company information? Who is setting up Due Diligence? Who is checking for any bad actors raising money? A number of states are regulating after the fact. Some states have proposed a limit of $5,000 per year, per person, to invest in a company which is in their state and only through a portal using an escrow account at a bank. To me this seems reasonable unless the investor has borrowed money from their credit cards then all bets are off. This brings up the FINRA suitability requirements which apparently do not apply to crowd funding, service providers, or investors in crowd funding entities. In large part required Disclaimers are also missing in most power points I observed. Crowd funding opportunities may exist for the Broker Dealer community. As licensed participants they could and should offer consulting services to potential clients and set parameters for existing clients when they want to invest through crowd funding and specifically they must be available to answer questions that apply to your state only. For FINRA members, many services they provide would potentially lead to finding new clients and give them further a reason to call their existing clients. My advice is to be proactive or someone else will. These crossroads can be a stepping stone to industry changes in the current environment and help grow profitability for the Broker Dealer enterprise. Change is inevitable, so embrace it and follow the course in a new direction which could be successful. Lastly, use a creative approach to find good transactions for your accredited investors and make yourself visible in this environment. n
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F E AT U R E D A R T I C L E
A Primer on Public Company Disclosure Through Social Media Websites The Do’s and Don’ts for Compliance with Rule FD
A
s technology evolved and electronic communication became standard, issuers were presented with alternative means of communication and disclosure. The Securities and Exchange Commission (the “SEC”) realized the need to integrate new technologies into its rules and regulations regarding filing of SEC reports and disclosure in order to promote efficient and transparent capital markets.
n BY LAWRENCE G. NUSBAUM
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The SEC, to its much deserved credit, has not only recognized the changing landscape, but also adopted releases and amendments to its rules and regulations and published guidance to assist practitioners and public companies in keeping up with the ever evolving and rapidly changing electronic communication technology. The SEC’s rules and regulations regarding how public companies file required periodic reports and disclose required information to the investing public have been particular areas where the SEC has recognized the need for integration of new technologies to meet the needs of public issuers and the investing public in the 21st century. Advancements in technology have also dramatically altered certain areas of the securities industry, including providing public companies with alternative disclosure methods of disseminating required disclosure to the investing public. As a result questions over less traditional means of public company disclosure have arisen.
One of the basic principles of the federal securities laws, is full and fair disclosure by issuers subject to the reporting requirements of the Securities and Exchange Act of 1934 as amended, (the “1934 Act”), when involving sales of its securities and/or “material” events. For many years after the adoption of the Securities Act of 1933, as amended (the “1933 Act”), and the 1934 Act, SEC rules and regulations regarding public disclosures were easily adhered to by public companies. The standard process for disclosing material events was that the issuer would issue a press release on a major news wire while simultaneously filing a Current Report on Form 8-K (an “8-K”) and either attach the press release as an exhibit to the 8-K or disclose the information within the body of the 8-K. In 2000, the SEC adopted Regulation FD which generally provides that public companies disseminate material information to the public in a manner such that all investors have equal access to such information at the same time. The SEC, through MicroCap Review Magazine
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regulation FD, sought to eliminate selective disclosure, a situation where certain investors received material information about a public issuer before other investors. A public issuer, when a material event occurs, must publicly disclose all such material information in a manner reasonably designated, in a non-exclusive methodology, to provide all investors concurrent access to the material information.1 Publicly disclosing material information ensures an equal and equitable marketplace for all investors looking to purchase and/or sell securities of an issuer. In 1993 the SEC mandated the electronic filing of certain required reports and other documents through EDGAR with the adoption of Regulation S-T.2 In June 2003, the SEC took the electronic filing mandate one step further by requiring Forms 3, 4 and 5 be filed on EDGAR. In Release No. 33-8230 the SEC explained their rationale: “Mandated electronic filing benefits members of the investing public and the financial community by making information contained in Commission [SEC] filings available to them minutes after receipt by the Commission [SEC].”3 The release also mandated posting of Forms 3, 4 and 5 by public issuers that maintain a corporate website on their website by the end of the business day following the filing with the SEC. The SEC explained in the release that “one objective of the amendments is to encourage availability of this information in a variety of locations, so that it is broadly accessible.”4 In January 2009, the SEC continued to update filing standards as different technologies were introduced and /or improved in furtherance of the SEC’s goal to promote efficient and transparent capital markets. 1 Selective Disclosure and Insider Trading, S.E.C. Release Nos. 33-7881, 34-43154, and IC- 24599, 73 S.E.C. Docket 3, 2000 WL 1201556, at *7 (Aug. 15, 2000) 2 Rulemaking for Edgar System, S.E.C. Release No. 33-6977, 1993 WL 57730 (Feb. 24, 1993) [58 FR 14628]. 3 Mandated Electronic Filing and Web Site Posting for Forms 3, 4 and 5, S.E.C. Release Nos. 33-8230, 34-47809, 35-27674, IC-26044; File No. S7-52-02, 68 FR 25788-01, at * 25789 (Tuesday, May 13, 2003). 4 Id., at p. 25789
