I indicated last week that I thought the update carried some...

I indicated last week that I thought the update carried some positives, a view which seems to conflict with the general consensus.
Whilst one update does not signal all is well with Mach 7, herewith some observations which says they are doing the right things.
1) the apparent Revenue decline Q1 $2.81 m, Q2 $1.53 m and Q3 $1.17 m is on the surface a concern, particularly when one looks at quarterly expenses of near on $ 3.5 m. This update signals $2.7 m of concluded business, of which about two thirds should show in this qtr ( the license fee component) PLUS the prospect of one further contract in this qtr. Assume the second one will be deferred to Q1 2018 FY.
Take Out : A lumpy Revenue stream for the up-front Licence Fee component of contract wins, offset by increasing monthly support / subscription fees.
2) The divestment of 3DM will cost little in Revenue but will save a big chunk of expenses. The Pro Forma for the first 6 months of 2015 showed 3DM Rev @ $ 282 K, cost of sales @ $ 230 K with an EBITDA loss of $ 1.276 m. So annualised, 3 DM contributing a $ 2.5 m loss. Whilst there is a component of Corporate fee allocation which will now have to be fully allocated to Mach 7, let's assume a $ 1.2 to $ 1.5 m improvement in profitability. The half yearly showed the EBITDA loss had improved from $ 3.3 m to $ 1.32 m, probably why the Company signalled break even by June 2017. Whilst the Company appeared to be banking on contract wins to get there, in theory the divestment of 3 DM delivers a result which comes close to wiping out that $ 1.32m.
3) The CR whilst costly for us shareholders has eradicated the external debt. From what I can see in past financials, the annual interest charge associated with this debt could be as much as $ 1 m per annum.
4) And if we can trust the report, the monthly software support and subscription fees are increasing at a material level. In Q 2 of this financial year, they reported this Revenue component as $499 k. So at the time, the run- rate approx. $ 2 m / year. Now they are suggesting $ 4 m per annum. This recurring revenue is IMO a big plus for Mach 7's sustainability and longer term prosperity. Let's not forget their Gross Margin exceeds 85 percent.
5) And finally, their expense profile compared to Revenue looks horrific, but if you consider their software development is all in-house and expensed monthly, the sting could translate into a huge benefit to profitability going forward.

I am starting to see this as a transformation which now solely hinges on the Company's ability to continue winning business. Previously, I like most was highly sceptical about a management and cash flow. I am mindful that the process leading up to sale is lengthy and challenging ( high value customer transformations). IMO, all boils down to the market's adoption of the technology. I plan to stay the course.

Hopefully helpful. I think the numbers and assumptions above are pretty accurate but obviously DYOR.

Rokewa