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Independent Reviews for Venture Investors

PNG.V - Splash.

Kraken Sonar Inc. (PNG.V) is a marine technology company, We initiated coverage March 2017, with subsequent notes on October 2017, and April 2018.

Since our last note the following development took place:

May 1 - Revenue growth of 56% to $3.5 million in 2017 versus $2.2 million in 2016. At year-end 2017, PNG.V had $1.7 million of funding awards to draw upon from the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) and Innovate Newfoundland.

May 14 - Announces AquaPix® Multispectral SAS - Developing an ultra-wideband acoustic remote sensing system for seafloor imaging and mapping will be the world’s first commercial SAS to operate over such a wide spectrum.

May 15 - Achieves Military Standard Certification - KATFISH-M Towed SAS System successfully completed rigorous military certification.

May 31 - Earning Q1 2018 - Revenue was $0.1 million for the quarter as compared to $0.3 million in the year ago quarter. Net loss was $1.5 million as compared to $0.7 million in the year ago quarter. At quarter-end, Kraken had $1.5 million of funding awards (i.e. grants) to draw upon.

“While Q1 revenue was impacted by the transition to the new IFRS 15 revenue rules, for 2018, we continue to target revenue of more than $7 million,” said Karl Kenny, Kraken’s President and CEO.

June 1 - Announces Pre-qualification of SeaVision® by Canada’s BCIP Program - Potential for Parks Canada to test SeaVision® on marine archaeology projects, including further expedition work in the Arctic on the Franklin ships HMS Erebus and HMS Terror.

June 4 - Awarded $0.9M Contracts for Evaluation of SeaVision® Sensors and Artificial Intelligence Software. The two projects are called ARIM and RoboVaaS and are collaborative research activities funded by the Government of Germany. The contracts start in June 2018 and continue over a period of 36 months, with Kraken receiving approximately two-thirds of the funding over the next 18 months.

June 20 - Announces $2.3 Million Private Placement with Ocean Infinity. Non-brokered private placement offering with Ocean Infinity Ltd. (the “Offering”) - 11M units of Kraken. Upon completion, Ocean Infinity will own 9.99% of Kraken’s issued common shares. Terms of the placements are C$0.20 per unit. With 1.5 share warrant exercisable at C$0.40.

Kraken and Ocean Infinity are working towards negotiating the terms of a strategic alliance to promote more closely aligned cooperation in maritime robotics technology, products, and services.

June 28 - Close $2.3 Million Equity financing with Ocean Infinity.

“The financing strengthens our balance sheet with a patient investor and supportive customer and validates our strategic efforts to build a vertically integrated offering of sensors, software and systems for the underwater robotics market.” Kenny, Kraken’s President and CEO.

June 29 - Obtain DTC Eligibility of Common Shares. This means they are PNG.V's share are eligible for book-entry delivery and depository services of the Depository Trust Company (DTC) to facilitate electronic settlement of transfers of its common shares in the United States.

July 3 - Reaffirms revenue target of $7M for 2018

PNG.V has definitely delivered on its Q4 Earning guidance. PNG.V's 2017 Earnings were 56% higher year over year. Moreover, PNG.V also provided some guidance for the upcoming year: “For 2018, we are targeting at least a doubling of revenue to more than $7 million, after 56% revenue growth in 2017,” said Karl Kenny, Kraken’s President and CEO. Notwithstanding our positive revenue outlook, we anticipate a soft Q1."

Despite strong earnings for 2017 and numerous positive catalyst, PNG.V has continued to trade sideways until June 20th. The Ocean Infinity's investment had quite an impact on valuation - 33% within a day. Thereafter valuation sustained. This is attributed to the terms of the financing but also because PNG.V has been ignored by the market even after numerous organizations (i.e. Avitas, ThayerMayansen, and NVIDIA among others) endorsed it.

Hence, it looks like finally, this time, the market reacted.

However, the day after the financing was closed (July 29), The DTC announcement set a new 52 week high ($0.275). This was somewhat surprising, especially on relatively low volume for the day. Despite the Ocean Infinity news and details of guidance provided today, new contract ($0.9M) continued to be lagging financing ($2.3M) for the period. Otherwise, a closer look at the trading activity for the past 10 days reveals some interesting dynamics.

June 20 - The day of Ocean Infinity's announcement.

Scotia Capital (40%), National Bank and CIBC World Market led the buy. On the sell side, RBC Capital (26%), TD Security. and Desjardins Securities.

June 21-28 - The day after Ocean Infinity's announcement up to the closing of the financing.

National Bank and CIBC World Market continue to led the buy moderately. Similarly, TD Securities and BMO, and Anonymous on the sell side.

June 29 - The day of the DTC announcement and the day after the closing of financing from Ocean Infinity.

Again, Scotia Capital (55%) disproportionately led the buy side with Anonymous (52%) performing similarly on the sell side.

Clearly, a pattern in market making and selling is present. On the sell side, the rising proportion of Anonymous on June 29th is telling. One thing is certain, PNG.V has finally provided shareholders with some valuation. The question now is whether this will last? June 29th activity was so atypical that we ran a second forecast for the week, excluding it. Notice how the Lo 80 and 90 confidence interval differs between the two forecasts? As a reminder, PNG.V remains overbought on the chart but this morning news release explains why.

What comes next will be interesting. However, there is no doubt that to date its been quite a splash.

DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.


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