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Nanotech Announces Second Quarter Fiscal 2021 Results

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VANCOUVER, British Columbia, May 06, 2021 (GLOBE NEWSWIRE) -- Nanotech Security Corp. (TSXV: NTS) (OTCQX: NTSFF) (“Nanotech” or the “Company”), a leader in the development of secure and visually memorable nano-optic security features used in the government and banknote and brand protection markets, today released its financial results for the three and six months ended March 31, 2021. Management will host a conference call today at 5:00 P.M. Eastern (details below). Unless otherwise stated, all dollar amounts are expressed in Canadian dollars.

Financial Highlights for the Three and Six Months Ended March 31, 2021

  • Revenue was $1.8 million and $3.5 million for the three and six months ended March 31, 2021 respectively, representing increases of 30% and 23% compared to the same periods last year.

  • Gross margin was 71% and 76% for the three and six months ended March 31, 2021 respectively.

  • Adjusted EBITDA losses of $255,064 and $451,638 for the three and six months ended March 31, 2021 respectively, representing an improvement of 55% and 45% compared to the same periods last year.

  • Cash and short-term investments of $8.1 million, and no debt at quarter end.

“Nanotech continues to execute on its growth plans, achieving 30% revenue growth this quarter. We expect to build on this momentum in the second half of fiscal 2021, with $690,000 in contract services orders already secured and the opportunity for $720,000 more. We are also anticipating recurring LumaChrome orders and exciting new product launches to further differentiate our product offerings,” said President and CEO Troy Bullock. “Management continues to focus on monetizing the long-term potential of Nanotech’s technology platform and nanostructure manufacturing capabilities by bringing highly-differentiated authentication solutions to our two key markets.”

Strategic Update

The Company remains focused on commercializing its technology for long-term revenue growth, with efforts centered around the following pillars:

  1. Contract services – The Company’s development contract with a confidential G10 central bank remains a key strategic focus and significant resources are committed to this project. Developing a visual security feature that could be integrated into this country’s banknotes would be a significant milestone in Nanotech’s growth.

    The Company is restricted from providing substantive information about this project, but management is pleased with the progress of this development contract. The Company has secured purchase orders of $7.4 million for fiscal 2021, with potential for additional awards of $720,000 for this fiscal year. Discussions are also underway for a second phase multi-year development contract that management expects to finalize in fiscal 2021.

  2. Product development – Based on the positive market feedback of Nanotech’s latest nano-optic product offerings, management believes there are extensive opportunities to offer these new visual products with exceptional differentiation in both banknote and brand protection markets. As a result, the Company plans to continue to increase its investment in additional development staff, product trials, and certifications, to drive technology advancement and enhanced product development to generate future revenue.

    In the second quarter of 2021 the Company launched its LiveOptik PROTECT security foil for the brand protection market. This new product is currently being tested by several channel partners for inclusion in their product catalogue. Management plans to have additional product launches in the second half of fiscal 2021 for both brand protection and banknote applications.

  3. Strategic partnerships – Nanotech has developed strategic relationships with established OEM manufacturers to enable scalable delivery for our customers. These relationships reduce the Company’s manufacturing risk and extend the market reach of Nanotech’s product offering. Management is also developing the Company’s internal production capability to complement these OEM offerings, which is being optimized for the Company’s proprietary KolourOptik® technology platform. Nanotech is uniquely positioned as a leader in developing and mass-producing complex nanostructures, which could have applications beyond the Company’s initial key markets in brand protection and banknote authentication.

  4. Expanded channels to market – Nanotech will continue to market its products and pursue revenue through both direct sales and strategic channel partners who promote and offer Nanotech’s products to their existing customers. Management expects to expand the Company’s network of channel partners as new products are launched throughout fiscal 2021.

    Product revenue increased to $160,852 for the three months ended March 31, 2021, compared to $123,009 during the same period last year. Nanotech delivered seven customer product orders in the quarter, compared to four in the same period last year. On a year-to-date basis, product revenue of $197,401 from nine orders was lower than product revenue of $366,398 from twelve orders in the same period of 2020. These variances were partially due to the timing of certain recurring orders, which can vary from year to year.

2021 Outlook

The Company has a solid base of 2021 revenue, with secure purchase orders for $7.4 million dollars relating to contract services and anticipated recurring revenue. Management has reconfirmed its guidance for the year, with revenue growth for 2021 targeted at 15% to 25%, depending on the level of new and recurring 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. Looking beyond 2021, Nanotech is uniquely positioned as a leader in developing and mass-producing complex nanostructures, which could have applications far beyond the Company’s initial key markets in brand protection and banknote authentication.

