How “Nano” is Nanotech Security Corporation?
Nanotech Security Corporation trades on the TSX Venture Exchange (CVE:NTS) and in February 2014 listed on the over-the-counter (OTC) market (OTCMKTS:NTSFF) with a market cap of $45 million. Initially started as a company that provided home surveillance systems for criminals on probation, the company dabbled for a bit in wireless solutions in 2007. Fast forward to today and they now have two business areas in focus. The first is a fully owned subsidiary called Tactical Technologies Inc. which manufactures and sells surveillance equipment to the law enforcement and defense industries in the U.S. and Canada. The second is their KolourOptik™ and Plasmogram™ products which are nanotechnology-based product platforms originally inspired by the unique optical properties of the iridescent wings of the Blue Morpho butterfly. These platforms produce an Optical Thin Film (“OTF”) application for use in anti-counterfeiting and authentication processes and products including currency, legal documents, and commercial products. These nanotechnology-enabled films fall under the “security features” segment in the Company’s financials while Tactical Technologies is classified under the “surveillance” segment.
Tactical represents all of Nanotech Security’s current revenues which have been declining rather rapidly over time. In 2011, revenues decreased -12% compared to the year prior. In 2012, revenues decreased again by -13% which was attributed to “product mix and continued downward pressures in the US economy”. In 2013, revenues decreased yet again by -13% which was attributed to “less high priced surveillance equipment being sold”. In 2014 however, revenues reversed this declining trend with a gain of +23%:
While expenses incurred for the revenue-generating surveillance subsidiary were just $608 thousand, expenses for the nanotech product offering under the “security features” segment were a staggering $3.53 million. While revenues for the nanotechnology films have grown exponentially in 2013, they are still minuscule at just over $64 thousand dollars.
While the total market size for “color-shift optical thin films” may be hard to deduce, is there really a need for a nanotechnology-enabled film that addresses this market? Are counterfeiters gaining the upper hand and a superior solution is needed? Or is the film being offered by Nanotech Security cheaper to produce resulting in cost savings? In a July 2013 article by ProactiveInvestors, Nanotech Security estimated the potential market size of the hologram market at $2.5 billion and also stated:
Nanotech is targeting 60 per cent EBITDA within 3-5 years. Blakeway expects that expenses will not track correspondingly with revenue increases, but rather rise at a 15 percent to 20 percent ratio to revenues.
In the same article, the CEO stated that “the company expects that it will break even in 2014 shortly after its commercial launch”. Based on the latest financials we’ve looked at, this didn’t happen. Investors will want to keep an eye on the financials for the “security features” segment and watch for signs that revenues become substantial and/or expenses decline.
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