QIS Update #1 2015 - January 21st 2015
Included in this update:
- Virtutone Networks announces suspension of operations
Our latest Weekly Summary has been posted in the QIS Capital Forum on smallcaps.ca at www.smallcaps.ca/forum. These updates take a look back at the news and activity from the prior week as well as take a look at the week at hand. In addition, at the end of each weekly recap, we discuss a stock to watch that may be worth your time in performing some additional due diligence. Since Dec. 15, 2014, we’ve mentioned stocks like PHO, OML, and COV, all of which have gone on to post notable gains in the weeks since their inclusion. We look forward to providing the weekly recaps on the forum throughout 2015.
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Virtutone Networks Inc. (VFX:TSX-V)
Current Price: $0.01 (coverage commenced Sep. 9/11 - $0.10)
Virtutone Networks Inc. has announced that one of its biggest clients based in London, England, has not been able to make payments of a total amount of $USD13.8M to the company. Virtutone's management has taken all the necessary steps in order to get payment but so far to no avail. Considering the importance of the amount involved, Virtutone had no other alternatives than to reduce costs to the minimal as well as to lay off all staff, excluding Jason Allen, CEO, as well as William N. Woods, CFO, and is now suspending operations to concentrate all efforts on obtaining payment.
The outcome of these efforts being uncertain, there is no guarantee that Virtutone will be able to resume operations. Virtutone’s management is currently undergoing a strategic review of available its options and recourses in light of the current circumstances.
The company’s management will provide further updates as to progress of the situation and actions to be taken.
QIS Capital: As a result of the above circumstances, QIS Capital has severed any financial relationship with Virtutone, however we do own shares in the company and will continue to provide significant updates as disclosed. As mentioned in our last update that was issued on Dec. 31, 2014, the company disclosed two alarming facts in its latest MD&A. Firstly, the line of credit that was announced to the market in July 2014 had never actually been in place, unbeknownst to investors until reading it in the Q3 MD&A. Also, the company disclosed that its largest insured customer has been delinquent in payment, resulting in significant uncollected accounts receivable. Accordingly, VFX shares were driven down from the $0.14 - $0.16 range to $0.06 - $0.08.
After the company’s latest news about laying off staff and ceasing all operations other than A/R collection, the market completely fell apart and massive selling lead to a share price of just $0.005 - $0.01. We’ve read discussions on various forums speculating on the future of Virtutone and investors are discussing a range of potential outcomes. The company could possibly collect on all or a portion of its outstanding A/R, whether from the clients directly or through insurance. Upon settling its own debts to creditors, perhaps there would be enough cash left for a one-time payment to shareholders prior to closing the doors on the company. Alternatively, the company could possibly fail to collect on enough of its accounts receivable to settle its own debts and be forced into creditor protection where shareholders would likely end up with nothing. Whatever the end case may be, the disappointment with this company is significant and has been felt by many of our close contacts and subscribers. The riskiness and volatility of the small-cap markets never ceases to provide the potential for amazing returns as well as the potential for situations like VFX where the rug is pulled out from under one’s feet. May the successes for all of us in 2015 far exceed the disappointments!
Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 669,000 shares and 212,500 warrants of Virtutone Networks Inc. QIS Capital does not have a financial relationship with this company but may trade in the stock mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2015 QIS Capital Corporation.