Nanoco Group (LSE:NANO) — Nanoco update and response to EGM requisition

0:00 Good afternoon, and welcome to the NANOCO GROUP PLC update and response to EGM requisition. Throughout this recorded presentation, investors will be in listen only mode. Questions can be submitted at any time by the q and a tab situated at the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company will review your questions submitted today and publish responses to where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to chairman, doctor Christopher Richards. Good afternoon sir. Good afternoon and good afternoon everybody and welcome again to this NANOCO webcast. My name is Chris Richards. As has been mentioned today's meeting is to go through matters set out in the circular and notice of general meeting which was issued last week.

0:46 We're going to go through a presentation but we've also received a large number of questions from shareholders and we'll attempt to answer as many as we can in the spirit of openness and transparency. So if we move to the speakers today, I'll start with myself if I may because this is the first time I've had the privilege of speaking with NANOCO shareholders personally on one of these webcasts. I have a background in operational management in technology driven companies, both large and small, including ten years at the CEO level. And over the last twelve years, I've been chair of a variety of both listed and unlisted companies, including several early stage technology

1:29 companies. Brian? You've also got Brian Tenner here, CEO of NANOCO. As most of you know, I joined NANOCO in August, 2018, in the combined role of Chief Operating Officer and Chief Financial Officer, reflecting my extensive experience with, turnarounds, operations, commercial finance. I've also got fifteen years, experience serving on UK public boards. And in my time at NANOCO I've developed the dot only strategy, developed the current commercial relationships and delivered a halving of our monthly cash burn in the last four years. Thanks Brad. Nigel? Hi, I'm Doctor Nigel Pickett, CTO of NANOCO and one of the co founders of NANOCO.

2:19 I've worked in this area of cluster chemistry and nanoparticles, which obviously include quantum dots, for over thirty years now. I have over 100 academic papers and obviously many patents as well And I've worked with NANOCO for the majority of my working life and enjoyed every minute of it for the last twenty years. Currently I head up the R and D team and try to find the best R and D people out there, which is extremely difficult because they're few and far between and also obviously work on monetising the IP and our intellectual property. Thank you, Nigel.

3:07 So moving on directly, we are recommending that shareholders vote against, the resolutions that are being put forward And we have engaged with a number of institutional shareholders and it is clear that professional investors support the current board and intend to vote against the resolutions. And just as two examples from Harwood, they endorse that we have a clear strategy to build value for all shareholders and their view is that the proposed new directors are not of the experience or caliber that they would expect to see on the board of a UK PLC. And Pinnacle similarly,

3:54 the statement there, its current prospects of NANOCO give us more enthusiasm than we have had at any point in the last three years and that very much, endorses the view of the current board. Changing the team, they say would potentially derail the operational progress that has been building momentum even during the recent Samsung lawsuit. So we would like you to know that professional investors intend to vote against the resolutions. And I have to say from a personal point of view that this whole exercise is a completely unnecessary distraction from the successful management of your company. And we would like to see this come to a successful conclusion on August 14.

4:43 In terms of the agenda for today, the team would like to go through about a few points from the core business to explain why we believe that the business is at such an exciting inflection point. The delivering shareholder value does need an experienced and qualified board. The requisitionists are unfairly attempting to gain control of your company and your cash. It's a backdoor takeover attempt. We are firmly of the belief that we're an exodus of key talent if they succeed and that will undermine our IP. And throughout the requisitionists have presented a false narrative to mislead shareholders. So in our view, there's a lot to lose here. The requisitionist resolutions are simply not in the best interests of shareholders.

5:33 Now we'll go through the presentation and then there will be a fairly lengthy Q and A session at the end. So Brian over to you. Thanks Chris. So, I'll remember to click over my slide. So as Chris said in the agenda, in the introduction, a lot's been done. We've still got a lot to do, but we are at an exciting inflection point for NANOCO. Just to recap, where the company has come from in the last four years or so, back in 2018, we had one sensing product slash customer slash application combination. Our display business was effectively dormant. We had a lack of sector focus and our cash cost base was around 9,200,000.

6:22 And that's why you can see in the heading there that, you know, the company for a number of years going concern was either a partial qualification or an emphasis a matter in audit opinions, etcetera. And fast forward to today, where we're expecting our first commercial production orders by the end of this calendar year, so by December 2023. We're also in, continuing discussions on deeper collaborations and longer collaborations with two key customers, and looking to add to that.

6:53 Excuse me. Our organic commercial business is fully underpinned now by the litigation proceeds, and our core IP has been validated by the Samsung litigation. And we've also started targeting new potential infringers. During those four years, we obviously filed suit against Samsung. We delivered 90,000,000 of net proceeds from the Samsung lawsuit, and we cut our cash cost base down to just over £5,200,000 a year. So a lot achieved, new commercial momentum now being delivered. If I move on to then say a little bit about the markets, most investors will have heard some of this before.

