Mr. Sean Krakiwsky reports

NANALYSIS REPORTS FIRST QUARTER 2023 RESULTS

Nanalysis Scientific Corp. has released its first quarter results ending March 31, 2023. Chief executive officer Sean Krakiwsky and chief financial officer Randall McRae will host a conference call at 5 p.m. ET today to discuss the results. The second call for European investors at 8:30 a.m. ET, tomorrow, Friday, May 26, has been cancelled since Mr. Krakiwsky will be conducting meetings in person.

"Nanalysis reported consolidated revenue of $4,674K for the first quarter of 2023," said Sean Krakiwsky, founder and CEO of Nanalysis. "We planned and expected K'Prime's CATSA airport security contract and Quad's revenue to be modest in the quarter as those business lines are in the early stage of rollout, but we underperformed on the rest of our business segment revenues, particularly in Benchtop NMR. Management is not satisfied with this overall financial result and has taken corrective action as identified below. That being said, I remain confident about the company's prospects and long-term vision."

Financial and operational highlights

Financial highlights for the three months ended March 31, 2023:

• For the three months ended March 31, 2022, the company reported consolidated revenue of $4,674,000, a decrease of $880,000 or 16 per cent from the comparative period in 2022. This includes $3,034,000 in product sales and $1,640,000 of service revenue, predominantly related to security services.
• Gross profit margins on product sales were 40 per cent for the three months ended March 31, 2023. This was due to lower manufacturing department utilization, warranty costs of $135,000 related to the same customer service issues discussed in the Dec. 31, 2022, financial statements, and higher weighted average costs due to post-COVID inflationary increases and supply chain issues affecting raw materials pricing. The company is taking several steps to manage its margins and mitigate further materials cost pressure going forward.
• Service gross profit margins in the quarter were (53 per cent) as the company accelerated its training schedule for the CATSA project and began expensing wages related to airports that were in service. Wages related to airports not yet in service continue to be deferred as prepaid expenses. Management also ramped up its training program for security service employees in conjunction with taking on more airports, incurring $971,000 of one-time training and related costs for new CATSA project employees that were expensed in the quarter. Continuing training costs will continue into Q3, but are then anticipated to drop to considerably lower levels.
• (Loss)/income before other items for the three months ended March 31, 2023, was ($3,547,000) versus $210,000 compared with the same period last year.
• Net loss for the first three months of 2023 was $4.32-million as compared with the three-month loss for March 31, 2022, of $1,492,000.
• The company had cash on hand of $1.8-million, an undrawn available credit facility of $2.2-million, working capital of $4.1-million and undrawn government contribution financing of $2.2-million as of March 31, 2023.
• The company has signed a non-binding term sheet for two-year committed $15-million senior secured credit facilities with ATB Financial. The new credit facilities contemplated by the term sheet will, upon and subject to the execution of definitive credit documents and receipt of applicable regulatory approvals, replace the company's existing demand senior secured credit facility with another lender. The new facility is expected to provide improved financial flexibility to help the company manage its operations and current growth initiatives.
• Closed a $4.1-million equity private placement on May 3 after upsizing it from the original $3.5-million announced April 21, 2023, and included insiders and directors.

Recent strategic and operational highlights during and after the first quarter of 2023 include:

• Benchtop NMR: The company is still within the transition period of integrating the K'Prime and Nanalysis sales organizations for benchtop NMR and has experienced some sales slowdown due to this. Management continues to believe that the sales team and systems changes will benefit overall long-term sales performance. Additionally, the company may be experiencing a temporary slowdown caused by the reduction of capital equipment spending due to concerns over economic slowdown in the United States and worldwide. Management continues to monitor this situation closely. The company is also continuing to explore application and valued-added distribution deals to augment revenue from direct sales.
• Security Service: In November, 2022, the company began providing services under the CATSA airport security contract and continues to execute its phase-in plan for the entire project. During the first quarter, the company has accelerated its phase in and, as of today, has a presence in 44 airports and is expanding. Complete countrywide rollout is expected to be completed by September.
• Quad Systems: On April 18 the company debuted and presented the full 400 MHz (megahertz) full high-field NMR product in collaboration with Quad Systems, of which the company owns 43 per cent, at the prestigious ENC 2023 conference. The company expects Quad's sales to gain momentum in the second half of 2023.
• Medical: RS2D began work on a large preclinical MRI project during the first quarter but has not yet reached the project milestones required under IFRS to allow for revenue recognition in Q1 2023. It is expected that revenue recognition on this project will begin in later 2023.
• Third party equipment: Two thousand twenty-three has started out slower than what was experienced in 2022, and the company believes that it is a result of customers' concerns regarding a possible recession in the United States and Canada.

Comments and outlook

"The first quarter was busy with focus on training and rolling out of the CATSA project," said Mr. Krakiwsky. "We have hired and trained nearly 92 per cent of the work force needed and we are servicing over 50 per cent of contracted airports now, with all locations coming on line by September. Additionally, we are already fielding requests for additional service contracts.

"We continue to innovate and improve our core benchtop NMR products with added features and functionality. Lastly, we are excited to add high field product offerings through our launch and collaboration with Quad Systems AG," added Mr. Krakiwsky.

"Despite Q1 revenues not meeting our expectations, I continue to believe that 2023 will be a positive and important year for Nanalysis as we digest our acquisitions and progress in creating long-term value from our more resilient business," said Mr. Krakiwsky. "We continue to be a leader in benchtop NMR and believe we will continue to hold that position through innovation and improvements to our technologies.

"We expect to provide solid growth with services and products working synergistically together, as high field NMR, MRI and benchtop NMR all require global service support. We are striving to reduce the lumpiness of our revenue quarter to quarter, and we feel like we are much better positioned to withstand any macroeconomic headwinds that may arise. Out of an abundance of caution, and in light of possible global economic slowdown, the company has begun a cost reduction program, which will continue until headwinds subside. I have full confidence that the medium and long-term business prospects for our company remain very attractive, and therefore our cost reductions will have a stay-the-course nature to them, and only be meant to conserve cash in light of potential lower short-term growth numbers," concluded Mr. Krakiwsky.

Conference call

Investors interested in participating in the live full year call can dial 1-888-664-6392 or 416-764-8659 from abroad. Investors can also access the call on-line through a listen-only webcast or on the investor relations section of the company's website.

The webcast will be archived on the company's investor relations webpage for at least 90 days and a telephonic playback will be available for seven days after the conference call by calling 1-888-390-0541 or 416-764-8677, conference ID 648443.

Additionally, the company has cancelled the Q&A (question and answer) session for its European investors that was scheduled for 8:30 a.m. ET tomorrow, Friday, May 26. The company intends to resume these sessions for future calls.

About Nanalysis Scientific Corp.

Nanalysis's business is what it terms MRI (magnetic resonance imaging) and NMR (nuclear magnetic resonance) for industry. The company develops and manufactures portable NMR spectrometers or analyzers for laboratory and industrial markets. The NMReady-60 was the first full-feature portable NMR spectrometer in a single compact enclosure requiring no liquid helium or any other cryogens. The company has followed up that initial offering with new products and continues to have a strong innovation pipeline. In 2020 Nanalysis announced the launch of its 100-megahertz device, the most powerful and most advanced compact NMR device ever brought to market.

Nanalysis's devices are used in many industries (oil and gas, chemical, mining, pharma, biotech, flavour and fragrances, agrochemicals, law enforcement, and more) as well as numerous government and university research labs around the world. The company continues to exploit new global market opportunities independently and with partners.

We seek Safe Harbor.