Gunpowder Capital Corp. (CSE: GPC) Merchant Bank Introductory Note

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1 Siddharth Rajeev, B.Tech, MBA, CFA Anthony de Ruijter, B.A Econ. Gunpowder Capital Corp. (CSE: GPC) Merchant Bank Introductory Note October 17, 2017 Industry: Finance Market Data (as of October 17, 2017) Current Price $ Week Range $0.03-$0.11 Shares O/S 30,910,256 Market Cap $1.55 MM Current Yield N/A P/E (forward) N/A P/B 0.41 YoY Return -28.6% YoY TSXV 0.95% Overview Gunpowder Capital Corp. ( Gunpowder ) is a Toronto-based merchant bank and advisory services firm trading on the Canadian Securities Exchange. Gunpowder s business model is in providing financing options to both private and public businesses, as well as acquire or offer loans to real estate assets. Financing options provided include: Mezzanine debt Bridge loans Convertible debentures Straight loans Equity financing In addition, Gunpowder also provides capital markets advisory services to corporate clients. These are mainly focused on IPO (initial public offering) / RTO (reverse takeover) and go public transactions, as well as mergers and acquisitions. To date, the firm has taken Advantagewon Oil Corp. (CSE: AOC) public.

2 Page 2 Gunpowder offers stock swap financing options to companies looking to go public. According to management, Gunpowder is one of the first companies to offer their particular method of stock swap financing. Currently, the most common route taken by early stage companies seeking to raise capital on the public markets is to go public through a reverse takeover ( RTO ) through capital pool companies ( CPCs ). Though this method is cheaper than the traditional IPO route, early stage companies still incur significant expenses, CPC transactions involve the greater of $0.1 million or 5% of total funds raised in fees to the exchange (according to TMX). Gunpowder seeks to provide more attractive financing options by offering stock swap financing to their clients, which management believes is cheaper and more efficient than other alternatives. The process is outlined below: Gunpowder undergoes a stock swap with the client, trading Gunpowder s shares for shares in the private company. This transaction allows private companies to add Gunpowder s shares to their balance sheets, allowing them to record working capital on their financial statements (or liquidate the shares for cash). With their balance sheets shored up, the private company, with the guidance of Gunpowder, begins the application process for a non-offering prospectus with the appropriate Securities Commission. A nonoffering prospectus allows for public disclosures of the private company s business without needing to issue new equity. Gunpowder distributes shares of the private company amongst their shareholders in the form of a stock dividend. This also immediately increases the shareholder base of the private company to include all of gunpowder s shareholders who now hold their stock. Approval of a non-offering prospectus further facilitates an application to the Canadian Securities Exchange for the listing of the private company s common shares. Because the non-offering prospectus with the appropriate securities Commission has been approved, the Canadian Securities Exchange does not require additional legal documentation to complete their due diligence process (according to management). Once approved for trading, the private company goes public. The advantage to Gunpowder in this situation is largely two-fold. Gunpowder receives up to an additional $0.25 million in their client s shares as compensation for their services. Furthermore, with the successful completion of the transaction, Gunpowder hopes to retain their clients for longer term market support services. The advantage to the client is that they can go public at a reduced cost and quicker. Management see the average cost for CPC transactions at close to $0.5 million exclusive of legal fees, making Gunpowder the decidedly cheaper alternative. Furthermore, the process is much faster, with management estimating that a stock swap facilitated offering could be completed in days. In 2016, Gunpowder helped facilitate Advantagewon s offering by acquiring 1.67 million of Advantagewon s shares in exchange for 2.5 million Gunpowder common shares. Gunpowder was paid $30,000 in cash for their services, and distributed the 1.67 million Advantagewon shares amongst their common stock shareholders at a rate of 54 Advantagewon shares per 1000 Gunpowder shares. Upon successful listing of Advantagewon in 2017, Gunpowder received an additional 3 million Advantagewon shares as compensation. Gunpowder maintains a portfolio of companies in which it holds significant equity positions: 100% ownership of GP Realty Inc.: an Ontario-focused multi-family real estate portfolio. The portfolio consists of multiple properties generating rental revenues.

