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QIS Update #22 2013 - September 30th 2013



Included in this update:

  • Dalmac Energy reports first quarter financial results
  • Pennant Energy announces convertible debenture financing
  • Virtutone Networks files Q2 financial results

 


 

For those that have been following the Trading Summary section of the website at www.smallcaps.ca/trading-summary, you’ll notice that our virtual trading portfolio is now up over 61%. It’s been a great year for fundamental small-cap stocks. Here is a direct link to the portfolio’s current holdings and status: QIS Capital Trading Summary Portfolio.

 

The Small-Cap Conference is set for November 12, 2013 in Vancouver. Registration is now open and investors can sign up to attend the event at www.smallcapconference.ca. Alternatively, you can email us to sign up at register@smallcapconference.ca. As always, it is free to attend for investors and some refreshments will be provided.

 

We now have most of our presentation times filled and we are only looking for another 1-2 presenting companies. If you have a company that wants to participate please contact us as soon as possible. The preliminary speaking schedule will be posted to the website very soon.

 

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.




 

Dalmac Energy Inc. (DAL:TSX-V)
Website: www.dalmacenergy.com
Current Price: $0.41 (coverage commenced Nov 15/11 - $0.37)

 

Dalmac Energy Inc. has announced its financial and operating results for the first quarter ended July 31, 2013.

 

The first quarter of this year was fairly representative of the historical trends normally associated with the quarter and while the company managed to buck the trend somewhat last year, poor weather this year delayed much of the work originally scheduled for Q1. In addition to drilling delays, many of the roadways to existing customer sites were also deemed un-passable due to the inclement weather. As a direct consequence of the aforementioned, revenues for Q1’14 suffered a decrease of 7% or $532K to close out at $7.6M as compared to $8.1M in the previous year. In conjunction with increased staffing levels and higher operating costs, gross margin for the quarter dipped to 18% compared to 27% for Q1’13. EBITDAS followed suit and declined 98% to $19K from the $1.0M in Q1’13. Dalmac posted a net loss of $701K or ($0.03) per share in Q1’14 as compared to net income of $238K or $0.01 per share during the comparable period in fiscal 2013.

 

The issues regarding the Q1’14 performance were anticipated and forecasted by Dalmac but as is always the case, the extent and the duration of weather related circumstances are rather difficult to predict with any degree of precision. An important prognosticator of success in the industry is to be ready, willing and able to perform. This readiness for action requires the availability of a skilled workforce and the proper and reliable equipment to do the job when called upon. It is with the knowledge and expectation of a very robust and active fall and winter season that Dalmac took the initiative to make sure it had the proper staffing levels along with properly maintained equipment. Although the down pouring of rain hampered much of the company’s business in the first quarter, Dalmac is expecting a stabilizing return to historical gross margins over the next few quarters. In addition, Dalmac anticipates that its recent $10.2 million purchase of new equipment and upgrades will be fully utilized by a surge of oilfield activity and production requirements.

 

Outlook:

 

The seasonal and weather related factors have had a dampening effect not only on company operations, but also on the whole oil and gas industry. In spite of the slowdown in activity, which has been hovering at the lowest activity levels seen in several years, an upward movement seems to be currently underway. This is evidenced by the July and August rig counts which are showing strong signs of improvement and are currently on track to mirror, if not outpace, those of 2012. According to the Canadian Association of Oilwell Drilling Contractors, the second half of 2013 is very encouraging and activity levels are expected to rebound back to where they were in the second half of 2012. Going forward, the outlook for the balance of the year is considerably more encouraging given that this positive expectation is supported in large part by higher crude oil pricing and improved netback differential pricing as well as the optimistic prospects for future exports of Canadian natural gas through west coast LNG facilities. The aforementioned trends are expected to provide a positive foundation for an improved operating environment for Dalmac’s oilfield services over the course of the year.

 

Conference Call:

 

A conference call to discuss the results will be held on September 30, 2013, at 1:30 pm EST/11:30 am MST. To participate in the conference call, please dial 416-644-3414 local in Toronto or toll-free 1-800-814-4860 and request the Dalmac Energy conference.

 

LATEST FINANCIAL RESULTS
  3 Months Ended Jul. 31
  2013 2012
Revenues $7,614,014 $8,146,178
Direct Costs 6,249,539 5,965,899
Gross Margin 1,364,475 2,180,279
EBITDAS 18,998 1,006,134
per share $0.001 $0.044
Income Tax Recovery (Expense) 233,536 (79,604)
Net Income (Loss) (700,609) 238,812
per share ($0.030) $0.010

 

 

BALANCE SHEET
(as at July 31, 2013)
Current Assets $ 9,522,349
Total Assets 32,094,580
Current Liabilities 4,428,439
Long-Term Debt 13,348,092
Shareholders' Equity 12,914,358

 

QIS Capital: We would like as many investors as possible to participate in the conference call today. Although the first quarter financial numbers likely aren’t what everyone would like, management is being forthcoming in discussing the results and outlook for the company. The remainder of the year is expected to be excellent and it’s well worth the time to hear from management about the sector and Dalmac’s plans.




 

Pennant Energy Inc. (PEN:TSX-V)
Website: www.pennantenergy.com
Current Price: $0.035 (coverage commenced Dec 7/12 - $0.075)

 

Pennant Energy Inc. has announced that that, subject to regulatory approval, it will be conducting a non-brokered private placement of unsecured convertible debentures in the aggregate principal amount of up to $500,000. Each Convertible Debenture will be convertible into common shares of the company. The company will issue 20,000 share purchase warrants for each $1,000 of principal amount of each Convertible Debenture. Each Warrant will entitle the holder to purchase one Share at a price of $0.05 per Share for a period of two years. The Convertible Debentures mature eighteen (18) months from the date of the closing of the Offering and bear interest at the rate of 18% per annum payable on the Maturity Date.