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Publicly disclosing material information ensures an equal and equitable marketplace for all investors looking to purchase and/or sell securities of an issuer. The SEC adopted rules requiring public issuers to post their financial statement information to their websites and filed with the SEC in XBRL (eXtensible Business Reporting Language) format in order to improve the usefulness of such information to investors.5 Instead of treating financial information as a block text, XBRL enables automated processing of business information by computer software. In this format, the information contained in financial statements can be downloaded directly into spreadsheets, searched and analyzed in a variety of ways using commercial off the shelf software, and used within investment models in other software formats.6 Effective in August 2008, the SEC released new interpretive guidance for public issuers regarding disclosure on such issuers’ website in accordance with federal securities laws. The release provides guidance as to when posting data or information on a company’s website is ‘public’ for purposes of Regulation FD. As companies began to disclose information on their websites, the SEC apparently determined that an unfair advantage could be given to certain investors if such investors knew where to look for material information posted by a public issuer while other investors are unaware when or if such material information was posted by the public issuer. In the guidance release the SEC focuses on the actions a company takes to inform investors that the company will post material public information on its website, and the manner in which the information is posted in order to determine whether a compa-
ny’s website posting satisfies Regulation FD. The release explains that “…in evaluating whether information is public… companies must consider whether and when: (1) a company web site is a recognized channel of distribution, (2) posting of information on a company web site disseminates the information in a manner making it available to the securities market place in general, and (3) there has been a reasonable waiting period for investors and the market to react to the posted information.”7 According to the SEC’s guidance release, a company’s website will be considered a recognized channel of distribution when the company has made an effort/taken steps to inform the market that it will use its website to disclose public information. For companies whose websites are known to investors as locations of company’s information, dissemination is determined by (1) the manner in which the information is posted on a company’s website and (2) the timely and ready accessibility of such information to investors and the markets.8 For the first two items, the release lists non-exclusive factors that companies should consider when making a determination whether the website is a recognized channel of distribution and whether the information released on a company’s website is adequately disseminated. The list includes factors such as whether the company adequately markets its website as a location for important information about the company, how does the company regularly disclose information about itself, and whether the investor information disclosed
5 Interactive Data to Improve Financial Reporting, S.E.C. Release Nos. 33-9002, 34-59324, 39-2461; 2009 WL 223616, at *1 (Jan. 30, 2009). [74 FR 6776]. 6 Id., at p.1
7 Commission Guidance on the Use of Company Web Sites, S.E.C. Release No. 34-58288, 2008 WL 4068202, at *6 (Aug. 1, 2008). 8 Id., at p.6 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
on the website is easy to find and use.9 If the first two elements are satisfied, the information on the company website will be deemed properly publicly disclosed once investors are given a reasonable waiting period to react to the information. The 2008 release’s recognition of a company’s website as a possible location for dissemination of material public information led to questions as to how the SEC’s 2008 Guidance applies to disclosures made through social media sites. With the rise of social media sites like Facebook and Twitter, companies increasingly used social media to communicate with shareholders and the market in general.10 In 2013, the SEC tackled the issue of disclosure through social media in SEC Release No. 69279. The release addressed the issue of whether the posting of material information on a public company or its executive’s social media page constituted selective disclosure under Regulation FD. The issue was triggered when the CEO of Netflix, Reed Hastings, disclosed on his Facebook page that Netflix’s monthly viewing exceeded one billion hours for the first time in June 2012.
The SEC indicated that this information was material to investors as the amount of time viewers spent streaming showed “widespread adoption and usage of the service.”11 Mr. Hastings had never disclosed company metrics on his Facebook page before, and Netflix had not previously taken steps to inform the investing public that Hasting’s Facebook page would be used to disseminate Netflix company information.12 At the time, Hastings’ had over 200,000 Facebook followers, including securities professionals. In the release, the SEC explains that issuer communications made through social media channels must be analyzed for compliance in accordance with Regulation FD, thus the Commission’s 2008 Guidance is as applicable to social media channels of corporate communication as it is to disclosure made through the company’s website.13 The 2008 and 2013 releases present public companies with alternative disclosure mediums in corporate websites and social media platforms, yet public companies should not risk violating Regulation FD by solely disclosing material public information on a single alternative disclosure medium unless
9 Id., at p.7 10 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings, S.E.C. Release No. 34CBIIC Ad_CBIIC 6/13/2014 4:49 PM Page 1 69279, 2013 WL 5138517, at *1 (Apr. 2, 2013).
