Today's News |
Nanotech Announces First Quarter Fiscal 2019 Results - Corporate Transition Underway
Thursday, February 28, 2019Company Profile | Follow Company
Burnaby, BC, February 28, 2019--(T-Net)--Nanotech Security Corp. (TSXV: NTS), 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 months ended December 31, 2018.
Highlights
Recent Developments
"Fiscal 2019 is a transitional year for Nanotech, including not just the executive and Board transitions but also a shift in focus toward commercializing our technology in both the banknote and commercial markets," said Mr. Bullock. "With the recent addition of Mr. Donnelly, we are well-positioned to implement our product-based sales and marketing strategies."
2019 Outlook
Nanotech's strategy to disrupt the multibillion-dollar banknote market and become a key supplier of banknote security features is on track, and the Company is gaining recognition in the industry as having innovative technologies to address the needs of central banks around the world. In commercial markets, the Company continues to make advancements in positioning its KolourOptik technology as an upgrade and replacement to traditional holograms. In 2019, the Company expects to introduce new and innovative products into the banknote and commercial markets as well as make a significant investment into building its sales organization.
The Company continues to work towards the goals management established for the 2019 fiscal year:
With a strong balance sheet, including $10,916,646 in cash and short-term investments and no debt, the Company is well positioned to develop and pursue its sales strategies in 2019.
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 December 31 |
||||
|
|
|
|
|
% Change |
|
|
|
|
|
2018 |
2017 (1) |
|
Revenue |
|
|
|
$ 1,723,877 |
$ 2,176,352 |
(21%) |
Gross margin |
|
|
|
1,214,246 |
1,612,501 |
(25%) |
Gross margin % |
|
|
|
70% |
74% |
|
Adjusted EBITDA(2) |
|
|
|
117,631 |
459,645 |
(74%) |
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
(1,131,910) |
95,820 |
(1,281%) |
Earnings (loss) per share Basic and diluted |
|
|
|
(0.02) |
0.00 |
|
Weighted average number of common shares |
|
|
|
|
|
|
Basic |
|
|
|
68,771,501 |
68,395,825 |
|
Diluted |
|
|
|
68,771,501 |
68,658,858 |
|
(1)Results for the three months ended December 31, 2017 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 months ended December 31, 2018.
(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: |
December 31, |
September 30, |
% |
|
2018 |
2018 |
Change |
Cash, cash equivalents and short-term investments |
$ 10,916,646 |
$ 9,613,621 |
14% |
|
|
|
|
Total assets |
$ 30,027,327 |
$ 30,229,055 |
(1%) |
Total liabilities |
2,107,332 |
1,325,139 |
59% |
Total equity |
27,919,995 |
28,903,916 |
(3%) |
Revenue
The Company currently derives a significant portion of its revenue from paid authentication development projects with issuing authorities. During the year ended September 30, 2017, the Company disclosed a development contract for up to $30.0 million over a period of up to five years. These development activities incorporate both nano-optic and OTF technologies and are focused on developing authentication features for future banknotes.
Revenues for the three months ended December 31, 2018 decreased by $452,475 or 21% to $1,723,877, compared to $2,176,352 in the same period last year, primarily due to reduced development contract revenue in the current quarter. While the Company is getting closer to reaching the goal of incorporating a Nanotech security feature on this customer's banknote, advancement towards this goal corresponds with the customer narrowing the scope of development activities with an intention to select a final security feature. Although focusing on one security feature is a positive development, revenues from this customer declined compared to the same period last year.
Gross Margin
Gross margin for the three months ended December 31, 2018 decreased by $398,255 or 25% to $1,214,246 compared to $1,612,501 in the same period last year. Overall, the gross margin percentage was 70% for the three months ended December 31, 2018, down from 74% in the same period last year. This decrease was primarily due to the decline in higher margin development contract revenue.
Operating Costs
Research and development expenditures for the three months ended December 31, 2018 were $336,111, a decrease of $10,076 or 3%, compared to $346,187 in the same period last year. This decrease was primarily due to lower salaries expense in the current quarter due to efficiencies at our Thurso production and reduced patent expenses compared to the same period last year. These decreases were partially offset by the write-down of inventory and a lower proportion of salaries allocated to cost of sales in the current period.
General and administration expenditures for the three months ended December 31, 2018 were $537,567, consistent with $541,619 in the same period last year.
