EnWave Turns Profitable

EnWave Corporation (TSXV:ENW – $0.95 CAD & OTC:NWVCF – $0.73 USD), which offers industrial-scale dehydration technologies for food and pharmaceutical companies, reported a positive net income for the first time in its history. During the second quarter, ended March 31, 2016, it generated net income from continuing operations of $95,000 compared with a loss of $910,000 in the second quarter of last year.

The Company also continued its trend of significant year-over-year revenue growth. For the three months ended March 31, 2016 revenues reached $4,586,000, compared with revenues of $1,976,000 in the comparable period in 2015, an increase of $2,610,000 or 132%. Revenues for the six months ended March 31, 2016 were $7,190,000 an increase of $4,640,000 or 182%, compared to the same period in 2015.

Revenue growth was due both from a strong increase in Radiant Energy Vacuum (REV) machine purchase orders, as well as increased sales and distribution of Moon Cheese by NutraDried, EnWave’s 51% owned subsidiary that produces healthy dried cheese snack.

This entire achievement is the result of EnWave’s management team being extremely focused on selling machines and increasing the royalty streams over the past two years. Now that the Company has laid the foundations for substantial business growth, it has put forward additional resources to promote and tell the story to the investment community.

The major difference in the story, compared to the one from two or three years ago, is that now they communicate what has already been accomplished, instead of what could potentially be accomplished. This is what investors expect and also the reason why the stock moved up over 13% after the release of the financials.

Outstanding Second Quarter Financials

EnWave earns revenues from two business segments. First, EnWave Canada’s rental or sale of REV machinery to royalty partners, combined with the receipt of royalties from these partners. And second, NutraDried’s sale of Moon Cheese snacks into retail and wholesale distribution channels.

	Three Months Ended March 31		Six Months Ended March 31
Amounts in $000’s	2016	2015	2016	2015
EnWave Canada Sales	2,744	1,685	4,070	1,816
NutraDried Sales	1,842	291	3,120	734
Total Sales	4,586	1,976	7,190	2,550
General & Administrative	466	580	839	869
Sales & Marketing	133	167	238	306
Research & Develpment	515	274	1,049	764
Amortization of Intangible Assets	345	355	703	713
Income (Loss) From Operations	95	(910)	(388)	(2,130)
Income (Loss) from Discontinued Operations	(86)	882	(86)	878
Net Income (Loss)	9	(28)	(474)	(1,252)
Earnings Per Share	0.00	(0.00)	(0.01)	(0.01)
Shares Out. – Diluted	90,773	84,444	90,056	84,408
Most important income statement data for the quarters and six months ended March 31, 2016 and March 31, 2015. Source: Company Filings

For the three months ended March 31, 2016, EnWave Canada had revenues of $2,748,000 compared to $1,684,000 in the same period in 2015. And for the six months ended March 31, 2016 the segment recorded revenues of $4,063,000 compared to $1,798,000 in the comparable period in 2015.

The strong year-over-year revenue growth is due to the increased commercial REV equipment sales and construction activity. During the six months ended March 31, 2016 revenue was generated from commercial equipment sale contracts with Sutro Biopharma, Merck and Gay Lea for powderREV, freezeREV and nutraREV machines, respectively. Additionally, EnWave shipped five 10kW nutraREV machines and one 2kW nutraREV machine to international royalty partners.

Revenues from NutraDried were $1,838,000 for the three months ended March 31, 2016 compared to $292,000 in the second quarter of 2015. And for the six months ended March 31, 2016, revenues were $3,127,000 compared to $752,000 in the same period in 2015.

NutraDried’s impressive revenue growth is attributable to increased sales and distribution activity with distributors and retail customers of Moon Cheese. A significant portion of sales growth is due to NutraDried sales to Starbucks, which increased its purchases of Moon Cheese for the expansion to 7,500 of its U.S. corporate stores and 1,400 Canadian corporate stores. Moon Cheese distribution was also broadened to 5,000 of the 8,000 United States stores of 7-Eleven.

Moon Cheese continues to be sold in several major North American retail outlets, including select Whole Foods, REI, and Winco Foods in the United States, and Safeway, Sobeys, Mountain Equipment Co-op, Save-on-Foods and Thrifty Foods in Canada.

Solid Balance Sheet

As of March 31, 2016 EnWave had close to $6 million in cash. Moreover, on May 4, 2016, the Company recovered $1,020,000 of restricted cash that was held as collateral for a letter of credit issued to a customer of Hans Binder, a former subsidiary of EnWave, as a performance guarantee on one contract.

Restricted cash in the amount of $480,000 remains held as collateral for the letter of credit issued to the customer. The Company continues to closely monitor the progress of the installation to secure the release of the remaining restricted cash.

With almost $7 million in the bank, EnWave has sufficient funds to fulfill upcoming machine purchase orders from various customers.

It is also worth noting that EnWave generated positive cash flow from operating activities for the six months ended March 31, 2016, prior to changes to non-cash working capital, of $874,000.

	Period Ended March 31
Amounts in $000’s	2016	2015
Cash and Cash Equivalents	5,849	2,505
Restricted Cash	1,530	1,492
Trade Receivables	740	1,591
Inventory	2,167	1,817
Total Current Assets	11,012	10,373
Property and Equipment	3,795	4,286
Total Assets	17,159	22,219
Trade & Other Payables	1,494	2,477
Total Current Liabilities	3,339	5,068
Long Term Debt	514	654
Total Liabilities	3,853	5,721
Total Stockholder Equity	13,306	16,497
Most important balance sheet data for the periods ended March 31, 2016 and March 31, 2015. Source: Company Filings

Inventory as at March 31, 2016 includes machine parts of EnWave Canada of approximately $1,360,000 which is an increase of $442,000 compared to March 31, 2015. EnWave Canada has increased its inventories to accommodate the higher sales activity related to commercial machine orders. NutraDried’s food product and packaging supplies inventory was $807,000 which is a bit less than $897,000 on March 31, 2015. NutraDried’s inventory remains relatively high in response to ever increasing sales of Moon Cheese and to meet order deadlines.

As at March 31, 2016, the Company had working capital of $7,673,000 compared to $5,306,000 on March 31, 2015. The increase in working capital is mainly due to an increase in cash and cash equivalents of $3,344,000 from the October 2015 private placement.

Conclusion

Let’s be clear, EnWave has only started scratching the surface of the global dehydration industry despite its significantly improved financial results.

Several companies, such as Natural Nutrition, Sutro Biopharma, and Ereğli Agrosan, have recently purchased a REV dryer. Other companies, such as Milne Fruit Products, NutraDried LLP, and Bonduelle are ramping up production to meet demand for their dried products. All these partners pay quarterly royalties to EnWave ranging between 2% and 10% on all commercial products produced with their REV machines.

Moreover, dozens of companies in a variety of industries are currently evaluating EnWave’s REV technology. Consequently, we expect to see a continued flow of new Technology Evaluation and Royalty-Bearing agreements being announced in the following months.

The second quarter of 2016 was a very strong one for EnWave. The Company more than doubled its revenues and achieved positive net income for the first time in its history. Its stock price shot up considerably after the release of the financials. Buy recommendation.

This may be one of the final opportunities to add shares under a buck.

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