Nanotech Security Corp. (NTSFF) CEO Troy Bullock on Q4 2020 Results – Earnings Call Transcript

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Nanotech Security Corp. (OTCQX:NTSFF) Q4 2020 Earnings Conference Call December 10, 2020 5:00 PM ET

Company Participants

Monika Russell – Chief Financial Officer

Troy Bullock – President & Chief Executive Officer

Conference Call Participants

Jim Kennedy – Marathon Capital


Good afternoon. And thank you for joining us to discuss Nanotech Security Corp’s Fourth Quarter and Fiscal 2020 Year End Results. On the call today, we have Troy Bullock, Nanotech’s President and CEO; and Monika Russell, Nanotech’s CFO.

Please be advised that this call is being recorded. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up.

I will now turn the call over to Monika Russell.

Monika Russell

Good afternoon and thank you for attending our fourth quarter and fiscal 2020 year-end conference call. Troy Bullock will begin the call today with an overview of our operational highlights and how we performed compared to our goals for fiscal 2020. I will then provide a detailed review of our financial performance for the fourth quarter and full fiscal year. Following the financial review, Troy will provide an outlook and discussion of our expectations for fiscal 2021. Following the formal presentation, we will be pleased to take questions.

Before I talk about results, I’d like to remind everyone that certain statements in this call maybe forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements, including our assessment of the potential impact of COVID-19. For caveats about forward-looking statements and risk factors, please see our MD&A for the year ended September 30, 2020, which can be found on our company profile at

Also, as part of the company’s business involves dealing with security features for banknotes, you will appreciate that we are quite limited in our ability to provide details about specific customers and prospects. That said, we will do our best to provide investors with general feedback we are receiving from customers in the industry, and new opportunities that we are pursuing, as well as give some general parameters on how development contracts are progressing.

I will now pass the call over to Troy for an overview of our fourth quarter and year-end for fiscal 2020. Troy?

Troy Bullock

Thank you, Monika, and good afternoon, everyone. We appreciate that you’ve taken the time to join us today. Fiscal 2020 was a transformational year for Nanotech, as we made significant strides from being an R&D company to commercializing our unique nano-optic technology.

At the beginning of the year, I detailed the company’s strategic goal of diversifying revenue in fiscal 2020. I’m pleased to state that, we’ve made solid progress towards this goal. This past year, we diversified our product lines, booked several reference wins in brand protection and expanded our strategic partnerships to leverage our sales channels.

In addition, we had new LumaChrome foil sales in the banknote market that are expected to be recurring in nature. At the beginning of the year, we announced revenue guidance between 10% and 20% above fiscal 2019’s $6.4 million. Although, we experienced some $2 million in product opportunities deferred due to COVID-19 pandemic, we still beat our guidance with revenue of $7.7 million, up 21% year-over-year.

I’m also very pleased with our financial performance on the bottom line, with EBITDA coming in at $332,000 for the year, significantly beating our guidance of a loss of around $1 million.

We ended the year with very strong fourth quarter booking, $2.9 million in revenue and very strong positive adjusted EBITDA of close to $1 million. It was an extremely busy quarter for both the development contract and the LumaChrome foil production, and I’m proud of our team for achieving all their deliverables to make this possible.

Before I pass the call back over to Monika, I would like to go through the strategic initiatives we put in place in 2020 and report on how we performed against these initiatives.

One of our priorities that we established for fiscal 2020 was to diversify revenues by increasing product sales of nano-optic products, expanding product lines, and pursuing further growth opportunities for LumaChrome color-shifting foil.

We successfully achieved our strategic goal of diversifying our revenue during fiscal 2020 by adding product revenue from 23 delivered customer orders, up from 14 we had in fiscal 2019, and only two of the prior year. These orders were predominantly for LumaChrome foil and included revenue from new recurring banknote denominations and a new government ID application.

In the brand protection market, we won two prestigious reference accounts, including the World Baseball Softball Confederation and Concacaf in the licensing vertical. Working together with our certified manufacturing partners, we delivered the World Baseball Softball Confederation order and another LiveOptik product order for approximately 7 million labels in a confidential brand protection application.

