Letter To The Shareholders
A Periodic Report - March 2009
Roughly concurrent with the release of this shareholder update letter, the company is filing its 10K Report for 2008. As usual, it contains a wealth of information and if anyone considers it "just a bunch of boiler plate" the company is required to file, I suggest you read more closely.
Shareholder CommunicationsDoug Baker, who is the primary author of the document, has done a wonderful job of articulating the obstacles, challenges, and opportunities faced by the business. I suggest a careful reading, but for those that do not have the time or inclination to plow through what is necessarily a dry structured document, I want to extract some highlights.
Shareholder CommunicationsI believe one of the most telling exhibits of the effort that we have placed on the management of the business is partially repeated below.
Year Ended December 31 |
Net Income (Loss) |
|---|---|
| 2000 | ($9,471,279) |
| 2001 | ($6,047,698) |
| 2002 | ($5,452,890) |
| 2003 | ($4,017,374) |
| 2004 | ($7,139,109) |
| 2005 | ($5,818,816) |
| 2006 | ($6,593,892) |
| 2007 | ($4,256,891) |
| 2008 | ($2,685,867) |
During the tenure of the current management team, we have made astounding progress in putting the business on a firm financial footing. Those that have heard me speak, or visited with me in Austin, have heard me say how important it is for any company to reach profitability and then make that profitability habit forming. As I reported in my last shareholder update presentation, we expect 2009 to be the year when we stop adding to the company's cumulative loss of $109 million and enter the era where red ink is behind us.
As I reported in December, to achieve the goal of being profitable, we need revenue of approximately $7.0 million, higher than the company has ever achieved. We entered 2009 with a revenue backlog of $3.3 million, the majority of which we expect to be billed in 2009. Photoscrub, a key element of our backlog has finally become a billable project, marking the end of a bureaucratic process that is unbelievable to someone who has not experienced it first hand.
We expect to achieve the $7.0 million in revenue required for profitability despite the tough economic times that our worldwide customer base is facing. Our marketing team has been aggressive in pushing new business relationships and we believe we have identified sufficient new opportunities to keep our work force fully applied and billable.
The optimism the management team shares on revenue also applies to cost control. We have continued our multiyear cost cutting program and have been judicious in evaluating new expense streams that are not directly attached to revenue generation. Labor is our number one expense, we have 32 employees, a slight reduction from prior reports. This change represents mostly a change in the administrative structure of our business, not the guts of the development team. We have continued to add and rebalance staff in critical areas and we remain able to attract outstanding team members. Almost every time we have touring investors, I get outstanding feed back about at least one of our employees. The reality is that this team is the most potent force in the worldwide development of nano-technology initiatives. It shows in the number of patents we have pending, having several signed license agreements, and quite frankly being just about the only company in the nano-technology field that is nearing profitability. You should be proud of the team that is doing the work; they ultimately will be the ones who deliver returns to the shareholders.
However, even with the above said, I do not want to mislead anyone by failing to say we are facing major challenges in 2009. Perhaps our auditors said it best in their annual report:
"The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses from operations and negative cash flow from operations. This raises substantial doubt about the Company's ability to continue as a going concern."
With this statement of "going concern" we have joined so many other US companies, who face uncertain futures because of the general inability to forecast revenue or the availability of capital with any degree of precision in these economic times. This lack of certainty drives the audit community to qualify the status of many companies. The company has operated with a "going concern" pronouncement for much of its business life, 2009 will be no different from many of our past years. We do not expect it to have a material impact on our ability to sign new business.
We believe we have taken reasonable steps to position the business, no matter which direction the economy drifts in. As always, I wish I had more cash on hand, but we are sticking to the plan of avoiding additional fund raising which would result in shareholder dilution. To meet this goal we are depending upon our business partners to meet commitments. We believe they intend to but they face the same economic times we do.
The other major challenge for 2009 will be in the upside beyond achieving profitability. I have no transparency into our license holder's ability to successfully introduce new premium grade products in this environment. Consumer demand for a new tennis racket has to be in question and with housing starts at an all time low, the demand for transformers that include our hydrogen sensor is sure to be impacted.
I am always asked "How do I feel about the business". In summary my feelings are unchanged since my December update. The opportunities ahead of us are wonderful; we continue to make progress in all of our research efforts and the management team shares my enthusiasm for the future.
Sincerely,
Thomas F. Bijou
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.