QIS Update #30 2013 - December 13th 2013
Included in this update:
- Virtutone Networks releases profitable Q3 financials and announces the acquisition of a customer base and new revenues
Where’s the Santa Claus rally? While we have to admit that it’s been a pretty amazing year for the fundamental small-cap investor the last month or so has been quite challenging. The TSX Venture is nearing another 52-week low and stocks overall have been in a downward trend for the past few weeks. We’ve made a few additions to our online stock portfolio with the latest purchase being Questor Technology (QST:TSX-V). The portfolio is up 58% over the past 2 years.
We are expecting a production update on Blackbird Energy (BBI:TSX-V) and Pennant Energy (PEN:TSX-V) early next week. We’re getting lots of calls on this and we are aware the company is delayed in reporting but we are being told that a release is being put together. The companies have been bringing the well on slowly soas not damage the formation and to produce at optimal levels.
QIS Capital would like to wish all of our investors a very joyous Christmas Season and wish you all the best as we enter 2014!
Please feel free to email us anytime at email@example.com or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.
Virtutone Networks Inc. (VFX:TSX-V)
Current Price: $0.37 (coverage commenced Sep. 9/11 - $0.10)
Virtutone Networks Inc. has recently filed its financial and operating results for the three and nine months ended October 31, 2013.
Monthly service and activations of $12,263,552 and product sales of $225 during the three month period ended October 31, 2013 resulted in total revenue of $12,263,777. This revenue was offset by cost of services provided and products sold in the amount of $11,548,864 and resulted in a gross profit before expenses of $714,913. Total revenue for the three month period ended October 31, 2012 was $1,009,178 and gross profit before expenses was $152,420. The significant increase in revenue in the third quarter of fiscal 2014 as compared to the third quarter of fiscal 2013 was due primarily to the growth in the company’s wholesale division. Gross profit also increased, albeit at a lesser percentage, as margins on wholesale business are much lower than margins on retail business. Virtutone’s net income/loss and comprehensive income/loss after taxes was $208,536 for the three month period ended October 31, 2013 as compared to a net loss of $234,667 during Q3 last year.
The company’s wholesale division continues to achieve new milestones. Revenue from wholesale was over $7,000,000 in November 2013, as previously announced. Although the company exceeded its target margin of 5% for the three and nine months ended October 31, 2013, it should be noted that this was assisted by the proceeds of the sale of the retail division being included in revenue. Virtutone still maintains its target margin of 5%, but uses a more conservative 4% in all of its operational calculations in order to account for potential volatility in the wholesale market.
During and subsequent to the period ended October 31, 2013, the company invested in a new automated routing and billing software management system that will allow Virtutone to continue to reduce support staff for the daily operations of the company. The new system is currently live and customers are being transitioned from the previous system. At the end of the transition phase, management expects to realize immediate operational cost reductions.
During the period ended October 31, 2013, in a further effort to reduce support costs, Virtutone set up a new Network Operations Centre (NOC) in Cairo, Egypt. The company was able to hire 14 support personnel to man the NOC 24/7/365. This will allow the company to reduce its technical staff at its corporate headquarters in Sherwood Park, which will result in overall cost savings. The new NOC also allows the company to be proactive rather than reactive when dealing with voice quality issues, by identifying periodic carrier issues and taking corrective action before the customer becomes aware. This lessens the risk of traffic being routed away from us, and assists in a more stable revenue base.
As at October 31, 2013 there were 20,928,755 common shares outstanding with resultant share capital recorded at $1,689,985. Subsequent to October 31, 2013, 160,000 stock options were exercised, and a corresponding number of common shares were issued out of treasury. Also subsequent to October 31, 2013 and pursuant to a recent private placement, 6,000,000 common shares were issued. At December 11, 2013, there are 27,088,755 common shares outstanding.
Management’s vision of the company is one of a simple business model that generates sustained profitability. Aggressive growth, a streamlined and automated wholesale operation, sale of the retail division, and the new Board of Directors are all major steps that the company has taken to help bring this vision to reality. Management and the newly appointed Board of Directors are working hard to ensure proper capitalization of the company to support its growth. Management is keenly aware that growing too fast can be detrimental, and is taking every effort to manage growth in an orderly fashion.
Management will remain vigilant in the area of cost control and revenue generation and looks forward to a return to profitable results in the remainder of fiscal 2014 and beyond.
|LATEST FINANCIAL RESULTS|
|3 Months Ended Oct. 31||9 Months Ended Oct. 31|
|Cost of Sales||11,548,864||856,758||23,123,434||1,544,973|
(as at October 31, 2013)
|Current Assets||$ 5,487,637|
|Finance Lease Obligations||143,788|
Virtutone Networks Inc. has announced that it has acquired certain customers of its largest customer in an effort to diversify its customer base.
The company has purchased five key underlying customers of its largest customer. Adding these key customers will ensure that no one customer represents more than 25% of the company’s total revenue.
In addition to the diversification, Virtutone will take over an additional $1.2 million in revenues per month at a gross margin of approximately 3% ($36,000 per month of additional margin) as a part of the acquisition.
Virtutone has agreed to issue one million shares for this transaction for a deemed value of $370,000, in two parts - 50% upon closing of the transaction and 50% 6 months after closing, provided that the gross margin from the addition revenue remains at $36,000 or more per month.
This acquisition is a great achievement for Virtutone, as we are able to reduce our risks by diversifying the customer base and gain additional revenue and margin. We will not have to incur any additional overhead to manage this added revenue, which means the gross margin will flow directly to our bottom line, said Jason Allen, Chief Executive Officer of Virtutone. The transition of accounts will start immediately and should be complete by the end of December.
This transaction is subject to approval by the TSX Venture Exchange.
QIS Capital: A solid profitable quarter for Virtutone Networks on revenues of just over $12 million. What we don’t know is how much the sale of the retail division contributed to revenues and earnings. Regardless, the last quarter had revenues of $12.2 million and Virtutone has already announced revenues in November alone of $7.2 million plus another major acquisition which should add an additional $1.2 million per month. Based on November sales, that puts the company on track for annualized revenues of over $100 million, an incredible achievement from revenues over the past 12 months of about $25 million. The company also appears to have stabilized and actually reduced many costs so further margins should flow in large part directly to the bottom line.
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