 

At any time at the option of the holder, the principal amount of each Convertible Debenture will be convertible into Shares at a price of $0.05 per Share during the first 12 months after issuance and at a price of $0.10 per Share thereafter until the Maturity Date and any accrued but unpaid interest thereon will be convertible into Shares at the price per Share which is equal to the Market Price (as defined in the policies of the TSX Venture Exchange) at the time of conversion.

 

Each Convertible Debenture will be pre-payable at the election of the company in an amount equal to the principal amount, any accrued but unpaid interest and a penalty equal to three months interest (the Prepayment Amount). If the company disposes of its Bigstone Project, then the company will be required to repay all of the Convertible Debentures in an amount equal to the Prepayment Amount within ten (10) days of the completion of such sale.

 

Pennant will pay a cash finder's fees or broker's commissions of 8% payable in connection with the Offering.

 

The proceeds of the Offering will be used by the company to pay for its share of the costs of the first Success formation well to be drilled at its new oil exploration project located in the Mantario area of west-central Saskatchewan in the fourth quarter of 2013, and for general working capital.

 

QIS Capital: For accredited investors who may be interested in this financing opportunity, we expect to close the books in the next few days as the offering is getting close to being fully subscribed. If you would like to participate please contact QIS Capital as soon as possible at info@smallcaps.ca or call us at (250) 377-1182.




 

Virtutone Networks Inc. (VFX:TSX-V)
Website: www.virtutone.com
Current Price: $0.24 (coverage commenced Sep. 9/11 - $0.10)

 

Virtutone Networks Inc. has recently filed its financial and operating results for the three and six months ended July 31, 2013.

 

The company’s wholesale division continues to achieve new milestones. Revenue from wholesale was over $4,000,000 in August 2013, as previously announced. Virtutone did not meet its target margin of 5% during the second quarter, although margins for the fiscal year to date are still above 5%. During the second quarter, the company reduced margins on a significant percentage of traffic in order to obtain new customers and routes. Subsequent to July 31, 2013, the company has focused on raising its margins back up to the 5% range.

 

During and subsequent to the period ended July 31, 2013, Virtutone invested in a new automated routing and billing software management system that will allow the company to continue to reduce support staff for the daily operations of the company. The new system will be live in early October 2013, and the company will realize immediate operational cost reductions.

 

During the period ended July 31, 2013, in a further effort to reduce support costs, the company set up a new Network Operations Centre (NOC) in Cairo, Egypt. The company was able to hire 12 support personnel to man the NOC 24/7/365. This will allow the company to reduce its technical staff at its corporate headquarters in Sherwood Park, which will result in overall cost savings. The new NOC also allows the company to be proactive rather than reactive when dealing with voice quality issues, by identifying periodic carrier issues and taking corrective action before the customer becomes aware. This lessens the risk of traffic being routed away from us, and assists in a more stable revenue base. The recent unrest in Egypt has had no effect on the effectiveness of the company’s NOC. Management continues to monitor the situation closely and has contingency plans in place in the event of a disruption.

 

Subsequent to July 31, 2013, the company sold its retail division to Comcanada Communications Inc., a private telecommunications company located in Vancouver, BC. Retail telecommunications is an intensely competitive industry, and has required significant investment from the company in both capital and manpower in order to maintain and grow its subscriber base. Growth has been difficult to come by, and the company was losing money supporting the division. Management made the decision to pull its capital out of its retail division to stem those losses, and re-invest that capital to support the growth in its wholesale division.

 

Management’s vision of the company is one of a simple business model that generates sustained profitability. Aggressive growth, a streamlined and automated wholesale operation, sale of the retail division, and the new Board of Directors are all major steps that the company has taken to help bring this vision to reality. Management and the newly appointed Board of Directors are working hard to ensure proper capitalization of the company to support its growth. Management is keenly aware that growing too fast can be detrimental, and is taking every effort to manage growth in an orderly fashion.

 

Management will remain vigilant in the area of cost control and revenue generation and looks forward to a return to profitable results in the remainder of fiscal 2014 and beyond.

 

As at September 26, 2013, the company has 20,928,755 common shares outstanding.

 

LATEST FINANCIAL RESULTS
  3 Months Ended Jul. 31 6 Months Ended Jul. 31
  2013 2012 2013 2012
Revenues $8,751,421 $696,022 $12,153,686 $1,296,073
Cost of Sales 8,486,146 392,419 11,574,570 688,215
Gross Margin 265,275 303,603 579,116 607,858
Expenses 571,006 429,861 926,504 711,170
Net Income (333,522) (122,859) (378,947) (94,750)
per share ($0.016) ($0.007) ($0.018) ($0.005)

 

 

BALANCE SHEET
(as at July 31, 2013)
Current Assets $ 4,025,669
Total Assets 4,941,631
Current Liabilities 4,371,826
Finance Lease Obligations 177,031
Shareholders' Equity 392,774

 

QIS Capital: Subsequent to this quarter, Virtutone has announced August revenues of $4.0 million which puts the company on pace for almost a 50% increase in quarterly revenues over the Q2 results. The company has also sold its non-profitable retail division. Management has also stated that margins are expected to return to near 5% going forward. The next quarterly should be announced by the end of December.

 


 

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 73,000 shares and 100,000 options of Dalmac Energy Inc., 490,000 shares of Pennant Energy Inc. and 902,500 shares 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 - 2013 QIS Capital Corporation.

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