California Nanotechnologies ($CNO.V) FINS Review
Q3 2025 (*Upgraded 3.5 / 5 stars)
I downgraded CNO on their Q2 results back in early November to 3.25 stars after awarding them 3.75 earlier in the year. I felt the over 4x run the stock made after their successful Q2 was a case of too fast too soon and the market agreed, sending the stock more than 60% lower from it’s high.
When the stock recently dropped to as low as 75-80 cents it looked like a potential opportunity to consider the stock once again in a potential buy zone.
What do the fundamentals tell us this time around? Is it time to jump back on the CNO bandwagon?
Balance Sheet:
As discussed during my last review the current warrant liability significantly skews both their P&L and balance sheet for the worse. With the warrant liability removed the current ratio looks ok at around 1.8. That consists of $400k in cash, a significantly growing A/R of $1.2M and prepaids of $200k against current liabilities of about $1M due within the next twelve months.
I had some concerns with the company’s A/R two reviews ago, felt better about it last quarter and now some concerns are back with about 40% of their receivables past due, up from 18% from our last glimpse. The good news is the bulk of that is only less than 30 days past due. I haven’t looked at the cash flow statement yet but can already assume that this issue will show some problems there.
CNO is now debt free.
Cash Flow:
Massive improvements within their operational cash flow producing over $2.5M in OCF, almost 13x more than the $200k they generated at this stage last year. This is including a nearly $800k bogey due to the growth and aging issues within their A/R.
They paid off the related party debt to Omni-Lite ahead of schedule to the tune of about $1M, received $350k from warrants and options and utilized over $2M in investments of equipment and leasehold improvements.
Overall their cash position has depleted by more than half from the beginning of the year. If their A/R cleans up by year end, they would be on track to finish the year in a better cash position then they began while utilizing their OCF to pay off debt and make significant investments in growth. All things considered, we’re off to a pretty good start.
Share Capital:
43.7M shares outstanding with 4.4% dilution since the beginning of their fiscal year
2M outstanding warrants, all ITM at 25 cents
5.5M options outstanding, all ITM including the 1.3M granted this year at 83 cents
31% insider ownership, 16% owned by related party Omni-Lite. No insider activity outside of OML peeling off shares ending in the late part of last year
Income Statement:
A very good comparable top line performance in the quarter of $1.8M, a 56% improvement over last years Q3. This brings their YTD revenue up to $5.08M, 116% better than a year ago through nine months.
Margin continues to be very strong also with a 1000 basis point improvement in the quarter to a very attractive 77.1%, and their YTD gross profit is more than 600 bps better than last year at 74.2%
They have had to spend some significant operating expenses to achieve those additional revenues with a 74% increase in additional opex in the quarter and 107% more YTD, so the rate of converting on their expenses have decreased as the year has gone on.
Income from operations is strong at $1.79M through three quarters, nearly 3x better than a year ago.
Sometimes you are the victim of your own success and as a result, experienced a one time $1.5M hit to the P&L from losses on warrants. Unfortunately that takes their net income down to just $155k vs $763k from a year ago.
Overall:
The net income line is a major let down, but I don’t think investors should be punishing the organization for it, and look beyond these one time non cash hits to their profitability.
The company is now debt free so if we remove interest expense and the one time non cash losses due to warrants, extrapolate and convert it to CAD, I get somewhere around $10M in annual revenue with about $3.3M in net income reflecting a much higher profitability business than these financials show. They have a huge opportunity with the ability to blow these net income numbers out of the water in their next fiscal year. I didn’t look to see if these warrants carried an escalation clause but if I were management I would have done this to contain these one time warrant losses within this fiscal year and not have them bleed a little bit into next. With two weeks to go until their year end, this isn’t going to happen.
Based on my numbers above it would then trade at about 4x revenues and 12.5x earnings. Feels very reasonable to me, but we will see how much the market puts weight on the one time items impacting net income.
The revenue concentration with one key customer does present some risk and it is nice to see the company acknowledge that within their press release this morning and discuss efforts to improve their customer diversity. In the interim, that is no doubt a risk that investors have to consider - remember Payfare earlier this year.
The company has made some great investments, and while I’m not able to articulate what the fuck a Spark Plasma Sintering System does, what I can articulate is the opportunity this presents going into their 2026 fiscal year (starting March 1, 2025) if they continue to execute. Upgrade to 3.5 stars.
Full disclosure: I hold no position at time of writing.
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Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.
Thanks wolf appreciate your efforts.. I find many of these successful companies have a bit of a pattern this is a 10 plus year "over the night" 3.75 story. Some companies take time for the market or industry to buy what they are selling. Those who have or are patient have and will be rewarded. I was a share holder own omni lite but may consider again because i love debt free but i don't mind debt if it is allocated properly. I am curious wolf do you think the relationship between omni will continue ?and do you think a buy out may take place by a larger company in the near future. Hopefully nano can find a nice blend of hiring the necessary people to ful fill the orders not sure the skill set or time frame it would require to hire people accordingly.
Didn't get to dig into the financials due to life earlier, so many thanks for the timely review. Really really helpful.