We also worked with a partner to deliver foil for new commercial applications and recently launched our LumaChrome foil for brand protection market. We expanded our LumaChrome foil production capabilities this year in order to accommodate growth. We increased our LumaChrome orders in 2020 with the successful qualification work achieved this year. We have planned to bid on further opportunities in 2021.

Another key initiative was to develop strategic sales relationships with established OEMs to expand our sales reach. In fiscal 2020, we added two American channel partners to market our LiveOptik brand protection products.

We are also working with an established OEM in the banknote market to design a security feature for a marketing housenote that they will — that will enable them to begin marketing our KolourOptik products in fiscal 2021 into the government and banknote market.

Although the COVID-19 pandemic slowed some sales partnership discussions during the back half of the year, activity is renewed and discussions are ongoing. We expect these partnerships to happen shortly and the sales cycle to increase our customer confidence in our ability to deliver on larger orders.

Our third initiative was to develop strategic manufacturing and product partnerships with select manufacturers that have a proven track record of excellence. Nanotech partnered with a large OEM to produce LiveOptik products for our brand protection market. As a result, our manufacturing partnerships — our product features have expanded which now include foils, labels, QR codes, and track and trace capability.

Outsourcing LiveOptik manufacturing also enables us to focus on our core capabilities, which is technology development. Further, as part of this key initiative, management is in the process of qualifying a world-class OEM manufacturing partner for our KolourDepth products for the government and banknote market.

We are on track to finalize this partnership in the next few months, enabling the company to deliver a large volume — have an ability to deliver large volume banknote opportunities.

Given the progress we have made against this key initiative in both the brand protection and the banknote space, we are on track to reduce manufacturing risks associated with scaling product sales, while expanding our product lines.

This concludes my initial comments on the operational highlights for fiscal 2020. I’ll now pass the call back to Monika to discuss the detailed financial results. Monika?

Monika Russell

Thank you, Troy. Before I begin, I would like to mention that all the dollar amounts I refer to are in Canadian dollars unless otherwise stated.

Starting with our fourth quarter results. Revenue for the fourth quarter doubled year-over-year from CAD1.4 million in the fourth quarter of 2019 to CAD2.9 million in 2020. Product revenue in Q4 2020 fell 20% year-over-year from CAD970,000 in the fourth quarter of 2019 to CAD776,000 in Q4 of 2020. This decline was primarily due to the timing of recurring LumaChrome orders, some of which were realized in Q3 versus Q4 in 2020.

Contract services revenue, however, rose 345% year-over-year from CAD480,000 in Q4 2019 to CAD2.1 million in Q4 2020. Fourth quarter gross margin of 80% in 2020 was higher than 77% in the prior year. The increased margin was due to a higher proportion of contract services revenue.

Operating costs were CAD2.2 million in the fourth quarter of 2020, compared to CAD1.8 million in the prior year. Operating costs increased primarily because of a CAD315,000 impairment cost related to replacing a propane heating system in Thurso with an electric heating system that will be easier and cheaper to operate.

Net income for the fourth quarter of 2020 was CAD293,000, compared to a net loss of CAD705,000 in 2019. The fourth quarter of 2020 also saw positive adjusted EBITDA of CAD953,000 versus an adjusted EBITDA loss of CAD263,000 in the prior year. The quarter’s net income and adjusted EBITDA increases over 2019 were primarily due to strong revenue in the fourth quarter.

Turning to our annual results. Revenue increased 21% to CAD7.7 million in fiscal 2020 versus CAD6.4 million in fiscal 2019. Product revenue rose 24% over fiscal 2019, while contract services revenue increased 20% year-over-year. Gross margin was 81% in 2020, compared to 76% in 2019. This increase was primarily due to the revenue mix with an increase in high margin contract services revenue in 2020.

Operating costs of CAD8.3 million were about CAD50,000 higher than fiscal 2019. Excluding the impact of the impairment in 2020 and the restructuring costs in 2019, operating costs increased by CAD525,000. We entered the year planning to make a significant investment in product development and sales and marketing.

