microcap review winter/spring 2015

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WINTER/SPRING • 2015 microcapreview.com

$5.00

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

Newtek Business Services Corp.Page 6

NASDAQ: NEWTCEO, Barry Sloane

www.thesba.com

16 Why Gold Is Edging Higher, and Oil and Copper Remain Cheap By Rick Rule

28 Why You Must Invest By Charles Payne

WINTER/SPRING • 2015

Cesca Therapeutics Inc.Page 54

NASDAQ: KOOLPresident, Kenneth Harris

www.cescatherapeutics.com

Fission Uranium Corp.Page 62

Matinas BioPharma Holdings, Inc.2

OTCQB: MTNBCEO, Roelof Rongen

www.matinasbiopharma.com

TSX: FCU OTCQX: FCUUFCEO, Dev Randhawa

www.fissionuranium.com

36 Finding the Next Great MicroCap By Neil Cataldi

25 Non-Cash Costs Can Sink the Ship By Corey Fischer

52 What Millennials Need to Know About Investing in MicroCaps By Robert Kraft

www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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E D I T O R I A L

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

Since our beginning, we have strived to bring to our readers a magazine designed to be interesting, poignant,

timely, current and informative with subject matter we believe is topical. The magazine’s staff, writers, columnists and editors are in the trenches with an ear to the Street gathering noteworthy and newsworthy content.

Each issue of MicroCap Review magazine comes together like a mosaic of the MicroCap stock market landscape, piece by piece. The process begins with the featured companies on the premium pages. In this issue, we are featur-ing four companies: Newtek Business Services Corp., “the Small Business Authority”, Matinas BioPharma Holdings, Cesca Therapeutics and Fission Uranium Corp.

Our content is derived by gathering con-tent from experts in their field. I want to know that anytime David Weild, the Father of the Jobs Act, has time to write, I want to read or hear what he has to say. This issue David and I compiled a Q&A, which serves as a “State of the Market” interview. I ran into Dr. West, the Father of Stem Cells at a conference recently and I asked him, ‘What’s New?’ You will not want to miss his response in this issue. Charles Payne, Host of “Making Money with Charles Payne”, which airs nightly on Fox Business, took time from his busy schedule to answer the question: ‘Why must people invest?’ Have a read of his response. Rick Rule, Chairman of Sprott US Holdings Inc., a regular contributor to MicroCap Review and a recognized leader in the resource community, gives his assess-ment of the of the resource industry.

I’ve known John Lowy for over 30 years. He is quite knowledgeable about reverse mergers and shells, so it made sense that our subscribers would want his insight in going public through reverse mergers. Then, there is the Activist Strategy from Elizabeth Kopple. Neil Cataldi

was interviewed on www.stocknewsnow.comand I couldn’t resist getting his further take on how to find the next great MicroCap company, and then there is Robert Kraft, recently quoted in Huffington Post on educating Millennial on how to be smart investors.

Russian Securities you ask…I met Stanislav Grafski on LinkedIn and we had many conver-sations, which resulted in his article on Russian Securities. I discovered Anthony Desir on a recent trip to Hong Kong. I heard him speak eloquently and had to have his article on Africa business in this issue. Leslie Richardson, our correspondent covering Asia, has again pro-vided the pulse of the regions’ markets.

Our readers will also be happy to know that we have new articles by geologist, Brent Cook, with his newest installment of “Turning Rocks into Money”; Todd Davis & Alain Soutenet on the Cannabis Industry; and Brett Goetschius on how MicroCap investors seek to manage vola-tility in 2015; Nick Hodge on Palladium; SeeThru Equity’s Ajay Tandon discusses the importance of unbiased equity research for microcaps; David Alsup covering changes in FINRA membership; Mark Shore with his Commodity Corner column; Corey Fischer and the Accounting Corner; Lance Kimmel and the Compliance Corner; and Seth Yakatan and the Life Sciences Corner.

In summary, this issue encapsulates what’s recently happened, currently trending, and educating our readers about what to look for in MicroCaps. I couldn’t be more proud of this issue. To our staff a big thank you! Your tireless work and devotion is so appreciated.

It’s been nine years now putting each issue together and thankfully our readers and sub-scribers will continue to grow. Whether you are reading this issue on the web or reading our printed copy, many thanks to you for your sup-port and encouragement. Please enjoy! - SK n

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Winter/Spring 2015

10 Investing in Marijuana MicroCap Stocks By Todd Davis and Alain Soutenet

16 Why Gold Is Edging Higher, and Oil and Copper Remain Cheap By Rick Rule

19 What Led You to be Called the “Father” of the JOBS Act? By David Weild

28 Why You Must Invest By Charles Payne

32 Going Public Through a Reverse Merger By John Lowy

34 The Stem Cell Revolution By Michael D. West, PH.D.

36 Finding the Next Great MicroCap By Neil Cataldi

38 Biotech: Year in Review 2014 By Seth Yakatan

40 Is it Worth Investing in Russian Securities? By Stan Grafski

44 Silver and Gold Investor By David Morgan

50 Unbiased Equity Research for Microcap Companies By Ajay Tandon

52 What Millennials Need to Know About Investing in MicroCaps By Robert Kraft

58 Finding the Value in Pitch Events By John Dmohowski

66 New Formations By David Alsup

67 Activist Investing Offers an Exit Strategy for Struggling MicroCap Stocks By Elizabeth Kopple

68 Exploration Insights: Turning Rocks Into Money By Brent Cook

70 Who Discovered Africa? By Anthony Desir

74 Hong Kong IPO Market Outlook 2015 By Leslie Richardson

80 Reasons for the Coming Palladium Bull By Nick Hodge

88 Emerging Growth Capital Investors Seek to Manage Volatility in 2015 By Brett Goetschius

93 EB-5: An Alternative Method to Raise Capital By Benjamin Tan

Accounting Corner25 Non-Cash Costs Can Sink the Ship By Corey Fischer

Compliance Corner86 Accredited Investor Changes Could Threaten

Capital Formation By Lance Jon Kimmel

Commodity Corner76 2014 Commodities in Review By Mark Shore

Viewpoints90 Ombudsman By Jack Leslie

Comic Strip84 WallStreet Chicken - Episode 11

Profi led Companies 6 Newtek Business Services Corp.

NASDAQ: NEWT

12 Matinas BioPharma Holdings, Inc.

OTCQB: MTNB

54 Cesca Therapeutics Inc.

NASDAQ: KOOL

62 Fission Uranium Corp.

OTCQX: FCUUF – TSX: FCU

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6 MicroCap Review Magazine www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

Newtek Business services Corp.Nasdaq: Newt

Newtek’s roots were established 17 years ago in 1998 with the vision of one of the founders and present

CEO, Barry Sloane, to create a business that would offer essential products and services to support an underserved market and yet the backbone of American economy; the small- and medium-sized business (“SMB”) market. Since that initial vision, Newtek has suc-cessfully grown and been rightfully awarded the title The Small Business Authority® on all small business needs with its comprehensive suite of product and service offerings includ-ing Business Lending, Electronic Payment Processing, Managed Cloud Computing, eCommerce, Accounts Receivable Financing, The Newtek Advantage™, The Secure Gateway, Insurance Services, Web Services, Data Backup, Storage and Retrieval and Payroll. The Company has been publicly traded for over 14 years since 2000, and boasts of over 100,000 business accounts across all 50 states.

CoNversioN to a BusiNess

deveLoPMeNt CoMPaNy

(BdC): a growth aNd

iNCoMe ProPositioN

To foster the continued growth of the busi-ness and the brand, Newtek embarked on a new journey on November 12, 2014 when it successfully converted to a business develop-ment company (“BDC”). As a BDC, Newtek intends to elect to be treated as a regulated

PROFILED cOMPaNIES

investment company (“RIC”). As a RIC, the Company generally will not have to pay cor-porate-level U.S. federal income taxes on any income that is distributed to Newtek stock-holders in the form of a dividend. To qualify for RIC tax treatment, Newtek is required to distribute at least 90% of its investment company taxable income to its stockholders. In a recent release, the Company announced it currently expects to pay an annual cash dividend of approximately $1.80 per share in 2015, which equates to an attractive dou-ble-digit annual yield of 12.3%(1)

. With this conversion to a BDC there are a few notable points that lend Newtek a com-petitive advantage in this space. In short, the Newtek BDC model is different than the typical BDC structure making it attrac-tively distinct amongst its peers. Primarily, Newtek’s portfolio companies are operating companies and it holds controlling interests in certain of these companies. Specifically, either directly or through wholly-owned subsidiaries, Newtek holds controlling interests in Newtek Technology Solutions®, Small Business Lending, Inc., CDS Business Services, Inc., Newtek Merchant Solutions, Newtek Insurance Agency, LLC and Newtek Payroll Services. Additionally, contrary to the externally managed BDC structure, Newtek is an internally managed BDC, with no base or incentive fees paid to external managers.

The Company is looking forward to the many opportunities expected to be available


within their new structure, led by a seasoned senior management team with long tenure at Newtek, with interests closely aligned with those of its shareholders. The CEO owns approximately 10%(2) of outstanding shares, and combined with management and the Board that percentage exceeds 14%(2)

.

Newtek, The Small Business Authority® – Building a Lasting Brand

At the core of Newtek’s success is the culmination of hard work and persever-ance in building a brand that has garnered industry-wide recognition as a premier pro-vider of a comprehensive suite of products and services to the small business owner. All of these products are customizable and can be tailored to meet the individual needs of each independent business owner, truly helping them increase their sales, lower their costs and, as a result, harness success in the ever-changing competitive landscape. The question has been raised time and time again - how has Newtek been able to navigate the

economic cycles over the years, and emerge as the authoritative presence providing such premier service and cutting-edge customiz-able products? The answer lies in Newtek’s ability to keep their “finger” on the pulse of a constantly changing market, expanding and enhancing their product and service offer-ings to meet the needs and demands of the independent business owner. It is that mar-ket acumen, combined with technological capabilities that have molded the foundation of their business model.

Specifically, at the heart of Newtek’s tech-nological capabilities lies its patented propri-etary state-of-the-art web-based technology, NewTracker®, which enables the Company to board the vast majority of its customers in a cost-effective manner through referrals from industry-recognized alliance partners who drive customers to Newtek through NewTracker®. These partners entrust Newtek to offer their independent business clientele the products and services they can-

not or do not provide. Currently, Newtek has an impressive list of well-recognized firms as partners and continues to forge these strategic relationships building their customer base across their product lines. The Company currently maintains stra-tegic partnerships with well-known firms and organizations such as Morgan Stanley Smith Barney, UBS, American International Group (“AIG”), Credit Union National Association (“CUNA”), Navy Federal Credit Union, The Hartford, IBERIABANK, New York Community Bank, Community Transportation Association of America (“CTAA”), Pershing, Paragon Financial Group, and Amalgamated Bank to name a few.

Newtek - the Largest NoN-

BaNk sBa 7(a) LeNder

Newtek has been assisting their customers with their financing needs for over 11 years,


providing them with SBA 7(a) loans, lines of credit and inventory financing, to name a few examples. Since 2004, Newtek has been providing financing directly to its custom-ers, never using brokers and, to date, has approved over $1.0 billion in loans. Over the years, the Company has prided itself on tak-ing great care to maintain its strict adherence to underwriting guidelines, never sacrificing credit quality for the sake of growth. It is this discipline that has enabled Newtek to withstand multiple lending cycles, includ-ing the credit crunch of 2008-2009, and to achieve the title of the largest non-bank SBA 7(a) lender(3) and hold a position in the top-ten most active SBA 7(a) lenders among all banks and non-banks(3).

Newtek establishes liquidity for the unguaranteed loan portions of the SBA 7(a) loans it originates through securitizations. The Company has issued five Standard and Poor’s rated AA and A securitizations since 2010, closing its largest securitization with the most favorable terms to date in December 2014. The Company’s ability to secure more attractive advance rates and lower cost of funds in the most recent secu-ritization is testament to the high quality and consistent strong performance of Newtek’s loans. With historic returns on investment in excess of 30% in the Company’s SBA 7(a) lending program, Newtek will focus on continuing to grow this business in 2015 and beyond.

CuttiNg edge ProduCts

aNd serviCes – CaPturiNg

Market oPPortuNity

Newtek’s success and expertise extend well beyond its lending capabilities. Newtek is at the forefront of solutions in the cloud com-puting and eCommerce arenas. Specifically, Newtek has met the rapid adoption of cloud computing over the past few years with its highly functional cloud environment that boasts premium security, dependability with 99.9% uptime, and incredibly fast scalable performance which allows independent

business owners to simultaneously control their IT costs and grow their businesses. Newtek’s cloud infrastructure and unique provision of 24/7/365 U.S.-based live cus-tomer service to assist independent business owners and IT professionals with all of their needs, has given small- to mid-sized orga-nizations the unique opportunity to gain access to computing power and software that was only previously available to large corporations.

Newtek is also known for introducing the first true all-in-one ecommerce offering, where Newtek is the webhost, the merchant and shopping cart provider with its own secure proprietary gateway that handles all credit card transactions. Everything the business needs is all in one place, therefore reducing costs and once again is supported by around-the-clock customer service. In fact, it was Newtek’s success and notori-ety in the payments space that recently attracted SEQR by Seamless (OMX: SEAM), one of the world’s largest suppliers of pay-ment systems for mobile phones to partner with Newtek. This partnership allows for Newtek to gain an edge in the ever-changing U.S. payments landscape and enables them to offer small- and medium-sized business merchants a seamless and secure payments platform and solution, eliminating inter-change fees charged by traditional credit card companies.

the Best is yet to CoMe

While The Small Business Authority® brand continues to provide high levels of satisfac-tion to independent business owners in all 50 states, there is still a tremendous oppor-tunity to continue to penetrate the vast small- to medium-sized business market of over 27.5 million businesses. The Company is looking forward to continuing to grow the business, capture market opportunity and expand their customer base, while returning its profits to the hands of its stakeholders under its new structure as a BDC.

For more information, please visit www.

thesba.com, or contact Jayne Cavuoto, Director of Investor Relations, at [email protected], or 212-273-8179, or Simrita Singh, Director of Marketing, at [email protected], or 212-356-9566. Also, be sure to view Newtek’s Annual Magazine at http://www.thesba.com/newtek/annual-maga-zine/, which provides a plethora of informa-tion on the cutting-edge products Newtek provides with detailed information on issues facing the SMB market and how Newtek can help.

(1) Based on January 9, 2015 closing price of $14.59

(2) As of December 22, 2014

(3) For the 12-month period ended September 30, 2014. According to the U.S. Small Business Administration and measured by dollar volume of approved loans.

The Small Business Authority® is a registered trade mark of Newtek Business Services Corp., and neither are a part of or endorsed by the U.S. Small Business Administration.

Note Regarding Forward Looking Statements

Statements in this press release including statements regarding Newtek’s beliefs, expectations, intentions or strategies for the future, may be “forward-looking statements.” All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek’s actual results to differ from management’s current expectations, are contained in Newtek’s filings with the Securities and Exchange Commission and available through http://www.sec.gov. n

The company paid consideration to SNN or its affiliates for this article.

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stayed on the sidelines and avoided the sec-tor altogether.

While cannabis stocks did experience a similar boom to bust curve, albeit in a more condensed time frame, it is important to recognize the common forces behind the two bubbles, but also to draw the line and iden-tify how fundamentally different the canna-bis industry is from the Internet economy, as seen from the perspective of their disruptive impact and adoption patterns.

The premise of Internet technologies was the creation of a new economy that assumed a “paradigm shift” in the way customers purchase goods and services. The adoption pattern turned out to be slow and profit margins so slim that today only a handful of highly capitalized companies that could afford to operate at a loss for years to come have survived and are now firmly in control of the e-commerce space.

In contrast, the premise of cannabis entre-preneurs is to legitimize under the umbrella of state-mandated programs, an existing thriving industry that has been operating in the grey and black markets for decades. The size of the marijuana market is not subject to speculation; it has been well researched and documented. And the industry operates, at

n TODD DAVISALAIN SOUTENET

Investing in Marijuana MicroCap Stocks

Micro-cap companies, undeterred by the ongoing federal ban on cannabis, hurried into the space to provide growers, proces-sors and dispensaries with the services and technologies necessary to create a legitimate infrastructure and the controls necessary onto which the industry as a whole could be developed. By March 2014, the mari-juana index had listed 45 publicly traded companies in the marijuana space that were reaching unprecedented valuations, soaring briefly beyond $6 billion.

Nine months later, prices had fallen over 80% and by the end of 2014, the dust was settling as the sector was struggling to find a solid bottom after the much anticipated bounce from the November elections results opening the doors to adult use in Alaska, Oregon and Washington, DC had failed to materialize. The year ended in a gloomy mood for investors in marijuana micro-caps who had poured an estimated $1 billion in investment capital.

This unfolding is in many ways remi-niscent of the Dot.com bubble when the technology sector experienced a 78% drop in stocks’ valuation between March 2000 and the fall of 2002. Internet technology stocks kept reeling for years to come as investors

In the nine months leading up to their peak in March 2014, marijuana stocks rose over 6 fold in value, fueled by the speculative frenzy that

followed marijuana’s legalization in Colorado and Washington and the promises of high returns from a nascent industry that is predicted to grow by the most conservative estimates to a $10 billion plus market in the next 4 years and experience an astonishing compounded annual growth rate of 40%.


least for the near term, at very healthy profit margins. In Colorado where the sale of mari-juana has been legal for over a year now, an estimated 35 to 40% of transactions are still considered to originate from illegal sources, underscoring the latent market potential.

Most micro-cap companies are traded in the largely unregulated OTC Market, inevi-tably and unfortunately attracting unscru-pulous groups and individuals. As early as August 2013, FINRA started issuing warn-ings about marijuana stock scams and in April 2014, reiterating its warnings of fraud-ulent activities and pump and dump scams, FINRA and the SEC ordered the suspension of trading on several marijuana companies suspected of accounting irregularities, the issuance of unregistered offerings and the dissemination of inadequate or potentially inaccurate information, triggering a wide spread retreat from investors and the unrav-eling of the short lived rush of capital into the sector, leaving behind a taste of distrust that has been ever since hard to erase.

Investors are questioning the soundness of investing in marijuana stocks in today’s environment and rightly so. On the surface, companies appear to be more fairly valued than they have ever been and we are starting to see well diversified companies who dili-gently dedicated their resources to develop industry specific solutions to bring compli-ance and standardization to the industry emerging from the shadows and move from a development stage to sustainable revenue generating models.

Concurrently, more companies are going through an audit process to become fully reporting and have their listing sta-tus upgraded. Through transparency prop-er capital can be raised more efficiently through full registration like Reg-A and S-1 filings, attracting accredited and institu-tional investors.

The Federal ban on marijuana is by design preventing public companies from realizing any revenue from the sale of cannabis and can-nabis infused products. Consequently, only ancillary businesses that provide supporting

technologies and services and are engaged in the supply chain are able to operate as public entities, leaving a large piece of the pie to pri-vate enterprises who control the products and realize revenues from direct sales.

The future of the cannabis industry is in the hands of voters who are increasingly sup-porting legalizing medical and adult use of marijuana, keeping them at odds with a fed-eral government that for a variety of reasons, political or not, is reluctant to revisit the clas-sification of marijuana as an illegal substance. Yet the momentum is squarely in favor of the legalization movement and the pendu-lum is likely to shift towards full legalization once California, Nevada, Arizona and most northeastern states legalize adult use by 2017, unleashing an industry with the potential to generate over $3 billion in tax revenues alone.

The financial windfall for states is hard to ignore and will certainly play a role in bridg-ing the divide between state and federal poli-cies. Between January and November 2014, the state of Colorado took in a total of $67.5 million in tax revenues from the sale of med-ical and recreational marijuana. NerdWallet, a personal finance site, estimates that legal-ization in California would generate for the state over $519 million per year while New York would take in $248 million.

Meanwhile, savvy investors like Peter Thiel, co-founder of Paypal and early Facebook investor, are quietly investing in marijuana enterprises, while funders of Tesla and Uber are taking minority interest in marijuana tracking and compliance software, a reflec-tion of a series of positive signals from Washington: Congress last fall instructed the Department of Justice to refrain from interfering with states mandated marijuana programs, the first marijuana credit union is expected to open soon in Denver, more banks are opening their doors to marijuana businesses and the SEC is now allowing the registration of shares for companies whose activities are directly linked with and serving the cannabis industry.

Investors in micro-caps will have to be very selective. The best way to mitigate risks when

investing in marijuana stocks is to pick com-panies that are transparent, have built portfo-lios of tangible assets, are well funded and run by seasoned professionals who have the track record to deliver and execute on their plans and generate significant sustainable revenues. Once solid foundations are established, those companies will dominate the market and ride the wave of legalization when it eventually takes hold. Strong initiatives for full legaliza-tion in states like CA will be the key driver for eventual adoption at a national scale. In 2015 these initiatives will become the primary cata-lyst in the next political cycle. 2015 is the year to establish a long term and sustainable view on the marijuana industry. Identify winners and start building a portfolio in this nascent American opportunity.

Endexx is a “Collaboration Corporation” that develops through its subsidiaries cost effective tech-nology solutions for the legal marijuana industry, Endexx’s diversified offerings include an easy to use Seed to Sale inventory tracking and process manage-ment system for growers, processors, dispensaries, medical patients and users, a high tech commercial grade inventory control dispensing system, a line of superior cannabidiol infused edibles and a pioneer-ing New Jersey consulting firm. Endexx is publicly traded under the symbol EDXC.

Todd Davis Bio: Education: Northern Arizona University Bachelor

of Science - Administrative Communications. CEO Endexx Corporation 1993-PresentInvestment Banker/Stock Broker 1990-2000CEO/Consultant for multiple Small Cap compa-

nies 2000-PresentDeveloper/ Analyst Pro17 market and stock fore-

cast model 2008-PresentAs a Broker, Consultant and CEO Todd has par-

ticipated in and managed/structured over 100 IPO’s, private placements and convertible debentures rais-ing in excess of 100 million in the Small and Micro Cap arena over the last 22 years.

Alain Soutenet Bio:Education: Nantes Law University, France, 1970-

1974 Government Contractor, Embassy, South Africa, 1995-1997 Business Development Director, construction man-agement software, 1998-2002 Real Estate Developer, renewable energy consultant, 2003-2009 President Global Solaris Group, renewable energy developer, 2010-Present

General Manager, Endexx Corporation, 2013 to Present

Strategy driven, experienced entrepreneur with over 30 years of management positions in multiple fields of industry for governments, corporations and private investment groups. n


which are selectively picked up by certain immune-cells and transported to the site of infection [see Figure 1]. These tiny lipid crystals are referred to as “cochle-ates.” Cochleates have a multilayer crystalline, spiral structure with no internal aqueous space. The struc-ture is formed when a series of solid lipid sheets roll up and engulf drug molecules in between the sheet, a pro-

prietary process referred to as “encochle-ation”. The result is a lipid-crystal encochle-ated drug formulation made up of nano-sized particles. Because the medications are locked in the particles, the sensitive-organ exposure to these medications is drastically reduced, as are the toxic side-effects. In addition, the technology adds the ability to delivery is delivering injection-only medica-tions by oral administration, thus signifi-cantly reducing the cost of administration and increasing patient convenience. In sum-mary, this unique technology offers (1) tar-geted delivery, (2) sensitive organ protection, and (3) oral administration (even for IV-only medications).

The cochleate lipid-crystal nano-particle drug delivery technology was brought into MTNB through its recent acquisition of

MatiNas’ foCus is

addressiNg the sigNifiCaNt

ProBLeM of drug-resistaNt

BaCteria

Matinas BioPharma’s (MTNB) core capa-bilities combine the use of lipids as active pharmaceutical ingredients (API) and the use of lipids in “cochleate-shaped” lipid-crystal nano-particle drug delivery vehicles. Matinas’ revolutionary and proprietary lipid delivery technology is focused on the deliv-ery of several potent and highly efficacious anti-fungal and anti-bacterial agents which, unfortunately, are currently still associated with serious side effects, including irrevers-ible toxic effects on kidney and hearing function. MTNB’s technology allows for the safe and targeted delivery of these agents, which position the Company to be at the forefront of dealing with these very serious problems. In fact, the need for effective treatments is drastically increasing with the rise of drug-resistant fungal and bacterial strains which are becoming more prevalent throughout the world. According to the CDC, approximately 2 million multi-drug resistant infections occur in the US each year, leading to approximately 23,000 deaths

Matinas BioPharma holdings, inc. otCqB: MtNB

PROFILED cOMPaNIES

Matinas BioPharma holdings, inc., is a clinical-stage publicly-traded biopharmaceutical

company based in New jersey. the company is developing lipid-based prescription therapies,

with a focus on the treatment of fungal and bacterial infections, addressing the acute threat

of multi-drug-resistant infections, and metabolic/cardiovascular conditions. the management

team and Board of directors have solid track records in developing and commercializing

blockbuster pharmaceutical products.

Figure 2. Matinas BioPharma Pipeline

DiscoveryIND

PreparationEarly ClinicalDevelopment

Phase 3Development

MAT2203

MAT2501

MAT9001

MAT8800Severe Hypertriglyceridemia

Fungal Infections

Gram-Negative Bacterial Infections

Fatty Liver Disease

Anti-Infective Development Programs

Metabolic/Cardiovascular Development Programs

annually. The development of new anti-infective treat-ments has become a criti-cal mandate governments all over the world. This has led to the dedication of important resources as well as incentives to phar-maceutical companies who are able to effectively devel-op therapies in these areas. Importantly, Congress has initiated new legislation that increases market exclusivity for new anti-infective treatments, appropri-ately rewarding those companies that invest in this space. Notably, the United States government recently demonstrated its com-mitment in this area by allocating approxi-mately $1.2 billion to the development of new anti-infectives, of which $650 million to the National Institutes of Health (NIH). The ability to partner with the government in the development of these therapies provides a competitive advantage to those companies seeking to provide effective medicines for the benefit of patients everywhere.

