Letter To The Shareholders
A Periodic Update - November 15, 2010
We recently filed our quarterly report on form 10Q with the SEC for the nine months ended September 30, 2010 and it is an ideal time to provide another quarterly update.
Financial Results
Our research revenue was strong for the third quarter, coming in at approximately $950,000. In addition, we ended the quarter with a research revenue backlog of over $4.7 million, insuring that research revenue will continue to remain strong for the foreseeable future. Since we did not have any license revenue in the third quarter, this resulted in a loss from operations of approximately $940,000 for the quarter, and a loss from operations of approximately $935,000 for the nine months ended September 30, 2010. More importantly, as we stated in our 10Q, we still expect to be profitable for the full calendar year of 2010. The agreement that we made public this morning related to the sale and licensing of our electron emission portfolio has insured that will be the case. This profitability marks an important milestone in our history and gives us a strong base for continued growth in 2011.
We ended the quarter with approximately $1.3 million in cash and will generate positive cash flow in the fourth quarter. Our current cash balance, combined with our revenue backlog is enough to last us into 2012, even before considering the many positive events we expect to occur over the next several months. We continue to focus on our goal of achieving and maintaining profitability, which eliminates any need to raise capital to fund operations.
Shareholder meeting
Our shareholder meeting, held October 5, 2010, went well, with larger than normal attendance. There were two presentations during the meeting and both are on our website under the investor information tab.
One of the key points that we addressed during the meeting was the strategic evolution of the business away from electron emission activities over the past few years, and the resulting shift in the revenues. In fact, as one of the slides in the presentation shows, we expect 85% of our revenue in 2011 to come from Nanoelectronics (primarily inks) and Nanomaterials (primarily composites) – two areas that didn’t even exist for us five years ago.
The highlight of the meeting was a presentation by Dr. Sam Kim, our Vice President of Business Development. He provided a detailed presentation on our aluminum inks, one of the several metallic inks that we have developed, and the subject of the recent Phase III commercialization grant in the amount of $1.6 million from the U.S. Department of Energy. His presentation included information on the technology, its benefits, and what it means to the company. I would urge everyone to review his presentation.
During the administrative part of the meeting, all of the Directors were reelected and the proposal to increase our authorized shares passed overwhelmingly. Our third proposal, to ratify the existing equity compensation plan did not receive enough votes for the vote on the proposal to be recognized. Even though it received an overwhelming majority of the votes cast, since not enough votes were cast, the results are discarded.
Patent sale/license
I hope everyone is as excited as I am by the patent sale/license agreement that we made public this morning. As stated in the 8K, we sold 29 patents (11 U.S. and 18 foreign), and licensed (non-exclusively) approximately 150 other patents, all related to electron emission technology, in exchange for a one time up-front payment. This agreement has many positives associated with it, including the following:
- It insures we achieve profitability for 2010
- It greatly improves our financial situation and we believe it makes it likely the auditors will remove their going concern qualification on their audit opinion for 2010
- We now have a much stronger balance sheet and overall financial condition when negotiating with potential partners
- We retain the majority of our electron emission patents, including our key Raman patent, to license to others for any application
Registration Statement
We filed an updated registration statement on Form S-1 on November 9. This is simply a final version of the registration statement filed a few weeks ago. The shares on the registration statement were already able to be sold prior to filing the statement and do not represent a new addition to the float. Filing the registration statement simply streamlines the process for both the shareholder and the company.
2011
We are expecting 2011 to be a breakout year for us, building on the strong base we established in 2010. We expect continued growth in our research revenue, additional upfront payments related to new license agreements, and royalties from product sales. We are also looking forward to having several products in the market place in 2011 that are powered by our technology including those from our sporting goods partner, our inks partner, and others. Our pilot production facility for aluminum inks should begin initial operations in January be fully up to speed by the end of March 2011. While this is only a pilot facility and not intended for commercial quantities, it will greatly expand our ability to provide samples of our entire ink line and allow us to standardize and optimize our processes.
We have currently begun our budgeting process for next year and are setting aside some additional budgets to attend some investor conferences as we begin a conscious effort to spread our story to the investment community. We are very optimistic about the future and look forward to continued growth and profitability.
Sincerely,
Doug Baker
Chief Executive Officer
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, 2009, 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 from our website at . We hereby disclaim any obligation to publicly update the information provided above, including forward-looking statements, to reflect subsequent events or circumstances.