Nanalysis Scientific Corp.
First Quarter 2022 Conference Call
May 31, 2022 — 5:00 p.m. E.T.
Length: 41 minutes
CORPORATE PARTICIPANTS
Matthew Selinger
Nanalysis Scientific Corp. — Manager, Investor Relations
Luke Caplette
Nanalysis Scientific Corp. — Chief Financial Officer
Sean Krakiwsky
Nanalysis Scientific Corp. — Founder & Chief Executive Officer
CONFERENCE CALL PARTICIPANTS
Stefan Quenneville
Echelon Capital — Analyst
Yue (Toby) Ma
Research Capital Corporation — Analyst
Brandon Osten
Venator Capital Management — Analyst
Lindsay Leeds
Private Investor
PRESENTATION
Operator
Good afternoon. My name is Pam and I will be your conference operator today. At this time I would like to welcome everyone to the Nanalysis First Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ 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 question, please press star followed by two. Thank you.
I would now like to turn the conference call over to Mr. Matthew Selinger, Investor Relations. Please go ahead.
Matthew Selinger — Manager, Investor Relations, Nanalysis Scientific Corp.
Thank you, operator, and welcome, everyone, to Nanalysis Scientific’s first quarter 2022 conference call.
Before we begin, I would like to remind everyone that remarks and responses to your questions today will contain forward-looking statements that are based on the current expectations of management. These assumptions involve 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 of the forward-looking statements. These risk factors are included in our filings for the year ended December 31, 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 Nanalysis 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 SEDAR filing system at www.sedar.com.
On the call with me today are Nanalysis Founder and CEO, Mr. Sean Krakiwsky, and Nanalysis CFO, Mr. Luke Caplette.
So, with that, I would like to turn the call over to Nanalysis’ CFO, Mr. Luke Caplette. Luke, go ahead.
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Thank you, Matthew.
I’m happy to report for the three months ended March 31, 2022 the Company reported consolidated revenues of $5.6 million, an increase to $2.3 million or 69% from the comparative period in 2021. The increase in Q1 can be attributed to the shipment of more units of the 100 MHz coupled with revenue from our most recent acquisition, K’(Prime) Technologies.
Gross profit for the three months ended March 31, 2022 was $3.3 million, a margin of 60%, as compared to gross profit of $2.1 million and a margin of 64% for the three months ended March 31, 2021. As discussed on previous calls, we anticipate a bit of margin erosion due to the inflationary pressures on our cost inputs. We continue to evaluate pricing; however, due to a large backlog of sales, the opportunity to increase prices has been temporarily stifled.
The Company’s net loss for the three months ended was $1.5 million as compared to the three-month loss March 31, 2021 of $0.5 million. The increased loss was due to higher costs, specifically sales and marketing expenses, increased G&A expenses, and increased research and development expenses, both in the Nanalysis segment and from the new acquisitions. In addition to this, there were business acquisition costs from the two transactions completed in the quarter, increased depreciation and amortization expense, increased finance expense, partially offset by no RS2D earnout in the quarter and increased revenues.
Significant transactions for the quarter included the acquisition of K’(Prime) Technologies, a North American sales and service company with a particular focus on scientific instrumentation for pharma, food, chemical, and oil and gas customers, as well as imaging systems for security applications. We also completed the acquisition of Quad Systems. Nanalysis provided Quad with a CHF 1 million loan, which is convertible into shares of the capital of Quad. Nanalysis subscribed for 260,000 Quad shares for cash consideration of CHF 6.5 million. Until July 1, 2021, Nanalysis has an option to acquire 100% of the issued and outstanding shares of Quad System at a preset valuation formula in combination of cash and majority in Nanalysis shares. The Company has assessed the IFRS 10 and has determined that, based on the criteria outlined in the standard, management concluded that, due to the option to purchase the remaining shares of Quad, the Company has the power to govern the financial and operating policies of Quad. As such, the acquisition was accounted for as a business combination.
