Monday, 28 April 2008

AeroMechanical Files 2007 Year End Report

AeroMechanical Services Ltd.
(TSX-V: AMA)
Basic Shares: 82.2 million
Fully Diluted: 90 million


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The message in AeroMechanical's (AMA) 2007 Annual Report is that a number of bricks were added to the company's foundation and in that regard it was very much another year of building.
Revenues were nearly double over 2006 but increased marketing costs left a sizeable net loss.
Nevertheless, investors can take some comfort in the fact that the vast majority of expenses are geared to increasing business and there is plenty of cash in the kitty to carry on.
On the revenue side, it's interesting to look at the progress made. With its year ending on Dec. 31st, AMA's 2005 revenue stood at $511,532.
That jumped to $1,094,466 in 2006 and in 2007 revenues came in nearly double to land at $1,989,404.
Another significant advancement came in whittling down the time required to win international aviation authority approvals for installation of AMA's technology on a wide variety of aircraft.
It's taken AMA seven years to build up the formidable list of international approvals it has and the time, talents and money required to duplicate AMA's achievements are a huge barrier for any competitor trying to do the same thing.
A significant vote of support also came from AMA's employees in 2007 as they, directors, officers and contractors snapped up 19% of the shares issued through stock options and warrants. That brought the percentage of employees owning AMA shares up to roughly 92%. But the net loss for the year ending Dec. 31st was also up hitting $6.8 million, compared to $4.5 million for 2006.
According to management's 'Discussions and Analysis' report filed on SEDAR, the higher loss was due primarily to hiring more people to make sure the company is able to handle higher growth. Salaries also increased due to Alberta's thin labour market. In addition, shifting currency rates translated into a roughly 16% loss for AMA as the American greenback slid in value. Finally, higher overall marketing costs through things such as increased travel bills chimed in as AMA's reach extended further around the globe.
However, the 2007 net loss is in hand given $9.4 million AMA had in hand from working capital coming into 2008, the March private placement and exercise of warrants and stock options.
In addition to that $9.4 million, there will be sales revenues for 2008.
Interestingly, one of the other dramatically increased costs came with nearly $300,000 in legal fees to fend off two court challenges and one regulatory challenge from Toronto-based Star Navigation. AMA also launched a $15 million counter suit against Star.
Costs associated with all of the above are particularly unsettling given the legal opinions AeroMechanical received that it holds the high and solid legal ground.
However, management repeated it will vigorously fight the various actions and just as vigorously prosecute its own counter suit against Star.
Another solid validation for AeroMechanical's breakthrough technology came with the reporting of a final $673,989 licensing fee from a division of Meggitt Aerospace, the venerable British aviation firm that signed on with AMA to market its technology to global aircraft manufactures.
To view the entire year end report please click here.