Analysts' Ideas of the Week - Lowering our Estimate of Vaccine Rollout in the U.S. from Six to Five Months - Baystreet.ca

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Analysts' Ideas of the Week - Lowering our Estimate of Vaccine Rollout in the U.S. from Six to Five Months - Baystreet.ca
Analysts' Ideas of the Week
Lowering our Estimate of Vaccine Rollout in the U.S. from Six to Five Months

                             January 25, 2021
                          www.researchfrc.com
Analysts' Ideas of the Week - Lowering our Estimate of Vaccine Rollout in the U.S. from Six to Five Months - Baystreet.ca
Page 2

                                             FRC Top Picks

Electric Vehicle (EV) metals stocks continue to dominate our list of best performers. The
following table shows last week’s top five performers among our Top Picks, including
three electric vehicle metals’ juniors, one silver junior, and a cannabis retailer. The top
performer, Giga Metals (TSXV: GIGA), was up 42% WoW on no company specific
news.

                                   Top Five Performers Last Week

                                                  Source: FRC

Overall, our portfolio (equally weighted) was up 36% in the past three months vs
the benchmark’s (TSXV) 32%. Our top picks were up 73% (on average) since initiation
of coverage vs the benchmark’s 7%.

                                                  Source: FRC

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                                         Performance by Sector

                                                  Source: FRC

Our complete list of top picks (updated weekly) can be viewed here.

                                  Weekly Mining Commentary

Four of the seven global equity indices we track declined WoW (orange bars).

                                            Source: FRC / Various

Gold and silver prices gained strength, amid weakness in the US$. Among base metals,
copper prices are holding up as inventory levels continue to decline on the LME and
SHFE (Shanghai).

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As shown below, LME inventory levels of copper are down 51% YoY, which is a
key factor supporting prices.

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Valuations of both gold and base metals producers inched up by 1.1%, after a 4%
decline in the prior week.

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Our outlook has marginally improved since last week because of a decline in the
number of daily new cases of COVID-19 in most of the hardest hit nations, and a
pick-up in the pace of vaccine rollouts. Currently, 5.3% of the U.S. population has
received vaccinations vs 3.2% at the same time last week. This compares to 2.1% for
Canada (up from 1.5%), and 9.4% in the U.K. (up from 6.0%). Israel leads the pack at
29.5% (up from 25%).

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The U.S. is currently administering over 1M doses per day vs 0.8M at the same time
last week. At this rate, we estimate it will take approximately five months to
vaccine 25% of the U.S. population vs our last week’s estimate of six months. Our
estimate in the week prior to last was eight month.

As shown below, the U.S., U.K., Russia, and India reported a decline in daily new cases.
However, Mexico, and most of South America are reporting record high figures.

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                          Source: https://www.worldometers.info/coronavirus/

We are maintaining our outlook, and do not expect a recovery until H2-2021. We
continue to believe there is a disconnect between investor sentiment/ valuations, and
the expected weakness in H1-2021. As mentioned last week, Biden is expected to
announce a stimulus package focused on infrastructure, which we believe will be
positive for base metals. Our commodity price forecasts are shown below (unchanged):

In the following section, we review companies that announced key developments in the
past week.

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                                         Mining / Exploration

Company             Ticker          Current Share  FRC Fair Value Date of PR:
Name:               Symbol          Price:         Estimate:
QMX Gold            TSXV: QMX       $0.28          $0.31              Jan 21, 2021
Corporation
PR Content                                 FRC Opinion
Entered into a definitive agreement with Positive – The acquisition price is almost
Eldorado Gold (TSX: ELD), wherein inline with our fair value estimate of $0.31
Eldorado will acquire QMX for $132M, or per share. We had initiated coverage on
$0.30 per share, reflecting a 40% QMX on December 16, 2020, when its
premium to the share price prior to the shares were trading at just $0.15 per share.
announcement. Eldorado currently owns We had stated in our report that QMX is a
17% of QMX’s shares. The transaction is likely M&A target.
expected to close in March/April 2021.

