2001 Annual Report
Letter To the Shareholders
We had anticipated that 2001 would be a year of recovery from 2000, which had been adversely impacted by the Aicello patent lawsuit and the bankruptcy of our European distributor.Instead,we were confronted with a serious recession in the electronics area of our domestic screen print business that severely cut into sales of our higher margin film products.Also, the reintroduction of products withdrawn from the market in 2000, because of the patent litigation, did not happen as fast as we had projected.Sales grew slightly in 2001 due to a full year of Nichols sales and a ramping-up of Slee glass sales.However,growth of these lower margin products did not offset the decline of film sales and we reported a loss for the year.
This loss included a $197,000 writedown of goodwill associated with the purchase of Nichols and Associates in June of 2000. Because of the recession, Nichols sales were not meeting projections and, under accounting rules, we had to writedown the goodwill. This was not a cash expense and had no negative impact on our financial strength.
For the year, sales grew by 4% to $10,752,133. However, for the reasons stated above, we posted a loss of $0.16 per share, as compared to net income of $0.20 per share in 2000. Cash flow was positive for the year and our balance sheet remains very strong.
Although we are starting to see a rebound in the domestic screen printing industry, it is clear that we can not depend solely on the traditional photostencil products we have been selling to this market for our future growth.We are meeting this challenge in several ways:
1. We are introducing new products into the screen print market.These include software, electronic measuring devices, inkjet receptive media as well as state-of – the-art photo stencil and chemical products.
2. We are focusing on the Asian market where screen printing is a growing industry. We recently signed a new agreement with the largest screen print supply distributor in China, and we believe a significant increase in sales may result.
3. We are planning to achieve a substantial increase in sales in our abrasive etching markets, where we sell the PhotoBrasive line of products. New products and an aggressive effort to expand our customer base will help to drive growth in North America. Our new distribution agreement with the Aicello Corporation is expanding our access to the European market.
4. Late in 2001 we created a new marketing division called SplitRock Technologies to sell our technologies into new markets.Although we are on the front end of the sales cycle, we are working on some potentially large accounts.
5. We have recently introduced EtchEZ, a photochemical film for acid etching on glass.This product complements our PhotoBrasive Systems photo resist films for abrasive etching and opens up new market opportunities.
These new efforts tie either to our technological or our distribution strengths. We seek to broaden our base by capitalizing on our existing capabilities. I expect that 2002 will be a better year both financially and in strengthening the business foundation of the company.
For the Board of Directors, William C. Ulland Chairman,
President and CEO