Late yesterday Kraken Sonar (PNG.V) released its MD&A for the 3rd quarter of 2015, followed up this morning by its Q3 2015 Press Release. After reading thoroughly through the MD&A it is pretty clear that the company was very focused in Q3 2015 in building out its infrastructure and personnel to handle the significant business growth that it is expecting for its business. There were also, of course, significant business developments for the company in receiving its first $1.5 million order for its KATFISH product, as well as receiving a $750k R&D grant.
With a company like Kraken Sonar, in its infancy and on the brink of explosive growth, it is important to analyze quarterly results closely to ensure that there are no concerns about any immediate need of financing, thus potential dilution. For reasons set forth below, I am very comfortable that the company has sufficient cash on hand to continue to grow organically without the need for any outside financing.
Here are some of the highlights as noted in the Press Release:
- Revenues up 55% for the 3 months ending Sept 30, 2015 as compared to same period in 2014.
- Revenues for the 9 months ended September 30, 2015 were $1.6 million as compared to $1.3 million in the comparable year ago period. Excluding RTO listing expenses, non-cash share-based payments, and a bad debt expense, the loss for the first 9 months of 2015 was $0.6 million versus income of $0.0 million in the comparable year ago period.
- Kraken ended Q3 2015 with approximately $1.2 million in working capital, $0.7 million in cash, and was debt free. Cash declined approximately $0.7 million for the first nine months of this fiscal year.
- During December, Kraken expects to collect more than $600,000 in cash from customer deposits and non-dilutive grant money already announced.
Several business developments in addition to the $1.5 million order and $750k in R&D funding the company received during Q3:
- In November, we acquired SQX AUV assets from a court-appointed Receiver. While the acquisition was not material, we acquired all the assets and IP of a fully developed AUV that had seen more than $3 million of investment by a previous company. In addition, most of the engineering staff on that program are now Kraken employees.
- In August, we executed of a multi-year, global distribution agreement with Tritech, a MOOG subsidiary, for our AquaTrak® CVL product. The first production units are expected to ship prior to the end of December.
- During Q3, we received a follow on order for a MINSAS 120 system with a leading U.S. defense supplier. This is the 3rd order with this customer in the last two years and is indicative of the nature of our business. That is, while sales cycles are often long, once our industry leading technology wins approval from leading companies, we expect to win repeat business over multiple years.
Here are some key sentences from the MD&A that are worth noting as they re-iterate the "inflection point" of significant growth in the current and coming quarters ahead:
Employee costs for the three months ended September 30, 2015 totaled $365,477 (2014 - $107,392), an increase of $258,085 which reflects an increase in staffing due to an anticipated uptake in order activity resulting from new product and partnership announcements.
The Company expects to see an increase in order activity in the final quarter of fiscal 2015.
Employee costs increased by $410,672 during the period, from $259,498 in 2014, to $670,170 - reflecting a ramp-up in staffing levels to facilitate current and planned corporate growth.
- Obtained a $250,000 line of credit from a major Canadian financial institution.
All in all, the results show progress and it shows that the company has been positioning itself for significant growth ahead. Without any immediate needs for capital my investment thesis remains intact and I will continue to hold the stock as the company continues to execute. Q4 2015 and Q1 2016 are setting up to potentially yield explosive growth for Kraken Sonar.