CoChLeate teChNoLogy

The disruptive MTNB lipid-based delivery technology locks these potent but dangerous anti-infective drugs up in tiny lipid-crystals

Roelof Rongen, Matinas’ CEO and co-founder


Aquarius Biotechnologies, a spin-out of Rutgers University in New Jersey. The inven-tor of the cochleate technology, Raphael Mannino, PhD, is an associate professor at Rutgers’ Medical School and is a core mem-ber of MTNB’s Scientific Advisory Board (SAB). He and his team patented this tech-nology across 12 issued patent families and 3 more recently filed patent families, claiming several inventions that significantly improve the cochleate drug delivery technology plat-form. Former Aquarius CEO and CMO Carl Craft, MD (formerly “Venture Head” of Abbott’s anti-infective R&D group), has stayed with MTNB as the chair of the anti-infective section of the SAB.

The benefits of the cochleate delivery tech-nology have been recognized and embraced by the NIH through a range of develop-ment collaborations between MTNB and NIH. Given its profile, this exciting technol-ogy allows for a much broader use of these potent, but toxic, anti-infective therapies and provides an opportunity for MTNB to develop a broad and deep product pipeline in collaboration with the NIH and other governmental organizations.

Mat2203 – a gaMe ChaNgiNg

aNti-fuNgaL forMuLatioN

The lead anti-infective product in the MTNB pipeline is the lipid-crystal nano-particle formulation of Amphotericin B (MAT2203), a potent broad-spectrum fungicidal agent for which no clinical cases of resistance have been reported to date. The latter is vitally important because emerging resis-tance to the agents in the fungistatic azole and echinocandin anti-fungal classes is limiting the clinical utility of these agents. These limitations and the spread of resis-tance, combined with MTNB’s breakthrough technology will potentially increase the use of Amphotericin B (currently ~$700 million/year). Importantly, Amphotericin B is also the only fungicidal anti-fungal agent approved for non-topical use and can actually kill a fungus or yeast inside

the human body, as opposed to fungistatic agents which will stop growth, but require an active immune system to kill the infec-tious agent, something that is unfortunately lacking in many patients. This is impor-tant because this elevates Amphotericin B to the most preferred antifungal treatment in immunocompromised patients, such as those with chronic viral infections (HIV), patients undergoing organ or bone-marrow transplants, or patients with weak immune systems due to chemotherapy. The ability to protect sensitive organs from the toxic side-effects of Amphotericin B positions MAT2203 well to gain a major market share within the Amphotericin B class, while growing this class at the same time.

From a development perspective, several animal model studies were conducted for serious fungal infections such as aspergil-losis, cryptococcal meningitis and candida, all in collaboration with the NIH. A Phase 1 study in humans has been completed and demonstrated a positive safety and tolerabil-ity profile with no adverse events reported. MTNB is currently preparing for a Phase 2a clinical in patients with refractory mucocu-taneous candidiasis to be conducted at the NIH, under a clinical trial agreement where the company is only responsible for deliver-ing drug product to the NIH.

Mat2501 – a PoteNtiaL

Leader iN the treatMeNt of

graM-Negative BaCteriaL

iNfeCtioNs

The second anti-infective product under development is the cochleate formulation of the aminoglycoside antibiotic Amikacin (MAT2501) for the treatment of gram-negative bacterial infections. Multi-drug-resistant (MDR) infections are rapidly rising and, while the gram-positive segment of this emerging threat to population health is being addressed by a blockbuster category comprising Zyvox (Pfizer), Cubicin (Cubist), and Vancomycin, the gram-negative MDR segment is significantly under-served. Typical infections in this category are lung infections in Cystic Fibrosis patients and patients on respiratory ventilators in hospi-tals or nursing homes, patients with com-plex hospital acquired urinary tract infec-tions, tuberculosis and atypical mycobacte-rium infections. Similar to Amphotericin B, Amikacin is a very potent anti-infective agent with significant and irreversible side effects such as toxicity for the kidneys and hearing organs. The cochleate formulation of Amikacin (MAT2501) provides a similar targeted delivery to infected sites while sig-nificantly reducing the toxicity profile.

Figure 1. Cochleate Lipid-Crystal Nano-Particles and Targeted Delivery

50-500 nm* Phosphatidylserine

PS* BilayerCalcium

Drug

1. Reduces toxicity by containing drug inside particle

2. Size and surface features facilitate targeted delivery

3. Potential for oral administration

High Calcium

Low Calcium

1

2

A platform drug delivery technology**… …that provides targeted delivery

** Cochleate platform delivery technology under exclusive license from Rutgers University

Nanocochleate particles open up under low calcium and deliver anti-infective intracellularly


MAT2501 is currently undergoing formal animal toxicity studies at the NIH in prepa-ration for filing an IND with the FDA later in 2015 and initiation of human studies shortly thereafter. Given the prevalence of drug-resistant gram-negative bacterial infections (approximately 500,000/year) and the lack of effective therapies, MTNB’s MAT2501 should be carefully monitored.

oPPortuNities BeyoNd aNti-

iNfeCtives

In the category of lipids as active pharma-ceutical compounds, MTNB has two ongo-ing programs - MAT9001 and MAT8800.

MAT9001 is under development for dys-lipidemia with severe hypertriglyceridemia as primary indication (TG≥500 mg/dL). The market and clinical need in the cardio-vascular/metabolic disease space remains significant and growing due to the increasing obesity epidemic and human life-span. In fact, in the US alone, approximately 65 mil-lion adults have above normal triglycerides, with 4 million adults diagnosed with severe hypertriglyceridemia (VHTG: TG≥500 mg/dL).

MAT9001 is a complex omega-3 fatty acid composition with DocosaPentaenoic Acid

(DPA) as the key differentiating component. MTNB has developed a unique capability to manufacture and isolate rare omega-3 fatty acids, such as DPA, and obtain them in a highly pure form. These rare omega-3 fatty acids are very hard to isolate from natural sources at any meaningful commercial scale there is no known abundant source material with high levels of DPA. DPA has shown to have highly differentiating features and dem-onstrated to be a very potent reducer of tri-glycerides (see the “Our Science” page on the Company’s website). Late 2014, MTNB filed an IND for MAT9001 and started its first human study with MAT9001, with results expected during the second quarter of 2015.

The MAT8800 discovery program seeks to identify promising product candidates for the treatment of fatty liver disease. Approximately 30 million US adults suffer from a form of fatty liver disease such as Non-Alcoholic Fatty Liver disease (NAFLD) or Non-Alcoholic Steato-Hepatitis (NASH), conditions that may lead to cirrhosis and liver failure and for which no pharmaceuti-cal treatment has been approved to date. Several treatments under development for fatty liver disease are focusing on a particular nuclear receptor called Farnesoid X Receptor (FXR), including Intercept and Gilead pro-

grams. Through its own research, Matinas has demonstrated that these unique omega-3 fatty acids are also known to interact with these receptors, potentially positioning MTNB well to play a prominent role in the treatment of these high-need conditions.

a history of suCCess

The founding management team of MTNB has a significant track record of success in many pharmaceutical and biotech companies, highlighted by numerous product approv-als and the launch and commercialization of several products that went on to achieve ‘blockbuster’ status. The core team worked together at Reliant Pharmaceuticals where they gained broad experience in the dyslip-idemia field and received FDA approval for five product candidates. After they success-fully developed and launched and Lovaza (the first FDA-approved prescription omega-3 medication) in 2005, Lovaza saw significant prescription growth (a blockbuster with peak sales over$1 billion annually) and in 2007 GlaxoSmithKline acquired Reliant for $1.65 billion. Matinas’ CEO and co-founder Roelof Rongen previously led the global team for Humira at BASF Pharma (now Abbvie).

In addition to Mr. Rongen and the rest of the Matinas management team, the Company’s Board of Directors brings decades of drug development and com-mercialization success to the Company. In fact, a Board of this repute is not typically associated with a microcap stock. Notably, Chairman Herbert Conrad was the President of Roche’s North American Pharmaceutical Division, has been a Director of Celldex since its inception, and most recently was the Chairman of Pharmasset at the time it was sold to Gilead for $11 billion in 2011.

Clearly, MTNB’s pipeline (Figure 2) and experienced team bring the credibility and wherewithal necessary to build a new com-pany focused on developing novel prescrip-tion medications for high-need clinical areas.

Website: www.matinasbiopharma.com nThe company paid consideration to SNN or its affiliates for this article.

Figure 2. Matinas BioPharma Pipeline

DiscoveryIND

PreparationEarly ClinicalDevelopment

Phase 3Development

MAT2203

MAT2501

MAT9001

MAT8800Severe Hypertriglyceridemia

Fungal Infections

Gram-Negative Bacterial Infections

Fatty Liver Disease

MAT2203Anti-Infective Development Programs

MAT9001

Metabolic/Cardiovascular Development Programs


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Why Gold Is Edging Higher, and Oil and Copper May Remain Cheap


Consumers tend to use less of a commodity as it becomes more expensive. An increase in supply and a decrease in demand was eventually met with the softer prices that we are now seeing. How does this end?

A run-up in general equities prices sug-gests that the US has entered into a recovery. Unless that ‘recovery’ actually translated into real economic growth, commodity prices will continue to be weak. It isn’t that there is a tremendous over-supply of either oil or cop-per right now. The problem is that demand is anemic. Absent a real recovery, it could take two or three more years for these soft prices to result in lower production and then, per-haps, higher prices.

In my opinion, if a rebound in oil prices in the near term is to occur, it will be driven by increased demand, but not decreased supply.

The most important reason for the price dips in both oil and copper is likely weak demand, and not over-supply. GDP growth (reportedly 2.6% annualized in the last quar-n BY RIck RULE

The last part of 2014 and the beginning of 2015 have been

interesting and tumultuous, with three separate and dis-

tinct outcomes for natural resources. The first two were the pre-

cipitous declines in both oil and copper prices. The third was the

precipitous increase in gold prices.

CoPPer aNd oiL

Let’s first talk about the precipitous declines in the copper and oil prices, and, to a lesser degree, in other industrial metals. Why did this happen?

It happened because markets work. Very high prices for industrial commodities in the last decade, until the general decline starting in 2012, did two things. First, high prices stimulated supply because the industry had access to more capital – thanks to higher earnings and access to debt. The very strong copper and oil prices we enjoyed for 10 years allowed for higher supplies to come online over time. At the end of the last decade, oil and copper prices had increased rapidly. Supply did not increase so quickly that it stopped the run-up in its tracks. But after a few years, as high prices ruled the roost, there was a supply response.

While those high prices stimulated new capacity, they also constrained demand.


ter of 20141) appears to be the result of a recovery in financial assets such as stocks and bonds, and less a real economic recov-ery. It’s true that auto sales are edging up, and I would love to see them go higher as they would positively impact commodities.

But in a real economic boom, I would not expect to see weak oil and copper prices. Weak commodity prices are more symp-tomatic of flat economic growth. In a real recovery, commodities should be a primary beneficiary. In my view, this weakness in demand could continue for another two or three years.

On the supply side, I don’t expect signifi-cant constraints in the near term that would drive the prices of either copper or oil higher.

Industries like copper mining and oil drill-ing take a long time to adjust to lower prices. They are unable to quickly reduce supplies when demand is weak. Long-term capital investments in new oil production over the last decade represent ‘trapped capital’ in the sector. This capital cannot be removed from the sector just because returns are unsatis-factory. Therefore, these assets continue to produce, even if they never generate a satis-factory return on investment, as long as they generate enough cash to keep them running.

When projects generate some positive cash flows, but no significant return on the investment, then the industry loses capital. New investors stay away while the excess investments from prior years continue to prop up production. This process is called ‘de-capitalization.’ Capital available to the sector for new projects dries up, but produc-tion does not drop off right away.

A supply response will be muted while the industry is still in the de-capitalization phase. Prior experience, such as the natural gas crisis in 1982, shows that the industry can de-capitalize for at least 5 or 6 years.

goLd

The move up in gold and silver prices in January is witness to another phenomenon. According to many people the ‘trigger’ for

the move up was the de-pegging of the Swiss Franc from the Euro. But I don’t think that’s true. I see it as really the result of just a tiny dent in faith in the US dollar.

If you’ve been reading our blog Sprott’s Thoughts, you will know that of all the rea-sons why gold might go up, I believe that the most important is the relationship between gold and the US dollar. Precious metals com-pete for ‘shelf space’ in investors’ portfolios with the US dollar as a means of savings. Precious metals have lost that competition pretty spectacularly over the last five years.

We are living in a general hegemony of the US dollar and US Treasuries, and I don’t think that is going to change anytime soon. But I think that precious metals are begin-ning to lose less badly against the dollar, and that there is more ‘shelf space’ available right now.

It is my belief that the war between the US dollar and gold will edge slightly in gold’s favor, simply because US Treasuries yield less than 2% for 10 years2. That’s not an attrac-tive value proposition in my opinion, and I believe it will give gold a little more room in investors’ portfolios.

Sign up to receive exclusive opinion and commentary from Rick Rule, and the Sprott organization, for free. Click here.

1 http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

2 http://www.treasury.gov/resource-cen-ter/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

riCk ruLe

Chairman, Sprott US Holdings, Inc.Mr. Rule has dedicated his entire adult life to many

aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide net-work of contacts in the natural resource and finance worlds. As Director, President, and 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 con-ferences, 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 mar-kets, having originated and participated in hundreds of debt and equity transactions with private, pre-public and public companies.

Sprott US Holdings, Inc. is a holding company made up of three separate and distinct companies: Sprott Global Resource Investments, Ltd., a FINRA Registered Broker/Dealer; Sprott Asset Management USA Inc., an SEC Registered Investment Adviser offering 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, seg-regated 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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RBG: 4, 114, 173

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tape that prevents too many rapidly growing startup companies from raising capital and going public.”

While many people were amazed that the JOBS Act was passed, it was actually heavily bipartisan and had the President’s support. While most of the Act was authored by the Republican-controlled House, I understand that the Executive Branch communicated to the U.S. Senate Democrats that the President wanted the Bill passed. The rest is history. On April 5, 2012, I was in the Rose Garden of the White House for the signing.

For those who want to read the two key studies that led to the JOBS Act, they can be found on the IssuWorks website (www.IssuWorks.com) at:

• Market Structure is Causing the IPO Crisis – and more (http://media.wix.com/ugd/c4bcbd_b3e7b1879ee04914d3e0379239f-f68a0.pdf)

• A Wake Up Call for America (http://media.wix.com/ugd/c4bcbd_06fe6672597e846d0cc82559624ad5bb.pdf) n DAVID WEILD

This was four years before the implementa-tion of Sarbanes Oxley (the popular culprit) and coincides with Reg. ATS (Alternative Trading Systems) which is really the dawn of electronic markets. We also identified a collapse in the number of listed companies (NASDAQ and NYSE) from 9,000 down to under 5,000. We showed that China was growing and the United States was in decline. Congressmen were shocked. This collapse cost the US more than 10 million jobs.

As a result, a number of Congressmen started drafting legislation and before you knew it, there was a smattering of bills in both the U.S. House of Representatives and the U.S. Senate. I testified in Washington and our work was cited by the IPO Task Force Report to the U.S. Treasury and by the Chairman of the House Oversight Committee. —Then, in early September 2011, President Obama gave a speech to a Joint Session of Congress in which he said, “We’re also planning to cut away the red

What Led You to be Called the “Father” of the JOBS Act?

Ed Kim and I wrote a series of studies that woke Washington

up to how destructive our equity markets had become for

corporations. We documented a shocking decline in small IPOs

starting in 1998 – it was hidden because the decline occurred

during the height of the Dot Com Bubble.


how is the joBs aCt iMProv-

iNg the fiNaNCiNg Pros-

PeCts for MiCroCaP CoMPa-

Nies?

So far, the JOBS Act is doing nothing for already public companies. This is why we have pushed two ideas – a pilot to increase “tick sizes” (the minimum price that a stock is quoted – currently 1 cent) to 5 cents and 10 cents. We have also argued for spe-cialized exchanges for smaller companies because we believe that the one-size-fits-all stock markets of today are optimized for large and liquid stocks and not small and illiquid companies. We have left a lot of entrepreneurship, innovation and jobs need-lessly on the table by depriving small compa-nies of real aftermarket support.

The good news is that the JOBS Act has really helped the IPO market: The “Confidential Filings” provision gives companies the courage to go public by eliminating the risk of premature disclo-sure or reputation damage in the event of a failed deal. “Testing the Waters” allows companies to pre-market their offerings to institutional investors, which is criti-cal for complicated investments, high-risk investments and heavy intellectual-prop-erty investments; it is having a particularly profound impact for biotech companies looking to go public.

how is the iPo Market

doiNg?

We’ll do 280 or so IPOs in 2014, the best number since 2000, but this number is pathetic in absolute terms. The U.S. was churning out over 500 IPOs a year in the early 1990s before the Dot Com Bubble, which, weighted for growth in the U.S. economy, would be over 900 a year today. Moreover, about 50% of IPOs will be “small” IPOs up from 30% last year, but before the move to electronic markets in 1998 the small IPO was consistently 80% of all IPOs.

how is issuworks heLPiNg

sMaLL- aNd MiCro-CaP CoM-

PaNies?

We increase demand for small-, micro-cap and even larger public companies who are chronically unable to systematically reach large numbers of the right investors (because of the misaligned incentives of Wall Street). Our unique process uses large amounts of data to identify more of the right investors; we use marketing and communications technologies to reach these investors and we follow-up with registered sales people. We are the first and only company-aligned capital markets firm (we don’t take commissions from investors) and are holistically positioned to serve the needs of our corporate clients. Early results (we opened our first office this past May) have been pretty remarkable. We have more than doubled demand on offerings.

what tyPes of CoMPaNies

does issuworks work

with?

We work across all industries. Our clients include companies in financial services, technology, media, biotech, and the REIT industries, which generally range from $100 to $500 million in equity market value. We are exclusively focused on reaching institu-tional investors at the moment, but eventu-ally, we may adapt our model to provide innovative retail distribution capability and could help even smaller companies.

how does issuworks work?

We are a FINRA-registered investment bank. Companies engage us directly and we are also now being “White Labeled” and engaged by our first investment banks. Investment banks quickly realize that our reach is complementary to theirs and they see us as a cost-effective capability to bolt onto their syndicate department during a transaction. Our revenue model is a combi-nation of retainer fees and deal fees.

The SEC recently announced that it was moving ahead with a tick-size pilot pro-gram with the exchanges and I understand that you were the “Father” of this idea as well. Yes, in the sense that it was an idea that I proposed at a dinner with the then-vice chairman of the House Subcommittee on Capital Markets a number of years ago.

• Can companies submit their names for consideration? No, not under the cur-rent plan. It is a randomized study that will include a control group and three test groups. Each group will have 400 stocks in it for a total of 1200 stocks not including con-trol stocks (which will be traded as usual). All stocks will have share prices greater than $2 per share, market caps below $5 billion and average daily trading volumes below 1 million shares.

• What is the timing of the Pilot? The SEC is currently in a comment period and the plan is controversial. As a result, there

For more information, please call 212-332-2980 o r v i s i t w w w. t u e s d a y s c h i l d r e n . o r g

For the past decade, Tuesday’s Children has been committed to serving all those directly impacted by the events of September 11, 2001 and terrorist incidents worldwide.

Tuesday’s Children serves children and families who lost loved ones on September 11th, 2001; the Rescue and Recovery Workers; Families of the Fallen; Wounded Warriors, as well as young people impacted by terrorist incidents worldwide through our international program, Project Common Bond. Given its successful model of long-term healing, Tuesday’s Children is also working closely with those assisting families in Newtown, Ct. and Boston.

We need you to provide an internship for a child who lost a parent, make a charitable donation, become a mentor to a child, fundraise, or simply call us and tell us how you’d like to get involved. Help to Keep the Promise.

The good news is that the JOBS Act has really

helped the IPO market: The “Confidential

Filings” provision gives companies the courage

to go public by eliminating the risk of premature

disclosure or reputation damage in the event of a

failed deal.

MicroCap Review Magazine 21www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.comFor more information, please call 212-332-2980 o r v i s i t w w w. t u e s d a y s c h i l d r e n . o r g

For the past decade, Tuesday’s Children has been committed to serving all those directly impacted by the events of September 11, 2001 and terrorist incidents worldwide.

Tuesday’s Children serves children and families who lost loved ones on September 11th, 2001; the Rescue and Recovery Workers; Families of the Fallen; Wounded Warriors, as well as young people impacted by terrorist incidents worldwide through our international program, Project Common Bond. Given its successful model of long-term healing, Tuesday’s Children is also working closely with those assisting families in Newtown, Ct. and Boston.

We need you to provide an internship for a child who lost a parent, make a charitable donation, become a mentor to a child, fundraise, or simply call us and tell us how you’d like to get involved. Help to Keep the Promise.


will be quite a bit of comment and the SEC will need to respond to that comment and likely adjust the structure of the Pilot. So, I suspect that the Pilot won’t get underway until the second quarter of 2015, at the earli-est.

• How will this program impact micro-cap companies? The intent is to figure out how to increase the incentives to support microcap stocks. We believe that greater incentives would lead to greater investment in, and support for, small- and micro-cap stocks and the small- and micro-cap “eco-system.” Combined, this would also lead to higher numbers of IPOs, economic growth and millions and millions of jobs over the next decade – but not overnight.

• What do you like/not like about the proposed plan for the Pilot? The Pilot should be 5 years long, not 1 year long. It should also test 10 cent tick sizes (not just 5 cents). In one of our studies we found that you really needed tick sizes larger than 1% of share price to support the long-term IPO market. At 5 cent tick sizes, most of the stocks in the Pilot will have tick sizes that are materially smaller than 1% of share price.

what aBout “veNture

exChaNges?”

To have a one-size-fits-all stock market, which is what we have in the United States, optimized to trade S&P 500 stocks and apply it to micro-cap stocks is idiotic. On October 27, 2011, the Wall Street Journal published my Op-ed entitled, “How to Revive Small-Cap IPOs”1 in which I stated, “What’s needed now is a new, parallel market for public com-panies under $2 billion in value. Trading rules in this new market would allow for higher

commissions, which would provide adequate incentives for small investment firms to get back into the business of underwriting and supporting small-cap companies. The SEC could use its authority under securities laws to exempt this market from rules standing in the way, or Congress can step in.” Since then, the SEC Advisory Committee on Small and Emerging Companies has endorsed the need for “Venture Exchanges” as has SEC Commissioner Daniel M. Gallagher, who has a very solid grasp of the issues.

I believe that 2015 will be a watershed year for the small- and micro-cap mar-kets. I expect that we’ll see a “JOBS Act 2” and hopefully we’ll see a bill for “Venture Exchanges.” As we’ve seen with the original JOBS Act, it can take years to implement Congress’s wishes. But, as our parents have taught us, “Patience is a virtue.”

We have been on a bender undermining our small- and micro-cap markets for four-teen years (since 1998 and Reg. ATS) and the JOBS Act was only passed in 2012. Seen in that light, we’re making remarkable progress (I started this fight in 2007) in reviving the U.S. IPO market to again be the envy of mar-kets throughout the World.

What can your readers do? Write their Congressman. Write the SEC. Push for a market that drives capital formation and economic growth again. At IssuWorks, we’re

To have a one-size-fits-all stock market, which is

what we have in the United States, optimized to

trade S&P 500 stocks and apply it to micro-cap

stocks is idiotic.

What can your readers do? Write their

Congressman. Write the SEC. Push for a market

that drives capital formation and economic growth

again.

in it to win it. We plan to stop at nothing less than leaving a better legacy for the next generation. For more information, reach us at [email protected].

David Weild (http://en.wikipedia.org/wiki/David_Weild_IV) is the founder, Chairman and CEO of IssuWorks. He is considered to be one of the foremost stock market experts in the world and is known as the “Father of the JOBS Act” - the most important piece of pro-capital formation legislation in the United States in over a generation. He is a for-mer vice chairman of NASDAQ who ran a number of businesses at a major Wall Street firm where he oversaw more than 1,000 equity offerings. He is also Chairman of the Board of Tuesday’s Children, the charity that was founded in the wake of 9/11. He can be reached at [email protected]. n

1 See http://www.wsj.com/articles/SB10001424052970203554104577001522344390902


facebook.com/SnnInc@StockNewsNow

linkedin.com/company/stock-news-now [email protected]

youtube.com/SNNWire

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investors to the very best, undiscovered companies under $500 million in market capitalization.

2 0 1 5

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May 27 & 28, 2015The Grand Hyatt Hotel

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Non-Cash Costs Can Sink the Ship

ac c O U N T I N G c O R N E R

non-cash charges are particularly severe to microcap companies, whose limited scale of operations often times becomes insignificant to the large values assigned to these non-cash charges. Almost all of these non-cash charges relate to issuance of company equity or debt securities.

