Letter To The Shareholders
A Periodic Report - April 2007
Another quarter has slipped by and I am honoring my commitment to continue to communicate. For those pressed for time, all you really need to read is that this has been a good news / good news quarter. In my opinion, it has been the best quarter of the company's history. Let me recap and expand on some of the events of the quarter:
1. Financial Results
From a revenue perspective, the quarter was roughly comparable with the total year of 2006; on plan and supported by expenses that were on forecast, except for the unforecastable events of out of pocket legal expenses which are close to plan, but still large.
2. Mitsui
I have talked to many shareholders who want more details on this relationship but in my quest to limit information that we are 100% confident in; all that is really set is Mitsui is paying us for the privilege of being our representatives to potential Japanese headquartered lighting manufacturers. The expected result of this representation is licenses with multiple manufacturers that will have upfront technology transfer fees and royalties based upon sales. These discussions with manufacturers have started and are on-going.
This is probably the ideal time to interject a little bit of my strategic thinking. The company is no longer willing to sell "one-time' or "paid-up" licenses to our IP. All of our future licenses will involve running royalties.
3. Exchange Listing
I feel a significant need to move the company to a "real" exchange that is subject to meaningful regulation. Although the NASDAQ would be an enviable goal, we would have difficulty meeting and maintaining their listing requirements at this time. I believe many of the benefits we are seeking are also available with an American Stock Exchange listing and we are preparing to move in this direction as our fundamentals migrate into the required range.
4. The Legal Battles
Readers of our website are able to keep up with the various filings and motions in the Canon and Keesmann matter. I really have nothing to add, our legal team is performing well, we work together well as a team and we all have common goals of getting these cases to completion.
Of course, we will never know the true result of litigation until it, and potential appeals are over, but we are confident of favorable outcomes and committed to whatever battle is required to achieve the desired results.
5. Fund Raising
Our recent fund raising was really directed at Points 3 and 4 above. This capital raise is much less about immediate funds for operations and more about strengthening our balance sheet. With this complete, we meet the AMEX exchange listing requirements. It also provides comfort to those entering long term relationships with the company, that we have the financial means to deliver on our commitment.
6. Investment Banker Relationship
Our press release really said it all, it is a developing process and I am not going to be providing day-by-day updates. The one addition to our public release that I would like to make is to point out that you should be proud to be associated with a company that can engage a firm like Citi. Investment Banking is an intense fast moving business and the top tier firms like Citi can pick and choose their clients and we are lucky to be among them. Citi is not doing an empirical analysis of our business; this is a combination of an offensive move; Citi can help us find a partner or buyer we may not be aware of and a defensive move, if someone finds us; I want Citi on my side of the table and not across the table from me. They can help us negotiate and communicate on an equal basis with larger players, no matter what the source of the contact.
7. Hydrogen Sensor
We are continuing our sales efforts to find a partner to allow us to complete this critical foundation sensor for our product line. I believe we can reach an agreement in the near future to be paid to complete the development of the core sensor. I hope this will be the model of our standard agreement for sensors where we will transfer the IP to them to allow the manufacture of the sensor for their markets. We would expect to be paid for our efforts in transferring the technology, and of course, would earn on-going royalties from sales.
8. Da ling
I have no bad news to report. They continue their evaluation of the investment decision. I think it is fair to say this is a major decision for them. The pilot plan investment is substantial and actually has to be considered in total with the investment required for a full scale manufacturing plan.
9. Other Work in Progress
Our efforts with our partners and contract development projects, not specifically mentioned above continues on track. In addition, we have added several new small SBIR awards and are achieving stunning progress from our Photoscrub® testing. We have several Phase II SBIP proposals in process and fully expect to be awarded at least the number we projected in this year's budget.
In summary, litigation unfortunately has been the focus of much of my attention for the past four months, but your management team has managed to advance the business on almost every front while dealing with its distraction. We end the quarter larger, financially stronger and with more prospects on the horizon than ever before.
This is a great team, the ANI employees are uniquely competent; Kelley Drye is without equal and now with the addition of Citi as an advisor, I believe we are well positioned on all fronts.
I am sorry to be brief. What I wrote is direct; it is the best information I know and contains no hidden meanings in the choice of words. I promise an update after the legal events of the next few weeks.
Sincerely,
Thomas F. Bijou
Chief Executive Officer
SAFE HARBOR STATEMENT
This press release contains forward-looking statements that involve risks and uncertainties concerning Nano-Proprietary’s 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 Nano-Proprietary’s annual report on Form 10-K for the fiscal year ended December 31, 2005, and in reports subsequently filed by Nano-Proprietary with the Securities and Exchange Commission ("SEC"). All documents are available through the SEC's Electronic Data Gathering Analysis and Retrieval System (EDGAR). Nano-Proprietary hereby disclaims any obligation to publicly update the information provided above, including forward-looking statements, to reflect subsequent events or circumstances.