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QIS Update #20 2014 - July 3rd 2014



Included in this update:

  • California Nanotechnologies files fiscal 2014 annual financial results
  • Manado Gold announces financing, exploration plans
  • NTG Clarity Networks receives a new US$1.17 million contract
  • Quattro Exploration and Production plans $50 million capital, announces final closing of Donalda acquisition (100 boepd in East Central Alberta) 
  • Virtutone Networks reports first quarter financial results

 


 

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Please feel free to email us anytime at info@smallcaps.ca or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.

 


 

California Nanotechnologies Corp. (CNO:TSX-V)
Website: www.calnanocorp.com
Current Price: $0.155 (coverage commenced May 5/14 - $0.15)

 

California Nanotechnologies Corp. has reported record financial results for the fourth quarter and year ended February 28, 2014. For fiscal 2014, revenues increased 43% to US$373,481 (CAD$415,804) compared to US$261,302 (CAD$268,025) in 2013. Gross margin for the year was 87% which was unchanged from fiscal 2013. This improvement in revenues was due primarily to increases in the oil and gas and sports and recreational divisions. In the fourth quarter, Cal Nano achieved record quarterly results with revenues of US$175,172 (CAD$195,023), an increase of 338% over the same quarter last year. The main sources of revenue during fiscal 2014 were from cryogenic milling, research projects, engineering services and the sale of commercial parts made from advanced nano-engineered materials.


The company's cash flow provided by (used for) operations (1) for the year was (US$198,383) compared with (US$327,631) during the prior year. Cash flow from operations (1) in the fourth quarter of fiscal 2014 neared break-even at (US$6,310).


Cal Nano's net loss for the year was $302,365US ($336,629CAD) or $0.01 per share, compared to a loss of $531,811US ($545,494CAD) or $0.02 per share in the prior year. Amortization and depreciation expense and salaries, wages and benefits, research, and supplies were the greatest expense items. Overall operating expenses of $619,161US were lower by 12% when compared to the prior year.


LATEST FINANCIAL RESULTS (US Dollars)
  Year Ended Feb. 28
  2014 2013
Revenues $373,481 $261,302
Cost of Sales 48,636 34,966
Gross Margin 324,845 226,336
Cash flow used for operations* (198,383) (327,631)
Net Loss (302,365) (531,811)
per share ($0.01) ($0.02)


(Note: at 02/28/14, $1US = $1.1133 CAD; 02/28/13, $1US = $1.0257 CAD)

*Cash flow used for operations is a non-GAAP term requested by the oil and gas investment community that represents net earnings adjusted for non-cash items including depreciation, depletion and amortization, deferred taxes, asset write-downs and gains (losses) on sale of assets, if any.

BALANCE SHEET (US Dollars)
(as at February 28, 2014)
Current Assets $ 143,307
Total Assets 303,994
Current Liabilities 1,243,227
Long-Term Debt nil
Shareholders' Deficiency (939,233)

 

The company's immediate short-term objectives will be to install larger scale production systems to meet the growing demand for the nano-engineered materials currently produced by Cal Nano. The company has recently purchased a larger high-energy attritor to be adapted and modified for advanced cryogenic processing, increasing the company's cryomilling capacity by a factor of six. The company is continuing to develop new technology and is sourcing new opportunities through collaborations and partnerships with select universities and tier one production suppliers.

Subsequent to year end, Cal Nano completed a private placement raising gross proceeds of CAD$714,190. As a result of this transaction, Cal Nano currently has 31,230,296 shares issued and outstanding.


Management is very pleased with financial results achieved in fiscal 2014 and those obtained in Q1/15. Revenues in Q1 were approximately US$159,575 (CAD$172,959) and the movement toward cash flow break-even strengthens the company's financial position while allowing management to focus on moving Cal Nano's products toward commercialization. With increasing revenues, high margins, and several research and development projects scheduled for completion in the near future, management remains optimistic as the company transitions into the commercial marketplace, stated Christopher Melnyk, CEO.