Company            Ticker           Current Share     FRC Fair Value Date of PR:
Name:              Symbol           Price:            Estimate:
Noram              TSXV: NRM        $0.93             $1.27              Jan 21, 2021
Ventures Inc.
PR Content                                 FRC Opinion
Completed its sixth hole of a 12-hole Positive - The current program is targeting
program. The latest hole was drilled to a mineralization to a depth of up to 500 ft. The
depth of 462 ft, making it one of the four existing resource on the project only
deepest    holes     drilled   to    date. accounts for mineralization to a depth of
Approximately 301 ft of favourable 100 m. Assays from the first three holes
claystones have been identified.           were encouraging as all three showed
                                           potential mineralization to depths of up to
                                           400 ft. Near-term catalysts include
                                           additional results from the ongoing drill
                                           program, an updated resource estimate,
                                           followed by a PEA. We also believe that
                                           Noram is a likely M&A candidate.

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Company           Ticker         Current Share       FRC Fair Value Date of PR:
Name:             Symbol         Price:              Estimate:
Vista Gold        NYSE: VGZ      US$0.94             US$1.93            Jan 21, 2021
Corp.
PR Content                               FRC Opinion
Announced results of an ongoing drill Positive – These preliminary results
program (2,400 m) at the 100% owned Mt indicate expansion potential outside the
Todd gold project in Northern Territory, existing resource. A 2019 Preliminary
Australia.                               Feasibility Study had returned an After Tax-
                                         NPV5% of US$1.13B, with an After Tax –
                                         IRR of 30%, based on US$1,500 per oz
                                         gold. Vista’s current enterprise value is just
                                         US$85M.

Company            Ticker             Current Share    FRC Fair Value Date of PR:
Name:              Symbol             Price:           Estimate:
Southern Silver TSXV: SSV             $0.46            $1.06              Jan 21, 2021
Exploration
Corp
PR Content                                   FRC Opinion
An ongoing 10,000 m drill program on the Positive - These results are promising
Cerro Las Minitas project in Durango considering the program is focused on step-
state continues to return promising out drilling for resource expansion.
values. Key highlights are listed below:     Approximately 7,500 m of drilling has been
                                             completed to date. Note that the project
• 9.3 m down-hole interval (6.1mest.
                                             already has a resource estimate of 134 Moz
    TT) averaging 344 g/t Ag, 0.59 g/t Au.
                                             AgEq indicated, and 138 Moz inferred
    5.7% Pb and 3.9% Zn (728 g/t AgEq;
    18.5% ZnEq);
• 1.4m interval (1.0m est. TT) grading
    1070 g/t Ag, 0.09g/t Au, 23.3% Pb
    and 3.2% Zn (1,937 g/t AgEq; 49.1%
    ZnEq).
• 2.2m interval (1.4m est. TT)
    averaging 520 g/t Ag, 0.34 g/t Au,
    10.6% Pb and 9.8% Zn (1268 g/t
    AgEq; 32.2% ZnEq);
• 7.5 m interval (5.0m est. TT)
    averaging 364 g/t Ag, 0.3g/t Au, 7.0%
    Pb and 1.8% Zn (678 g/t AgEq;
    17.2% ZnEq);

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Company                  Ticker                Current Share            FRC Fair Value             Date of PR:
Name:                    Symbol                Price:                   Estimate:
E3 Metals Corp.          TSXV: ETMC            $1.73                    $2.53                      Jan 19, 2021
                                                                                                   Jan 21, 2021
PR Content                                                FRC Opinion
Announced a $7M bought deal financing                     Positive – We have identified a number of
at $1.19 per unit. Each unit consists of a                catalysts for E3 in our recent update report.
common share and one warrant (exercise                    A test facility is expected to open in Calgary
price of $1.65 per share for two years).                  shortly to complete ongoing technology
                                                          development work. In addition, the
                                                          construction of a pilot plant will commence
                                                          in    2021.      A    Preliminary    Economic
                                                          Assessment completed in late 2020 showed
                                                          an After Tax NPV8% of US$820M, and an
                                                          AT-IRR of 27%. E3’s market capitalization is
                                                          $59M.

