ESTec Systems Corp 9 Month Results(Ending March 31st 2016)
Price: $0.105
Common Shares: 10,461,629
Insider Holdings: 85.4% as per the last information circular
Financials
Assets
Cash: $318,378
Receivables: $1,190,733
Inventory: $316,717
Tax Recoverable: $69,335
Prepaid Expenses: $77,942
Property & Equipment: $124,694
Intangible Assets: $296,049
Goodwill: $753,702
Total Assets: $3,147,550
Liabilities
Bank Debt: $265,000
Payables: $682,211
Customer Deposits: $34,335
Callable Debt: $85,203
Total Callable Debt: $963,970(Due July 2026 as per their MD&A)
Advances from parties: $465,460
Total Liabilities: $2,496,179
Below is a breakdown of sales in both the Engineering and Electronics departments over 9 months in 2016, 1 year in 2015, and 1 year in 2014. The goal is to show that although sales in Engineering are decreasing, the sales in Encore Electronics are increasing and should eventually make up for prior losses, especially if the company continues to cut costs from its engineering department. As the US economy improves, so will electronics sales since this asset is US based. Encore sells parts to major corporations such as Microsoft, GE, GM, Ford, NASA, etc: encore-elec.com
2016 Sales after 9 months(This will obviously increase with Q4 results)
Engineering - $905,361 – Net Loss of $272,683
Electronics - $3,224,296 – Net income of $234,450
Total Assets This Quarter - $3,147,550
Total Liabilities This Quarter - $2,496,179
2015 Sales after 1 year
Engineering - $2,159,901 – Net Loss of $121,360
Electronics - $3,674,444 – Net Income of $656,550
Total Assets Year End - $2,911,449
Total Liabilities Year End - $2,273,047
2014 Sales after 1 year
Engineering - $2,017,208 – Net Loss of $499,565
Electronics - $3,231,516 – Net Income of $267,994
Total Assets Year End - $2,462,691
Total Liabilities Year End - $2,481,167
Over three years, Assets continue to increase and liabilities seem to bounce in between the $2.2 to $2.5 million range.
MD&A Highlights
Edmonton – 25 May 2016 The third quarter reflects the continuing impact of the decline in oil prices on our engineering operation. Revenues from Allan R. Nelson Engineering are down as compared to last year. Revenue from Encore remains stable and includes the effect of the exchange rate differential. We do not expect current economic conditions to change through the balance of the fiscal year. As a result Allan R. Nelson Engineering will continue to face challenges. During the third quarter Allan R. Nelson Engineering has adjusted its cost structure to offset its reduction in revenue. We will continue to monitor and adjust as required. The Encore Electronics business continues to perform to expectations. Management of Encore is actively working on diversifying their customer base to reduce economic dependence on a small number of customers.
The company has negative working capital. Over the next year the company expects to meet all cash requirements from cash flow. While the Company has a significant amount of its receivables invested in a small number of clients, these funds are largely attributable to insurance clients and they have reserves allocated to pay these receivables.
A demand non-revolving term facility has been negotiated to cover the cash requirements to purchase Encore Electronics Inc. Debt repayment is scheduled over 15 years to July 2026 to be repaid from the operating profits of Encore Electronics Inc.
During the first quarter the Company signed an amended demand loan agreement. (see note 3 and 11 of the financial statements). See also discussion on liquidity risk.
The bank revolving demand facility #1 is authorized to a total of $275,000 CAD with interest payable at prime plus 3.55%. At March 31, 2016 the prime rate is 2.7%. At March 31, 2016 $265,000 (June 2015, $65,000) was outstanding on this credit facility. A general security agreement and a guarantee and postponement of claim of $300,000 by ESTec have been pledged as collateral for the credit facility.
In the third quarter, the Allan R. Nelson Engineering subsidiary continued to feel the effects of low activity in the Oil & Gas industry. The Encore Electronics subsidiary continued to perform on a comparable basis relative to last year. Management has been reviewing the sales and marketing efforts to see if additional opportunities can be identified.
During the quarter no stock options were granted to employees and directors of the company. In the first quarter of the year 235,000 options expired.
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