Letter To The Shareholders
A Periodic Report - January 2010
Welcome to 2010. In October, I provided a relatively comprehensive update on the range of our activities. In this letter, I would like to share some information on our 2009 performance, talk about 2010, and expand on our strategies.
Our performance since 2006 in transforming our business has been remarkable and 2009 continues this positive trend. We are making substantial progress on our path to profitability. Our revenue for 2009 will be the highest since 1999, and the second highest revenue amount in the history of the Company. Our net loss for 2009 will be the smallest net loss since we went public in 1993. Our auditors are still reviewing the financials so it is premature to discuss specifics, but I look forward to sharing them with you after we file our 10K in early March.
I am excited to report that our revenues were not dependent on any one technology. They were spread broadly among our various technology platforms. This provides affirmation of our multi-pronged strategy to diversify our revenue base.
Due to our growth and development in 2009, we expect 2010 to be our breakout year. We forecast revenue in 2010 to be a minimum of 50% higher than 2009 and we expect to be profitable for the year. Our revenue backlog is in excess of $3.0 million, and we have a significant number of proposals in process that we are very optimistic will turn into revenue producing projects. Our plan is to have enough revenue in our pipeline by April 30 to insure profitability for the year, so that we have the rest of the year to add to that and increase profitability. From an expense standpoint, we continue to watch our expenses closely and maintain a reserve of two to three months of cash.
To attain this revenue growth for 2010, we have numerous revenue producing opportunities spread across our technology platforms that are composed of short-term, medium-term, and long-term opportunities that include research and development opportunities, potential license agreements, and other venture opportunities. We have several ongoing and anticipated new research agreements with government and industry partners. More and more companies are seeking us out as a result of the technologies we have helped develop.
In the license agreement arena, we currently have three license agreements in place with partners in sporting goods, inks, and hydrogen sensing and we look forward to each of them having products on the market that will generate royalties for us. In addition, we would expect to sign a minimum of two additional agreements in 2010 that generate revenue beyond just the initial royalty payment that we would receive in 2010. In addition, we are actively pursuing other potential agreements that will lead to significant royalties in future years.
Our nanocomposites area is an excellent example of the range of time frames that we are dealing with. As a result of our work with a sporting goods partner, we have developed CNT reinforced epoxies for carbon fiber reinforced polymers and glass fiber reinforced polymers that have a wide range of applications. We are now working with, or have provided samples to, companies for use of these nanocomposites for other sporting goods applications, such as tennis racquets outside of Japan and Taiwan, golf shafts, snowboards, baseball bats, etc., as well as non sporting applications such as wind turbine blades, automotive, aerospace, marine, ballistic protection, and others. Some of these applications could be integrated into existing manufacturing processes very quickly - in weeks or months, while others, such as aerospace applications have a longer product planning cycle.
Building upon our success in the epoxy area, we are expanding into vinyl esters. We believe the advancements we made in reinforced epoxies are easily transferrable to vinyl esthers. The processes are the same and fall within the scope of our existing IP. Vinyl esthers are widely used in industrial applications where the markets are substantial. We intend to further expand the range of applications for our nanocomposites and to focus on applications that can be brought to market quickly. We continue to obtain funding to pay for development of our nanocomposites technology. The recently announced research agreements with our sporting goods partner and the U.S. Army will allow us to continue to improve our composite material, which will open up additional applications.
Substantial activities and opportunities also exist in each of our other technology arenas. Just to mention two examples, we have a demonstrated viable product in our CarbAl™ thermal management material with potential applications in LED displays, semiconductor packaging, solar energy systems, as well as many other areas. In addition, we have proven that our conductive copper ink is effective for a variety of applications and is ready for commercialization. We have printed circuits on paper, including RFID antennas, as well as other substrates. We are sampling the ink at numerous companies. The potential applications are huge and it is only a matter of time until our inks are used in products and begin to generate revenue for us.
A subtle shift in our strategic direction relates to a topic I mentioned in my last update and that is the exploration of establishment of business units as a prologue to venture formations focused on certain high potential products. Our goal with these potential ventures is to participate in the revenue process beyond simply licensing the technology and leaving products to others to manufacture and sell. We continue to have discussions with potential partners and are optimistic that we will establish at least one such relationship in 2010. These ventures, when combined with our ongoing research revenue and traditional royalty agreements will increase our profitability and the overall value of the company.
One of these high potential products is our CarbAl™ thermal management material. Our recent press release related to our collaboration with Arima EcoEnergy is an excellent example of one component of this strategy. We believe that being directly involved in the sales process gives us greater revenue potential and more control than with a straight license agreement. We are thrilled that one of the world leaders in CPV solar technology has chosen us to work with us. Our CarbAl™ material, which won an R&D 100 award in 2009, is a revolutionary material that has the potential to more than double the efficiency of traditional CPV systems.
Our business developments efforts of the past couple of years are beginning to bear fruit and we continue to expand and diversify our efforts. For years, the majority of the commercial interest in our technology has come from Asia - primarily Japan, and our representative in Japan has been a valued asset in helping turn that interest into revenue. Over the past year we have seen an increased level of interest from North American and European companies and we have decided to establish a stronger presence in Europe. As announced in our recent press release, we are pleased to add Martin Schmid to our business development team. We expect him to be instrumental in increasing our revenue from European companies. The contacts and knowledge that he has, particularly in the nanocomposites area, will be invaluable to us in the coming months and years.
Now that we are on the verge of profitability and have tangible results to discuss, we believe the time is right to increase investor awareness of our potential. We are in the process of developing a comprehensive investor relations program for 2010, including outreach to new and current investors through webcasts, regional investor meetings, conferences, and other media. We will begin implementing some of these things as soon as funds become available. We also intend to continue improving our website to provide better and more comprehensive information.
As CEO, I often get asked about what many investors perceive to be a low level of insider ownership. There are strict rules that cover insider purchases and sales. Once an insider buys stock, it is difficult for an insider to sell without announcing planned periodic sales. This results in an almost permanent investment. The majority of officers and directors have purchased stock in the past three or four years and most at substantially higher prices. All officers and directors hold stock, and many hold significant amounts of unexercised options as well. The bulk of compensation for directors comes in the form of restricted stock and options, and options make up a significant portion of compensation for officers as well. We realize the importance to investors of insider participation. Equally important, our officers and directors believe in the future of the company and will continue to support it.
I am excited about the future and the opportunities that lie in front of us. Our team is successfully executing on our business plan and we weathered the economic turmoil of 2009 with one of the best years in our history. 2010 promises to be our best year yet.
Sincerely,
Doug Baker
Safe Harbor Statement
This letter contains forward-looking statements that involve risks and uncertainties concerning our business, products, and financial results. Actual results may differ materially from the results predicted. More information about potential risk factors that could affect our business, products, and financial results are included in our annual report on Form 10-K for the fiscal year ended December 31, 2008, and in reports subsequently filed by us with the Securities and Exchange Commission ("SEC"). All documents are available through the SEC's Electronic Data Gathering Analysis and Retrieval System (EDGAR) at www.sec.gov or on our website, at www.appliednanotech.net. We hereby disclaim any obligation to publicly update the information provided above, including forward-looking statements, to reflect subsequent events or circumstances.