Letter To The Shareholders
A Periodic Update - September 30, 2010
I wanted to take the opportunity to provide another update before our upcoming shareholder meeting. It is largely based on questions submitted by shareholders, the answers to which are woven into the following paragraphs. But first, I wanted to discuss our recent press release related to our Phase III grant from the U.S. Department of Energy in the amount of $1.6 million to commercialize our aluminum inks for use in solar cells.
The significance goes well beyond simply the revenues that we will receive. Phase III grants are targeted at commercialization, and this Phase III grant is the direct result of the excellent work that has been done by the research team in Austin on Phases I and II of the project. It also reflects our increased focus on commercialization, and our efforts to gain greater control over that process through our technology commercialization units discussed in previous letters. This project is an example of the success that we have been able to achieve with only one aspect of one of those units – the technical inks printing solution unit.
We will be providing more detailed information about this application in the near future, but let me give you a synopsis now. As the world searches for alternative sources of energy to fossil fuels, the main barrier with most is cost, and this is true with solar power. Screen printed silicon solar cells are emerging as the leader in the solar power industry, however current methods still result in high costs. Because screen printing using metallic pastes is a contact printing method, it results in wafer breakage and limits how thin the wafer can be made. Non contact printing methods such as ink jet and aerosol jet will allow the wafers to be much thinner. Currently, silicon solar cells are processed with specially formatted aluminum paste for the backside collector contacts and specifically formatted silver paste for the front side emitter contacts. While there are commercially available silver inks, there are no aluminum inks in use today.
The use of metallic inks instead of pastes will result in savings in the materials used, elimination of process steps, and increased efficiency of the cell itself. It is expected that the introduction of metallic inks will easily cut the cost of the silicon solar cells by at least 25% and result in greater collection efficiency. This grant from the DOE will allow us to drastically increase our ability to provide samples and work with potential customers interested in implementing the technology. Currently in our research laboratory, we can only comfortably produce 100 grams of ink per day. This grant will allow us to expand our capacity to a minimum of 5kg per day, and potentially higher by increasing utilization of the facility. When we have customer demand for larger quantities, we will have several options available, including licensing, strategic partnerships, or expansion of our capacity.
In addition to our aluminum inks that are the subject of this latest grant, we are working with other types of metallic inks as well. I am sure that you are all familiar with our copper inks and pastes that have been exclusively licensed to Ishihara Chemical. In addition, we are working with Nickel, Silver, and other types of inks for different applications. These other inks are all available to be licensed, or commercialized in some other way, as our Ishihara license is limited to copper inks and pastes.
Future Outlook
We are making excellent progress in 2010 and still are focusing our efforts towards achieving break-even or better for the year and still believe that there is greater than a 50% chance that will occur. As mentioned in previous letters, it is not possible to achieve breakeven solely based on research revenues. We need to supplement our research revenues with license payments, royalty income, or other sources. Because we did not have any license agreements in the 3rd quarter, we will have a loss for the quarter. However, we anticipate that the 2nd half of the year will look like the first half of the year, where a loss in the first quarter was offset by income in the 2nd quarter.
We are expecting 2011 to be a breakout year for us, as we have several technologies that are in a near-term commercialization phase and we anticipate products to be introduced or additional products developed using these technologies to begin generating royalties over the next 12 months. The two areas with the most activity are nanocomposites and nanoelectronics. In the nanocomposites, area, we expect our sporting goods partner to introduce a product in the first quarter of 2011. In addition, we expect the successful completion of our vinyl ester project, which would also result in product introduction in the first half of 2011. We are also pursuing many other opportunities in the nanocomposites area, including those related to CarbAl™.
Much of our activity in the nanoelectronics area relates to our inks, which I have already addressed in some detail. We expect Ishihara to introduce their copper ink in 2011, which will generate royalties for us. Our long-term research and development pipeline is growing steadily and remains healthy with our current research revenue backlog at approximately $4.5 million. This research pipeline is spread over several key areas and is an important source of future commercialization opportunities.
Investor Relations
We also recently announced the hiring of an Investor Relations firm to assist in raising our profile and communicating our value proposition to investors and other important audiences. We believe that 2010 and 2011 will be pivotal years in the growth of the company and the timing was in line with our transition from an R&D Company to a commercialization company. We will continue to expand our investor outreach efforts over the coming months as additional internal milestones are achieved.
In selecting a firm, we chose one whose strengths match our own and can help raise our profile within the business community and in the sectors where we are focusing on commercialization; this in turn will also support our fundamentals. Our long-term successes will be attributed to our fundamentals and our investor relations team is here to support and communicate our fundamentals to the market.
Succession Plan
As Applied Nanotech enters this commercialization phase, we have addressed the issue of succession planning across our organization. We have a group of highly skilled scientists that work across a variety of areas and have ensured that each instrumental position within the organization has a supporting position that can fill that role at a given time. Further, Austin has a great pool of talented scientists and we have always been able to attract top talent when needed. In the leadership ranks, which would include Dr. Yaniv, Dr. Fink, and myself, there is an overlap of many duties, and we believe that the company has a solid succession plan in place.
Registration Statement
We recently filed an S-1 to register the shares related to the convertible note offering that we did earlier this year. That registration statement was done purely for administrative simplicity for the holders of those notes or shares at the time they will be sold. All shares covered by the registration statement could be sold by the shareholders prior to the registration statement being filed, so this resulted in no new shares becoming available for sale. In fact, this was a preliminary statement and has not yet been declared effective. We will be filing a final registration statement in early October, but once again, it will not result in any new shares being available for sale in the market.
In closing, I wanted to remind everyone of our upcoming shareholder's meeting, the details of which are on our website and in my previous shareholder letter, and to vote your shares, if you have not already done so. I also wanted to thank everyone who submitted questions and would have liked to address all of the questions; however, due to quantity and nature, some questions could not be addressed in this shareholder letter.
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.