QIS Update #6 - 2019 - NTG Clarity Networks releases Q4 financial results while Deer Horn Capital and Newlox Gold Ventures provide updates - April 29th 2019
Included in this update:
- - NTG Clarity releases 2018 financial and operating results
- Deer Horn Capital issues Q1 summary, including strategic partnerships
- Newlox Gold Ventures completes financing and is starting commercial production
Year-end financial results are in full swing with the majority of TSX-V listed companies filing either last week or over the next couple of days. We will be watching for Q1 results to start in May and continue through the end of the month. We continue to see micro-cap companies struggling with profitability as well as the ability to finance new initiatives. Those companies which have been producing profitable growth are generally trading at P/E multiples that we would have thought absurd 15 years ago. We seem to have entered a new era in investing and it will take some time before we feel comfortable becoming more active in the fundamental small-cap markets again. That isn't to say there aren't opportunities - there are plenty of them (have a look at EGLX over the past month) - but be prepared to pay for unproven financials and don't expect to find low p/e multiples or low price to cash flow multiples as we have done over the past 20 years. Good luck out there!
Please feel free to email us anytime at email@example.com 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: $0.025 (coverage commenced Feb. 4/10 - $0.045)
NTG Clarity Networks Announces 2018 Year-End Financial Results
NTG Clarity Networks Inc. has released its year-end results for the fiscal year ended Dec. 31, 2018.
Quarter-over-quarter revenues remained reasonably consistent for the first three quarters of 2018, however, the fourth quarter of 2018 had a significant decrease in revenue, resulting in a 18-per-cent reduction to $11,706,467, compared with $14,359,523 reported in the prior year. Lower sales in KSA (32 per cent) and Kuwait (27 per cent) were partially offset by an increase in Egypt revenue. The contribution of product-related revenue was higher in 2018, and the company anticipates this to continue going forward as the company works to make product sales a more balanced part of the company's revenue stream.
The gross margin for the year ended Dec. 31, 2018, was 44 per cent compared with 35 per cent in 2017. Margins were stronger during the year largely as a result of NTG's continuing efforts to optimize costs to its revenue. Realistic margins are anticipated to be between 35 to 40 per cent, based on product mix.
NTG Clarity's operating expenses were down 21 per cent to $4,211,666 in 2018, compared with $5,364,665 in the prior fiscal year. These cost savings were highlighted by lower marketing salary costs and a 32-per-cent decrease in selling and marketing activities that included fewer trade shows and significantly less travel for sales personnel. The company achieved a 17-per-cent decrease in general and administrative (G&A) costs as NTG continues to optimize staff, salaries and consultants in Canada and KSA. The corporation also recognized a foreign currency exchange gain of $260,104 in 2018, compared with a loss of $41,515 in the year ended 2017.
For the year ended Dec. 31, 2018, the corporation saw a significant progress toward profitability with a net loss of $(366,044), compared with a net loss of $(1,116,183) in 2017. There was also a positive income from operations.
Egypt continues to be a challenging place to do business with continuing restrictions on using foreign currency for business operations, and on moving funds out of the country. The inflation rate has continued to drop from a high of 17 per cent in July to 11.9 per cent at the end of 2018. Interest rates have remained steady for the last eight months at 16.75 per cent. Export Development Canada (EDC) continues to give Egypt a medium- to high-risk rating.
As many international companies are reluctant to do business in the local currency and are leaving the marketplace, the service gap has provided significant growth opportunities for NTG Clarity. Despite the continuing economic challenges in the region, NTG Egypt's revenue contribution continues to be strong. In 2018, Egypt contributed 24 per cent of the corporation's revenue (2017: 18 per cent).
Kingdom of Saudi Arabia (KSA)
NTG has been doing business in KSA for over 13 years, and continuing initiatives continue to show returns with 44 per cent of its professional service work and 36 per cent of its revenue being from KSA (2017: 55 per cent and 44 per cent, respectively). NTG has developed good brand recognition and a solid record over the years, which is an asset to the company's work in the region.
