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Independent Reviews for Venture Investors

PNG.V - Best of 2018.

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

In the last six months PNG.V has been propelled by numerous developments.

July 3 - Re-Affirms 2018 Revenue Target of Over $7 Million.

July 5 - Finalizes MOU with Ocean Infinity. PNG.V may enter into a series of project-specific agreements to engage in innovative development and commercialization activities. Kraken and Ocean Infinity will host workshops in Halifax and St. John’s in July for the Ocean Supercluster.

July 16 - Establishes Acoustic Signal Processing Group with a focus on anti-submarine warfare (ASW) applications.

July 20 - Grant options to German Employees 1M at $0.26 cents.

July 23 - Disposition of Common Shares: Karl Kenny, Kraken President and CEO to sell 1.5M shares of Kraken Robotics Inc to Ocean Infinity for personal income tax purposes. He will own 26M shares representing approximately 22.7% of the Company’s issued and outstanding shares.

July 24 - Ocean Infinity Limited Announces Acquisition of Securities in Kraken Robotics Inc. The Acquiror now has ownership and control over an aggregate of 11M Shares and 5.7M Warrants representing 14.2% of the outstanding Common Shares of the Issuer on a partially diluted basis.

Aug. 1 - Announces $9M Deep-Sea Battery Contract from Ocean Infinity delivery dates expected between Q4 2018 and Q4 2019. First purchase order has been issued for $2.5M and the subsequent purchase order of $6.5M is expected in early Q1 2019.

Aug. 7 - Commences Testing of KATFISH with U.S. Navy. The overall objective is to provide NUWC with experience operating the KATFISH, Kraken’s commercially off-the-shelf actively controlled, high-speed towed Synthetic Aperture Sonar from a surface vessel of opportunity.

Aug. 8 - Awarded $0.45M AquaPix® Sonar Contract. Engaged by a leading military contractor with delivery is expected in Q4, 2018.

Aug. 14 - Receives $1M from Exercise of Warrants. since July 19, 2018 it has received proceeds of $0.99M as a result of the exercise of 3,3M previously issued common share purchase warrants and 11,666 finders’ warrants. PNG.V's management directly or indirectly held 21% of the warrants that were exercised. The Company intends to use the proceeds of the warrant exercise for general working capital purposes.

Aug. 21 - Signed a Cooperative Research and Development Agreement (CRADA) with the Office of Ocean Exploration and Research (OER) of the National Oceanic and Atmospheric Administration (NOAA). Data and information collected can be used to enhance ocean research, inform policy and management decisions, develop new lines of scientific inquiry, and advise NOAA and the United States on critical issues.

Aug. 30 - Reports Record Revenue for Q2 2018 Revenue was $3.7M for the quarter as compared to $0.2M in the year ago quarter, driven by delivery of a KATFISH™and several AquaPix®sensors to military and commercial customers. Kraken exited the quarter with a cash balance of $2.3M, as compared to cash indebtedness of $0.3 million at December 31, 2017.

Sept. 19 - Awarded $1M Contract from International Defense Contractor. Received a sonar signal processing software 12-month contract with a new customer and will be supported by Kraken’s recently established Acoustic Signal Processing Group.

Sept. 25 - Kraken and ThayerMahan Successfully Showcase SeaScout® during U.S. Navy Exercise. This was the first at-sea test and evaluation carried out since both companies signed a strategic alliance agreement in February 2018.

Oct. 1 - Kraken and Leeway Announce Co-operation Agreement Both companies will work together to integrate Kraken’s SeaScout® Expeditionary Seabed Mapping and Intelligence System onboard Leeway’s Striker high speed patrol vessel.

Oct. 16 - Beacon Initiates coverage with target at $0.75 cents.

Nov. 19 - Beacon claims PNG.V undervalued. PNG.V is estimated to generate revenue of $6.8M in fiscal 2018.

