nexoptic technology corp. n/a

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NexOptic Technology Corp. (TSXV: NXO / OTCQB: NXOPF / FRA: E3O1)

Technology Company Looking to Disrupt the AI and Lens Market – Introductory Note

N/A Current Price: $0.44 Fair Value: N/A Implied Upside: N/A Risk: N/A*

Sector / Industry: Technology Click here for more research on the company and to share your views

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Price Performance (1-year)

Company Data (as of Feb 20, 2020)

Liquidity and Capital Structure (YE: DEC 31) 2015 2016 2017 2018 Q3-2019

Cash 1,002,887 1,322,371 8,143,697 2,704,156 1,304,872

Working Capital 959,628 1,290,161 7,914,400 2,638,977 630,996

Current Ratio 13.13 26.48 24.69 11.08 1.72

LT Debt - - - - -

Total Debt - - - - -

Total Debt / Capital - - - - -

LT Debt / Capital - - - - -

*See last page of this report for important disclosures, rating and risk definition. All figures in C$ unless otherwise specified.

Investment Highlights ➢ NexOptic Technology Corp. (“NexOptic”, “company”) is a technology company focused on

developing and commercializing its intellectual property in the artificial intelligence and optical/lens space. The company has three definitive product offerings (DoubleTakeTM, Artificial Intelligence: ALLISTM, Mobile Lens), with DoubleTakeTM in the latest stage of commercialization (expected late Q1-2020 / early Q2-2020).

➢ ALLISTM (“Advanced Low Light Imaging Solution”) is a patent pending machine learning

artificial intelligence system. ALLISTM is a software solution that can be incorporated into small imaging devices such as smartphones, internet of things (“IoT”) devices, automotive platforms, medical imaging, and smart security cameras, to provide instantaneous low-light imaging. The global low-light imaging market is expected to grow from a market size of US$10 billion in 2019, to US$18.4 billion by 2024 – a compound annual growth rate (“CAGR”) of 13% (Source: MarketsandMarkets).

➢ DoubleTakeTM resembles a significant modernization to standard binoculars in the market.

The key technology of DoubleTakeTM is patent pending, has won multiple awards, and is expected to be a strong competitor to Go Pro Inc’s (NASDAQ: GPRO) suite of products. DoubleTakeTM utilizes an advanced image processor, boasts the latest generation image sensors, has numerous digital features and high-resolution panning. The global market value of action cameras in 2018 was US$4.47 billion and is expected to grow to US$10.25 billion by 2026 – a CAGR of 11% (Source: Statista).

➢ Mobile Lens is expected to be a lens system which would allow smartphone devices to

capture higher quality images. According to the company, third-party validation was completed by Optikos Corporation (a provider of innovative applications of optical technology) in 2018. Testing showed 35% better resolution than smartphone lenses in the market at that time. Given the short product life cycle of smartphones, we deem it unlikely that the preceding statement still holds true in today’s smartphone lens market.

➢ NexOptic’s management team and board of directors is comprised of highly experienced

technology veterans. Mr. Geruson, Chairman of NexOptic, has held CEO positions at Lexmark International, Phoenix Technologies and VoiceSignal Technologies.

YTD 12m

Return 10.26% -36.76%

TSXV -2.51% -6.04%

52 Week Range $0.29 - $0.68

Shares O/S 135,924,298

Market Cap. $58.45 million

Current Yield N/A

P/E (forward) N/A

P/B 1.27x

Sid Rajeev, B.Tech, CFA, MBA Head of Research Colin Tang, B.Com Equity Research Analyst

February 20, 2020

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Equity Research – Introductory Note of 12


Developing and commercializing its existing IP in the AI

and optical/lens space

Management team included a former

Chief Technologist of NASA

DoubleTakeTM commercialization

late Q1-2020 / early Q2-2020

Company Overview NexOptic Technology Corp. is a technology company focused on developing and commercializing its intellectual property (“IP”) in the artificial intelligence (“AI”) and optical/lens space. NexOptic was incorporated in 2007, and initially operated as a mining exploration company. On February 19, 2016, with the company’s decision to acquire Spectrum Optix Inc. (a private company involved in the development of lens and image capture-based systems), the company shifted business focus towards the optical and lens technologies side. In 2018, NexOptic began developing AI software aimed at reducing image noise and motion blur in low-light environments. NexOptic’s board included a former Chief Technologist of NASA (Bobby Braun), who recently (December 2019) left the company to join the executive leadership team of NASA’s Jet Propulsion Laboratory in California. As we will outline in the management section of our report, the current executive team, and board of NexOptic, features highly experienced technology veterans. The company is currently in the process of commercializing three different products: (1) DoubleTakeTM, (2) ALLISTM, and (3) Mobile Lens.

