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MNGA: Taronis Technologies (Formerly MagneGas) is Pursuing Verticals the U.S. and Internationally

02/01/2019
By Steven Ralston, CFA

NASDAQ:MNGA

READ THE FULL MNGA RESEARCH REPORT

MagneGas (NASDAQ:MNGA) / Taronis Technologies produces, sells and distributes a clean, hydrogen-based fuel synthesized through its proprietary, patented Plasma Arc Flow™ process. Currently, the largest commercial application is as an alternative to acetylene. Management is pursuing an aggressive acquisition strategy of domestic gas and welding suppliers in order to significantly expand geographical reach, boost the top-line and achieve profitability. Simultaneously, management is pursuing opportunities in Europe, primarily through government-sponsored grants that promote emerging clean technology projects. Indications are that revenues increased over 160% in 2018.

EXECUTIVE SUMMARY

Major Re-Branding Initiative Announced

On January 31, 2019, CEO Scott Mahoney announced a major re-branding program for MagneGas, including a name change of the company to Taronis Technologies Inc. The company’s website is being redesigned to better reflect the company’s new strategic direction. Also, a new corporate investor presentation should soon be available on the company’s website.

Management’s strategy is to utilize the company’s plasma arc technologies to address multiple verticals, including the domestic metal cutting market; international metal cutting fuel markets (particularly at ports); European grants for innovative, green technologies; domestic decontamination (formerly known as sterilization) projects and hydrocarbon fuel market (aka propane and LNG).

In a conference call, management highlighted that soon the company’s metal cutting fuel should be available at the ports of Amsterdam, Rotterdam and Hamburg. Management also emphasized the potential of the domestic decontamination market with prime objectives of addressing the contamination of areas in North Carolina with hog waste due to recent hurricanes, the toxic algae blooms in Florida and the contamination of ground water by the burgeoning cannabis industry in California and Colorado. In addition, the company’s efforts to reduce manufacturing and transportation costs, along with the launch of the company’s 4th generation gas, should make the company’s product competitive with propane and LNG.

Finally, to regain compliance, effective February 1, 2019, the company’s stock will undergo a 1-20 reverse split.

Sales Announcements Confirm Fourth Quarter Top-line Expectations

Over the last few months, MagneGas/Taronis Technologies has announced the sales of the prior month around the mid-point of the following month. Sales for figures for the month of October, November and December were $1.05 million, $1.163 million and $1.0 million, respectively, which when totaled in line with our expectation of $3.3 million for the fourth quarter, representing a 220% YOY increase. The sales growth was primarily driven by the six acquisitions (Complete Welding, Green Arc Supply and TriCo in the first four months of 2018 and Paris Oxygen, Latex Welding Supplies and United Welding Specialties in October) which expanded the company’s presence in California, Texas and Louisiana. The robust sales growth was achieved despite the traditional seasonal weakness in Florida during the months of November and December.

Developments in the Implementation of the Expansion Strategy

In the company’s press releases, management has provided granularity on certain aspects of the expansion strategy.

• The opening of Lutz location in Florida has helped further penetrate the northern Tampa and Pasco County markets.
• The acquisitions of Paris Oxygen (in Paris TX) and United Welding Specialties (in Longview TX) during October doubled the retail store count in Texas, improving the company’s scale in the state.
• Management will be consolidating the company’s two Shreveport locations (Green Arc Supply’s location and the newly acquired Latex Welding Supplies) in early 2019.

Recent U.S. Acquisitions

On January 18, 2019, MagneGas Applied Technology Solutions announced the acquisition of an industrial gas and welding supply distributor located in Tyler, Texas for $2.5 million in cash. The acquisition expands the company’s geographic footprint in the east Texas market.


View Exhibit I

In late October 2018, the company’s footprint in east Texas and Louisiana was expanded through the acquisition of three welding and industrial gas suppliers: Paris Oxygen, United Welding Specialties and Latex Welding Supplies.

Recent Financing

Offering of 31,000,000 shares of common stock and 31,000,000 warrants: On January 11, 2019, MagneGas Applied Technology Solutions announced that certain accredited institutional investors are expected to purchase of 31,000,000 shares MagneGas common stock and 31,000,000 warrants (exercisable at $0.232 per share) in a private placement under a Securities Purchase Agreement. Priced at $0.14 per Unit, gross proceeds should be approximately $4.3 million. In addition, the exercise price of the common stock purchase warrants dated October 15, 2018 is being reduced from $0.3654 to $0.232. Maxim Group LLC is the exclusive placement agent.

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