7:42 The top left chart show the forecast growth, and all these forecasts are coming from independent market forecasts, YOOL or YOLAY. Top left shows expected growth in use of sensors in cameras or consumer device use of images. And the one beside it is consumer device for cameras and sensors. And you can see very significant growth forecast between 2022 and 2028 on the sensing markets. On the top right chart, you can see a chart that we shared before about the QDTV market. Again, forecasts here coming from independent forecasts, combination of the TDR and our own estimates based on known information for us.

8:33 The key point in there is that there's going to be a significant expansion in the number of QD TVs, in the display market. And the majority of those TVs are expected to move to cadmium free solutions, which builds on NANOCO's core strength.

8:48 Again, I won't go through the multitude of potential applications there are for sensing. You can see those in the examples on the bottom left. But the key thing is, as already mentioned, by the end of this calendar year, we expect our first commercial production orders. And then the independent forecasts say that mobile devices, I. E. Mobile phones will start using SWIR technology in 2026. And that's when volume demand would increase significantly for NANOCO. I'm just going to hand you over briefly to Nigel who's going to talk a little bit about technology and IP. Thank you Brian. Yes, so this slide kind of sets out what we plan to do going forward. You heard Brian talk about we moved to a dot only strategy about four years ago and I think prior to that we were doing a bit too much, but in the last four years we really had found our feet and it's all about making quantum dots, that's we do.

9:53 So the top line shows where we are with the current material of lead sulphide and what we're working on here is the design of the core inorganic material, scale up because there's no point in having the best dots if you can't scale those up and then the surface chemistry, which is extremely important because you pass that on to the next kind of up supply chain and they have to have something they can work with. And you can see where we are with those materials and where we believe product launch would be quite early or in 2003. But obviously we can't rely on just one material, we want to move to better materials that work a lot more efficiently and have a wider wavelength range. This means they can work in the near IR and SWER, which are extremely important areas going forward in the sensor market. Moving to materials such as indium arsenide and indium antimonite.

10:57 The nice thing about these is the only way you can make these materials on a commercial scale is to use a version of our seeding process, so it really does play into NANOCO's hands kind of thing.

11:13 So if we move to the next slide, this is one that's a little bit about monetising the IP for the display materials, which obviously we've done quite successfully with Samsung. Each case is different though, each company and how they use the dots, where they use the dots are different. It's a little bit you you have to start a new case you could say. So we spoke about the Samsung, which has set a precedent, all of our IP has been validated and the patents all stand. As I say, can anyone else make our or the free five materials such as indium phosphide using different methodologies?

12:00 Again, through this process and have a lot of experts look into our chemistry, we believe it will be extremely difficult, if not impossible, to make this material on a commercial scale without using our seeding process. You see on the right hand side this is a little bit of a heat map of the companies we've currently looked at, who we believe may be infringing our technology and have the means to pay. So you can see down on the bottom left there's a lot of companies but they may not have any kind of money to pay for any licences. The more important ones I would say are up in the top right hand corner and we're now going through a process where we're looking at our patents against their patents, analysis of the products out there in the market and from those two activities, starting to put what's known as claims constructions together against these various companies and then that's obviously followed by some kind of engagement with these companies and again the nice thing is we don't have to seek third party funding, we have funding internally to do this.

13:12 Thank you, Brian. Okay, cheers Nigel. Just moving on then, we've published twice now I believe both in the circular to call the GM for the capital reduction and also in the circular for the GM for the requisitionist proposals about what we plan on doing with Eurocash, with shareholders cash. And our view is the plans we've laid out are putting it to very good use. So on the left hand side, you can see that we've already committed to be returning between 33 and £40,000,000 to shareholders in early twenty twenty four. And that process should start, soon after we receive the second tranche of proceeds, from Samsung.

13:59 Investors will have seen today, our RNS that the high court has indeed approved the capital reduction,

14:07 and now we're just waiting on the final formalities from company's house as they actually have to register the documents that have been sent to them. In terms of how we will return that, capital to shareholders, it could be a special dividend, it could be a tender offer, it could be a share buyback. We will, consult with shareholders, on preferred methods of return, and we'll seek to do that in the most efficient and value supportive way. Then on the right hand side, again, as people are aware, we have said that we do plan on retaining around £20,000,000 in the business. And we've set out a clear investment strategy for what we plan on doing with that money. We're going to use it to fund the organic business. We're going to continue to pursue world leading R and D and particularly in the last three or four years where things have been very lean, and we've had to, not pursue, some interesting avenues, we will in a disciplined way be able to continue to support, leading edge R and D.