During the quarter the Company also closed an upsized public offering and non-brokered private placement for gross proceeds of $15.2 million. In addition to this, the Company also received an interest-free repayable funding commitment of roughly $5 million to expand manufacturing operations from the Canadian government. We’re pleased to announce that, as at March 31, 2022, the Company had cash on hand of $19.2 million, an undrawn credit facility of $6.1 million, and working cap of $18.5 million, as well as the undrawn government contribution funding of $5 million. We have a strong financial foundation for the future.
So with that, I’d like to now turn the call over to our Founder and CEO, Sean Krakiwsky. Sean?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Thank you very much, Luke.
I’d like to start the call by addressing the most recent announcement we made last week regarding the $160 million service and maintenance contract with the Canadian Air Transportation Security Authority, or CATSA. This contract was won by the Company’s wholly-owned subsidiary K’(Prime) Technologies but was really a team effort across the board. For those of you who follow us closely, this contract was perhaps not a surprise, as we have alluded to the bidding and pursuit of such service-related contracts, but a lot of the initial feedback I’ve received is of more surprise at the sheer size and scope of this engagement and how we were able to land it. So, congratulations to our K’(Prime) and Nanalysis teams in that regard.
We were able to pursue and win this business for a few reasons. The first is K’(Prime)’s is experience and track record and servicing these types of pieces of equipment at airports and other security environments such as prisons and detention centers. Secondly, the equipment manufacturer, such as Leidos, also gave recommendations and their references due to their prior work with K’(Prime). And lastly, it was a combination of Nanalysis that gave both balance sheet and operational strength to fulfill this engagement.
The scope of the contract is to provide regular service and maintenance of security screening equipment at Canada’s 81 airports. As we mentioned at the press release, the contract is for six years, which includes a gradual phase-in period of approximately one year, which we will strive to complete in six to nine months and then start billing the customer the maximum amount. It is common for these types of contracts to be renewed for an additional five years, making it potentially an eleven-year recurring revenue opportunity with inflation-based contractual price increases. The effective date of the executed contract is May 25, 2022 and it expires on May 31, 2028.
What does this contract mean for Nanalysis? I’ve often spoken about our macro vision as to miniaturize and democratize magnetic resonance for healthcare as well as industrial applications and to one day disrupt the MRI space for human medical imaging and make it work the way it should work as part of a next-generation personalized prevention-centric healthcare system. I said specifically on the last call that our strategy to achieve this vision, in addition to the product innovation required, is to position our Company as a full-blown operating entity with a bit of heft to it and an ability to bid on very large contracts without being told things like “You have a great technology but you’re not big enough” and “We don’t see you as a reliable supplier” by industry and government customers alike. And that we have an aggressive growth plan to build a vertically integrated global scientific instrumentation company that has an extended family of products and operations that constitute not only world-class manufacturing, but also channel management direct sales and service in every major market in the world. This contract is us executing on that plan. Once up and fully running, we can leverage our boots on the ground into sales opportunities as well in this channel. This business will open sales channels for Nanalysis for proprietary products going forward and we expect to do more of these deals in the future.
We do believe that airports, border crossings, prisons, and other security markets are expected to be important growth drivers for Nanalysis over the next five years and beyond. Because of this contract and the growth that the Company has and will continue to experience, you are going to see us move away from talking about specific unit orders and backlogs of particular models of products and start talking about the Company in terms of business segments, such as service, benchtop NMR, high field NMR, and so on. Down the road you will also see us highlight more details in our human medical imaging and MRI initiatives.
So that being said, our core business, which is our flagship 60 MHz and 100 MHz NMR instruments, is going very strong and I’m confident that that the strength of this business will continue.
Quad Systems, whom we now have a 43% stake in, continues on the path to roll out their new high field NMR product offering. This product line targets higher end segments of the NMR market, including analysis of proteins in human blood and urine. The price range for their full products is between $500,000 and $2 million as compared to the price range of benchtop NMR products, which is roughly $50,000 to $150,000. Their products can also be sold as separate modules, which is what we’re focusing on now until the full system is ready. There are also many cross-selling opportunities with Quad Systems in vertical markets such as with big pharma, food, energy, advanced materials, security, and universities and government labs. There are tremendous synergies also in terms of manufacturing and other aspects of running our business. We expect the full Quad system to be available this year and we’ll continue to keep shareholders updated on this progress.
