Interim Report January – June 2020

A word from the CEO

Interest in our sensor platform, NanoPlasmonic Sensing (NPS), is growing within industry and academia alike. During the second quarter 2020, Insplorion and a global sensor and technology company agreed to initiate a feasibility study with Insplorion’s battery sensor in the coming fall. The aim is to improve our partner’s existing battery management system with regard to measurement of battery health and state of charge. Such an improvement would lead to faster charging, longer duration of operation and extended lifespan. Our method assesses the battery status by internal measurement, within the chemistry, in contrast to the conventional method where measurements are conducted on the outside, electronically. Our partner, which is active in passenger and heavy-duty vehicles as well as a number of industrial sectors, is making an investment of approximately USD 50,000 in the feasibility study. A battery sensor sub-project which was conducted together with the Swedish research institute RISE within the Smarter Electronic Systems programme was recently concluded successfully. The project aimed to develop more cost-efficient components, and the project's results have already been incorporated in the Insplorion battery platform. In May, Vinnova granted funding of MSEK 1.9 to develop the project further, and the cooperation between Insplorion and RISE is thus extended. The objective is to improve the safety and cost of lithium-ion batteries by increasing their overall efficiency, and this is accomplished through the direct internal measurement of several battery parameters such as lithium-ion concentration and temperature. In addition to Insplorion's and RISE’s expertise, Mid-Sweden University will contribute to the project with expertise in thin protective polymer coatings.

The business opportunities to market Insplorion's instrument were reduced during the second quarter; the COVID-19 outbreak shut down a significant proportion of the world’s universities for much of the period, which undermined the possibilities to close deals. Nevertheless, one deal was finalized. The purchaser was Professor Moshe Herzberg at the Ben-Gurion University of the Negev, in Israel. Professor Herzberg and his research team conduct their work at the Department of Desalination and Water Treatment, and the purchase of an Acoulyte instrument will allow the team to improve their research of hydration and swelling of macromolecules and related areas. As the universities open up again in Europe and the rest of the world, we will gradually look to relaunch the previously planned marketing activities within the instrument business area.

In the air quality sensor business area, new field-test results have strengthened our ongoing customer dialogues. We are working on a broad front with both smaller, local operators and major, global operators within smart cities as well as ventilation. There is a lot of interest, but the processes often require a certain amount of customer adaptation which, by extension, will broaden our offer.

Insplorion’s cooperation with Chalmers University of Technology and PowerCell in the project “Nano-plasmonic ultra-fast H2 sensor for a safe hydrogen economy” intensifies; the objective is to bring the world's fastest hydrogen sensor to market. A fast sensor is of decisive importance to develop safety systems for hydrogen management in all applications. The plan is to be able to showcase a prototype to customers in the fall.

In conclusion, Insplorion is quarter-by-quarter making steady progress towards establishing itself as a company with a single technology – but by no means a company with a single product.  We are focusing our research and development on our proprietary sensor platform NanoPlasmonic Sensing (NPS) which is the basis for three core areas: gas sensors, battery sensors and research instruments. Gradually, as the results come in from sub-projects in all areas, evidence is mounting that our strategy is working. We are now looking forward to the second half of 2020 and the opportunity to consistently sustain our sensory platform effort with academia and industry while growing our business.

Gothenburg, August 26, 2020

Patrik Dahlqvist, CEO

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Financial comments

Business development

The Company's sales within the research instruments business area is characterized by few measuring instruments sold but at high prices per unit. The variation in sales can therefore be high from one quarter to the next, making it difficult to compare quarterly results. Covid-19 has had negative effect on instrument sales during the first half of the year, see also note below. Company’s aim is to grow the instrument business continuously, but sales usually depend on our customers’ availability of funding.

The performance is still negative as development costs have increased. Investments in marketing and customer adaptation in air quality, product development in battery sensor, and strengthening of the organization are the most important reasons for the higher costs, which are in line with plan.

Financial position and liquidity

Cash and cash equivalents amounted to kSEK 19 111 (28 663) as of 30 June. As previously disclosed, the Company will receive MSEK 2,1 from the Eurostar project during the year. In total, the Company will be provided MSEK 5 during the project’s 3 years. For the 3BeLiEVe project, MSEK 1,8 will be received during this year and in total, the company will receive SEK 4,9 million during the project's 2,5 years. These funds will be recognized as revenue as they are generated. At the end of the period, the Group's interest-bearing liabilities totaled kSEK 4 592 (4 753).

