Nanotech Announces Third Quarter Fiscal 2019 Results

August 8, 2019

Nanotech Announces Third Quarter Fiscal 2019 Results

VANCOUVER, British Columbia – August 8, 2019 – Nanotech Security Corp. (TSXV: NTS) (OTCQX: NTSFF) (“Nanotech” or the “Company”), a leading innovator in the research, creation and production of nano-optic structures and colour-shifting materials used in authentication and brand enhancement, today released its financial results for the three and nine months ended June 30, 2019.  Management will host a conference call today, August 8, 2019 at 5:00 pm Eastern (details below).  Unless otherwise stated, all dollar amounts are expressed in Canadian dollars.

Financial Highlights

  • Revenue was $1.9 million and $5.5 million for the three and nine months ended June 30, 2019, representing an increase of 1% and decrease of 6% compared to the same periods last year.
  • Gross margin for the quarter was 72% versus 69% last quarter and 83% in the third quarter of 2018.
  • Adjusted EBITDA was $17,000 for the quarter, which represents the ninth consecutive quarter of positive Adjusted EBITDA, and $180,000 for the year to date.
  • Cash and short-term investments were $9.6 million at quarter end.

“We are seeing the results of our product-based sales strategies that we implemented at the beginning of the year,” said President and CEO Troy Bullock. “Our brand protection products are gaining traction, with corresponding growth in our sales pipeline, and we’ve also been able to expand our optical thin film sales. These developments, coupled with the advancement of our contract services, give us confidence that our growth strategy is sound. In the short term, we will continue to focus on revenue opportunities with short sales cycles and expanding our sales pipeline, all while continuing to advance opportunities for KolourOptik® on banknotes.”

Strategic Update

In January 2019, management implemented a strategic shift to focus on near term revenue growth by commercializing its technology into products specifically designed for the banknote and secure document market and the brand protection market.  The Company launched its first brand protection products, LiveLogoTM and Dynamic PortraitTM in April and has hired experienced sales leaders to pursue near-term revenue opportunities. 

Banknote security feature market.  The Company has two areas of focus in the banknote market:

  • Contract services progress towards a new security feature for a G10 central bank. The customer, a confidential central bank, confirmed in July that the security feature developed by Nanotech will advance to the next stage, which involves demonstrating that the security feature can be manufactured in Nanotech’s Thurso production facility. While the Company does not currently have visibility on if or when Nanotech’s feature might be integrated into the customer’s banknotes, moving from the lab to a production setting is a major advancement. The timing and scope of contract services in this next phase are expected to be agreed upon in September and will have a direct impact on the Company’s fourth quarter and 2020 fiscal year. To date, Nanotech has recognized $15 million of this potential $30 million contract.
  • Market Nanotech’s security feature product line. The Company continues to pursue sales opportunities for optical thin film (“OTF”) in the banknote and secure documents market. As announced on August 1, the Company expanded its business with a long-term customer by securing a new order for a custom OTF product that will be applied as a security feature in government-issued identification documents.

Brand protection market.  The Company completed its first sale in the brand protection market this year and launched its LiveLogo and Dynamic Portrait products targeted for the commercial markets. During the quarter, Nanotech’s sales team participated in targeted industry tradeshows and events to promote the Company’s brand protection product line. Nanotech’s products have garnered strong interest from the industry, with several opportunities in the sales pipeline. 

Financial Outlook

Based on early indications of the fourth quarter contract services revenue, our revenue guidance for the fiscal year remains unchanged, with expected revenues of $7.4 to $8.3 million. At these revenues and with increased investments in sales, product development and other commercialization expenditures, the Company is on track to improve upon the targeted Adjusted EBITDA loss of up to $1.0 million. 

With a strong balance sheet, including $9.6 million in cash and short-term investments and no debt, the Company is well positioned to continue to develop and pursue its product-based sales and marketing strategies in 2019.  