QIS Capital: As noted in the press release, Cal Nano has seen a significant jump in revenues during Q4, albeit the company still has very modest sales. However, the company generates very high margins on its revenue and is now basically cash flow break-even. This makes it exciting if Cal Nano can land a few larger contracts. The Company is in the midst of installing larger scale production systems in anticipation of growing demand for its nano-engineered materials. Q1, 2015 financials are expected to be disclosed within the next several weeks and management has indicated a continued improvement in sales.




 

Manado Gold Corp. (MDO:TSX-V)
Website: www.manadogold.com
Current Price: $0.055 (coverage commenced Dec. 6/13 - $0.065)

 

Manado Gold Corp. has announced that it plans to offer, on a private placement basis, up to 5,000,000 units (FT Unit) at a price of $0.06 per FT Unit for gross proceeds of $300,000 (the Flow-Through Offering). Each FT Unit will consist of one flow-through share of Manado, and one non-transferable share purchase warrant, with each warrant entitling the holder to purchase one non flow-through share at a price of $0.10 per share for a period of one year following the closing date of the Flow-Through Offering.


In addition, Manado plans to offer, on a private placement basis, up to 2,000,000 non flow-through units (Unit) at a price of $0.05 per Unit for gross proceeds of $100,000 (the Non Flow-Through Offering). Each Unit will consist of one Share and one non-transferable share purchase warrant with each warrant entitling the holder to purchase one additional share at a price of $0.06 per share for a period of three years following the closing date of the Non Flow-Through Offering.


Closing of the proposed Flow-Through Offering and Non Flow-Through Offering is subject to a number of conditions, including receipt of all necessary corporate and regulatory approvals, including approval of the TSX Venture Exchange.


Proceeds of the offerings will be used for working capital and to carry out the first phase its exploration program during the 2014 field season to follow up on its successful 2013 drill program where hole number TR13-88 finished in a mineralized zone.


The 2013 diamond drilling program indicated that there may be a porphyry-style copper and gold-bearing mineralized zone associated with pervasive siliceous and potassic flooding that was not noted or sampled during the previous diamond drilling. The porphyry-style mineralization was intersected by diamond drill hole TR13-88 during Manado’s 2013 drilling program. This drill hole intersected 24.52 metres (66.0 to 90.52 m, end of hole) of mineralization grading 2.011 gpt gold, 2.0 gpt silver and 0.18% copper, including a 6-metre section (66.0 to 74.0 m) with an average grade of 4.225 gpt gold, 4.0 gpt silver and 0.35% copper (Note: these intercepts are drilling lengths, not true widths).


The first phase of fieldwork is expected to begin late June or when the local roads are fully accessible. This phase will concentrate on re-logging and sampling the unsplit diamond drill core from the pre-1992 Imperial Metals and Eastfield Resources drilling programs that is currently stored on site. This work will focus on identifying porphyry-style copper-gold mineralization not sampled during the previous exploration drilling.


As part of the first phase Manado will also carry out prospecting, geological mapping, and rock and basal till sampling within the known South and Red Zones. The South Zone has several large, untested copper-gold soil geochemical anomalies that may be reflecting a buried porphyry-style copper-gold mineralizing system. The Red Zone is situated 1.2 kilometres to the northwest and has known copper-gold mineralization typical of a calc-alkaline porphyry copper-gold system.


The second phase, which is subject to the completion of the Flow-Through Offering, will be a 1,400m diamond drilling program to confirm and test for extensions and depth of the zone discovered in 2013.

QIS Capital: Anyone interested in the flow-through or non flow-through private placement is encouraged to call or email us for more information. This offering is open to accredited investors only.




 

NTG Clarity Networks Inc. (NCI:TSX-V)
Website: www.ntgclarity.com
Current Price: $0.30 (coverage commenced Feb. 4/10 - $0.045)

 

NTG Clarity Networks Inc. has received a US$1.17 million contract with a global IT and communications services provider for the implementation and support of the NTS network inventory, service activation and provisioning, and billing modules at one of their customers' sites. Implementation of this system will start immediately and will be completed within 4 to 6 months, after which NTG will be supporting the product.