So, in closing, I would like to reiterate our high level objectives as a company, which we are executing on to build a fully vertically integrated global scientific instrumentation company serving customers in the security, pharma, biotech, food, energy, advanced materials, petrochemical, healthcare, and education with imaging and detection products and service. The Company will continue to expand our direct sales service and channel management capabilities worldwide and will also strengthen technology partnerships as well as develop important supply chain, risk mitigating, and technology differentiating capabilities as the geopolitical landscape evolves, ensuring the ability to continue to drive growth and create shareholder value. Incidentally, we will also be presenting at some upcoming investor conferences, including the LD Micro Conference in California in June, which is an in-person physical conference, and the OTCQX Best 50 Virtual Conference in the middle of next month. Lastly, we have launched an updated investor relations portion of our website and I encourage you to visit.
So, in closing, as good of a year as 2021 was previously for Nanalysis, I believe that 2022 will be even better, consistent with our stated objectives, and that momentum will continue for many years to come. I apologize to investors on this call. I’m just recovering from COVID and my throat is scratchy, as you can tell, but I’m feeling pretty good and should be recovered very soon. So thank you very much and, operator, I would now like to open up the call for questions. Thank you.
Q & A
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment for your first question.
Your first question comes from Stefan Quenneville with Echelon Capital. Please go ahead.
Stefan Quenneville — Analyst, Echelon Capital
Hi, guys, and thanks for taking my question and congrats on the quarter and particularly congrats on the CATSA contract. I do follow you closely and I must say I was a bit surprised by the size and scope of the deal, so quite a coup for you guys. But I want to sort of start with a couple of some wonky modelling questions. You mentioned in your remarks that you’re not going to be talking about system sales and backlog and all that and I’m going to go ahead and assume that’s for competitive reasons. Can you characterize what’s going on with your backlog for us in more general terms? Like has the backlog grown over the previous quarter? And from an ability to produce the 100 MHz machines, given the productions snafus you’ve had earlier, I guess in previous quarters, what’s going on in terms of those elements of the business?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Thanks, Stefan. This is Sean, the CEO. I appreciate the question. Yeah, you’re totally right, as a public company we have a lot of transparency. Our number one competitor, for example, is not a public company, so their financials and their MD&As aren’t all over the Internet, so we’d like to be a little bit more strategic in that regard.
About your specific question, the way I would characterize the benchtop NMR backlog and sales pipeline is that it’s strong and strengthening. It is true that we haven’t been shipping out as many 100 MHz units as we would like, but things are, I’m very positive in that regard. I do believe that things are going to be more optimal in sort of mid-year.
Maybe just to give investors a glimpse into what exactly is happening behind the scenes in that regard, I like to describe it as a sort of crucible-like environment right now where we have about 40 people on the manufacturing side and the R&D side that are trying to get us to where we want to be on the manufacturing of these units. That entails continued design for cost reduction and increased manufacturability, and so lots of real intense activity in that regard. All positive, but yeah, I mean, I think, again, we don’t want to continue to talk about these numbers going forward, but we understand that it has been an important item and we’re going to sort of wean people off of some of these sort of tree items so that we can focus in on the forest. But in Q1 we shipped out ten 100 MHz units, so similar rate as previous quarters, a little bit behind in terms of our objectives of trying to get more out per quarter but, again, a lot of really great activity, intense activity going on in that regard right now.