Sales and marketing expenditures for the three months ended December 31, 2018 were $444,714 a decrease of $12,036 or 3%, compared to $456,750 in the same period last year. The decrease is related to reduced investor relations and travel expenditures in the current year, partially offset by increased headcount in the current year.
Depreciation and amortization expenditures for the three months ended December 31, 2018 were $370,759, compared to $310,043 in the same period last year. The increase reflects the Company's investment in capital assets in the previous year.
On December 21, 2018, the Board implemented an executive transition plan, under which Mr. Blakeway transitioned his responsibilities as Chief Executive Officer to Mr. Bullock effective January 2, 2019. Under the terms of this transition plan, Mr. Blakeway's executive services consulting agreement was terminated, triggering the following early termination benefits as laid out in the agreement: two years base salary, a pro-rated performance bonus and vesting of all outstanding share-based awards. The Company has accrued restructuring costs of $815,700 as of December 31, 2018, of which $92,200 represents share-based compensation related to the accelerated vesting of Mr. Blakeway's restricted share units.
Other income for the three months ended December 31, 2018 was $158,695, an increase of $20,777, compared to other income of $137,918 in the same period last year. The increase was primarily due to an increase in interest income in the current quarter as a result of higher interest rates.
Adjusted EBITDA
Adjusted EBITDA for the three months ended December 31, 2018 was $117,631, compared to $459,645 in the same period last year. The $342,014 decrease in Adjusted EBITDA was primarily due to reduced revenue in the current quarter.
Net Income (Loss)
Net loss for the three months ended December 31, 2018 was $1,131,910, compared to net income of $95,820 during the same period last year. The increase in net loss is primarily due to restructuring costs related to the executive transition in the current quarter in combination with decreased revenue.
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 |
||
|
|
|
2018 |
2017 |
|
|
|
|
|
Net income (loss) |
|
|
$ (1,131,910) |
$ 95,820 |
Finance income |
|
|
(52,373) |
(34,042) |
Foreign exchange gain |
|
|
(47,144) |
(47,001) |
Depreciation and amortization |
|
|
385,369 |
356,763 |
Share-based compensation |
|
|
147,989 |
88,105 |
Restructuring costs |
|
|
815,700 |
- |
Adjusted EBITDA |
|
|
$ 117,631 |
$ 459,645 |
Equity Grants
The Board of Directors are approving for grant an aggregate of 100,000 stock options to insiders. These options will be granted subsequent to the end of the Company's trading blackout at market price, in accordance with TSXV Policy 1.1 The options will be for three years and will bring the total options outstanding to 5.7% of outstanding shares.
Nanotech Security Corp. |
||||
Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) |
||||
(Unaudited) |
||||
|
||||
Three months ended December 31, 2018 and 2017 |
||||
(In Canadian dollars) |
||||
|
|
|
2018 |
2017 (1) |
Revenue |
|
|
$ 1,723,877 |
$ 2,176,352 |
Cost of sales |
|
|
509,631 |
563,851 |
|
|
|
1,214,246 |
1,612,501 |
Expenses |
|
|
|
|
Research and development |
|
|
336,111 |
346,187 |
General and administration |
|
|
537,567 |
541,619 |
Sales and marketing |
|
|
444,714 |
456,750 |
Depreciation and amortization |
|
|
370,759 |
310,043 |
Restructuring costs |
|
|
815,700 |
- |
|
|
|
2,504,851 |
1,654,599 |
Loss from continuing operations before other expenses |
|
|
(1,290,605) |
(42,098) |
|
|
|
|
|
Other income |
|
|
|
|
Foreign exchange gain |
|
|
(47,144) |
(47,001) |
Finance income |
|
|
(52,373) |
(34,042) |
Tenant income |
|
|
(59,178) |
(56,875) |
|
|
|
(158,695) |
(137,918) |
Net income (loss) from continuing operations |
|
|
(1,131,910) |
95,820 |
|
|
|
|
|
Net loss from discontinued operations |
|
|
- |
- |
Net income (loss) |
|
|
(1,131,910) |
95,820 |
|
|
|
|
|
Other comprehensive loss: |
||||
Items that may be subsequently reclassified to earnings: |
||||
Unrealized foreign exchange loss |
||||
