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QIS Update #5 2012 - February 1st 2012



Included in this update:

  • Audiotech Healthcare releases record financial results for quarter and year ended Sept. 30, 2011
  • Blackbird Energy announces first quarter financial results

 


QIS Capital has two upcoming Small-Cap Conferences this Spring 2012. On March 15, we will be in Calgary for an evening investment conference at the Coast Plaza Hotel and Conference Centre. In addition, we will be in Vancouver on April 10 with another slate of companies and guest speakers to provide some engaging presentations to investors at the Vancouver Convention Centre. We are actively looking for a few more presenters, so feel free to pass this information along to a company or management group that may have an interest in attending and/or presenting. For more information on these events and to register to attend, please visit: www.smallcapconference.ca. As always, attendance is free for all investors.

 

Time to take another look at Dalmac Energy (DAL:TSX-V) and Virtutone Networks (VFX:TSX-V). There has recently been a little selling pressure on these stocks and while trading liquidity remains very low in the small-cap market, this is a great time to pick up cheaper stock. Dalmac Energy is on-track to achieve revenues of about $30 million this fiscal year (ending April 30, 2012) along with earnings of approximately $2.5 million or $0.13-$0.15 per share. The company should be reporting their best quarter (Q3) in March. Dalmac is presently trading around $0.40. Virtutone is expanding its product and service lines and has a base recurring revenue and earnings stream of about $3 million and $300,000 ($0.02 per share), respectively. We expect the new product and service lines to incrementally improve margins and earnings on a go-forward basis. Virtutone is presently trading around $0.12.

 

Cobra Venture (CBV:TSX-V) should be announcing the results of its special shareholder meeting, which was held Jan 30, sometime in the next few days. Upon the successful completion of the sale of its freehold mineral and royalty interests in Saskatchewan for $5,250,000, Cobra Venture will have pre-tax cash of $7.75 million ($0.44 per share), 3.625 million shares of Zodiac Exploration ($0.05 per share) and additional working capital and minor property assets. Cobra is presently trading in the $0.26-$0.29 range.

 

Please feel free to email us anytime at info@qiscapital.com or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.


Audiotech Healthcare Corporation (AUD:TSX-V)
Website: www.audiotech.org
Current Price: $0.24 (coverage commenced Nov 8/04 - $0.14)

 

Audiotech Healthcare Corporation has announced the company’s financial results for the fourth quarter and fiscal year ended September 30, 2011. Audiotech is pleased to report record annual revenues, operating cash flow and net earnings for fiscal 2011. Total revenues for the year ended September 30, 2011, were $5,421,848, an increase of 6.3% over the $5,100,082, reported during the prior fiscal year. Net income for fiscal 2011 totaled a record $493,531 or $0.037 per share, an increase of 39.4% over fiscal 2010. Pre-tax net income for the year ended September 30, 2011, was $654,060 compared to $352,723 during fiscal 2010, an increase of 85%.

 

Total revenues for the fourth quarter ended September 30, 2011, were $1,385,166, an increase of 5.1% over the sales posted during the same period a year earlier. Revenues from the Canadian operations posted an increase of 4.4%, rising from $933,238 during the fourth quarter of fiscal 2010 to $973,979 in the current quarter. Sales from the U.S. clinics during the fourth quarter were $411,187, an increase of 6.9% over the same quarter in the prior fiscal year. For the fiscal year, revenue growth in the Canadian and U.S. operations were 8.1% and 1.9%, respectively.

 

Gross margins of 71.6% during the fourth quarter, and 70.1% for fiscal 2011, were slightly higher than the long-term historical average due to a favorable product mix. This compares to 69.7% in fiscal 2010 and the long-term (5 year) average of 68.9%. Management expects gross margins to range from roughly 68% to 71% during fiscal 2012.

 

Direct clinic costs, which include selling and advertising costs, rent and clinic overheads, clinic labour costs, and amortization of audiology equipment, increased by 1.6% during the fourth quarter of fiscal 2011 as compared to the same quarter a year ago. Selling expenses decreased by 7.9% as the company benefited from slightly higher marketing expenditures during the third quarter that continued to provide sales activity in the fourth quarter. Salaries and benefits increased 1.5% while rent and clinic overheads increased by a modest 2.0%. Amortization increased significantly by 23.2% as a result of the reclassification of assets related to the sale / leaseback transaction as discussed below which led to an increase in amortization on the building. Direct clinic costs as a percentage of sales were 48.6% versus 50.2% in the same quarter a year earlier. For fiscal 2011, direct clinic costs declined by 1.4% on an overall basis. Selling expenses declined 13.4% on a year-over-year basis while all other categories changed by less than 1%. For fiscal 2011, direct clinic costs as a percentage of sales were 48.3% versus 52.0% in fiscal 2010.

 

General and administrative expenses totaled $99,610 for the quarter, well below the historical average due to a $28,801 foreign exchange gain recorded during the quarter. For the year ended September 30, 2011, general and administrative costs decreased 3.1% as compared to the prior year. As a percentage of sales, general and administrative costs were 9.7% as compared to 10.7% a year earlier. Increases in general expenses and head office salaries were offset by decreases in all major expense categories including professional fees, interest costs and foreign exchange.

