Wednesday, 7 February 2007

Record EBITDA Reported in Q2

Neptune announced its results for Q2 on Jan. 29th, which included the following (as compared to Q2 2005):
A 44% increase in revenues to $1.9 million.
A 123% increase in EBITDA to $546,000.
Net loss decreased by .08% to $449,000, or $0.13 per share.
Management credits the recent reorganization of the sales and marketing department for its recent traction.

All forecast numbers are taken from the Catalyst Equity Research report of October 18, 2006.
It is important to note that Neptune’s current stock option plan in conjunction with the increase in share price in recent months affected the bottom line without any impact on cash flow. Accounting policies of granting stock options caused a $729,579 non-cash expense this quarter.

As this is fairly new phenomenon that will continue to occur with other companies, it deserves a bit of explanation. Neptune has issued a number of stock options to its consultants, which vest over periods of time. Neptune expenses these stock options quarterly, and when it does, uses the Black-Scholes pricing model or a fair value model (based on the volatility of the stock, life of the option, price on date of issue and the current risk-free rate of interest). As the deemed “fair value” increases, caused mostly by Neptune’s recent hike in share price, unfortunately it creates a disadvantage for the financial statements as it increases the value of the option when it is expensed, although the strike price of the option remains the same as it always was.

What is important for investors to know is this: the number ($729,579) does not affect the operations of the business, is not indicative of shareholder dilution, or representative of any sort of real cost to the company. In fact, if anything it mitigates taxes payable.

Click here for the full earnings release.