Nanalysis Scientific Corp.

Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Analysis Third Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your request, please press star followed by the number two. I would now like to turn the call over to Mr. Matthew Selinger. Please go ahead, sir.

Thank you, operator, and welcome everyone to the Analysis Scientific's third quarter 2022 conference call. Before we begin, I would like to remind everyone that our remarks and responses to your questions today will contain forward-looking statements that are based on current expectations of management. These assumptions involve inherent risks and uncertainties that could cause actual results to differ materially from our responses. Certain material factors and assumptions were considered and applied in making the forward-looking statements. These risk factors are included in our filings for the year ended December 31st, 2021. Forward-looking statements on this call may include but are not limited to statements and comments with respect to future growth of the company's business, the ability to graduate to a senior exchange, the company's acquisition strategy, the ability to develop future products, and the possible associated results. The company's actual performance and financial results in the future could differ materially from any estimates or projections of future performance implied by the forward-looking statements. The forward-looking statements made on this call speak only as of today, and Analysis Scientific assumes no obligation to update any such forward-looking information as a result of new information, future events, or otherwise, except as expressly required by applicable law. For additional information, I do encourage everyone to review our public filings and press releases, which are posted on the CDAR filing system at www.cdar.com. On the call with me today are Analysis Founder and CEO, Mr. Sean Krakiewski, and Analysis Interim CFO, Mr. Randall McRae. So with that, I would like to turn the call over to Analysis Interim CFO, Randall McRae. Randall?

Thanks, Matthew. It's a pleasure to join and interact with everyone on the call today. I'm first going to dive into the financial results for the quarter ended September 30th, 2022, then move into a discussion of cash management during the rollout and scale up of our services business. With that said, I'll turn to the financial performance for the quarter. All amounts referenced are in Canadian dollars. I'm happy to report that for the three months ended September 30th, 2022, the company reported consolidated revenue of $6. $6.878 million, an increase of $3.542 million, or 106% from the comparative period in 2021. This includes $6.145 in product sales and $733,000 of service revenue related to airport security services. Gross margin on total sales was 43% for the three months ended September 30th, 2022. This was the result of increased training costs of personnel for the CASA airport security project, increased personnel and training in Analysis's manufacturing group to increase manufacturing capacity, an increase in costs due to worldwide supply chain constraints and inflation, as well as a specific project completed in the RS2D subsidiary that had lower than normal margins. Management expects that these lower gross margins are transitory and will improve as the CASA airport security project continues to phase into full capacity, investments in manufacturing result in increased efficiencies, and sales levels increase. The company incurred a net loss of $2.599 million for the third quarter, up from a net loss of $857,000 in Q3 2021. The increase in net loss was driven by higher costs in G&A expenses, depreciation and amortization, sales and marketing, and stock-based compensation expense. These were driven in large part by the acquisitions of K Prime and Quad. The company had cash on hand of $7.9 million, an undrawn credit facility of $6.7 million, working capital of $9.7 million, and undrawn government contribution funding of $5 million as of September 30, 2022. I'd like to take a moment here and discuss our working capital and cash management as we move into 2023. Our decrease in working capital is due to lower cash balances as the company is investing in new initiatives, primarily the airport security project. As we have previously discussed, we do expect to invest cash in the ramp-up period of this project, and begin to turn positive cash flow for the airport security project in early 2023. We're not concerned about cash, and while we're in a drawdown phase, we purposely decided to move more aggressively in the phase in to get to billing sooner. We've begun operations in Q4 on this project and we'll continue on our rollout plan, anticipating profitability on that project in the first half of 2023. Additional to our cash balances, we have a consolidated credit facility. Subsequent to the quarter, on November 18, 2022, the company closed a credit line with a major Canadian bank, consolidating its existing operating facilities into a $9 million operating line, allowing us to execute on our growth and expansion plans. Those of you who follow the company may also recall that back in March, we announced funding of $5 million to expand manufacturing operations and global markets for nuclear magnetic resonance products from the Government of Canada. We've recently received our first $1.5 million funding amounts from the Prairie's Economic Development Canada Business Scale-Up Program. With that being said, we're confident we have the necessary liquidity resources available to support all our research, development, and project initiatives, including the airport security project. This strong financial base will be the foundation for an analysis of future growth. So with that, I'd like to turn the call over to our founder and CEO, Sean Krakuski.