Mr. Doug Blakeway reports
NANOTECH ANNOUNCES FIRST QUARTER 2015 RESULTS
SECURITY FEATURES DRIVING INTERNATIONAL REVENUE GROWTH
Nanotech Security Corp. is releasing its financial results for the three-month period ended Dec. 31, 2014.
Highlights from the first quarter of 2015:
- Security features revenues exceed $1-million. The Fortress Optical Features Ltd. (FOF) acquisition contributed its first full quarter, which was FOF's strongest quarter since inception.
- The company received sales orders from three new customers. Total value of these orders is in excess of $1.3-million. The improved outlook and the growing pipeline of other new commercial opportunities have prompted Nanotech to increase capacity at the facility.
- Nanotech added a second shift to the Thurso, Que., facility to increase production capacity. Integration continues to ramp smoothly as pipeline expands.
- The company signed a banknote security feature development contract with a prominent issuing authority. The contract commenced in the first quarter and is valued at approximately $1-million per year with potential for renewal.
- It granted two new patents for advanced security features. The United States Patent and Trademark Office granted one patent in nanotechnology and another in optical thin film (OTF). Nanotech expects to capitalize on the OTF patent in the immediate future.
Doug Blakeway, Nanotech chief executive officer, commented: "I am extremely pleased with how the recent Fortress Optical acquisition has transformed our company." He added: "During the first 90 days, major banknote customers have reacted favourably to the new Nanotech and we are excited about the significant revenue opportunities that the acquisition's sales channels have generated. Non-banknote prospects have also requested samples of Nanotech's portfolio of security and branding products, giving us further confidence that the acquisition was the correct strategy for the company, and that we are executing according to plan."
Selected 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 (IASB).
HIGHLIGHTS
Three months ended Three months ended
Dec. 31, 2014 Dec. 31, 2013
Revenue $ 1,541,008 $ 557,319
Gross profit $ 531,350 $ 188,049
Gross profit 34% 34%
Net (loss) $ (931,271) $ (693,276)
Net earnings (loss) per share,
basic and diluted $ (0.02) $ (0.02)
Net cash used in
operating activities $ (1,119,076) $ (584,041)
Dec. 31, 2014 Sept. 30, 2013
Total assets $ 28,832,034 $ 29,749,852
Total long-term liabilities $ 5,500,000 $ 6,100,000
Total equity $ 21,284,867 $ 22,027,680
Revenues for the three months ended Dec. 31, 2014, increased by $984,000 or 177 per cent to $1,541,000, compared with $557,000 in the same period last year. The increased revenues was a result of revenue generated by the new security features business unit, which delivered revenues in excess of $1-million, primarily from the delivery of optical thin film and development contracts. The newly acquired Thurso production facility achieved its largest quarterly revenues since the business was founded three years ago. This growth was partially offset by a decline in surveillance revenues of approximately $61,000 as a number of surveillance vans were delivered in January, 2015, after the Dec. 31, 2014, quarter-end.
The net loss increased from $693,000 to $931,000, which reflected the increase in costs related to the recent Fortress Optical acquisition. This largely represented an increase in depreciation and amortization of $233,000 related to the machinery and building, an increase in share-based compensation of $110,000, and general overheads, including salaries and administrative costs, offset by a gain on revaluation of contingent shares of $600,000.
Corporate update
Subsequent to the acquisition, the company now operates its business through two newly named business units, security features (Nanotech and FOF operations) and surveillance (Tactical Technologies Inc. operations). The company's business units are strategic business units that offer different products and services. They are managed separately because each business is in a different stage in its life cycle, and require different sales and marketing strategies.
Security features
Security features provides light-based recognition nanotechnology and OTF for use in anti-counterfeiting, authentication processes and luxury goods, including currency, legal documents and commercial products. The company conducts research at its Burnaby, B.C., head office, its research and production facility in Thurso, Que., Canada, and at 4D Labs nanofabrication facility, which is a Canadian federal-government-sponsored facility located at Simon Fraser University in Burnaby.
The nanotechnology employs arrays of billions of nanoholes that are impressed or embossed onto a substrate material, such as polymer or metal. These arrays yield unique light signatures (visual images) that cannot be easily reproduced by a third party without access to the technology and sophisticated equipment needed to create the arrays. These optical features can be directly applied to products creating unique optical signatures that are both overt (naked eye visible) and covert (readable only by machine). These features are being designed to be suitable for a variety of commercial security and authentication applications, and branding formats.
Surveillance
Surveillance designs and sells a wide range of sophisticated surveillance and intelligence gathering equipment, and conducts surveillance training for the law enforcement and defence industries in the United States and Canada. Surveillance conducts its research, production and training at its facility in Holmes, Pa., USA.
During the quarter, the surveillance segment continued to build and outfit surveillance vans for undercover operations, and delivered accredited classes in electronic surveillance.
Outlook
The company completed the three months ended Dec. 31, 2014, with approximately $2.7-million in cash and cash equivalents. Subsequent to the quarter, the company collected a further $540,000 through the exercise of warrants that were expiring in February, 2015.
With the acquisition of FOF in September, 2014, the security features business has become an increasingly significant component of the revenue of Nanotech. Sales of OTF and development projects were strong in the first quarter, and the company is well positioned to continue increasing the business in the second quarter.
The improved outlook and the growing pipeline of other new commercial opportunities have prompted Nanotech to increase capacity at its production facility. During the quarter, the company delivered in excess of 100,000 square metres of OTF, surpassing the average total annual volumes prior to the acquisition. The addition of the second shift, combined with completing some minor equipment upgrades occurring in the next few months, will increase the production capacity to one million square metres, with the capability to expand to over two million square metres through additional shifts, and expand capacity beyond that, through partnerships, or further capital investment.
Nanotech recently announced that it has signed a contract with an issuing authority of a prominent country to develop a unique, optically variable, security feature to be incorporated into various denominations of polymer, paper-based and composite banknotes and security documents. The contract commenced in the first quarter and is valued at approximately $1-million per year with a potential one-year renewal option. Upon completion of this project, Nanotech's new technology will increase security confidence beyond current, legacy, options available in the market.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
(in Canadian dollars)
Three months ended Three months ended
Dec. 31, 2014 Dec. 31, 2013
Revenue $ 1,541,008 $ 557,319
Cost of sales 1,009,658 369,270
531,350 188,049
Expenses
Research and development 847,696 409,985
General and administration 933,905 343,134
Sales and marketing 273,022 127,303
2,054,623 880,422
Loss before other expenses (income) (1,523,273) (692,373)
Other expenses (income)
Foreign exchange (gain) loss (26,810) 10,775
Finance expense 34,808 (1,027)
Gain on revaluation of
contingent shares (600,000) -
Gain on sale of fixed asset - (8,845)
(592,002) 903
Net (loss) (931,271) (693,276)
Unrealized foreign exchange gain
(loss) on translation of
foreign operation (23,388) 27,467
Total comprehensive (loss)
for the period (954,659) (665,809)
(Loss) per share
Basic and diluted (0.02) (0.02)
We seek Safe Harbor.
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