QIS Update #5 - 2017 - Lingo Media reports 2016 annual financial results and NTG Clarity Networks files 2016 annual financial statements - May 3rd 2017
NTG Clarity Networks files 2016 annual financial statements
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Lingo Media Corporation (LM:TSX-V)
Current Price: $0.23 (coverage commenced Mar. 22/16 - $0.76)
Lingo Media Corporation has announced its financial results for the fourth quarter and year ended December 31, 2016. All figures are reported in Canadian Dollars and are in accordance with International Financial Reporting Standards unless otherwise noted.
“2016 was a year of successful development for our online division as we completed and launched English for Success, a series of lessons and activities derived from ELL Library as a premium solution for governments and educational institutions. As a result of delays in the launch of a large project, SENA in Latin America, we ended up with decreased revenues for the year. The EdTech market for our online training products continues to be strong in Latin America and beyond and we have a large sales pipeline that we expect to convert into sales contracts in the balance of 2017,” said Michael Kraft, President & CEO of Lingo Media.
Operational Highlights - 2016
Online English Language Learning:
- developed and released ELL Studio, a speech recognition and practice pronunciation mobile app that enables learners to practice their spoken English skills anywhere, any time
- completed the development of ELL Technologies’ new online French course in addition to an online Portuguese course
- entered into and launched a partnership with Telefonica Educación Digital S.L.U. to market, sell and distribute ELL Technologies’ full suite of English language training products in Peru
- secured a distribution agreement with Gale, a subsidiary of Cengage Learning, to market and sell a co-branded version of ELL Scholar, named Gale-Lingo, as a self-study solution for digital libraries world wide, excluding Latin America
- started to market and sell, English for Success, a series of lessons and activities derived from ELL Library as a premium solution for governments and educational institutions
- entered into a software licensing contract for ELL Technologies’ programs with a distributor group in China
- 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
- secured a sales contract with Universidad Da Vinci to teach English to students training to become teachers in Mexico
- entered into a sales agreement with Euroidiomas to offer a blended solution to teach English teachers in MINEDU (Ministry of Education of Peru)
- secured a distribution agreement with Innovalingua, a reseller in Mexico, with offices in Mexico City and Baja California, and a team dedicated to selling ELL Technologies products
- forged a strategic partnership with Virtual Educa, an initiative of the Organization of American States promoting a better education through technology in Latin America
Print-Based English Language Learning:
- expanded the market for PEP Primary English and Starting Line programs with People’s Education Press by launching into three new provinces across China.
Corporate Highlights - 2016
- loans payable of $580,000 were retired and repaid in full as of the year-end in addition to subsequent to year-end bridge loans have also been repaid in full
- warrants and stock options were exercised resulting in net proceeds of $2,273,829
- expanded sales channel with the strategic hire of Laurent Glorieux, with more than 16 years of experience to lead the sales team and expansion into Asia and the Middle East
Financial Highlights for the Year Ended December 31, 2016
- Revenue for the year ended December 31, 2016 totalled $3,195,221 as compared to $4,925,735 in 2015, a 35% decrease.
- Income before amortization, share-based payments, depreciation, finance charges and taxes was $1,445,101 compared to $3,483,161 in 2015.
Financial Highlights for the 4th Quarter Ended December 31, 2016
- Revenue for the fourth quarter ended December 31, 2016 totalled $736,309 compared to $1,276,248 for the same period in 2015.
- Operating expenses for the quarter ended December 31, 2016 totalled $531,817 as compared to $238,087 in 2015, due to non-recurring one time costs.
- Net loss for the quarter was $36,056 or ($0.00) loss per share (basic) based on 34 million shares as compared to net profit $633,225 for the same period for 2015 or $0.02 (basic) based on 28.7 million shares.
- Income before amortization, share-based payments, depreciation, finance charges and taxes was $204,492 compared to $1,038,161 in 2015.
Balance Sheet as at December 31, 2016
- Cash and cash equivalents as at December 31, 2016 totalled $84,303 as compared to $409,022 as at December 31, 2015.
- Total liabilities as at December 31, 2016 totalled $731,159 as compared to $1,186,167 as at December 31, 2015, an improvement of $455,008.
- Current ratio improved to 5.1:1 for the period ended December 31, 2016 as compared to 2.4:1 as at December 31, 2015.
- Book value improved to $6,445,033 as at December 31, 2016 as compared to $4,046,784 as at December 31, 2015
“We believe we are on the right track with a very deep and active sales pipeline combined with market acceptance of our products achieved over the past 18 months. We are also excited about what lies ahead including the proposed business combination with Schoold which we announced at the end March and anticipate entering into definitive deal terms over the next 30 days,” said Michael Kraft.
The audited financial statements for the year ended December 31, 2016 and Management Discussion & Analysis are available at www.sedar.com.
QIS Capital: Financial results over the last half of 2016 were well below our initial expectations. Increased expenses coupled with a significant reduction in revenue almost completely eliminated net income for the year. We are waiting on an updated vision from management implementing the merger with Vested Finance. This could change the complexity of Lingo Media in a significant way. Q1 results should be out by the end of May.