Conference Call Details

Date & Time:

Thursday, May 6, 2021 - 5:00 P.M. Eastern

Dial-in number:

Toll Free (Canada and US):
Toll/International:

1-855-327-6838
1-604-235-2082

Taped replay:

Toll free (Canada and US):
Toll/International:
Replay pin number:
Replay start:
Replay expiry:

1-800-319-6413
1-604-638-9010
6668
Thursday, May 6, 2021, 8:00 PM Eastern
Sunday, June 6, 2021, 11:59 PM Eastern

Webcast:

http://services.choruscall.ca/links/nanosecurity20210506.html

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
March 31

Six months ended
March 31

2021

2020

%
Change

2021

2020

%
Change

Contract services

$

1,637,030

$

1,261,507

30

%

$

3,312,731

$

2,488,044

33

%

Products and services

160,852

123,009

31

%

197,401

366,398

(46

%)

Revenue

1,797,882

1,384,516

30

%

3,510,132

2,854,442

23

%

Gross margin

1,276,501

1,133,106

13

%

2,665,578

2,297,223

16

%

Gross margin %

71

%

82

%

76

%

80

%

Adjusted EBITDA(1)

(255,064

)

(567,033

)

(55

%)

(451,638

)

(818,978

)

(45

%)

Net loss

(763,037

)

(973,333

)

(22

%)

(1,468,136

)

(1,755,823

)

(16

%)

Loss per share
Basic and diluted

(0.01

)

(0.01

)

(0.02

)

(0.03

)

Weighted average number of common shares

Basic and diluted

69,399,861

69,200,125

69,399,861

69,200,125

(1) Adjusted EBITDA is a non-IFRS measure as described in the Non-IFRS Financial Measures section of this News Release. The calculation of Adjusted EBITDA for the three and six months ended March 31, 2020 was amended to exclude tenant and steam (income) expenses, which are no longer expected to be recurring in nature. For further information, see the Quarterly Results section of management’s discussion and analysis for the three and six months ended March 31, 2021.

Financial Position as at:

March 31,

September 30,

%

2021

2020

Change

Cash, cash equivalents and short-term investments

$

8,093,464

$

8,601,140

(6

%)

Total assets

$

26,060,108

$

27,982,579

(7

%)

Total liabilities

1,990,612

2,624,128

(24

%)

Total equity

24,069,496

25,358,451

(5

%)

Financial Statements and Management’s Discussion and Analysis

This news release should be read in conjunction with the Company’s condensed interim financial statements and related notes, and management’s discussion and analysis for the three and six months ended March 31, 2021, 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, tenant income, and steam (income) expense. 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
March 31

Six months ended
March 31

2021

2020

2021

2020

Net loss

$

(763,037

)

$

(973,333

)

$

(1,468,136

)

$

(1,755,823

)

Finance (income) expense

3,184

(28,161

)

202

(61,606

)

Foreign exchange (gain) loss

24,537

(92,102

)

83,659

(69,459

)

Depreciation and amortization

373,603

410,873

753,456

806,841

Share-based compensation

106,649

106,239

179,181

243,100

Tenant income

-

(11,844

)

-

(56,276

)

Steam expense

-

21,295

-

74,245

Adjusted EBITDA

$

(255,064

)

$

(567,033

)

$

(451,638

)

$

(818,978

)


Nanotech Security Corp.

Condensed Interim Statements of Operations and Comprehensive Loss

(Unaudited)

Three and six months ended March 31, 2021 and 2020

(In Canadian dollars)

Three months ended
March 31

Six months ended
March 31

2021

2020

2021

2020

Revenue

$

1,797,882

$

1,384,516

$

3,510,132

$

2,854,442

Cost of sales

521,381

251,410

844,554

557,219

1,276,501

1,133,106

2,665,578

2,297,223

Expenses

Research and development

569,367

556,096

1,210,346

958,028

General and administration

562,140

606,950

1,128,563

1,197,370

Sales and marketing

516,396

651,693

973,367

1,237,743

Depreciation and amortization

363,914

402,512

737,577

773,001

2,011,817

2,217,251

4,049,853

4,166,142

Loss from operations before other (income) expenses

(735,316

)

(1,084,145

)

(1,384,275

)

(1,868,919

)

Other (income) expenses

Foreign exchange (gain) loss

24,537

(92,102

)

