EnWave’s Record 2017 Sales Pave Way for Breakthrough in 2018
EnWave Corporation (TSXV:ENW – $1.02 CAD & OTC:NWVCF – $0.76 USD & Frankfurt:E4U – €0.63), which offers industrial-scale dehydration technologies for organic materials, reported revenue of $15.95 million for the fiscal year 2017, ended September 30, 2017, compared with $14.93 million in the comparable period last year, an increase of 7%. The 2017 result was the highest in the Company’s history.
Although this is an attractive result, judging by EnWave’s fourth quarter results, revenue is significantly picking up speed. During the fourth quarter of FY 2017, sales reached $3.63 million, up 44% compared to sales of $2.52 million in the same quarter of FY 2016. This result is due to the sharp rise in sales from Moon Cheese snacks.
After Spire was removed as the exclusive distributor of Moon Cheese in January 2017, sales of the snack went through a slump during the first half of 2017. This was also the main reason why total sales for the year weren’t even higher. However, the decline in Moon Cheese sales was rectified when Slant Design and Marketing was hired to procure new distribution opportunities for Moon Cheese.
Since then, NutraDried added several new retailers in the United States, and it also expanded its broker network across the United States through the signing of additional broker agreements.
Next to the significant progress at NutraDried, EnWave also succeeded in selling seven 10kW Radiant Energy Vacuum (REV) machines, and four large-scale commercial REV machines totaling 320kW. The latter included:
• A 100kW nutraREV machine to Ereğli Agrosan, a Turkish company that produces high value natural products for the food, cosmetic and health sectors;
• A 100kW quantaREV machine to Pitalia, a global leader in producing and exporting golden pineapples;
• A 60kW nutraREV machine to Van Dyk Specialty Products, a major Canadian producer of wild blueberry products; and
• Another 60kW REV unit to a major Canadian medical cannabis Licensed Producer.
Furthermore, during the past year, EnWave has signed six new royalty bearing license agreements, signed ten product development TELOA agreements and entered into a joint research project with the US Army.
As for 2018, everything at EnWave lines up for a breakthrough year. We expect a boom in cannabis-related machinery sales, as EnWave’s technology can substantially reduce costs for producers. In the coming months we should also find out more about the ongoing tests for the US Army and the final FAT tests at Sutro Biopharma. Finally, we foresee continued distribution expansion for Moon Cheese.
Fourth Quarter Financials and Balance Sheet
EnWave generates revenue from two business segments: EnWave Canada and NutraDried. EnWave Canada sells REV machinery to royalty partners, rents REV units to prospective royalty partners, and earns royalties from customers that sell REV dried products. Note that royalties are payable to EnWave as a percentage of the value of products sold or based on the number of units produced by its royalty partners. NutraDried, on the other hand, sells Moon Cheese snacks into retail and wholesale distribution channels.
| Three Months Ended September 30 | Fiscal Year Ended September 30 | |||||
| Amounts in $000’s | 2017 | 2016 | 2017 | 2016 | ||
| Net Sales | 3,630 | 2,519 | 15,954 | 14,933 | ||
| Direct Costs | 2,764 | 2,120 | 11,654 | 10,383 | ||
| Expenses | 1,419 | 1,256 | 5,370 | 4,438 | ||
| Net Income (Loss) | (1,060) | (1,562) | (2,986) | (1,837) | ||
| Earnings (Loss) Per Share | (0.01) | (0.02) | (0.04) | (0.02) | ||
| Selected income statement data for the quarters and fiscal year ended September 30, 2017 and September30, 2016. Source: Company Filing | ||||||
EnWave Canada had revenue of $1.62 million for the three months ended September 30, 2017 compared to $1.27 million for the three months ended September 30, 2016, an increase of $356,000, or 28%. The increase is due to more machinery sales in 2017 to companies such as Ashgrove Cheese, Howe Foods, Ultima Foods, Van Dyk, Pitalia, and Merck.
For the full year, EnWave Canada had revenue of $9.39 million compared to $8.82 million in fiscal year 2016, an increase of $573,000. The increase was driven primarily by higher equipment rental fees and royalty revenue.
EnWave Canada finally, earned royalties of $370,000 during the year ended September 30, 2017 compared to $249,000 for the year ended September 30, 2016, an increase of almost 50%. During the final quarter of fiscal year 2017, EnWave Canada earned royalties of $77,000 compared to $63,000 in the same quarter of 2016.