We are very pleased to receive this contract as it increases our customer base and introduces our products and services to this global IT and communications services provider. This contract validates the positioning of our NTS product as a cost effective, scalable product for communication service providers said Ashraf Zaghloul, NTG Clarity’s Chairman & CEO.


QIS Capital: Another contract under NTG Clarity’s belt that is expected to be delivered entirely in 2014. Management has indicated that the company is expected to generate around $14 million in revenues for this year which is approximately a 40% increase over the prior year. It is also important to point out that management has recently been actively purchasing shares in the open market as can be seen on the insider trading reports.




 

QUATTRO Exploration and Production Ltd. (QXP:TSX-V)
Website: www.qxp-petro.com
Current Price: $0.55 (coverage commenced Mar. 24/14 - $0.32)

 

QUATTRO Exploration and Production Ltd. has announced the approval of its $50 million capital budget, including a 3 year drilling program, which will commence in the third quarter of 2014 with Phase I being focused on its operated lands in Western Canada.


The approval of this budget by our Board of Directors is an endorsement of the Quattro team's work and technical understanding of the potential within the company's diverse land base. said Leonard Van Betuw, President and CEO. We are now in the process of licensing the first 24 (net) wells of a 55 (net) well drilling program. These 24 wells are scheduled to be drilled in the next 12 months. We will also be continuing to increase production with our remediation and recompletion program within our existing oil and natural gas fields over the next 12 months, while drilling 23(net) development wells, 15 targeting oil and 8 targeting natural gas. In addition, we have budgeted 2 wells, 1(net) exploratory well within our 110,000 acre permit (50% net) situated in the Williston Basin of Saskatchewan. The first well is scheduled to be drilled in the 3rd quarter of 2014.


The company anticipates that its development drilling efforts combined with its ongoing remediation and consolidation activities will carry Quattro's 2,500 boe/d exit target in 2014, up to 3,500 boe/d (net) in the 12 months ending June 30, 2015. The development wells are all incremental activities within the company's operated properties and will be operated by Quattro. This positions Quattro to quickly tie in new production at minimal cost. The allocations of these activities are as follows, on a net/gross interest basis;

  • 2/2 Vertical Oil Wells at Oak BC. - targeting the Halfway within the current producing Pool
  • 1/2 Horizontal Oil Wells in East Central Alberta - targeting the Ellerslie within the current producing Pool
  • 4/4 Oil Wells at Rangeview Saskatchewan - targeting the Madison and Shaunavon
  • 8/40 Oil Wells at McMullen, Alberta - targeting the Wabiskaw
  • 8/10 Vertical Natural Gas Wells at Donalda, Alberta - targeting the Viking, Mannville and Belly River
  • 23/60 Diversified between 16(net) oil and 8(net) natural gas wells, Quattro's net cost being approximately $13.5 million

The proposed wells are located within Quattro's existing lands, operated by the company where there is proven production and established well performance. Therefore they have been deemed to be low risk development wells, using proven drilling and completion techniques with unrestricted access into Quattro’s existing facilities. The Phase I program is estimated to be completed at an average cost of $18,000 per bopd for oil and $7,200 per boe/d for natural gas.


1/2 Exploration Wells at Wood Mountain, Saskatchewan - Targeting the Bakken, Birdbear and Duperow

 

The Exploratory well in the Williston Basin and continuing exploration efforts are budgeted at $1.65 million and will be used to further evaluate the un-booked potential currently identified in southern Saskatchewan.


The balance of the budget totaling $35m has been allocated as follows: $20 million in Western Canada in 2015-2016 with the remaining $15 million in expenditures in Guatemala in the second half of 2015 and 2016.


The capital budget will be funded from cash on hand and the allocation of 70% of projected cash-flow from operations anticipated in the next 30 months. Phase I of the budget is supported by Quattro’s trailing performance and engineering independently reviewed in May 2014, by the company’s lender prior to the approval and funding of an updated fixed term loan.


