QIS Update #22 - 2016 - Financial results from Lingo Media, NTG Clarity Networks and Quattro Exploration - November 30th 2016
Included in this update:
- - Lingo Media reports financial results for the third quarter
- - NTG Clarity receives purchase order for new Voice over WiFi deployment
- - NTG Clarity announces third quarter 2016 financial results
- - Quattro Exploration provides an update and reports Q3 financial results
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Lingo Media Corporation (LM:TSX-V)
Current Price: $0.21 (coverage commenced March 22/16 - $0.76)
Lingo Media has released its financial results for the third quarter ended Sept. 30, 2016, with revenues of $152,657 and a net loss of $581,710, or 1.6 cents per share. All figures are reported in accordance with international financial reporting standards, unless otherwise noted.
Michael Kraft, president and chief executive officer of Lingo Media, stated: "We are disappointed with our results for the third quarter. Notwithstanding, we have been moving forward with full efforts to establish additional sales channels and partners globally. Our sales team led by Laurent Glorieux, who recently joined our company, has developed a growing sales pipeline. The nature of our business is such that revenues are recognized upon signing of a contract, delivery of the software, and customer acceptance and sign-off. The lower level of revenue in Q3 2016 is a result of delays in signing sales contracts and delivery of the software. We are confident that we can close a significant portion of our sales pipeline but cannot forecast the exact timing of such closings and delivery as our primary customers are government ministries and educational institutions with long sales cycles. We continued to invest in the development of our digital content library and our technology team, which are key factors to position the company for future growth along with broadening and enhancing our sales channels."
Third quarter 2016 operational highlights:
- Online English language learning (ELL):
Entered into a sales contract with Universidad de San Martin de Porres in Peru through Telefonica;
Entered into a sales contract with Certus, an educational institution in Peru, through Telefonica;
Entered into a sales contract with Universidad Da Vinci to teach English to teachers in Mexico;
Continued marketing and selling English for Success, a series of lessons and activities derived from the ELL library as a premium solution for government ministries and educational institutions;
Print-based English language learning:
Continued expanding the market for PEP (primary English program) and the Starting Line program with People's Education Press in China.
- Corporate highlights:
Appointed Mr. Glorieux to the lead sales team, and expanded ELL into Asia, North America and the Middle East.
FINANCIAL HIGHLIGHTS FOR THE THIRD QUARTER ENDED SEPT 30, 2016 3 Months Ended Sept 30 2016 2015 Revenues $152,657 $1,203,201 Operating Expenses 460,099 462,455 Total Expenses 734,367 508,901 Net Income (581,710) 694,300 per share ($0.016) $0.023
- Revenue for the third quarter ended Sept. 30, 2016, totalled $152,657, compared with $1,203,201 for the same period in 2015;
- Operating expenses for the quarter ended Sept. 30, 2016, totalled $460,099 as compared with $462,455 for the same period in 2015. Net loss for the quarter was $581,710 as compared with net profit of $694,300 for the same period in 2015;
- Loss before amortization, share-based payments, depreciation, finance charges and taxes was $307,442, compared with income of $740,746 in 2015;
FINANCIAL HIGHLIGHTS FOR THE NINE MONTH PERIOD ENDED SEPT 30, 2016 9 Months Ended Sept 30 2016 2015 Revenues $2,458,912 $3,649,487 Operating Expenses 1,218,303 1,204,487 Total Expenses 2,358,609 1,750,655 Net Income 100,303 1,898,832 per share $0.003 $0.072
- Revenue for the nine months ended Sept. 30, 2016, totalled $2,458,912, compared with $3,649,487 for the same period in 2015, due to a decline in ELL Technologies' digital sales;
- Operating expenses for the nine months ended Sept. 30, 2016, totalled $1,218,303 as compared with $1,204,487 for the same period in 2015;
- Net profit for the nine months was $100,303 as compared with net profit $1,898,832 for the same period in 2015;
- Income before amortization, share-based payments, depreciation, finance charges and taxes was $1,240,609, compared with income of $2,445,000 in 2015.
Balance sheet as at Sept. 30, 2016:
- Cash and cash equivalents as at Sept. 30, 2016, totalled $348,839 as compared with $409,022 as at Dec. 31, 2015;
- Current ratio improved to 8.4:1 for the period ended Sept. 30, 2016, as compared with 2.4:1 as at Dec. 31, 2015;
- Total liabilities as at Sept. 30, 2016, totalled $462,771 as compared with $1,186,167 as at Dec. 31, 2015, an improvement of $723,396 after loans payable of $580,000 were repaid in full and retired;
- Book value improved to $6,493,479 as at Sept. 30, 2016, as compared with $4,046,784 as at Dec. 31, 2015.