83,659

(69,459

)

Finance (income) expense

3,184

(28,161

)

202

(61,606

)

Tenant income

-

(11,844

)

-

(56,276

)

Steam expense

-

21,295

-

74,245

27,721

(110,812

)

83,861

(113,096

)

Net loss and total comprehensive loss

$

(763,037

)

$

(973,333

)

$

(1,468,136

)

$

(1,755,823

)

Basic and diluted loss per share:

Net loss

$

(0.01

)

$

(0.01

)

$

(0.02

)

$

(0.03

)

Weighted average number of common shares

Basic and diluted

69,399,861

69,200,125

69,399,861

69,200,125


Nanotech Security Corp.

Condensed Interim Statements of Financial Position

(Unaudited)

(In Canadian dollars)

March 31,
2021

September 30,
2020

Assets

Current assets:

Cash and cash equivalents

$

1,220,246

$

1,751,855

Short-term investments

6,873,218

6,849,285

Accounts receivable

710,834

1,505,391

Inventory

250,467

210,715

Prepaid expenses and other assets

228,450

324,974

Asset held for sale

125,000

-

9,408,215

10,642,220

Property, plant and equipment

14,398,236

15,089,496

Intangible assets

96,875

-

Goodwill

1,388,458

1,388,458

Right-of-use asset

768,324

862,405

$

26,060,108

$

27,982,579

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable and accrued liabilities

$

1,098,385

$

1,630,754

Deposits

42,347

56,069

Current portion of lease liability

180,285

173,558

1,321,017

1,860,381

Non-current liabilities:

Lease liability

669,595

763,747

1,990,612

2,624,128

Shareholders’ equity

Share capital

62,499,841

62,499,841

Contributed surplus

3,587,834

3,408,653

Deficit

(42,018,179

)

(40,550,043

)

24,069,496

25,358,451

$

26,060,108

$

27,982,579


Nanotech Security Corp.

Condensed Interim Statements of Cash Flows

(Unaudited)

Three and six months ended March 31, 2021 and 2020

(In Canadian dollars)

Three months ended
March 31

Six months ended
March 31

2021

2020

2021

2020

Cash flows provided by (used in):

Operating activities:

Net loss

$

(763,037

)

$

(973,333

)

$

(1,468,136

)

$

(1,755,823

)

Items not involving cash

Depreciation and amortization

373,603

410,873

753,456

806,841

Share-based compensation

106,649

106,239

179,181

243,100

Unrealized foreign exchange gain (loss)

2,423

(11,491

)

(31,059

)

(35,969

)

Finance (income) expense

3,184

(28,161

)

202

(61,606

)

Other

(2,874

)

(5,520

)

(5,363

)

(6,101

)

Non-cash working capital changes

102,826

478,714

436,009

159,891

Interest paid on lease liability

(9,891

)

(11,671

)

(20,273

)

(22,722

)

Interest received

11,455

7,382

49,954

85,858

Cash used in operating activities

(175,662

)

(26,968

)

(106,029

)

(586,531

)

Investing activities:

Purchase of property and equipment

6,235

(276,364

)

(234,862

)

(464,419

)

Purchase of intangible asset

(85,000

)

-

(85,000

)

-

Net acquisition of short-term investments

(10,731

)

-

(48,452

)

(70,650

)

Cash used in investing activities

(89,496

)

(276,364

)

(368,314

)

(535,069

)

Financing activities:

Repayment of lease liability

(43,958

)

(34,109

)

(87,425

)

(68,839

)

Cash used in financing activities

(43,958

)

(34,109

)

(87,425

)

(68,839

)

Effect of foreign exchange on cash and cash equivalents

3,430

24,334

30,159

43,848

Decrease in cash and cash equivalents

(305,686

)

(313,107

)

(531,609

)

(1,146,591

)

Cash and cash equivalents, beginning of period

1,525,932

1,918,518

1,751,855

2,752,002

Cash and cash equivalents, end of period

$

1,220,246

$

1,605,411

$

1,220,246

$

1,605,411

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 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, 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 foils for currency authentication and brand protection.

KolourOptik® is a patented visual 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 optical 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.

LiveOptik™ is a patented visual 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.:

US Investor Relations:

Canada Investor Relations:

Kelley Ryshak

Matthew Selinger

Sean Peasgood

info@nanosecurity.ca

mselinger@firmirgroup.com

sean@SophicCapital.com

+1.604.678.5775

+1.415.572.8152

+1.647.699.9845

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.