Date: May 1, 2002
I have been out of town recently on Company business, and have had little time to prepare this letter. However, some of the following questions have been posed to the Company, and I felt that it would be important to address them.
Some have expressed concern about IAS's ability to move forward. So, I have addressed a few issues that will hopefully give more insight about the company's current direction.
We are pursuing a path to achieve a positive cash flow from our technologies. We have designated which markets will be the quickest for us to penetrate and achieve our objective.
What is the status of the Automated Checkout?
During the progression of our automated checkout lanes we found that in order to complete the true self-service functionality of an entire front-end system that would be most beneficial to both the storeowner and the customer, we needed to develop a way to accept checks and credit cards with positive ID without the need for an employee to take the transaction. In the supermarket industry, approximately 65%-75% of the transactions are paid by check.
We are the only company to achieve this solution. The OrderXcel is a product of this new technology. This patent pending technology is ideal for the restaurant industry. We evaluated the market and found that there are over 858,000 food service operations in the U.S., 215,000 of which are fast food restaurants. When all food service operations are included, the estimated potential market is approximately $45 billion. If fast food is singled out, the potential market is an estimated $11 billion.
This is vastly greater than the supermarket express lane market, which our competitors target. There are only approximately 33,000 supermarkets in the U.S. that have more than eight check out lanes. Stores of this size are the only locations feasible for an automated express lane. By their own estimation, this market is worth $3 billion.
Our automated checkout lanes are designed for stores of all shapes and sizes because we had an entire store solution in mind. We also wanted to develop a product that facilitates a supermarket of the future where stores can locate in areas that traditionally cannot support a supermarket. Every IAS Automated Checkout Lane can be self-service, full-service or express. This ability expands the potential market from only 33,000 stores to approximately 140,000.
Where does U-Check stand?
In order for U-Check to expand on a large scale, we found that the payment module needed to be complete and fully integrated into the existing system. Also, we needed to part ways with our former wholesale supplier who services only six states and requires all of its associates to manually order their products by hand or over the phone. We have not closed the store, but we have let inventory sell down preceding this transition. If we decide to close the store it will only be temporary for the purpose of making a few final design changes to the front-end system, including implementation of the latest payment module, and to replenish the inventory with the help of a nationwide wholesale supplier.
The future development of U-Check stores, including the contract with Schematics, is still on the agenda. The contract with Schematics still exists and we intend on making important headway on this project and other projects involving the automated checkout lanes. We will also be selling automated checkout lanes to existing stores.
Is there a way to get an income now?
On a large scale, we are working to wrap up some big projects that are designed to bring in up-front capital. These projects will include IAS technologies such as the Automated Fingerprint Identification Machine, and the DWM. However, large projects involve red tape and can have an unpredictable time frame.
The OrderXcel and the Propulsion Turbine for home, business or community mini power plants are two very large markets we are beginning to penetrate right now. Many of these potential clients do not need to pass through layers of bureaucracy to make a decision.
How hard will this be to achieve?
Right now we have people generating prospects for both technologies. Having purchased only a couple of small classified ads for the home solar power unit, we have received a number of leads. Due to having so many inquiries, we are restructuring the way we deal with these leads so we can more promptly handle each request.
Some shareholders have expressed concern about the Company collecting leads for the home power unit prematurely. First, every component of the home unit is proven technology. Our turbine makes the project cheaper and unique, and we have spent over a year testing it. We have spent months aligning ourselves with industry professionals who will be manufacturing various components. Within approximately 60-90 days of a purchase we can deliver virtually any number of 10KW home units.
For approximately $45,000 a person can purchase a 10KW home solar power unit today. This includes a pure sine wave inverter, battery backup for nighttime, and nighttime thermal heat storage. It also includes an attachment that burns natural gas or propane to produce electricity and heat during extended days of bad weather that go beyond the system's normal backup. For an additional $5,000 an individual can have an attachment that will burn solid fuels such as coal, wood, biomass, etc. to produce electricity and heat. For a nominal price the thermal storage and battery backup can be upsized to fulfill a similar need.
The above price reflects only a single unit ordered and submitted to our manufacturing contractors. This price will come down considerably as greater numbers of orders are placed at once.
Not only does IAS's home power unit produce electricity (4-5 times more than a typical home needs), but it gives off excess heat which can be used for heating a home, green house, pool, etc., or the excess heat can be used to cool a home during the summer using a heat absorption process similar to the role of a compressor producing heat for a typical air conditioner.
