Nanotech Announces Fiscal 2020 Fourth Quarter and Year-End Results

 

Revenue and EBITDA both Exceed Guidance

 

VANCOUVER, British Columbia – December 10, 2020 – Nanotech Security Corp. (TSXV: NTS) (OTCQX: NTSFF) (“Nanotech” or the “Company”), a leader in the development of secure and memorable nano-optic security features used in the government and banknote and brand protection markets, today released its financial results for the fourth quarter and year ended September 30, 2020. Management will host a conference call today at 5:00 pm Eastern (details below). Unless otherwise stated, all dollar amounts are expressed in Canadian dollars.

Highlights

Financial Results

  • Total revenue for the year ended September 30, 2020 grew 21% to $7.7 million, exceeding the Company’s forecasted guidance for revenue growth of 10 to 20%.
  • Positive Adjusted EBITDA improved to $331,762 for the 2020 fiscal year which was significantly better than Nanotech’s expectation for EBITDA losses of up to $1.0 million at the beginning of the year.
  • Cash and short-term investments were $8.6 million at year end and the Company has no debt.

Product Revenue

  • Delivered 23 customer product orders in the year, compared to 14 in 2019 and two in 2018.
  • Product revenue of $1.6 million for the year ended September 30, 2020 was 24% higher than the prior year.

Contract Services Revenue

  • Contract services revenue of $6.1 million for the year ended September 30, 2020 was 20% higher than the prior year.
  • Awarded $6.7 million of purchase orders for 2021 contract services revenue with potential for additional awards totaling $1.5 million.

“While COVID-19 did impact our business, Nanotech delivered a strong fourth quarter with revenue of $2.9 million and Adjusted EBITDA of more than $950,000.  Strong growth in both contract services revenue and product revenue allowed us to surpass our annual guidance,” said President and CEO Troy Bullock. “We are entering fiscal 2021 with a solid base of revenue and opportunities for upside in both contract services and product revenue. With a strong balance sheet, we plan to build on the success we saw in 2020 by continuing to focus on differentiating our product offering and diversifying our customer base to drive further growth.”

Report on 2020 Strategic Initiatives

In 2020, the Company pursued revenue growth by focusing on product sales opportunities in the government and banknote market and in the brand protection market.  To achieve this, management previously established the following targets for fiscal 2020:

  • Revenue diversification. Increase product revenue by generating sales of nano-optic products, expanding product lines, and pursuing further growth opportunities for LumaChrome colour-shifting foil.

In fiscal 2020, Nanotech recorded product revenue from 23 delivered customer orders, compared to 14 for 2019, and increased product revenue by 24% compared to 2019. Product revenue growth was predominantly related to LumaChrome foil which included foil for two new banknote denominations and one new government ID application. In addition, the Company worked with several partners to qualify its LumaChrome foil on four new banknote opportunities and additionally delivered recurring LumaChrome foil orders in the second half of 2020.

 

In the brand protection market, the Company won three reference customers in 2020, including two wins in the licensing vertical with the World Baseball Softball Confederation and CONCACAF and a product order for approximately 7.0 million labels in a confidential brand protection application. The Company also worked with a partner to deliver custom foil for a new commercial application and expanded its brand protection product offering with the launch of LumaChrome into the brand protection market.

  • Develop strategic sales relationships. Expand the Company’s sales reach by partnering with more established OEMs to promote Nanotech’s products to their existing customer bases.

The Company made significant progress in strengthening its sales partnerships in 2020. In the brand protection market, management partnered with two American channel partners who are now marketing Nanotech’s LiveOptik™ products. In the government and banknote market, management is working with a key OEM partner to design a marketing housenote to enable this partner to begin marketing KolourOptik® products.

  • Develop strategic manufacturing and product partnerships. Partner with select manufacturers that have a proven track record of excellence to reduce the manufacturing risk associated with scaling product sales and to expand the Company’s product lines.

The Company has partnered with a large OEM partner to produce LiveOptik products for the brand protection market. Nanotech’s product features have expanded to include foils, labels, QR codes, and track and trace capability because of its manufacturing partnerships. Outsourcing LiveOptik manufacturing also enables the Company to focus on its core capabilities in technology development.

