Nanotech Announces Third Quarter Fiscal 2015 Results

Well Positioned for Growth as Opportunities Accelerate

VANCOUVER, BC / ACCESSWIRE / August 20, 2015 / Nanotech Security Corp. (TSXV:NTS.V - News) (OTCQX:NTSFF - News), ("Nanotech" or "the Company") today released its financial results for its three and nine months ended June 30, 2015.

Strategic Highlights during the Third Quarter

- Revenue increased by 127% to $1.4 million. The Fortress Optical acquisition contributed its third full quarter, delivering revenues of $865,000.

- Gross margin improved to 51% versus 31% in the same period last year. This quarter’s improvement reflects a mix of higher margin Security Features orders related to the Fortress Optical acquisition.

- Received follow-on optical thin film ("OTF") order of $560,000. The Company received and delivered an additional order for banknotes, following the successful delivery of a similarly sized order in Q2.

-Successful customer visits stemming from Vancouver Currency Conference. Management has had positive meetings with several issuing authorities and prominent banknote industry suppliers to showcase Nanotech’s latest security features at the Company’s new corporate office and lab in Burnaby, B.C.

- Demonstrated KolourOptik(TM) security feature on metal coins. The Company successfully applied nanotechnology images to metal coins in a production environment at an issuing mint.

- Granted two new patents expanding the growing IP portfolio. One relates to the Company’s next generation nanotechnology authentication features, and the other provides increased protection for OTF.

- Signed an additional banknote security feature development contract. The contract was with another top ten issuing authority to develop a unique optically-variable security feature for incorporation into future banknotes and is valued in the low six figures. It is expected to be completed over the next six months.

Recent Developments during the Fourth Quarter

- Strategic meetings with large international banknote issuing authority. The Company has been approached by a large international banknote issuing authority to deliver a large volume of OTF, and partner with our KolourOptik(TM) technology. Management continues to devote a significant amount of time in advancing these opportunities.

- Private Placement. On August 10, 2015 the Company announced it is proceeding with a non-brokered private placement of up to 2,500,000 units at a price of $1.00 per unit for total proceeds of up to $2,500,000. Each unit will consist of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one common share at a price of $1.50 for a period of 18 months.

- Appointment of Dickson Hall to the Board of Directors. Mr. Hall brings more than 30 years of experience in foreign investment and international business, particularly in China. He is fluent in Mandarin and has negotiated many contracts with government officials.

- Signed an amending agreement related to the 2014 Fortress Optical purchase agreement. The amendment provides that 1.5 million of the 3.0 million shares held in escrow, pending certain sales milestones will be released from escrow immediately with the remaining 1.5 million shares cancelled.

Doug Blakeway, Nanotech’s Chairman and CEO commented, "We are encouraged as we continue to receive positive feedback from the banknote industry on our products and technology. This opportunity with this large international issuing authority could really prove to be a game changer for the Company since it involves large volumes of both OTF and KolourOptik(TM) images."

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").

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Revenue for the three months ended June 30, 2015 increased by $759,000, to $1.4 million, compared to $600,000 during the same period last year. The increased revenue was largely a result of revenue generated by the Security Features business unit, which generated sales of $865,000, primarily from the delivery of OTF and development contracts. OTF production decreased during the third quarter after a large international customer reviewed sample specifications and began discussions with the Company for larger volumes of OTF and KolourOptik images. These discussions have continued to delay the shipment of a partially produced order from the second quarter, however it is expected to ship in the fourth quarter and production is planned to resume late in the fourth quarter. The Surveillance business unit saw modest decline over both the previous quarter and the same period last year, due largely to a delay in orders that were pushed out to the fourth quarter.

Revenue for the nine months ended June 30, 2015 increased by $2.7 million to $4.4 million, compared to $1.7 million during the same period last year. The increased revenue was again reflected in the revenue generated by the new Security Features business unit that generated sales of $2.8 million primarily from the delivery of OTF and development contracts.

Reflecting the increased contribution associated with the acquisition of Fortress Optical, gross margin for the fiscal third quarter improved to 51%, an increase of 20 percentage points from the same period a year ago. Compared to the fiscal second quarter of 2015, gross margin improved nearly 4 percentage points, reflecting a favourable mix of higher-priced OTF shipments as well as contribution from development contracts. Reflecting the same trends, gross margin for the nine months period of fiscal 2015 was 44%, an 11 percentage point improvement compared to the same period last year. The Company anticipates gross margin to fluctuate from quarter to quarter depending upon the mix of sales in the Security Features division.

