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QIS Update #19 - 2018 - NTG Clarity Networks releases Q3 financial results while Deer Horn Capital cites key report - November 26th 2018

Included in this update:


- NTG Clarity releases Q3 financial and operating results

- Deer Horn Capital cites report listing Tellurium as a "Critical Mineral" 



There are lots of financial reports coming out this week for TSX Venture listed companies. The markets continue to be unsettled and largely bearish for small-cap issuers. 


Please feel free to email us anytime at or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.



NTG Clarity Networks Inc. (NCI:TSX-V) 


Current Price: $0.045 (coverage commenced Feb. 4/10 - $0.045)


NTG Clarity Networks Inc. has provided its financial and operating results for the third quarter of 2018. After an aggressive cost reduction process, management has successfully returned the company to profitability in each of the first three quarters of 2018.


Consolidated revenue for the three months ended Sept. 30, 2018 increased to $3,501,906 compared with $3,309,135 for the same period in 2017 and is made up of product-related revenue, professional services and a small amount for hardware. Year-to-date revenues are down slightly to $10,158,805 compared with $10,466,021 in 2017.


The nominal decrease over the first nine months is due to the end of a contract in Kuwait and the delay in the start of new projects in Saudi Arabia. Gross margins continue to be stronger in 2018, and the company continues to work on reducing general and administrative costs as contracts allow, and marketing and selling costs based on the company's revenue.


For the first nine months of 2018, the gross margin was $4,515,152 or 44 per cent, compared with $3,721,078 or 36 per cent for the same period in 2017. The gross margin in the third quarter of 2018 was 50 per cent.


General and administration (G&A) continued to fall in the third quarter of 2018 to $645,926, compared with $902,181 during the same period in 2017. For the first three quarters of 2018, general and administrative costs decreased to $1,879,430 from $2,351,057 during the same period in 2017. Selling expenses year to date also decreased by 13 per cent to $1,379,912, compared with $1,578,237 in 2017. This decrease was due to restrictions implemented for travel and marketing expenses.


For Q3 2018, the corporation recorded a net income of $6,555, compared with a net income of $131,308 for the same period in 2017. For the nine months ended Sept. 30, 2018, NTG Clarity recorded a net income of $183,406 compared with a net loss of $706,810 in 2017, a significant improvement. It should be noted that the company recorded a foreign exchange loss of $229,727 during Q3/18 compared with a foreign exchange gain of $58,633 during the same quarter last year.


NTG Clarity - Q3 results


Though still facing a challenging global business environment, NTG Clarity has worked diligently to bring costs in line with current revenue streams and to continue to grow in each of its operating areas.


As a result of actively marketing the company's Internet of things solutions, in Q3 2018 it started working on a manufacturing tracking system for a customer in Canada. The company expects this new project will open new opportunities with manufacturing customers. This and a small amount of work being done with another Canadian customer, sets the path back to work in North America.


Implementation of the company's StageEM software product continues at a customer location in Egypt, with new change requests under discussion.


As many international companies are reluctant to do business in the local currency and have left the Egypt marketplace, the service gap continues to provide growth opportunities for NTG. The company is continuing discussions with a multimillion-pound change request for an existing regulatory authority customer. NTG Egypt's revenue contribution was 18 per cent during the first three quarters of 2018.


Continuing initiatives continue to show returns with 50 per cent of the company's professional service work and 50 per cent of its revenue being from Saudi Arabia (KSA). NTG has developed good brand recognition and a solid record over the years, which will be an asset to the company's work in the region. KSA revenue has decreased by 23 per cent over last year due to the slowdown of the KSA economy, however, there are signs that the economy is rebounding.


From the company's office in Kuwait, it is actively pursuing new opportunities with existing and potential customers. The company is currently short listed to provide one of its software products/portals at one of the key government organizations and to develop a mobile app for a major university. Year to date, Kuwait has contributed approximately 25 per cent of NTG's revenue.