To that end, we made several strategic hires and incurred other costs related to product development and marketing. These cost increases were partially offset by other cost reductions, such as reduced travel in the COVID-19 environment and federal payroll subsidies.

Nanotech incurred a CAD1.8 million net loss in fiscal 2020, compared to a CAD2.8 million net loss in fiscal 2019. This improvement in the bottom line was due to higher revenues and margins in 2020 and 2019 also included a one-time restructuring charge.

Adjusted EBITDA for fiscal 2020 was CAD 332,000, which was an improvement from the CAD 400,000 adjusted EBITDA loss Nanotech reported for fiscal 2019 and beat our initial guidance, which was for an EBITDA loss.

EBITDA increased in 2020 as a result of higher revenues and margins, partially offset by increased operating costs. The company remains debt free. As of September 30, 2020, we had CAD 8.6 million of cash and short-term investments and CAD 28 million in assets on our balance sheet, leaving us in a strong position to continue executing our business plan.

In 2020, we consumed cash of CAD 1 million versus generating cash of CAD 737,000 in fiscal 2019. Most of this change is due to capital investments, which totaled CAD 1.2 million in 2020 compared to CAD 249,000 in 2019. We undertook a number of projects to expand and enhance our Thurso production facility in order to prepare for future growth.

This concludes my comments on our financial results for the fourth quarter and fiscal year of 2020. I will now turn the call back to Troy to provide an update on our outlook for 2021. Troy?

Troy Bullock

Thanks, Monika. The work that everyone at Nanotech has done over the past year continues to lay the foundation for commercialization and growth in 2021 and beyond.

Revenue diversification remains our priority for 2021. We believe there are opportunities for growth across both key markets and all product platforms. The company has built a pipeline of opportunities for its nano-optic products and we are also positioned for further growth from our LumaChrome foil products.

Based on the capital investment in the Thurso facility during the last year, we now have additional opportunities to bid on banknote and government identification projects in 2021. We are also seeking further revenue diversification by launching LumaChrome foil into the brand protection market.

Our second strategic goal of developing additional strategic partnerships across both of our key markets is a continuation of what we started last year. Implementing this approach in 2020 created new opportunities that broadened nano-optic’s sales, marketing and manufacturing reach. In 2021, management sees further opportunities to leverage our current strategic partners to add to new ones.

Third, Nanotech will remain focused on technology development during 2021. Management plans to invest in products for both the banknote and brand protection markets in 2021. These investments include additional development staff, production trials and certification as well as product marketing expense.

While the company has seen success with its existing nanotechnology products, management believes there are opportunities to offer new products with exceptional differentiation and has received positive feedback from customers on new product previews.

Fourth, Nanotech will also continue to provide contract services for its confidential central bank customer. We ended the year with a strong note with the announcement of a CAD 6.7 million purchase order for fiscal 2021 to continue advancing our confidential development contract.

While the company does not have visibility on if/or when the Nanotech security feature might be integrated into the customer’s banknote, we are pleased with the progress on the development contract and with the growth in contract services awarded for 2021.

Moving on to our fiscal 2021 guidance, Nanotech has a solid base for the 2021 revenue with purchase orders of $6.7 million relating to contract services and anticipated recurring revenue. Given this, we are targeting 2021 revenue growth in the range of 15% to 25%. In constructing this guidance range, management has factored the potential for LumaChrome business, whether additional contract services are awarded and the success of product launches.

I previously stated that technology development will be a key strategic objective for 2021. Investors should consider that developing new technologies will require investment that likely will not yield new revenue until beyond 2021. Given this, management anticipates modest adjusted EBITDA losses may occur in 2021.

However, management also wants to emphasize that our strong balance sheet can easily offset potential modest adjusted EBITDA losses in 2021. Combining our balance sheet with record contract services awarded and recurring LumaChrome business, the company is well positioned to strengthen its product offering and set up the future for product revenue growth and diversification.