The net loss for the three months ended June 30, 2015 was $1.3 million, up slightly from $1.1 million during the same period last year. The net loss reflects an increase in gross margin of $514,000 largely related to new Security Features sales, partially offset by an increase in depreciation and amortization of $239,000 related to the production facility, a decrease in non-cash share based compensation of $53,000, an increase in sales and marketing expenses of $393,000 and increased overhead expenses including salaries and administrative costs. These were further impacted by a loss on revaluation of contingent shares of $380,000 and a gain of $670,000 that reflects the July 17, 2015 settlement where the Company released 1.5 million shares of the current 3.0 million shares held in escrow, in exchange for cancelling the remaining 1.5 million shares and fully settling this obligation.

The net loss for the nine months ended June 30, 2015 increased from $2.7 million to $3.1 million compared to the same period last year. The net loss reflects an increase in gross margin of $1.4 million largely related to new Security Features sales, partially offset by an increase in depreciation and amortization of $707,000 related to the production facility, an increase in non-cash share based compensation of $327,000, an increase in sales and marketing expenses of $845,000 and increased overhead expenses including salaries and administrative costs. These were further offset by a gain on revaluation of contingent shares of $780,000 and a gain on the settlement of $670,000.

Outlook

The Company ended the quarter with approximately $1.3 million in cash and cash equivalents, down from $2.1 million at March 31, 2015. The Company recently announced it is proceeding with a non-brokered private placement of up to $2.5 million that is expected to close within the next week. Management has reviewed its projected funding requirements and expects that through the generation and collection of revenues and/or being able to raise additional financing, that the Company will maintain sufficient liquidity.

The Fortress Optical acquisition continues to positively impact our Security Features business. Strategically, Nanotech gained access to an exclusive customer channel, and the OTF operation continues to pursue a specific significant international order for OTF. To date, over $1.0 million in test products have been successfully delivered for the opportunity. Additionally, management is pursuing outsourcing partnerships to further expand its production capacity to successfully position the Company to deliver higher volumes for full scale production in early 2016. During the third quarter, the Company successfully delivered a large OTF order, however production was impacted as the equipment and processes are continuing to be revamped to enable larger future volumes. It is anticipated that production will resume for the large international opportunity in late September.

"This large international customer is a tremendous opportunity for the Company," noted Mr. Blakeway. "By revamping our production facility and forming a partnership with an outsourcing manufacturer, we are positioning ourselves to win a significant portion of this OTF business. We are committed to advancing this opportunity for both OTF and KolourOptik(TM) images over the next six months."

Conference Call Details:

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FORWARD-LOOKING STATEMENTS

The discussion and analysis in this news release contains forward-looking statements concerning anticipated developments in our operations in future periods, the adequacy of our 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 our market opportunities, strategies, competition, and the Company’s views that its nano-optical and optical thin film technologies will continue to show promise for mass production and commercial application. Other forward-looking statements imply that the Company will remain capable of being financed and/or will be able to partner development until commercial sales are eventually realized. The principal risks related to these forward-looking statements are that the Company’s intellectual property claims will not prove sufficiently broad or enforceable to provide the necessary commercial protection and to attract the necessary capital and/or that the Company’s products will not be able to displace entrenched hologram, metalized strip tagging, and other conventional anti-counterfeiting technologies sufficiently to allow for profitability.

Our 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 this 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 assurance that actual results or developments we anticipate 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 MD&A and notes to the consolidated financial statements, 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, rule or regulation. You should not place undue reliance on forward-looking statements.

About Nanotech Security

Through its Security Features and Surveillance divisions, Nanotech Security Corp. is becoming a leading innovator in the design and production of advanced security products and surveillance solutions for a number of years. The Company’s Security Features Division produces intense, high definition optically-variable images and colour-shift optical thin films, which are ideal for authentication of currency, passports, and identification cards in addition to distinguishing branded goods from counterfeits. Activated by a simple tilt or rotation, with higher resolutions than the best LED-displays, Nanotech’s KolourOptik(TM) and Plasmogram(TM) optically-variable image products are nanotechnology-based product platforms originally inspired by the unique optical properties of the iridescent wings of the Blue Morpho butterfly. The Company’s Surveillance division designs, manufactures, and sells sophisticated surveillance and intelligence gathering communications and forensic equipment and conducts surveillance training for the law enforcement and intelligence community in the United States and Canada.

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:

Doug Blakeway
dblakeway@nanosecurity.ca
+1.604.678.5775

Canada Investor Relations:

Sean Peasgood
sean@SophicCapital.com
+1.416.565.2805

Media Contact:

Jackie Henry
jp@nanosecurity.ca

U.S. Investor Relations:

Dave Mossberg
+1. 817.310.0051

Neither 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.

SOURCE: Nanotech Security Corp