Stefan Quenneville — Analyst, Echelon Capital
Okay, great, and thanks for the added colour. (Inaudible) going forward you’re not going to provide it, so fair enough. What you also said in your preamble and it’s actually the way I look at the business too is the different buckets that are segments of businesses that you guys have. So, in terms of this quarter, there was some interesting dynamics. Your benchtop NMR, which is the first and key bucket for us at this point, grew very nicely during the quarter. RS2D, which right now we’ll call the component business, was down year over year. And of course K’(Prime), you acquired it and subsequently bagged an elephant contract. Can you give some colour around what’s going on in those segments and kind of produce what happened in the quarter, just give us a little more colour on the benchtop business and what’s going on with RS2D, which was, as I said, down?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Sean, I’ll jump in first here and then I’ll kind of pass the RS2D part over to you if that works. Yeah, as you kind of saw, Stefan, so we’re up about 87% on the Nanalysis piece. You saw K’(Prime) come in about $1.6 million. We were actually a little disappointed on that. We were trying to get the deal closed as fast as possible and we kind of left a bit of revenue in those ten days within January, so came in a little shorter than we wanted, which was disappointing.
On the RS2D front, I’ll let kind of Sean talked to the piece of business, but I will highlight the way the accounting is working right now, obviously we’re consolidating Quad, and so RS2D is doing quite a bit of OEM work for Quad, and so any selling intercompany-wise is now going to actually be eliminated while we recognize the Quad revenue and so you’re going to see RS2D kind of trickled off a bit but then you going to see Quad come online kind of over the coming quarters here.
And Sean, I’ll pass it to you now.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Yeah, I don’t have much to add to that excellent characterization. So, yeah, the console revenue that, if we hadn’t done the Quad acquisition, there would be some more RS2D console revenue booked but, as Luke said, because it’s an intercompany now, it’s not bookable. And then I see it as sort of a phase shift going on in that that revenue is going to come out the other side with Quad, but it’s going to take a little bit of time. And so we weren’t exactly sure about how the accounting treatment would be for Quad Systems, let’s say, if we go back a month or a couple of months, but since that time Luke and our auditors and our audit committee have gotten clarity on that, so it’s a relatively new development. It doesn’t change any of what, as an engineer, what I would call the real revenue, but it does change the accounting treatment of the revenue and you’ll see that work itself out over the next few months.
Stefan Quenneville — Analyst, Echelon Capital
Got it. So, yeah, since you now on your previously biggest customer for RS2D, yeah, the revenue is going to show up in the final sale of those systems, not the components. Got it. My last sort of wonky question and then I have one more big-picture question and then I’ll leave (inaudible) monopolize the call. In terms of K’(Prime), are there any earnouts on the K’(Prime) deal beyond what you put in like, you know, the value that you paid for K’(Prime)? Because obviously, I assume that will hit them, any earn-outs given the, ah, is there any sort of contingent payments that might be tied to the deal?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Yeah, so there’s two, obviously. So if you look at our acquisition note, which I’m sure you’re kind of alluding to, you can see our contingent consideration we have of $1.5 million with respect to earn-outs. And there’s two separate earnouts on that. There’s a maximum of a $1 million earnout and I’ll call it just on normal book of business for K’(Prime) to achieve some revenue targets. So it’ll be $0.5 million a year if they hit those targets. And then there’s another secondary component tied to a percentage of revenue for the next two years based on a key contract that we just won that you could probably put those pieces together.
Stefan Quenneville — Analyst, Echelon Capital
Got it. Okay. So, yeah, that makes sense. I just wanted to make sure we understood that. And then finally, just big picture, this CATSA contract is a bit of a game-changer for you guys. It sounds like, once you get it implemented, you’re going to have nice, stable recession-resistant cash flows coming to the Company once you’re operating that contract. What does it mean to your ability to maybe accelerate R&D and other initiatives within the Company, particularly on the medical side? And then I’ll leave it there.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Actually, Stefan, I didn’t hear you clearly on that. I heard about 90% of what you said, but I think I missed a couple of key words.
