Letter To The Shareholders
A Periodic Report from R. D. (Dan) Burck October 2006
Having been onboard for almost five months now, I am even more excited about our potential as a Company than when I wrote to you in my first letter to shareholders in July. The more that I learn about each of our technologies, the more I am impressed with the intellectual property that we have developed over the years and the solid team of professionals we have here at Nano-Proprietary.
In the past few months I have had the opportunity to meet with many of our strategic partners and have witnessed first hand the tremendous respect that we enjoy throughout the industry. I am looking forward to working closely with each of these partners to assist them in whatever ways possible to enable them to integrate our technology in to their current and future products. The opportunities here are enormous and I assure you that we will all work tirelessly to bring them to fruition. It is becoming clear to me that 2007 will be a break-through year for us, as we anticipate receiving royalties from some of our initial licensing agreements.
A substantial portion of my time has been spent learning more about the Company, our key technologies and communicating with you, the shareholders, both in person and on the phone. I was delighted to see that many of you were able to attend the nanoTx '06 Conference and Expo at the Dallas Convention Center in September. I enjoyed meeting everyone who came to this first significant event in nanotechnology hosted in the State of Texas . I hope that many of you can make plans for next year's conference Oct. 2-4, 2007.
I also appreciate that many of you have taken the time to come visit us in Austin - the time you spent with us, the interest that you have shown in the Company and its dedicated employees, and your continued support is appreciated by us all.
There have been several positive developments since my July letter and I would like to take this opportunity to highlight some of them here.
Shimane Masuda Electronics (SME)
We were able to execute a license agreement with SME last month following the successful completion of their pilot line project in June 2006. The initial product that SME produces will be a lighting device, but they expect to expand to other products after this initial product is introduced. While the initial agreement is relatively small, we anticipate a continuing royalty stream starting in 2007. This will represent one of the first royalty-producing agreements for Nano-Proprietary and is an important milestone for Nano-Proprietary. As more information becomes available in the coming months about the market size for SME's products, we hope to be able to share that with you.
Kelman
We continue to work with Kelman to perfect our hydrogen sensor to their specifications. A Kelman representative was here in Austin On October 17 th for a status review and to discuss the details. Our tests to date have been very positive and we are optimistic that Kelman will have a product using our sensor on the market in 2007.
Nano-Inks
We signed a research agreement with a major Japanese chemical manufacture to develop technical inks. This agreement has importance that goes well beyond the $500,000 that we will receive because it fits squarely into our business model, which is to do funded research in areas where we can apply our intellectual property to specific areas that can be implemented into products to facilitate the introduction of our technology in the marketplace. It is our intention to turn this project into a license agreement upon completion of the research project, similar to the way that the SME process worked, before the end of 2007.
Sporting Goods Manufacturer
We successfully completed our project with the large sporting goods manufacturer on schedule at the end of September. We are very happy with this project and the results. We are now working with them to expand our relationship - either through a license agreement or through continued research. We will keep you updated as things develop in this area.
Government Contracts
We now have been awarded a total of almost $2.8 million in government contracts in 2006, covering a variety of areas, including sensors, Photoscrub, and electron emission activities. We also received two phase I contacts from the Department of Homeland Security. While these initial amounts are not significant, these contracts are important because they are our initial introduction into the Department of Homeland Security. These efforts provide us the opportunity for significant growth in federal contracting as we become more well known. We have been enormously successful in this area. We were successful in securing 84% of every dollar proposed in government contracting this year. To improve even more on this we have retained a professional proposal writer to assist us in the application process. I expect to see additional success in this market as a result of this investment. Success in this area is important because it provides an avenue for us to bring our technologies to the commercialization stage.
Website
As promised in the July letter, our new website is now live and was up in September. We view this as an important communication tool and are grateful to everyone who has given us feedback. We continue to improve it daily as we get feedback and comments. The suggestions that we have been receiving from you are positive and although the website redesign is still very much a "work in progress" it is a vast improvement. Thank you for your comments and your constructive suggestions. Keep them coming!
Other Ongoing Activities
We continue to work on several developing projects. Two of those opportunities that we have already discussed are with Da Ling and Mitsui and we continue to make progress toward an agreement with both of those companies. I hope to report positive news to you on this in the near future. We are also pursuing other opportunities that we will be able to discuss with you at the appropriate time. While I can not make specific commitments as to when agreements will be completed, we are working diligently to move the discussions forward to the formal agreement stage.
NOVUS Partners' patent portfolio continued to expand during the third quarter of 2006. A total of four new U.S. patents were issued and have been added to the Networked Digital Advertising portfolio. The Networked Digital Advertising portfolio also includes the patents recently acquired from EBT. In August, NOVUS Partners hired a new Chief Operating Officer, an intellectual property attorney with extensive experience in patent prosecution, licensing, and enforcement to facilitate the licensing process. NOVUS Partners is currently in discussions with two Fortune 500 companies, and several smaller companies, to license the NDA patent portfolio.
Litigation
Both of our cases continue to progress through the legal system, which can be a slow and frustrating process. We, however, are still very confident that both the Canon and Keesmann litigation will be resolved favorably. We expected a hearing in October on our request for a permanent injunction in the Keesmann case, but it now appears that the hearing will be sometime in November. With the Canon case, we expect our expert witness to complete an assessment of the damages that we sustained as a result of Canon's actions by the end of October. We anticipate being able to provide that information to you sometime after the report is completed and filed with the Court. We will continue to keep you updated on the status of both of these cases in future shareholder communications and will also update them in the litigation section of our website.
Restrictions on disclosure
I have found in my initial months here that one thing that virtually all of our intellectual property has in common is that it involves next generation or emerging technologies. For many of our potential partners or licensees, this generally means some sort of "new" product, or improvement to an existing product or manufacturing process and, for competitive reasons, these partners and licensees are understandably reluctant to provide great detail to the marketplace in advance in order to secure a competitive advantage. In almost every significant agreement that we have signed, we have had to carefully negotiate and define to the satisfaction of these partners and licensees a strict limitation on disclosure of information. I know that you will understand why this is, from their perspective, necessary to secure a competitive marketplace advantage and maximize the profitability of new or improved products incorporating our technology. We will, nevertheless, do the best we can to keep you as up-to-date and informed of these agreements and opportunities as we can, without breaching the agreement and placing our Company in jeopardy.
To that end, I'd like to announce that we have retained new public relations counsel to assist us in our communication efforts. We have retained Michael Warden, a 30-year public relations veteran, to represent Nano-Proprietary and to work with me and the Board in communicating with all of our stakeholders and shareholders in the coming months. Michael is based here in Austin and we all look forward to working with him in the coming year.
I hope this update has been informative and useful to you in bringing you up to date on activities and progress at the Company. Thank you for your continued support and interest in Nano-Proprietary, Inc. Feel free to call me at any time with your questions or concerns.
R.D. (Dan) Burck
Chief Executive Officer
Safe Harbor Statement
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.