The company is also pleased to announce the negotiated increase in its term loan facility with Business Development Bank of Canada (BDC). The current loan of $5.125 million was replaced with an $8 million term loan with the additional amount used to payout a capital lease and the balance of $2.35 million applied to working capital.

 

We are pleased with the outcome of our negotiations. commented Leonard Van Betuw, The prompt response from BDC is a strong endorsement of our past performance and our continuing operations. They continue to recognize our measured and continuing approach to operating within our cash-flow, while maintaining a conservative estimate of future pricing of oil and natural gas for long term planning. The new term loan represents a reduction in our interest rate to a fixed rate of 6.55% with fixed payment terms for both interest and principle that are less than $2.00 per boe at yearend 2014 and becoming less than $1.50 per boe by year end 2015. BDC's prompt attention to our request and their appreciation to the detail of our business plan speaks for itself.


The company's budget and projections are based on the pricing of $4.25 per mcf for natural gas and a blended oil price of $80 per barrel for Western Select. These prices result in a blended commodity price for the corporation of $42.50 per boe, which is projected to grow to $55 per boe by the end of 2015.


This announcement of Quattro's development drilling activities, which have been in the planning stages for the past 12 months, further expands on the details disclosed in the company’s projections and the anticipated expansion of Quattro's operating netbacks from $18.75/boe in the first quarter of 2014 to approximately $25/boe by the fourth quarter of 2015. The drilling of 24 (net) wells to increase oil production, and the incremental reduction in operating expenses, while continuing, remediation, re-activations and consolidation are budgeted to be achieved without any reduction in the long term budget for engineering and business development in Western Canada and Guatemala.

 

Quattro continues to diligently strengthen the foundation of the company, as summarized in the operations and projections outlined in a 3 year organic plan, to achieve a rate of 6,000 boe/d by year-end 2016.


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QUATTRO Exploration and Production Ltd. has announced the closing of the previously reported Donalda acquisition having an effective date of February 1st, 2014.


As previously announced, the acquisition, from a private Alberta-based company, includes a combination of 1,000 mcf/d of natural gas production along with associated gathering, compression and spare equipment. The acquisition results in the addition of 1,000 mcf/d to Quattro's Donalda facilities and a 600 mcf/day (net) increase in production. Following this acquisition, the company's developed land base at Donalda will be 44,465 acres (net) developed and 27,810 acres (net) of undeveloped land for a total 72,275 acres(net) in the region. The company also is scheduling further well work-overs, processing and gathering efficiencies in order to increase the Donalda production to over 3,600 mcf per day of stable, low decline production by year-end 2014.


The purchase price was $350,000 plus GST and the associated decommissioning liabilities of approximately $925,000 (net), with further post-closing adjustments as would be normally associated with an acquisition of this nature, for a total cost of $1,275,000 or $ 12,750 per flowing boe/d plus the developed and undeveloped lands. The acquisition was funded through a combination of cash on hand and current cash-flow.


Leonard Van Betuw, President and CEO commented, Over the past 6 months, the company continues to identify further remediation, reactivation and consolidation opportunities in its four core areas of operation. Our operational team has set a clear path to 2,500 boe/d in 2014, While the executive and Board of Directors also continue to finalize the negotiations for the increase in Quattro's debt facilities in an effort to enhance working capital necessary to provide the operations the additional capacity to accelerate our objective of achieving 6,000 boe/d before year-end 2016.


Currently the company's budget and projections are based on the pricing of $4.25 per mcf for natural gas and a blended oil price of $80 per barrel for Western Select, which results in a blended commodity price for the corporation of $42.50 per boe. Current operations and projections are the foundation for the funding of its 3 year Organic Plan to achieve a rate of 6,000 boe/d by year-end 2016. For further information investors are encouraged to visit Quattro’s website, www.qxp-petro.com to review the current Corporate Presentation for details.


QIS Capital: This is a very aggressive capital expenditure program for Quattro; however, the program is being completed within expected cash flow to maintain balance sheet strength. The company recently reported a very solid Q1 and with increasing production appears to be well on track to achieve its previous estimate of $10 million in cash flow ($0.30 per share) for this year. The stock continues to trade at less than 2X expected cash flow.