11 Id., at p.3 12 Id., at p. 4 13 Id., at p.7
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the Company has consistently informed the investing public in its filings with the SEC and in public releases that the Company may, and reserves the right to, disclose material information on specifically disclosed websites and social media sites that are available and accessible to the investing public. The SEC should be credited for proactively integrating new technologies, such as social media, to help ensure the promotion of efficient and transparent capital markets but it is essential for public companies to realize that Regulation FD isn’t necessarily satisfied by disclosing material public information though alternative disclosure mediums. Accordingly, while alternative means of disclosure may present attractive and less burdensome options for disclosure, public dissemination of material information by public companies seeking to avoid possible regulatory issues in the 21st century should strongly consider disclosing public information through both alternative and standard disclosure methods in order to ensure compliance with Regulation FD. Moreover, in order to use such alternative disclosure methods, public companies should consistently and prominently disclose in their SEC filings and press releases the specific websites and /or social media sites where the Company and/or its affiliates may disclose material information about the Company and ensure that the public is able to view such material information on such sites with equal access and at the same time. Lawrence G. Nusbaum is a name partner of Gusrae Kaplan Nusbaum PLLC and the Department Head of the Firm’s Corporate/Securities practice. Mr. Nusbaum is one of the leading corporate/securities and transactional attorneys in the United States with more than 25 years of experience representing public and private, domestic and international entities, broker-dealers, investment banks, hedge funds, private equity firms, high net worth individuals, registered representatives, financial advisors, officers and directors, board of directors and special committees in a wide range of corporate and securities matters. For more information about Mr. Nusbaum or Gusrae Kaplan Nusbaum PLLC please visit their website: GusraeKaplan.com n
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F E AT U R E D A R T I C L E
Silver in 2014 Setting the Stage for the Big Move
I
have often discussed the concept of the “Paper Paradigm versus the Physical Reality” of the precious metals. A sea change in the ongoing
disconnect between the price (and availability) of physical gold and silver in relation to the increasingly theoretical “price discovery” of the paper markets – futures, leased gold, ‘hypothecated’ gold, etc. is currently underway.
n BY DAVID MORGAN
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I have long stated that “the day of reckoning” is when the physical market begins to seize up– we’re not quite there yet, but the signs are becoming more pronounced. Mark my words, before the end of this year – 2014 - the crowd of disbelievers is going to be a lot smaller than it is right now. The disconnect started coming to people’s attention last year when Germany’s Central Bank requested the return of a relatively small amount (about 300 tonnes) of the reported 1,500 tonnes of gold the U.S. Federal Reserve had supposedly been storing for them for the last 50 years. The time frame reported is seven years to return this gold. Some imply Germany knew it would take this long due to swap and lease agreements, but others say—are you kidding? Soon thereafter, Switzerland began considering whether or not its foreign-held gold should be returned. Austria has asked for an audit. Is this a “repatriation trend” in the making?
confIdence – backbone of the central banks’ Playbook The Powers that Be absolutely need the public to retain confidence in their pronouncements. Whether it’s reporting on the unemployment rate, housing starts, the inflation rate - or their supposed gold holdings, “confidence” (belief/ trust) is everything. The Internet’s global reach “force multiplier” has placed everything governments say and do - or don’t do - under a microscope. Discrepancies get out more quickly than ever before. And it’s only going to get worse – for them. Don’t forget that the term “confidence” contains the term “con” – in this case the possibility of a “scam”, “confidence” or “con game”. Are the increased levels of precious metals’ buying by the public due to a decreasing amount of confidence in what the authorities are saying? Could this be connected to the spreading belief, that the ‘banksters’ are running a confidence game – at the public’s expense? www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
In 2013 and so far in 2014, record sales of American Silver Eagles Last year, sales of American Silver Eagles, and Canadian Gold and Silver Maple Leafs in the West set annual records. Bears, long arguing that precious metals are in a “bubble” have a difficult time explaining why, if this is so, people continue to buy more at a fast clip even as prices decline. Though North Americans as a group are scooping up record numbers, it is unlikely that more than a small percentage of us hold any precious metals at all. Much of what little the average person did have – in the form of jewelry - has found its way into the hands of the “We Buy Gold and Silver Here!” operators. However, I believe the time is now approaching when this outlook will change – dramatically.
came to 6,125 tonnes - up 189% over the previous year.) How many tea leaves like this does a person have to read in order to get the picture?