3 Page % ownership of JIT Financial Inc.: an Ontario-based ATM company with approximately 220 ATM machines. Gunpowder currently has a portfolio of $3.09 million including real estate assets and loans. The real estate assets are held mainly through Gunpowder s investment in GP Realty, which consists of a portfolio of rental yielding properties. Loan assets have been acquired from private investment firm, YCF Capital Inc., and consist of mortgages and commercial loans in good standing. The table below outlines the key assets in its portfolio:

4 Page 4 Asset Type of Asset Date of Acquisition Purchase Price/ Loan Amount (C$) 633 Marentette Avenue Real Estate October 11, 2017 $ 300, Albert Street Real Estate September 5, 2017 $ 150, Hickory Road Real Estate August 18, 2017 $ 150, Assumption Street Real Estate July 4, 2017 $ 150, Hickory Road Real Estate May 25, 2017 $ 135, YCF Capital Loan Assets Loan Portfolio May 8, 2017 $ 96, Description 16 unit lodging house located in Windsor, Ontario. Financed through a $210,000 mortgage bearing a fixed rate interest of 4.55%. Management estimate a 30% cash-on-cash return, based on 75% occupancy rate. 2 unit, fully tenanted rental property located in Windsor, Ontario. The company is currently arranging mortgage financing, and estimates a cash-on-cash return of 27% per annum. 4 unit, fully tenanted rental property located in Windsor, Ontario. The company made a down payment of $37,475, and secured a fixed-rate mortgage bearing a 3.45% interest. Management estimates a cash-on-cash return of 30% per annum. Fully tenanted rental property in Windsor, Ontario. Financed with a 75% loan-to-value mortgage that bears a 3.2% interest rate. Management estimate a cash-on-cash return in excess of 22% per annum. Fully tenanted rental property in Windsor, Ontario. With a $101,250 mortgage bearing 3.2% interest, management estimate a cash-oncash return of 30% per annum. This loan generates approximately 16% interest per annum, and has a face value of $96, Wellington Street Real Estate Feb 1, 2017 $ 725, YCF Capital Loan Assets Loan Portfolio Jan 16, 2017 $ 332, YCF Capital Loan Assets Loan Portfolio Nov 16, 2016 $ 598, Fully tenanted rental property in London, Ontario. Gunpowder Capital made a down payment of $180,000 and secured a 25 year fixed rate mortgage at 4.2%. The property is expected to generate a cash-on-cash return in excess of 16% per annum. This loan generates approximately 16% interest per annum, and has a face value of $332,000. This loan generates approximately 16% interest per annum, and has a face value of $598,000. Storage Facility Business Asset Oct 11, 2016 $ 299, Wellington Street Real Estate July 4, 2016 $ 450, Fully automated storage facility in Madoc, Ontario. The property was secured via a $150,000 down payment, along with a 15 year mortgage at 4.1% for the remainder. Annual revenues from the facility are approximately $33,000. Fully tenanted rental property in London, Ontario. Gunpowder Capital made a down payment of $180,000 and secured a 25 year fixed rate mortgage at 4.5%. The property has a net ROI of 9.3% per annum.

