SMS.V – Sustainco Inc. Due Diligence Report
All Information Can Be Found At www.Sedar.com
Current Price: $0.215
Common Shares: 15,776,223 (Including Recent Placement At $0.15)
Options: 812,5000 at $0.15
Warrants: 2,053,653 at $0.65
Insider Holdings: 7,768,806 or 49.2%
Recapitalized Share Structure
July 20th 2016 – 20:1 Rollback – 2,337,090
August 9th 2016 – Shares For Debt – 7,105,800 at $0.65
June 7th 2017 – Private Place For $950K at $0.15 – Filled By Two Insiders
Financials + MD&A Highlights (Q3 Results Are Most Recent)
Cash: $679,522 – Does NOT include $950,000 raised recently by insiders
Accounts Receivable: $3,566,727
Unbilled Receivables: $787,120
Prepaid Expenses: $127,405
Property & Equipment: $87,463
Intangible Assets: $237,917
Total Assets: $6,396,911
Trade Payables: $2,440,012
Acquisition Payable: $60,000
Deferred Revenue: 1,142,811
Notes Payable(current): $80,500
Notes Payable(total): $651,664
Total Liabilities: $4,374,987
Total Sales After 9 Months
Gross Profit: $2,757,728
Net Income: $353,189
Earnings Per Share: $0.022
SustainCo is a leading provider of sustainable infrastructure solutions and services. The Company focuses on enabling sustainability, energy efficiency, clean and renewable energy projects and technology. The Company operates through its wholly owned subsidiaries of VCI CONTROLS Inc. (“VCI” or “VCI CONTROLS”) and Clean Energy Developments Corp. (“CleanEnergy”).
VCI continues to execute the awarded contract worth over $575,000 for energy management controls at Phase II of Kipling Acres Homes for the Aged, a City of Toronto property. VCI is currently retrofitting a large number of boiler plant, booster pump and BAS systems across a number of buildings for a multi-residential asset owner. The combined value of these contracts is in excess of two million dollars. During the nine months ended May 31, 2017, a project that CleanEnergy worked on went into receivership. The total receivable related to this project was $122,069 as at May 31, 2017. The amount was fully provided for during the nine months ended May 31, 2017.
On June 7, 2017, the Company announced that it intends to complete a private placement offering (the "Offering") for aggregate gross proceeds of $950,000, issuing an aggregate of 6,333,333 common shares at a price of $0.15 per share, to an insider of the Company. The Offering is subject to the approval of disinterested shareholders and the TSX Venture Exchange. The proceeds of the Offering will be used to help secure a surety facility and general working capital. The common shares issued pursuant to the Offering are subject to a four month hold.
On November 30, 2016, the Company announced that the Ontario Labour Relations Board has ordered the certification of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Local 787, effective June 1, 2017, as the exclusive bargaining agent for the refrigeration and air-conditioning mechanics and apprentices employed by VCI Controls Inc. The Company will be making adjustments to its business model to ensure continuity and continued profitability and growth.
The Controls and Mechanical contracting services recognized revenue of $3,441,168 and $10,112,598 for the three and nine months ended May 31, 2017, which is a decrease of 10.4% and an increase of 3.7% from the same periods in the prior year. Revenues are earned from engineering services, building automation controls, mechanical and electrical installation, performance monitoring, and operations and maintenance services for multi-residential and ICI facilities. The cost of sales relate to direct materials and expenditures for products and services sold. Margins for this division were 27.5% and 26.1% for the three and nine months ended May 31, 2017, which is a slight increase compared to the same periods last year.
General and administrative costs in Q3 2017 were consistent with the same period in the prior year, with a slight decrease during the quarter. General and administrative costs in the Corporate segment decreased from $167,435 to $131,504, which comes mainly from reduced salaries and wages. In the Geoexchange division, there was an increase compared to the prior year mainly due to an increase in salaries and wages and office costs. There was a decrease for the Controls and Mechanical contracting division, mainly from decreased salaries and wages and professional and consulting fees. Overall, the Company has had success reducing general and administrative costs wherever possible, with an overall reduction of general and administrative costs to $2,331,223 vs. $2,549,460 for the nine months ended May 31, 2017 compared to 2016.
Finance expenses of $21,988 and $71,864 (2016 - $185,444 and $538,409) were incurred for the three and nine months ended May 31, 2017 and relate to interest and bank charges on the Company’s bank indebtedness, promissory notes and previously outstanding debentures. The Company restructured its debt near the end of fiscal 2016. As expected, the Company experienced decreased finance expenses compared to the prior year.
The goal of SustainCo is to be at the forefront of advancing sustainability principles in leading organizations. The Company will continue to look for and promote leading edge services and technology combined with our experienced design and delivery teams to create a differentiated value proposition for our customers.
The Company’s objective is to refocus on vertically integrating and building the Company to be a true turnkey business that offers a complete range of sustainable infrastructure solutions and services. It is anticipated that this will allow the Company to take advantage of the higher margin areas of the full service business model initially envisioned by the Company, such as the finance, consulting, and design solutions, as well as simultaneously enabling the Company to capitalize on life-cycle cross selling. This is expected to result in the creation of more revenue streams along the entire life cycle of a project without compromising control over the process and competitive prices to consumers.