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