View the company’s complete financial statements online at www.sedar.com.
QIS Capital: Lingo’s third quarter results were a disappointing shock to us. We were anticipating a slightly weak Q3 due to a lack of recent significant contract announcements and the non-recurring nature of the SENA contract which was completed in 2015 and has only modest recurring revenue. We weren’t however expecting such a low level of revenues which management described was largely as a result of contract timing. Unfortunately the surprise nature of the Q3 results will likely mean that Lingo has lost some credibility in the public markets which will likely take a number of new contract announcements or several positive quarters of good financial results to overcome. In our post number phone calls, we have been told that management is working on putting together a conference call to discuss the Q3 results so we will be watching for that and would encourage all of those following the story to listen in once we have that information. It is also worth mentioning that the insider reports show continued buying from management over the past few months.
NTG Clarity Networks Inc. (NCI:TSX-V)
Current Price: $0.065 (coverage commenced Feb. 4/10 - $0.045)
NTG Clarity Networks Inc. has announced that the company has received a Purchase Order to deploy its Voice over WiFi new product offering for a major telecom operator in the Middle East.
NTG Clarity has been developing, configuring, implementing, integrating and optimizing VoWiFi solution as part of building and upgrading wireless broadband quad-play networks with a native phone dialer solutions on smart phones. NTG’s VoWiFi solution assists telecom and ISP operators in achieving superior network performance with call cost reduction and expanding the calling areas to include areas that have poor cellular coverage. This project will be completed over a 2-month period.
The company’s VoWiFi solution allows the cellular users to use all the different WiFi networks that users are connected to, for transporting the voice calls that would normally go over the cellular network. Mobile operators would be able to offer coverage for their voice services wherever WiFi service is available.
NTG's VoWiFi Product Offering and Services
NTG’s experienced and trained resources provide the following VoWiFi solutions to ISP and telecom operators:
- - Enabling voice SMS and data services, accelerating service uptake, automating terminal availability for higher customer base, supporting operators in maintaining 3G networks supplementary, enhancing regulatory services, support Native Dialer with logs and PhoneBook, support GSMA standards with Ericsson, Huawei and other technologies.
- - Indoor coverage solutions, capacity offloading, mobile data offloading, IMS over VoWiFi solutions, handover and coverage planning solutions in small cells to improve network performance.
- - Smart phone and Android solutions: NTG VoWiFi helps operators to serve all their Android users with native calling.
- - Security and ePDG solutions.
- - AAA solutions, OSUS (Online Sign up servers) solutions.
“There is a high demand for this new product and we are aggressively marketing to companies in the Middle East and southeast Asia.” said Ashraf Zaghloul, NTG Clarity’s Chairman and CEO.
Additionally, NTG has received a PO from a technology institute in the Middle East to deliver a hardware, software licenses and application development.
The estimated value of both POs is $400,000.
NTG Clarity Networks Inc. had third quarter year-to-date 2016 revenues of $10,773,204, as compared with $11,660,121 in 2016, an 8-per-cent decrease.
As previously reported, during the fourth quarter of 2015 and the first half of 2016, the company significantly expanded its location and customer base with new customers in Saudi Arabia, Egypt and Kuwait. The increased costs from this expansion, coupled with the delay in new revenue due mainly to the oil price weakness, have posed significant challenges for the corporation over the past months. This has resulted in lower-than-expected financial performance during 2016. To address these challenges, management continued to reduce costs during the third quarter and is in the midst of several contract negotiations to boost revenues going forward.
For the three months ended Sept. 30, 2016, revenues were $3,262,204, a decrease of 10 per cent over the same period in 2015. This was due to the lower revenue in KSA as renewals with some customers have been delayed. Third quarter 2016 revenue was 90 per cent professional services, 2 per cent product related, and 8 per cent hardware and field services.
Gross margin for the three months was 36 per cent (third quarter 2015: 43 per cent) as the company rolled out several new software products and services. New projects are now up and running, and resource/maintenance costs have levelled out. The company expects gross margins to stabilize between 40 to 45 per cent as the product revenue increases.