 

Virtutone Networks Inc. (VFX:TSX-V)
Website: www.virtutone.com
Current Price: $0.325 (coverage commenced Sep. 9/11 - $0.10)

 

Virtutone Networks Inc. has recently reported its financial and operating results for the first quarter ended April 30, 2014.


Mr. William Woods reports: We are pleased with the continued progress made during the first quarter 2014, as sales revenues recorded were at record highs of $28.4 million.


Revenue from continuing operations increased by $25,164,768 to $28,362,967 for the first quarter ending April 30, 2014 compared to the first quarter ended April 30, 2013. Gross profit increased by $774,710 to $951,676 and expenses increased by 658,400 to $839,476 compared to the first quarter ended April 30, 2013.


Net income increased by $79,222 to $33,797 for the first quarter ending April 30, 2014 compared to the first quarter loss of $45,425 ended April 30, 2013. The increase growth of the revenues are the direct results of the dedicated efforts of the company’s focus on the wholesale business. The dedicated efforts have resulted in higher operational costs, yet the company reported its highest net income for a quarter. The company continues the dedicated efforts to increase sales while focusing its efforts to increase its net income quarter over quarter.


These financial results are presented in conformance with International Financial Reporting Standards (IFRS). Certain comparative figures have been restated to conform with the current year’s presentation. The corporation’s retails division has been presented as loss from discontinued operations. All figures are in Canadian dollars unless otherwise noted. Certain operational measures such as Adjusted EBITDA and Adjusted EBITDA from continuing operations are not prescribed measures under IFRS. For a description of these measures, see the Operations and Non-IFRS Measures section in Virtutone’s 2014 fiscal year Management Discussion and analysis. The company’s exclusive focus on its wholesale division has driven the increased revenue, gross profit and income from continuing operations.


Outlook:


Virtutone, through its wholesale market focus, is well positioned for growth. The company’s wholesale division continues to achieve new milestones. The company has tested and installed new software subsequent to year end that optimizes voice traffic, resulting in increased margins. Virtutone recently announced the launch of its Short Message Service (SMS) division and expects the division to contribute to revenue and gross profit. The company will seek financing through increases to existing debt facilities and new debt and/or equity financings in order to fund its growing working capital needs. The outcome of the company’s financing efforts cannot be predicted at this time. Virtutone’s annual financial statements, management discussion and analysis, and other disclosures are available on SEDAR.



LATEST FINANCIAL RESULTS
  3 Months Ended Apr. 30
  2014 2013
Revenues $28,362,967 $3,198,199
Cost of Sales 27,411,291 3,021,233
Gross Margin 951,676 176,966
Expenses 839,476 181,076
Net Income 33,797 (45,425)
per share $0.001 ($0.002)



BALANCE SHEET
(as at April 30, 2014)
Current Assets $ 14,296,628
Total Assets 15,453,315
Current Liabilities 9,897,569
Long-Term Debt* 85,162
Shareholders' Equity 5,470,584
* finance lease obligations

 

QIS Capital: Given the reaction to these numbers in the market, investors obviously wanted more earnings out of the huge increase in revenues. Margins were in line with previous management forecasts but expenses were a little higher than most likely anticipated. Subsequent to Q1, May revenues showed a 30% improvement over April, and June numbers are expected to stay strong although we haven’t yet seen those numbers. If expenses can be held without any further increases, the margins from this additional revenue should pass to the bottom line but the company needs to deliver results. Revenues appear to be on pace to exceed $150 million this fiscal year.

 

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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 299,500 shares and 200,000 warrants of California Nanotechnologies Corp., 279,000 shares and 200,000 warrants of Manado Gold Corp., 1,627,000 shares and 100,000 options of NTG Clarity Networks Inc., 85,500 shares of Quattro Exploration and Production Ltd. and 484,000 shares and 212,500 warrants of Virtutone Networks Inc. QIS Capital may have 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 - 2014 QIS Capital Corporation.

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