Stefan Quenneville — Analyst, Echelon Capital
Sure. Sorry. I was saying, you know, once the contract is implemented, you’re going to have a nice steady source of recurrent recession-resistant cash flow from that contract. What does that do strategically to allow you to accelerate other initiatives, particularly on the medical side? Like what does it do to the Company knowing that you have this contract in your back pocket?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
For sure. So, I mean free cash flow is very nice. I mean it’s really the ends of every business, right, and how you get there isn’t as important as actually getting there. And we’re going to do more of these deals, right? So in that regard it’s not the end, it’s the beginning. So really excited about that cash flow and, yeah, for the next five years we’re definitely in reinvest in our business mode for sure. And we will use not only positive EBITDA but positive bottom lines that this contract is going to help us achieve to fund our grand vision, which is to one day disrupt the MRI space, get more aggressive in the human medical imaging side.
So I just think, in addition to the cash that it provides us, I think the heft that it gives us with some of the corporate objectives we have going in the future, right now the equity markets seem a little bit strange, but hopefully those will resolve themselves and the incredible value we’ve created in our company is going to be manifest in our stock price in the next couple of years, because we do want to resume acquisitions, particularly in the MRI space. We’re not going to do it in 2022, but we would like to resume those activities in 2023, and having a stronger pub-co currency will allow us to be more aggressive in that regard.
Stefan Quenneville — Analyst, Echelon Capital
Okay, great. That’s all for me. Thanks, guys.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Thanks, Stefan.
Operator
Your next question comes from Yue Ma with Research Capital. Please go ahead.
Yue (Toby) Ma — Analyst, Research Capital Corporation
Hey, good afternoon, Sean and Luke.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Hey Toby.
Yue (Toby) Ma — Analyst, Research Capital Corporation
Yes, wish you a speedy recovery.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Thank you.
Yue (Toby) Ma — Analyst, Research Capital Corporation
So, yeah, the Q1 numbers look pretty healthy. Thanks for taking my questions. I just have a couple. First I was wondering if you could provide any colour on the airport contract in terms of the gross margin, any impact on SG&A, any initial investment, et cetera. Any colour will be helpful.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Sure. I don’t mind providing a little bit of colour there. So we’re not actually going to talk about the gross margins associated with that contract until we get better visibility on it. Luke and I have been really focused in on accurately describing gross margins for proprietary products. So a service business is a little bit of a different animal with regards to gross margins per se. But we are comfortable talking about EBITDA margins that we’re going to strive to hit for the CATSA service contract and similar service contracts. So we think a reasonable objective for EBITDA margins is 20% once the project is up and running, so that’s what we’re shooting for.
And then with regards to some sort of, you know, you sort of asked how we’re going to cash flow it, and we estimate it’s going to be a little bit over a $1 million, maybe $1.5 million to get it to cash flow positive. We do have different levers we can pull there, though, in terms of gradually implementing it and then starting to bill the customer for just the coverage we’ve established. And so we do have some levers in terms of how it affects our cash flow but, yeah, maybe $1.5 million to get it to cash flow positive and, like I’ve said before, we’re going to strive to do that in six to nine months, even though contractually the phase-in period covers a full year.
Luke, do you have anything to add to that?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Yeah, I’ll just, ah, I’ll let you know, Toby, too, and investors, you will see, on future iterations of our financial statements, we will start splitting out that service revenue. So we’re not going to lump it all in as one and kind of leave everyone in the dark on, okay, what’s your margin on your product lines that you’re doing? What’s your margin on your service lines? So we will make sure we differentiate between those two for everyone in the future.
Yue (Toby) Ma — Analyst, Research Capital Corporation
Okay. Yes, thank you. That’s very helpful. Just one last question in terms of the Quad Systems transaction, I was wondering if you could comment on how likely management would exercise the option to borrow the remaining 57% interest.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Yeah, so it’s our full intention to exercise that option and we’ve been fully transparent with everybody at Quad, including the shareholders, that we wouldn’t have done that deal without that option. So we’re not, as our Chairman likes to say, we’re not a VC, and so it is our full intention to acquire 100% of Quad Systems. So, yeah, we have until July 2023 to exercise that option, according to our current contract, but it’s our intention to pull the trigger on that well before that time.
