Letter To The Shareholders
A Fundraising Update – February 2010
I wanted to take an opportunity to provide some explanation on the fundraising that we just announced. We intend to raise approximately $2.0 million. As of Friday, February 19, 2010, we have received approximately $1.0 million and are finalizing commitments for the remaining $1.0 million. We expect to have this wrapped up by March 1, 2010. We are raising these funds through convertible notes. These notes are convertible at a fixed price of $0.20 per share, bear interest at a rate of 8% per annum, contain provisions that enable us to force partial conversion at the end of 2010 and 2011, and also allow us to prepay a portion of the notes early in cash. The increase in our stock price last week was encouraging and certainly did not hurt our fundraising process, however the terms were set and the majority of the commitments made when the price of the stock was $0.25 or less.
Nobody likes dilution, but we believe it important to solidify our financial condition at the present time. We believe this additional cash on hand will eliminate the going concern qualification from our financial statements when we file our 10K in early March. It is important to us in our dealings with many of the large multinational companies that are potential partners to have a clean opinion on our financial statements. I can say without a doubt that the going concern qualification that we received on our 2008 financial statements, at a minimum, delayed some contracts that we eventually completed in 2009. We want to eliminate any existing and future concerns that these companies may have in dealing with us related to our financial condition.
Raising this money does not change our expectation of achieving profitability in 2010. We did not raise money simply to fund operating losses. In fact, purely from an operational standpoint, we would not need anywhere near $2.0 million. We intend to finish the year with more cash than we started with, regardless of this fundraising. While we do not intend to significantly increase our expenditure level as a result of this fundraising, the cushion it provides will allow us to take advantage of opportunities and devote resources to high potential situations in a timelier manner.
Some of our Board Members and Officers will participate in this round of fundraising. Despite the fact that their involvement has been planned since the stock price was around $0.20, given the current stock price, we will use a higher conversion price for those officers and directors that participate. Appropriate SEC filings will be made when officers and directors invest.
We continue to be very optimistic about 2010 and look forward to continuing to execute on our plan.
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.