CEO COMMENTS

Joonhee Won

Chief Executive Officer

Email ir@anoto.com

Joonhee  Won

04 SEPTEMBER 2017

Game Changers

In my opinion, we had two critical weaknesses at Anoto. First, one of the most critical components in our digital pens, the optical module (DotPos), was owned by LeapFrog and we were dependent on their goodwill for the supply. Second, Anoto never had a pen that was affordable enough to achieve real volume. Our manufacturing costs were simply too high.

Today is Independence Day. We are free from the tyranny of these weaknesses.

As announced this morning, Anoto now has a stable DotPos supply and the right to a perpetual, royalty-free DotPos license. Weakness one eliminated.

As evidenced by the sizeable deal announced last week, Anoto now has an affordable pen that can support serious growth. Weakness two eliminated.

I gave this pen the code name "Ultimate Pen" and I believe it is as important as the name suggests. The early market response indicates I’m almost certainly right.

It feels like we’ve just added David De Gea as our goalkeeper and Lionel Messi as our striker. Now it’s time to score more goals and win the game!


31 AUGUST 2017

Digital pen business benefiting from synergies with Anoto DNA

Pleasant surprise. As we’re marketing Anoto DNA (ADNA), one unexpected side benefit is that it enables us to introduce our digital pens and microdot pattern in a new light. In fact, customers often want to adopt Anoto pens and pattern even before they fully rollout ADNA.

It turns out everybody is benefiting from some real-life classic upselling and cross-selling! I see the potential for a major uplift in digital pen and recurring software revenue in the forms business with the pull factor being the presence of ADNA.

For example, our ADNA partner in Korea, SMark, is now selling digital pens to big corporate customers and, as just announced, we’ve already received an order from them with an estimated total value of over USD 4 million. That’s a lot of pens and software licenses! Not bad for the very first formal order for the new Anoto pen I’ve been talking about! This pen business is now expected to generate ADNA business, forming a powerful virtual circle for all involved.

Our forms business really seems to be enjoying a renaissance. The new low-cost Anoto pen gives our customers the benefit of reasonable upfront capital expenditures while delivering growth for Anoto that includes recurring software revenue.

If I can be permitted to mix metaphors with some abandon, we now have multiple weapons in the armory and it's beginning to look like Christmas!

Another score for Anoto.


02 AUGUST 2017

Anoto posts Operational Profit in Q2 and plans a reverse split of its shares

I might be wrong but as far as I remember, Anoto has never had a profitable quarter in the last seven years that I’ve been involved with the company. We may have had a profitable quarter through one-time technology licensing deals but not from regular operations.

All the restructuring efforts have finally paid off and Anoto made a modest profit in the second quarter this year. And this was while still paying the salaries of the employees on termination notice periods. We expected profit in Q3 when all the restructuring costs will be finished but improvements in sales combined with the cost reductions to date have resulted in us achieving profitability earlier than anticipated.

Over the last year, I focused on the stability of the company and its operations. Now I am turning my attention to shareholders. I have a fiduciary duty to our shareholders and will try to deliver results for our shareholders now.

I believe the first step in Anoto's shareholder value creation should be to reduce the influence of day traders. Anoto's current stock price is also not favourable to Anoto's customers as it gives the impression of a "penny stock company." We would like to be judged by our fundamentals not short-term swing profit taking of day traders.

As I said before, we were down 0-3. Now I believe it's 1-3 and the momentum is with our team. The game is getting more interesting!

Anoto will convene an EGM to do a 1:30 reverse split of its shares. The purpose of this reverse split is to protect minority shareholders from the day traders and to attract institutional investors to buy shares of the company. The EGM will be held on the 1st of September and the effective date will be sometime mid-September.

Please refer to the press release for details of the reverse split.


13 JULY 2017

A coach's role in team performance

Why do teams perform so much better with better coaching? Think of Manchester United with Alex Ferguson and both the Chicago Bulls and the LA Lakers with Phil Jackson.

I’m not comparing myself to these legendary coaches but the performance increase here at Anoto is striking now that we have good leadership in place. This leadership involves a few individuals who inspire the entire team to care about spending and to focus on both short- and long-term revenue. We do not live off our dreams anymore. Dreams don't put bread on the table, cash does.

We are launching a new pen in August and the reception at the select previews I’ve given is beyond belief. Our customers and partners have been waiting for such a product and this kind of achievement only comes together with great teamwork. More news on this launch will, of course, start to appear in August in the media, on our site, and on our partners’ sites. My point is that good leadership inspired great team performance resulting in a product our customers seem to consider truly fantastic.

I believe the message of our transformation is getting through to our investors as well. For example, I’m happy to see that subscriptions for our recently announced convertible bond (see below post) have already surpassed 25 million SEK. These people believe in us and will most likely be long-term shareholders as they know the convertible bond has a six month lock-up clause. They are planning to stick with this team for the whole season and probably beyond.

Organizations change and evolve over time. Thankfully, with the help of better coaching, Anoto has spent the past 15 months changing into a highly productive and performance-oriented organization. It is now a completely different company. Our customers and partners have been witnessing the change and now I think our shareholders are beginning to see it as well. Thank you for believing in us.


07 JULY 2017

Why convertible and why now?

As indicated in our 2016 Annual Report and the 2017 Q1 report, we felt that there was a need for additional working capital at some point this year.

Although we’re trying to change, Anoto is still, in many ways, a manufacturing company. We get orders from customers, buy components, manufacture pens, pay factories, and then we get paid at some point after we deliver the pens to customers. This process takes typically three to six months. Therefore, as we get more orders more cash is needed and that cash is tied up for three to six months.

I am improving this situation by motivating customers to pay more upfront and by restructuring our credit terms with manufacturers to time our payments to them with our receipt of money from our customers. Both of these measures, however, take time to implement.