New KSA government policies implemented in 2018 increased the cost of doing business in the country. They include the introduction of a 5-per-cent value-added tax (VAT) on the majority of goods and services, new fees for companies with non-Saudi employees, and significantly higher costs for non-Saudi residency, all introduced in an effort to increase non-oil government revenue. The spending in the government sector was low in 2018, however, this seems to be improving in 2019, and the company looks forward to winning new projects accordingly.
In Kuwait, the company continues to pursue opportunities with existing and potential customers, however, its contract with its major customer will be completed at the end of Q1 2019. In May, 2018, the company signed a professional services frame agreement with another new customer and started billing in the third quarter of 2018.
Kuwait contributed 28 per cent to NTG's revenue in 2018 (2017: 31 per cent).
In 2018, the company continued work for its customer in Oman, which is using its NTS network inventory and project management modules. The company anticipates additional work into 2019 with change requests, continuing support and additional product licences, and request for new systems.
Oman contributed 11 per cent to NTG's revenue in 2018 (2017: 7 per cent). The product sales in the region have assisted with recurring revenues from maintenance and support, and extra licences.
In 2018, management continued its work with optimizing costs to be in line with incoming revenue. Focused collection activities have resulted in a more balanced cash flow, though legacy debt remains a challenge. These activities, along with new customers in Canada and KSA, and expanded projects in Egypt, have resulted in improved results.
Looking toward the future, the company is on the road to returning to profitability in 2019. The company 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 its products, NTS and StageEM, which are currently in demand and have higher margins.
As in the past, the company's ability to generate positive operating cash flows and report strong revenues and earnings are all critical to its success. The company is confident that it has the management team with the experience and resources to fulfill its vision of growth and profitability.
QIS CAPITAL: NTG Clarity continued to make progress and financial improvement in 2018 but Q4 revenues were well under expectations. Much of this was due to timing and the company expects to continue to show financial improvement in 2019. Margins were very good in 2018, and along with reduced operating costs, propelled the company toward profitability. Legacy debt still remains a challenge and management is looking at a number of alternatives to raise capital or restructure the balance sheet. We are hoping to see some new contract announcements over the next few months.
Deer Horn Capital Inc. (DHC:CSE)
Current Price: $0.215 (coverage commenced Apr. 10/18 - $0.17)
Deer Horn issues Q1 review, including strategic partnerships
Deer Horn Capital Inc.'s president and chief executive officer, Tyrone Docherty, has provided information on the company's activities for Q1 2019.
To our shareholders:
The first quarter of 2019 was productive as Deer Horn continued to lay groundwork for its long-term vision. Most importantly, the company negotiated two strategic partnerships that management believes will prove extremely valuable for the company in the years ahead.
Deer Horn's vision
Deer Horn's vision is to provide metals vital to a low-carbon economy as well as for emerging technologies related to information processing and the advancement of clean energy, clean technology and fresh water.
A new revenue model for the industry
Deer Horn's intent is to build a new revenue model for the junior resource industry at a time when old models are struggling. A key aspect of this model is partnering with industry leaders in critical and strategic metals extraction, manufacturing, supply and research as well with relevant governmental and educational institutions.
We are working to monetize this strategy through our Deer Horn growth model, which includes:
- Advanced exploration;
- Project generation;
- First nations co-operation;
- Scientific innovation;
- Sustainable operation.
Strategic partnership: Fenix Advanced Materials
On April 4 Deer Horn announced a strategic partnership with Fenix Advanced Materials of Trail, B.C., for potential future tellurium extraction and purification. The company anticipates other synergies with Fenix as well, all aimed at achieving a vertically integrated enterprise for clean tech metals. The partnership and more details were announced in our April 4 news release.
We consider this agreement a vital step in Deer Horn's evolution, as we continue to field interest from critical metals end-users about tellurium at the Deer Horn property. Fenix can be instrumental in helping Deer Horn bring the property to production, not only through purchase and processing of the tellurium, but also through research and exposure to new technologies that may increase the property's value. Fenix brings Deer Horn access to important indirect partners such as Teck, the University of British Columbia and Redlen Technologies of Victoria. Redlen is a manufacturer of high-resolution cadmium zinc telluride (CZT) semiconductors which are advancing a new generation of high performance radiation detection and imaging equipment.