Company            Ticker       Current Share FRC Fair Value Date of PR:
Name:              Symbol       Price:            Estimate:
Sonoro Gold        TSXV: SGO    $0.24             $0.32               Jan 19, 2021
Corp
PR Content                              FRC Opinion
Released the remaining assay results of Positive – We believe the 2020 program
its 2020 drilling program at the Cerro supports the project’s viability for a bulk-
Caliche gold project in Sonora state, tonnage/heap-leach operation. SGO has
Mexico.                                 already commenced its 2021 drill program,
                                        which is expected to be completed by the
                                        end of this quarter. The company is working
                                        on an updated resource estimate, expected
                                        in Q2, followed by a PEA. A 2019 maiden
                                        resource estimate showed 201 Koz gold at
                                        0.55 g/t AuEq (gold equivalent). An internal
                                        Project Development Report in 2020
                                        showed an exploration target (in addition to
                                        the known inferred resource) of 0.7 Moz to
                                        1.6 Moz in shallow mineralized areas. We
                                        are expecting the updated resource
                                        estimate to report a significant increase.

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Company            Ticker            Current Share      FRC Fair Value Date of PR:
Name:              Symbol            Price:             Estimate:
Golden Arrow       TSXV: GRG         $0.17              NA               Jan 19, 2021
Resources
Corporation
PR Content                                  FRC Opinion
Completed a shallow diamond drilling Positive – We believe these programs have
program, and an induced polarization allowed the company to delineate targets for
geophysical program at the Tierra Dorada a larger drill program, which is expected to
gold project in Paraguay. Key results include over 2,000 metres of diamond
included:                                   drilling. The company needs a permit for
                                            this program. GRG’s portfolio includes early
• 143.5 g/t gold over 0.5m, within 6m stage precious-metal projects in Paraguay,
    averaging 14.53 g/t gold at 3-9m        Chile and Argentina. The company’s current
• 11.8 g/t gold over 3.16m, within 7.75m market capitalization of $21M is less than its
    averaging 6.09 g/t gold at 1.70-9.35m $23M working capital, implying that the
    depth                                   market is not even fully valuing its liquid
                                            assets.
The geophysical program identified
multiple new targets along a 1,700 m
anomalous trend.

                            Special Situations and Technology

Company                  Ticker                Current Share            FRC Fair Value             Date of PR:
Name:                    Symbol                Price:                   Estimate:
Diginex Limited          NASDAQ:               US$16.22                 US$24.70                   Jan 21 & 25,
                         EQOS                                                                      2021
PR Content                                                FRC Opinion
Announced the closing of a US$38.6M                       Positive – We are pleased to see
private placement at US$15 per share,                     management taking steps to capitalize on
along with a warrant (three years, with an                the recent surge in cryptocurrency trading.
exercise price of $18.75). The company                    We think the partnership with GSR will bring
also announced a partnership with GSR                     more users to the trading platform for
Markets, a trading firm in the digital asset              Diginex as a result of added liquidity. For
ecosystem, that will bring more liquidity                 2021E and 2022E, we are estimating
for EQOS, Diginex’s cryptocurrency                        revenue of $10.21M and $87.15M,
exchange.                                                 respectively (unchanged).

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Company                Ticker          Current Share  FRC Fair Value Date of PR:
Name:                  Symbol          Price:         Estimate:
Kontrol Energy         CSE: KNR        $2.59          $6.74              Jan 20, 2021
Corp.
PR Content                                    FRC Opinion
Announced expansion of distribution Neutral – While broadening the distribution
network for BioCloud. The company also network is a positive step in reaching a
mentioned potential applications of the wider customer base, the fact that the
device in the sports sector, such as company is yet to announce any significant
dressing rooms and training facilities. The sales of BioCloud is slightly disappointing.
company is also in the process of We are maintaining our projections, but will
obtaining the Conformitè Europëenne be closely monitoring for updates in the
(CE) standard for the device, which would upcoming weeks.
enable it to initiate sales in Europe.