I would now like to conclude by saying, I’m very pleased with the work that the Nanotech team has done in fiscal 2020, delivering an exceptionally strong fourth quarter and beating our revenue and EBITDA guidance during a challenging global environment.

I would like to thank all of our employees who have made this year a great success. I feel that we are on the right path for growth, and we have some of the most innovative technology in the market. I look forward to updating you on developments in our next conference call.

Sachi, I would now pass it over to you for questions.

Question-and-Answer Session


Thank you. We will now begin the question-and-answer session. [Operator Instructions] There’s a question over the phone. Did you want to do a web question or a phone question first?

Troy Bullock

Sachi, I see some web questions coming up. So let me start with a web question, and then I’ll turn it to you for some phone questions. So the web question seems to be focused — there’s a couple of them here, seem to be focused around elaborating on guidance, which I guess is a typical question, always difficult to answer. So let me share some thoughts on that.

So when I look at our guidance for this year, obviously, as a small organization in a growth mode, it’s always contingent on a number of things happening. And us guessing right as to which we’ll be successful on is always — can always be a challenge.

But what I can say is, we have a good base of revenues heading into 2021 with our development contract purchase orders at $6.7 million and a number of other product sales that we’re expecting to be recurring that we’ve enjoyed this past year and expect to be recurring next year.

There are a few different ways that we could achieve further growth. The most significant opportunities for us are in the development contract, where we have opportunities for another $1.5 million of upside. And we have a number of LumaChrome opportunities in the banknote market that could also be quite significant that would provide us upside.

We’ve also got a number of qualified LumaChrome orders that we’re bidding on for either this year or next year, but could also add to that mix.

We’re also seeing opportunities in the brand protection market. We’re planning to bring in some new products into that market, in particular, our LumaChrome foils going into that market and we’re hopeful to get some wins — some reference wins in that market as well.

So, all-in-all, when we — whether we hit the low end of our range or the high end of a range, it really depends on how many of these things we’re successful on closing on during the year. We could actually exceed our guidance if we get on everything and a few more. But at this point in time, it’s prudent for us to just talk about the different opportunities, and obviously, we’re going to do our best to go out and close them.

Operator, maybe I’ll turn it back to you, if you don’t mind, for some phone questions.


Certainly. We have a question from Jeff Cowell [ph], a Private Investor. Please go ahead.

Unidentified Analyst

Thank you, operator. Hi Troy. Congratulations to you and the team. You put up a really great quarter there. Well done.

Troy Bullock

Thank you. Nice to hear from you.

Unidentified Analyst

Thanks. Troy, question regarding CapEx. You spent, I think, you said $1.2 million last year. I take that a good part of that was to expand the Thurso facility, and you did mention in this call that you’re going to continue to invest. Can you maybe give us a little bit of color on what your anticipated CapEx is for the upcoming year, maybe where it would be directed towards?

And then I’m also curious this spend at Thurso. If you could talk about how much capacity you increased by way of this CapEx? And sort of maybe give us an idea what that increase does to your potential revenue potential moving forward strictly with this own business? Thank you.

Troy Bullock

Sure. Thanks Jeff. So, a few parts to that. And maybe what I’ll do is, I’ll let Monika talk about sort of CapEx trends and sort of what we’re sort of seeing this year in the dollars and then maybe I’ll touch back on changes to capacity and the strategic things that, that brings us. So, Monika, if you don’t mind, I’ll let you take the first part of the question.

Monika Russell

Sure. Yes. Thanks Troy and thanks for the question, Jeff. So, our historical CapEx run rate is around $250,000 on an annual basis. Obviously, 2020 was a bit of an anomaly because of that significant project we undertook in Thurso.

We committed to a total investment of about $1.5 million for that overall expansion and some of those cash outflows are still going to run into 2021 CapEx. But aside from that and our normal CapEx run rate, we don’t have any significant new capital projects planned for 2021. Back to you, Troy.

Troy Bullock

Yes. Thanks Monika. Jeff, let me just sort of expand on a couple of things with that too. Because I would say the investment in the prior year in 2020 was really in kind of three areas. One area was to expand our production space in Thurso. We literally took down a wall and took on some more square footage and did some renovation work and let’s just say that’s, call it, a third of the cost, if you will.