 

Operating income before other items and income taxes totaled $219,159 for the quarter, an increase of 55.6% over the fourth quarter of fiscal 2010. For the fiscal year ended September 30, 2011, operating income before other items and income taxes was $657,270, up 84.9% from the $355,483 reported during fiscal 2010.

 

In late June 2011, the company's U.S. operating subsidiary entered into a sales/leaseback transaction whereby it sold its land and building in Idaho Falls for gross proceeds of $435,000 (U.S.) The subsidiary has entered into a long-term agreement to lease the building from the purchaser and will continue its operations in the location. The proceeds from the sale were used to repay the outstanding balance remaining on the original building loan of $230,533 (U.S.). The company recorded a pre-tax gain on the sale of the building in the amount of CDN$52,257 during the third quarter. During the third quarter of fiscal 2010, this new lease was recorded as an operating lease. During the year-end audit, it was determined that the lease should be recorded as a capital lease. Accordingly, the pre-tax gain on the sale of the building recorded during the third quarter was reversed in the fourth quarter and the land and building were re-capitalized and a capital lease obligation was recorded under long-term debt.

 

After the adjustment for the reversal of the gain on the sale of the building during the fourth quarter, pre-tax net income was $164,387 for the fourth quarter, an increase of 19.0% on a year-over-year basis. Pre-tax net income for the year ended September 30, 2011, was $654,060 compared to $352,723 during fiscal 2010, an increase of 85.4%.

 

During the first quarter of fiscal 2011, the company's remaining tax loss carryforwards were utilized and applied against taxable income. A provision for current income taxes of $69,973 was recorded during the fourth quarter of fiscal 2011, bringing the total provision for the year to $195,270. As a result of the company's continued strong profitability, during the second quarter, the company recognized a $33,888 future tax asset related to timing differences originating from goodwill and fixed asset amortization rates for accounting and tax purposes. A future income tax recovery of $853 was recorded during the fourth quarter bringing the total to $34,741 for fiscal 2011.

 

The company is pleased to report net income of $95,267 or $0.007 per share for the fourth quarter of fiscal 2011. This compares to earnings of $139,445 during the corresponding quarter in fiscal 2010. The reduction in net income is due to the reversal of the gain on disposal of capital assets as noted above and the net provision for income taxes of $69,120 (as compared to a net recovery of taxes of $1,352 a year earlier).

 

Net income for fiscal 2011 totaled a record $493,531 or $0.037 per share, an increase of 39.4% over fiscal 2010 despite the substantial increase in income taxes due to the exhaustion of all remaining tax loss carryforwards in the first quarter.

Operating cash flow for the quarter remained strong at $193,577, bringing the total operating cash flow for fiscal 2011 to $598,098. The represents an increase of 22.2% compared to fiscal 2010.

 

As a result of a $10,867 cumulative translation adjustment, comprehensive income for fiscal 2011 was $ 482,664 compared to $338,483 in fiscal 2010

Details of all expenses can be found in the audited financial statements for the year ended September 30, 2011.

Liquidity

As at September 30, 2011, Audiotech had a cash balance of $1,113,735, an increase of $535,751 since the beginning of the fiscal year. Working capital increased to $1,005,750. Management is confident that the company has sufficient working capital to meet its short and long-term needs, growth requirements, and accelerated debt repayment plans for the foreseeable future.

 

During fiscal 2011, the company undertook several initiatives aimed at accelerating the repayment of its long term debt.

 

In late June, the company's United States operating subsidiary entered into a sales/leaseback transaction whereby it sold its land and building in Idaho Falls for gross proceeds of US$435,000 (CDN$422,211). The subsidiary has entered into a long-term agreement to lease the building from the purchaser and will continue its operations in the location. The proceeds from the sale were used to repay the outstanding balance remaining on the original building loan of US$230,533. During the fourth quarter, it was determined that the new lease is a capital lease. Accordingly, the building was recapitalized and a capital lease obligation was recorded in the amount of $463,455.

 

Including the repayment of the building loan noted above, a total of $511,350 in long-term debt and $18,185 in capital lease obligations were repaid in fiscal 2011. Long-term debt, other than capital lease obligations was reduced from $1,378,515 to $857,413. All of the debt repayment initiatives have been undertaken without compromising working capital available for day-to-day operations and growth initiatives. It should be noted that none of the corporation's debt carries early payment penalties. Management believes that the accelerated debt repayment will not only reduce interest costs, thereby enhancing profitability, but that the resulting enhancement to key financial ratios will be appealing to potential investors and large consolidators in the industry which may wish to acquire the company to expand their market share. Depending on the company's working capital needs to finance further growth initiatives, management intends to use a significant proportion of cash flow from operations to reduce debt in fiscal 2012. Management and the Board of Directors have established a goal of eliminating long-term debt within the next two to three years.