In Q3 2018, the company continued work for its customer in Oman using its NTS network inventory and project management modules. The product sales in the region have assisted with additional work in the form of change requests, and recurring revenues from maintenance and support, and extra licences. Oman contributed 14 per cent to revenue in Q3 2018.


Looking toward the future, the company is on the road to returning to profitability in 2018. It is focusing on capitalizing on the goodwill it has with its existing customers to expand its business and increase its margins. It will concentrate on marketing our products NTS and StageEM, which are currently in demand and have higher margins.


In September, 2018, Export Development Canada (EDC) withdrew insurance support for all customers in KSA, going forward. In November, 2018, NTG conditionally signed a quote with an insurance company, Euler Hermes (a subsidiary of Allianz) to provide the company with receivables and work in progress insurance in the countries it does business in, including Saudi Arabia (KSA). This insurance would be effective Nov. 1, 2018, and would replace EDC receivables and work in progress insurance for all NTG customers.



QIS CAPITAL: NTG Clarity continued its slow and steady recovery during Q3/18. The company has now been profitable in three consecutive quarters. Margins are also improving back to historical levels which is an encouraging sign moving forward. Margins in the last quarter were 50%. Slow and steady financial improvement is likely not enough to attractive new investors in this lacklustre trading market and we will likely need to see some new significant contract announcements to get some excitement back in the story.  In the meantime, the company is trading well below its annual sales pace and we should continue to see modest improvement in costs as wage allowances and lease costs start to expire. 



Deer Horn Capital Inc. (DHC:CSE) 


Current Price: $0.22 (coverage commenced Apr. 10/18 - $0.17)




The U.S. Geological Survey (USGS), Department of the Interior (DOI), has included tellurium on its list of 35 critical minerals for 2018. A key part of Deer Horn Capital Inc.'s vision is to supply critical minerals, particularly tellurium, that are vital to a low-carbon economy as well as to new, emerging technologies related to the advancement of clean energy and fresh water.


The DOI defines a critical mineral as "... a non-fuel mineral or mineral material that is essential to the economic and national security of the United States that has a supply chain vulnerable to disruption and that serves an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economy or national security."


The DOI noted that this list will be the initial focus of a multiagency strategy due in later this year to implement the president's executive order to break America's dependence on foreign minerals.

"The expertise of the USGS is absolutely vital to reducing America's vulnerability to disruptions in our supply of critical minerals," said Dr. Tim Petty, assistant secretary of the Interior for Water and Science.

Tellurium is found at the Deer Horn property in British Columbia and at the Colorado Klondike property in Colorado, where Deer Horn recently signed a letter of intent for an option agreement to explore the property.


Deer Horn president and chief executive officer Tyrone Docherty noted, "Having tellurium on the DOI critical minerals list reinforces our strategy that securing primary supplies of tellurium can provide long-term value to our shareholders."


Deer Horn recently reported positive results from an independent preliminary economic assessment at the Deer Horn property, where the company is planning to conduct further drilling to both expand and upgrade the current gold-silver-tellurium resource.


The critical minerals statement noted that the DOI is formulating a plan for improvements to mapping the United States and its mineral resources as well as recommendations to streamline lease permitting and review processes.


"As we move towards finalizing the Colorado Klondike agreement," said Mr. Docherty, "we're very happy to see the U.S. working towards simplification and improvement of its permitting process. We plan to be exploring the property in 2019."


Mr. Docherty added that the critical minerals list also includes tungsten, a metal found at the Deer Horn property west of the zone that was the focus of the preliminary economic assessment for gold, silver and tellurium.


"We haven't talked much about the tungsten at Deer Horn," said Mr. Docherty. "But it was a tungsten discovery that led to the original staking of the property in the 1940s. Some of the results, especially in trenching, are significant and warrant further exploration."



Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 2,327,000 shares of NTG Clarity Networks Inc. and 282,500 shares and 65,000 warrants of Deer Horn Capital Inc. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2018 QIS Capital Corporation.


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