RE:I suspect I do share your point of view as far as the (seemingly under) evaluation is concerned. Having said this, the estimated EPS is based on “historical data” but it could not be excluded that all “bad debts” (prior to the insurance of the sales) have been taken into account.
Additionally, the final day for the “tax loss selling” for Canadian and US investors was December 24th. About 5% of the Company’ shares have been exchanged on the December 31th (!), with a substantial decrease of the SP. This could not be considered as normal trading conditions.
The problems facing the company could be summarized as follows:
- The management proved inaccurate in its former statements in relation with the LoC(s), the expected gross margins (Q1 and Q2 2014) and the launching of the SMS. The market lost confidence in the management (can we now trust the management statement about the 4.56% gross margin for November?)
- After 2 LoC failures (presumably after the financial institutions performing their DD), the Company is not in a favourable position to convince a third financial institution to provide funding…
- Additionally, the “Company’s indebtedness to some vendors” due to delinquency of the “Company’s largest insured customer” should not be neglected. The Company does not have the necessary cash flow to cope with this situation. When the Company will collect this (insured) amount ($7 Mio as per Q3 release statements?) is unknown but the current “Company’s indebtedness to some vendors” will obviously affect their commercial relations! (and also negatively impact any potential LoC discussions)
- The Company Expenses adjusted to reflect the Company’s operational activities (= Expenses excluding “Bad debts”, “Foreign exchange Results” and “Stock based compensation” but including “Finance charges”) have increased from $850,000 in Q1 to $1,100,000 in Q2 and up to $1,320,000 in Q3. Therefore, the Company (fixed) costs structure has substantially increased, partially compensating the increased “Gross Margin”. To cover those “fixed costs” (with a 3.5% Gross Margin), the company needs to generate a (rounded) quarterly $38 Mio in revenues (but not necessary to cover the “Bad debts”, “Foreign exchange Results” and “Stock based compensation”)
- The “Account Receivables” increased from $19.6 Mio in Q2 to $29.2 Mio in Q3 (including the above mentioned $7 Mio outstanding for more than 60 days) what raised additional questions…
- By the way, I do not know how the Company was able to generate $264,000 financial interests in Q3 (such quarterly “revenues” could be only generated if the Company invested $26 Mio during 3 months, at a 4% interest yearly rate). Could someone provide a reasonable explanation? (as already questioned by letsgetready)
In the best case scenario, the Company will succeed to solve the current issue related to the “Company’s indebtedness to some vendors” but will not be able, without major changes (including cost structure) and the related LoC, to further increase its revenues or to generate sustainable profit.
In the current situation, I believe that for the last quarter (2 months) will show a loss, while a major question mark remain about the “audited” yearly accounts (“Bad debts”) that could erase the 2014 “historical” profit…
I may be proven wrong (and I hope I will be) but it is time to consider those issues (and not to disregard them). Meanwhile, considering those risks, I will reduce my position (with a loss but should the SP rebound) and closely watch further developments.
Comments are welcome…
PS: I cannot logically explain Jason recent insider buying (except for the purpose of re-assuring the market and the Company’s commercial partners).