Nov. 26 - Announces $0.5 Million Contract from Canadian Department of Defense (DND). To provide testing, repairs, integration and upgrading of an AquaPix® INSAS sensor originally sold to DND for integration on the Arctic Explorer Autonomous Underwater Vehicle in 2014.

Nov. 28 - Announces Acceleration of Ocean Infinity Battery Order and $5 Million Advance Payments.

Nov. 30 - Q3 2018 Results and Provides Outlook Revenue was $1.6M for the quarter as compared to $1.6M in the year ago quarter. Year-to-date revenues were $5.2M compared to $2.0M in the same period of 2017.

Net loss was $1M compared to net income of $0.1M in the year ago quarter. Year-to-date, net loss was $1.8M versus a net loss of $1.7M in the year ago quarter. Financial results, for the first time, include the consolidation of Kraken Power GmbH, a subsidiary that Kraken has a 19.9% equity interest in but expects to increase to 75% by year end 2018. Kraken exited the quarter with a cash balance of $1.6M. Backlog reported at $13M.

PNG.V will be submitting a multi-year, $30M proposal called OceanVision™ to provide ultra-high definition seabed maps and subsea asset data to a wide range of Ocean Supercluster stakeholders including oil and gas, fisheries, science, transport, defence and others.

Dec. 3 - Announces $6M Bought Deal Prospectus Offering Agreement with Clarus Securities Inc. (the “Lead Underwriter”) on behalf of a syndicate of underwriters (the “Underwriters”) for 15M shares at a price of $0.40 for aggregate gross proceeds of $6M.

The Company intends to use the net proceeds from the Offering for leasehold improvement, capital expenditures, technology licensing payments, additional equity investment in Kraken Power GmbH, parts and inventory and general corporate and working capital purposes.

Dec. 18 - Completes Successful Sea Tests of KATFISH with Elbit Systems.

Dec. 20 - Closing of $6M Bought Deal Financing. Continued support of Ocean Infinity Ltd., who subscribed for $1M. Each Compensation Option entitles the holder thereof to purchase one Common Share at a price of $0.60 until December 20, 2020.

PNG.V has had a stellar performance in the past six months, earning $5.2M of their $7M revenue target to date. It collected a sizable income $1.6M from its warrant and delivered on orders with the US Navy, and ThayerMahan. PNG.V was re-hired with Canada's DND and signed new agreements with NOAA's OER, Leeway, and a leading unnamed military contractor who requested anonymity.

Key to the PNG.V's success is the maturation of the Ocean Infinity (OI) relationship. With an initial investment of $2.3M in financing (June 20), OI contributed to PNG.V bottom line and provided a landmark $9M contract for which it has received accelerated payment by an additional $5M.

However, Q3 Earnings for PNG.V were flat year over year (with a loss of $1M) despite a reported $13M backlog. The timing of the $6M bought deal was good but in order to scale its growth PNG.V will need to be operationally efficient. Specifically, delivering revenue growth while minimizing expenses.

For the upcoming year, the $30M funding proposal with Ocean SuperCluster can be a game changer. Beacon ($0.75) and Clarus ($1.10) targets are relatively high and contingent on perfect execution. We suggest that a consistent target of $0.55 to $0.65 cents should be in order. Reason for it are the strategic OI investments and PNG.V's capital intensive scaling which predispose it to continued warrant conversion ($0.60). It's worth noting that IO could have acquired PNG.V's outright but instead chose to a path that enables it to profit from the scaling of PNG.V. The end result is a win win for both.

As displayed in the chart, the trajectory of the stock price since November has been on the decline. The comparative soft Q3 earning played a role. Adding to this the sell off on Dow Jones, the plunge on the TSX Venture timed with a end of year tax seasons have also had an impact. The current price is below the $6M bought deal purchase price ($0.40) and is certainly attractive. The forecast for this upcoming week is below:

With this year's performance, expect PNG.V to be named to the Venture 50. Indeed, there is no doubt that Kraken is one of the best of 2018.

On this note, all the best to you for the new year: health, happiness, and yes prosperity!

Thank you for your continued support in independent research.

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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