Probably the harshest pill for the prepar-ers and readers of the microcap financial statements to swallow is the creation of large derivative liabilities that occur when companies issue equity and debt agreements (principally convertible notes) that contain reset provisions to the exercise or conver-

n BY cOREY FIScHER

Most CEOs and CFOs are very conscious about producing

operating results that will meet investors’, analysts’ and

Wall Street expectations. In their daily oversight, such results are dependent upon revenue generation, profit-able margins and cost control. These are key metrics that drive company analysis, assessment of management performance and overall stock performance.

While focusing on these performance metrics, many CEOs, CFOs and investors have learned the harsh reality that opera-tions are not the only factors that come into play when determining earnings or liquidity of a public company. Complicated, and often times highly misunderstood, non-cash charges resulting from accounting rules are frequently arising that distort the com-pany’s true operating performance. These


sion price of these instruments based on future sales of equity. The creation of this liability directly reduces stockholders equity on the balance sheet, and causes a sizable hit to earnings when recorded. And it just doesn’t end there. According to the accounting rules, these liabilities must then be measured to fair value each reporting period, and the changes to the fair value are recorded on the statement of earnings. The amounts recorded for these liabilities, and the corresponding adjustments to market, are hard to predict. Furthermore, as the creation of these liabilities directly reflects net equity, this could unexpectedly create violations of debt covenants, or worse, result in problems with the trading exchanges that have minimum equity requirements. What is even harder to swallow for management, is that these non-cash derivative liabilities will almost never be settled for cash, and distorts the company’s true liquidity.

Other culprits that can cause significant unwanted non-cash charges to earnings would be the issuance of convertible debt instruments whose conversion terms into common stock are below market price of the common stock on date of issuance. This “beneficial conversion feature” will result in an additional charge to future earnings. Also, issuance of warrants as a kicker in con-junction with debt financing will result in additional future non-cash interest charges based upon the value assigned to the war-rants. These non-cash amounts created by the warrants and /or “beneficial conversion feature” often times can equal the face value of the financing instruments issued (ouch!).

Most preparers and readers of financial statements of public companies now under-stand that a grant of option awards also will create a non-cash charge to earnings. However, what many do not realize is that modifications to any stock award, includ-ing a change in the life of the award, vesting dates, and exercise price or termination pro-visions can generate an unwanted additional charge to earnings. Furthermore, options or warrants issued to non-employees contain

other pitfalls, making earnings hard to man-age or predict. That is because, as opposed to awards granted to employees whose award value is fixed at the time of the grant, these types of awards given to non-employees have to be remeasured at fair value at the end of each reporting period. This can cause wild or unpredictable swings in a company’s earnings depending on the volatility of the company’s stock price.

What’s a company to do? First thing would be for company CEOs and CFOs to do everything they can to avoid these types of agreements. Though easy to say, cir-cumstances may dictate otherwise. If such transactions do arise, companies should seek out solid accounting advice from their financial advisors who are experienced with these transactions – before it gets to the auditors. If you find yourself stuck with these non-cash issues, you still have one last way to communicate to your investor base. Public companies are increasingly including a reconciliation of earnings per the financial statements to an adjusted earnings amount that eliminates these non-cash charges with-in the Management Discussion and Analysis, and in press releases. The Securities and Exchange Commission allows this type of reconciliation. Management of many com-panies have found this the best way to bridge the gap between the earnings as reported per

financial statements, and a more meaningful earnings number for investors and financial statement users to monitor operating per-formance.

You would think the goal of the account-ing rules would be to create a “useful” “understandable” earnings number in the first place.

Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies. He has more than 25 years of experience, having worked with the Big 4 accounting firms and as an SEC reporting officer for a number of NASDAQ-listed companies. He is based in Los Angeles, and is an expert in finan-cial reporting, SEC compliance, raising debt and equity, mergers and acquisitions, and structuring accounting operations. Email: [email protected] or 310-601-2200. n

Probably the harshest pill for the preparers and

readers of the microcap financial statements

to swallow is the creation of large derivative

liabilities that occur when companies issue

equity and debt agreements (principally

convertible notes) that contain reset provisions

to the exercise or conversion price of these

instruments based on future sales of equity.

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

A Unique Perspective

• Public Offerings• Private Placements / PIPEs• Equity Lines of Credit• Recapitalizations (Reverse / Forward Splits)• Rule 144 Matters• Mergers and Acquisitions• Joint Ventures• NYSE, NASDAQ and NYSE Amex Listings• SEC Compliance Matters

• General Corporate Matters & Governance• Term and Revolving Lending transactions• Asset-based Lending transactions• Revolving Lines of Credit• Letter of Credit transactions• Bridge Loans• Registration Statements (S-1, S-3, S-8, Form 10)• Commercial Litigation and Arbitration• Regulatory Investigations (SEC / FINRA)

NEW YORK OFFICE45 Rockefeller Plaza, Suite 2000, New York, NY 10111

Tel: (212) 332-8160, Fax: (212) 332-8161

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Tel: (732) 395-4400, Fax: (732) 395-4401

[email protected] | www. lucbro.com



based on personal feelings about people in power or entities.

While there’s no doubt the recovery has been hampered by poor fiscal policy and at some point there will be a day of recogniz-ing from monetary policy the true nature of investing is to focus on owning great compa-nies with values unrecognized by the market. In fact I spend much of my days explaining that Wall Street the physical place where

n CHARLES PAYNE

Why You Must Invest

Even after the carnage of 2000 household investment in the stock market hovered around 61%- it came into 2013 at just 52%.

Now, cynics and skeptics, many would-be investors vowed never to return.

This is a natural reaction in the aftermath of stock market crashes exacerbated this time by a never-ending multitude of noise from market bears, book-sellers and cur-mudgeons whose investment decisions are

Americans have largely written off the stock market after enduring two devastating market crashes in less than a

decade. The result is since the Great Recession fewer and fewer households have money invested in an individual stock, mutual funds of retirement accounts like 401K or IRA.


those hedge fund masters of the universe count their cash shouldn’t be confused with owning shares in great companies.

exPeNsive traiN to Miss

As a percentage of total financial assets this is the second highest level ever for stocks. Most of that has to do with the rally if people simply kept some exposure to the market it would be a big chunk of their net worth. And some has to do with the value of other assets like housing and gold taking big hits. But, for those that held on through the down drafts it’s been a worthwhile ride.

Even armed with all of these facts fence-

sitters continue to reject the notion of invest-ing. So, let me take a different approach because there are a few things most people acknowledge as facts and share as fears.

You probably aren’t going to earn enough money during your working years to live the life desired in the golden years. The solu-tion is your money must work for you and in order for that to occur, you must own something. It can be a business, it could be a stamp collection but something needs to generate profits or have value that outruns inflation.

The other thing we mostly agree on is that heart and soul of America’s capitalistic system is the small business owner.

Headlines tout the recovery that’s gaining steam and there’s no doubt things are better but what regular folks understand is this isn’t a recovery that has coattails. One of the reasons is the attention and taxpayer money coupled with phantom fiat money given to big banks and businesses to make it through the difficult times. I’m no fan of the Federal Reserve but think the focus on its impact on the stock market misses bigger issues.

• Enabling Big Government borrowing and spending that crowds out private sector

• Promoting behavior at banks that con-tinue to put entire nation at risk

So, against all odds including the reluc-tance of banks to provide working capital, small businesses have carried the day. The giant check processing company ADP issues a job report each month dividing business by large, medium and small. By far the small category generates more jobs than the oth-ers and in November 2014 created 49% of all net jobs.

Combing through the data further it’s the very small businesses that often pump out the most jobs.

Eventually a lot of these small companies become larger companies and their shares are offered to the general public. The com-panies that are hot out of the gate, however, are detoured into a path that sees a lot of

While there’s no doubt the

recovery has been hampered

by poor fiscal policy and

at some point there will

be a day of recognizing

from monetary policy the

true nature of investing is

to focus on owning great

companies with values

unrecognized by the market.


upside value sucked out of them before the general public gets a chance at ownership. In fact 2015 will see a lot of hot initial pub-lic offerings of companies that are already household names or well-known in the tech world instantly making insiders millionaires and billionaires.

At the top of the list is Uber the ride-share company that’s as famous for its businesses as it is for running afoul of the law. By the time this company becomes publicly traded everyone will know what it is (my son told me about the company two years ago when he was 16 years old) and think of it as a hot company and probably a hot stock worth owning at any price.

Take a look at the levels of funding for Uber.

uber fundraising history

amount valuation

dec 2011

Jeff Bezos

$37.5M $330M

aug 2013

Google

$258M $3.5B

june 2014

Fidelity

$1.4B $18.4B

dec 2014

T Rowe Price

$1.0B $40.0B

I’m not picking on Uber or hating on bil-lionaires making easy money but making the point that getting in early and at the bottom can be very lucrative although not necessar-ily as quickly as the hot Silicon Valley deals.

At the end of the day everyone must have some exposure to the stock market with a

portfolio mixed of old blue chip names and a few small names that could become future blue chips. Any excuse not to be an inves-tor falls on deaf ears and results in empty wallets.

Happy New Year

Charles PayneWall Street Strategies, Inc.CEO and Principal Analyst

Charles V. Payne is the Chief Executive Officer and Principal Analyst of Wall Street Strategies, Inc. (WSSI), which he founded in 1991. With less than $10,000.00 in start up capital and working from his apartment, he launched WSSI to provide a unique brand of stock market advice. Through this service, subscribers (money managers and individual inves-tors) began to reap sizeable profits and the firm developed a national reputation as provider of timely and effective equity analysis. Today, WSSI provides information to over 120,000 registered subscribers, in more than 60 countries as well as several of the largest bank/brokerage firms. Charles oversees a team of stock analysts that cover specific industry groups, in addition to monitoring the entire market and individual sectors on his own.

Charles’ passion for the stock market began when he was 14 years old. He told his mother then that one day, he would work on Wall Street.

Charles got his start in the industry in research at EF Hutton in 1985. After two years, he switched gears and accepted a position with boutique broker-age firm, Greentree Securities. It was there that he first saw a niche for independent and timely equity advice, which led to the creation of Wall Street Strategies. Due to the success of his guidance and stock selections, Charles has become well sought after by many highly respected finance-oriented radio, web and television programs. He is widely rec-ognized in the media as a leader among the analyst community, and is routinely contacted for his market opinions by several prestigious news organizations.

On June 2, 2014, Fox Business Network launched Charles’ new show “Making Money with Charles Payne” which is featured daily at 6pm EST. He is a member and occasional host of “Varney & Co” and in addition, he is a guest-host on several shows includ-ing “Cavuto on Business” and “Your World”.

Over the years, opinions and articles on Charles Payne have been featured in prestigious news orga-nizations such as Reuters, the Wall Street Journal, and the New York Times. He has been the keynote speaker at numerous investment conferences, grass

In fact 2015 will see a lot of hot initial public offerings of

companies that are already household names or well-known

in the tech world instantly making insiders millionaires and

billionaires.

roots events and educational gatherings worldwide. Charles is author of “Act Fast, Be Smart and Get

Rich” debuted in April 2007.Charles was awarded the Congress of Racial

Equality (CORE) Man of the Year Award in 2009.Charles attended Minot State College and Central

Texas College during his time in the Air Force and Majored in Criminal Justice.

Hobbies include drawing and painting along with reading non-fiction books.

WALL STREET STRATEGIES, Inc., 61 Broadway, Suite 1425 NY, NY 10006 TEL: 212-514-9500 FAX: 212-514-9582 WWW.WSTREET.COM n

MicroCap Review Magazine 31www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com 31MicroCap Review Magazine

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can take many months and divert valuable time and capital from the company. And, at any time, even on the day that the offering is to be declared effective by the SEC, the underwriter may withdraw from the offering for any of a multitude of reasons: adverse market conditions, the company’s most recent financials showed slower growth than projected, the underwriter has more promis-ing deals that it prefers, etc. An underwriter withdrawing effectively ends the company’s goal of raising capital. Moreover, recent SEC filings show that the market for smaller IPOs is almost non-existent; for example, in the week ended December 19, 2014, there were 17 public offerings filed with the SEC, but only one IPO was for less than $40,000,000,

n JOHN LOWY

Going Public Through a Reverse Merger

If your company is interested in becoming publicly traded, with very few exceptions there are only two options:

File a registration statement with the SEC for an Initial Public Offering (IPO) on Form S-1, either as a self-underwriting or through a FINRA broker-dealer which will act as the underwriter, to raise the capital your com-pany seeks. Sounds good, but this approach is filled with pitfalls: recent history of S-1 public offerings shows that self-underwrit-ings do not raise significant amounts of capital, often less than the legal, accounting and other costs involved in the offerings. Underwritten public offerings are few and far between—underwriters see hundreds of private company business plans, but choose only a few to go public. Even if a company is chosen, it must then endure an arduous due diligence review by the underwriter, which


and that was for $10,000,000. So, unless your company qualifies for a substantial capi-tal raise, there is no reasonable likelihood of going public and raising capital via an underwritten IPO.

The other way for private companies to become publicly traded—and I submit the best way—to reap the considerable ben-efits of being a public company, is via a reverse merger with a pre-existing public company. There are four distinct advantages of a reverse merger vs. an IPO: first, it is much quicker—in a typical reverse merger, the private company will become publicly traded in less than 60 days. Second, a reverse merger is considerably less expensive than an IPO (in most reverse mergers, the private company pays cash to buy out the public company’s principals; but the cost to buy out the principals is far less than the legal, accounting, due diligence, under-writer’s upfront fees and other costs required for an IPO). Third, the reverse merger route is far more certain to be completed than an IPO—as noted above, the underwriter may withdraw the IPO at any time, as opposed to a reverse merger, in which (assuming the public company is clean and the cash is paid) the reverse merger is certain to be com-pleted. And fourth, also noted above, given the dearth of underwriters that do IPOs for less than $40,000,000, the reverse merger route is often the only way to go public! All of these factors explain why reverse mergers are becoming increasingly popular.

Are there potential disadvantage to a reverse merger? As in any other financial transaction, there are, of course, some issues to consider: First, for a long time, there has been a stigma attached to reverse mergers—years ago, and before the now-defunct OTC

Bulletin Board required public companies to have audited financial statements, there were many unproven companies that went pub-lic with unaudited, spotty financials, which resulted in a plethora of “pump-and-dump” schemes. However, OTC Markets--the most popular site to find price quotes of compa-nies which reverse merged--requires compa-nies on its OTCQB site to be SEC-reporting companies and current in their filings, thus providing more credibility for smaller pub-lic companies and eliminating most of the past uncertainty and lack of transparency. Moreover, almost all of the major account-ing firms and law firms are now actively involved in reverse mergers, thus providing more confidence in the legitimacy of reverse merged companies.

Another potential drawback is the possible lack of liquidity, once the private company becomes publicly-owned. There are thou-sands of public companies which compete for investor dollars; and therefore, I strongly recommend that newly-public companies retain a reputable Investor Relations com-pany, to help these companies get noticed in the marketplace. Almost every large public company uses IR; smaller companies should do the same.

Perhaps the most significant disadvantage to reverse merging vs. an IPO is that an IPO raises capital for the company, and a reverse merger does not. However, this drawback is irrelevant for private companies which do not need to raise capital, either immediately or in the near future. Moreover, this appar-ent disadvantage can not only be overcome, it can turn into a plus: in many IPOs (assum-ing that your private company can somehow get one done), the underwriter will negotiate as low a pre-offering valuation as possible,

so that it and its customers will enjoy more of the upside. A “hot” aftermarket often means—as the expression is used—that the company left a lot of money on the table. In contrast, when a private company reverse merges, it can raise capital in a PIPE (Private Investment in Public Equity) either simul-taneously with the reverse merger, or at any time thereafter. Either way—whether at the same time as the reverse merger, or after—the costs of a PIPE are significantly less than an IPO, it can be completed in much less time (no pre-filings with the SEC or SEC comments, etc.), and, when combined with an effective post-reverse merger IR program, the newly-public company can raise the capital it needs with far less dilution than in an IPO.

In conclusion, going public is a major step in a company’s corporate history, and private companies should carefully weigh all options on the table. Looking at the broader, long term picture, and in the light of the many advantages--and less disadvantages of a reverse merger vs. an IPO—I strongly recommend that private companies consider reverse merging as a viable way to enter the public arena.

John B. Lowy is the founder (in 1993) and CEO of Olympic Capital Group, Inc. (www.ocgfinance.com), and is the principal of his law firm John B. Lowy PC, both based in New York City. John is a highly-respected and acknowledged expert in reverse mergers, capital formation, financial consulting and initial public listings.

As an attorney, an advisor or as a principal, John has led or participated in more than 200 such trans-actions, creating market value in excess of $4 billion. He has been instrumental in leading the process by which many companies have reverse merged and achieved listings on the NASDAQ or the AMEX.

John has completed transactions for clients based in Australia, Brazil, Canada, the Caribbean, China, Hong Kong, India, Korea, Philippines, South Africa, Turkey, UK, United States, Vietnam and other nations. The sectors in which theses clients are engaged range from high tech to low tech, real estate, pharmaceuticals, medical devices, oil and gas, mining, solar power and other renewable energy, entertainment, food, forestry, agriculture, education and retail, among others.

He received his B.A. from Tufts University and began practicing law after receiving his law degree from the University of Pennsylvania Law School. n

Perhaps the most significant disadvantage to reverse

merging vs. an IPO is that an IPO raises capital for

the company, and a reverse merger does not.



age-related degenerative diseases that rob us of quality of life. The list of such diseases is, of course, long, but common examples are Parkinson’s disease where the loss of certain brain cells lead to years of disability; osteoarthritis, where the loss of cartilage in the joints can cause a great deal of pain and disability; heart failure, where the loss of heart muscle after a heart attack can reduce activity and lead to early death; macular degeneration a leading cause of blindness, and so on. These chronic conditions account for some 80% of health care costs largely because current medicines are not capable of simply making new replacement cells for these tissues in the body. That is where the stem cell revolution comes in.

The isolation of a special type of cells called “pluripotent (all-powerful) stem cells” in the late 1990s made it feasible for the first time in the history of medicine to manu-facture on an industrial scale all of the cells types of the human body, similar to the way recombinant DNA allowed the manufacture of all proteins. Therefore, it is now possible, n MICHAEL D. WEST, PH.D.,

CEO, BIOTIME, INC. (NYSE MKT: BTX)

The Stem Cell RevolutionImplications for Age-Related Degenerative Disease

Rarely, we have the privilege of viewing a revolution in the

making. In my lifetime, I have seen this in the miniaturiza-

tion and widespread use of computer technology.In a few short decades, computers have changed everything, from the way we con-duct commerce, the way we navigate the highways, to the way we choose and listen to music. In biotechnology (a field in which I spend my time), we saw a similar revolution in the late 1970s that changed medicine in a very profound manner. It was the birth of what is called, “recombinant DNA technol-ogy”. This discovery allowed researchers for the first time to manufacture previously rare and valuable proteins on an industrial scale. Now life-saving proteins such as insulin and growth hormone could be scaled up for mil-lions of patients simply and at an affordable cost. It is frankly hard to imagine current medical research without recombinant DNA.

In the mid 1990s, I had the privilege of participating in another revolution, one that I think has the potential to be more impact-ful than even recombinant DNA. In the course of human aging, numerous tissues in the body wear out and are lost or become dysfunctional. As a result, late in life we all face the prospect of long-lasting (chronic)


and products are now in clinical trials, where valuable cells can be manufactured to replace and repair tissues afflicted with degenerative disease, such as those I mentioned above, and of course, many others.

What does the revolution mean? There has certainly been a lot of hype circulated relating to the stem cell revolution. But, the transplantation of cells and tissues to treat disease is a well-established paradigm. The limitation in the past has largely been one of a lack of supply. With such an abundant new source of cellular building blocks, I and many other researchers in the field believe that the future is bright for regenerative medicine. Will we eventually be able to replace cells in our bodies with fresh young cells to keep us living longer and healthier? Probably. But when that happens entirely depends on how

many scientists can be marshaled into the cause. So far, the federal government in the U.S. has assumed that new technologies will merely add to the burgeoning health care budget. I find that shortsighted. Chronic degenerative diseases are expensive because they are chronic. If tissues can be repaired, the cost of treatment would, in my opinion, dwarf that of the current ineffective thera-pies. If government funding is not coming to the rescue, don’t worry. Biotechnology companies will come to the rescue. Where there is human need, business will flourish.

Dr. West is the Chief Executive Officer of BioTime, Inc. (NYSE-MKT: BTX) and its subsidiar-ies OrthoCyte Corporation and ReCyte Therapeutics. BioTime’s subsidiaries are focused on developing an array of research and therapeutic products using human embryonic stem cell technology. He received his Ph.D. from Baylor College of Medicine in 1989

concentrating on the biology of cellular aging. He has focused his academic and business career on the application of developmental biology to the age-related degenerative disease. He was the Founder of Geron Corporation of Menlo Park, California (Nasdaq: GERN) and from 1990 to 1998 he was a Director, and Vice President, where he initiated and managed programs in telomerase diagnostics, oligonucleotide-based telomerase inhibition as anti-tumor therapy, and the cloning and use of telomerase in telomerase-mediated therapy wherein telomerase is utilized to immortalize human cells. From 1995 to 1998 he organized and managed the research collaboration between Geron and its academic col-laborators James Thomson and John Gearhart that led to the first isolation of human embryonic stem and human embryonic germ cells. From 1998 to 2005 he was Chief Executive Officer and from 2005-2007 President and Chief Scientific Officer at Advanced Cell Technology, Inc. (OTC: ACTC) where he managed programs in animal cloning, human somatic cell nuclear transfer, retinal pigment epithe-lial cell differentiation and product development, and PureStem, a technology for the multiplex derivation and characterization of clonal human embryonic progenitor cell lines. n



do you find new companies?” The answer is a blend of art and science.

The science part is easy to understand. Almost anyone can access free or cheap quant screening tools that help sort through databases containing financial data on thou-sands of companies. Anyone can apply logic to these databases to sort and filter their idiosyncratic preferences. Free online tools have become pretty robust. We almost never use quant screens to find new names how-ever, on the belief that by the time promising companies screen well, they have already appreciated in value, and we have missed the opportunity for outsized returns. Financial statements are backward looking, and as such, quant screens are looking into the past. These statements are critical to analyze, but even more importantly, we try and identify how a company will look in the future.

The art is more nuanced. We want to buy companies that will screen more favor-ably in 12-18 months, and show an accel-eration in revenue, EBITDA, earnings, cash, or other objective measures. We find that quant screens rarely reveal the fundamental growth catalyst, which is a subjective and less obvious variable that must be identified, or discovered, through direct interaction with a company’s management team. Growth catalysts can be quite varied: New prod-n NEIL CATALDI

Finding the Next Great MicroCap

Blueprint Capital Management launched in October of 2012. Together, with my partner Jason Revland, we have over 30

years of experience across the capital markets spectrum in trad-ing, research, derivatives, portfolio management and client ser-vice. Our mutual investment passion led us to

form Blueprint Capital as a way to exploit the many inefficiencies, advantages, and asym-metric risk/reward common to MicroCaps. Following years of collaboration and per-sonal success in the space, we launched a for-mal vehicle so we could devote 100% of our time delivering our strategy to clients, who are mainly individuals and family offices. Managing a concentrated, 12-15 position, long-only portfolio is the best way we can deliver meaningful, stock-specific returns that reward our disciplined due diligence efforts. We focus most of our attention on Technology and Consumer related compa-nies, and avoid themes where our research edge would be compromised or negated by forces outside our control, such as com-modity prices and regulatory or political decisions. We manage a small pool of capital, and intend to stay small (sub $50M AUM), as our size is a distinct competitive advan-tage, which allows us to operate where other pools of smart capital are unable. In fact, we are typically selling our winners to our larger sized competitors.

This article focuses on the ways we find these winners, and reinforces our namesake, that one must have a plan and a well-defined process, or a blueprint in order to expect repeatable success. We are often asked “how


uct launch, strategic acquisition, strategy pivot, change in management or Board of Directors, asset sale, recapitalization or debt refinance, balance sheet infusion, exchange uplist, etc. This discovery process is hands-on, dynamic and multi-faceted, and cannot be easily collated and condensed with a computer alone. This is how we derive our primary investment edge, which is identify-ing new, un-digested market information by interacting with management. Our primary methods of sourcing are further discussed below.

LeveragiNg our exteNsive

Peer (Buyside) Network

We have built many valuable relationships over the years with other buyside inves-tors, both big and small, institutional and individual alike. The interesting thing about MicroCaps is that literally anyone has a shot at finding the next multi-bagger. There are many exceptional people making their living in MicroCaps, and we seek out those who compliment our philosophy and process. We also enjoy the camaraderie of sharing ideas with other investors, and we get to lever-age their diverse backgrounds, rolodexes and geography. We are very transparent about what we own, because we are open to peer scrutiny and constructive criticism, and often learn new things by sharing our positions and our rationale for owning them. This is much more than “talking your book,” although getting other people to buy in size after you are fully positioned can certainly help.

atteNdiNg MiCroCaP CoN-

fereNCes

We try and attend several major MicroCap events throughout the year, and there are 3-4 in particular that are really worth the effort and expense to attend. Some are inde-pendent, and others are sell-side sponsored. They are a highly productive and cost-effec-tive method for sourcing new companies.

Nothing can replace meeting management face to face, and we try to achieve this with every investment we make. There are cer-tain red flags that we look for, which have been learned through experience and los-ing money. There are many great ideas, but fewer great management teams. It is the intersection of the two where the probability of winning increases. We are especially alert for companies that have never presented at conferences before, as this may signal an emerging story.