Cash flow for the period (1 January – 31 March) amounted to kSEK 980 (22 834), of which cash flow from operating activities amounted to kSEK 2 143 (-3 084). This is mostly attributable to the negative operating result in the amount of kSEK 3 186, which is mitigated by changes in working capital (mostly R&D-contribution received) with a positive impact on cash flow of kSEK 5 284. During the period, the Group has invested kSEK 1 163 (744), mostly attributable to the capitalized development and investments in laboratory equipment. Financing activities contributed kSEK 0 (26 662) (in the corresponding period last year, new shares were issued).

Covid-19

Insplorion follows the developments relating to covid-19 closely.  The personnel’s health and safety is being prioritized and Insplorion complies with all official instructions and guidelines. As of June 30^th, the virus outbreak has had minor impact on the company’s business, with delays in instrument sales being the most prominent effect. However, the virus’ future impact on business and society is creating uncertainty and long-term effects are difficult to assess.

Future development

In research instruments, sales are expected to grow gradually as more and more customer processes reach the phase for internal or external funding. A a consequence of covid-19, it has been difficult to finalize sales during parts of the quarter. During 2020, the nitrogen dioxide sensor is projected to generate revenue as well. The Company intends to continue to seek grant funding at national and EU level for sub-projects characterized by higher degree of technical risk that are in line with the development plan. In addition, this is a way to build cooperation’s with industrial operators and to leverage the funding by shareholders.

Risks and uncertainties

The Group is considered to still be subject to the same risks and uncertainties that are detailed in the 2019 annual report.

Parent Company

The net sales of the parent company for the period 1 April – 31 June amounted to kSEK 750 (1 356), and the profit after net financial items amounted to kSEK -3 416 (-1 942). The parent company’s equity totaled MSEK 22,2, of which MSEK 2,3 restricted.

The share

As of 31 March 2020, the number of shares totaled 9,852,557. The Annual General Meeting held on 16 April 2020 resolved to authorize the Board of Directors to carry out a directed share issue of no more than 20 percent of the Company's total number of shares outstanding at the time of the Board of Directors’s decision to utilize the authorization. If a new issue under the authorization is carried out without deviation from the shareholders' preferential rights, no such restrictions apply, and the issue of new shares is limited only by the stipulations regarding share capital and number of shares in the Articles of Association. Such share issues can be carried out in conjunction with business acquisitions or as a mean to fund future expansion.

The current warrant programmes are:

• Incentive programme TO2018/2020: Pursuant to the AGM’s resolution on 17 April 2018, 120,000 subscription warrants were subscribed by senior executives and staff of the Company. Each warrant corresponds to 1.014 shares, and the number of warrants correspond to approximately 1.2 percent of the Company’s current number of shares. The subscription warrants are offered at market conditions in line with the valuation in accordance with Black & Schole's valuation method. Warrants shall be exercised during the period between 31 June 2019 and 31 December 2020 inclusive. The subscription price for shares subscribed with warrants is SEK 47.3 per share.
• Subscription warrants programme TO1 2018/2023: As part of the funding agreement established in 2018, the financier ESGO and existing shareholders were alloted subscription warrants free of charge. Each subscription warrant entitles the holder to purchase one Insplorion share at a subscription price of SEK 11.50 per share. Warrants for less than SEK 500,000 in total may be exercised at five occasions during the two-week periods that precede the dates 12, 24, 36, 48 and 60 months after the date of registration, which was 5 February 2018. In total, 392,604 warrants have been issued, corresponding to approximately 4.0 percent of the Company’s current number of shares. In February 2020, 71,352 warrants were converted into shares. The remaining number of warrants outstanding is thus 321,252.

Policies for the preparation of the interim report

This report was prepared in accordance with the Swedish Annual Accounts Act and pursuant to the general recommendations of the Swedish Accounting Standards board BFNAR 2012:1 Annual accounts and consolidated (K3). Intangible assets are recognized according to the capitalization model in the general recommendations.

Auditors' review

This report has not been reviewed by the Company’s auditors.

Upcoming financial reports

2020-10-22  Interim report for the third quarter 2020
2021-02-23  Year-end report for the financial year 2020

Presentation of the interim report, Gothenburg, 26 August 2020.

Insplorion AB (publ)
Board of Directors