And then the second third was to put in some new equipment and this equipment will help us both in the optical thin film, but more focused on the development contract.

And then the final third was to put in a new electrical system. And part of the reason for the new electrical system is — there’s a couple of reasons. One was it enabled us some operational efficiencies going forward, which allowed us to move away from our inefficient propane heating system to electric heating system. It also allows us to become less dependent on a neighbor who we were reliant on their electricity with. So it was quite — it allowed us really for future growth.

The positive way of a number of these things is on the electrical upgrades in the heating system, we were able to get quite a bit of subsidy money from the government. I think the number is north of $100,000. And on all the production equipment that is, sort of, that middle $0.5 million, we got that funded under our development contract. So, although, we saw some expenses and capital going through, a big portion of that was actually funded by our government contract and/or from government grants, if you will.

What that does for us going forward is, it allows us to move to another level in the development contract. Production wise as far as Thurso capacity, it gives us some more efficiencies for further growth because we’ve got a stronger electrical grid, and our systems are now — our coders are now been upgraded to some extent, so we can take on new banknote orders like we saw this past summer.

Unidentified Analyst

Okay. I’ve got a couple of other questions. Is there somebody else waiting in the queue? I can step back in.

Troy Bullock

Maybe go ahead with one more, Jeff, and then we’ll see how the queue goes. I see there’s a few more online, and I’ll check with the operator.

Unidentified Analyst

Okay. Thanks. So in the brand protection market, Troy, I know you’ve been building — busy building that out. Can you give us a little bit more color about what things you’re seeing out there now that you’re out there actively marketing? What kind of challenges? What sort of trends you’re seeing? Maybe just give us a little bit of an overview?

Troy Bullock

Yeah. I guess, what we’re seeing, and this one is — I could probably give you a two-hour answer on because we’re learning a lot of stuff as we bring this technology to that market. What I’m seeing is that the market has a number of different applications where customers are looking for labels, a sticker, if you will, a label-type application. People are looking for hot stamping foil, people — or companies are looking for different things with adhesives on them or not.

So the application type is quite broad. And not to mention, some customers are looking for full solutions, whether it’s track and trace, whether it’s online analytics, things that isn’t really our sweet spot, if you will. So we’ve been doing our best at this point to provide offerings to all of those opportunities by using our production partner. It gives us the ability to add track and trace in QR codes and those sorts of things. And I think to this point, it’s working, and we’re seeing some — a pipeline build out. And somebody that’s new to that market, I think after a year, we’re generally quite pleased with how we’re progressing.

To get to the next stage and to really grow in that market, really, I see two big opportunities for us. One is instead of us going to direct to every customer out there is to really start to sell through channels. So a channel might be, if I look at the United States, somebody that’s already produces labels and their company focuses on label production and holograms and things like that, whereas, we can sell them raw foil, they can then buy that from us and sell it to their existing customer base.

And so one of our big focuses this year is to begin to offer what we call more wallpaper design. So standard patterned designs that come in, in a raw foil format as opposed to a converted finished label. So we’ve got a push this year to drive wallpaper design products to highlight our technology into channels in the U.S. in particular, so that they can tap into that marketplace. And hence, why we’ve been signing up channel partners and we’re getting them to market our products.

The next big opportunity for us there is, I think there’s still opportunity for us to differentiate our technology more. So some of the things — or more latest developments that we’ve seen in the banknote space are really getting some traction in the brand protection space. They’re seeing the things we offer in banknote and saying, Gee, nobody is doing that in brand protection. Would you consider bringing it to our market?

Now we’re trying to be quite careful, because we always try to keep our leading-edge technology exclusive to the banknote market. But we do see some opportunities where we can leverage what we’re doing, make something similar that we can differentiate enough, but similar and bring some really unique and differentiated wallpapers and other things like that to the brand protection market.

So, that — in sort of summary, some new differentiated technologies and new products in that market, I think can really set us up to start to work on some bigger opportunities and selling through channels.