CoMMuNiCatiNg frequeNtLy

with iNvestor reLatioNs

(ir) firMs

There are dozens of such firms, some good, some bad. In having relationships with as many of the good ones out there, we see steady information flow on their new clients, and introductions to management teams. Also, good IR firms will be proactive in set-ting expectations, and communicating fre-quently. They will also offer valuable insight into share price dynamics, as they are in a position to take a more frequent investor base pulse. These are valuable partnerships that we cultivate and respect, as these firms often work very hard for their clients, and have strong alignment of interests in mak-ing sure their client’s stories are properly told. We have also introduced new clients to them, a valuable source of referrals that reinforces loyalty and respect that we are in fact partners.

Leveraging our sellside/banking net-work – The sellside/banking relationships we maintain are well versed in their cli-ent stories, whether a research analyst or a banker is involved. These firms are a wealth of information, and can offer insights on both fundamentals and trading dynam-ics. Facilitating management introductions, whether via phone or non-deal road-shows, has become a way for sellside firms to get paid, and we are eager to take meetings, and very much appreciate such offers. Our sellside contacts often ask us what we like, as

a source of future research coverage and pos-sible investment banking deals, as they know that we are on the front lines of sourcing and screening hundreds of companies each year. Many of our companies are under-followed and lack research coverage, which is often the source of valuable inefficiency for us. When a very small, undiscovered company gains formal research coverage, it is often a pathway to greater market efficiency, and a higher institutional shareholder base. We very much enjoy seeing a respectable sell-side firm launch positive research coverage on one of our holdings, as it is a win for all parties.

Blueprint Capital Management, LLC is a privately owned investment management firm focused on global Small and Micro Cap equities. The firm offers risk controlled active equity portfolio management across style and sector segments of the sub $500 million market capitalization universe. Blueprint offers real-time performance, position transparency and balance information through a relationship with Interactive Brokers. For more information, please visit www.blueprintcm.com.

Neil has 14+ years of relevant Wall Street indus-try experience across equities, options, alternatives, and Family Office wealth management. He began his career on the floor of the Philadelphia Stock Exchange where he worked for both TFM Investment Group and Goldman Sachs. He then worked as a derivatives strategist at Susquehanna International Group, generating stock and option trading ideas, mainly within the Consumer sector. Just prior to Blueprint, Neil worked for a private Family Office, whose assets under management exceeded $250 million. Neil managed a range of investments for the family, including actively managed equity and fixed income portfolios, as well as the oversight and management of a large portfolio of hedge funds. n


FEATURED ARTICLE

I companies) of the 63 biopharma IPOs that dominated the scene, up sharply from the 24% average for the two previous years, as the IPO window opened wide. With IPOs running stronger, Series A venture rounds for biotech companies have swelled as com-petition for new technology sharpened. Corporate venture arms helped support pri-vate venture groups in driving a big increase in the amount of Series A cash flowing to early-stage ventures, many of which are planning earlier than ever on going public or executing an M&A deal.

We expect that the IPO window will stay open but the pace will slow down to 2013 levels. High-profile biotech failures could still send a chill through the markets, Norris adds, but the underlying strength in biotech looks solid--for now. “Overall, it’s just a fantastic exit environment for private equity-backed backed companies,” he sums up. http://bit.ly/1DFfDRO

Mergers aNd aCquisitioNs

The rising stock market has created a surplus n SETH YAKATAN

Biotech: Year in Review 2014

Life sCieNCes iN the equity

Markets

In 2014, large cap biotech outperformed the market, with many of these companies being the best performers in the entire market as per Geoffrey Porges of Bernstein in their “The Biotech Year in Review.”

In 2014 we also experienced a record biopharma M&A market, as aggregate trans-action values exceeded over US$200 bil-lion, twice the historic average. This trend was fueled by increasing equity valuations and historically low interest rates. http://bit.ly/1AmHbdE

There were 79 Life Science IPO’s in 2014 making it far and away the best year the sector has ever seen. Potential returns, (as calculated by Silicon Valley Bank), reached $18.5 billion in 2014, by far the best per-forming year since Silicon Valley started tracking this data in 2005,” as per Jonathan Norris, a managing director at Silicon Valley Bank.

Norris also stated that early-stage biotech’s accounted for 41% (26 preclinical and Phase

Last year I wrote that it was clear that 2013 was one of the

best years ever enjoyed by the Biotechnology industry, in

the financial markets, ever. Well, I was wrong - it was 2014. I

hope to be wrong too in 2015.


of cash for large pharmaceutical and medi-cal device companies. This has led them to look carefully at their existing portfolios and fueled the acquisition of new companies, technologies and drugs.

Tax incentives have also driven M&A activity, as companies look overseas to take advantage of lower tax rates. This also allows acquirers to penetrate international markets that they may not have necessarily benefited from previously.

This spree of consolidation will continue to squeeze out players who are unable to compete and other potential acquirers. It will be interesting to see pricing for venture-backed companies in 2015 as the number of buyers has diminished. For the past sev-eral years R&D dollars have decreased in an effort to increase the bottom line. Many companies have relied on purchased growth from the acquisitions of early stage compa-nies.

Private fiNaNCiNgs/veNture

CaPitaL

What will this mean for VC investment in life sciences?

Biotechnology companies ended 2014 with $6.0 billion new venture capital in their pockets, which was the biggest annual total since 2007, including $2.0 billion in the fourth quarter alone. The total for q4 2104 was the biggest single-quarter total in at least 19 years.

The Money Tree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA) with data from Thomson Reuters, which goes back to 1995, shows no other quarter in which biotech companies have exceeded the $2.0 billion mark. And 2007’s $5.99 billion full-year total was the only other year to exceed or come close to 2014’s $5.97 billion total, and we all know what happened in 2008.

The course set for 2015 remains to be seen, however the pace of VC in 2015 is not slowing down. First quarter biotech com-

pany fundraising announcements neared $800.0 million halfway through January, including $715.0 million in VC for the first full week of the year (scripintelligence.com, 10 January 2015).

NaNo MarketPLaCe

With the larger biotech companies now migrating to the more commercial efforts and no longer investing in research and development, there is a void that is just being recognized by VC’s and angles. Nano invest-ing is like old time venture investments with angels and selected VCs. These nano inves-tors look at start-up enterprises, whose core is a research and development project based on a “seed investment.” This investment should lead up to a prototype designation, “proof of concept” or roll out.

From this nano marketplace will come the next opportunities for investors to invest in Series A & B rounds and in IPO’s. It is also where many new drugs are going to be produced.

It’s not a market for the faint of heart. As Jonathan Norris of SVB stated earlier in this piece, Series A venture rounds are now where new technology is being sharpened and that is where the money is flowing, with the promise of earlier IPO’s or M&A deals.

outLook for 2015

2015 should be a very good year for inves-tors in the life science/biopharma industry. However, it will be challenging for big pharm firms to find acquisitions to meet market growth expectations.

As M&A competition across the sector continues, big biotech’s and specialty phar-ma’s now have the capacity to do the kinds of major acquisitions that were mostly within the grasp of only big pharma just a few years ago.

Growth still matters: Continued stronger shareholder returns from biotech and spe-cialty pharma, combined with overall market growth projections, are expected to put addi-

tional pressure on the many big pharma’s with growth gaps to do deals in 2015.

Higher premiums are likely to persist: Greater competition for high quality growth assets due to the strong buying power of both specialty pharma companies and big biotech’s means high valuations for target companies will continue into 2015.

More focused deal-making likely: Given the high premiums expected for attractive assets in 2015, transformational M&A will be an option only for a select few. As a result, big pharma companies may continue pruning portfolios, while pursuing bolt-on acquisitions, to develop – or maintain – criti-cal mass in key areas.

Shareholder activism on the rise: Shareholder activism is increasing at a time when sev-eral companies that announced divestitures in 2013-14, generated superior returns for inves-tors. http://bit.ly/1AmHbdE

Seth Yakatan is currently serving as Vice-President of Business Development for Invion, Ltd. (ASX:IVX). Seth has been professionally involved in the biotechnology industry for over 15 years through his work with Katan Associates.

Invion is a clinical-stage drug development company focused on the development of treatments for major market opportunities in inflammatory diseases includ-ing asthma, chronic bronchitis and lupus. n



the Eurasian Union (Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan) we can talk about a 170 million+ con-sumer base for businesses operating in and trading with Russia.

• It is the 4th largest consumer market in the world. On the average, Russian con-sumers are in a stronger financial posi-tion than those of Western and Eastern Europe, and the U.S., due to less mortgage payments, credit card and student loans, less pressure from rising pension costs, relatively high real wages, and the lowest in Europe individual income tax at flat 13%.

• It has a number of unsaturated sectors and unfilled business niches.

• Russia is the world’s largest market for Danone, the second most important one for PepsiCo, and the largest mobile phone market in Europe.

• World Bank ranks Russia a Top BRIC

n STAN GRAFSKI

Is it Worth Investing in Russian Securities?

russiaN eCoNoMy at a

gLaNCe

Russia remains Terra Incognita to many international investors. Political tensions with the West over Ukraine and the Crimea peninsula1 cast world opinion about Russia in a mostly political light. Meanwhile, the naked facts indicate that:

• Russia was No 3 in the world by FDI (Foreign Direct Investments) at $94 bil-lion, behind only the U.S. ($159bn) and China ($129bn) as of 20132.

• It is the largest market in Europe, with some 145 million people. Taking into account free trade regulations within

1 - read: over confirmed yet undeveloped oil resources south of Crimea, access to 43 million consumer market of Ukraine and, in particular, industrially advanced and minerals rich Eastern Ukraine.

2 - no consolidated benchmarking data for 2014 FDI results is available as of the moment this paper is being written.


country in Ease of Doing Business 2015 Index (position 62 out of 189).

Putin’s government tries hard to attract international investors and businesses into domestic-oriented economic sectors, infra-structural projects, innovations, new tech-nologies, and the regions nationwide.

Widely known facts about the Russian economy normally include its territory (world’s largest) and rich natural resources. The inherited Soviet tradition of general free education and superb science development paved the grounds for 99% literacy rate and excellent human capital with plethora of versatile workers.

Major iNvestMeNt risks

Both risks and rewards in Russia are high. Plentiful natural resources represent the big-gest bait – and commodity volatility risk – to many investors.

Russian politics is also a widely articulated risk with the YUKOS/ Mr Khodorkovsky case as its striking illustration. My simple-minded advice to neutralize this threat is to stay away from companies controlled/ influ-enced by Putin’s political opponents. And be cautious with strategic industries and resources, e.g., some geopolitics-sensitive national projects, defence, space explora-tion, et al. There are plenty of other – even more lucrative – investment opportunities out there.

Corruption and weak corporate transpar-ency are other major risks. The antidote here is to invest in businesses that are known for their ethical business practices and with easy to understand performance indicators.

aCCess to russiaN seCurities

The Moscow Exchange is the largest exchange group in Russia operating trading markets in equities, bonds, derivatives, the foreign exchange market, money markets and precious metals. It also operates Russia’s central securities depository and the largest

clearing service provider. Similar to London AIM, the Innovation and Investment Market (IIM) is the Moscow Exchange’s dedicated division that deals with innovative and high-tech companies with high growth potential. To be listed here, required minimal capital-ization is RUB 50 mln (under $800K) and profits must be derived from innovative and high technologies. The Moscow Exchange was established in 2011 by merging Moscow Interbank Currency Exchange (MICEX) and Russian Trading System (RTS).

According to Lipper Research (2014), only $30 billion is in Russian securities out of $8 trillion invested in U.S. equity funds. Russia’s stocks are incredibly inexpensive. The MICEX is trading at five times earnings – much cheaper than other emerging mar-kets. So, the value-oriented investor might opt for the Russian stocks. Many attribute the low price range to the unpredictable nature of Putin’s government. On the other hand, if you can digest high volatility and you understand the fundamental trends on the Russian market, it could be your entry point.

Some 140 ETFs and mutual funds deal with Russian stocks. Individual investors could approach a number of U.S. brokers who trade on the Moscow Exchange. Over the turbulent 2014, foreign investors’ share in Moscow equity trade increased from 40 to 46 per cent in stocks and from 38 to 44 per cent in derivatives.

Since mid-2014, at the press of a button you could buy Moscow listed stocks and bonds using the two biggest internation-al settlement systems, Euroclear Bank and Clearstream Banking. Basically, those two gave international investors direct access to the Russian equity market. That repre-sents a huge change in the way the Russian stock market operates these days. Using Euroclear negates the need to keep an expen-sive Moscow brokerage account and enables traders to react faster to price-changing news.

The direct access to locally traded shares will soon squeeze the spread over widely

used DRs. For instance, the spread on the leading mobile operator MTS pair – the one that trades in Moscow and London (as a DR) – is at some 15%.

reCeNt eCoNoMiC deveLoP-

MeNts

2014 turned to be a difficult, yet rich one for Russia. The economy was affected by an oil price plunge, Western sanctions, devalued ruble, and increased inflation. The state’s expenditure — being dependent on the export of natural resources — has shrunk, thus pushing it towards further market sup-portive measures. A few of those measures were: • free float of the ruble• new business registration simplification• 2-year tax holidays for new small busi-

nesses in science, manufacturing and social spheres

• direct access to the Russian bond and stock market for major Western deposi-tories

• easy access to Government-supported investment projects across the country

• online tax reporting• special economic zones and industrial

parks – legal framework further develop-ment.

As a counter measure to Western sanctions, Russia banned Western made food imports in August 2014. Hence, the few last months witnessed a clear growing trend in invest-ments into domestic food processing/ pro-duction enterprises.

iNdustries for takiNg a

CLoser Look

Russian assets are cheap – sometimes, ridiculously cheap. That normally generates interest for investors. Despite current eco-nomic downturn and market volatility, a few industries might be worth extra attention:

1. E-commerce. Russia has the highest –


yet growing – number of internet users in Europe. More importantly, this industry has huge growth potential (see the chart below).

2. Hi-tech, telecom and innovation/ science driven companies, in particular, with export sales. It is well-known that Russians are traditionally great in science and inventions, but relatively weak in profiting from it. So, check your investment target’s sales perfor-mance. Good starting points for checking potential targets are IIM, business and sci-ence incubators, and specialized advisors on the market.

3. Agro industry. It is likely to become even more lucrative ROI-wise very soon due to increased demand for domestic foodstuffs and government subsidies to support indus-try players.

4. Infrastructure projects across the country with government support – check govern-ment priority list for details.

5. Medical drug manufacturing and dis-tribution. Many such projects are to be financed by the Federal or regional govern-ments with longer contract terms and guar-anteed sales.

resuMe

Russia’s securities market has many attrac-tions for thoughtful investors. As everywhere in the world, high risks are balanced with high returns. Manage your risks wisely and enjoy the returns. Find your local advisor(s) to guide you on the Russian market.

For practical hints on expanding your brick and mortar business in Russia, feel free to check our respective publication on our site.

LiNks:

Doing Business 2015 for Russia, World Bank – http://www.doingbusiness.org/data/exploreeconomies/russia/

The Moscow Exchange – http://moex.com/en/

Innovation and Investment Market (IIM) – http://moex.com/a1599

special economic zones – http://www.graf-ski.com/russian-opportunity/special-eco-nomic-zones/

check our respective publication – http://

www.grafski.com/publications/trends-facts-opinions/tips-for-entering-the-market-of-russia/

Stanislav Grafski is a Managing Partner with Grafski Consulting, a Moscow-based consulting bou-tique that helps international businesses to enter and expand on the Russian market. Mr Grafski has over 25 years of hands-on expertise in assisting interna-tional players to capitalize on Russia’s opportunities and guiding Russian clients to expand internation-ally. He is well presented on international social media (some 20 platforms). His MARKET ENTRY & BUSINESS IN RUSSIA Group is one of the most active communities on LinkedIn that focuses on business in Russia topics. He is the most connected LinkedIn member in Russia.

Education:Master’s in Law (1990), Voronezh State University,

RussiaMBA (2004), Nottingham University Business

School, UK

Links:

Grafski Consulting – http://www.grafski.com

most connected LinkedIn member – https://www.linkedin.com/in/StanislavGrafski

MARKET ENTRY & BUSINESS IN RUSSIA – https://www.linkedin.com/groups/MARKET-ENTRY-BUSINESS-IN-RUSSIA-6685310 n


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A base-building attempt at $26 silver two years ago failed, but it feels like it is dif-ferent this time. Assuming our analysis is correct, the cyclical bear for gold and silver, which began May 1, 2011 has ended, with backing-filling action, and a resumption of the larger ongoing secular bull market is now underway. This three year, seven month pro-cess ran deeper and lasted longer than just about anyone, present company included, expected.

n DAVID MORGAN

Futures volume was a heavy 150,000 con-tracts. In technical analysis, a key reversal – with the price on a given day trading both below and above the previous day’s session, and ending above that day’s closing price – was achieved.

Gold put in a similar performance, except that the $1,130 low was established a few weeks earlier, holding $10 higher on November 30 – also closing sharply higher the next day.

Silver and Gold Investor2015 Bull Market Takeaways

It is highly probable that silver made its cyclical bear mar-ket low Sunday night November 30, 2014, when it touched

$14.15. The next day it traded higher throughout the session, ending at $16.69, up over a dollar from the previous close.


The mining stock sector decline echoed the 2008 near-collapse but felt a lot worse, since the drop took so much longer. Even the best producers saw their share price drop 70%, with exploration stocks giving up 2011 values of 90%.

Long time readers of The Morgan Report know we have often said that this kind of market action will either scare you out or wear you out. Boy was that an understate-ment! Nevertheless, solid evidence is mount-ing that better days lie ahead.

Late last spring, I (David Morgan) com-mented: 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 volume of physical buying around the globe sharply increased into the fall, even as prices moved lower. For the year, China alone imported the majority of the world’s gold production. Fully 28% of newly-mined silver disappeared into India, which also bought enough gold to overtake China again, rising to number one.

Most silver tonnage buying is taking place in the Far East, but sales of American Silver Eagles exceeded 44 million, setting an annu-al record. When the Royal Mint reports their 2014 sales, Canadian Silver Maple Leafs will surpass the 2013 total of 28 million. During the first two reporting days of this year, 3.5 million American Silver Eagles were sold.

As the battle of fiat paper versus physical precious metals continues unabated, consid-er “stacking” more physical metal into price weakness, rather than trying to guess the exact timing of Crunch Day. Look at royalty companies and “best of breed” miners who can outlast current low prices while adding reserves for better days ahead.

Gold and Silver supply pipelines have suffered systemic damage. The post-2011 price decline weakened the entire resource sector financially and psychologically. Even the biggest producers cut back sharply on

exploration budgets, sold off properties, and deferred expansion plans. Many operators are “high grading” - working their most valuable deposits, rather than monetizing lower grade properties that are uneconomic at today’s depressed prices. They are deplet-ing high-grade ore bodies, “trading dollars” just to keep the lights on.

Every ounce a miner digs up must be replaced if it is to remain in long term production. Since a mine is a wasting asset, what’s going to happen when increasing demand for gold and silver intersects with a depleted supply line? Hint - much higher precious metals’ prices.

China’s newly-mined global gold domi-nation strategy… how they “game” it. First, buy physical gold in world markets, fabricat-ing where necessary into Good Delivery bars in Switzerland or the Middle East – then ship the bullion - transparently through Hong Kong or Shanghai; more opaquely through Beijing and other ports of entry.

Second, keep virtually all domestically - mined gold “in house”. Third, partner with or buy outright, high grade, in-situ gold (and silver) projects around the globe. China’s largest gold producer, Zinjin Mining Group, recently made a strategic investment in Pretium Resources’ high-grade Brucejack

gold Project in northwestern British Columbia to the tune of C$81 million, an investment facilitating eventual construction of a 2,700tpd underground mine.

Though opaque and difficult to quantify, China is almost certainly buying gold “off the books” from artisanal (illegal) miners in Africa and South America – just one more tributary feeding the river of gold flowing inexorably into the Central Kingdom’s cof-fers.

…leading to a gold-backed Yuan, chal-lenging U.S. dollar reserve currency status. To get a visual sense of how China conducts its “Go for the Gold” acquisition plan, con-sider the Japanese board match, “Go” – a game of strategy originating in China almost three millennia ago. Two players using black and white stones on a grid, seek to outma-neuver each other by capturing most of the board’s playing area, or hemming in the opponent so that they can no longer move. Simple rules, with the number of possible games which can be played being several times larger than chess!

The match can take a long time – simi-lar to the manner over many years or even decades by which China has traditionally pursued its big goals. Unlike the West, it doesn’t judge success or failure by an annual


report. Don’t think that China – acting in concert with other BRIC countries – needs to topple the petrodollar in order to achieve its long term goals. Simply reducing the dol-lar’s status to “first among equals” would be a serious blow to the Federal Reserve’s ability to continue financing U.S. debt with unlim-ited fiat paper.

The Collapse in Crude oil: Ask your-self. Have the systemic issues which a few years ago drove gold over $1,900 and silver close to $50 been seriously addressed? How about deficit spending, trillions in leveraged derivatives and artificially low interest rates?

The ongoing crude oil collapse from $105/bbl to below $50, could lead to default of hundreds of billions of dollars in shale oil debt – twice as much as the subprime mort-gage fiasco which almost brought down the global system in 2008. Concomitant with this, the Russian ruble has lost half its value over the last few months. The 1998 financial crisis was caused by a Russian debt default. A replay could initiate a global meltdown, with

a stampede out of asset classes like stocks and bonds…and into the precious metals.

In The Death of Money, Jim Rickards lays out the implications if things begin to unravel:

If some scenarios play out, you are going to see the price of gold go up… a lot. And it may go up a lot in a very short period of time...not 10% per year for seven years and the price doubles... It will have a kind of a slow grind upward - and then a spike - and then another spike - and then a super-spike. The whole thing could happen in a matter of 90 days -- six months at the most.

When that happens, you’re going to have two Americas. You’re going to have an America that was not prepared. Paper savings will be wiped out; 401(k)s will be devalued; pensions, insurance and annui-ties will be devalued through inflation… Because remember, it’s not just the price of gold going up.

It’s like putting a thermometer in a patient, getting a 104-degree temperature and blam-

ing the thermometer. The thermometer’s not to blame; it’s just telling you what’s going on. Likewise, the price of gold is not an econom-ic object or aim in itself; it’s a price signal. It tells you what’s going on in the economy.

What temperature will the “golden ther-mometer” register before you decide to take action?

resourCes-

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Twitter-@silverguru22

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unique service by filming many of the mining trips,

providing them to our members. At our second level of

service, you can email questions directly to us and we

guarantee they will be answered. Further description is

available on the website.

David Morgan (Silver-Investor.com) is a widely

recognized analyst in the precious metals industry

and consults for hedge funds, high-net-worth inves-

tors, mining companies, depositories and bullion

dealers. He is the publisher of The Morgan Report on

precious metals, author of “Get the Skinny on Silver

Investing” (Morgan James Publishing, 2009), and a

featured speaker at investment conferences in North

America, Europe and Asia.

David H. Smith is Senior Analyst for The Morgan

Report at http://www.Silver-Investor.com and a regu-

lar contributor at https://www.moneymetals.com/ He

investigates precious metals mines and exploration

sites in the Americas and China, sharing his perspec-

tives with media listeners and audiences at North

American investment conferences. n

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(NASDAQ: GOOG)? These are widely cov-ered stocks, held by the largest of insti-tutional players. Pulling a data point on these names that can enhance a portfolio is quite difficult. The reality could not be more different in the microcap space. As discussed above, most microcap companies have no sell side research coverage, and very little publicly available information is broadcast between quarters. An analyst will-ing to do the research on these names can gain significant insight into their businesses and operational results. Additionally, the managements of these growing companies are extremely accessible to investors, unlike management teams at mid and large cap companies.

Aiding solid investment work with high quality research can lead to outperformance, and ultimately alpha generation for a port-folio. Microcap stocks offer investors attrac-tive upside potential. Anecdotally, It is not uncommon for the right microcap stock to offer 200-500% return potential around a major company catalyst. In fact, we believe that microcap investing is more analogous to venture capital and private equity investing, and as such, good information and equity research becomes critical.n AJAY TANDON

Unbiased Equity Research for Microcap CompaniesIs This Even Possible?

defiNitioN of a MiCroCaP

aNd the MiCroCaP equity

LaNdsCaPe

In a market dominated by high frequency trading and high correlation within and across the various asset classes, microcap stocks present a differentiated value add to an investor’s portfolio. We generally define microcap stocks as those having market capitalizations equal to or less than $300 mil-lion. Based upon our internal research, there are approximately 6,100 stocks with market caps less than $300 million. The investment community generally accepts the proposi-tion that microcaps have outperformed the overall market historically, and that micro-caps as an equity class present an attractive value proposition if approached correctly. But the key, of course, for investors is to be able to efficiently identify and analyze the correct opportunities in the right stocks in the microcap universe.

why iNvest iN MiCroCaPs?

What sort of an edge can an investor truly gain focusing on a stock such as Apple Inc. (NASDAQ: AAPL) or Google Inc.


The Importance of Equity Research. Undoubtedly, equity research remains an important component of the sophisticated investor’s toolkit. According to Greenwich Associates, a leading consulting firm ser-vicing the financial services industry, buy-side institutions spent approximately $6 billion on equity research in a recent year. A detailed analysis of the value of equity research in the investment process is beyond the scope of this article, so we will leave it at that. Sophisticated inves-tors spend a lot of money buying good research.

equity researCh for

MiCroCaPs—what are the

oPtioNs?

