State of Smoltek

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