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Håkan Persson

State of Smoltek

What happened with the YAGEO deal? What are the plans for the future? These are two questions that many shareholders and investors are asking themselves. In this blog post, Håkan Persson, CEO of Smoltek, answers these questions.

Dear Share­hold­ers and Investors,

As I walked through the streets of Gothen­burg on the even­ing of March 25, on my way home after a good and pro­duct­ive day at the office, I felt sat­is­fied with the dir­ec­tion Smol­tek was mov­ing: The license and ser­vice agree­ment with YAGEO had been final­ized, and all that remained was for the board of dir­ect­ors of the YAGEO Group to make the form­al decision to sign the deal. The rev­en­ue from the deal would fund Smol­teks con­tin­ued oper­a­tions and expan­sion. And the deal was a shin­ing example of where the strategy we’ve been fol­low­ing since 2019 can take us.

The next morn­ing, everything was shattered by a notice from YAGEO.  Their board had decided not to sign the agree­ment. Not for the time being, anyway.

What had happened? And what does the future hold for Smoltek?

I have to admit that I had no answers to these ques­tions that morn­ing. Ques­tions I know you are still ask­ing today. But now I can answer them, and I will do so here.

Insight into the Smoltek business model

Since its incep­tion in 2005, Smoltek’s mis­sion has been to devel­op tech­niques and pro­cesses for the indus­tri­al pro­duc­tion of car­bon nano­struc­tures, such as car­bon nan­ofibres (CNF) and ver­tic­al graphene (VG), and to devel­op com­mer­cially viable applic­a­tions of this technology.

The busi­ness mod­el from the begin­ning was to gen­er­ate rev­en­ue from roy­al­ties on licenses to use our tech­no­logy and fees for provid­ing our expert­ise. This proved to be a hard sell, how­ever, as poten­tial buy­ers were unwill­ing to take on the risks asso­ci­ated with devel­op­ing the tech­no­logy to the point where it could be used in com­mer­cial products.

So we even­tu­ally real­ized that we needed to get the applic­a­tions much closer to indus­tri­al­iz­a­tion and com­mer­cial­iz­a­tion in order to sell licenses and ser­vices. There­fore, in 2019 we decided on a strategy to cre­ate busi­ness units for dif­fer­ent applic­a­tions. The first was Smol­tek Semi, foun­ded that same year with the ini­tial mis­sion of selling CNF-MIM capa­cit­ors to the semi­con­duct­or industry.

But start­ing with tech­no­logy and look­ing for a mar­ket is like put­ting the cart before the horse. Of course, it should be the oth­er way round. So, when the next busi­ness unit, Smol­tek Innov­a­tion, was formed in 2020, they were tasked with find­ing a mar­ket with a ser­i­ous chal­lenge that our tech­no­logy could solve. They iden­ti­fied the hydro­gen industry, where CNF can reduce the amount of the extremely rare and pre­cious met­al iridi­um required in PEM elec­tro­lyz­ers (and in fuel cells) by 95 per­cent. Soon they changed their name to Smol­tek Hydrogen.

But tak­ing an applic­a­tion, such as Smol­tek Semi’s CNF-MIM capa­cit­ors or Smol­tek Hydrogen’s cell mater­i­al for elec­tro­lyz­ers all the way to com­mer­cial­isa­tion and selling the res­ult dir­ectly to end cus­tom­ers is way out of our com­fort zone. We there­fore real­ized that we needed part­ners to help us co-cre­ate com­mer­cially viable products.

Looking ahead

Smol­teks plan for the future is to con­tin­ue with the over­all strategy, set out in 2019, of identi­fy­ing product-mar­ket fit of our pat­en­ted tech­no­logy, task­ing a busi­ness unit to pur­sue the mar­ket togeth­er with a co-cre­at­ing part­ner. Even­tu­ally, the busi­ness unit will be spun-off, par­tially or in its entirety, or anoth­er solu­tion will be found, such as a joint ven­ture or licensing.

Thus, Smol­tek can be described as a deep tech com­pany that builds a port­fo­lio of applic­a­tion busi­nesses that even­tu­ally are spun off. In essence, Smol­tek is a deep tech incub­at­or or ven­ture studio.

How the suspended agreement affect Smoltek

With all the press releases about tech­no­logy break­throughs, new oppor­tun­it­ies, and fin­an­cial state­ments, it can be easy to miss how the details fit into the big pic­ture. With a myop­ic view of the lost deal with YAGEO, it can be dif­fi­cult to under­stand how the whole is affected. But con­sid­er­ing that Smol­tek is a deep tech incub­at­or, that works with co-cre­ation part­ners to devel­op port­fo­lio com­pan­ies, such as Smol­tek Semi and Smol­tek Hydro­gen, to a point where they can be spun off and sold or launched as stan­dalone com­pan­ies, the implic­a­tions are not as dam­aging as one might think.

First and fore­most, Smoltek’s core busi­ness is not affected by YAGEO’s decision to with­draw from the license and ser­vice agree­ment. Nor is the oth­er port­fo­lio com­pany (Smol­tek Hydro­gen), which is in con­tact with poten­tial part­ners of its own.

Second, Smol­tek Semi is not as affected as one might think. YAGEO is still a co-cre­ation part­ner. For example, as Far­z­an Ghavanini, CTO at Smol­tek, said in the April 25 video inter­view, they will be eval­u­at­ing Smol­tek Semi’s Gen-One batch of CNF-MIM capa­cit­ors, which are expec­ted to be delivered by the end of 2024.

Third and last, since YAGEO has pressed the pause but­ton on the com­mer­cial col­lab­or­a­tion, they no longer have exclus­iv­ity. So we are free to talk to oth­er poten­tial suit­ors of Smol­tek Semi. We are see­ing a lot of interest in our tech­no­logy. CNF-MIM may be the only viable altern­at­ive to today’s sil­ic­on capa­cit­ors, in par­tic­u­lar the deep trench sil­ic­on capa­cit­ors used in lead­ing mobile phones, which are approach­ing their per­form­ance lim­its and are dom­in­ated by a few suppliers.

YAGEO’s reason

Let’s go back to the morn­ing of March 26, 2024. We received the unex­pec­ted and unwel­come notice from YAGEO that they were sus­pend­ing the license and ser­vice agree­ment that both sides had spent so much time and resources negotiating.

What had happened? Was there some­thing in the con­tract they dis­liked? Was there some­thing about our tech­no­logy they did­n’t like?

To our relief, it was neither. The reas­ons for the sus­pen­ded agree­ment are entirely intern­al to YAGEO. It has noth­ing to do with us or our technology.

That’s a relief.

The elephant in the room

Finally, I would like to address the ele­phant in the room: How will Smol­tek fin­ance its con­tin­ued oper­a­tions and growth now that the rev­en­ues from the license and ser­vice agree­ment will not be gen­er­ated as planned?

Rest assured that the Board, the man­age­ment team and I are work­ing hard on this. We will tell you more as soon as we can.

Yours sin­cerely,
Håkan Persson, CEO

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