In the government and banknote market, management is in the process of qualifying a world class OEM manufacturing partner for its KolourDepth™ products. Qualification is expected to be complete in the second quarter.

In addition, Nanotech invested over $1.5 million to expand and upgrade its secure manufacturing facility in Thurso, Quebec to accommodate future growth, including modifications to LumaChrome production equipment, an enhanced electrical and heating system, and additional production equipment.

2021 Outlook

In 2021, management intends to build on 2020’s successes to further commercialize the Company’s technology and pursue revenue growth.

Revenue diversification remains a priority, and there are growth opportunities for its nano-optic products across all key markets. The capital investments made in the Thurso facility in 2020 will provide additional opportunities to bid on banknote and government identification projects while launching LumaChrome foil for the brand protection market in 2021.

Developing additional strategic partnerships will also continue to be a focus allowing Nanotech to leverage established OEMs to broaden the Company’s sales reach and manufacturing capability. Management sees further opportunities to leverage new and existing strategic partners in 2021, while Nanotech remains focused on technology development.

Management plans to invest in products for both the banknote and the brand protection markets in 2021. These investments include additional development staff, production trials and certifications, as well as an increase in product marketing. While the Company has seen success with its existing nano-optic products, management believes there are opportunities to offer new products with exceptional differentiation and has received positive feedback from customers on new product previews.

In addition to pursuing product revenue growth and diversification, the Company will also continue to provide contract services for its confidential central bank customer. While the Company does not have visibility on if or when Nanotech’s security feature might be integrated into the customer’s banknotes, management is pleased with the progress of this development contract and with the growth in contract services awarded for 2021.

The Company has a solid base of 2021 revenue, with purchase orders for $6.7 million dollars relating to contract services and anticipated recurring revenue.  Revenue growth for 2021 is targeted at 15% to 25%, with growth expected in LumaChrome sales, additional contract services and successful product launches. Given Nanotech’s continued investment in technology, management expects modest Adjusted EBITDA losses in 2021.

With a strong balance sheet including no debt, an expanding IP portfolio, record contract services awards for 2021, and recurring LumaChrome business, the Company is well positioned for future product revenue growth and diversification.

Conference Call Details

Date & Time: Thursday, December 10, 2020 – 5:00 P.M. Eastern
Dial-in number: Toll Free:

Toll/International:

1-800-319-4610

1-604-638-5340

Conference ID:  10011992
Taped replay: Toll free (Canada and US):

Alternate number:

Replay pin number:

Replay start:

Replay expiry:

1-800-319-6413

1-604-638-9010

5672

Thursday December 10, 2020, 8:00 PM Eastern

Sunday January 10, 2021, 11:59 PM Eastern

Webcast: http://services.choruscall.ca/links/nanosecurity20201210.html

 

Equity Grants

The Board of Directors have approved for grant subsequent to the Company’s trading blackout 265,588 restricted share units (of which 107,988 are to officers) and 717,500 stock options to officers of the company.  The stock options will be granted at market price, in accordance with TSXV Policy 1.1.  The options will be for four years and will bring the total options outstanding to 8.7% of outstanding shares.

 

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

September 30

Years ended

September 30

      %   %
  2020 2019 Change 2020 2019 Change
Contract services $ 2,137,469 $ 480,184 345% $ 6,121,326 $ 5,113,764 20%
Products and services 775,642 969,503 (20%) 1,592,847 1,288,938 24%
Revenue 2,913,111 1,449,687 101% 7,714,173 6,402,702 21%
Gross margin 2,325,641 1,112,053 109% 6,232,662 4,890,837 27%
Gross margin % 80% 77%   81% 76%  
Adjusted EBITDA (1) 953,007 (262,712) 463% 331,762 (399,402) 183%
             
Net income (loss) 292,844 (704,848) 142% (1,795,346) (2,835,254) 37%
Earnings (loss) per share

Basic and diluted

0.00 (0.01)   (0.03) (0.04)  
Weighted average number
of common shares
           
Basic and Diluted 69,263,085 69,035,007   69,215,951 68,916,001  

 

(1) Adjusted EBITDA is a non-IFRS measure as described in the “Non-IFRS Financial Measures” section of this News Release. Adjusted EBITDA for the quarter and year ended September 30, 2019 varies from previously disclosed values as the calculation of Adjusted EBITDA was amended to exclude tenant and steam (income) expenses, which are no longer expected to be recuring in nature. For further information, see the Quarterly Results section of management’s discussion and analysis for the year ended September 30, 2020.