The problem for microcap companies is twofold: 1) the availability of equity research is very limited in terms of firms that provide it because most equity research in the market is focused on largecap and midcap names and, related to that, 2) paid for equity research is uneconomical and not very useful. Certain investment banking firms still maintain high quality research departments focused on providing research to companies, which they believe, fit their parameters for coverage and investment banking services. But this unfortunately does not even begin to address the needs of the 6000+ companies out there in the microcap sector. The other option is so-called independent research firms that cater to microcap companies. The problem here is that these firms charge hefty sums to pro-duce an equity research report, often way beyond the limited budgets of cash strapped but growing microcap companies that are conserving every dollar possible to fund their growth. More importantly, paid for research is not very attractive to investors; we believe, based upon our experience that most investors don’t pay any attention to paid for research as they view it as promo-tional and completely unreliable as a result.

seethruequity researCh

We here at SeeThruEquity are a research team focused on the microcap market, and currently have 118 companies on which we have initiated research coverage. Our research reports have the look and feel of sell-side equity research with well-written, thoughtful 15-20 page initiation reports on microcap companies across industry sectors. Most importantly, we do not charge a fee for our research and are not an investment bank. We invite companies to present at our quar-terly investor conferences, and write unbi-ased and not paid for research on all invited companies. As a result of maintaining an unbiased research model, we are approved to contribute our research to Thomson One Analytics (First Call), Capital IQ, FactSet, Zacks and distribute our research to our database of opt-in investors. We also contrib-ute our estimates to Thomson Estimates, the leading estimates platform on Wall Street.

For more information visit www.seethruequity.com.

aBout seethruequity

SeeThruEquity is an equity research and corporate access firm focused on compa-nies with less than $1 billion in market capitalization. The research is not paid for and is unbiased. We do not conduct any investment banking or commission based business. We are approved to contribute our research to Thomson One Analytics (First Call), Capital IQ, FactSet, Zacks, and distrib-ute our research to our database of opt-in investors. We also contribute our estimates to Thomson Estimates, the leading estimates platform on Wall Street. For more informa-tion visit www.seethruequity.com

ajay taNdoN - Chief

exeCutive offiCer

Ajay brings over 12 years of experience in the financial service industry and considerable experience advising, structuring transac-

tions, and raising capital for smallcap public and private enterprises with respect to equity and equity linked transactions prior to his role at SeeThruEquity.

Ajay co-founded Emissary Capital, LLC, a private investment firm focused on micro-cap investment banking. Prior to serving as Director of Research of SeeThruEquity, LLC and President of Emissary Capital, LLC, Ajay served as Vice President of Equity Capital Markets at Maxim Group, LLC, a New York City based, full service investment banking firm. In his role at Maxim, Ajay led the firm’s equity syndicate and origination efforts with respect to PIPEs, registered IPOs and follow-on offerings. Prior to his role at Maxim Group, Ajay served as an executive for Dealogic plc, an analytics platform used by global and regional investment banks worldwide to help optimize their perfor-mance and improve competitiveness.

Ajay began his career in financial ser-vices as a management consultant with IBM Global Services and earned his Bachelor of Arts degree from Cornell University. n



this list. Here are my suggestions to getting started.

1. How much money can you afford to lose? You want to invest, but you don’t know where to start. Firstly, it’s important to

n ROBERT KRAFT

What Millennials Need to Know About Investing in MicroCaps

It’s not our parents’ generation anymore, where the Internet reigns supreme with SO MUCH information at our fingertips that even considering investing in MicroCaps has become less risky. But let’s keep it simple for

As a millennial investor myself, and Editor-in-Chief of StockNewsNow.com, the Official News Source on

MicroCap stocks, there are many things one needs to consider and understand when entering the world of MicroCap investing.


understand you’re investment goals. If you’re trying to open an account with a broker dealer, or your own account online, you need to consider what you are trying to accom-plish, it’s not as simple as, “I want make as much money as possible, for as little invest-ment as possible.” More often than not, as a millennial, you’re probably interested build-ing your wealth because investing won’t be your primary source of income. Ask yourself the following questions: How much personal time do you want to devote to investing? Are you a value investor (long term) or a trader (short term)?

2. Determine how you can convert your interests into investment opportunities. If you’re looking into investing in the Stock Market, and don’t know what companies to start looking at first, start with what you know, i.e., hobbies, what do you wear every-day, where you eat, what electronics do you use, etc… See if any of the companies pro-ducing goods that you use on a daily basis are public on websites like Yahoo Finance. Make a list of companies that are interest-ing to you. Look at a huge company’s com-petitors that are 8th or 9th on the list of ten, typically they may be more affordable than a Fortune 100 company. As an example, I love to surf and I use my GoPro all the time, so starting out, I might make a list of compa-nies that have to do with surfing: Quiksilver (ZQK), GoPro (GPRO), even Nike (NKE – owners of Hurley) - and then make a list of all their competitors. Converting interests into investments also includes affordability and diversification. Ask yourself should I buy 10 shares of a $100 stock or buy 1,000 shares of a $1 stock, and how to spread the different stocks into building a portfolio.

3. Utilize the resources available to you. As I said at the beginning, there are SO MANY information sources about stocks and finance that to sift through all of them would be a nightmare. Here are a few resources that I use on a daily basis to get my information:

a. Investopedia.com – Great source

if you’re not sure what certain financial terms mean. They have definitions, tuto-rials, videos, commentary that I’ve used quite regularly.

b. YahooFinance.com and MarketWatch.com – these two websites are far and away the biggest news and information sources about stocks that are out there. Both web-sites are probably the most recognizable in the industry for all stock market infor-mation.

c. StockNewsNow.com – not to be self-serving, but our website is a great source for information about MicroCap compa-nies. Our parents’ generation, where there wasn’t as much information available, especially about MicroCap stocks had a much harder time finding information and transparency. Although MicroCap stocks are riskier investments, the returns can yield greater rewards. And, with the majority of MicroCaps costing less than $5 per share (initial entry cost thus being cheaper than blue chips), higher growth potential, and the plethora of informa-tion (and companies) now available, StockNewsNow.com is a tremendous out-let to find the next great MicroCap idea.4. Create a portfolio and start following

companies that peak your interestAgain, not to be self-serving, but on

StockNewsNow.com, for example, you have the ability to register for an account, “My Portfolio”, for free, and start following all the MicroCap companies you want (laying the groundwork for your own portfolio before you invest a dime). Any time one of the companies you follow has any news, you get an update sent to your email address. Follow the news, read the press releases, watch the videos – not only see how the stock is performing, but listen to what the CEO is saying, and if the CEO executed his business plan. By becoming more familiar with the company, the more comfortable you’ll feel when deciding how to invest (or not). This is called DOING YOUR DUE DILIGENCE!

5. Determine whether you want to open an online account or use a full service bro-

ker. Read the fine print before opening an account, and make sure you understand all the charges and minimums etc. Compare the details, services and fees of an online broker with a full service brokerage firm. One quick note on the difference in experience – if you are more the DIY-type, than you might want to consider the online broker route; if you don’t have as much time to do research or look for new ideas, full service brokerage firms provide more personal attention. Even if you’re a DIY-type, or more inclined to open an account at a brokerage firm, always remember – Buyer Beware.

As I said in Point #4, I can’t stress enough the importance of doing your diligence, reading the research, listening to profession-als – all the tools to be a successful investor are at your fingertips. It’s a lot of work, but once you see that first return, trust me – you’ll be hooked.

Robert Kraft is Chief Operating Officer of SNN Incorporated, publishers of StockNewsNow.com and the MicroCap Review Magazine. Mr. Kraft also serves as Editor-in-Chief of StockNewsNow.com, The Official MicroCap News Source. Previously, Robert was a Junior Research Analyst at Southridge Investment Group in New York City doing research and compiling information about MicroCap compa-nies. He is also the Co-Founder and CEO of Sammi Girl Productions, a multimedia production company, focused on creating quality content in the areas of film, music, theatre, web and merchandise.

Robert is also working on a series of educational articles teaching Millennials about the investing opportunities in MicroCap stocks. He was recently featured in the Huffington Post sharing his thoughts in the article, “4 Things I Wish I Knew About Money in my 20s”.

Robert Kraft graduated with a B.A. in Communications from the University of California, San Diego. n


Cesca therapeutics Nasdaq: kooL

Early last year, the Company reported exceptional early clinical trial results for treating critical limb ischemia (CLI). The company is also developing a pipeline of treatments for acute myocardial infarction (AMI), ischemic stroke, bone marrow trans-plant, avascular necrosis, and non-union fractures.

Over 20,000 patients have been treated using cell therapies derived from the use of Cesca’s proprietary devices and approxi-mately 650 patients have been treated using experimental cellular therapeutics in clini-cal trials being developed by the Company across 8 clinical indications.

Cesca Therapeutics is the exclusive Regenerative Medicine provider to Fortis Healthcare, the largest private healthcare company in Asia with more than 10,000 inpatient beds and clinics seeing upwards of 15,000 outpatients daily. The partnership with Fortis has allowed the company to build an embedded clinical research organization with lower operating cost and global capa-

PROFILED cOMPaNIES

Cesca therapeutics is developing treatments for Critical Limb ischemia and acute Myocardial infarction

bility and expertise inside the new flagship Fortis Memorial Research Institute. Cesca also provides advanced personalized cellular medicine to Fortis’ vast network of more than 1,200 clinicians.

Kenneth Harris - President of Cesca Therapeutics, Inc.

Cesca Therapeutics Inc. (Nasdaq: KOOL) is a leader in the development and manufacture of automated blood and

bone marrow processing systems that enable the separation, processing and preservation of cell and tissue therapy products and generates revenues of over $16 million from the s ale of these products each year.


CesCa CLi triaL resuLts

Armed with very strong results from Cesca’s CLI Phase Ib trial, the company recently sub-mitted an Investigational Device Exemption (IDE) pivotal trial (Phase III) application to the FDA for treating “no-option” lower limb critical limb ischemia. “No option”, typically assigned to late-stage disease, means the CLI patient has no further surgical options other than amputation to overcome ischemic wounds. The IDE pathway, which the U.S. Food and Drug Adminstration has deter-mined is applicable to Cesca, in contrast to the Investigational New Drug (IND) path-way, can save significant time and money in the clinical trial process. Cesca’s current approach in advancing to a late stage devel-opment therapy is the result of not only two promising prior studies but also helpful feed-back from the FDA both during a pre-IDE guidance meeting and subsequent decisions and in their IDE application response letter.

the CLi ProBLeM

The Sage Group, a leading research and con-sulting think tank firm focused on Peripheral Arterial Disease and Critical Limb Ischemia, reports:

http://www.businesswire.com/news/home/20140815005003/en/CORRECTING-REPLACING-SAGE-GROUP-Estimates-Economic-Cost#.VHpO8ii159k• In the U.S. the direct cost of Critical Limb

Ischemia amputations is $25 billion per year

• In 2010 between 2.8 and 3.5 million U.S. citizens suffered from critical limb isch-emia http://thesagegroup.us/pages/news/cli-us-10.php

• Within 5 years of diagnosis, approximate-ly 70% of CLI patients die. This mortality rate exceeds that of coronary artery dis-ease, breast cancer and colorectal cancer.

• 70,000 major amputations (above the ankle) and 134,000 minor amputations (toes and feet) are completed on CLI patients each year in the U.S.

• Amputation is frequently and unfor-tunately the only treatment that many CLI patients undergo. Recent research has shown that 60%-71% of the major amputations are performed without any attempt at revascularization.

• Between 1.1 and 2.0 million CLI patients are currently classified as “No option”.

• Average inpatient charges for CLI are $55,000—twice as high as those for stroke and almost $1,000 more than for heart attack.

Mary Yost, President of the Sage Group says, “These patients might be candidates for stem cell therapies or other new biotechnology products.”

CLi triaL resuLts

The company has sponsored two CLI clini-cal trials to date in India and in Europe. In the most recent study, Cesca Therapeutics announced in January 2014 the results from

its Phase Ib Clinical Trial for CLI using its Critical Limb Ischemia Rapid Stem Cell Therapy (CLIRST) treatment. Seventeen “no option” CLI patients were enrolled in the open label study with all 17 patients recommended for amputation. After 12 months the following results were reported: http://cescatherapeutics.com/wp-content/uploads/2014/01/012114-CLI-PhIb-PRMP-Final.pdf

• Limb and Life Salvage: Major limb Amputation free survival rates were 82.4% analyzed per the protocol and greater than 70% in the Intent-to-Treat analysis

• Pain Reduction: On a scale of 0 to 10, pain was reduced from 7.8 to 0.9

• Walking Improvement: Six minute walk-ing distance increased from 14.5 meters to 157 meters

• Wound Healing: 11 patients had gan-grene with or without ulceration pre-treatment, and all of this sub-population


of patients had neither gangrene nor ulceration at 12 month follow-up

• Revascularization: Advanced imag-ing confirmed statistically significant Vasculogenesis occurred in certain regions of the leg as a result of the treat-ment compared to pre-treatment levels. Blood vessels in the afflicted leg created new vessels, supporting reperfusion.

• Safety: No serious adverse side effects directly related to the treatment were reported

The open label 17-patient study was con-ducted at the Fortis Escorts Heart Institute in New Delhi, voted best Indian cardiac facility in 2014 by Frost & Sullivan. Fortis Escorts, a leading clinical research institute, typically has over 20 international cardiovascular tri-als underway at any one period of time. Dr. Suhail Bukari, Senior Consultant and Department Head of Vascular Surgery served as the primary investigator. Dr. Bukari previ-ously served as a clinical investigator for the Juventas Therapeutics critical limb ischemia trial. Dr. Bukari noted “This is a significant breakthrough for medicine as all the patients enrolled were scheduled for amputation of their afflicted limb prior to consenting to the stem cell intervention.” He further noted, “the simple kit process will enable any surgeon treating peripheral vascular disease to have a readily available safe and autologous thera-peutic to reverse this debilitating disease.”

Dr. Richard Powell, M.D., Chief for Vascular Surgery at Dartmouth-Hitchcock Medical Center, Professor of Surgery and Radiology at Dartmouth Medical School

in New Hampshire and the chair/national principal investigator of Cesca’s upcoming pivotal CLIRST III study, commented that “No-option CLI patients will now have a potential treatment to salvage their limb and positively impact their quality of life”

h t t p : / / f i n a n c e . y a h o o . c o m / n e w s /cesca-therapeutics-announces-f i l ing-u-110000261.html

Cesca’s CLIRST treatment harvests bone marrow from the patient’s hip bone and then uses proprietary devices to both separate therapeutic cells from the bone marrow and deliver them into the afflicted limb muscles. The devices are designed to minimize dam-age to the therapeutic cells which normally undergo high velocities and pressures as they pass through centrifugation devices, needles and catheters. The anticipated advantages of Cesca’s approach over the competition is that it (a) delivers a greater number of healthier therapeutic cells to the damaged tissue, and (b) does it at the point-of-care in less than 90 minutes - both shown to improve efficacy as preliminarily evidenced by the early Phase Ib CLI trial. The unique combination of multiple bone marrow derived cells and fac-tors has multiple modes of action including engraftment and subsequent mobilization of the stem cell niche, and indirectly through the beneficial effects of the implanted factors and new factors secreted by the implanted cells to create revascularization in local col-laterals in the afflicted limb. This entire process can be done quickly in a single short visit to the operating room.

CesCa fiLes ide aPPLiCatioN

with fda for CLi treatMeNt

Cesca’s pivotal trial application milestone for the treatment of CLI is the culmination of nearly six years of focus on cardiovascular clinical trials and device engineering spe-cifically designed to verify that a patient’s own bone marrow stem cells can positively impact a debilitating and potentially fatal disease. The CLIRST III study, as proposed in the IDE application, is a double blind-ed randomized placebo controlled trial to evaluate the safety and efficacy of Cesca’s SURGWERKS-CLI and VXP System in CLI patients having non-healing foot ulcers who with no further surgical options, and will be compared against a placebo control of the same population. The primary endpoint is major amputation free survival at 12 months following enrollment. The study will be con-ducted in approximately 60 sites including up to 3 sites in India.

CoMPetitive Cost

advaNtage aNd

reiMBurseMeNt

Cesca’s CLIRST has a strong competitive cost advantage. Management estimates the CLIRST kit will cost less than $15,000 versus the significantly higher average CLI treat-ment cost today. The procedure is rapid, performed in the operating room in approxi-mately 90 minutes and requires a patient hospital stay of only 24 hours.

Upon FDA pre-market approval (PMA) for the treatment, management expects the procedure will be reimbursable under Medicare Part A. Additionally, the com-pany will be seeking reimbursement from Medicare for costs of the patient treatment during the trial and prior to the final market-ing clearance by the FDA.

The Acute Myocardial Infarction ProblemAMI remains the leading cause of death

and occurs when blood flow to the heart is interrupted leaving a portion of the heart damaged. The damaged part of the heart

Cesca’s CLIRST treatment harvests bone marrow

from the patient’s hip bone and then uses

proprietary devices to both separate therapeutic

cells from the bone marrow and deliver them into

the afflicted limb muscles.


is unable to contribute to the demand for pumping action resulting in other parts of the heart overcompensating by working harder and consequently growing larger. This imbalance can lead to an enlarged heart (remodeling) and thereafter less effective pumping action in the left ventricle, lead-ing to a significantly lower than normal (in the 35-40% range) Left Ventricle Ejection Fraction (LVEF). A normal LVEF is consid-ered to be between 50% and 75%. Such a dramatic loss in pumping function leads to chronic heart failure.

Cesca has demonstrated in an early-stage clinical trial that Stem Cell Therapy has the potential to restore healthy blood flow to the heart and to regenerate the damaged tissue so that the heart can resume normal balance and pumping.

ProMisiNg aMi triaL resuLts

Cesca reported AMI Pilot study results in October 2013. In this open label single arm study, a single no-option ST Elevated Myocardial Infarction (STEMI) patient was enrolled with a very low and phar-maceutically unresponsive LVEF of 35% three days after emergency room admission and implantation of a coronary stent. The patient was treated using Cesca’s SurgWerks-AMI process on the 6th day after stent place-ment. Twenty-four months after treat-ment with Acute Myocardial Infarction Rapid Stem Cell Therapy (“AMIRST”) the patient ended the study having experienced no Major Adverse Cardiovascular Events (Safety) and with an LVEF of 60.3%. There was also no further infarct scarring and undesirable remodeling. Low LVEF and heart remodeling are two key contributors in AMI patients advancing to heart failure.

Dr. Ashok Seth, Chairman - Cardiac Sciences team, Dr. Upendra Kaul, Dean of Academics – Cardiac Sciencies, and Dr. Vinay Sanghi, all of Fortis Escorts, con-ducted the clinical case study which shows the AMIRST treatment safely delivered to a single male patient an effective dose of

autologous selected stem cells in a single intracoronary heart catheterization proce-dure. The Company believes this is the first cell therapy that integrates both devices and autologous biologicsin a single procedure that is administered at the point-of-care in 90 minutes.

Dr. Vinay Sanghi, Clinical Investigator and treating physician on this case, said “Conducting a fully-integrated point-of-care treatment on a patient with an acute ST-elevated myocardial infarction using the AMIRST protocol was straightforward and very exciting as a practicing interventional cardiologist.”“The safety and positive clinical benefits demonstrated in this single patient case study are very encouraging as we begin planning for a larger AMIRST Phase II (fea-sibility) study treating patients who have suf-fered this type of heart attack.

The Company believes that this pilot case study affirmed that our cell therapy treating STEMI patients has appropriately consid-ered the essential devices, diagnostics, cell formulation, and directions for use ensuring the AMIRST treatment meets the objectives of providing a safe, effective, rapid, bedside therapy for treating low ejection fraction after a primary myocardial infarction. Cesca is enthusiastically looking forward to con-ducting a randomized placebo controlled Phase Ib study in India in 2015.

CLirst aNd aMirst

CoMMerCiaLizatioN

If the Phase III pivotal CLI trial results

are comparable to prior trial results, Cesca anticipates filing a PMA Application for marketing clearance in 2017 and could be delivering SurgWerks-CLI kits and VXP Systems for CLI patients before the end of 2017. An AMI Phase II Trial, discussed above, is also being planned for 2015 mak-ing for a very exciting year. The use of a patient’s own bone marrow cells within the operating room contribute to the safety and cost-effectiveness of Cesca’s model.

These types of clinical results give the Company confidence that our system and protocol for delivering personalized stem cell-based medicine can make a meaning-ful impact on the lives of our patients, and that seeking Pre-Market Approval from the FDA upon completion of our pivotal Phase three trials will be the most effective way of achieving broad adoption of our cell thera-pies in the marketplace.

CoNCLusioN

Cell Therapy, also known as Regenerative Medicine, has been heralded as the future of medicine for decades. Treatments and cures have taken far longer than thought, but now armed with exciting clinical trial results, Cesca Therapeutics is positioning to being able to deliver desperately needed personal-ized and cost-effective treatments for CLI and AMI as well as a host of other common illnesses. nThe company paid consideration to SNN or its affiliates for this article.

Cesca has demonstrated in an early-stage clinical

trial that Stem Cell Therapy has the potential

to restore healthy blood flow to the heart and to

regenerate the damaged tissue so that the heart can

resume normal balance and pumping.


Finding the Value in Pitch EventsA conversation with John Dmohowski, Director of Client Services for PortTech, a clean technology incubator and commercialization center based in Southern California.

The proliferation of incubators, accel-erators, boot camps and professional

services dedicated to helping startup teams prepare to impress investors has fueled the growth of pitch events and competitions. But are these events worth the time and effort expended by participating founding teams? Do mentors and coaches who freely donate their time and expertise make a difference? Do investors really find compa-nies or business models that they wouldn’t otherwise discover?

We think pitch events are worthwhile for founders; greatly improved by matching mentors and coaches to the specific needs of entrepreneurs; and present a pre-screened group of candidates worthy of investor con-sideration.

Since 2010, PortTech has put on an annual EXPO showcasing maritime-oriented startups and emerging growth companies. The EXPO included a session featuring product or com-pany pitches by entrepreneurs seeking expo-sure and feedback to their plans and progress. In 2012, we held the Pitch as the lead event the evening prior to the day-long EXPO to create a more focused event for a select audience of investors, service professionals and industry executives. In 2014, the PortTech Pitch evolved into a program focused on identifying and coaching investment ready startups by actively dedicating resources toward preparing partici-pants for their fundraising efforts.

test addresses real life issues and provides actual solutions for big important prob-lems,” said Chris Wadden, Pasadena Angel and business consultant.

To create a pitch event that provides real-istic context and goes beyond the “show,” we suggest incubators look to their core programs and incorporate those services in a highly concentrated way. This is how we developed the PortTech Pitch into an effec-tive months-long coaching and mentoring program geared towards preparing startups for investment.

Outreach

Participant recruitment starts in mid-spring and runs through early summer. Recruitment includes active participation and promotion at relevant conferences including other pitch competitions. We leverage relationships and affiliations with other organizers and spon-sors who host events for technology start-ups (e.g. the Cleantech Open, Department of Energy’s FLoW and Green LAVA – the Cleantech Strategic Interest Group of the Los Angeles Venture Association). Messages and information about the program are broad-cast through social media and submitted to technology calendars (i.e. socalTECH, LAEDC, Startup Digest and Sustainable Business). Flyers are sent to colleges and universities with departments and disci-plines focused on energy, transportation and security. Information is forwarded to Small Business Development Corporation offices, local community and economic development agencies, NGOs, technology incubators and accelerators. And special announcements are

PitCh eveNts aNd

CoMPetitioNs

Quite a few pitch events offer the win-ning team money, in-kind prizes or even an investment by venture capitalists and angels. “It’s a great way for all participants to network in a productive atmosphere. It gives everyone the ability to ‘show their stuff,’” said Jim Winett, Partner of Level 11 LLC. But does that provide enough value for the amount of time and effort required?

We think that pitch events are useful, but often fall short of their potential. Events can be entertaining and provide exposure, networking and even money, but to truly provide value to founding teams they need to go beyond the “show.”

PortTech’s method takes the concept of a pitch event and turns it into a months-long program to provide maximum learn-ing through coaching and practice. The event incorporates comprehensive outreach, education and coaching sessions that identi-fies the most promising emerging compa-nies with clean technologies. The program involves recruiting, selecting and evaluating startups by staff; multiple coaching sessions with industry experts and relevant service providers; and intense preparation by found-ing teams. The finals are an opportunity for selected firms to demonstrate that they are capable, scalable and suitable for investment.

the ProCess

“A lot of events talk about innovation but PortTech walks the walk. Their pitch con-


n JOHN DMOHOWSKI


targeted to local venture capital and angel groups investing in clean technology.

Screening

Clean technology companies with products or services that meet port industrial and maritime-related consumer needs contact the office during the recruitment period and the evaluation process begins almost imme-diately. Applicants receive informational materials on pitching, preparing presenta-tion decks and general guidelines. Founding teams schedule briefings with staff to present their 60 to 90 second elevator pitch (with-out decks or demos) and respond to a brief Q&A.

Approximately 20 – 30 percent of appli-cants successfully pass this initial screen-ing process. Preferred startups have clean technology based product(s) or service(s),

an understanding of their primary market space, some validation (preferably sales), some traction (repeat sales, customer reten-tion or expanding customer base), a mostly intact team, industry advisors, properly pro-tected intellectual property and plans for growing the business.