At this point, the more we produce the more cash is tied up. And our production volume is increasing. As far as challenges go, I think this is a very good one to have.

Another reason for the offering is we are starting mass production of a new pen in August. We need to set up manufacturing lines, buy equipment, buy components, and build sufficient inventory. The benefits of this new pen platform will be significant but it is a short-term cash burden.

I chose convertible because I do not want to pay large commissions to securities companies. Private placement is quick and inexpensive. Just my style.

With this offering, I am also providing an opportunity for our shareholders to participate but the law mandates a 100,000 Euro minimum investment in order to avoid the delays and costs associated with filing a prospectus. So this is my best compromise.

We hired Hagberg and Aneborn to handle administrative details and the Euroclear registration. Any questions regarding the bond should be directed to them. Their telephone number in Stockholm is 08 52800024.

Lastly, I am trying hard not to issue any shares which leads to the dilution of existing shareholders. I tried to minimize the effect by doing a small offering but I feel that this is a critical path to future growth. Hopefully this will be our last offering.

Further details and documents on the convertible: Convertible Bonds Offering


30 JUNE 2017

Some post-roundtable thoughts

During the Asian crisis of 1997, a reporter called me for a comment on the Korean government's policy of combining bad banks. I told him that "if you add a bad bank with another bad bank, you don't get a good bank, you get one big bad bank." That was one of the most quoted comments of the year.

Little did I imagine that same thing was happening on the other side of the world in Sweden.

In the past, not many Anoto partners were making money, so I never understood how Anoto's policy of acquiring its money-losing partners would lead to profitability at Anoto.

After I became the CEO of Anoto, I realized that in addition to questionable acquisitions there was a lack of integration resulting in redundant functions and communication failures. We have now fundamentally fixed those problems.

Now our recent changes are rippling out to benefit Anoto partners. We want Anoto partners/distributors to make money. Lots of money. We will provide low cost pens and we have started facilitating the sharing of software and ideas so that our partners can access markets more quickly and easily. This is the purpose of new events such as the Anoto Solutions Roundtable.

The Anoto Solutions Roundtable held this week in Seoul was very productive. In fact, it was much more successful than I anticipated. The format of sharing ideas and solutions among the partners was the key success factor. We learned from each other. We learned about new innovative use cases and shared past mistakes. Partners are now actively working with each other to enjoy rapid geographic expansion and shorter development times. Anoto partners are increasingly seeing each other as collaborators rather than competitors.

We are breaking down silos and partners are now able to sell all Anoto products including Anoto DNA (ADNA). To the delight of many partners, products by Anoto subsidiaries Livescribe and Pen Generations are now available for all uses and, as expected, ADNA was a big hit.

Steve Jobs taught a crucial lesson. It's not functionality that sells products. The very best technology might not be the best selling product. My philosophy is that we need to make Anoto products affordable, desirable, and easy to use. In addition to the essential hardware we are focused on delivering software that is broadly available and easily accessible.

The Anoto partners at the Roundtable saw these changes in Anoto’s thinking and experienced our new transparency. We shared our specific plans and we could feel the genuine excitement of those attending. We got to know more about what partners and customers need and our partners had productive fun!


16 JUNE 2017

Growth through increased collaboration among Anoto’s partners

The first global Anoto Solutions Roundtable is kicking off in Seoul on the 27th of this month. The theme of this invitation-only event is "collaboration without duplication" and we’re all looking forward to a couple of days packed with information sharing. I know this is going to be extremely valuable.

Anoto historically failed to embrace a real networking approach with its partners. Hence, partners developed solutions independently that were only sold in their own regional markets. The opportunity for global growth through partner collaboration was entirely missed. Now we’re changing that.

Through this roundtable, we are offering an opportunity for Anoto partners to meet, share their solutions, show their case studies, and display what I believe are some pretty brilliant ideas. For the overall Anoto community this will mean reduced development time and easier market expansion.

We chose Asia as the location for this first event because this region features some of Anoto’s biggest partners and it offers significant market potential to partners from elsewhere in the world. We are very pleased by how many participants are traveling from Europe and North America to attend this event.

The management of Anoto will be sharing our vision with partners and rolling out our pen and Anoto DNA roadmaps. We are dedicated to better communication and closer cooperation.

Hopefully this event will add much needed synergy and spread market ideas that pave the way for the future success of our partners and the good of our shared customers.

To me, this event symbolises the beginning of the second stage of Anoto's transformation; the growth stage. Starting with this event, I will embark on an "around the world sales tour" to meet customers and partners over the next few months.

Wish us luck!


26 MAY 2017

"Why did we postpone the publication of the 2016 annual report and AGM?"

We postponed the publication of the 2016 Annual Report and the AGM date to June 30, 2017. Some conspiracy advocates will be worried and will spread all types of unsubstantiated rumours. To preempt the speculation, I will proactively address the reason.

There are three reasons for the delay:

  1. Clean break from the past
    We are doing substantial write offs of obsolete inventory, capitalized expenses, goodwill and other historical baggage we carried. With the acquisition of two major businesses, Livescribe and Pen Generations, we needed a closer look at the balance sheet and P&L line items.
  1. We are doing this with fewer people
    Restructuring and the subsequent reduction in labor force also meant that we reduced and streamlined the finance personnel as well. We are working 150% full time with fewer people to finish the audit of 2016 and at the same time, work on the first quarter's results.
  1. Building financial discipline and setting policies
    Whilst we are working on the reporting of fiscal year 2016, we are also in the process of setting up a upgraded management reporting and control system.

Hence we are slow but we are trying to do the right thing.  We are trying to position ourselves for future growth. We will not window dress or try to justify our lack of performance last year. I hope our shareholders will understand our efforts to make a clean break from the past.