Conference Call Details

Date & Time:
Thursday, August 8, 2019 – 5:00 P.M. Eastern
Dial-in number:
Toll Free:
Toll/International:
1-800-239-9838
1-323-794-2551
Conference ID: 
8101795
Taped replay:
Toll free (Canada and US): 
Alternate number:
Replay pin number: 
Replay start:
Replay expiry:
1-844-512-2921
1-412-317-6671
8101795
Thursday August 8, 2019, 8:00 PM Eastern
Sunday September 8, 2019, 11:59 PM Eastern
Webcast:

Select Financial Information

All results are reported in Canadian dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

 

Three months ended

June 30

Nine months ended

June 30

2019 

2018(1)

%

Change

2019 

2018(1) 

%

Change

Revenue

$1,891,014 

$ 1,874,878 

1% 

$5,530,772 

$ 5,913,897 

(6%)

Gross margin

1,368,151 

1,556,088 

(12%)

3,910,788 

4,549,567 

(14%)

Gross margin %

72% 

83% 

 

71% 

77% 

 

Adjusted EBITDA(2)

17,365 

100,344 

(83%)

180,023 

692,944 

(74%)

 

 

 

 

 

 

 

Net loss

(521,490)

(627,462)

(17%)

(2,130,406)

(816,352)

161% 

Loss per share

Basic and diluted

(0.01)

(0.01)

 

(0.03)

(0.01)

 

Weighted average number of common shares

 

 

 

 

 

 

Basic and diluted

68,959,001 

68,395,825 

 

68,875,897 

68,395,825 

 

(1)Results for the three and nine months ended June 30, 2018 have been adjusted to reflect the full retrospective application of IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”), which was adopted October 1, 2018. For further information, see note 3(b) of the condensed consolidated interim financial statements for the three and nine months ended June 30, 2019.

(2)Adjusted EBITDA is a non-IFRS measure as described in the Non-IFRS Financial Measures section of this News Release.

 

Financial Position as at:

June 30,

September 30,

 

2019 

2018 

Change 

Cash, cash equivalents and short-term investments

 

$    9,611,617 

 

$    9,613,621 

0%

 

 

 

 

Total assets

$  28,671,594 

$  30,229,055 

(5%)

Total liabilities

1,331,172 

1,325,139 

1% 

Total equity

27,340,422 

28,903,916 

(5%)

 

Financial Statements and Management’s Discussion and Analysis

This news release should be read in conjunction with the Company’s condensed consolidated interim financial statements and related notes, and management’s discussion and analysis for the three and nine months ended June 30, 2019, copies of which can be found at www.sedar.com.

Non-IFRS Financial Measures

In addition to results reported in accordance with IFRS, the Company discloses Adjusted EBITDA as a supplemental indicator of its financial performance.

The Company defines Adjusted EBITDA as net income (loss) excluding the impact of interest and financing costs (net of interest income), foreign exchange gain (loss), income taxes, depreciation and amortization, share-based compensation, restructuring costs, and net income (loss) from discontinued operations. The Company believes Adjusted EBITDA is a useful measure as it provides information to management about the operating and financial performance of the Company and its ability to generate operating cash flow to fund future working capital needs, as well as future growth. Adjusted EBITDA may also be used by investors and analysts for the purpose of valuing the Company.

Readers are cautioned that these non-IFRS definitions are not recognized measures under IFRS, do not have standardized meanings prescribed by IFRS, and should not be construed to be alternatives to net earnings determined in accordance with IFRS or as indicators of performance or liquidity or cash flows. The Company’s method of calculating these measures may differ from methods used by other entities and accordingly Nanotech’s measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions. The Company uses these measures because it believes they provide useful information to both management and investors with respect to the operating and financial performance of the Company.

 

Three months ended

June 30

Nine months ended
June 30

 

2019 

2018 

2019 

2018 

 

 

 

 

 

Net loss

$      (521,490)

$    (627,462)

$  (2,130,406)

$    (816,352)

Finance income

(49,343)

(20,126)

(150,308)

(80,394)

Foreign exchange (gain) loss

32,798 

(31,434)

2,460 

(255,293)

Depreciation and amortization

386,496 

406,021 

1,167,865 

1,186,419 

Share-based compensation

168,904 

201,803 

474,712 

535,242 

Restructuring costs

– 

– 

815,700 

– 

Net loss from discontinued operations

– 

171,542 

– 

123,322 

Adjusted EBITDA

$         17,365 

$     100,344 

$      180,023 

$     692,944 

 

 

 

 

 

Nanotech Security Corp.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Unaudited)

 

Three and nine months ended June 30, 2019 and 2108

(In Canadian dollars)

 

Three months ended

June 30

Nine months ended

June 30

 

2019 

2018 (1)