Vetting

The 20 - 30 semifinalists selected to continue in the program schedule coaching sessions that are conducted in person or via video-conference with a group of mentors and coaches selected to work with each startup’s strengths and weaknesses as revealed during the screening process. Southern California is among the leading regions in the U.S. for clean technology development and com-mercialization. PortTech is fortunate to have a large network of local industry experts,

service providers, academics, investors and serial entrepreneurs who generously donate their time and expertise. Coaches focus on making sure that each applicant’s business model, strategies and resources are credible, reliable and dedicated. In particular, mentors intensely probe any assumptions that are made, but not yet validated.

Each applicant is thoroughly vetted during these coaching sessions. Business models, founding teams, value propositions, prod-uct/market solutions, branding, operational readiness and financial models are scruti-nized. Launch strategies, sales cycles, cus-tomer acquisition costs, lifetime customer values are challenged. Experts review and critique pitch decks, presentation styles and narratives. Emphasis is placed on the mar-ket, team, opportunity and the likelihood of attracting investment. These sessions are

Photos (top row): PortTech Pitch finals at the Port of Los Angeles boardroom; Brad Lurie, CEO of Bright Light Systems, won the

2013 Best Business Model Award; (bottom row): Entrepreneur coaching session; PortTech Pitch Grand Prize Winner Dan Singleton,

Transient Plasma Systems (center) with Stan Tomsic, PortTech Executive Director (left) and Jeff Malin, California Governor’s Office

of Business and Economic Development (right).


staff to identify eight to ten companies for the Pitch finals. In preparation, a panel of judges is assembled representing the local ports (Los Angeles and Long Beach) environmen-tal divisions, service professionals and inves-tors who are active in the clean technology entrepreneurial community. Judges are given access to information and fact sheets, finan-cials and other collateral about each of the final teams prior to the event.

The final Pitch event is conducted in front of 75 - 80 invited guests, sponsors, investors, port executives and stakehold-ers from the entrepreneurial community. Participants have eight minutes to present and then an equivalent time for Q&A from the judges. The presenters, preferably the CEO or Founding Executive, are allowed to use models, decks, demos, videos and other collateral materials that help explain and promote their business. Each entrepreneur must defend aspects of the presentation including models, markets and products during the Q&A. Judges rate entrepreneurs on their ability to articulate the opportunity, proposed solution, business model, product/market fit, IP/barriers to entry, team, status and milestones, use of funds and exit poten-tial. From these evaluations, the startups are ranked and awardees identified.

Finalists are given exhibition space for the following day’s EXPO and have the chance to demonstrate their technologies, products and services to 600 attendees representing a broad cross section of port, transportation and maritime industry leaders; government and regulatory agencies; investors, busi-ness executives and service providers; and multinational corporations. Award winners are announced and introduced during the EXPO luncheon.

the BottoM LiNe

“The PortTech Pitch was tremendously valuable to our young company. All net-working is not equal, and access to experi-enced entrepreneurs, investors, and busi-ness teams is not easy to come by,” said

Dan Singleton, President and CEO of Transient Plasma Systems. “PortTech put our team in front of the right people at the right time and allowed us to leverage the event to meet critical investors and strategic partners to help grow our busi-ness. The insights gained from mentors while preparing for the pitch competition have made our presentations stronger and more exciting, and the presentation itself has made our company more recognized.”

We appreciate Dan’s comments and vali-dation that our approach works. It takes a lot of effort from staff and volunteers to put on these events and our processes and meth-ods help us meet our objectives with the pitch event. Our experience demonstrates that entrepreneurs are well served when they actively participate in events where the coaching and advice offered is specific and actionable. Coaches and mentors play a sig-nificant role in improving a startup’s chance at fundraising when coaching is tailored to address a startup’s deficiencies. Investors benefit from having access to teams that have been through a rigorous evaluation, focused mentoring and competitive selec-tion process. And the greater entrepreneurial community sees the results of these efforts in new companies, fresh financings and job creation.

aBout PortteCh

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, safety/security and transportation goals. As a non-profit, PortTech identi-fies new clean technology applications for ports and prepares startups for success in maritime industries. PortTech employs a market centric approach that con-nects founding teams to potential customers, partners, service providers and investors. n

savesorb: a success story

SaveSorb, a recent addition to PortTech’s portfolio of companies, learned firsthand the value of the PortTech Pitch.

SaveSorb manufactures and sells a vari-ety of oil spill control products made of specially formulated peat, an all-natural renewable material. PortTech staff recog-nized SaveSorb’s potential and invited the startup team to participate in the Pitch.

SaveSorb went on to win the 2014 Best Business Model Award. As a result of the Pitch, SaveSorb received direct fund-ing from a coach and connected with several new customers. Since becoming a PortTech client in September 2014, SaveSorb accompanied City of Los Angeles Mayor Eric Garcetti on a trade trip to Asia and opened a new China headquarters.

“PortTech staff continuously went above and beyond to help my company get its name into the markets we needed to breach. And thanks to the Pitch pro-gram, I was able to connect with an inves-tor who has become a strategic partner,” said Chase Ahders, CEO of SaveSorb. n

SaveSorb to the rescue – the team

cleans up 10,000 gallons of crude oil

spilled near Glendale, CA.

challenging for both coaches and entrepre-neurs as they tend to be unscripted, uncen-sored and intense.

Finals

Coaching sessions are the filter used by the

microcapreview.com For rates and specs, please contact: [email protected]

mi·cro·capmi·cro·capA 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.

[mahy-kroh-kap]


award-winning uranium exploration com-pany to release the largest pre-development uranium resource estimate in Canada’s Athabasca Basin (Saskatchewan) – the top mining district for high-grade uranium. 79.6m lbs Indicated and 25.9m lbs Inferred. Welcome to Fission Uranium’s Triple R Deposit at Patterson Lake South (PLS).

If you’ve been investing in mining for a while, you may recall the battle in 2011 between Cameco and Rio Tinto to takeover Hathor Exploration. Rio Tinto won out and, for $654 million, secured a major league,

the Largest Maiden resource estimate in the world’s Leading high-grade uranium district

“This One is Special.” (Peter Koven, National Post)“Truly Phenomenal” (David Talbot, Dundee Capital Markets)

For the uranium sector, the last months of 2014 saw the beginning of an upturn. The spot price surged up from its four year low of just $28 per lb up to the mid $40’s; utilities started purchasing uranium in substantial quantities and Japan’s nuclear regulator, the NRA, announced that the first two reactors had passed their final safety checks . At time of writing, prices have seen a modest pull-back into the high $30’s but it seems clear to most observers that the market has most likely found its bottom and is on the way up.

Fortuitous timing then, for Canada’s

PROFILED cOMPaNIES

fission uranium Corp. otCqx: fCuuf / tsx: fCu


high-grade deposit in the Athabasca Basin. That battle, which started as a hostile

takeover bid by Cameco, took place after Fukushima had already occurred but such is the value of discoveries in the Basin. Now for a fun fact: Fission’s maiden resource estimate, follows CIM Definition Standards and not only dwarfs Hathor’s initial resource estimate, it’s far bigger than the resource estimate Hathor released two years and mul-tiple drill programs later when they were taken out by Rio. Another fun fact? Fission’s resource is bigger than the maiden resource estimate that Denison released for their Phoenix deposit, also in the Basin.

The National Post’s Peter Koven referred to the Triple R as a “Monster Resource” and Dundee analyst, David Talbot, called the numbers “truly phenomenal”. If you’ve read any other expert reports you’ll under-stand why Fission’s management team was so happy when we spoke to them.

Okay, so we’re impressed with the size of the deposit. You, on the other hand, might be inclined to respond with something like: size isn’t everything! Well you’re quite right and that’s why the Triple R is so exciting. This is not just a giant resource. We’re talking about remarkable quantities of high-grade ura-nium: 44.3M lbs Indicated @ 18.21% U3O8 and 13.9M lbs Inferred @ 26.35% U3O8 (indicated and inferred mineral resources are stated using a cut-off grade of 0.1% U3O8) and very shallow depths (most of the mineralization is between 60m and 200m. High-grade, shallow and big… the defini-tion of world-class. Just as good, this deposit is sitting in basement rock which, when it comes to the Athabasca Basin, tends to be the geology that mining engineers prefer to work with.

With such a monster of a deposit enter-ing the world stage, it seemed only right that we meet up with the Management and Technical team experts behind it all, to get their perspective on the news and what’s in store for the company.

If you’re not familiar with Fission’s team, I can tell you now that they do not disappoint.


Dev Randhawa, CEO and Chairman, and Ross McElroy, President, COO and Chief Geologist, have made a name for themselves in the uranium sector for making discover-ies and growing shareholder wealth. In 2013, they were both named Mining Person of the Year by The Northern Miner magazine and in 2014, became EY ‘Entrepreneur of the Year’ finalists.

Mr. McElroy went on to win the most prestigious award in the mining sector – PDAC’s Bill Dennis award for exploration success. He has over 30 years as a profession-al geologist under his belt and has worked for uranium majors such as Cameco, Areva and BHP. While Randhawa used his exper-tise as a CEO in the public markets to the company was always well-funded, McElroy put together one of the most successful ura-nium exploration teams in the industry and lead that team to not just one but two major discoveries in three years.

“To be honest, we’re thrilled.” Randhawa says. “We knew this was going to be big and now we have the numbers to prove it. What’s more, the timing is ideal. It seems clear that Japan will begin restarting reactors this year, which means more and more utilities will come back into the market to secure their long term supply of reactor fuel. Over time that will place even more upwards pressure on the price of uranium. We’re already seeing it. Demand is strong and growing and ultimately that’s good for a company with an asset like ours.

“PLS really is unique.” McElroy explains. “In two years of drilling, two years of the most aggressive exploration the Basin has seen since the 1970’s, and we barely missed a drill hole. Almost every hole has been mineralized and a big percentage of those holes were high-grade. So, we knew we had something remarkable on our hands and that’s why we chose one of the most respected technical companies in the industry, Roscoe Postle Associates, to analyze and corroborate our results and provide a 43-101 compliant resource estimate and tech-nical report.”

McElroy continues, “It has size, grade, shallow depth, favourable geology and it’s still


open in several directions. In 30 years this ranks up there with some of the best deposits I have been involved with. Even more incredible is that the potential at PLS isn’t just with the Triple R deposit. We have over 100 EM con-ductors at PLS. EM conductors are generally associated with high-grade uranium. Not all EM conductors have uranium associated with them, but they are a vital part of the story. Most projects are lucky if they have a few prospective conductors and we have several”

We asked McElroy if any work has been done to explore other areas of the property and he nods. “Yes. During the last drill pro-gram we drilled tested a few of our highest priority regional targets and hit anomalous radioactivity at shallow depth on three other conductors, one of which is near the PLS claim border with Fission 3.0’s Clearwater West project.”

So, what’s next for Fission Uranium? “We’re exploration specialists.” Randhawa explains. “Our business model is to use our technical expertise to make discoveries, grow them, de-risk them and finally monetize them for our shareholders by selling the project to a mid-tier or major mining company. Our team has been doing this successfully for years and we’ll continue to do so.”

“This year you’ll see more drilling.” McElroy adds. “In fact, we recently started a 63 hole program to grow the resource and to explore other areas of PLS. At some point later this year we plan to commission a Preliminary Economic Assessment.”

Randhawa wraps up the conversation, “When the time is right and the right offer comes in we’ll look to sell the project. We’ve already had a variety of companies visit the property but you can’t choose when someone will try to buy you. What you can choose is how you increase the asset value for share-holders and that’s what our focus is.”

Fission Uranium is listed on the TSX under the symbol FCU and on the OTCQX under the symbol FCUUF. Further informa-tion on the company can be found at www.fissionuranium.com. nThe company paid consideration to SNN or its affiliates for this article.

CEO Dev Randhawa

2014 Year End adds & subtracts of FINRA Member Firms Jan 2015, as of 31 Dec compiled by DAVID ALSUP Financial Industry Broker Dealer Data Aggregator

Oct-‐Nov-‐Dec: 29 New Formations... and 54 Withdrawals. 2014 Jan-‐Dec Stats: 148 New firms… and 214 Withdrawals Replacement Ratio now:73% (The three-‐year average is 10.6↓ New Formations and 21.6↓Closures per month) 29 New Firms were admitted (Oct-‐Dec) • 8 Firms admitted were equities oriented • 14 firms admitted were Private Placement firms • 5 Firms admitted were classified as “Other” • 2 Firms admitted were Mutual Fund firms

54 Firms Withdrew (Oct-‐Dec) • 21 were equities trading firms. • 20 were Private Placement firms • 3 firm was classified as Mutual Funds • 10 firms were classified as “Other” • 44 of these firms had less than TEN reps

Quarterly chart showing the number & types of firms admitted

Quarterly BDW Chart showing the number & types of firms that are closing

2014 148 New firms vs: 214 Withdrawals Net Loss: 66 firms (36 month net 383 vs. 779, net loss: 396 firms) 2013 106 New firms vs: 254 Withdrawals Net Loss: 148 firms (36 month net 398 vs. 892, net loss: 504 firms) ================================================================================================== As of Dec 31, 2014, there are 4154 FINRA Member firm CRD Numbers. =========================================================================== 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 fi led for a BDW prior to Dec, 2014.

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an acquirer. On October 18, 2013, NTS agreed to be acquired for $2/share in cash by Tower Three Partners, an operationally-oriented private equity firm that invests in U.S.-based middle market companies.

The purchase price represented a pre-mium of 27% over NTS’ closing share price that day and a premium of 24% over NTS’ average closing share price for the 30 trading days ending on October 18, 2013.

The acquisition was good for the inves-tors but also for NTS as a company. NTS could now lower its cost of capital enabling a more aggressive growth strategy. The CEO remained at the helm and served for another year. The Company has continued to expand and has recently brought in additional man-agement expertise. The former CEO is still a valued Board Member.

NTS is a great example of successful share-holder activism. It is an especially important tool for micro-cap investors.

Elizabeth Kopple is a Director with IDWR Multi-Family Office, an organization that invests its own capital in micro cap proxy contests. Ms. Kopple is Co-Director of The Activists Association: www.activ-istsassociation.com. She can be reached at [email protected]. n

n ELIZABETH KOPPLE

Volume is often too low to allow hedging through an options market. When manage-ment fails to create value for shareholders, investors should consider an activist cam-paign. Activist campaigns can improve the stock price in the short-term but also attract an acquirer, facilitating an exit.

The activist campaign at NTS Inc. offers a strong example. NTS, headquartered in

Activist Investing Offers an Exit Strategy for Struggling MicroCap Stocks

MicroCap investors know that their exit strategies are limit-ed when they make a sizable investment. Trading volume

is usually low so it is difficult to sell without driving down the price.

Lubbock Texas, provides high-speed broad-band services to residential and business customers in Texas and Louisiana. The stock failed to thrive. Shareholders felt the prob-lem was the Board of Directors. They had limited industry expertise and a long tenure with NTS. Activists supported the contin-ued leadership of the CEO who was doing an excellent job. He needed a better team of advisors to support his efforts.

In October 2012, an activist group called Concerned NTS Shareholders (CNS) announced a proxy contest and requested representation on the Board. They also filed a 13D. After a meeting with management in November, the groups were able to come to an agreement. NTS expanded its Board from six to nine members. The new slate included four incumbent directors and five new nominees who represented the inves-tors. The new slate was elected at the 2012 annual meeting.

The new Board immediately got to work. The team focused on improving capital allo-cation, monitoring cash flow and standard-izing board reporting. They worked together to refine strategic decisions and ensure a proper growth plan was in place.

This work ultimately helped NTS to find


F E aT U R E D a R T I c L E

Exploration Insights:Turning Rocks Into MoneyFact: We Are Producing More Gold Than We Are Finding

largely the result of previously off-limits countries opening up to modern exploration; basically, low hanging fruit became available. The decline in ounces discovered started about 1995 because the number of obvious, outcropping, ore bodies was finite. However, as the discovery chart points out, and even if we include new ounces not yet defined or reported, the exploration industry has not kept up with production. Significantly, new ounces discovered have declined despite increased exploration expenditures, a feature that supports my contention that we have in fact reached peak “economic” discovery.

The problem is not really that Earth is running out of gold—there are 20 million tons of gold in seawater and 20 million ounces at Livengood in Alaska, alone. The problem lies in recovering those ounces

The mining industry is producing 89 million ounces of gold per year but only finding about a third of that

amount each year. Mining companies have passed the point of peak new gold discov-eries, and only manage to stay in business by exploiting deposits discovered tens of years ago. Major gold miners now face an imminent and very real deficit of economic deposits—deposits needed to replace the gold being produced from mines that are long in the tooth and running dry.

The upside for investors in the minerals exploration sector is that mining compa-nies will become increasingly desperate for new economic discoveries and will pay a premium for the deposits that will actually make money. We need only to identify those deposits early on and hold them. The key, of

n BY BRENT cOOk

Three-year running average of ounces in new gold discoveries 1990-2013. [Note, recent discoveries should add to the last few years]. Right: Gold production 2003 esti-mated out to 2022. Source credit: SNL Metals Economic Group and CPM Group, GFMS and Metals Focus)

course, is to single out the very few legiti-mate deposits from the hundreds of mar-ginal or uneconomic ones being touted by the hundreds of junior mining companies.

The preceding chart titled “Peak Gold” follows from comments Goldcorp CEO Chuck Jeannes has made during presenta-tions and as reported by the Wall Street Journal. Jeannes points out that miners have reached peak production. His explanation: easy to mine deposits are being depleted while also becoming harder to find. The chart does not factor in additional declines in production that will occur if the gold price stays low for any extended period of time.

Most of those easy to mine deposits were found in the mid-90s and have taken 10 to 20 years to come into full production. The increase in discoveries 20 years ago was


profitably. Seawater grades 13 parts per tril-lion and Livengood grades about 0.6 parts per million. Without a very substantial real increase in the gold price (an increase that is not accompanied by a similar rise in min-ing and capital costs) most of the currently defined resources will remain uneconomic or marginal.

Further, as companies cut all-in operating costs by increasing the mined grade (high grading), curtailing development, postpon-ing maintenance, and slashing exploration, production will inevitably decline. These near term cost saving exercises often gut the economic reserves thereby rendering previ-ously defined ore uneconomic—hence Peak Gold Production.

You know where I am going with this. . .Mining is a depleting business. For every

ounce or pound produced, a mining com-pany’s assets (reserves) decline. We all know this. The big dilemma for most mining com-panies is that they are facing a new type of shareholder, one that expects a profit now. Therefore, nearly every activity (cost) that is associated with building its future business is being curtailed, both to satisfy the market and in an attempt to ensure survival during current low metal prices.

Exploration is always the easiest expendi-ture to cut, as in the eyes of the accountants it is purely a cost center populated by a bunch of unruly and unkempt geologists throwing money down holes. A fair enough assessment, given the very poor odds of suc-cess and the fact that, over time, successful exploration has become increasingly more difficult and expensive. MinEx Consulting estimates that the industry as a whole spends about ~$150 million per gold discovery.

As pointed out above, the near surface, easily mineable deposits have been exploited for decades now, and the discovery of a new, near surface deposit is a very rare event indeed. Additionally, the hurdles to exploit-ing any new deposit have increased almost exponentially due to the social, political, envi-ronmental, and permitting realties across the globe. Consequently, even the successful dis-

covery of easily mineable deposits will cost more than ever and take substantial time to develop. For example, the Pebble copper/gold deposit in Alaska was first identified in 1988 and explored by various companies until 2005 when the Deep Pebble East deposit was dis-covered. The project is still battling through the permitting process after spending $730 million, and it may still never get built.

Because of the limited number of outcrop-ping deposits left, large new discoveries are being increasingly made at depth, under significant and usually barren cover, as illus-trated in figure 3 below. By having to look deeper, basic exploration costs are much higher, and the odds of making an economic deposit much lower. What could previously be mapped and sampled in detail by a geolo-gist with a rock pick at surface now takes obscure geophysical techniques and drilling: drilling that only provides information for a 3-inch diameter string of core.

One also has to face the geological facts and recognize that for every 2 gram per tonne gold occurrence, there are roughly ten 1 gram per tonne occurrences (that’s just how Earth works). Therefore, you are more likely to find low-grade uneconomic deposits at depth than high-grade ones; yet the economic hurdles associated with deeper deposits require discovery of the higher-grade deposits. The odds of economic suc-

cess are destined to get worse no matter how much is spent looking.

The only logical conclusion I can draw from the predicted decline in production and documented decrease in new economic discoveries is that some day in the future, permitable and profitable deposits will be very valuable—more so than they are today. Buy intelligently and buy early.

That’s the way I see it.

Brent Cook Economic Geologist and Author Exploration Insights.

Brent Cook, a renowned exploration ana-lyst and geologist, is the author of Exploration Insights, (www.explorationinsights.com). He has over thirty years of experience provid-ing 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 buy-ing, selling and avoiding in the junior min-ing and exploration investment sector. n

Depth of discoveries over time. Source: MinEx Consulting)



of you may think you know the continent from repeated news reports with snapshots of appalling misery, the place I am taking you to is different, so get ready for another surprise.

“Africa” is not a country— it is one huge continent that can at the same time fit the US, Eastern & Western Europe, Japan, China, India, Mexico, and the Iberian Peninsula. Once you get your head around the geogra-phy we can begin to visit its 54 countries that is home to 1.1 billion people. And, it is the people who fascinate and excite most.

Africans speak almost 3,000 different lan-guages with 15 of the common tongues spo-ken by 85% of the population. Nigeria alone boasts 500 languages, and in most countries— even in undeveloped places with limited for-mal education— multilingualism is normal. It is not unusual to meet a person from the continent who has had no higher education, but who can communicate, trade, and negoti-ate in more languages than graduates of top American and European universities.

Before I discovered Africa, I too was warned about a dark continent that was an investment black hole. No one mentioned that it held 86% of the world’s chrome ore, or that fork that fed me my breakfast was the taste of Africa with each bite of chrome covered metal that I put in my mouth. Other African mineral reserves rank first or second for bauxite, cobalt, diamonds, phosphate rocks, platinum-group metals (PGM), ver-n ANTHONY DESIR

Who Discovered Africa?

If you are smart enough to realise that this must be a trick question keep reading and you’ll know where the trick lies and how to answer next time someone asks.

The fastest way to understand investing in Africa is to try to get your head around some simple but incredible facts about the continent that would astound even a cynical investor like myself. I like to use bellwether concepts and the continent’s mobile phone market is a great place to start. Believe it or not, Africa’s 750 million subscribers total more than the US, Europe and Latin America combined!

If that seem too incredible to make sense, remember that the continent’s 54 countries lagged the rest of the world in copper wire land line telephone penetration— and still does even now. Mobile service has been a simple solution for getting a large mass of urban and rural users connected to com-

If you know the answer to the question “who discovered Africa?” then there is no need to read further. You already

know where your money is going, and no need to look for hid-den gems.

munications and the internet once a local broadcast tower is set up. Running wire lines can take years in acquisitions, planning, and execution and it is expensive. Setting up broadcast towers has been quick, simple, and inexpensive with broad coverage footprints. People on the ground responded in ways no one could imagine.

The big surprise for everyone — yes including me— was how quickly paid sub-scribers filled competing networks. In many instances users have been signing up on mul-tiple networks to take advantage of closed network marketing promotions that allow them to save on intra-network services. So what was once a problem — no reliable landline service — has turned into an oppor-tunity where an entire continent bypassed a fading technology to leapfrog past developed economies in one particular business sector. This was no accident and it will continue to repeat itself.

Go back 10 years and ask if the hidden gem was Microsoft (marketcap @$260b) or Apple (marketcap @$45b)? Come back to the present and ask yourself if you want the opportunity that everyone thinks they know, or the one that has yet to be discovered? Frontier markets and emerging economies really are the undiscovered lands, especially when we look at technology convergence and transfers.

If I have your attention, then please come on this quick tour of Africa with me. Some


miculite, and zirconium, with plentiful ore deposits throughout the continent. Have you ever considered that you cannot eat a meal, turn on your mobile, start your car, or even read the rest of this article without a product from Africa helping to make that happen?

If the continent is so important to us, why is it that we have been in dark about its importance? Why all the bad news? A very simple way to answer these questions is remember that hype sells. Whether we are hyping hot stocks or hyping a press clip, alarming statistics gets your attention. “Blood diamonds” stays in your mind more than hearing that the diamond cartel has willingly funded that yarn to help kill com-petitive supplies not under their control. The Ebola threat is a better headline than the regular flu epidemic that killed more people in the US each week during the peak of African Virus.

Speculation is easy to refute — so where are our hard numbers that prove the case? The International Monetary Fund estimates that the real GDP of sub-Saharan Africa as a whole will grew by 5.1% and 5.8% in 2014 and 2015, respectively. Compare that to the U.S. economy expanding by 3.1% in 2015, and the Eurozone growth of only around 1.3%.

So if the fruit is ripe, who is picking it? Africa’s largest single investor, by country of origin, is China. More than that, of China’s overall FDI, Africa is has been its single largest investment destination. Sino-African cross trade totals more than US$300 billion, with China holding more than $220 billion in Africa equity, according to the Heritage Foundation. If you have heard about China money flooding other investment opportu-nities in domestic property or equity mar-kets, then this is a small knock compared to noise they have raised on the continent.

Don’t be fooled— China’s investments — even “private” money is always backed by State Owned participation when you drill behind the Cayman and Hong Kong hold-ing companies. This is as true of China’s purchase of the Waldorf Astoria, as it is of

the big listing for Alibaba, with major stakes allocated to privileged members of the com-munist party years before the listing.