Selling expenses for the third quarter increased to $605,939 (third quarter 2015: $342,754 and second quarter 2016: $897,278). This amount was higher compared with the same period in 2015 as the company worked to obtain new customers/projects in Egypt, KSA and Kuwait. It has, however, improved compared with second quarter 2016, as the company works to control its selling costs, while continuing to expand its footprint with existing customers.
General and administration (G&A) expenses decreased from second quarter levels to $1,072,884 (third quarter 2015: $456,141 and second quarter 2016: $1,312,437). G&A expenses remain higher compared with the same period last year as the company continues to retain highly skilled personnel in expectation of new projects.
For the nine months ended Sept. 30, 2016, revenues were $10,773,204 compared with $11,660,121 during the same period in 2015, a decrease of 8 per cent. The year-to-date decrease was a result of the slowing economy in the Middle East resulting from the lower oil prices.
Gross margin for the nine months was 40 per cent (2015: 39 per cent). The small increase in the gross margin comes as the company works to optimize its expenses for continuing projects and resources.
Selling expenses increased significantly to $2,008,689. This increase was due to travel, accommodation and marketing expenses for the company's sales force in Egypt, KSA, California and Kuwait, as it works to maintain its market share and acquire new customers. As of the end of second quarter 2016, the company no longer maintains a continuing presence in California.
General and administration (G&A) expenses increased to $3,850,572 for the first nine months of 2016 from $1,771,467 during the same period in 2015. The significant increase was due mainly to higher salaries to retain the company's highly skilled personnel in expectation of new projects, higher consulting and occupancy costs for its new offices in Oman and Kuwait, and increased banking fees and insurance costs.
For third quarter 2016, the corporation recorded a net loss of $881,497 compared with a net income of $254,260 for the same period in 2015. For the nine months ended Sept. 30, 2016, the corporation recorded a net loss of $3,877,251 compared with a net income of $1,143,019 in 2015. NTG has been affected by the oil price reductions and the consequential slowing of the economy in the Middle East. It continues to work to reduce G&A costs, as contracts allow, and to optimize marketing and selling costs, based on its revenue. As a result, the loss in third quarter 2016 was 13 per cent smaller than second quarter 2016 and 55 per cent smaller than first quarter 2016.
|INCOME STATEMENT HIGHLIGHTS|
|3 Mos. Ended Sept 30||9 Mos. Ended Sept 30|
|Cost of Sales||2,099,286||2,056,247||6,443,560||7,124,131|
|Forex Loss (gain)||32,772||148,878||848,898||(412,231)|
|Net Income (loss)||(881,497)||254,260||(3,877,251)||1,143,019|
NTG Clarity continues to work on a number of prospective contracts as the company widens its reach into new geographical regions while serving existing customers in established areas. As revenues increase from the recent expansion, management expects to return the company to profitability and lay the foundation for continued growth in the coming years.
View the company’s complete financial statements online at www.sedar.com.
QIS Capital: NTG Clarity continues to struggle with the economic challenges in the Middle East. Management made progress during Q3 by announcing new contracts, reducing costs, and collecting on some outstanding receivables and the company continues to reduce the net losses announced over the last few quarters. Management is working diligently to return the company to profitability but this has been slow due to the economic condition and is taking longer than anticipated. There was some indication in the discussion that management is working on a number of new contracts which is certainly needed to overcome some of the higher costs associated with the recent expansions.
Quattro Exploration and Production Ltd. (QXP:TSX-V)
Current Price: $0.07 (coverage commenced Sep. 3/15 - $0.08)
In 2016, Quattro Exploration and Production Ltd. continues to focus on conventional exploration and development of petroleum and natural gas reserves in the Western Canadian Sedimentary Basin. The Company focused on operations, cost reductions, the addition of working capital, and the continuing evaluation of cost of services and production in Quattro’s core regions of operations in Western Canada.
On September 8, 2016, upon the application of the Company, the Court of Queen’s Bench of Alberta (the “Court”) granted an Initial Order transferring Quattro’s restructuring proceedings originally commenced under the Bankruptcy & Insolvency Act (the “BIA”) to the Companies’ Creditors Arrangement Act (the “CCAA”).