Unidentified Analyst

Thank you.

Troy Bullock

Thank you, Jeff. Maybe back to you, operator, if you have another phone question.


Check. The next question is from Bill Chapman, a Private Investor. Please go ahead.

Unidentified Analyst

Yes Troy and Monika good afternoon.

Troy Bullock

Hi, Bill.

Unidentified Analyst

Hi Jeff. Give me a better idea, if you could, please, about which particular sectors you feel, you’re going to be directing your marketing towards. I mean, the brand, consumer, protection is a huge market, obviously?

Troy Bullock

Yeah. So at the highest level, I would say, our sales effort, our marketing effort is kind of split, if you will, 50-50 between the government and banknote and brand protection. And so, that government banknote market, there’s still a lot of opportunities to promote our products to different central banks around the world, different OEM partners, if you will, to make them familiar with our products and work on trying to partner with some of them.

So at the highest level, I sort of always segment our business into those two sectors. When we break down the brand protection space, we’ve had some success to this point in the licensing and ticketing markets. So a number of our prominent wins so far, we’ve done the UEFA World Cup tickets. We’ve done CONCACAF for soccer as well and World Baseball Softball Confederation. So not just tickets, but merchandising. And there’s been some connection through some of those.

Some of the parties have given us strong referrals which, has helped us get our foot in the door and other ones. So, I do think that there’s opportunities to continue to market in the sports and ticketing aspect of things.

The licensing side is another good market in the brand protection space, where customers are looking to take their brand and sign up licensees that will make different things for them and have to secure them with a brand protection label. So that’s another major market that we’re focusing on.

And then, I would say that the third piece, which is probably to me the most important for 2021, is our channel partners. These channel partners, there’s a number of them, we’ve sort of got two going quite strongly for us now and another three or four that are hopefully soon to be.

These are $100 million-ish businesses the U.S. that have their own customer base, they have a wide range of markets and they’re selling them products already. So we’re trying to support them in bringing new [indiscernible]. Certainly, marketing again to that is a priority for us.

Unidentified Analyst

Okay. And the output of the products in terms of protecting the ticket or the garment, or whatever it may be, I mean, how much better is what you’re offering versus the hologram and other alternatives?

Troy Bullock


Unidentified Analyst

How much more effective, I should say?

Troy Bullock

Yes. So if I look at from a channel partner’s perspective, when we’re having conversations with them and we’re showing them some of our capabilities. And the — whether it’s the LiveOptik nanostructure vivid image that we’re showing compared to traditional holography, or even whether we’re showing them our LumaChrome color-shifting folio out of Thurso, what they’re looking at it — so I always put my view from what’s the customer, what’s my partner looking at it.

And so, right now, they’ve been selling holograms for 25 years. They’ve been selling labels to their customers for 25 years, and they’ve made a nice business on that. Now at the same time, they’re competing against other people in that space, and it’s a very competitive market. And they’re always looking for something new and differentiated that that isn’t out there. And so, to see things, or have access to things that are coming from the banknote market that they can promote as more secure, that they can promote as a different level of technology is a big win.

To have things that have a bright, vibrant image that we’re showing them that has movement, that has depth, is quite a bit crisper, quite a bit differentiated than what they would see in their holograms that they’re selling. And those sort of advantages, they look at and say, hey, maybe I can sell that to my customer for a little bit more money. I can differentiate it. It’ll have something that’s kind of the new thing on the street.

And so, it really does provide them a selling advantage into that new market. And so, those are the same sort of things, things that we sell in the banknote space when we promote the high security, we have to promote the vivid imagery, the movement, the depth, the always ability — the ability to see it all the time. Those are features that are just much better than a hologram that’s out there today, and those are the same things that attract our channel partners and ultimately, their customers.

Unidentified Analyst

Okay. Thank you. And one last question. Your 15% to 25% top line growth projection for 2021, does that include the $2 million that you had deferred in the 2020 year, due to the COVID?