The IMF, The World Bank, and IFC are NGOs (look past the alphabet soup please, we are after the meat!) that have all been left behind as China stormed into Africa in the last 8 years and managed to buy almost anything of value for sale, including bulk commodities and African politicians. Before, we scold the Africans keep in mind that here in the US PACs, think thanks, lobby groups, and rich donors do exactly the same thing, albeit with just a bit more transparency.

The climate is better understood if we imagine one giant PAC (China) coming to every one of the 51 US states (54 in the case Africa) and funding every governor and every local legislature and they getting first call on any industrial output. Well off course Africa has no President, no congress, and no federal body to help manage its continental agenda so you can easily understand how China has become an economic force on the continent.

Where is the US presence? David Snowball, publisher of the Mutual Fund Observer news-letter, estimates that only about 0.3% of the average portfolio in the U.S. — just $3 out of every $1,000 — is invested in Africa. While we are reading the bad news, and distracted by doomsday headlines African growth is about double the US in most places, and waiting for origination capital so that local entrepreneurs can finally muscle out even the Chinese State Owned Companies (SOES) that have their leaders in pocket.

Perhaps we might comfort ourselves with

the idea that maybe Africa is a hot market, but too remote to understand and quite ready for prime time? So what does the smart money think? “We believe that Africa could be the ‘emerging market’ story of the next decade,” said Mark Mobius, executive chairman of Templeton Emerging Markets Group and manager of the Templeton Africa Fund. Bingo!

So here is where we begin to close our thesis; the gem isn’t a blood diamond and it won’t be hidden much longer, and if you happen to own a part of it before the other investors turn up your risk profile is much lower than their and your margins are much higher — it is that succinct.

In June of 2013 President Obama got on the bandwagon in a rediscovery of the continent. He pledged US$7 billion for a Power Africa initiative that would fund clean energy. Six months later the Chinese govern-ment announced that they would spend $83 billion a year for the next 12 years on com-peting programs. Since then the Obama plan has already drawn in US$20 billion more from corporate USA that is committed to his energy programs.

Corporate cash and Chinese dollars already committed to Africa development but not yet spent is not inflationary— it is the seeds of irreversible growth and develop-ment. But that money is still not stroking African entrepreneurs and small businesses who originate the simple ideas that will turn home grown enterprises into elephants, much of it is committed to grand projects involving large institutions.

Before I discovered Africa, I too was warned about a

dark continent that was an investment black hole. No one

mentioned that it held 86% of the world’s chrome ore, or

that fork that fed me my breakfast was the taste of Africa

with each bite of chrome covered metal that I put in my

mouth.


Consider America and the Wild West? The investment pioneers didn’t start out funding the railroads, or ports. They were local, and they grew as the country around them grew. And that is where you come into this picture. Africa is open for business, and while the gov-ernment players are being wined and dined by the Chinese and by corporate money the small players who know the local landscape are hungrier than ever for capital partners who want to grow with them.

So who discovered Africa? Why not you? The fact is that Africa is not undiscovered country; it is not even a country. Here is a newly funded land, rich with opportunity and ripe with promise, but still a dark spot on the investment map. Here there are knowledgeable local entrepreneurs hungry for partners who can share the bounty; that could easily be you. It is a different place, and it is a place where different strategies are needed every single time, but the numbers already tell us of this is real.

Shelly is pointing at his watch so I have to sign off now. So next time, let’s go from where and why, to what you should be looking for.

Anthony is SAMI’s head of Corporate Finance and the fund’s lead partner in Asia, where he has developed a representation relationship with one of China’s leading SOE investment banking groups. He has headed the China-Africa investment consultancy practice since 2007, and is recognized as one of the region’s experts on China-Africa resource capitaliza-tion solutions. He is an experienced professional who has been a featured presenter at a number of industry forums, and an author and columnist who has been profiled and interviewed in resource publi-cations which promote independent market analysis. He is an active University guest lecturer at Hong Kong University Business School, Perking University (Shenzhen), City University (Hong Kong), and a regional TV commentator.

His focus is on originating innovative corporate finance programs and solutions for institutional cli-ents. His active client base includes unlisted resource companies, global and regional banks, listed entities, and China State Owned Enterprises. He has lived and worked in Hong Kong since 1990. His career began in New York, where he worked as a banker and a management consultant to US based money cen-tre banks and multinational insurance companies. Anthony graduated from Dartmouth College, with honours, in 1981.

Direct contact:Anthony Desir, [email protected]+852-9265-1228. n



firm is targeting to initiate the share sale in March of 2015. GF Capital (Hong Kong) and Goldman Sachs Group have acted as joint sponsors for the sale.

SOE China Railway Signal & Communication Corp. (CRSC), China’s big-gest provider of rail traffic control systems, is planning to raise about $2 billion from an initial public offering in Hong Kong. The company is expected to benefit from the Chinese government’s move to accelerate 300 infrastructure projects valued at a com-bined seven trillion yuan ($1.12 trillion) this year and the central government’s support of an overseas expansion of China’s railway companies.

China Huarong Asset Management Co., China’s biggest bad-loan manager, is plan-ning to raise up to $3 billion in Hong Kong by the third quarter. Citigroup, Goldman Sachs, HSBC and ICBC International were named initial sponsors of the proposed IPO. China Huarong is going public at a time bad debts are rising amid an economic slow-down in China. In 2014, China’s GDP was 7.4%, the slowest in 24 years. Many investors believe that the slowdown will benefit the company as non-performing assets increase over the next few years.

Beijing-based insurer Taikang Life Insurance Co., is expected to seek more than $2 billion from a Hong Kong initial public offering. Taikang Life Insurance, backed by n LESLIE RICHARDSON

Hong Kong IPO Market Outlook 2015

Total funds raised in Hong Kong were $29.3 billion, 80% of which came from mainland companies; ranking the exchange as the second highest IPO funds raised behind New York which raised $73.4 billion, accord-ing to Dow Jones. Furthermore, the Hong Kong Stock Exchange (HKEx) ended the year with several record highs including 96 main board listings up from the benchmark of 94 set in 2010 and fundraising in post-IPO shares reached $91 billion, surpassing the 2010 record of $52 billion. Despite concerns about the global economy, the momentum for mega deals is not showing any signs of slowing as a number of billion dollar deals have already been announced for 2015. PwC expects 120 new companies to list in Hong Kong this year raising up to $26 billion - 100 on the main board and 20 on the GEM board. While PwC forecasts that small-and-medium-sized companies will dominate Hong Kong’s IPO markets in 2015, the company expects several jumbo IPOs to fuel another strong year. Similarly, KPMG forecasts an estimated 110 IPOs raising over UD $25 billion in 2015.

Mega listings expected for the year include:GF Securities, one of China’s largest secu-

rity firms, currently listed in Shenzhen, China, with a market cap of $22 billion, ranks third in terms of net assets and fourth in terms of total assets is looking to raise more than $1 billion in Hong Kong. The

The Hong Kong market, well-known for its opportunities to invest in leading Chinese players, continues to be the plat-

form for mega deals with six companies raising over a billion US dollars in 2014.


Goldman Sachs Group Inc., is the nation’s fifth-biggest life insurer and is known for its investment performance and product innovation.

State-owned oil giant, Sinopec, is looking to raise more than $5 billion by spinning out its 30,000 gas stations and 23,000 conve-nience stores spread throughout China in an IPO which could be one of Asia’s biggest in 2015. The Hong Kong IPO will be a big step in the company’s mixed-ownership reform encouraged by the central government to reinvigorate the State-owned sector.

Legend Holdings Corp (IPO-LEGH.HK), the parent of the world’s biggest maker of personal computers, Lenovo Group Ltd, plans to raise up to $3 billion in an IPO in Hong Kong in the second half of 2015.

Red Star Macalline Group, the largest national furniture retail chain in China, is looking to raise up to $1 billion in Hong Kong as early as the end of the second quar-ter.

Hangzhou Hikvision Digital Technology, one of the world’s largest suppliers of video surveillance equipment and manufacturer of closed-circuit TVs for banks, schools and courts, is planning a share offering of up to $1.5 billion as soon as the second quarter of 2015.

Smaller IPOs planned in Hong Kong include Chinese trade and logistics com-pany Nanxiang Holding which is targeting raising up to $300 million and Zhou Hei Ya Food which is planning to raise $500 mil-lion in the first half of the year. Zhou Hei Ya, based in Wuhan, produces cooked and marinated duck and goose meat products and operates snack food chain stores. Bank of Jinzhou Co., a lender in northeast China, is planning to raise about $600 million from an initial public offering in Hong Kong. Bank of Jinzhou was founded in 1998, has branches in 12 cities across northern and northeastern China and 246.7 billion yuan ($39.7 billion) of assets. Guolian Securities Co., the joint venture partner of Royal Bank of Scotland Group PLC in China, is planning to raise around $200 million in an initial

public offering in Hong Kong. Guolian, was founded in 1992 and has more than 50 branches in major Chinese cities such as Shanghai, Beijing and Guangdong. It posted revenue of 1.02 billion yuan ($164 million) in 2013, up 24% from a year ago, while its net profit surged 181% to 264 million yuan ($42.3 million).

As of January 30th, thirteen companies completed their IPO with seven of the newly listed companies trading above their IPO price as of the end of the month. Top IPO performers include: Yat Sing Holdings (HK:3708) a building maintenance and renovation service provider in Hong Kong with a market cap of $230 million is trad-ing up over 140% from its IPO on January 15th, Hubei-based marble mining company, Future Bright Mining (HK:2212) has a mar-ket cap of $55 million and is up over 45% from its IPO on January 12th and Target Insurance Holdings (HK:6161) with a mar-ket cap of $140 million is up 65% from its January 16 debut. Deson Construction International Holdings (HK:8268), a spin-off of Deson Development International Holdings (HK:0262) has a market cap of $35.6 million and is up 30% from its IPO on January 9th while SIS Mobile (HK:1362) with a market cap of $47.4 million is up 31% from its IPO on January 16th.

Regarding the newly debuted Shanghai- Hong Kong Stock Connect which allows foreign investors to directly trade Shanghai shares via the Hong Kong exchange for the first time, investor demand has been tepid with northbound capital significantly greater than the southbound stream. The average daily turnover for Northbound and

Southbound trading under the Shanghai-Hong Kong Stock Connect program reached Rmb5.6 billion ($900 million) and HK$929 million ($120 million), respectively, between the program’s launch on Nov 17 and Dec 31, 2014. Subsequently, officials from China Security Regulatory Commission (CSRC) are looking into ways to boost trading on the equity link as international investors are not yet familiar with China’s securities rules. Despite the initial lackluster investor recep-tion, the scheme is looked upon as a big step forward for the internationalization of the Renminbi as well as reinforcing Hong Kong’s position as a gateway to investment in China. Additional integration between China and Hong Kong is expected with the launched of a Shenzhen-Hong Kong Connect as early as the second half of 2015. The Shenzhen Stock Exchange which ranks in the top 10 exchanges globally by market capitalization is seen as an equivalent to NASDAQ with many next generation Chinese companies, including software, high-tech, and biotech-nology stocks. n

Despite concerns about the global economy, the

momentum for mega deals is not showing any signs

of slowing as a number of billion dollar deals have

already been announced for 2015.


2014 Commodities in Reviewc O M M O D I T Y c O R N E R

eNergy:

2014 experienced falling oil prices, falling heating oil prices and falling natural gas.

Movements in the commodities markets may have wide ranging consequences on var-ious markets and entities around the world. For example, Russia was already under pres-sure from events with Ukraine earlier in the year. One could say the drop in crude oil was similar to throwing gasoline on a fire.

According to the EIA (U.S. Energy Information Administration), oil and gas equated to 52% of the Russian government’s revenue and more than 70% of Russia’s exports in 2012. They are the third larg-est producer of oil after Saudi Arabia and the U.S. and the second largest producer of

2014 had its share of commodity headlines. With the year now completed, this is a good opportunity to review the

previous year of the commodity markets.

n BY MaRk SHORE

There was something for everyone as some commodity markets rallied, but many com-modity markets declined in 2014. Several of the markets experienced price lows not seen in several years.

The last several months of 2014 will defi-nitely be known for falling oil prices as the topic found itself constantly in the headlines and in the conversation of the business, eco-nomic and political news. Besides energy, the metals and grain sectors made significant lows. One of the largest commodity moves in 2014 occurred in the rally of the coffee market. The meats sector was making new highs last year.

As noted in the S&P GSCI index the over-all move in the commodity index has gradu-ally trended lower since 2011. In 2014 the

Chart 1: S&P GSCI Monthly Chart Jan 1993 to Dec 2014. Source: www.barchart.com

S&P GSCI “fell off the cliff ” as many com-modities were reaching new lows as noted in Table 1 below.

It may not be intuitive to connect com-modity prices to currency prices, but they do correlate. Many commodity prices are quoted in U.S. dollars. If the USD falls com-modity prices may rise, as commodities appear cheaper outside the U.S. If the USD increases, commodity prices may fall as they become more expensive for other countries as they convert their local currency to USD. 2014 experienced a continuation of the USD index rally from bottom in May 2011. The USD index reached highs not seen since 2006. (Learn more about currencies click here).


Table 1: Commodity Markets by Sector with Highs / Lows since previous years

natural gas after the U.S.1 Russia’s loss of energy revenue helped to sustain the devalu-ation of the ruble. This in turn influenced the recently reported 11.37% Russian CPI rate of inflation2 and an increase of the Russian interest rates to 17% from 10.5% in December and then Russia cut rates to 15% on Jan 30th 2016.3

Some OPEC countries are willing to accept a short-term decline in Oil prices, if it will damage the U.S. shale oil industry. June 2006 U.S. crude oil imports peaked at 10.8 million barrels per day on a four week average. The four week average as of December 26, 2014 was 7.5 million barrels per day equating to a 31% reduction of imports.4 The U.S. four

week average of production bottomed at 3.9 million barrels per day in Oct 2005. As of December 26, 2014, the four week average crude oil production in the U.S. was 9.1 mil-lion barrels per day. This is an increase of 33% U.S. oil production since 2005.5

As the number one consumer of oil, the U.S. increased production and decreased imports in recent years, leaving a potential glut of the world oil supply. Plus the rallying dollar has made crude oil more expensive around the world. Falling oil prices are good for consumers of petroleum based products, but may hurt producers of the product. Can the reduction of oil prices be both good and bad for the U.S.?

sector New highs since New Lows since

Coffee softs 2012

feeder Cattle Meats New high

Live Cattle Meats New high

Palladium Metals 2001

Cocoa softs 2011

orange juice softs 2012 2013

gold Metals 2010

wheat grains 2010

Lean hogs Meats New high 2013

Corn grains 2009

Lumber softs 2013

sugar softs 2010

Platinum Metals 2009

oats grains 2012

soybean Meal grains 2012

Copper Metals 2009

soybean oil grains 2009

silver Metals 2010

soybeans grains 2010

rough rice grains 2010

Natural gas energy 2012

Cotton softs 2009

heating oil energy 2009

Crude oil energy 2009

Source: barchart.com, finviz.com

softs (Coffee, CoCoa,

CottoN, oraNge juiCe,

sugar, LuMBer):

Rallying markets included coffee, cocoa, orange juice. Declining markets include: Lumber, sugar and cotton. These markets originate from different parts of the world and may have various reasons for moving higher or lower.

Coffee: An important factor for coffee to rally in 2014 to highs not seen since 2012 was due to Brazil’s low amount of rain. Brazil is the largest producer of coffee and the largest producer of Arabica beans, thus the low rain factored heavily into coffee prices. (Click here for more information on coffee).

Cocoa: Demand for cocoa has outstripped the supply for the last few years. Increased weather concerns have also played into the greater uncertainty of the market. Many cocoa producing countries are the same countries with the highest ebola outbreak in 2014, thus causing production scares, uncer-tainty and increased pricing. Both produc-tion and consumption have increased, but production has increased and decreased over the past decade while consumption has been on a steady upward climb. According to the International Cocoa Organization (ICCO), the estimated ratio of stocks to consump-tion for the 2013/2014 year has decreased to 38.9, the second lowest since the 2004/2005 crop year.6

Meats

Feeder cattle, live cattle and lean hogs all made new highs in 2014. The cost for a good steak was climbing in 2014. There were a few factors for the higher cattle prices in 2014. 1) U.S. cattle inventory reached new lows. According to the USDA, the inventory is the lowest since they began mid-year inventory reporting in 1973.7 2) Yields of feed grain increased and prices fell, allowing cattle pro-ducers to hold onto cattle for a longer period of time. 3) As prices are increasing producers are increasing the weight of cattle.8


144Opinions.comA Division of FitzGerald Yap Kreditor LLP

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Contact Lynne BolducPhone: 949.788.8900 | Email: [email protected] | Fax: 949.788.8980

16148 Sand Canyon Avenue, Irvine, California 92618


graiNs:

The entire grain sector moved lower in 2014 and reached the lowest prices from two to five years prior. The most interesting was the soybean market (click here to read more about soybeans). Since breaking above the resistance price of $10 per bushel in 2010, soybeans found continued support in the $10 to $12 price range and eventually surpassed $17 in Sept 2012. In the fall of 2014 the price of soybeans finally broke the support level of $10 and declined to just above $9.

2013 and 2014 were back to back years of large production for corn and soybeans assisted by a near perfect 2014 summer growing season causing a sustained price decline. In 2012 drought conditions during the growing season caused the rally in the grain markets.9

MetaLs

2014 was not a glittering year for precious or industrial metals. Prices were falling to lows not seen since 2009 or 2010 (respective of the market viewed). Factors impacting the precious metals market included the continued rally of the U.S. dollar and a larger focus on the Fed unwinding QE and possible rate increases. Increased global economic slowdown and uncertainty as experienced in Europe impacted the base metals sector.

dairy:

A market that many consumers use every day, but did not make the headlines was milk. Rising prices and falling prices (end of the year), high profit margins due to increased prices and low feed grain prices as mentioned above. However, U.S. consump-tion of fluid milk and cream has declined. In 1970 the U.S. consumption per capita was 273.8 pounds per year. In 2012 consumption fell to198.8 pounds.10 Milk is a global market and the demand is growing quickly in China and other parts of Asia.11

In 2014 Coca-Cola reported they are get-

ting into the milk industry with a premium brand called Fairlife as a joint venture with the dairy co-op Select Milk Producers. 12 According to the USDA, dairy prices were 5.3% higher in December 2014 relative to December 2013.13 Class III milk used for various cheeses is traded at the CME Group.

As this article points out, various factors will influence specific commodity markets, but the results of that market may spill-over into other markets and parts of a domestic as well as the global economy. Time will tell if the various commodity markets will continue their current moves. (Learn more about commodity markets click here).

(Endnotes)

1 http://www.eia.gov/countries/cab.cfm?fips=RS

2 http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/russia.aspx

3 http://www.bbc.com/news/business-31057283

4 http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wcrimus2&f=4

5 http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wcrfpus2&f=4

6 http://www.icco.org/about-us/international-cocoa-agreements/cat_view/30-related-documents/47-statistics-supply-demand.html

7 http://igrow.org/livestock/profit-tips/cattle-inventory-declines/

8 http://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx

9 http://www.wsj.com/articles/grain-soybean-futures-fall-as-usda-ramps-up-crop-projections-1410454858

10 http://www.ers.usda.gov/amber-waves/2014-june/trends-in-us-per-capita-consumption-of-dairy-products,-1970-2012.aspx#.VM7GO9LF-So

11 http://money.cnn.com/2014/06/09/investing/milk-money/

12 http://www.bloomberg.com/bw/articles/2014-12-01/coca-cola-prepares-to-build-a-milk-brand-called-fairlife

13 http://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx

Copyright ©2015 Mark Shore. Contact the author for permission for republication at [email protected] 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 work-shops. His research is found at www.shore-capmgmt.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/ glob-al 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, Examiner.com and Micro-Cap Review.

Mr. Shore hosts the popular internet talk show on alternative investments “Skewing Your Diversification”.

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 manage-ment 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 whol-ly owned Commodity Trading Advisor unit ($250 million AUM) of Morgan Stanley. Mr. Shore provided research and risk manage-ment 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 necessar-ily 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 pur-poses. Please talk to your financial advisor before making any investment decisions. n



auto industry simply replaces one metal with the other.

It’s a cycle that repeats every couple of years, creating a platinum/palladium seesaw.

Between 1990 and 2001, the global auto-mobile industry favored palladium over plat-inum as the main catalyst.

As a result, palladium prices skyrocketed from just $80 to $1,090 an ounce – a gain of 1,263%.

n NICK HODGE

Reasons for the Coming Palladium BullPalladium is poised for a sustained bull run. Platinum and

palladium are both used as catalysts in vehicle emissions control devices – catalytic converters.

They create a reaction that oxidizes or reduces toxic pollutants in exhaust, namely poisonous gases nitrogen oxide and car-bon monoxide. They’re interchangeable with each other as the main catalyst in the con-verters.

There is no substitute for these two metals. Automakers MUST use either platinum or palladium as catalysts.

So when one metal gets too expensive, the


During the same period, platinum prices fell 27% from $444 to $326 an ounce.

Take a look for yourself.

Then, with palladium prices over three times higher than platinum, global automakers retooled their catalytic converters with platinum.

And again — after only seven years of strong demand from the auto industry — platinum prices were driven 597% higher to $2,273 an ounce.

As expected, palladium prices crashed 85% to $164 an ounce.

Check it out.You get the point...When the price of one metal becomes

too high, automakers send it crashing down by switching to the other. After switching, prices of the other metal begin to rise with demand from the auto industry.

That means the very best time to be invested in platinum or palladium is when global automakers are retooling their cata-lytic converters to use one or the other.

And that’s happening now...In 2009, the demand for platinum usage in

auto catalytic converters dropped 39%.With average platinum prices of over

$2,200 an ounce — and palladium under $200/oz — the switch was inevitable.

Since 2009, palladium prices have risen 283%.

As expected, platinum prices are on their way down.

Palladium’s outperformance has been driven by the strong rebound in the global auto industry, particularly in the U.S. and China.

And while palladium’s rally over the last few years has been impressive, we ain’t seen nothin’ yet...

“Stricter emissions control in China to drive palladium prices higher” ~ South China Morning Post (July 2014)

“Palladium bulls are getting ready for a run” ~ CNBC (April 2014)

“Platinum price muted but palladium could soar” ~ Mineweb.com (May 2014)

More than half of annual worldwide pal-ladium supplies go into the production of autocatalysts.

As such, palladium demand is correlated to the health of the global auto industry, which has come roaring back since 2009.

In 2013, sales in the U.S. topped 15 million vehicles, the highest the industry has seen


since 2007. China became the first nation in the world to sell 20 million vehicles in a single year.

And despite the fact that China achieved world-record breaking car sales in 2013, its car ownership rate is still just 1/8 the rest of the developed world.

Overall, global light vehicle production is expected to increase 25% through 2021, according to the Financial Times. China will account for 30% of that growth.

As the auto industry continues its rebound, the demand for palladium will increase with the growing demand for catalytic converters.

And with the global auto industry’s switch well underway, the demand for palladium will scream higher over the next several years.

Here in America, we’ve had catalytic con-verters standard in every car since the 1970s.

But in the world’s largest auto market, China, they’ve only recently made them mandatory.

And that means more and more palladium will be used up.

According to Rick Rule, chairman and founder of Sprott Global Resource Investments, “The Chinese government has proposed air quality standards over five years that would quintuple the loadings of palla-dium in gasoline engines in China.”

Quintuple. But the world’s palladium resources are

extremely limited... and getting scarcer by

the day.Russia is the number one source of

Palladium.It accounts for more than 40% of the

world’s supply. But geologically, the ore grades of Russian mines have been in steady decline.

As a result, they’ve been dipping into stockpiles to fill orders.

Huge above-ground stockpiles of Russian Palladium often fill the gap between strong palladium demand and stagnant mining supply.

And some analysts believe Russia has sold off almost all inventory.

“We believe Russian palladium stocks – built up during the cold war – are greatly diminished and may be nearing exhaustion,” says James Steel, precious metals analyst for HSBC.

Not to mention that with its recent inva-sions of Ukraine, Russia is a complete wild card. Geopolitically, it can cut off exports any time.

“If Russia stops shipping, you’re talking about a supply-side disaster,” says Philip Gotthelf, president of commodities invest-ment firm, Equidex.

South Africa is the only other major source of Palladium.

But it has been riddled by mining strife, and recently endured the longest mining strike in its history.All mines operating there were shut down for five months.

And although the strike just ended, it’s not like flipping a switch...

As the Wall Street Journal says, “The end of the strike doesn’t mean an automatic restart of mining. Full production could take around three months. And there’s a risk that South African labor tensions may flare up again.”

In a Merrill Lynch Global Research report, analysts wrote, “We expect further shortfalls, as miners will increase production slowly after the five-month strike.”