15:11 Excuse me. We already have production capacity for commercial contracts, and our intention is to reinforce that, by upgrading, some equipment and some processes, again, in areas where we've had to be very careful with cash in the last three or four years. As Nigel said, we're now able to self finance IP licensing and litigation program, meaning that a bigger share of any future proceeds will stay with NANOCO. We'll also be able to make the company debt free by repaying all of our outstanding debts once we get that second tranche of proceeds from Samsung. And that's critical at a time when we're still consuming cash to be able to be debt free and have our own cash and cash buffer in the business to support us going forward. And I guess a key question that we think is pretty obvious from some of the publications that Mr. Amoudi and the requisition have put out, that it really is very unclear what they plan on doing with shareholders' cash, with your cash.

16:21 Let me just move over the page then in terms of, you know, the significant value opportunities that we see in front of us. As I said, there's a lot that has been done. There's still a lot to do. Final validation is underway for two commercial production materials, and we are expecting an order by the end of twenty twenty three. You've already seen significant forecast growth in our core markets for both sensing and display. We do have active and ongoing discussions aimed at deeper and longer term collaborations with two key customers and looking to add to that. The litigation proceeds do underpin our commercial business and put us on a firm financial footing where we can plan for the future.

17:08 The litigation, as Nigel said, validated our core IP.

17:15 And lastly, we've made that firm commitment to return between 33,000,000 and £40,000,000 or between 6575% of tranche two of net litigation proceeds to shareholders in the first quarter of twenty twenty four. I'll now hand over to Chris to talk a little bit about board, both current board and the nominee board. Thank you, Brian. If we move on to the next slide, please. Running a company like NANOCO as the executives do does require an experienced and professional board to provide support and oversight of the executives.

18:03 And I believe that NANOCO has an exceptionally experienced and effective board. Brian and Nigel have met, I would like to single out that Brian has exceptional experience as a public company director with both financial and legal background as well as strong operational experience. What I've observed with Brian, a remarkable transformation of NANOCO under his leadership. Nigel, always refer to as a rocket scientist. He's a remarkable scientist in many ways who's achieved great things. Liam Gray as the CFO and Company Secretary is a chartered accountant with KPMG. He's been successful in a series of financial roles of increasing seniority.

18:49 He joined us four years ago as financial controller and was appointed two years ago as CFO. On the non executives, I've already introduced myself. Alison Fielding is a remarkable individual. She has twenty years of executive and non executive experience, particularly as COO of the IP group, Ali probably has more experience of early stage technology companies than anyone else in The UK. She's also, as it happens, is a chemist by background her PhD is in chemistry and she follows the technology very closely. And she's a very strong and effective chairman of the remuneration committee.

19:38 Similarly Chris Batterham is a chartered accountant originally with Arthur Andersen and then was the finance director and CFO of various technology companies. So has real hands on operational experience followed by twenty years of non executive experience, in technology companies and Chris is of course the chair of the audit committee. And I can assure you that as a board we have in-depth and robust discussions as a board of independent minded professionals. Let's look then at the individuals proposed to replace this board, by the requisitionists. And I think the single most important point is that none of these individuals have any UK PLC experience.

20:26 And frankly, matters for good governance of the company. Moreover, so far as we can make out, none have experience of running a company at board level. And that is also an important characteristic. They're portrayed as having more experience of the electronics materials sector than the current board but frankly none have direct experience at QDs except Greg Muller and to be clear he worked in QD Vision for three years but left seven years before the launch of their first product. Sadly the company later failed and the IP from QD Vision was bought by Samsung as we know for $65,000,000.

21:13 I do want to single out Greg Muller because he's proposed as the new CEO and he was recently sanctioned by a US court for repeated misconduct despite two court orders. And that leaves in my mind a real question for shareholders with the board as a whole. Is this really the board which you as shareholders want to run NANOCO? Brian, Thanks, Chris. We've used this phrase that the requisitionists are trying unfairly to gain control of your cash. Why are we why are we saying that? We genuinely think this is a backdoor takeover attempt.

21:59 The requisitionists represent five, just over 5% of shareholders. But what their resolutions will do will give complete control of the of NANOCO complete control of your cash without paying any control premium because none has been offered. And as I said, they represent, just over 5% of shareholders at the moment. Reviewing the various incoherent and inconsistent documents that have been, published, by the requisitionists, what we see is an incoherent plan,

22:35 typical of a business school to basically spend ninety days having a look at stuff and then deciding what to do. It doesn't really fill you with confidence. In terms of oh, sorry, hang on, Nigel. Good point, should have moved on a slide. Thank you. Terms of bid premium, as I've already mentioned, none has been offered. And on the return of capital, well, once again, we see inconsistent messages and no clear intention for use of funds, sometimes talking about buying stuff, sometimes not, intimating that they think our return of capital is too small, whereas let's say between 33 and £40,000,000 and 65 to 75% of the net second tranche, we think is a firm and positive commitment to shareholders.