Financial Position as at: September 30, September 30, %
  2020 2019 Change
Cash, cash equivalents and short-term investments $    8,601,140 $  10,289,264 (16%)
       
Total assets $  27,982,579 $  28,523,244 (2%)
Total liabilities 2,624,128 1,791,610 47%
Total equity 25,358,451 26,731,634 (5%)

 

Financial Statements and Management’s Discussion and Analysis

This news release should be read in conjunction with the Company’s financial statements and related notes and management’s discussion and analysis for the year ended September 30, 2020, 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 calculation of Adjusted EBITDA has been amended this year to exclude tenant and steam (income) expenses, which are no longer expected to be recurring in nature.

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, impairment of assets, share-based compensation, tenant income, steam (income) expense and restructuring costs. 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, 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

September 30

Years ended

September 30

  2020 2019 2020 2019
       
Net income (loss) $     292,844 $    (704,848) $   (1,795,346) $  (2,835,254)
Finance income (9,210) (42,444) (89,670) (192,752)
Foreign exchange gain (15,524) (17,442) (39,740) (14,982)
Depreciation and amortization 421,551 398,257 1,628,746 1,566,122
Impairment of assets 315,338 315,338
Share-based compensation 75,706 96,060 422,163 570,772
Restructuring costs (28,125) 787,575
Tenant income (13,259) (29,811) (69,535) (214,519)
Steam (income) loss (114,439) 65,641 (40,194) (66,364)
Adjusted EBITDA $      953,007 $     (262,712) $      331,762 $     (399,402)

 

 

Nanotech Security Corp.
Statements of Operations and Comprehensive Loss
 
Years ended September 30, 2020 and 2019
(In Canadian dollars)
  Three months ended
September 30
Years ended
September 30
  2020 2019 2020 2019
         
Revenue $  2,913,111 $ 1,449,687 $ 7,714,173 $ 6,402,702
Cost of sales 587,470 337,634 1,481,511 1,511,865
  2,325,641 1,112,053 6,232,662 4,890,837
Expenses
Research and development 444,582 322,296 1,840,811 1,477,668
General and administration 590,269 568,531 2,344,258 2,307,021
Sales and marketing 454,104 624,139 2,223,865 2,161,056
Depreciation and amortization 380,936 354,117 1,542,875 1,481,388
Impairment of assets 315,338 315,338
Restructuring costs (28,125) 787,575
  2,185,229 1,840,958 8,267,147 8,214,708
Income (loss) from operations before other expenses 140,412 (728,905) (2,034,485) (3,323,871)
         
Other (income) expenses
Foreign exchange gain (15,524) (17,442) (39,740) (14,982)
Finance income (9,210) (42,444) (89,670) (192,752)
Tenant income (13,259) (29,811) (69,535) (214,519)
Steam (income) loss (114,439) 65,640 (40,194) (66,364)
  (152,432) (24,057) (239,139) (488,617)
         
Net income (loss) and total comprehensive income (loss) $     292,844 $    (704,848) $ (1,795,346) $ (2,835,254)
         
Basic and diluted earnings (loss) per share:        
Net income (loss) $           0.00 $          (0.01) $          (0.03) $          (0.04)
         
Weighted average number of common shares
Basic and diluted 69,263,085 69,035,007 69,215,951 68,916,001

 

  