Yue (Toby) Ma — Analyst, Research Capital Corporation
Okay. Appreciate that. Just a quick follow up. I’m not sure if you discussed this before, but why is that Quad Systems deal structured as a two-step transaction rather than just a straight acquisition?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
It was a negotiation is what it amounted to. In any negotiation, there’s a bit of an expectations gap between the buyer and the seller and doing it in two steps, including having a preset price formula for what the second step is, that was the way we were able to bridge the expectations gap and get a deal done. And so yeah, it was a negotiation. I mean if you read between the lines there, the sellers weren’t willing to sell 100% of their shares at the price that we were willing to pay for it and so they were willing to sell part of it to give up de facto control, at least for 18 months during the option period, and then what we wanted reciprocally was okay, we’re willing to give you a little bit of a lift, but not too much of one and we want it predefined and we want it at our option.
Yue (Toby) Ma — Analyst, Research Capital Corporation
Okay, got it. Thanks for the colour. I will stop here. Thank you.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
My pleasure. Thanks, Toby. Appreciate it.
Operator
Your next question comes from Brandon Osten with Venator. Please go ahead.
Brandon Osten — Analyst, Venator Capital Management
Hey, guys. How’s it going?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Hey, Brandon.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Great, Brandon. How about you?
Brandon Osten — Analyst, Venator Capital Management
Good. Good. So, yeah, congratulations on that contract out of the gate. Just wanted to circle back some of the things you were saying earlier. So, from a reporting standpoint, you guys, right now you have Nanalysis, you have our RS2D, and then you have K’(Prime), so is RS2D going to be combined with Quad Systems like when you guys report it segmented going forward? Is that my understanding?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Go ahead, Sean.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
No, go ahead, Luke. Go ahead.
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Okay. I was going to say I can’t give you a definitive right now. It could make sense to roll those two together, but at this point, yeah, I’m not completely certain on exactly how we’re going to monitor those segments and report those at this point.
Brandon Osten — Analyst, Venator Capital Management
Okay. And then the Nanalysis line—yes?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
So I was just going to say, Brandon, so the way, like if I was an outside investor, the way I would look at RS2D is part of their business as NMR related, so you can think of that part of the business as sort of being combined with Quad, if you will, but part of their business is MRI related for medical imaging, and so that part we’ll talk about separately. There is revenue on that MRI side today, but it’s not a huge growth part of our business right now, but we will talk about it separately. So the way I would look at RS2D is part of it is high field NMR and then part of it is MRI.
Brandon Osten — Analyst, Venator Capital Management
Okay. And then the Nanalysis line, that’s just the 100 MHz and 60 MHz, that’s mainly the benchtop products?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Yeah, you’re right. You’re right. Like sort of by default, when we think of Nanalysis proper, we think of the benchtop NMR company.
Brandon Osten — Analyst, Venator Capital Management
Okay. And I know you guys don’t want to get into detail about units this or units that, but how’s the 60 MHz coming? Because I mean you guys always, I guess I always get excited about the 100 MHz, but you guys talk a lot about the 60 MHz being a good sort of growth engine, because not everyone needs 100 MHz, but how are sales there? You guys only sort of commented on the 100 MHz.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Yeah, they’re good. Very good. And I’ll give you more. What I really like about that product is almost zero R&D dollars are going into that right now, and so if we ran that business on its own it would be a cash cow. And so we’re trying to get the 100 MHz into that same realm. It’s not there yet, but I’m confident it will be. But also, the future of the 60 MHz is bright, because that’s the product that’s going to make its way into manufacturing facilities and be used for process control, and other applications as well where performance is important but higher volumes and price are important too. So by no means is the 60 MHz sort of an obsolete product that we’re just sort of phasing out. No, it’s in fact the opposite for the future of the benchtop NMR group.
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
And for those of you, sorry, doing math on the call, because I think Sean said we shipped ten, so I’m sure a lot of people come back into the 60 MHz, but we were just shy of delivering three times the number of 60 MHz units in Q1 2022 compared to Q1 2021, so strong demand and strong shipments there.