                                                  Cannabis

Company               Ticker       Current Share FRC Fair Value Date of PR:
Name:                 Symbol       Price:           Estimate:
Grown Rogue           CSE: GRIN    $0.12            $0.22              Jan 19, 2021
International Inc.
PR Content                                  FRC Opinion
Announced it is in the process of raising Positive – We are pleased to see the
US$400k in two tranches in a non- company moving forward with the
brokered private placement. GRIN will acquisition of Golden Harvest. We expect
use the raised funds for the acquisition of the acquisition to close in Q2-2021. The
Golden Harvest. Golden Harvest issued expansion of Golden Harvest’s facility will
an unsecured note of $250k. These funds add to GRIN’s revenue generating capacity
will be used for expanding the Bay City once the acquisition is closed. For 2020E
facility in Michigan.                       and 2021E, we are estimating revenue of
                                            $4M and $10M (unchanged), respectively.

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Company            Ticker         Current Share FRC Fair Value Date of PR:
Name:              Symbol         Price:           Estimate:
Inner Spirit       CSE: ISH       $0.24            $0.47               Jan 21, 2021
Holdings Ltd.
PR Content                                FRC Opinion
Announced the launch of Spiritleaf Positive – We are pleased to see the
Origins, a private label cannabis brand; company add another potential revenue
expecting to be brought to market in generating unit to its portfolio. ISH is a
spring 2021. These products will be leader in the Canadian cannabis retail
developed through a partnership with space by store count. Our current estimates
Zenabis Global Inc. (TSX: ZENA).          do not include Spiritleaf Origins. We will
                                          incorporate once details of the product lines
                                          are released. Our revenue projections for
                                          FY2020E and FY2021E are $27M and
                                          $35M (unchanged), respectively.

Company           Ticker          Current Share FRC Fair Value Date of PR:
Name:             Symbol          Price:           Estimate:
Blueberries       CSE: BBM        $0.14            N/A                Jan 20, 2021
Medical Corp.
PR Content                                FRC Opinion
Raised $1M through a non-brokered Neutral – Even though the use of funds was
private placement at $0.065 per share. not indicated by management, we are
The company also had a change in top pleased to see the company able to raise
management, as it appointed a new funds that we think will be used in its
Chairman and Interim CEO, and a new expansion efforts in Argentina. BBM has
member to its board of directors.         indicated that the JV with the Argentinean
                                          state-owned company, Cannabis Avatara,
                                          S.E., is moving forward through BBM’s
                                          recent acquisition of BBV Labs.

                                                          We have been waiting for a production
                                                          update from BBM’s operations in Colombia.
                                                          As our revenue estimates for 2020 and
                                                          2021 are primarily based on Colombian
                                                          operations, we are temporarily retracting our
                                                          fair value estimate due to lack of production-
                                                          related updates from the company.

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                                Weekly Cannabis Commentary

Cannabis Industry Performance
                           January 22, 2020
                           Company                         YTD 1-Week 1-Year
                           Aphria Inc.                     85%    5%  118%
                           Aurora Cannabis Inc.            26% -11% -58%
                           Canopy Growth Corp.             36%    2%   36%
                           Cronos Group Inc.               54%   -2%   24%
                           Tilray Inc.                    114% -6%     -14%
                           HEXO Corp.                      80%   -6%   11%
                           Organigram Holdings Inc.        28%   -6%   -44%
                           The Supreme Cannabis Co., Inc. 27%    -5%   -63%

                                       AVERAGE                   56%      -4%      1%
                                         MIN                     26%     -11%     -63%
                                         MAX                    114%       5%     118%

                                         Indexes                YTD 1-Week 1-Year
                                          HMMJ                  35%   -1%   57%
                                          MCAN                  31%   -3%   34%
                                          XCAN                  37%   -4%    8%
                                          Source: TMX Money, FRC

Over the past week, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ / “HMMJ”),
the Standard & Poor’s/MX International Cannabis Index (“MCAN”), and the Standard &
Poor’s/TSX Cannabis Index (“XCAN”) generated returns of -1%, -3%, and -4%,
respectively. There were no noteworthy industry developments last week.

