Google Finance
Filing
Apr. 18, 2017
Q1 2017(Year end Sept. 30)
Current Price: $0.19
1.Basic Information
(1) History
This is a Newfoundland origin company founded by Emad Rizkalla at 1992 who came to Canada from Egypt at early age. Originally it did a lots of stuff and at 2004 it spun out 2 IT business and solely focused on e-learning. At 2012, it IPO'd through reverse merger. It since grow revenue from $10m at 2012 to $25m at 2016.
(2) Business related:
The company has two divisions:
1) Bluedrop Training and Simulation: Military aircraft training and simulation. It creates the courses and simulator and do maintenance work. This is its major business accounts around 70% of revenue. It is done by contract with government and aircraft company. It might be quite hard to get in and get contracts.
2) Bluedrop Learning Network: e-Learning for workforce. Its actually focused on LMS(learning management system) for government, unions, agent etc. It is more business oriented and less academic.
(3) Management.
Emad Rizkalla is the key person in the company. He seems quite capable of the role and growing the company quite well.
(4) Debt and Credit facility.
1) $3m convertible debt at 14%. It will be mature at end of 2017 and is convertible at $0.15. I believe those will be converted.
2) $3m term loan at 4%. Will mature at 2019. This is intent to be used to pay down the convertible but I think it won't need it anymore. Currently it is in restricted cash.
3) $400k Newfoundland provincial loan at 4.75%.
4) $1m Nova Scotia provincial loan at 5%.
5) $500k interest free loans.
6) $1.8m royalty obligation, $40k/month till May 2017, then 1% of monthly revenue till paid down. Currently the company has $2m average monthly revenue, so it might be $20k/month.
7) $1.8m ACOA-AIF unsecured Royalty obligation: most pay 5% of yearly revenue related to the funding research.
Total cash $1.1m + $3m restricted; Total interest bearing debt $7.4m; Total interest free debt $3.9m.
Remove the convertible, interest bearing debt will be $4.5m with average 4.5%.
(5) Insider holding, options, Insider trading info, share buy back.
Derrick Rowe: Executive Chairman, 14.5m shares, 14%.
(6) Employee numbers
(7) Industry comparison.
(8) Major events
2. Financial data.
3. Valuation
(1)Once the convertible debt is over, the new interest expense would be only around $200k/year compare to over $650k expense recorded in 2016.
(3)Net income in 2016 is about $1m. Depreciation $1.1m. Financial cost $1.9m, Real interest $0.7m. Impairment+options $400k. CapX $100k. If added the difference up, the real income is $1+($1.9-$0.7)+($1.1-$0.1)+$0.4=$3.6m. Compare to current $22m market cap. It is quite cheap. However, the CapX is low, real might be $1m more. But if added the extra $450k interest saving. It still could generate close to $3m income.
4. Risk
1)It is revenue mainly from contracts with small number of customers. It might be versatile ans so was the profit. The 2016 is a exception yeas so far. The trend might not be continue.
2) The Atlantis acquisition seems not an easy one. I hope the management learn the lesson and be cautions. The debt it took is not really good term.
5. Conclusion
The company is growing very and managed well and current price is acceptable.
6.Links