The Company continued to inform suppliers of the positive changes underway, and plans to continue to improve its efficiency to allow for the competitive development and production of the Company’s assets, ultimately to the mutual benefit of all stakeholders, shareholders and suppliers. At September 30, 2016, the Company’s working capital deficiency of $11,652,423 was primarily due to a number of non-reoccurring adjustments causing the Company’s long term debt covenants to be breached which resulted in the long term debt having to be re-classified as current. The Company intends to overcome this re-classification in less than 12 months through the monetization of a number of non-core assets in 2016 in combination with the issuance of equity, new debt and the continuing generation of cash-flow. The losses recorded at year end 2015 were partially as a result of a number minority partners’ business failures that had occurred in 2015.
The third quarter of 2016 included continued maintenance and plant turnarounds by third party midstream companies, restricted Quattro’s capacity to deliver natural gas to market and subsequently resulted in additional one-time charges for compression and processing.
The Company, at September 30, 2016, had on-line and idled production capacity of 2,500 boe/d as a result of the closing of the purchase of a 100% interest in 160 boe/d of oil production and facilities in Saskatchewan in the 1st quarter of 2016, giving the Company a low cost, long life opportunity to add oil production. In the 3rd quarter of 2016, the Company determined the potential in Saskatchewan would be under exploited utilizing the Company’s limited financial resources and it was determined that a minimum of a third of the Company’s operations in western Canada would have to be sold as part of a restructuring and re-capitalization of the Company. Therefore, additional work scheduled in Saskatchewan and turn-arounds in Alberta were delayed in order to the complete the divestiture in 2016.
Upon the completion of its divestiture and restructuring plan it is anticipated that the Company will have the financial resources that will allow it to complete a focused remediation to complete a low risk development program that includes 30 work-overs and re-entries and 8 new wells in 2017. The Company is targeting the addition of 750 boe/d, 60% oil and 40% natural gas production. In the third quarter, oil production averaged 318 barrels per day of 650 barrels per day of capacity due to seasonal turn-arounds that were delayed by engineering and the Company’s financial limitations. Upon the successful financing of its business plan, the Company intends to re-establish its efforts toward its next milestone of 800 barrels per day, which has been delayed as part of its on-going restructuring within CCAA.
In the second quarter of 2016, the fires in Northern Alberta, a non-recurring event, created additional challenges that continued to limit the Company’s revenues in the third quarter by over 20%, resulting in a material reduction in cash-flow that added to the challenges for the Company. This in addition to the rescheduling of turn-arounds to the 4th quarter limited production to an average of 1,302 boe/d.
|Financial Results (in 000s)|
|3 Mos Ended Sept 30||9 Mos Ended Sept 30|
|Oil & NGLs (boe/d)||318||305||478||297|
|Natural Gas (boe/d)||960||1,133||1,000||1,086|
|Total boepd (6:1)||1,302||1,476||1,496||1,419|
Subsequent to the third quarter 2016, the Company signed a letter of intent for the sale of certain oil and gas production, facilities and lands in Western Canada that represents 40% and 35% of the Company reserves and lands respectively to an Alberta-based private oil and gas exploration and production company. The aggregate sale price is $24,250,000 including cash totalling $8,000,000, 8,000,000 common shares of the purchaser at a deemed price of $0.50 per common share and the transfer of an estimated $12,250,000 of decommissioning liabilities. Upon closing, the Company intends to settle its current outstanding liabilities including trade payables and to reduce its term debt owing to improve the Company’s working capital and ability to invest. Following closing, the Company’s estimated average production will remain approximately 1,250 barrels per day and the Company anticipates that it will retain the potential to grow to its targeted 3,000 boe per day within the subsequent year.
On November 23, 2016, under its CCAA process, Quattro applied for and received the following orders from the Alberta Court of Queen’s Bench:
1. An extension of the CCAA stay of proceedings through December 16, 2016;
2. A Claims Procedure Order, whereby both pre-filing and subsequent creditors (as defined in the Order) are required to submit claims by December 21, 2016; and
3. Approval of certain amendments to the Company’s Interim Financing Agreement with its senior lender.
The Company fully expects to emerge from the restructuring process in the fourth quarter of 2016 and exit the process in the first quarter of 2017. In addition, the Company is in late-stage discussions on refinancing the Company with a private finance concern which is anticipated to provide additional funds for the exploration and production of its remaining properties.
QIS Capital: We would highly encourage everyone following the Quattro story to read the company’s management discussion and analysis which is filed on SEDAR. This discussion provides an indepth overview of the company divestiture and growth plans whereas we have only provided a summary above.