While there is growing optimism in the U.S. market for potential federal
legalization, the Canadian industry has been impacted by oversupply challenges
(see chart below). Also, the latest retail cannabis sales data showed a 3.2% MoM dip
in November. This is the first MoM decline since April. This data was recently published,
and we are trying to pinpoint the exact reason for the decline. Sources indicate that this
drop might be because of tighter restrictions in Ontario and Quebec. With inventories
piling up, we expect smaller producers to face challenges. Therefore, sector-wide
consolidation is highly likely this year.

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                                     Source: Marijuana Business Daily

                                  Canadian Cannabis Retail Sales ($B)

                                           Source: FRC / Statscan

Valuation of Select Canadian LPs
The following chart shows the average Enterprise Value to Revenue (“EV/R”) ratio of
the Canadian cannabis companies we track.

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                        Average EV/R (October 2019 – January 2021)

                                                        January 15, 2021            January 22, 2021
                Company                    Ticker   TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
                Aphria Inc.              TSX: APHA       9.0       84.5         9.4       87.7
           Aurora Cannabis Inc.           TSX: ACB      10.3        NM          9.3        NM
           Canopy Growth Corp.          TSX: WEED       31.4        NM         31.8        NM
            Cronos Group Inc.           TSX: CRON       99.1        NM         95.4        NM
                 Tilray Inc.           NASDAQ: TLRY     16.3        NM         15.0        NM
               HEXO Corp.               NYSE: HEXO      11.1        NM         10.2        NM
         Organigram Holdings Inc.         TSX: OGI       6.4        NM          6.1        NM
      The Supreme Cannabis Co., Inc.     TSX: FIRE       4.1        NM          4.1        NM

                                        AVERAGE            23.5          NM            22.6          NM
                                         MEDIAN            10.7          NM             9.8          NM
                                        MINIMUM             4.1          NM             4.1          NM
                                        MAXIMUM            99.1          NM            95.4          NM
                                       Source: S&P Capital IQ, FRC

The average EV/R, as of January 22, 2021, was 22.6x – a WoW decrease from 23.5x.
The average EV/R, from October 7, 2019 to January 15, 2021, was 12.4x.