What fully confirms the return of the secular bull market trend? While signs abound that the lows for gold, silver and many of the quality mining stocks were printed in late June, 2013, there are still
caution flags flying which should temper investors’ desire to bet the farm and go “all in”. As this is being written, silver prices are probing earlier lows around $18, and gold is acting weak as well. Frankly I expected to see more strength in this area, even though early summer tends to be seasonally soft for the metals. It’s important to understand however that much of what is now going on involves “chart painting” by the so-called “Flash Boys” – High Frequency Traders using computer-generated algorithms to move the markets back and forth. One insidious tactic is to submit a large series of small orders staccato fashion, soaking up the bids and hammering a stock lower. Another questionable approach involves placing a large order – which spooks other participants into selling – and then withdrawing that same order before it’s actually filled. As GATA’s Chris Powell has so famously said on a number of occasions, “There are no longer markets, only manipulations.” So while charts are still important to watch, they should be regarded as only one factor in the decision-making process. Focus your eyes on the bigger, longer-term picture. Keep
India made a pivot from gold to silver Last year after India, in an effort to restore its balance of payments and strengthen its currency, imposed a severe tax on gold imports, silver imports went through the roof. In the first 5 months, at least 2,400 tonnes – equivalent to 10% of global silver production, found its way onto India’s shores. (This March, India’s custom’s department DGCIS, reported that total silver imports for 2013 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com
Spot Silver Weekly
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While there is still time – with the price, premiums and availability of physical silver at reasonable levels – empower yourself by trading some of those “paper promises” in your wallet for a nice stack of “physical reality”. accumulating physical metal on a regular basis. 3 billion people in Asia continue to do so… One still needs to be patient, because even after the summer price support testing season finishes, a series of layers above current gold and silver price levels need to be successfully challenged and penetrated – I’d like to see at least three days on a closing basis above each one – in order to let us know with some authority that we are correct in our bigger picture analysis. The most crucial “ceilings” to be taken out decisively are the areas around $1,450 - $1,550 gold and $26 - $28 silver. How vigorously this is done will determine when the so-called “golden cross” of the 50 Day Moving Average rising above the 200 Day MA – which many traders see as proof of a major trend change – comes about. Above these levels are resistance layers spot silver charts show them up into $42.50), where tired, old longs now underwater on their positions, as well as new short sellers, can be counted on to do some active trading. Then the price can move up the proverbial “wall of worry” as it attempts to surpass $1900 gold and $48 - $50 silver. Thereafter, on a thrust into new all-time nominal high ground, I fully expect to see the public mania we’ve all been anticipating, to begin shifting into high gear.
Don’t wait for solutions outside of yourself… In one of my recent media interviews, I stated the following:
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No silver in this “Monster Box”
We’re going to see more and more people wake up to the reality, that regardless of what spin-doctors in the mainstream financial press say, things are not really better – there really isn’t a recovery going on – so what’s the solution? The solution starts with a change that you can make on a personal basis. For most people, this means acquiring hard assets that are totally outside the banking system. While there is still time – with the price, premiums and availability of physical silver at reasonable levels – empower yourself by trading some of those “paper promises” in your wallet for a nice stack of “physical reality”. Hold in your hand “money”, which can serve as both insurance and assurance against the ravages of government-induced inflation. If things really start coming unglued, you’ll be able to spend a portion of your stash, keeping your financial ship from capsizing during the increasingly rough economic waters building on the horizon. We’ve witnessed a base-building/extension run in the better miners from the “soldout” levels prevailing as December closed the year. Prices decline begrudgingly and bounce back on the smallest excuse into a new uptrend on good volume – supporting the idea that accumulation by deep pocket players is taking place - just the kind of market action we want to see. Mining companies offer the opportunity of substantial capital gains for sophisticated investors. The leverage of these equities is often two to three times that of the metals. This means that a ten percent move up in gold translates to a 30% move in a good
quality gold stock. At The Morgan Report we divide our Asset Allocation table into Top Tier, Mid Tier, and Speculations (small cap) sections, in an effort to help you sort out those choices. While risk is highest with small cap companies, rewards can be tremendous. Many of our earlier picks in this sector went on to become mines and the rewards for shareholders were tenfold or greater. We have had quite a number of successful picks, and frankly a few companies that now cease to exist. But if the balanced approach stated in “How to use The Morgan Report” is followed, our subscribers should find that the winners more than make up for the losers! Stop looking at things in the rear view mirror and turn your eyes, thoughts and behavior forward. Get some metal into your possession. Research the mining sector in selective segments like we do at The Morgan Report. As we move deeper into 2014, my strongly considered opinion is that you’re going to be very happy you did. David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is publisher of The Morgan Report and is a featured speaker at investment conferences in North America, Europe and Asia. Go to www.TheMorganReport.com for more information. n
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