These supply disruptions and shortages are all occurring at a time when demand for Palladium couldn’t be higher, which is why I believe higher prices are coming for pal-ladium prices and related equities. n


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LYNNE BOLDUC ANNOUNCES OSWALD & YAP COMPLETES MERGER

Lynne Bolduc is pleased to announce that our firm, Oswald & Yap, has merged with two other law firms to form a new firm, FitzGerald Yap Kreditor LLP. The firm now has 15 attorneys. Lynne continues to be a partner and offers legal advice and services for:

• Rule 144 Opinions • Private Offerings • Public Offerings • Public Company Reporting • Mergers • Acquisitions and Sales of Companies • Contracts • Broker/Dealer Compliance • All Other Corporate and Securities Matters

With the merger, the firm is now pleased to offer a suite of litigation services as follows:

• Business Litigation, including breach of contract, trademark and copyright infringement, tortious interference with contract, product recalls and product liability

• Securities Litigation, including Wells submissions and FINRA arbitrations • Real Estate Litigation • Probate and Trust Litigation • Administrative Hearings, including professional licensing and disciplinary matters • Shareholder and Partnership Disputes • Insurance Coverage Issues • Unfair Competition, Non Compete and Trade Secrets Litigation • Fraud

The new firm name, FitzGerald Yap Kreditor LLP, reflects the addition of the two senior partners from the other two firms, Michael FitzGerald and Eoin Kreditor. Our email addresses have changed, but all other contact information remains the same and appears below.

Lynne Bolduc, Partner

16148 Sand Canyon Avenue

Irvine, California 92618 Email: [email protected] Telephone: (949) 788-8900 Facsimile: (949) 788-8980

www.fyklaw.com www.144opinions.com


Accredited Investor Changes Could Threaten Capital Formation

c O M P L I a N c E c O R N E R

but, for example, the Spectrum Group in Chicago reports (using pre-financial crisis 2007 data) that there were approximately 9.2 million Americans (roughly 7% of the population) who had assets of more than $1 million. Using IRS data from the same year (the last year such data has been released), only 1.8 million Americans had assets of more than $2 million. Whether these spe-cific data points are precise is not the point. Certainly, more than doubling the asset test of the accredited investor definition would take millions of potential investors out of the pool of people who the SEC has long since accepted are able to fend for themselves or seek input from their advisors in assessing the merits of an investment.

Looking at the income test, the impact is even more stark. In constant dollar terms, a $200,000 income in 1980 equaled approximately $575,000 in 2014 (and $300,000 in 1980 would be more than $850,000 today). According to IRS data, approximately 940,000 people, or 0.5% of the population, make more than $500,000 per year (there are no statistics kept for the $850,000 mark but obviously it would be significantly smaller). Other groups report slightly different statistics, but the principle is the same. Millions of people would be moved out of the definition of accredited investor with a major increase in the income test.

The SEC’s Investor Advisory Committee

First defined in 1982 as part of the adop-tion of Regulation D, the definition has not been changed substantially in over 30 years, although another provision of Dodd-Frank eliminated the value of one’s primary residence from the calculation of net worth under that part of the definition.

As it applies to individual investors, an accredited investor is currently defined as a person whose net worth, exclusive of the primary residence, is at least $1 million, and/or whose income has been at least $200,000 ($300,000 including spouse) for each of the last two years and who has a reasonable expectation of achieving the same threshold in the current year.

To be clear, there is not yet even a concept release or proposal put out by the SEC regard-ing the legislatively-mandated revisit of the definition. However, lots of trial balloons are being floated and many interest groups are already weighing in. None of these suggests

n BY LaNcE JON kIMMEL

One of the lesser known provisions of the Dodd-Frank Act requires the SEC to revisit the definition of “accredited investor”, a process that is underway.

that the definition should be loosened and few even argue for keeping the definition as is.

It has been lobbied by some, such as the North American Securities Administrators Association and AARP, that the economic thresholds of the 1980s need to be updated or indexed 30 years on. Indexing seems fair at first blush. However, put another way, without any legislative history from 1982 to support the proposition, there is belief in some quarters that because the percentage of Americans who met the definition of accredited investor in 1982 has ballooned in three decades, this needs to be reined in to prevent fraud. However, no evidence exists that fraud is more common-place in Regulation D offerings than in reg-istered offerings or offerings relying on other exemptions. Additionally, there is no provable nexus between increasing the accredited inves-tor thresholds and combatting fraud.

Bureau of Labor Statistics data has been cited that $1 million in 1980 is equal to approximately $2.4 million today. The impli-cation (and in the case of NASAA, its posi-tion) is that this could be the new asset test, merely adjusting the original standard for inflation. However, this would take a huge number of potential investors out of the pool to fund start-ups and later-stage private companies, all of which are competing for capital in an increasingly global economy. Different sources produce different data,


may be prepared to go even further. Not only is that influential body looking at the quan-titative part of the definition, they are also looking at the concept of what it should mean to be accredited in qualitative terms. Barbara Roper, director of investor protection for the Consumer Federation of America, who heads the committee’s Investor as Purchaser Subcommittee, declared that her subcom-mittee “went back to basics”, summarily concluding that “the current definition does not serve its purpose” and, among other things, believes that a “sophistication aspect” should be added because “there will never be a threshold that will serve as a good proxy for sophistication”. But that’s the point – the SEC expressly took sophistication out of the equation three decades ago when it adopted the accredited investor safe harbor.

For those old enough to remember, this sounds like the re-emergence of long-form suitability questionnaires that asked pages upon pages of questions spanning every-thing from education levels to previous private investment experience to ratios of investment to assets or income. And when glazed eyes finished reviewing those ques-tionnaires, one was often no closer to feeling comfortable whether a potential investor was “sophisticated”, often resulting in a require-ment that a so-called “purchaser representa-tive” also evaluate the investment on behalf of the investor, and filling out his or her own extensive qualification documents.

An important purpose of the legisla-tive intent expressed by Congress in 1982’s Regulation D, including the introduction of the accredited investor definition, was to remove some of the ambiguity and uncer-tainty in the capital formation process that had plagued private capital formation up to that point in time, precisely because “sophistication” was a nebulous standard. If substantially raising quantitative thresholds will remove millions of potential accred-ited investors, how many more could be removed by undoing the safe harbor, regard-less of what the new quantitative levels may become? Would the reintroduction

of uncertainty in the definition of accred-ited investor chill private capital formation itself, since it won’t be known if an offering complied until well after the funding, with a regulatory body or court looking back at the investment with the benefit of hindsight?

It goes without saying that while some speak of indexing 1980 economic data points to 2015 levels, to say nothing of re-introducing difficult-to-apply and uncertain qualitative criteria, no one can index our population, which has grown from 226.5 million in 1980 (U.S. census data) to an estimated 318.6 million in 2014. How many of those additional 92 million Americans are seeking capital for start-ups and growing busi-nesses? The demand for capital has exploded in the last 30 years, ushering in the greatest deploy-ment of growth capital in the history of the world; however, the SEC may be on the verge of choking the supply of capital by dramatically restricting the definition of accredited investor. Supply and demand imbalances never end well.

Others will argue that the capital is still there to be invested, just that many former accredited investors will no longer be accred-ited. That is true. However, it is also true, as every securities attorney and entrepreneur knows, that the cost of raising capital in private offerings that have even a single non-accredited investor is dramatically higher than an offering with only accredited inves-tors. Under Regulation D, the SEC permits more flexible disclosure in securities offerings to accredited investors. Under the National Securities Market Improvement Act, offer-ings solely to accredited investors are exempt from state “blue sky” laws. Under current best practices, the process to determine the gen-eral suitability of an investment for accred-ited investors is streamlined, although under recently-adopted Rule 506(c) (general solici-tation of accredited investors) verification of accredited investor status is required.

It appears that just as the 2012’s JOBS Act is propelling the SEC to adopt rules and regulations to liberalize private capital for-mation through such mechanisms as general solicitation of accredited investors, equity crowdfunding and IPO reform of Regulation

A, this vestige of 2010’s Dodd-Frank threat-ens to curtail this reform.

If the revamped definition of accredited investor is implemented substantially as it is being floated, it may be hard to argue that the dramatically further increased costs of capital and the overall chilling effect on rais-ing capital are merely “unintended” conse-quences of Dodd-Frank – they may be very much “intended”.

Lance Jon Kimmel is the founding and managing partner of SEC Law Firm, which represents growth companies around the globe and the regulated profes-sionals who serve them. Mr. Kimmel’s practice focuses on public and private securities offerings, going pub-lic transactions, SEC reporting, corporate governance, representation of companies before the SEC and stock exchanges, mergers and acquisitions, and SRO compli-ance for investment bankers, auditors and other service providers. He handles capital raising at every level, from seed capital to initial public offerings, from reverse mergers to PIPEs, from equity credit lines to bank credit facilities. Mr. Kimmel is actively involved in alternative public offering strategies, including reverse mergers for domestic and Chinese companies in the United States, and working with private and public companies going public or dual listing internationally in the U.K., Canada and Germany.

His clients reflect the spectrum of 21st century busi-ness, from manufacturing to medical devices, from biotechnology to green technology, from financial ser-vices to the entertainment industry, from real estate to consumer goods.

As one of the most frequently quoted securities attorneys in America, Mr. Kimmel has contributed his insights to NPR Marketplace, Dow Jones, Sky Radio, the Los Angeles Times, Bloomberg Forum and Financier Worldwide, among other mainstream and financial broadcast and print media around the world. Mr. Kimmel has written numerous articles and speaks often on current legal issues in the corporate finance and corporate governance arenas in the U.S., Europe and China. He co-chairs the Growth Capital Conference in Los Angeles, serves on the Securities Regulation Committee of the American Bar Association, served as a national coordinator of the SEC’s Small Business Forum, has given testimony to the SEC’s Advisory Committee on Smaller Public Companies on reform proposals to ease the burdens of the Sarbanes-Oxley Act for smaller reporting companies, and has been keynote speaker at the National Investment Bankers Association.

SEC Law Firm has been named 2012 International Securities Law Firm of the Year (U.S.) by Corporate LiveWire in the UK and is listed in the 2014 Financier Worldwide Corporate Advisor Handbook.

SEC Law Firm 11693 San Vicente Boulevard, Suite 357 Los Angeles, California 90049 Tel: (310) 557-3059 Fax: (310) 388-1320www.seclawfirm.comemail: [email protected] n



nies last year wound up pocketing more proceeds. (Growth EPPs are registered and unregistered private placements of a least $1 million of stock or equity-linked debt that feature fixed purchase, conversion and war-rant exercise price terms, and that are sold by companies that have market capitalizations from $10 million to $1 billion.)

Issuers in 2014 conducted 723 growth EPPs that raised $13.2 billion for an average deal size of more than $18 million, according to PlacementTracker, a division of Sagient Research. In 2013, growth companies com-pleted 733 transactions to raise $12.6 billion for an average transaction size of $17.2 mil-lion.

However, deal making began to tail off in early October as the broad market became volatile. Up until then, issuers and investors had closed an average of 163 deals per quar-ter. But they only completed 127 transactions in the quarter, valued at nearly $3.5 billion. Still, that worked out to a generous $27.4 million average per deal.

Growth companies also continued increas-ing their uptake of at-the-market programs in 2014, entering into 69 ATM agreements with a potential to raise $3.3 billion for an average of $48.7 million per deal. Not only is that the most agreements executed in a single year in the EPP market, but it also is the largest dollar volume commitment ever. Companies have tapped 26 of the programs so far this year and have raised $359 million, or an average of $13.8 million per ATM.n BY BRETT GOETSCHIUS

Emerging Growth Capital Investors Seek to Manage Volatility in 2015

That is the collective wisdom of microcap fund managers and growth equity private placement advisers who expect to attend the Growth Capital Expo 2015 on April 12-14 at Caesars Palace in Las Vegas – the second year of this conclave of thought leaders and active investors in the pre-IPO and emerging growth microcap market.

For much of 2014, growth equity private placement (EPP) activity had settled into a promising deal-making groove that was on pace to best 2013. But a spike in volatility in the fourth quarter slowed deal making and ushered in a ho-hum year-end performance.

Still, investors doled out more capital to companies than in 2013 as the economy showed signs of broader improvement through consistent job creation and robust second and third quarter GDP growth of 4.6% and 5%, respectively.

Whether continuing signs of improvement are enough to convince growth capital inves-

Investors in emerging growth companies will need to stay nimble to succeed in 2015, as increased market volatility in high-growth

microcaps focuses their attention on trading and risk mitigation.tors to increase activity in 2015 could hinge on how confident they are that the economy has actually turned a corner, especially with uncertainty around oil’s plummet, lacklus-ter retail sales in December and the lowest employment participation rate since 1978.

It also could depend on how long market volatility hangs around to distract them, said John Borer, senior managing editor and head of investment banking for placement agent the Benchmark Company, which facilitated five EPPs to secure $58.7 million in 2014.

“From January to December, we may see what looks like a normal or even good year from an overall market perspective,” he said. “But if the market’s up 300 points one day, down 300 the next and then up 150 the next day, it gets an awful lot of people focusing on making money by trading the volatility as opposed to investing in companies.”

Emerging growth equity investment trends will the subject of two discussion panels featuring top industry bankers and investors on the first full day, April 13, of the Growth Capital Expo. The panels will explore trends in both registered and unreg-istered equity private placements. (For a complete agenda of the Expo program, go to http://growthcapitalexpo.com/agenda.)

BeLow Par

As a whole, growth EPP activity and dollar volume didn’t deteriorate materially in 2014 compared with 2013, and growth compa-


In 2013, companies agreed to 65 ATM pro-grams, committing to raise as much as $2.7 billion, or $41 million per transaction. Issuers have utilized 48 of the arrangements, selling $726.7 million worth of shares for average gross proceeds of $15 million per deal.

BioteCh BLowout

Investors in the healthcare sector were far and away the busiest of any in 2014, and bio-tech companies were in particular demand, a theme that also played out in the IPO mar-ket. According to the life science-focused Burrill Report, 106 biotech IPOs in the U.S. raised nearly $9.3 billion in 2014, and the companies closed the year up 29.6%.

In the EPP market, biotech companies completed 122 transactions in 2014 to raise $2.8 billion for an average raise of $23.2 mil-lion. That was up from 105 deals last year valued at $1.9 billion for an average raise of $18.5 million.

Edwin Gordon, a managing director with investment bank Ladenburg Thalmann & Co., credits the improved science underlying biotech clinical trials for the dizzying invest-ment activity in the maturing industry.

“It was a remarkably active year for both IPOs and private deals,” said Gordon, whose firm facilitated 10 EPPs to secure $353.6 mil-lion in 2014. “Investments that were made in 2000 are now paying dividends, so the mar-ket has broadened to include not just venture funds but a significant number of crossover investors.”

While volatility in the markets is a con-cern, Gordon anticipates that the industry will enjoy another solid year of capital for-mation in 2015. “There’s been about $200 billion in cash paid out in the form of share repurchases or M&A in life sciences in 2014,” he said. “Where’s that money going to go?”

Companies in the healthcare products industry were also among the most active issuers, completing 63 EPPs to raise $577.6 million for an average of $9.2 million per deal. Medical laser maker Biolase (BIOL) closed one of the year’s biggest deals in the

industry in November when it raised $33.8 million for working capital in an unregis-tered common stock EPP priced at market ($2.39 a share). The deal that included 9.2 million three-year warrants exercisable at $4 a share, or a 67% premium.

Camber Capital Management, Oracle Investment Management, Eagle Growth Partners, Birchview Capital and Trellus Partners participated in the transaction. Biolase’s shares were recently trading around $2.55.

Pharmaceutical firms wrapped up the healthcare sector’s stout fundraising effort for the year, securing $852.5 million in 41 transactions for an average deal size of $20.7 million.

Other sectors displaying notable activity in 2014 include the various industrial indus-tries, such as aerospace, electronics, environ-mental controls and transportation. All told, issuers in the industrial sector completed 71 EPPs to raise $2 billion. But transportation companies attracted the bulk of the capital – nearly $1.6 billion – in 17 transactions.

Companies in the technology and com-munications sectors combined executed 84 EPPs during the year to raise $1.2 billion. Issuers focused on telecommunications and Internet applications and services raised about half of that amount in 38 of the deals.

Energy sector companies, meanwhile, gathered nearly $1.7 billion in capital in 57 transactions for an average deal size of $29 million. Firms tied to fossil fuels accounted for $1 billion of the dollar volume in 30 transactions, while alternative energy issuers made up the balance.

Notably, however, only two companies in the oil and gas sector completed deals in the final four months of the year amid the oil price slide, which began slowly in August and accelerated in October. And both of the companies – Pedevco Corp. (PED) and CHC Group (HELI) – were in the services business rather than explorers and produc-ers.

Moving forward, Borer anticipates a rea-sonable amount of follow-on activity in

2015, ranging from unregistered common stock EPPs to fully underwritten and mar-keted offerings.

“The tech area seems to be rather enthu-siastically embraced these days, and life sci-ences and biotech companies always need money,” Borer said. He also expects the IPO market to remain robust. “There are cer-tainly a lot of companies that want to come out,” he added.

The Growth Capital Expo 2015 will again feature the very popular pre-confer-ence Public Company Boot Camp on April 12, from 2:00-6:00 pm. This workshop is designed for officers and directors of pre-IPO and recently public growth companies seeking to improve their knowledge and execution of their public markets activities. This year the boot camp program will be sponsored by the National Association of Corporate Directors, the premier organi-zation supporting board development and good corporate governance.

CoaLesCiNg disCouNts

Growth companies already trading on pub-lic markets that conducted EPPs pursued unregistered common stock deals more fre-quently than any other structure in 2014, issuing 232 deals to raise $3.2 billion for an average deal size of $13.9 million. Investors in the transactions received an average dis-count of 10.9%, and 104 of the EPPs includ-ed warrants with average coverage of 75% and an average exercise premium of 21%.

Roth Capital Partners led all placement agents in arranging growth EPPs last year, facilitating 43 deals to secure $919 million. H.C. Wainwright & Co. secured $848 mil-lion in 40 transactions, and Cowen and Company secured $774.8 million in 27 EPPs.

Based on activity in which dollar volume was disclosed, Sabby Management led all investors, taking part in 42 deals and ponying up a total $82.3 million. Broadfin Capital participated in 22 deals and invested $18.4 million, and Heights Capital Management invested $24.3 million in 21 transactions. n


As we approach a new year of political football in Washington one must be diligent in planning for the future. No matter what the financial designation, Broker Dealer, Registered Rep, RIA, CFP or Institutional fund manager, life is going to change. The misconceptions of crowd funding and the inconsistent regulatory actions of FINRA has resulted in a nightmare for the industry. No one that has the interests of investors truly established under crowd funding better that the State Department of securities. They are the only ones that can put a halt to the underground market that uses social media to the extreme crowd funding uses to raise capital.

Change is necessary to have economic growth, but it must be done in concert with input from the proper professionals. How can someone not licensed offer an investor, who may or may not be suitable, a security that has not been vetted? Ask yourself how, as a licensed investment professional, can this help my business grow. What tools can you use to counter such actions? Where do I begin to alter a business model for the benefit of my clients?

As a financial professional I would start by having a consultation with my clients and educate them on the risks. I would learn more about SCOR for someone in need of capital for an existing entity. One must be proactive in an environment that an SRO (Self-Regulatory Organization) was originally the NASD (National Association of Security Dealers) changed to FINRA (Financial Industry Regulatory Authority). Notice a main difference of the letter “A” in each entity. One was an association that was friendly and interested in input from its members, the other uses the word authority. It implies an entity looking down its nose at its members. This is run by lawyers and not members of the industry that require a license before performing their business appropriately & legally. That begs another question, why are unlicensed individuals with very minimal training allowed to look at sensitive financial and personal information without accountability? It would be wise to have a CRD on all FINRA employees, not just registered representatives so we can weed out the unqualified, unfair, uneducated and biased ones employed there.

The attempt by new legislation to raise capital gains tax , expand government, and continue to use “shadow of crisis” as a mantra, the need arises and should be addressed by industry executives. Investment in small businesses to expand jobs will require banks to stop gambling at the trading desk and loan needed capital to these potential employ-ers. In summary my suggestions will allow economic growth and offer alternatives to registered individuals to properly address suitability for their client’s best interest reduce government and change the SRO to a more balanced association not an authoritative entity without transparency. n

ombudsman

V I E W P O I N T S

What is

ahead for

the New Year?

n BY Jack LESLIE

92 MicroCap Review Magazine www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.comwww.lomiko.com [email protected]

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MicroCap Review Magazine 93www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.comwww.lomiko.com [email protected]

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funds report and the application to change non-immigrant status. After the initial appli-cation, the foreign national receives a con-ditional green card, which will be converted into a permanent green card if he can prove the creation and sustenance of new U.S jobs required by the program after two years.

Why Use It?

The primary advantage of using the EB-5 program is the low cost of capital as compared to traditional forms of financ-ing. Because new companies are viewed as “higher risk”, traditional forms of financing often dictate fairly rigorous terms in favor of the investors. Conversely, as the sole aim of an EB-5 financing is to obtain a green card for the foreign national, the return on investment is of secondary importance. This often means less time and effort spent on due diligence and lower cost of capital.

the requireMeNts

The ways to raise capital through the EB-5 program are through a regional center investment or a direct investment.

A regional center is an investment pro-motion entity approved by USCIS that is n BENJAMIN TAN

EB-5: An Alternative Method to Raise Capital

what is the eB-5 PrograM?

The EB-5 is a government-sponsored program that was introduced with the Immigration Act of 1990. The program per-mits foreign nationals to earn their green cards by investing either $500,000, if in a Targeted Employment Area (TEA), or $1,000,000 in a qualifying business enter-prise that will create at least 10 new U.S. jobs per foreign capital investment. The purpose of the program is to stimulate the U.S. econ-omy through job creation and capital invest-ment by foreign investors. Under a pilot immigration program first enacted in 1992 and regularly re-authorized annually since, certain EB-5 visas are also set aside for inves-tors in Regional Centers designated by the United States Citizenship and Immigration Services (USCIS) based on proposals for promoting economic growth.

the eB-5 aPPLiCatioN

ProCess

The initial application requires the foreign national (applicant) to file an I-526 applica-tion with the USCIS which includes infor-mation about the investment, a source of

We are all familiar with the traditional ways of raising capital,

namely traditional institutional and private investor financing.

However, there is a third and lesser known form of raising capital from

foreign investors under the “EB-5” or “Immigrant Investor” program.


involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment in a designated geographic area. You can either create your own regional center or submit your project to an exist-ing one for sponsorship. The latter is more favored as you do not have to go through the whole I-924 regional center application process, which can be lengthy and expensive. Further, the job creation requirement under the regional center method allows the inclu-sion of indirect jobs. For example, if you are building a factory, you are allowed to count the jobs “created” through the hiring of the general contractor and his employees. An economist will use a formula to calculate jobs created.

The second way of raising capital through the EB-5 program is through a direct invest-ment, not unlike a PIPE. The direct invest-ment requires a foreign investor to establish and directly invest in a business. This meth-od is less attractive since the jobs created must directly relate to the business and the foreign investor is required to be materi-ally involved in day to day operations of the business.

struCturiNg the foreigN

iNvestMeNt

The foreign investor can invest directly in your venture or provide a loan.

Under the direct investment structure, EB-5 investors invest directly into an invest-ment entity where they become equity part-ners and are entitled to a percentage of the profits and losses. This structure is usually used when you are using capital to fund a

business since the EB-5 investors feel more confident investing directly and controlling a business.

Another corporate structure and having particular interest to private equity funds is the loan method (i.e. regional center). Under this structure the capital raised through the EB-5 investors is invested into an intermedi-ary entity (usually an LLC/LP) which then loans the funds to the investment entity that invests in the business that qualifies for the program. This can be achieved by making the collateralized loan through an interme-diary entity and future payback of the loan through a sale or refinance of the invest-ments assets.

is the PrograM right for

you?

The EB-5 Program is not without its own complications. Unlike a traditional financ-ing, EB-5 capital involves several players. First you would need an economist to cre-ate the econometric/job impact report that defines the amount of capital that can be brought into a project based on the amount of jobs that are directly created by the new business. Second, you would need EB-5 compliant business plan writer and finally you will need a securities and corporate attorney to ensure that the business and investment are compliant with both federal and state securities and corporate laws.

Also, one has to factor in dealing with the USCIS and the SEC as well as the waiting and processing times for each step of the green card application process. Investor funds are held in escrow until USCIS approval. This probably the most unpredictable aspect

of the entire process as the waiting time depends on the workload of the USCIS. If funding is time-sensitive, some companies have resorted to traditional forms of financ-ing first and then pay these off with cheaper money from the EB-5 Program when they come through.

siCheNzia ross friedMaN

fereNCe LLP Bio

desCriPtioN:

Sichenzia Ross Friedman Ference LLP (“SRFF”) is a nationally ranked corporate and securities law firm that provides experienced, professional representa-tion in all matters involving the securities industry, as well as in all general corporate and litigation matters. The Firm has been recognized as an industry leader in representing issuers, investors and placement agents in PIPE (Private Placement in Public Equity) transactions for the past ten years. SRFF’s clients range from start-ups to established, listed companies. They include private and public corporations, part-nerships, broker-dealers, bank-affiliated broker-deal-ers, investment advisors, registered personnel, public and corporate customers and investors, partnerships and other entities. SRFF also advises institutional investors on transactions involving complex securi-ties law considerations. SRFF’s practice includes the representation of clients located in the United States and throughout the world.

Website: www.srff.comTwitter: @srffllpLinkedIn: https://www.linkedin.com/compa-

ny/sichenzia-ross-friedman-ference-llpContact: Benjamin A. Tan, Esq. PartnerSichenzia Ross Friedman Ference LLP(212) – 930 – 9700 ext. [email protected]

Richard A. Friedman, Esq. PartnerSichenzia Ross Friedman Ference LLP(212) – 930 – 9700 ext. [email protected] n

Under the direct investment structure, EB-5

investors invest directly into an investment entity

where they become equity partners and are entitled

to a percentage of the profits and losses.

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