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Canadian Retail Cannabis Pricing
Province (As of 2021/1/25)       Average Price per Gram        Average Price per Gram THC        Average Price per Gram CBD    # of Products       Min. Price       Max. Price
B.C.                         $                      9.55   $                          9.65   $                          8.42             159   $        3.93    $       15.71
Ontario                      $                      9.70   $                          9.90   $                          8.08             319   $        4.00    $       23.98
Quebec                       $                      9.26   $                          9.23   $                          9.55             219   $        4.85    $       15.06
Alberta                      $                     11.42   $                         11.41   $                         11.39             332   $        3.93    $       22.00
N.B.                         $                      9.96   $                         10.23   $                          7.58             170   $        3.57    $       16.28
P.E.I.                       $                      9.80   $                          9.82   $                          9.49             163   $        2.20    $       23.30
Newfoundland                 $                     10.12   $                         10.08   $                         10.36             155   $        4.46    $       15.40
Yukon                        $                     14.98   $                         15.07   $                         13.95              12   $       10.49    $       16.15
N.S.                         $                     10.37   $                         10.42   $                          9.82             180   $        5.36    $       42.85
Nunavut                      $                     11.73   $                         11.85   $                         12.41              33   $        5.19    $       17.91
Northwest Territories        $                     12.44   $                         13.35                                                 2   $       12.08    $       17.28
Manitoba                     $                     11.45   $                         11.40   $                         11.62             325   $        4.90    $       20.43
Saskatchewan                 $                     12.62   $                         12.66   $                         12.08             189            4.95            38.50
CANADA                       $                     11.03   $                         11.16   $                         10.40
Province (As of 2021/1/18)       Average Price per Gram        Average Price per Gram THC        Average Price per Gram CBD    # of Products       Min. Price       Max. Price
B.C.                         $                     10.10   $                         10.18   $                          8.42             285   $        3.93    $       80.29
Ontario                      $                      9.67   $                          9.87   $                          8.08             317   $        4.00    $       23.98
Quebec                       $                      9.27   $                          9.24   $                          9.55             221   $        4.85    $       15.06
Alberta                      $                     11.42   $                         11.42   $                         11.39             333   $        3.93    $       22.00
N.B.                         $                      9.98   $                         10.25   $                          7.58             162   $        3.57    $       16.28
P.E.I.                       $                      9.80   $                          9.82   $                          9.49             163   $        2.20    $       23.30
Newfoundland                 $                     10.12   $                         10.08   $                         10.36             155   $        4.46    $       15.40
Yukon                        $                     14.98   $                         15.07   $                         13.95              12   $       10.49    $       16.15
N.S.                         $                     10.39   $                         10.44   $                          9.82             177   $        5.36    $       42.85
Nunavut                      $                     11.73   $                         11.85   $                         12.41              33   $        5.19    $       17.91
Northwest Territories        $                     11.54   $                         11.54                                                 2   $       12.08    $       17.28
Manitoba                     $                     11.49   $                         11.46   $                         11.62             323   $        4.90    $       20.43
Saskatchewan                 $                     12.70   $                         12.74   $                         12.08             181            4.95            38.50
CANADA                       $                     11.01   $                         11.07   $                         10.40

                                       Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram increased week-over-week from $11.01 to
$11.03. The below chart shows Canadian retail dried cannabis flower pricing since we
initiated price coverage.

                                 Canadian Retail Dried Cannabis Flower Pricing

                                       Source: Online Provincial Cannabis Stores, FRC

Canadian Retail Cannabis Stores
As of January 25, 2021, there are 1,494 retail cannabis stores, a week-over-week
increase of 40 stores across Canada, including 35 in Ontario, three in Alberta, and two
in B.C. As noted earlier, we continue to see Ontario’s store growth significantly outpace

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other provinces due to the recent mandate of the Alcohol and Gaming Commission of
Ontario (AGCO) to increase retail store authorizations.

                                          Nationwide Store Count

                         Jan-4-2021      Jan-11-2021     Jan-18-2021     Jan-25-2021
Geographic Region       Store Count      Store Count     Store Count     Store Count Population Population / Store
Alberta                          547             551             553             556     4,428,247              7,964
B.C.                             303             304             304             306     5,120,184             16,733
Manitoba                          38              56              56              56     1,379,121             24,627
N.B.                              20              20              20              20      780,890              39,045
N.S.                              20              21              21              21      978,274              46,584
Newfoundland                      27              30              30              30      520,437              17,348
Northwest Territories              5               5               5               5       44,982               8,996
Nunavut                          n/a              na              na              na       39,486                 N/A
Ontario                          322             336             354             389    14,745,040             37,905
P.E.I.                             4               4               4               4       158,717             39,679
Quebec                            46              57              57              57     8,552,362            150,041
Saskatchewan                      50              45              45              45     1,181,987             26,266
Yukon                              5               5               5                5      41,293               8,259
CANADA                         1,387           1,434           1,454            1,494   37,971,020             25,416
                                       Source: Provincial Websites, FRC

    ©2021 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
                        Click here to view FRC’s complete list of top picks
          PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Page 20

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    ©2021 Fundamental Research Corp. “17+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
                       Click here to view FRC’s complete list of top picks
         PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
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