 

BALANCE SHEET
(As at September 30, 2011)
Current Assets $ 1,787,710
Total Assets 2,646,029
Current Liabilities 781,960
Long-Term Debt 1,183,049
Shareholders' Equity

670,430

 

Q4 AND FISCAL 2011 SUMMARY
  3 months ended Sept. 30 Year ended Sept. 30
  2011 2010 2011 2010
Sales $1,385,166 $1,317,811 $5,421,848 $5,100,082
Gross Margin 991,567 932,501 3,801,652 3,552,945
Direct Clinic Costs 672,798 662,072 2,617,271 2,653,610
Interest on LT Debt 11,134 26,374 86,767 104,324
Income before Tax 164,387 138,093 654,060 352,723
Net Income 95,267 139,445 493,531 354,075
per share 0.007 0.011 0.037 0.027

 

Recent Developments

On November 1, 2011, the company's Canadian operating subsidiary entered into a 6 month sub-lease to rent its unoccupied former southwest Calgary clinic space to a third party for $2,700 per month. The tenant has a 6 month renewal option and also has an option to purchase the space from a company controlled by a director of Audiotech.

In accordance with the company's aggressive debt reduction program, the company repaid a total of $100,000 in promissory notes during the first quarter of fiscal 2012. The notes were scheduled to mature in April 2013.

100,000 common shares were issued in January 2012, upon the exercise of 100,000 stock options at $0.10 per share by an employee and former officer of the company. Audiotech currently has 13,329,825 common shares issued and outstanding with a book value of $1,760,340.

 

QIS Capital Comments:

 

Audiotech continues to report solid profitable quarters and had a record year in fiscal 2011. After the adjustment for the reversal of gain on the sale of the building during the fourth quarter due to IFRS transitional rules, pre-tax net income was $164,387 for the fourth quarter, an increase of 19% on a year-over-year basis. Pre-tax net income for the year ended September 30, 2011, was $654,060 compared to $352,723 during fiscal 2010, an increase of 85%. After tax, the company earned $0.037 per share for fiscal 2011 and had positive working capital at the end of the year of over $1 million. Long-term debt was down to $743K at the end of Q4 and the company paid off an additional $100K of debt prior to the end of the quarter. Audiotech paid down 37% of its total long term debt in fiscal 2011 and is committed to aggressively pay down long-term debt for fiscal 2012.

 

Audiotech’s shares are presently trading at a p/e multiple of 6.5 times and with a market capitalization of $3.2 million (0.6 times annual revenue). The company has been very successful in delivering on its strategy to reduce debt, reduce costs, and increase revenues.


Blackbird Energy Inc. (BBI:TSX-V)
Website: www.blackbirdenergyinc.com
Current Price: $0.18 (coverage commenced Aug 19/11 - $0.18)

 

During the three month period ended October 31, 2011, Blackbird Energy incurred a net loss of $138,015 (2010 - $100,542). At October 31, 2011, the company had $28,919 (July 31, 2011 - $809,842) in cash. Working capital (deficiency) at October 31, 2011 was ($115,594) (July 31, 2011 - $711,937). Blackbird’s financial position remains stable. The company raised gross proceeds of $187,000 by issuing 935,000 common shares pursuant to the completion of tranche 2 of a private placement. The company also received $55,000 in unsecured loans during the current period.

 

On October 19, 2011, Blackbird announced that it was informed by Donnybrook Energy that the Montney Horizontal formation test well was successfully completed and flow tested. The well was tested over a 4 day period and produced gas an condensate over the last 24 hour period of the test at approximately 4.3 million cubic feet per day (mmcf/day) and 295 barrels per day (bbls day) from a 1,254 meter horizontal section. The well tested at comparable or better rates to a well located approximately 5 miles to the south which was drilled and completed in a similar manner. On January 10, 2012, the company announced that a second well had reached total depth and the completion string has been installed in preparation for fracing operations. An operational update was provided on January 27, 2012 on the second well. Blackbird and Donnybrook are conducting further production tests and are preparing the well in readiness for tie-in to sales which is estimated to be accomplished by April 1. See the January 27, 2012 news release for further details. The company is also planning for drilling a third well.

 

BALANCE SHEET
(As at October 31, 2011)
Current Assets $ 32,994
Total Assets 5,942,430
Current Liabilities 148,588
Long-Term Debt nil
Shareholders' Equity 5,723,454




Q1 SUMMARY
  3 months ended Oct. 31
  2011 2010
Revenues $ nil $ nil
Expenses 145,419 92,635
Foreign Exchange (7,404) 8,037
Net Loss 138,015 100,542
per share 0.0 0.0

 

QIS Capital Comments:

 

Blackbird management has indicated that they are looking at a number of options to finance further high-impact wells in the Montney shale play, including the third well which is scheduled to spud in late February. While management is disappointed with the mechanical failure experienced in the second well, Blackbird is moving forward aggressively with further property development and production tie-in.


 

Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 719,500 shares of Audiotech Healthcare Corporation; 94,000 shares and 450,000 options of Blackbird Energy Inc.; 416,000 shares of Cobra Venture Corporation; and 25,500 shares and 200,000 options of Dalmac Energy Inc. QIS Capital has a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2012 QIS Capital Corporation.

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