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Elric Lloyd-Langton

April 2018

NANO is a UK-based nanotechnology company that spun out from the research group of Prof. Paul O’Brien at the University of Manchester in 2001. The company’s development has been driven by Dr Nigel Pickett, Nanoco’s Chief Technology Officer, whose pioneering work on the patented "molecular seeding" process has formed the basis of NANO’s unique technology, and Dr Michael Edelman, who joined NANO as CEO in 2004, leading the company’s growth from a two-man start-up to a publicly traded organisation with more than 120 employees across the globe. More recently, NANO appointed David Yao as Senior Vice President of Global Sales. Yao has a track record of generating worldwide sales is perfectly aligned with NANO's growth ambitions. NANO was selected out 130 companies as the winner of the prestigious Prism Awards 2016 in the Materials and Coatings category for its cadmium-free CFQD® quantum dots, at the time seen as a breakthrough in non-toxic, cadmium free quantum dots as an enabling technology transforming a broad range of applications including display, lighting, biomedicine and solar. Back in August 2017 the European Commission announced it is to Prohibit Cadmium from TVs and Displays by October 2019, since this announcement, NANO have noticed display manufacturers move away from Cadmium problem, particularly OEM's in China. The main focus of this article will be NANO's display market because at least in the near term, it is where the bulk of the revenues will be arriving from, but it should be noted, NANO have effectively four divisions within the group as follows; CFQD® Technology NANO's business structure is formed around the key area's in; displays, lighting, solar and bio-imaging.

INVESTMENT HIGHLIGHTS • A pioneer in the development and production of CFQD® cadmium-free quantum dots • Scalable "platform technology" with multiple markets and product applications • Cost and performance competitive versus OLED technology • Key target markets are display, lighting, bio imaging and solar • Supply and licensing agreements in place with Dow, Merck and Wah Hong position Nanoco to dominate the markets and drive revenue growth • LCD TV market starting to ramp usage of cadmium-free quantum dots with market leader Samsung leading the way with its SUHD TV range • Extensive and growing patent portfolio • World leader in heavy metal free quantum dots • Unique “seeding process” enables mass production • Bright and energy efficient • Highly tunable to emit a specific colour on the spectrum • Quantum dot surface can be chemically modified for different end use applications, creating a “platform technology” • Extensive & growing patent portfolio (c. 500 patents and patent applications) covering five key areas: Process, Materials, Surface Chemistry, Solar & Devices Revenue model NANO licensing model works via a mix of upfront & milestone payments, quarterly royalty payments – It is these royalty payments which are expected to start filtering into the bottom-line starting Q1 2018. DOW CHEMICAL • Announced January 2013; modified March 2016 • Changed from exclusive to non-exclusive in March 2016 • Non-exclusive worldwide technology licensing agreement with royalty payments WAH HONG • Announced July 2016 • 7 year non-exclusive material supply and licence agreement with upfront licence fee, payment for delivery of QD resin and royalties on sales MERCK KGaA • Announced August 2016 • Non-exclusive material supply and licence • Agreement with upfront licence fee, royalties on sales of Merck produced product

• Ability for Merck to purchase Nanoco manufactured product to accelerate their market entry Have the bears had their fill? So, is the time right now for NANO as a viable commercial company, one that investors should trust to appreciate in market value? I cannot say yes to the latter because I'm not FCA regulated, and this article only serves to offer research material. That said, I'm invested and have been for some time. To the former, the shadow hanging over NANO has always been funding, as is always the case with precommercial companies trying to find their place in the commercial world, and of course the ambition to transition from an R&D company to one of a viable commercial company that has something to offer the World – to this end, NANO's technology has never been in doubt, just its cash balance; will it run out of money before break-even? The question related to funding will not worry the bears at this stage, though the appetite for shorting will be less so in due course. Last Octobers raised £8.6m via a sightly discounted placing to which all the BOD took part in – some with what I would call token gestures, while others x3 token. In any event, all appear to be geniuses given their 18p stake. More encouraging - NANO reported reduced losses as well as additional reduction of PLC costs of c£400k per month and running at a more acceptable level of c£700k pm Even so there isn't much headroom between now and the need for serious cash inflow from the ramp-up of commercial orders. The key aspect here is the fact NANO have significantly increased their Runcorn production capacity and with the aid of an unnamed US partnership paying to increase the manufacturing capacity at the group’s Runcorn facility and will start ordering products in early 2019 - there should be even less strain on the cash. It should also be noted the downward pressure on the SP has not just been the bears feasting, but II selling down their holding; Baillie Gifford being the most recent II, dumping 4.2% of its 9% holding in March. Have they finished? Hit the reset – commercial partnerships NANO have removed the DOW exclusive shackles, thus allowing the company to negotiate non exclusive multi-channel commercial approach, thus less reliant on one dominant company. This is not to say DOW have walked away, they are very much aligned in business. However, there has been a negative consequence to the new arrangement with DOW, in-as-much as NANO are now dealing directly with display manufacturers, rather than DOW on their behalf. This has resulted in slower commercial process because NANO had a steep learning curve in getting it's technology evaluated, accepted and fine tune to partners needs....something I touched on earlier. However, ultimately, NANO will see material benefit and become masters of their own destiny.

