Thursday, 21 August 2008

AeroMechanical's 2nd Quarter Filing Rosier

AeroMechanical Services Ltd., (TSX:V-AMA)
Basic Shares: 81 million
Fully Diluted: 93 million


The good news in AeroMechanical's Q2 F08 filings, that were published on SEDAR Aug. 21st, is that while costs are higher than 2007, management states they are stabilized going forward.

Expenses for Q2 were just under $2.6 million and $4.7 million for the six months of this year compared to $2.08 million and $3.54 million for the corresponding periods in 2007.

Revenues in Q2 were just under $600 thousand compared to $473 thousand in Q2F07.

For the six months 2008 revenues were just under a million, which was down from the $1.3 million for the first six months of 2007. This is attributable to the fact that AMA received a hefty payment from a partner in the first quarter of last year.
However, in the Management Discussion and Analysis a hidden gem emerges wherein the real revenue or cash in the bank is much higher than what AMA is allowed to report under current accounting rules.

For example, AMA actually received $1.2 million in cash revenues in the second quarter ending June 30th, but was only able to report under one-half of that - or just under $600,000 - as revenue. The difference was reported as unearned revenue. This is related to the fact that the revenues have to be calculated over the life of the contract under GAAP rules.

As such, shareholders need to be aware of this rather important point that what was and always will be reported as revenue will always be far less than the actual cash that was received by AMA.
For the six months ending June 30th, cash received was $1.8 million compared to $994 thousand in revenue that appears on the financial statements. At the end of Q2 AMA had cash and cash equivalents of $4.1 million.

It supports what AMA Chairman and CEO Bill Tempany said at AMA's last annual meeting that given expected new business, AMA was not planning for any additional financing because it was steadily heading to the promised land of cash-flow break even.

The other very positive development is recurring revenue nearly doubled from $166,148 in Q2F07 to $326,139 in Q2 of this year. This increase comes despite the recurring revenue loss of about $70,000 from an early and relatively major customer - Aloha Airlines - which went bankrupt.

On the matter of installs, there were 10 in Q1F08 and 34 in the just completed quarter but one must take into account that Aloha's bankruptcy took 30 out of AMA's total count.

The most important fact is that the total cash burn for the quarter was $797,000 or roughly $282,000 per month because of increased installations and more aircraft being activated as the product matures.

To view both the Management Discussion & Analysis and the 2nd quarter financials on SEDAR please click here and follow the links.