Source: Company

The following table illustrates the expected commercialization date and strategy for each of the products mentioned above.

Product Expected

Commercialization Date Expected

Commercialization Strategy

ALLISTM Undisclosed Licensing DoubleTakeTM Late Q1-2020 / Early Q2-2020 Product Sales Mobile Lens Undisclosed Licensing

Source: Company, FRC



ALLISTM provides instantaneous low-

light imaging

The global low-light imaging market is

expected to grow at a CAGR of 13%

Each product is introduced below. A deep dive will be provided in our initiating report.

ALLISTM ALLISTM (“Advanced Low Light Imaging Solution”) is a patent-pending machine learning AI system. At a high level, ALLISTM is a software solution that can be incorporated into small imaging devices such as smartphones, IoT devices, automotive platforms, medical imaging, and smart security cameras, to provide instantaneous low-light imaging. ALLISTM has a strong application in areas that are affected by imaging noise, such as: facial recognition, object detection and collision avoidance, and focus and exposure control. The following depicts the image quality of ALLISTM in a low-light situation compared to the same image taken through another camera (the specific camera used was not publicly disclosed).

ALLISTM Camera Output

Source: Company

For several cameras and smartphones in the market today, capturing high-quality colour images under low light conditions is a challenging problem. Although this is more of a problem for commodity cameras/smartphones than high-quality cameras/smartphones, the increasing demand for high-quality imaging in low-light situations is expected to result in a meaningful target market for ALLISTM. The company has indicated that they plan to license ALLISTM out to verticals that rely on camera technology. At the moment, the commercialization date of ALLISTM is uncertain. According to MarketsandMarkets, increasing penetration of low-light image sensing technology in smartphones, medical devices, automotive systems, and other associated products, are expected to grow the global low-light imaging market from an estimated US$10 billion in 2019, to US$18.4 billion by 2024 – a CAGR of 13%.



The key technology of DoubleTakeTM is patent pending and features a cutting-

edge dual lens design

Go Pro is expected to be the closest

competitor to DoubleTakeTM

DoubleTakeTM DoubleTakeTM resembles a significant modernization to standard binoculars in the market. The product design was developed through a collaboration with Synapse Product Development (“Synapse”) and NewDealDesign.

• Synapse: A leading product development firm, with globally recognized clients such as Uber Technologies Inc. (NYSE: UBER), Nike Inc. (NYSE: NKE) and Target Corp. (NYSE: TGT).

• NewDealDesign: A leading technology design consultancy firm with extensive accolades and projects, including the design of the entire line of Fitbit Fitness Trackers from Fitbit Inc. (NYSE: FIT).

Although developed through a collaboration, NexOptic retains full interest of DoubleTakeTM. The product design of DoubleTakeTM is provided below.

DoubleTakeTM Product Design

Source: Company

The key technology of DoubleTakeTM is patent pending and features a cutting-edge dual lens design that allows for 10x optical magnification and the capture of images and videos at 4K quality. DoubleTakeTM utilizes a quad-core Ambarella H22 image processor, boasts the latest generation Sony (TYO: 6758) image sensors, has numerous digital features and high-resolution panning. The table below, provided by the company, shows a comparison of select DoubleTakeTM functionalities to competing products. As illustrated below, we believe the products of Go Pro are the closest competitor to DoubleTakeTM.

Functionality DoubleTakeTM Binoculars Cell Phone DSLR

Camera Go Pro

Ruggedized Yes Yes Some Some Yes Water resistant Yes Some Some Some Yes

Light weight Yes No Yes Some Yes Video recording Yes No Yes Yes Yes

Stabilization Yes No Yes Yes Yes Auto focus Yes No Yes Yes Yes

Long range perf. video Yes Yes No Yes No Low light perf. video Yes No No Some No Tri-pod mountable Yes No No Yes No

GPS tracking Yes No Yes Some Yes




DoubleTakeTM has

received multiple industry awards

The following shows images taken by DoubleTakeTM versus a current leading smartphone (the specific smartphone used was not publicly disclosed). We have confirmed that the smartphone used for the basis of comparison is popular and newly released.

DoubleTakeTM Leading Smartphone

Source: Company

We note that an image comparison between the DoubleTakeTM versus a smartphone may not be an apples-to-apples comparison. The primary use of smartphones (to text, email, browse the internet, etc.) differs from the primary use of DoubleTakeTM. Nonetheless, we believe that the image quality of DoubleTakeTM is impressive. A comprehensive comparison of the DoubleTakeTM to other similarly priced cameras and Go Pro products will be provided in our initiating report. With the large number of functions that DoubleTakeTM has, and the imaging quality advantage over leading smartphones, DoubleTakeTM has received multiple industry awards:

• Winner of Digital Trends’ “Best of Photography” at CES 2019,

• “Best in Show 2019” Winter Gear Award by GearJunkie,

• 2019 Gold Edison Award for Advanced Image Capture.