2019 

2018(1)

Revenue

$   1,891,014 

$ 1,874,878 

$   5,530,772 

$ 5,913,897 

Cost of sales

522,863 

318,790 

1,691,984 

1,364,330 

 

1,368,151 

1,556,088 

3,910,788 

4,549,567 

Expenses

 

 

 

 

Research and development

416,722 

456,241 

1,155,372 

1,194,917 

General and administration

613,740 

702,377 

1,738,490 

1,934,490 

Sales and marketing

563,373 

569,274 

1,536,917 

1,515,791 

Depreciation and amortization

370,977 

395,336 

1,127,271 

1,114,034 

Restructuring costs

– 

– 

815,700 

– 

 

1,964,812 

2,123,228 

6,373,750 

5,759,232 

Loss from continuing operations before other expenses

(596,661)

(567,140)

(2,462,962)

(1,209,665)

 

 

 

 

 

Other (income) expense

 

 

 

 

Foreign exchange (gain) loss

32,798 

(31,434)

2,460 

(255,293)

Finance income

(49,343)

(20,126)

(150,308)

(80,394)

Tenant income

(58,626)

(59,660)

(184,708)

(180,948)

 

(75,171)

(111,220)

(332,556)

(516,635)

Net loss from continuing operations

(521,490)

(445,920)

(2,130,406)

(693,030)

 

 

 

 

 

Net loss from discontinued operations

– 

(171,542)

– 

(123,322)

Net loss

(521,490)

(627,462)

(2,130,406)

(816,352)

 

 

 

 

 

Other comprehensive loss:

Items that may be subsequently reclassified to earnings:

Unrealized foreign exchange loss

on translation of foreign operation

– 

(28,140)

– 

(98,908)

Total comprehensive loss

$   (521,490)

$    (655,602)

$ (2,130,406)

$   (915,260)

 

 

 

 

 

Basic and diluted earnings (loss) per share:

 

 

 

 

Continuing operations

$          (0.01)

$          (0.01)

$         (0.03)

$        (0.01)

Discontinued operations

$           0.00 

$           0.00 

$           0.00 

$          0.00 

Net loss

$          (0.01)

$          (0.01)

$         (0.03)

$        (0.01)

 

 

 

 

 

Weighted average number of common shares

Basic and diluted

68,959,001 

68,395,825 

68,875,897 

68,395,825 

(1)Results for the three and nine months ended June 30, 2018 have been adjusted to reflect the full retrospective application of IFRS 15, which was adopted October 1, 2018. For further information, see note 3(b) of the condensed consolidated interim financial statements for the three and nine months ended June 30, 2019.

           

 

Nanotech Security Corp.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited)

 

 

(In Canadian dollars)

 

June 30,

2019 

September 30,

2018 

 

 

 

Assets

Current assets:

Cash and cash equivalents

$   2,111,623 

$   2,014,764 

Short-term investments

7,499,994 

7,598,857 

Accounts receivable

1,329,951 

1,962,969 

Inventory

201,806 

173,636 

Prepaid expenses and other assets

259,104 

125,514 

 

11,402,478 

11,875,740 

 

 

 

Property, plant and equipment

15,880,658 

16,964,857 

Goodwill

1,388,458 

1,388,458 

 

$ 28,671,594 

$ 30,229,055 

 

 

 

Liabilities and Shareholders’ Equity

 

 

Current liabilities:

Accounts payable and accrued liabilities

$   1,297,404 

$   1,265,282 

Liabilities directly associated with assets held for sale

10,793 

16,204 

 

1,308,197 

1,281,486 

 

 

 

Non-current liabilities:

 

 

Tenant inducement

22,975  

43,653 

 

1,331,172 

1,325,139 

 

 

 

Shareholders’ equity

 

 

Share capital

62,080,465 

61,892,395 

Contributed surplus

3,309,806 

2,930,964 

Deficit

(38,049,849)

(35,919,443)

 

27,340,422 

28,903,916 

 

$ 28,671,594 

$ 30,229,055 

       

 

 

 

Nanotech Security Corp.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

 

Three and nine months ended June 30, 2019 and 2018

(in Canadian Dollars)

 

Three months ended

June 30 

Nine months ended

June 30 

 

2019 

2018 

2019 

2018 

Cash flows provided by (used in):

 

 

 

 

Operating activities:

 