on translation of foreign operation |
|
|
- |
(25,125) |
Total comprehensive income (loss) |
|
|
$ (1,131,910) |
$ 70,695 |
|
|
|
|
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
Continuing operations |
|
|
$ (0.02) |
$ 0.00 |
Discontinued operations |
|
|
$ 0.00 |
$ 0.00 |
Net income (loss) |
|
|
$ (0.02) |
$ 0.00 |
|
|
|
|
|
Weighted average number of common shares |
||||
Basic |
|
|
68,771,501 |
68,395,825 |
Diluted |
|
|
68,771,501 |
68,658,858 |
(1)Results for the three months ended December 31, 2017 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 months ended December 31, 2018. |
Nanotech Security Corp. |
|||
Condensed Consolidated Interim Statements of Financial Position |
|||
(Unaudited) |
|
||
|
|||
(In Canadian dollars) |
|||
|
December 31, 2018 |
September 30, 2018 |
|
|
|
|
|
Assets |
|||
Current assets: |
|||
Cash and cash equivalents |
$ 3,285,474 |
$ 2,014,764 |
|
Short-term investments |
7,631,172 |
7,598,857 |
|
Accounts receivable |
843,691 |
1,962,969 |
|
Inventory |
171,337 |
173,636 |
|
Prepaid expenses and other assets |
93,492 |
125,514 |
|
|
12,025,166 |
11,875,740 |
|
|
|
|
|
Property, plant and equipment |
16,613,703 |
16,964,857 |
|
Goodwill |
1,388,458 |
1,388,458 |
|
|
$ 30,027,327 |
$ 30,229,055 |
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
Current liabilities: |
|||
Accounts payable and accrued liabilities |
$ 2,054,420 |
$ 1,265,282 |
|
Liabilities directly associated with assets held for sale |
16,152 |
16,204 |
|
|
2,070,572 |
1,281,486 |
|
|
|
|
|
Non-current liabilities: |
|
|
|
Tenant inducement |
36,760 |
43,653 |
|
|
2,107,332 |
1,325,139 |
|
|
|
|
|
Shareholders' equity |
|
|
|
Share capital |
61,892,395 |
61,892,395 |
|
Contributed surplus |
3,078,953 |
2,930,964 |
|
Deficit |
(37,051,353) |
(35,919,443) |
|
|
27,919,995 |
28,903,916 |
|
|
$ 30,027,327 |
$ 30,229,055 |
|
Nanotech Security Corp. |
||||
Condensed Consolidated Interim Statements of Cash Flows |
||||
(Unaudited) |
||||
|
||||
Three months ended December 31, 2018 and 2017 |
||||
(in Canadian Dollars) |
||||
|
|
|
2018 |
2017 |
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
Operating activities: |
|
|||
Net income (loss) from continuing operations |
|
|
$ (1,131,910) |
$ 95,820 |
Items not involving cash: |
|
|||
Depreciation and amortization |
|
|
385,369 |
356,763 |
Share-based compensation |
|
|
147,989 |
88,105 |
Interest income |
|
|
(54,446) |
(36,150) |
Other |
|
|
(3,641) |
(6,680) |
Non-cash working capital changes |
|
|
1,916,132 |
(420,464) |
Interest received |
|
|
43,815 |
35,937 |
|
|
|
1,303,308 |
113,331 |
|
|
|
|
|
Net cash provided by (used in) discontinued operations: |
|
|
(52) |
95,329 |
Cash provided by operating activities |
|
|
1,303,256 |
208,660 |
|
|
|
|
|
Investing activities: |
|
|
|
|
Purchase of property and equipment |
|
|
(7,610) |
(168,541) |
Net acquisition of short-term investments |
|
|
(24,936) |
- |
Cash used in investing activities |
|
|
(32,546) |
(168,541) |
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
|
|
- |
(25,125) |
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
1,270,710 |
14,994 |
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
2,014,764 |
10,883,919 |
Cash and cash equivalents, end of period |
|
|
$ 3,285,474 |
$ 10,898,913 |
|
|
|
|
|
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: |
Shana Chow |
|
Sean Peasgood |
info@nanosecurity.ca |
|
sean@SophicCapital.com |
+1.604.678.5775 |
|
+1.647.699.9845 |
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.
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.
Note: These financial results reflect the October 1, 2018 adoption of IFRS 15 - Revenue from Contracts with Customers ("IFRS 15"). Results for the comparative periods have been adjusted to reflect the retrospective application of IFRS 15. See note 3(b) in the first quarter interim consolidated financial statements for a full description of the associated impacts. Unless otherwise stated, all dollar amounts are expressed in Canadian dollars.
Company Snapshot |
||
Nanotech Security (A Meta Materials Inc. Company)
Burnaby (Other Tech Sectors)
|
Other Recent Company News |
|||||||||||||||||||
|