Nanotech Security Corp.
Statements of Financial Position
As at September 30, 2020 and 2019
(In Canadian dollars)
2020 2019
Assets
Current assets:
Cash and cash equivalents $    1,751,855 $    2,752,002
Short-term investments 6,849,285 7,537,262
Accounts receivable 1,505,391 503,660
Inventory 210,715 237,264
Prepaid expenses and other assets 324,974 419,753
10,642,220 11,449,941
Property, plant and equipment 15,089,496 15,684,845
Goodwill 1,388,458 1,388,458
Right-of-use asset 862,405
$  27,982,579 $  28,523,244
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities $    1,630,754 $    1,232,159
Deposit 56,069 543,368
Current portion of lease liability 173,558
1,860,381 1,775,527
Non-current liabilities:
Lease liability 763,747
Tenant inducement 16,083
2,624,128 1,791,610
Shareholders’ equity
Share capital 62,499,841 62,355,479
Contributed surplus 3,408,653 3,130,852
Deficit (40,550,043) (38,754,697)
25,358,451 26,731,634
$  27,982,579 $  28,523,244

 

 

Nanotech Security Corp.
Statements of Cash Flows
Years ended September 30, 2020 and 2019
(in Canadian Dollars)
  Three months ended
September 30
Years ended
September 30
  2020 2019 2020 2019
         
Cash flows provided by (used in):        
Operating activities:        
Net income (loss) $     292,844 $    (704,848) $   (1,795,346) $    (2,835,254)
Items not involving cash:
Depreciation and amortization 421,551 398,257 1,628,746 1,566,122
Share-based compensation 75,706 96,060 422,163 662,972
Impairment of assets 315,338 315,338
Unrealized foreign exchange gain (loss) 15,895 14,246 29,450 (2,448)
Finance income (9,210) (42,444) (89,670) (192,752)
Other (2,582) (11,652) (11,815) (35,803)
     Non-cash working capital changes (711,057) 1,031,131 (875,578) 1,578,505
     Interest paid on lease liability (10,868) (44,868)
Interest received 31,467 15,276 152,187 200,927
  419,084 796,026 (269,393) 942,269
     
Net cash used in discontinued operations (10,793) (16,204)
Cash provided by (used in) operating activities 419,084 785,233 (269,393) 926,065
 

 

   
Investing activities:    
Purchase of property and equipment (463,992) (138,035) (1,233,063) (249,468)
Disposal of short-term investments 815,832 815,832 203,314
Net acquisition of short-term investments (29,738) (5,339) (133,689) (141,660)
Cash used in investing activities 322,102 (143,374) (550,920) (187,814)
Financing activities:
    Repayment of lease liability (42,982) (146,241)
Cash used in financing activities (42,982) (146,241)
     
Effect of foreign exchange on cash and cash equivalents (15,707) (1,480) (33,593) (1,013)
     
Increase (decrease) in cash and cash equivalents 682,497 640,379 (1,000,147) 737,238
     
Cash and cash equivalents, beginning of year 1,069,358 2,111,623 2,752,002 2,014,764
Cash and cash equivalents, end of year $  1,751,855 $  2,752,002 $    1,751,855 $    2,752,002
         

 

 

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 and the potential impacts of the COVID-19 pandemic on the Company’s operations. 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, as well as risks relating to the COVID-19 pandemic.

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 financial statements for the year ended September 30, 2020, 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

With billions of security features in circulation, Nanotech’s products include secure and memorable security labels, stripes, patches, and colour-shifting films for currency authentication and brand protection.

KolourOptik® is a patented technology that is exclusive to the government and banknote market and combines sub-wavelength nanostructures and microstructures to create modern overt security features with a unique and customizable visual effect. KolourOptik pure plasmonic colour pixels produce full colour, 3D depth, and movement used in security stripes and threads that are nearly impossible to replicate.  At less than 5 microns thick, KolourOptik products seamlessly integrate into banknotes and other secure government documents.

LiveOptik™ is a patented technology that utilizes innovative nano-optics one tenth the size of traditional holographic structures to create next generation overt security features customized to our customers’ unique requirements. LiveOptik delivers multi-colour, 3D depth, movement, and image switches for secure brand protection stripes, threads, and labels that are nearly impossible to replicate.

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.
Kelley Ryshak
info@nanosecurity.ca
+1.604.678.5775

Canada Investor Relations:
Sean Peasgood
sean@SophicCapital.com
+1.647.699.9845

US Investor Relations:
Matthew Selinger
mselinger@firmirgroup.com
+1.415.572.8152

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.