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QIS Update #17 2012 - July 3rd 2012

Included in this update:

  • Blackbird Energy files third quarter financial statements
  • A peer of Dalmac Energy has been taken over at a significant premium – comparison provided
  • Virtutone Networks increases credit facility, announces first quarter financial results



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Blackbird Energy Inc. (BBI:TSX-V)
Current Price: $0.10 (coverage commenced Aug 19/11 - $0.18)


Blackbird Energy Inc. has filed its financial statements for the third quarter ended April 30, 2012. No revenues were generated during the period as the company’s first two Bigstone wells are not expected to be tied in until the fourth quarter of the fiscal year ending July 31, 2012.


The company’s complete financial statements can be viewed online at .


QIS Capital Comments:


Blackbird has experienced several delays due to the wet weather and downstream tie-in operators. The good news is that it finally appears to be drying out and completion operations for the third high-impact well should commence in the very near future. Further good news is that it sounds like tie-in operations are proceeding so we should be getting confirmation in the near future on the start-up of production as well. Investors have had to be patient waiting for these two events and the market has not been kind to small-cap energy stocks and particularly not to those without positive news. Hopefully we are heading toward some good news shortly.


Dalmac Energy Inc. (DAL:TSX-V)
Current Price: $0.40 (coverage commenced Nov 15/11 - $0.37)


Last week, a company operating in the same sector as Dalmac Energy Inc. called Hyduke Energy Services Inc. (HYD:TSX) signed a $34 million agreement that will see the company be acquired for $1.37 per share. Hyduke was trading at just $0.66 per share immediately prior to this takeover agreement. John Babic, the current President and CEO of Dalmac Energy, was also the Chairman and CEO of Hyduke in the late 90s and early 00s.


We have taken a closer look at several common business takeover valuation metrics as applied to the Hyduke acquisition. The full comparison is available to investors upon request. The most common metric used in acquisitions is Price to EBITDAS. Hyduke was trading at about 3.9 times its 2011 EBITDAS prior to the takeover and the takeover valuation valued the company at 8.1 times EBITDAS.


Dalmac is presently trading at 1.3 times its annualized EBITDAS for the nine months ended January 31, 2012. If Dalmac was valued in a takeover at 8.1 times EBITDAS as Hyduke was, then Dalmac’s share price would be in the range of $2.50 per share.


As Hyduke had a significant working capital position, a more accurate way to compare Dalmac’s valuation in relation to this recent takeover would be to use EBITDAS after taking into account debt and working capital. This adjusted calculation shows Hyduke’s working capital was actually larger than its market cap leading up to the takeover. The HYD takeover was valued at 3.6 times adjusted EBITDAS. Dalmac is presently trading at approximately 1.8 times adjusted EBITDAS. If a value is pegged to DAL using the same takeover multiple of 3.6 achieved by HYD, then Dalmac would have a comparable value in the range of $0.80 per share.


It should also be pointed out that the Hyduke comparisons were done using full annual financial results. The Dalmac comparison is using annualized 9 month results which are missing Q4 – a typically lucrative period for Dalmac. Full annual results should be reported towards the end of July and will show a more accurate comparison as the 9 month annualized numbers will be understated due to the annually slower Q1 period.


While we are not aware of any takeover talks with Dalmac Energy at this time, a comparison is valuable in justifying the underlying value of the company should it move towards a value optimization process.


Virtutone Networks Inc. (VFX:TSX-V)
Current Price: $0.36 (coverage commenced Sep. 9/11 - $0.10)


Virtutone Networks Inc. has recently announced the company’s operating and financial results for the first quarter ended April 30, 2012.

Monthly service and activations of $593,996 and product sales of $6,055 during the three month period ended April 30, 2012 resulted in total revenue of $600,051. This revenue was offset by cost of services provided and products sold in the amount of $295,796 and resulted in a gross profit before expenses of $304,255.


Virtutone has not recorded any income tax provision in the three month period ended April 30, 2012 , as the company has sufficient tax losses carried forward from prior periods. Virtutone’s net income and comprehensive income after taxes is therefore unchanged from the pre-tax net income of $28,109 for the three month period ended April 30, 2012.


Management continues to see strong interest in the new wholesale services, and the company has already signed a number of contracts with customers. Virtutone has made a significant investment in infrastructure to support this division, from both a technological and human resource standpoint. The company installed a Session Border Controller from Sonus Networks, has direct interconnects with several of the large telecom companies in North America, and has hired the necessary sales and support staff. The reception from new and potential customers has been tremendous, with initial estimates having already been exceeded, and management is confident that this division will be a key driver of growth in the years ahead.


Management will remain vigilant in the area of cost control and revenue generation and looks forward to reporting continued profitable results for the remainder of fiscal 2013 and beyond.


  3 Months Ended Apr. 30
  2012 2011
Revenues $600,051 $656,639
Cost of Sales 295,796 349,141
Gross Margin 304,255 307,498
Expenses 281,309 233,252
Net Income 28,109 78,493
per share $0.002 $0.006



(as at April 30, 2012)
Current Assets $ 654,169
Total Assets 1,460,260
Current Liabilities 545,267
Long-Term Debt 79,523
Shareholders' Equity 835,470




Virtutone Networks Inc. has announced that it has secured additional financing under its bank facility agreement. The added financing will be used to assist in managing growth of the company's wholesale division.


Under its new facility, the company may borrow up to $2,000,000, provided the borrowings outstanding do not at any time exceed 75% of accounts receivable as defined in the credit facility. Virtutone also has available a revolving lease facility for up to $120,000. All borrowings bear interest at the bank's prime rate plus 1.7%, which has been reduced from prime plus 2.5% based on the bank's recently completed annual review of the company's financial condition. All borrowings are secured by all of the assets of the company.


This new facility gives us needed flexibility as we continue to ramp up our wholesale business, said Colin Campbell, Virtutone's Chief Financial Officer.


QIS Capital Comments:


VFX has now posted a profit in seven consecutive quarters without yet realizing any of the positive impact from its recent surge in activity from the wholesale division. The financial impact of the wholesale division is expected to be considerable. The recent loan facility of up to $2 million is testament to the company’s upcoming financial growth as banks would typically not loan up to 70% of annual revenues (12 month trailing revenues).


Virtutone has now seen an increase of 300% in share value since we commenced coverage. With the financing and financials now reported, we are waiting for the company’s next report of monthly minutes achieved in May/June. The company reported 17.7 million minutes in April/May which was well ahead of monthly expectations. The financial impact of the wholesale division will begin to show in the second quarter ending July 31, 2012.




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 99,000 shares and 450,000 options of Blackbird Energy Inc., 19,500 shares of Dalmac Energy Inc. and 729,500 shares of Virtutone Networks Inc. QIS Capital has a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2012 QIS Capital Corporation.

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