NTG Clarity Networks Inc. (NCI:TSX-V)
Current Price: $0.04 (coverage commenced Feb. 4/10 - $0.045)
NTG Clarity Networks Inc. has reported its year end results for the fiscal year ended December 31, 2016 (all figures in Canadian Dollars).
2016 has been an extremely challenging year for NTG Clarity. There were a number of factors that contributed to the hurdles faced by the Company, both operationally and financially. Three major factors are explained in more detail below:
2) Significant capitalization of StageEM was impaired: During the first half of 2016, we continued to be heavily involved in the development of our new product, StageEM. We invested approximately $4 million to develop StageEM; however, impairment testing at year-end resulted in the investment being written off as anticipated revenue from sales was delayed. Despite this write off, the major modules were successfully developed and we are now actively promoting the product for sale.
3) Devaluation of Egyptian pound resulted in close to $2 million loss in revenue and foreign exchange effect: Despite difficult conditions, NTG Egypt's revenue has been growing for the last few years. In November 2016, the Egyptian pound was floated, and its value quickly dropped from around 6.4 EGP to the Canadian dollar, to about 13.5 EGP to the Canadian dollar. NTG Egypt's unconsolidated revenue of approximately 27M EGP in 2016 translated to around $1.7M at year end, resulting in a devaluation of about $2M. This resulted in a loss in revenue of approximately $1 million as well as almost $1M in exchange loss on translation and foreign exchange loss.
In spite of the challenges faced by NTG Clarity during 2016, some of the key achievements during the year will enable the company to achieve our success and growth objectives in the coming years:
- Solidified our position with our new customer base which is expected to lead to increased business.
- Introduced our new Stage Enterprise Management (StageEM) module called Voice Over WiFi, which is in high demand by network operators.
- Aggressively marketed our new product, StageEM, which was very positively received by our customers.
We continue to deliver NTS; our Operations Support System/Business Support System (OSS/BSS) product and the associated consulting services and training. NTS continues to generate meaningful revenue and we expect it to generate positive net cash inflows into the foreseeable future.
To better understand the financial results for the year ended December 31, 2016, it is important to discuss some key factors affecting Q4 2016 results. Consolidated revenues for the three months ended December 31, 2016 were $599,251 compared to $3,872,393 for the same period in 2015. The significant reduction in revenues was due to a write down in unbilled revenues of $1,054,355, and an approximate $1M reduction in revenues reported by the Egypt operating segment due to the devaluation of the Egyptian pound in November 2016.
Gross margin for Q4 2016 was ($2,394,476) compared to $342,151 for the same period in 2015. This was because of the high bad debt expense of $1,698,654 (2015: 61,031), which included a provision for bad debt in the amount of $644,299 (2015: $61,031) and an impairment of unbilled revenue in the amount of $1,054,355 (2015: $Nil). We expect that a good portion of this unbilled revenue amount will be recognized in 2017. Gross margin for the year ending December 31, 2016 was only 17% because of this provision.
The Corporation's operating expenses were $7,401,310 in 2016 compared to $3,417,226 in the prior fiscal year and included significant increases in selling and G&A as a result of ramping up new selling initiatives and offices. After Q3 2016, management began staff, salary, selling and travel reductions to bring expenses more in line with existing revenues.
NTG Clarity reported a loss of $8,649,236 in Q4 2016 compared to a loss of $774,574 during the same period in 2015. For the 2016 year, the company had a net loss of $12,526,486 compared to net income of $368,446 in 2015. The significant net loss in 2016 was primarily due to the following:
- higher selling and G&A expenses ramped up at the end of 2015. As of the end of Q3 2016, we are working to reduce staff, salaries, and expenses to optimize for our lower revenue.
- a $1.7M provision for bad debt and a $1.1M write down of unbilled revenue.
- devaluation of Egyptian pound resulted in a close to $2 million loss in revenue and foreign exchange effect
- the $4M impairment of the StageEM intangible asset as anticipated revenue from sales was delayed.
Working capital as at December 31, 2016 was ($5,119,015) compared to $4,667,707 at December 31, 2016. The negative working capital was primarily due to a $3.5 million reduction in accounts receivable because of delayed projects, and the use of working capital to fund the investment in the development of our new software product, StageEM.
Looking towards the future, we are committed to bring NTG back to profitability and growth in 2017. Q1 2017 revenues are expected to be back in line with historical norms, and shareholders will see the reduction in costs we have worked to implement over the last two quarters. We will also focus on capitalizing on the goodwill we have with our existing customers to expand our business and increase our margins. We will concentrate on marketing our products NTS, StageEM and Voice Over WiFi, which are currently in high demand and have higher margins.
Ashraf Zaghloul, CEO of NTG Clarity stated, "I would like to thank our shareholders for their continued support through this challenging past year. Our renewed focus on existing customer goodwill and our newer customers will help us drive future growth. I am excited about the scope of new opportunities that lie ahead, as we have laid the foundation for the next few years."
QIS Capital: Again for the year ended December 31, 2016 financial results were very disappointing. The reasons behind the poor financial performance were clearly spelled out in the press release and don't require additional explanation. Q1 results are expected to be released in a few weeks and we are expecting revenues to be back around the $3 million mark with a significant reduction in operating expenses.