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Revenue Growth Makes On4 Communications Inc (OTCMKTS:ONCI) A Smart Play
By Jarrod Wesson
Posted on March 26, 2018
Amid a major reduction in the market capitalization of On4 Communications Inc (OTCMKTS:ONCI), we are still bullish on this name. While the market is not recognizing the expansion of the brand, ONCI keeps showing an overwhelming amount of growth in revenues as well as assets and signing new dealerships every week. Following a recent letter from the CEO released recently, we believe that our readers would appreciate an article about this name.
After the glorious stock returns delivered in 2017, the stock price retraced from $.019 to $.0021. While the market sentiments are quite bearish at the moment, yet several indicators show that we could be near a bottom. First of all, think that we are almost touching 52-weeks lows, so the downside seems reduced from here. In addition, trading volumes are large, like the last time the share price rebounded. More than 100 million shares changed hands some days as shown in the following stock chart:
One year stock chart for On4 Communications Inc OTCMKTS:ONCI
The 1-year chart for ONCI
Before we proceed further, let’s revise what the company does to enhance value for the shareholders. On4 is a holdings company with an aggressive focus on acquiring proven and profitable businesses. Since Mr. Steve Berman was appointed CEO in 2016, ONCI has acquired ownership stakes in Family Mobil Safety Marketing, the distributor of a safe driving App, Digital Media Management & Consulting, a joint venture which implements electronic sell-through, and content advertising-supported networks. In 2017, the most significant business developments were announced. In August, September, and October, ONCI released new agreements with international auto dealers representing Nissan, Toyota, GM, Ford, Land Rover, Kia among others. The company was founded in 2001 and is headquartered in Los Angeles, California.
Corporate Developments – New People and Reduction of the share count
Before we revise the new agreements signed with dealers, we want to address the corporate changes recently executed. In our opinion, it will help understand that the company seems to be working towards the right direction.
First of all, the new people are interested in joining ONCI. In September, two new board members, Michael Wach and Richard Lefkowitz, were added. They both bring expertise acquired from large corporations like Fox 5 Television New York or GYRO, “the world’s most independent B2B advertising agency.” Additionally, 3 new sales people were hired for the State of California based out of Los Angeles, San Francisco, and San Diego. They are 100% commission based. Finally, in November 2017, the addition of former NASCAR team owner Bill Jenkins was remarkable.
In October, the company also released that Mazars USA, LLP, had been selected to audit the financial accounts. We need to draw the attention of our readers to the fact that this is a respected and widely known auditor. With most small caps hiring small auditors to review the financials, ONCI is again showing that it wants to be really transparent to the shareholders.
There is more. The company also announced the retirement of 30 million preferred shares, which means that both common shareholders and preferred shareholders got a little richer than some years before. With this transaction, a new auditor and new people being hired, we believe that this company is really working for the shareholders. It is another good reason to stay tuned to this name.
New Contracts with dealers
If the market got really excited for the meetings and contracts signed in 2017, we don’t really understand why the share price did not do the same in 2018. The company kept signing an overwhelming amount of deals. The following is a list of them:
On October 16, 2017, ONCI signed a contract with a 7 dealer West Texas auto group with brands including Jeep, Dodge Trucks, Ford, Toyota, Nissan, Chevy, and Hyundai. The new agreement could mean $1,020,000 in new revenues.
On October 24, 2017, ONCI executed an agreement with a large middle eastern multinational company with a fleet of vehicles, which tops 7500 cars, SUVs, and trucks. The contract could mean $600,000 for the company.
On November 7, 2017, ONCI signed a 2000 unit contract with a large European Taxi Company, which could return a total of $400,000.
On November 29, 2017, it released a major new contract with Texas dealer Group with brands including Dodge, Hyundai, Chevy, Ford, Toyota, GMC Lexus, and Nissan. Please note that a total of eight dealers will take a total of 600 units per month at $200 per unit, which is $120,000 per month and $1,440 million per year.
On December 5, 2017, the company signed a contract with a dealership group in Georgia with brands including Chevy, Jeep, Toyota, and Nissan. It could mean $480,000 per year.
On January 17, 2017, ONCI agreed with Garden City Nissan, the largest Nissan dealer in the world, and its other 4 dealerships. The deal could mean a yearly total of $1,650,000.
On January 19, 2017, the company signed a deal with Penn Auto, which is said to be one of the highest rated Toyota dealers in New York. The contract would mean $195,000 per year.
On January 31, 2018, ONCI signed a distribution agreement with US Warranty, one of the largest extended warranty companies in the USA servicing over 800 auto dealers throughout the country.
With all these new deals signed in 2017 and 2018, we are expecting a future surge in revenues, therefore we don’t really understand the decline in the market capitalization of the company. Taking into account that last year revenues were equal to $1.6 million, we let readers calculate the expected revenue growth for the year 2018. We believe that the market will definitely react when the new 2018 quarterly reports start to show the revenues that those new contracts will bring.
Q1 2018
In line with the previous rationale, we want to study carefully the new Q1 2018; recently reported. The first thing to mention is an increase in the number of total assets from October 2017 to January 2018. The assets increased from $3.8 million to $4.8 million due to $0.7 million increase in trade receivables, and the investments in Family Mobile Safety and CogoSense Technology Inc of $2.2 million. The interesting feature is the decrease in the number of current liabilities; from $2.7 million to $1.7 million. Please take into account that the amount of noncurrent liabilities is still equal to 2 million. The amount of shares outstanding is 3,978,547,369, while it was equal to 3,858,5 47,369 in October.
The most interesting thing is shown in the income statement. The company reported a sales figure equal to $0.9 million, while the sales of Q1 2016 were $0.055 million. It represents more than 1,500% increase, which was not celebrated by the market. The final net income reported was positive, $0.4 million, which contrasts with the loss of $0.15 million shown in Q1 2016. To sum up, the financials show that the operating activities are going in the right direction. We believe that the moment is now for the company.
The letter to shareholders showed new opportunities
The company has sent several letters in March, which we encourage readers to read carefully. We believe that the most interesting was the last one, issued on March 23, 2018. In this letter, ONCI noted new deals in the auto industry in the US as well as contacts with Turkish Insurance company. But, the most significant were comments related to other sectors. The CEO noted the following about the cannabis industry:
“The 4 companies we are looking at are based in Vancouver, Sask, Quebec and Ontario, respectively. One is a grower that has land and is currently growing another product and can convert to pot in 30 days. They already have the land and the equipment; all they need is the seed. They also have options on surrounding land which makes this very valuable. The second Company is a lighting manufacturer that creates lighting to help grow indoors at a faster clip. The third is a new concept that I am not at liberty to discuss. The fourth company is a seed importer and exporter and has operations in Europe and Canada. All are very interesting and demand is very high for all these types of companies. We will see where the chips will fall. I will continue to update as things progress.” Source
In addition, ONCI also noted that the health care insurance is also a very interesting sector right now. It noted that a joint venture may be in the works to combine Urgent Care Medical along with Urgent care Dental to make it a total Urgent Care facility. With this sector growing at a high pace, we will stay tuned to the next developments in this regard. They can make the share price run again.
Finally, it was also remarkable that ONCI will not execute a reverse split, and the share count is expected to drop by 1.4 billion shares. These measures should enhance shareholder value.
Conclusion
With a market cap of $9 million, ONCI is an exciting story among small caps. In our opinion, if the company can maintain the same level of growth, keeps reducing the share count and acquiring new businesses, the share price should run. Stay tuned, because the moment is now for this company.
Disclosure: We have no position in ONCI and have not been compensated for this article.
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