Today's News

Vancouver, BC, February 18, 2021--(T-Net)--Nanotech Security Corp. (TSXV: NTS), 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 months ended December 31, 2020.  

Financial Highlights for the Three Months Ended December 31, 2020

• Revenue was $1.7 million for the three months ended December 31, 2020, representing an increase of 16% compared to the same period last year.
  
  
• Gross margin improved to 81% versus 79% for the first quarter of 2020.
  
  
• Adjusted EBITDA loss of $196,574 for the three months ended December 31, 2020, representing an improvement of 22% compared to the same period last year.
  
  
• Cash and short-term investments of $8.4 million, and no debt at quarter end.

"Nanotech had another solid quarter with strong contract services activity that is reflected in the first quarter's revenue and gross margins. The Company intensified product development, which is expected to yield results in the coming quarters," said President and CEO Troy Bullock. "We remain focused on our strategic plan of commercializing our technology into a portfolio of visually appealing security products. We have strengthened the Board, added scientists to our R&D team and have an experienced product marketing team in place to achieve our goals."

Strategic Update

The Company remains focused on commercializing our 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 our strategic focus and significant resources are committed to this project. Developing a visual security feature that could be selected for integration into this customer's banknote would be a significant milestone in the Company's growth.

The Company is restricted from providing substantive information about this project, but management is pleased with the progress of this development contract by securing purchase orders of $6.7 million for 2021 and potential additional awards of $1.5 million in fiscal 2021.

1. Product development - Based on the positive market feedback of our 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 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 first quarter of 2021 research and development expenditures were $239,047 higher than the prior year which represents six additional R&D staff brought on to deliver Nanotech's strategic product roadmap. Management plans to have several new product launches in fiscal 2021.

1. 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.
   
   
2. Expanded channels to market - Nanotech will 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 decreased to $36,550 for the three months ended December 31, 2020, compared to $243,389 during the same period last year. Nanotech delivered two customer product orders in the quarter, compared to eight in the same period last year. This variance was 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 $6.7 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.

Equity Matters

The Board of Directors have approved for grant 100,000 stock options with a four-year term to a new director of the Company. The stock options will be granted after the Company's trading blackout at market price in accordance with TSXV Policy 1.1.

In addition, certain management insiders of the Company have volunteered to cancel an aggregate of 795,000 stock options held by the insiders. After giving effect to the option grant and cancellation, the total options outstanding will represent 6.7% 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.

(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 months ended December 31, 2019 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 months ended December 31, 2020.

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 months ended December 31, 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 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.

(1) The calculation of Adjusted EBITDA was amended to exclude tenant and steam (income) expenses, which are no longer expected to be recurring in nature. See the Quarterly Results section of management's discussion and analysis for the three months ended December 31, 2020 for the revised historical figures on a quarterly basis.

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.

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.

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.

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, 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.