5 Page 5 Gunpowder s total loan assets now amount to $1.03 million, and management expects the loan portfolio to generate interest revenues of $0.15 million for FY2017, or 14.6% of the invested capital. The real estate portfolio amounts to $2.06 million (exclusive of the Madoc storage facility), and management expects rental revenues (gross) for 2017 to reach $0.3 million, or a 14.6% return on the property portfolio. Management and Board The company has three members, two of which are independent. We believe that a company s board of directors should include independent or unrelated directors who are free of any relationships or business that could materially interfere with the director s ability to act in the best interest of the company. Brief biographies of the senior management and board members, as provided by the company, follow. Frank Kordy Interim CEO & Director Mr. Kordy currently serves as CEO, Secretary and as a Director of Gunpowder Capital Corp., formally Silver Shield Resources Corp. (CSE: SSR). Since 1997, Mr. Kordy has assisted numerous publicly traded companies in multiple industries with their investor relations, capital raising, corporate communication and marketing endeavors. Mr. Kordy currently serves as a Director and as Corporate Secretary of Advantagewon Oil Corp., a junior oil company with a focus on active pursuit of small yet profitable opportunities in the State of Texas, USA. Paul Haber CFO Mr. Haber has been involved in corporate finance and capital markets for over 18 years. He has helped many companies navigate the IPO/RTO process and has participated in numerous M&A and financing transactions. Mr. Haber currently sits on the board of directors of South American Silver Corp. (TSX:SAC) and Chinapintza Mining Corp. (TSXV:CPA). Mr. Haber is a past director of High Desert Gold Corp., China Health and Diagnostics Ltd., IND Dairytech Inc., Migao Corporation. Mr. Haber is also active in the TSX Venture Capital Pool Company program having helped found the Black Birch Capital Acquisition series of CPCs as well as many others. Mr. Haber started his career with Coopers & Lybrand (now PricewaterhouseCoppers LLP). He is both a Chartered Accountant and a Certified Public Accountant, with an Honours Bachelors of Arts Degree in Management from the University of Toronto. Mr. Haber was awarded his Chartered Director designation from the DeGroote School of Business in partnership with the Conference Board of Canada. Dan Collia - Director Mr. Collia has been serving as a Supply Chain Professional within the machinery and automotive sectors both domestically and abroad. Mr. Collia has extensive experience facilitating new business development, and project management. Stephen G. Mlot - Director Mr. Mlot has extensive experience in the mining industry including project evaluation, feasibility analysis, mine planning, mine development, operations and mine-site construction. Mr. Mlot is a founding Director of Silver Shield Resources Corp., (now Gunpowder Capital Corp.) and was previously a Principal Mining Engineer with AMC Mining Consultants (Canada) Ltd. Mr. Mlot was the Manager of Engineering Services for N.A.R. Environmental Consultants Inc., from June 1999 to November Mr. Mlot also served as CEO of Carisle Goldfields (TMX: CGJ) from January 2006 until June Mr. Mlot was the President of Patrica Mining Corp., from October 1996 to January 1998, and a Director until September Furthermore, since April of 2016, Mr. Mlot has been serving as a Director of Millstream Mines Ltd. (TSXV: MLM)

6 Page 6 Financials The following charts shows the increase in assets under management and revenues since starting merchant banking activities in Source: Company Source: Company A breakdown of Gunpowder s revenues, by segement, is given below. Currently, interest income generates the largest portion of Gunpowder s revenues, whilst rental incomes contribute the least to the company s topline. However, as the company s real estate protfolio has increased significantly during 2017, we expect rental revenues to overake interest revenues during the last two quarters of 2017.

7 Page 7 The following table provides a summary of Gunpowder s balance sheet: Key Financial Data (FYE- Dec 31) (3M) (C$) 2016 Q Cash $ 127,619 $ 1,111,222 Working Capital $ 822,330 $ 1,443,983 Debt $ 422,147 $ 1,218,943 Total Assets $ 2,838,587 $ 5,647,379 Net Income (Loss) $ -1,394,118 $ -209,441 EPS $ $ Shareholders' Equity 2,155,306 3,801,545 At the end of Q2 2017, the company had a cash position of $1.11 million and working capital of $1.44 million, as well as $1.22 million in debt. The company reported cash flows from financing activities of $0.62 million for the 3 months ended FY2017, and $1.7 million for the 6 months ended FY2017. Dividend Track Record The company has had a track record of paying dividends on its Class A and Class B preferred shares. Currently, there are 562,830 Class A preferred shares issued, and 33,500 Class B preferred shares issued. The company s dividend paying history for 2017 follows: On October 2, 2017, the company declared a quarterly dividend of $0.20 per share for holders of Class A and Class B preferred shares. The dividends are payable on or before November 2, On July 4, 2017, the company announced a quarterly dividend of $0.20 per share for holders of Class A and Class B preferred shares. The dividends were payable on or before August 4, On April 3, 2017, the company announced a quarterly dividend of $0.20 per share for holders of Class A and Class B preferred shares. The dividends were payable on or before May 3, Given preferred share pricing at $10.00 per share and management expectations of dividend payments of $0.20 per quarter, the dividend reflects an annual dividend yield of 8%. With 30.9 million common shares outstanding, Gunpowder is currently trading at a market capitalization of $1.55 million. Shares are down by 28.6% YOY to $0.05 per share (see chart below).

8 Page 8 Source: Company The company s market capitalization is significantly below their enterprise value of $5.47 million. This is due to the company s debt and preferred equity valuations. Given their current market capitalization and enterprise value, Gunpowder is trading at a LTM (as of June 30, 2017) price-to-revenue of 3.23x and a LTM enterprise-value-to-sales of 11.4x. As Gunpowder continues to pursue growth in the various segments of its business, we believe investors should begin to monitor the company closely as an interesting and unique play.

9 Page 9 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. 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