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QIS Update #5 2015 - April 9th 2015



Included in this update:

  • NTG Clarity Networks releases fourth quarter and year-end financial results, Record Revenues

 


 

During the last week of March, we posted a new independent QIS Capital Research Report on Circa Enterprises (CTO:TSX-V). If you haven’t had a chance to read the report yet, it can be accessed for free anytime on our website at: www.smallcaps.ca/research-19.


We continue to post our weekly forum summaries to the Forum at smallcaps.ca. We have posted a number of stock to watch since December 2014 and the performance of these stocks has been monitored with periodic updates in the forum thread entitles QIS Weekly Updates. If you are interested in following this weekly forum posting, here is a link to this dedicated thread: www.smallcaps.ca/thread_viewer-3128-1-qis-weekly-update.


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

 


 

NTG Clarity Networks Inc. (NCI:TSX-V)
Website: www.ntgclarity.com
Current Price: $0.275 (coverage commenced Feb. 4/10 - $0.045)


NTG Clarity Networks Inc. has reported its annual financial results for the fiscal year ended December 31, 2014.

Annual and quarterly highlights:

  • 2014 record revenues of $15.5M
  • working capital of $6.2M ($0.17 per share) and no long-term debt
  • opened new sales offices in Qatar and Kuwait
  • strong order backlog
  • targeting continuing strong revenue growth in 2015

 

2014 continued the positive growth for NTG Clarity as the company generated revenues of $15.5M, exceeding management’s projections of $14M for the year. The corporation reported a 47% increase in revenues for 2014 and has more than tripled revenues since 2012. The revenue increase in 2014 resulted from renewals, new orders, and contribution from our new office in Qatar. Revenue consisted of 54% professional services and 46% product related sales.


For the three months ended December 31, 2014, revenue was $4,116,456, an increase of 30% over the same period in 2013. Fourth quarter revenue consisted of 41% professional services and 59% product related sales.


In 2014, we continued our focus on delivering the Network & Telecom System (NTS) - our Operations Support System/Business Support System (OSS/BSS) product, and the associated consulting services and training to implement the product.


At year-end, NTG was advised to write-down some of its receivables and business assets to reduce exposure to a customer and to improve cash flow. These write-downs included a bad debt provision of $442,788 and an impairment/loss of $119,366 for the Mi-World investment. After these items, Q4 2014 showed a loss after taxes of ($304,975) compared to a net profit of $47,492 in Q4 2013. Without these write-downs, the net income for Q4 2014 would have exceeded $200,000.The Company is working diligently to collect on the bad debt provision from these insured receivables. Also, note the impairment of Mi-World could be reversed in the future once it begins to generate revenues.


In 2014, NTG Clarity’s gross margin was 40% compared to 46% in 2013. The aggressive growth in 2014, start-up costs incurred during the year in Kuwait and Qatar, and the marketing and sales activities led to the decreased margin. In 2015 we plan to work on balancing between the growth and expenses to ensure increased margins.

Pre-tax net income for 2014 (after write-down and impairment) was $1.9M, which was consistent with last year. After deducting income taxes of $665K in 2014 ($84K in 2013), net income for the year was $1,241,923 ($0.034 per share) compared to $1,863,628 ($0.060 per share) in 2013. The differences are due primarily to the bad debt booked in Q4 2014, the impairment/loss on the Mi-World investment, and the additional taxes paid.


The Company was able to continue to strengthen its balance sheet during 2014 and ended the year with positive working capital of $6.2M ($0.17 per share) and no long-term debt.


 

LATEST FINANCIAL RESULTS
  3 Mos. Ended Dec. 31 Year Ended Dec. 31
  2014 2013 2014 2013
Revenues $4,116,445 $3,167,994 $15,503,201 $10,571,915
Cost of Sales 3,277,906 2,003,505 9,353,075 5,686,900
Gross Margin 838,550 1,164,489 6,150,126 4,885,015
Selling and G&A Exp. 370,793 620,326 2,697,018 1,984,352
Forex Loss (gain) 16,085 (35,908) (86,222) (197,744)
Interest Expense 42,518 17,412 151,571 163,394
Stock Based Comp. Exp. 95,309 320,349 391,832 513,261
Income Tax Expense (75,092) 83,686 664,908 83,686
Net Income (304,975) 47,492 1,241,923 1,863,628
per share ($0.008) $0.001 $0.035 $0.060

 

 

BALANCE SHEET
(as at Dec. 31, 2014)
Current Assets $ 13,436,331
Total Assets 16,184,272
Current Liabilities 7,242,080
Long-Term Debt nil
Shareholders' Equity 8,942,192

 

 

Overall expenses as a percentage of revenue were fairly stable throughout 2014. Total operating expenses were $2,610,796 (16.8% of revenues) in 2014, and were $1,786,608 (16.9% of revenues) in 2013. Other expenses, which include the bad debt provision and impairment charges, were $1,632,499 (10.5% of revenues) in 2014, compared to $1,151,093 (10.9% of revenues) in 2013.


Selling expenses increased to $979,243 from $866,681 in 2013. Our selling efforts are increasing as we expand into new markets. General and administration expenses increased to $1,717,775 from $1,117,671 in 2013 due to an increase in salary and wages, new offices, and increased consulting and professional fees. Other general and administration expenses; such as rents, insurance, telecommunications, and supplies remained constant over the year. The Company reported a smaller 2014 foreign exchange gain of $86,222 compared to $197,744 in 2013. This was due mainly to the decreased value of the Egyptian pound compared to the Canadian dollar and losses incurred when converting currencies as we transfer between various branches.


Other expenses include amortization and depreciation which increased to $440,693 compared to $400,091, a bad debt expense of $442,788 compared to $6,921 in 2013, interest expense of $151,571 compared to $154,821, share based compensation of $391,832 from $513,261, impairment of $109,102 compared to nil, and foreign taxes of $86,249 from $67,426 in 2013.


NTG enters 2015 with a strong backlog of work and is targeting a continuing strong growth for the year. We remain committed to our growth strategy and continue to focus on growing organic operations, expanding our marketing reach geographically and enhancing our product offering. In addition to existing customers and projects, we will also continue to focus on our new offices in Qatar and Kuwait as well as expanding projects in Oman. We will be aggressively looking for an acquisition to increase our customer base, revenue and geographical presence. As in the past, our ability to generate positive operating cash flows, and report strong revenues and earnings are all critical to successfully executing this strategy. We are confident that we have the management team with the experience and resources to fulfill this vision.


QIS Capital: This was another year of exceptional growth for NTG Clarity with revenues growing 47% in the last year and 210% over the last 2 years. Management is again targeting significant growth in 2015 and should be reporting Q1 numbers in about a month. The bad debt provision and write-down in Q4 were unfortunate from an earnings perspective but they make sense from a cash flow and A/R perspective. There is a good likelihood that one or both of these items could be reversed in the near future. If any of our investors would like to discuss this matter further, please feel free to call us for a detailed explanation.


NTG Clarity is now trading at about 0.6X trailing revenues, just above book value, 5X earnings pre-tax, 7.8X trailing net earnings, and less than 2X normalized earnings with working capital (net of debt) removed.



 

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 1,345,500 shares and 100,000 options of NTG Clarity Networks 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 - 2015 QIS Capital Corporation.

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