NANO is expecting a significant up tick in orders in Q1 2018, most likely from Chinese based AUO, whom will have NANO technology in a commercial sense, on sale for their gaming display market. However, NANO has no control on timing of sales. AUO had a number of their high end new 65inch to 85inch displays on show at a recent Asian trade show. German display manufacture, Merck will continue to be supplied by the Runcorn facility until it has it's own manufacturing facility in production. Competition Surprisingly, there isn't a great deal. The global players are NANO partners, DOW and Merch, whom can deliver true CFQD® Technology and NANO. OK, not quite sewn up – there is US corp Nanosyse, they are a hybrid CFQD, so not true CFQD® Technology competitor. Samsung have their own in-house Displays They key focus is NANO's ability to supply industrial quantities of cadmium free options for the display markets, which appears to be where investor excitement is, no doubt because of the advantages NANO's technology has over older LCD, and some OLED technology and of course, the outlawing of the heavy metal cadmium, which was used in displays for its red, orange and yellow properties, which gave display bright and vibrant colours. However, it's limited in scope – the larger the display surface the less vibrant the colours. That aside, the real issue for cadmium, is it's long-term exposure to cadmium can cause adverse health effects," according to the official recall notice from the CPSC. A known carcinogen, or cancer-causing agent, chronic cadmium exposure has been shown to primarily cause severe kidney problems, including kidney failure, and, secondarily, bone softening. Hence the World over governments are clamping down of it's use. NANO's solution is known as CFQD® quantum dots offer enhanced colour, energy efficiency, and seamless integration into existing production processes. This technological advance not only makes displays safer, colours more vibrant, displays are much larger then their OLED counter parts, with no loss colour of vibrancy. NANO's quantum dots, incorporated into a film located in between the LED light source and the LCD panel, are “excited” by light emitted from blue LEDs, transforming some of it into very pure green and red light. Due to this, the LCD panel receives a richer white light and expands the range of colour that the display can reproduce. To the viewer, the difference is significant: reds are deeper, greens are brighter, the entire colour palate is rendered with unprecedented vividness, bringing the imaged world vibrantly to life.

The chemical processing enables production of quantum dots at precisely defined sizes, Because the size dictates the colour they emit, quantum dots can be finely tuned to meet specifications for optimal display performance. NANO’s unique scalable production processes enables the manufacture of heavy-metal free quantum dots in large volumes. As legislation restricting the use of heavy-metals gets ever tighter, CFQD® quantum dots are uniquely positioned as the future-proof quantum dot display technology on the market. Transitioning from R&D to Commercial July 2017 NANO announced it had received its first commercial order from Wah Hong Industrial, a Taiwan-based manufacturer of optical films and sheets for the display industry, for the supply of resins containing NANO’s cadmium-free quantum dots (CFQD). NANO says its CFQD technology is now being evaluated in 16 active TV and monitor programmes with 13 major OEMs. This followed an earlier agreement with Kyulux Inc, to Develop Next Generation Displays Cadmium-Free Quantum Dot Hybrid QLED - OLED Technology. Kyulux may well not be a household name in the display market, hence why investors didn't appear to to excited about this deal. However, it's worth drawing your attention to the about section of the RNS on 22 nd May 2017; Kyulux is a leader in developing and delivering the next generation of organic light emitting diode (OLED) technology, TADF. Kyulux develops and sells TADF and