Revenue from NutraDried was $6.55 million for the year ended September 30, 2017 compared to $6.10 million for the year ended September 30, 2016. During Q4 2017 revenues from NutraDried were $2.00 million, compared to $1.24 million during Q4 2016. Moreover, NutraDried reported a net income of $716,000 in 2017 compared to a net income of $306,000 in 2016, an increase of $410,000 or 134%.
| Amounts in $000’s | September 30, 2017 | September 30, 2016 |
| Cash and Cash Equivalents | 1,319 | 4,590 |
| Restricted Cash | 250 | 250 |
| Trade Receivable | 2,617 | 770 |
| Due from Customers on Contract | 2,378 | 1,542 |
| Inventories | 2,973 | 1,681 |
| Total Current Assets | 9,723 | 9,449 |
| Property and Equipment | 2,675 | 3,679 |
| Intangible Assets | 946 | 1,834 |
| Total Assets | 13,344 | 14,962 |
| | | |
| Accounts Payable | 2,181 | 1,084 |
| Total Current Liabilities | 3,222 | 2,552 |
| Long Term Debt | 90 | 201 |
| Total Liabilities | 3,312 | 2,753 |
| Total Stockholder Equity | 10,032 | 12,209 |
| Selected balance sheet data for the periods ended September 30, 2017 and September 30, 2016. Source: Company Filing | ||
On September 30, 2017, the Company had working capital of $6.50 million, compared to $6.89 million on September 30, 2016. Also on September 30, 2017 the cash and cash equivalents position was $1.32 million compared to $4.59 million the year before.
In November 2017, however, the Company added gross proceeds of no less than $10,006,500 to its bank account. A syndicate of underwriters, led by Cormark Securities, sold 8,760,000 EnWave units at a price of $1.05 per unit for aggregate gross proceeds of $9,198,000. In addition, EnWave sold, on a non-brokered private placement basis, 770,000 units for gross proceeds of up to $808,500.
It is also good news that trade receivables, due from customers on contract, and inventory increased by $1.84 million, $.83 million, and $1.29 million respectively compared to the previous year. These increases were all related to EnWave’s higher machine production number for an increasing number of customers.
Looking Forward to 2018
While EnWave will continue to push forward in 2018 with more machine sales, technology evaluation agreements, and royalty agreements, there are a number of events that look particularly appealing.
For example, in October 2017, EnWave signed a royalty-bearing agreement with a large, well-established Canadian medical cannabis licensed producer. This license expands the application of EnWave’s REV technology to the rapidly growing global medicinal and recreational cannabis markets. EnWave’s revolutionary method to simultaneously dry and pasteurize cannabis, circumvents the need to transport medicinal cannabis to highly-specialized and expensive off-site gamma irradiation facilities, which reduces the costs dramatically.
The licensed producer submitted a purchase order for two REV dehydration machines: a 10kW REV unit for product development and a 60kW REV unit for commercial processing. Delivery of the 60kW quantaREV machine is expected in the third quarter of fiscal year 2018. First royalties are expected shortly thereafter. We foresee many more machine sales to the booming cannabis sector in the coming year.
The commercialization of powderREV, EnWave’s technology for the bulk dehydration of temperature-sensitive biomaterials, is also moving forward. During the past year, the Company made significant progress with the construction and testing of the first commercial powderREV machine for Sutro Biopharma, a U.S. based pharmaceutical partner. More news is expected shortly. EnWave also commenced the design phase for the first scaled-up GMP freezeREV for Merck. If the powderREV and freezeREV platforms prove to yield superior performance to incumbent dehydration technologies, it would be a major breakthrough for EnWave.
Moreover, during the summer of 2017, EnWave entered into a contract with the US Army Natick Soldier R&D Center to jointly develop low weight, high quality, nutritious field rations. Initial samples of REV-dried products were tested internally by focus groups, and the feedback was phenomenal. If things progress to the point where the U.S. Armed Forces decide that REV dried products should become available within their organization, then EnWave would work directly with a group of approved suppliers for the U.S. Armed Forces. This opportunity for EnWave is enormous, as potentially hundreds of thousands of men and women in active duty could be served Radiant Energy Vacuum dried rations.
Finally, the Company is targeting to reach sales of over $10 million in Moon Cheese alone during 2018. A few months ago, distribution of the dried cheese snack was expanded to 2,000 Rite Aid pharmacy stores, 1,600 CVS stores, and 440 Targets in the United States. More recently, Moon Cheese also became available in approximately 70 Costco stores in the Midwest of the United States. Further expansion of Moon Cheese distribution is expected.
Conclusion
EnWave’s Radiant Energy Vacuum technology continues to capture and increase market share in the food, cannabis and pharmaceutical drying industries.
The Company added multiple new commercial licenses in several countries for previously proven products such as cheese snacks, fruit snacks and fruit ingredients.
In addition, EnWave expanded its royalty portfolio to include a license for yogurt products, a rapidly growing and large market vertical. Ultima Foods, a major Canadian yogurt processor which produces more than 100 million kilos (220 million lbs) of fresh dairy products each year, will soon start a market trial with a yogurt product produced on a 10kW commercial REV machine from EnWave.
Finally, EnWave’s method to rapidly dry and decontaminate cannabis could become a game changer in the worldwide growing medical cannabis industry. The automated REV drying processes for cannabis are highly efficient and scalable, reducing personnel requirements and increasing overall operational efficiency. Recommendation BUY.
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