Troy Bullock

Yes. So the $2 million that we referred to before was referencing a number of different opportunities and those opportunities are still out there. And so, those opportunities are both the — I’ll call it, the CAD 2 million of banknote, government ID and brand protection. But also there’s other opportunities like the CAD 1.5 million of additional revenue related to the government contract.

So when I look at next year, we’ve got the CAD 6.7 million in the door already from purchase orders. I’ve got some recurring business that we’ve seen this past year, that gets us to a certain level. And I’m evaluating all of that other opportunity and trying to assess, if I get lots of it, I’m going to be at the upper end of the range; if I get a little bit of it, I’m going to be at the lower end.

Unidentified Analyst

Okay. And lastly, what’s the status of the government contract, getting the incremental increase they were trying to get approved?

Troy Bullock

Yes. That’s something that we go through each year. And in most years, we’ve been successful in getting that additional money. Not every year, but I would say three of the four years; we’ve got that additional money. That typically begins discussion in the January timeframe and we typically conclude on that kind of June-ish timeframe, if I follow history in the past.

They’ve obviously got a keen interest. They’ve allowed us to put that together as additional purchase order to be funded. So, they do have that strong interest, but to some extent, it depends on where they sit midway through the year on their budgets.

Unidentified Analyst

Okay. And then 15% to 25% — I’m sorry, go ahead.

Troy Bullock

I was just going to say thank you. I can — I was going to take — I got another question here online and I know we got a couple more people in behind.

Unidentified Analyst

Okay. Thank you. Thank you very much.

Troy Bullock

But I’m happy to take it offline with you as well if you have further questions.

Unidentified Analyst

Sure. That’s great. Thank you.

Troy Bullock

Thank you, Bill. Maybe, operator, back to you for another voice question.


Sure. Thanks. [Operator Instructions] The next question is from Jim Kennedy from Marathon Capital. Please go ahead.

Jim Kennedy

Hi Troy. Hi Monika. Troy, I may have missed this earlier, but could you give us an overview of the banknote pipeline again? How many organizations you are in discussions with? What stage of discussion are you in currently? And how many are prospects, et cetera? Can you frame that up a little bit?

Troy Bullock

Yes. What — let me kind of break that down from existing recurring business to business that we’re qualified on, and I’ll explain what that means, and then partnership opportunities.

So, existing business, we are producing our LumaChrome color-shifting film for three different banknote denominations and two government ID applications currently. That’s what we did this past year. And one of those we’ve been doing for upwards of, I think, 20-plus years now, we’ve been producing that same color-shifting thread for that banknote denomination.

So, we’ve got a core group of three now banknote denominations that we’re on and a couple of ID applications that we’re on. And I would anticipate that continuing going forward. It tends to be recurring in nature and no reason to believe that it wouldn’t be.

In addition to that, we’ve qualified our optical thin film on another, I would say, four to seven at various stages of that. And what that qualification means is we produce our foil — so what it means is there’s a central bank out there with an existing color-shifting thread in it. And we’ve produced our foil, sent it to a converting partner who takes our foils, slices it down into threads and samples it in paper and has that central bank verify that it’s good enough for their banknote.

The reason they’re doing that is that converter wants to win that business if it comes up for bid in the following year. And so they’re trying to win that business away from somebody else and have them shift to our color-shifting film. And quite frankly, there’s only one other company in the world that can make this film. So, we’re trying to win business away from that partner.

And so we’ve got four or six of those and we’re hopeful that during this year, we’re going to win some of that business. And that’s one of the reasons why we set up our Thurso facility to handle some of the additional business that we’re hopeful to win this coming year.

On our newer product, our KolourOptik technology, our approach there is really two things. One is to get onto a banknote through our government contract. That approach tends to be longer in nature. It’s obviously very valuable to us. It’s probably our strongest asset as an organization, doing upwards of CAD7 million to CAD8 million revenue off of it, but it takes some time. Success there would look incredible. When we get that, if we get that, it’s going to be company changing to be on a prominent note of that nature.