Hyperfluoresence based OLED materials and solutions to manufacturers in the display and lighting industries. Founded in 2015, the Company currently owns or has exclusive, co-exclusive or sole license rights to a large TADF intellectual property portfolio developed over the past seven years at Kyushu University and its industrial partners. Kyulux also enjoys a license to cutting-edge deep learningbased artificial intelligence technology for chemical discovery developed at Harvard University. Kyulux's co-founder and the inventor of TADF technology, Prof. Chihaya Adachi, is widely viewed as the top global researcher in OLED technology, having been a key author and inventor in all previous generations of OLED materials that are now used everyday by consumers across the globe. This all seems a very good strategic move on NANO's part, which is often missed by investors in absence of heady share price movements. Patience is a virtue Many PI's have unrealistic expectations of a company's transition from R&D to commercial, failing to understand potential partnerships take time and care to develop - typically, wrapped in NDA's, this often creates the illusion nothing is happening when there are prolong periods of radio silence. Before even brokering any type of deal, NANO will have to spend time and money of protecting their technology with IP & TM in various regions. Even then, it is likely potential partners will attempt to see if they can circumvent these, if only to test the resolve and of course, their partnership. Then we are into the realms of viability - New technological advances need tooling adjustments for the manufacturer, this takes time and often at a considerable cost to the partner. Then there is the DD and product testing. C. P. Yeh, President of Wah Hong Industrial gives us a little insight on this front; "As a business, we recently invested in a new, wider coating line that will enable films large enough to fit 100 inch TVs to be produced and we remain on track to commence production of CFQD films for our customers during the second half of 2017.� "This represents a significant milestone for our business and justification of the commercial potential for NANO’s cadmium-free quantum dot technology in the international display industry," says Michael Edelman, CEO of NANO. "We are confident that the scale of orders should increase over the coming months. In light of increasing global regulations restricting the use of cadmium, including the imminent ban by the European Commission of cadmium in display products, manufacturers across the world are seeking more sustainable solutions that still deliver outstanding colour performance.�

The short version would be c12 months from initial corporate engagement to products of products. This seems to be typical no matter the sector you are partnering in. This is the very same point I have been making with other companies I have an investment interest in; namely, OptiBiotix (OPTI) SkinBioTheraputic (SBTX). Lighting NANO's lighting technology has evolved, LED lighting – bright, high-efficiency and long-lasting – is well placed to become the light source of the future. Most most LED lighting technology offers lower colour performance relative to incandescent light and fails to show the true colour of illuminated objects. The primary focus is horticulture. For example, it has been accepted for quite some time Using LEDs for plant growth lights is very beneficial to plant life, however, the use of QD lighting is proved even more beneficial. With NANO's CFQD® cadmium-free quantum dot LED grow lighting systems, it is apparent there is a significant advantage of traditional LED lighting, because it optimizes the light spectrum for plant growth. NANO’s CFQD® quantum dots offer a simple and effective solution that can both tune the colour and improve the quality of light. Since the materials are free from toxic cadmium and heavy-metals, they can readily be used in lighting and device applications. Bio-imaging Typically, medical imaging is performed using fluorescent dyes as a powerful tool for the diagnosis and treatment of diseases. However, the fluorescent dyes currently used offer poor photostability, with narrow absorption spectra (requiring excitation at a precise wavelength) and/or weak fluorescence due to low extinction coefficients. The development of fluorescence imaging agents using QDs may pave the way for new medical imaging techniques. QDs offer a number of advantageous properties for fluorescence imaging, including high photostability, broad absorption spectra, narrow, symmetric and tunable emission spectra, slow excited state decay rates and high extinction coefficient resulting in strong fluorescence. 05 July 2017, NANO was Awarded Grant of from Innovate UK for Major Life Sciences Project to support its ongoing research into the use of quantum dot nanoparticles within cancer imaging. The research project which has received the grant - entitled "VIVODOTS(TM) nanodevices for detection, resection and management of pancreatic cancers" - is a continued collaboration between NANO and University College London ("UCL"), the Group's partner in the life sciences sector, and builds on the significant progress that NANO's Life Sciences team has made on in-vivo mapping of sentinel lymph nodes and breast cancer imaging. In support of the project, NANO will receive grant

funding from Innovate UK of up to ÂŁ484,689, representing 60% of the costs the Group expects to incur, paid quarterly in arrears over a three-year period. The proposed VIVODOTS(TM) nano-device will enable more effective pre, intra and post-operative management of pancreatic cancers, resulting in better surgical treatment, higher cure rates, and better quality of life for survivors. Later development should lead to the extrapolation of the same concept to other types of deadly malignancies.

The author of this report has a financial interest in Nanoco PLC. The contents of this reports is for educational and information purposes only. No advice is intended.

Nanoco PLC  

Is there a compelling case for NANOCO reaching commercial inflection point in 2018 and accelerating in 2019 and beyond?

Nanoco PLC  

Is there a compelling case for NANOCO reaching commercial inflection point in 2018 and accelerating in 2019 and beyond?