Kontrol Announces New Acquisition in Blockchain

Week of February 5, 2018

Analyst Ideas of the Week – Kontrol Announces New Acquisition in Blockchain www.researchfrc.com

Sid Rajeev, B.Tech, MBA, CFA Head of Research

On February 2, 2018, Kontrol Energy Corp. (CSE: KNR) announced that it has entered into a binding letter of intent to acquire a profitable and fast growing Blockchain software development company for $14.25 million. The target company had generated average revenues of approximately $6 million and normalized EBITDA of approximately $1.2 million per year in the past two years. This company’s primary target is institutional customers seeking to integrate Blockchain solutions to better manage their energy consumption, lower carbon footprint, and improve overall operating performance and efficiency. The key features of the target's solutions include:

 An Open Application Programming Interface (API)

 Peer to Peer marketplace functionality for energy savings, carbon monetization and data analytics

 Crypto/token/fiat wallet (allows conversion between currencies)

 Reward system for energy conservation and corresponding carbon reduction

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 Reward system for data feeds and data analytics

 Encrypted cyber-security

 In-app support system

 Document sharing

 Social network features

Source: Company

The purchase price will be paid as follows – initial payments of $8.5 million in cash and $1.5 million in shares at $1.50 per share. Incentive payments of $3.5 million in cash and $0.75 million in shares (also at $1.50 per share) to be paid in 2018 and 2019, subject to achievement of certain undisclosed milestone.

If the acquisition is completed, management expects consolidated annual revenues and EBITDA to be approximately $20 million and $2.5 million, respectively.

The following table shows the valuations of companies involved in blockchain technologies. None of the companies in the list, except Kontrol, have any material revenues. Kontrol is trading at a significant discount relative to the companies we used in this analysis.

*The above table assumes that KNR will complete the recently announced acquisition.

Source: S&P Capital IQ and FRC

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The company also announced a $10 million brokered financing at $1.35 per unit on a best-efforts basis. Each unit will consist of a common share and one warrant (exercise price of $1.93 per share over 2 years).

We continue to estimate the fair value of Kontrol’s shares based on $100 million in acquisitions. Our fair value estimate is $2.54 per share.

Lomiko Launches Golden Goose

Lomiko Metals Inc. (TSXV: LMR) announced today the launch of the “Golden Goose” – a cryptocurrency mining rig. The current version targets large scale miners of cryptocurrency. Management indicates that Golden Goose addresses concerns regarding heat and power management. Development of Version II, targeting individual consumers, is currently underway. The company conducted demonstrations of actively mining Ethereum, at the World Outlook Conference held in Vancouver, B.C., on February 2 and 3, 2018. Details of the performance and cost of operations are yet to be disclosed.

Golden Goose Mining Rig

Source: Company

Management is currently accepting orders for Golden Goose I or II – the estimated price is US$7,500 each. Delivery time is estimated to be within 120 days.

The company had announced entry into this sector on January 10, 2018, with the launch of Promethieus Cryptocurrency Mining Corporation. Promethieus is owned 25% by LMR, 25% by

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SHD Smart Home Devices Corporation, and the remaining 50% by various partners and investors. Note that LMR owns 25% of SHD.

In January 2018, the company also announced the receipt of a permit for a 2,000 metre, 25 drill hole program at the La Loutre property. Lomiko currently owns 80% of the property, and has an option to increase to 100%. The current NI 43-101 compliant resource estimate on the property is 18.4 Mt at 3.19% indicated, and 16.7 Mt at 3.75% inferred, with a cut-off grade of 1.5%. The resource is 4.1 Mt at 6.5% indicated, and 6.2 Mt at 6.1% inferred, with a cut-off grade of 3%. The following table shows the resource estimate at various cut-offs.

Source: Company

We will be releasing a detailed update report shortly.

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Anthony De Ruijter, B.A. (econ) Analyst Isodiol Receives Regulatory Approval for Isodiolex in Brazil On February 5, 2018, Isodiol announced that it had received approval from the Brazilian Health Regulatory Agency (ANVISA) for the company’s product Isodiolex in the treatment of Parkinson’s disease and epilepsy. This places the company’s product on the Special Category List for Alternative Therapies, allowing doctors and neurologists to prescribe Isodiolex to patients. This is the company’s second product to receive ANVISA approval, following the addition of the company’s flagship product ISODerm to the Special Category List on July 6, 2017. We see this as a favourable development as it confirms not only the value of the Isodiol’s products, but also the medical benefits of CBD as a whole. We expect Isodiol to continue accruing regulatory approval for its product, which we see as a driver of demand and organic growth for the company. Organic growth will be important for the company, which has undertaken a slew of acquisitions to develop one of the largest CBD-focused companies globally. Canada Jetlines Adds to Leadership Team Canada Jetlines announced on January 30, 2018, that it had appointed Captain Vic Charlebois and Phil Larsen as Vice President (“VP) Flight Operations and VP Maintenance, respectively. Captain Vic Charlebois is a veteran pilot, with nearly twenty years in the Canadian Forces, and an aviation career including positions as VP Flight Operations for First Air, Zoom Airlines, and Canada 3000. First Air is an airline with operations focused on routes in Northern Canada, whilst Zoom Airlines and Canada 3000 are former low-cost airlines that have since ceased operations. The responsibilities of Mr. Charlesbois’ new position include pilot, flight attendant, flight dispatch, systems operations control and training functions throughout the airline.

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Phil Larsen has over twenty years of experience in senior roles in maintenance, engineering, and technical services, with tenures at Canadian Airlines International, Air Canada (TSX: AC) and CHC Global Operations Group. Canadian Airlines International was formerly one of Canada’s largest airlines before being acquired by Air Canada in 2001. In relation to these new appointments, a total of 450,000 stock options were granted, with a term of five years. This is a positive development for Jetlines, as they continue to develop their pipeline of talent with industry veterans. As their expected launch date approaches, we expect the company to update investors with news regarding additional leadership hires, new routes and financing required for launch.

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