Net loss from continuing operations

$    (521,490)

$    (455,920)

$ (2,130,406)

$    (693,030)

Items not involving cash:

 

Depreciation and amortization

386,496 

406,021 

1,167,865 

1,186,419 

Share-based compensation

168,904 

201,803 

566,912 

535,242 

Unrealized foreign exchange gain

(16,694)

– 

(16,694)

– 

Interest income

(51,493)

(24,967)

(156,600)

(89,266)

Other

(4,636)

(7,254)

(17,859)

(22,376)

Non-cash working capital changes

(457,346)

541,453 

529,444 

42,333 

Interest received

125,833 

25,328 

185,651 

90,964 

 

(370,426)

686,464 

128,313 

1,050,286 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

(434)

(3,018)

(5,411)

94,618 

Cash provided by (used in) operating activities

(370,860)

683,446 

122,902 

1,144,904 

 

 

 

 

 

 

Investing activities:

 

 

 

 

Purchase of property and equipment

(63,527)

(1,490,993)

(93,503)

(2,478,900)

Disposal of short-term investments

203,314 

– 

203,314 

– 

Net acquisition of short-term investments

(108,146)

– 

(136,321)

– 

Cash provided by (used in) investing activities

31,641 

(1,490,993)

(26,510)

(2,478,900)

 

 

 

 

 

Effect of foreign exchange on cash and cash equivalents

467 

 (28,140)

467 

(98,908)

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

(338,752)

(835,687)

96,859 

(1,432,904)

 

 

 

 

 

Cash and cash equivalents, beginning of period

2,450,375 

10,286,702 

2,014,764 

10,883,919 

Cash and cash equivalents, end of period

$   2,111,623 

$   9,451,015 

$   2,111,623 

$   9,451,015 

 

 

 

 

 

               

 

 

FORWARD-LOOKING STATEMENTS

The discussion and analysis in this news release contains forward-looking statements concerning anticipated developments in the Company’s operations in future periods, the adequacy of Nanotech’s financial resources, and the events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by words such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “predicts”, “potential”, “targeted”, “plans”, “possible” and similar expressions, or statements that events, conditions, or results “will”, “may”, “could” or “should” occur or be achieved.

These forward-looking statements include, without limitation, statements about the Company’s market opportunities, strategies, competition, and the Company’s views that its optics-based technologies will continue to show promise for large-scale production. Other forward-looking statements imply that the Company will remain capable of being financed and/or will be able to partner in development until profitability is eventually realized. The principal risks related to these forward-looking statements are the loss of a key customer, that the Company’s products receive market acceptance, and that its intellectual property claims will be sufficiently broad or enforceable to provide the necessary protection or attract the necessary capital.

These forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made. Consequently, all forward-looking statements made in the discussion and analysis of the financial conditions and results of operations or the documents incorporated by reference, are qualified by this cautionary statement and there can be no certainty that actual results or developments the Company anticipates will be realized. For additional information with respect to certain of these risks or factors reference should be made to the “Business Risks and Uncertainties” section of the management’s discussion and analysis and the notes to the audited consolidated financial statements for the year ended September 30, 2018, as well as with the Company’s continuous disclosure materials filed from time to time with Canadian securities regulatory authorities, which are available online at www.sedar.com. Nanotech disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law. Caution needs to be used when taking forward-looking statements into account when evaluating the Company.

About Nanotech

Nanotech researches, creates and produces nano-optic structures and colour-shifting materials used in authentication and brand enhancement applications across a wide range of markets including banknotes, tax stamps, secure government documents, and commercial branding. 

The Company’s nano-optic technology employs arrays of billions of nano-indentations that can be impressed or embossed onto a wide range of substrate materials including polymer, paper, metal, or fabric.  By using sophisticated algorithms to direct an electron beam lithography system, the Company creates visual images with effects such as 3D, perceived movement, and the display of high-definition colours.

Additional information about Nanotech can be found at the Company’s website www.nanosecurity.ca, the Canadian disclosure filings website www.sedar.com or the OTCMarkets disclosure filings website www.otcmarkets.com.

Nanotech Security Corp.:

 

Investor Relations:

Kelley Ryshak

 

Sean Peasgood

info@nanosecurity.ca

 

sean@SophicCapital.com

+1.604.678.5775

 

+1.647.699.9845

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of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.