Designed for the

outdoor recreation market

The global market

value of action cameras is expected

to grow at a CAGR of 11%

DoubleTakeTM is designed for the outdoor recreation market, with management noting that many of the product features took inspiration from feedback by avid outdoor enthusiasts, photographers, and live concert goers. As we have previously outlined, we believe products of Go Pro are the closest comparable to DoubleTakeTM. GoPro’s share price and its products are notorious in the market for having experienced steep declines despite initial popularity, with concerns about GoPro’s ability to keep its hardware relevant, especially against competitive offerings by other companies and the growing use of smartphones as a substitute for cameras.

Go Pro 5-Year Share Price Performance

Source: Google

Despite GoPro’s fall from grace, we do not see their poor performance over the past few years as representative of the entire action camera/ recreational optics space. As demonstrated below, the action camera space is still a high-growth market, based on third-party analysis. According to Statista, the global market value of action cameras in 2018 was US$4.47 billion and is expected to grow to US$10.25 billion by 2026 – a CAGR of 11%.

Global Action Camera Market Value (US$)

Source: Statista

Through our research, the primary drivers of growth in the action camera market are expected to come from the increasing use of smart gadgets and the growing trend of sharing content on social networking websites.



Mobile Lens to increase the image

quality of smartphone lens

The path to commercialization

and the value of Mobile Lens is

currently not well established

Mobile Lens Given the uncertainty of the path to commercialization for Mobile Lens, our discussion on this product will be brief. Mobile Lens is expected to be a telephoto lens system which would allow smartphone devices to capture higher quality images. The technology of Mobile Lens is patent pending. According to the company, third-party validation was completed by Optikos Corporation (a provider of innovative applications of optical technology) in 2018. Testing showed 35% better resolution than smartphone lens in the market at that time. Given the short product life cycle of smartphones, we deem it unlikely that the preceding statement still holds true in today’s smartphone lens market.

NexOptic’s Proposed Mobile Lens

Source: Company

According to Growth from Knowledge (a market research firm), global smartphone sales were US$522 billion in 2018. If NexOptic were to partner with a major smartphone company through licensing out its Mobile Lens technology, the revenue potential would be tremendous. With that said, as we have stated, we believe the path to commercialization and the value of Mobile Lens is not well established. Next, we provide a discussion on management and the board of directors.



Four members, three

of whom are independent

39% of the common shares outstanding

are insider controlled

Management Overview The company’s board of directors consist of four members, three of whom are independent. The company has stated that approximately 39% of the common shares outstanding are insider controlled.

Individual Position Rich Geruson Chairman Paul McKenzie CEO, Director Samantha Shorter CFO Stephen Petranek Independent Director Arch Meredith Independent Director Kevin Gordon VP of AI Technologies


As outlined through the biographies of management and board members provided below, NexOptic features highly experienced technology veterans. Rich Geruson — Chairman Rich Geruson’s experience spans CEO roles at Lexmark International, Phoenix Technologies and VoiceSignal Technologies as well as Senior Vice President positions at Nokia, IBM, Toshiba and McKinsey & Co. As CEO of Lexmark, a multibillion-dollar imaging technology and solutions company with 10,000 employees, he grew printer sales faster than at any time in the last 10 years while simultaneously executing extensive process reengineering, transforming the business from negative EBITDA and high debt to positive multi-hundred-million-dollar EBITDA and a healthy debt profile. As CEO of Phoenix Technologies, he achieved consistently high profit year-over-year for six years straight in the company’s business of firmware and software for PCs, tablets and embedded internet of things (IoT) devices. As CEO of VoiceSignal Technologies, Geruson pioneered voice recognition software for mobile phones, resulting in an increase in shareholder value of over 10-fold and culminating in the sale of the company for 12 times its revenue. At Nokia, he propelled the business from fifth-place market share to first-place in the US, and first-place in the world for the first time in its history, catapulting the stock price to more than a sevenfold increase in under three years. He served on numerous public and private boards across three continents and holds graduate degrees from Oxford University, including a D.Phil. in economics. While a member of the research faculty at Harvard Business School, he wrote *A Theory of Market Strategy*, a book used in many business schools’ curriculums.