Brandon Osten — Analyst, Venator Capital Management
And just on the accounting for Quad, so you guys are going to consolidate them into your statements and then there will be a minority interest in earnings and stuff like that, but to the extent you’re consolidating the balance sheet as well, when you say of cash of $19 million, how much of that is Quad’s and how much of that’s yours?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
It’ll be about $8 million of Quad on there in Canadian dollars sitting in their account right now.
Brandon Osten — Analyst, Venator Capital Management
Okay. So $8 million of the $19 million is Quad’s and $11 million is yours?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Correct.
Brandon Osten — Analyst, Venator Capital Management
Okay. So that’s not proportional then, that’s an absolute number?
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
That’s an absolute number, yeah. And then just your MCI kind of pulls it out at the bottom, but that is a full consolidated number, 100% correct.
Brandon Osten — Analyst, Venator Capital Management
Okay. All right. That’s good. Okay. So that’s a decent amount of cash. And can you maybe talk a little more, elaborate on your ability to sell benchtop? Like is there any sort of ability to go beyond that government contract in terms of, you know, can you sell products that would be additive? Or how do you guys drug discovery at the airports? Or how do you guys look at that?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Yeah, that’s exactly the way we look at it is the ability to do things like illicit drug detection. There are also opportunities with the OEMs, so companies like Raytheon, for example, to one day have devices that detect explosives better. And so yeah, the objective is, over the next couple of years, to open that up as a channel and sell proprietary magnetic resonance products into that security market, not just airports but detention centers like prisons and border crossings.
Brandon Osten — Analyst, Venator Capital Management
Okay. All right. Thanks a lot, guys.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
My pleasure. Thanks very much, Brandon. Appreciate your time.
Luke Caplette — Chief Financial Officer, Nanalysis Scientific Corp.
Thanks, Brandon.
Operator
Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one.
Your next question comes from Lindsay Leeds, private investor. Please go ahead.
Lindsay Leeds — Private Investor
Hi and congratulations on a strong Q1. I wanted to ask about the rollout of the Canadian airport security project. Will you be needing to ramp up an employee count or hire contractors? What does that look like?
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Thanks very much, Lindsay. It’s a gradual hiring of employees. And we already have employees in about seven airports in Canada right now, so we’re not going from a dead start. We’ve been working with that equipment for years and working with CATSA for years, but there is going to be increases in headcount. It’ll be managed by the Managing Director of our security business, which is the founder of K’(Prime), so it’s not going to be too intertwined with the other parts of Nanalysis’ business, although there is going to be some, I guess, operational synergies that are going to be exploited. But yes, it will be a material addition to the number of people we have as teammates in our Company.
In addition to that, the incumbent vendor, of course, no longer has that contract and so basically we’ll be cherry picking those people who are already working in the same venues as our employees in several of those airports, so there’ll be that dimension of it to where the good employees of the incumbent vendor basically just move over to our business as well.
Lindsay Leeds — Private Investor
Okay, well thank you. I think I want to just get a clarification on what I thought I heard earlier and that is that you guys can proceed to try to service all these airports as fast as you’re able to. There’s not, ah, you can do 20 this quarter, 40 this quarter type limitation, it’s based on your ability to perform the contract.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
That’s correct. And I want to say that we work very closely with CATSA, so everything that gets done is done on sort of a mutually agreeable basis. Obviously this is a pretty important service we’re providing that includes the public, so nothing gets done in sort of a rash or sort of unilateral way. It’s always in a bilateral way and both parties. And then the third party, which is the incumbent vendor, wants this to happen as fast as possible and that’s why we’ve stated it’s our objective to do it in six or nine months.
Lindsay Leeds — Private Investor
Great. Thank you so much. That’s all I have.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Our pleasure. Thanks, Lindsay.
Operator
There are no further questions at this time. Please proceed.
Sean Krakiwsky — Founder & Chief Executive Officer, Nanalysis Scientific Corp.
Okay. Well, on behalf of Matthew and Luke, I would like to thank everybody for spending the time to listen to our Q1 2022 call and I look forward to further discussions with all of you in the future. Thank you very much.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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