Through its proprietary HydroFenix process, Fenix is focused on developing its low-cost environment-friendly hydrometallurgical extraction of tellurium. Further, Fenix spearheads the research and development for a lithium-tellurium (LiTe) solid-state battery, considered a potentially superior option for next-generation batteries beyond current technology (primarily liquid lithium-ion batteries). Solid-state batteries are manufactured with a solid electrolyte, making them safer and non-flammable. Other potential advantages include faster charging, better stability, increased life cycle and increased energy density -- thus, higher capacity and driving range for electric vehicles.
A recent article in Fortune Magazine reported on Germany's push to develop and build battery cells through a $1.12-billion fund, which specifically highlighted lithium solid-state batteries as the future of the industry.
Strategic partnership: unique first nations venture
On April 10 we announced that Deer Horn had partnered with first nation mineral exploration entrepreneur Allen Edzerza to explore highly prospective areas of Northern British Columbia. This is a landmark agreement, both for its value in potentially opening up vast areas of Northern B.C. to Deer Horn, but also for its intent of helping first nations exercise their inherent rights and title to mineral resources in their ancestral lands.
The lands to be explored under the agreement lie east of B.C.'s Golden Triangle mineral region in a large area hosting Kutcho's copper-zinc project and Coeur Mining's Silvertip silver-lead-zinc mine. The Golden Triangle has generated discoveries totalling more than 130 million ounces of gold, 800 million ounces of silver and 40 billion pounds of copper. It has also hosted some of the world's richest mines, including the historic Eskay Creek (Canada's highest-grade gold mine and world's fifth-largest silver producer) and Snip mines, the currently operating Red Chris gold-copper mine developed, and recently sold, by Imperial Metals and Pretium Resources' Brucejack gold-silver mine.
This agreement offers a number of potential benefits to Deer Horn shareholders, including opportunities for Deer Horn to be a project generator in a productive region of B.C. with the possibility of near-term cash flow. It also presents potential new financing opportunities (such as government, NGOs and others) outside of traditional resource models.
Dependent on securing additional financing, this year we are planning to 1) explore the Deer Horn property's copper porphyry potential, 2) begin prospecting and staking in Northern B.C. under our first nations venture, 3) work with Fenix Advanced Materials to research the use of tellurium in new technologies, and 4) explore other new partnerships aligned with our vision and strategy.
Newlox Gold Ventures Corp. (LUX:CSE)
Current Price: $0.04 (coverage commenced Mar. 31/14 - $0.05)
Closes "SERIES TWO" Revenue Participation Agreement
Newlox Gold Ventures Corp. has raised $333,983.75 through non-dilutive financing to finance the advancement of commercial operations at its first environmental reclamation and precious metals recovery processing plant in Central America.
In consideration for payments totalling $333,983.75, three investors have purchased a 3-per-cent gross revenue royalty on the company's first processing plant until the investors have received payments totalling the amount invested, after which the investors will hold a 2-per-cent gross revenue royalty on the first processing plant for the life of the project.
The company has also granted the investors a priority right to finance the company's future projects through a similar mechanism to be adjusted in relation to the financing needs. In the event the investor elects not to finance one or more of the company's future projects, the company will be free to pursue financing from other parties for those projects and investors will hold a 1-per-cent base royalty on the project.
"Newlox has made incredible progress at its first project over the past six months. The company's first processing plant is fully built, and the operations team have delivered positive results from the testing and optimization work, which was recently completed. With this financing closed, Newlox is poised to begin commercial operations," commented Ryan Jackson, president of Newlox Gold.
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 2,873,000 shares of NTG Clarity Networks Inc., 258,500 shares and 125,000 warrants of Deer Horn Capital Inc., and 4,529,398 shares and 833,472 warrants of Newlox Gold Ventures Corp. Management of QIS Capital also participated in the royalty financing for Newlox Gold Ventures as announced in this release. 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 - 2019 QIS Capital Corporation.