Paul McKenzie — Chief Executive Officer, Director Mr. McKenzie has been instrumental in taking Prostar Geocorp public and also sits on its Board of Directors. Prostar, a SaSS company, enables real-time access to critical and precise location information. Its clients include some of the world’s largest utility and engineering firms and its cloud-based service is beginning to be mandated for use in the United States on a state by state basis. Several of Mr. McKenzie’s previous companies made significant resource discoveries worldwide under his leadership and he has overseen and negotiated joint-venture and alliance partnerships with companies whose market-capitalizations have exceeded $20 billion. To date, Mr. McKenzie has been integral in raising close to US $100 million for his associated companies. He has acted in the capacity of Co-Founder, CEO, CFO, President and/or Director to several successful, publicly traded companies. Samantha Shorter – Chief Financial Officer Ms. Shorter has over a decade of experience in providing reporting, assurance and accounting services to publicly traded companies, including technology companies. She left public practice in 2011, where she acted in the capacity of Audit Manager with a major Canadian accounting firm, and has since taken on a variety of leadership roles. Her depth of governance and accounting knowledge insures effective implementation and oversight for financial reporting, administration and internal controls development and budgeting for NexOptic. Ms. Shorter completed a Bachelor of Commerce with Honours at the University of British Columbia. She is a Chartered Professional Accountant (CPA,CA) and Certified Internal Auditor. Stephen Petranek — Independent Director Stephen Petranek is a widely-recognized technology futurist and award-winning author, and is the former editor-in-chief of several respected scientific and financial publications. He is also the Co-Executive Producer of the National Geographic mini-series “MARS”, which is based on, and inspired by, his book, “How We’ll Live on Mars,” published by Simon and Shuster and the TED Conferences. Petranek’s critically acclaimed book was partly a result of extensive conversations and interviews with Elon Musk, CEO of Space-X, and senior management and leading scientists at NASA. Petranek is the former editor-in-chief of the world’s largest scientific magazine, Discover, and was the senior editor for sciences at Life Magazine. Earlier in his career, he was the editor of The Washington Post’s magazine and editor-in-chief of The Miami Herald’s Sunday magazine. He is also a recipient of the prestigious John Hancock Award for Business and Financial Writing, considered by many to be the Pulitzer of financial writing. Arch Meredith — Independent Director Arch Meredith is Managing Partner of Kite Hill Capital, a private venture capital firm, which has been a pre-IPO and early investor in various companies in the



Company to start

generating revenue late Q1-2020 / early

Q2-2020

technology sector, including, among others, Tesla Inc. and Uber Technologies Inc. He is Co-Founder, former President and Chief Financial Officer of the Chroma Group, Inc. which developed patented technologies for pattern recognition and visualization. He also managed Chroma’s equity interests in its subsidiaries, including Quantitative Imaging (enabling virtual colonoscopies) and Vicus Therapeutics, which is currently completing phase III clinical trials on a neuro-immune modulator for the treatment of cancer. He also oversaw investments in Chroma’s subsidiary, Chroma Oil & Gas, and oversaw its acquisition by ACON. He remains a director of Vicus. He is also Founder and CEO of TeleTix, until Transamerica acquired it. He received his B.A. degree from Stanford University and his M.B.A. from the Stanford Graduate School of Business. Kevin Gordon – VP of AI Technologies Mr. Gordon studied computing science at the University of Alberta specializing in computer vision, and worked in the Department of Computing Science’s computer vision and robotics lab. His previous research focused on real-time video and image analysis of fluids as part of an NSERC collaborative research and development grant. Mr. Gordon also has a background as an industrial instrumentation and controls specialist with more than 8 years industry experience fulfilling roles in execution, procedure development, and quality assurance. Mr. Gordon joined the NexOptic team in August 2018 to assist in the development of AI software solutions for the company’s DoubleTake project. His current work now focuses on the development of cutting-edge software solutions to common industry problems, providing technical engagement with customers, and executing AI solutions for internal and external partners. Below, we discuss company financials.

Financials NexOptic is currently in pre-revenue stage. We expect the company to start generating revenue late Q1-2020 / early Q2-2020. The manufacturing location of DoubleTakeTM is undisclosed. If DoubleTakeTM is to be manufactured in China, we have voiced our concerns to management on the potential impact that the coronavirus may have on the company’s supply chain. Management has indicated that they do not expect the coronavirus to materially disrupt their supply chain and that they are on schedule to commence sales by their stated date. At the end of Q3-2019, the company reported a cash position of $1.30 million, working capital of $0.63 million, and a current ratio of 1.72x. NexOptic currently has no debt on its books. Over the years, the company’s liquidity position has deteriorated – the company may need to conduct a capital raise in the near future.



1.90 million options are in the money


Stock Options and Warrants: We believe the company has 9.82 million stock options (weighted average exercise price of $0.95) and 17.66 million warrants (weighted average exercise price of $0.68) outstanding. Currently, 1.90 million options and nil warrants are in the money. The company will be able to raise up to $0.42 million if all the in the money options are exercised.

We expect to initiate coverage on NexOptic shortly.



Fundamental Research Corp. Equity Rating Scale: Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by NXO to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, NXO has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated. 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