As mentioned previously, there are approximately 22 million rural homes in the U.S. This potential market is estimated by the Company to be nearly $900 billion. A number of homes in rural areas can spend between $20,000-$40,000 just to get a power line to their house. After which, they still need to pay for the electricity. Similar problems can arise with natural gas lines. Many times a line is not even available. These homes must be heated by expensive propane.
Photovoltaic (PV) solar panels are a good technology. However, a high quality 10KW PV system with tracking systems, inverter and battery backup can cost as much as $80,000-$100,000. This does not give excess heat for heating or cooling the home or heat sink for nighttime power.
Some have projected that thin film PV panels will reach nearly $3 per watt in the future. This equates to $30,000 for just the panels alone on a 10KW system. With the addition of tracking systems, the inverter and battery backup it would likely cost up to $45,000-$55,000 ($4.50-$5.50 per watt). Thin film PV panels have an estimated life span of only 10 years. Even if someday the price is able to get this low, this system does not produce excess heat in addition to electricity and would possibly have to be replaced by the time or even before it is paid off.
IAS's price of $4.50 per watt is today's price in single unit volume. Our manufacturing process will continue to get cheaper and cheaper. While PV has its place, it is most likely that metal will always be cheaper and more durable than silicon.
A few shareholders have expressed concern about the need for us to get all of the components put together into a single unit to show. We agree that this will be very beneficial. But, by placing a couple of small ads to generate leads, we have received a whole list of potential clients. Some are interested in purchasing a unit at a discount to be one of the first to have one.
We have also been discussing with groups and charitable organizations about starting a fund to help put one of IAS's home units together immediately for a family or small community in need. We have discussed this project with State officials who work in the area of poverty-stricken families and communities. Several locations have been identified. More details will be given about this project as it develops.
There are a number of communities and cities we have met with that have expressed an interest in IAS's solar power to save money on electricity. Additionally, most States and the Federal Government have tax incentives that make these projects even more appealing to cities.
We are beginning to get commitments from interested individuals and organizations even without the components together in a single unit. However, (watch out critics) the first units are rapidly coming together. If it starts to sell now, with the little amount of exposure we have afforded, how much faster will it sell once one is installed and we introduce a high-profile marketing campaign?
As for the OrderXcel: Will the quality of labor in the fast food industry improve over the next few years? Will wages go down? Wages have consistently increased and they will continue to increase. The quality of labor, employee retention and the cost of training are critical issues in the fast food industry.
The OrderXcel resolves most of these issues and many more. It takes away the headache of counting out a counterperson's cash drawer at the end of every shift. It reduces employee theft (some fast-food companies have estimated losing approximately $10,000 per year per store from employee theft). And, the system allows customers to get their food faster and with accuracy. The OrderXcel simplifies the overall front-end process; saves time for both the restaurant owner and customer; and best of all- it can pay for itself within 18-24 months just by the labor savings. We already have a few sales people generating prospects.
What about Company stability?
Any company in our situation has volatility. It is impossible for us to predict the future. However, we are extremely encouraged by circumstances that set us apart from a number of other small public companies: In comparison, we have very little debt; we have a relatively small trading float; and we need very few sales to stabilize the company.
This was not easy to achieve. Many companies spend tens of millions of dollars and come up with only a fraction of the technology that IAS has. Unfortunately, most go broke. Many suffer this fate because of high overhead and large debt, or because the company had become so diluted that they could not attract private capital to fund it in a time of need.
As IAS is now in transition, it is in a situation that we believe is ideal for attracting private capital for funding. Based upon our current and projected operating costs we estimate that it will require only 4-5 sales of the OrderXcel machine per month to become profitable. Using a similar model, IAS needs only 4-5 sales of the home power unit per month.
Most shareholders have been extremely helpful. While a small number have been openly critical or even antagonistic during this time of transition, others have been very generous, professional and supportive. These shareholders have found ways to help the Company by opening doors and introducing us to potential clients and business partners. Some have offered their time and expertise. Others have brought optimism and good will to their friends and fellow shareholders. Thank you!
Note: Statements contained in this letter that are not strictly historical are forward-looking within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are made based upon information available to the company at the time, and the company assumes no obligation to update or revise such forward-looking statements. Editors and investors are cautioned that such forward-looking statements invoke risk and uncertainties that may cause the company's actual results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to, demand for the company's product both domestically and abroad, the company's ability to continue to develop its market, general economic conditions, and other factors that may be more fully described in the company's literature and periodic filings with the Securities and Exchange Commission.