In addition to that, though, we’re chasing opportunities by trying to find partners that are going to prepared to create a unique security feature with our nano-optic technology and begin marketing it directly to central banks. And so our big goal this year is to we’ve got one partner already prepared to do that, and we have another one that is looking at the capability. Once we can finish off their unique security feature, they’re going to begin marketing that later in 2021. And that’s when we’ll start to generate opportunities like real direct central bank opportunities through their customer base.

Jim Kennedy

Got you. Okay, very good. Thank you for that overview.

Troy Bullock

Thanks very much Jim. Nice to talk to you.

Jim Kennedy

You bet.


The next question is a follow-up from Jeff Cowell [ph], a Private Investor. Please go ahead.

Unidentified Analyst

Thank you operator. Two questions for you, Troy. As far as channel partners, and it sounds like predominantly for now focused in the U.S., are you offering any of these CAD100 million sales-ish channel partners any, kinds of, exclusive either outright or maybe by product vertical?

Troy Bullock

I would say generally, no, Jeff, at this stage. So I would kind of put the channel partners into two categories. Those that would be label producers if you will, and they do much more than that. I don’t mean to narrow their focus down to adjust that. But they’ve got a solid customer base, and they’re looking for a unique wallpaper design. And what they might actually buy is they may design with us a wallpaper order CAD100,000 of it, store it in inventory and then as customers order it, slice it up.

Now this might be something that’s a lock, that says, authentic on it or something like that. So it’s not a custom for every product. It’s a standardized wallpaper that they’re going to sell. That would, obviously, be unique to each one of those label producers that chose to go through that effort with us.

In addition to that, there’s, sort of, so what I would say some next tier ups, some big multi-national companies that are more into the packaging space. We’re in conversations with them much along the lines of designing something very unique for them that would be exclusive to them. It would be their exclusive design that they would put in their catalog and market to their customers.

So we kind of want to have three levels; the generic Nanotech stuff that anybody can buy; something we’ll find specific for you, the label producer; and then a highly customized product that would be absolutely exclusive for the big players.

Unidentified Analyst

Okay. That’s interesting. Thank you. Last question for me. You mentioned in the press release, Troy, that you recorded product revenue from CAD23 million delivered customer orders compared to CAD14 million in 2019. Can you provide a little bit more context around those CAD23 million customer orders? Specifically, how many of them more repeat customers, repeat clients, I guess? And how many were unique as a new.

Troy Bullock

Yeah. I don’t have the exact numbers in front of you, Jeff, but just roughly speaking, I would say, 10 to 12 of them were repeat customers and just thinking back from the year before, we had 14. A couple of those were unique and didn’t buy this past year, just because they’ll probably come back in a couple of years, they bought enough — that’s all they needed. So we probably had about a dozen that tends to be repeat and then the rest would have been new for this year.

And then when we segment that down, I don’t want to go too granular on it, but of the new opportunities, really what we’re doing is we’re selling LumaChrome. We’re selling our nano-optic labels and we’re selling early stage wallpaper design type products into the bank — brand protection space.

And so, as we have more things that we’re able to sell, we’ll be able to increase the number of customers that we’re actually dealing with right now, our product portfolio is quite limited in nature. And as we start to expand that with production partner capability, I think that our ability to grow that revenue base will be quite a bit easier.

Unidentified Analyst

Thank you.


This concludes the question-and-answer session. I will now turn the conference over to Mr. Bullock for any additional or closing comments.

Troy Bullock

Well, thank you. I would like to thank everyone for your questions and for joining our fiscal 2020 conference call. As everyone knows, this pandemic has made 2020 a difficult year for all of us and Nanotech is included in that. We’re thrilled that we were able to deliver such strong results and we look forward to another strong year in 2021.

With that, I hope that 2021 is safe, healthy and prosperous for everyone. And on behalf of everyone here at Nanotech, I’d like to wish everyone a happy holiday season. Thank you and look forward to updating you next year.


This concludes Nanotech’s Fiscal 2020 Conference Call. A replay of this call will be available until Sunday, January 10, 2021. Please refer to Nanotech’s website for the replay details. Thank you, and have a wonderful evening.

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