23:23 We've highlighted a risk and we are aware that, we've been accused now of trying to hold people hostage and fear mongering. But it's a simple fact that Nigel, Doctor. Pickett is not a commodity, he is not an asset that anyone owns. Nigel is a very capable individual who can make his own decisions and decide what he wants to do. So we've seen a speculation about whether or not Nigel actually is important to NANOCO and would his departure actually matter?

24:00 Well, it's the board's absolute conviction that, Nigel leaving the company would destroy, value in NANOCO, very serious, value in NANOCO. Nigel, is recognized as one of the world's few, and I quote, authors of $150,000,000 patent, there aren't many of those out there. And Nigel, as he explained, he leads our existing R and D, our IP licensing, and is heavily involved in our commercial activity. All those, future R and D developments that will add to our pipeline and, secure the long term future of the business would be put at risk with Nigel's departure. And it's also incredibly naive to assume that no value would be lost with his exit.

24:47 And this probably explains why Mr. Hamoudi tried, to recruit Nigel to his cause, but he actually failed in that. And now instead is proposing a resolution to remove Nigel from a post in the company that he co founded. You can see from those charts that Doctor. Pickett or Nigel is critical to the group's IP portfolio and its monetization. So of the 47 claims that were validated by the US patent office, we kept 46. Yes, one has been sold. Nigel is a named inventor on all 46 of those retained claim patents. If you then look at the totality of our patents, where we have around three seventy seven patents, Nigel, again, is a named inventor on two fifty or over 60% of those patents.

25:40 And just to put it into perspective, again, shareholders won't be aware of this. Nigel worked flat out for eighteen months to deliver the successful outcome for those IPRs with the patent office that validated those 46 out of 47 claims. And he was also cross examined almost daily for six months in the multiple, lead ups to the various abortive, trials that were going to be held in Texas. And anyone who thinks that that work, that effort, and the person who did that can be lost from the business without doing serious long term harm to NANOCO, as I say, is naive, other people, might use different language. So moving on from, the importance of Nigel to the group.

26:28 We've said this a number of times that the requisitionists are peddling basically a false narrative that is designed to mislead and indeed does mislead, NANOCO's shareholders. We repeat some examples of that on here. And again, some of these examples are really clear indications of how inconsistent Mr. Hamoudi in particular has been with regard to his engagement with NANOCO for the last two years, and also some of the things he said.

27:04 We have said quite firmly that the convertible loan notes issued in 2021 represented the best terms available at the time of their issue. And you can read a lot more details about these in the circular and in previous publications. And I just use Mr. Amoudi's own words himself. I congratulate you on the financing you obtained from your key shareholders earlier this year. From a shareholder's perspective, I think the transaction was much more attractive than what Baupost could have offered. So that probably puts the sale on loan notes and our perspective on that. The requisition assertions regarding remuneration and director independence are simply not true, again, set out in the circular. We've got a number of misleading questions and assumptions that we'll be answering when we get into the Q and A session on those.

28:01 We'd like to point out no director, executive or non executive is entitled to a settlement bonus. Another one here, again, we have no idea where some of these speculations come from, but Nigel Pickett has never resigned from NANOCO. And again, we cover that in one of the questions later. The board is absolutely confident that all statements made in relation to the Samsung litigation, represented the potential value of a successful jury trial outcome and also reflected the risks inherent in any litigation process. This next point guiding publicly towards the value of a prospective settlement would have destroyed value. The board had a challenge to manage in the last few years of finding that balance between having confidential, legally controlled, litigation and discussions with Samsung and their advisors, while also, honoring our obligations as a public company to make sure, shareholders were suitably, informed.

29:06 And as I've said, we believe that, we

29:09 achieved that, with the statements that we've made on the SAMHSA litigation. We also emphasize at no point where individual shareholders granted inappropriate access to information. The outcome of the Samsung litigation was in the best interest of all stakeholders. And on this final point, the group has retained its most valuable IP. I'll now hand you back to Chris for a short summary before we then move on to the Q and A. Thank you, Brian. In summary, there's a lot to lose here. NANOCO has a clear strategy for commercialization in a strong market. We've got structural tailwinds and a demonstrably strong IP portfolio.

29:59 As Nigel says, he struggles to see how anyone will be able to produce quantum dots for display without using our technology at commercial scale. Board changes should be in the interest of all shareholders and not give undue influence to one small vocal group. The resolutions represent a change of control of NANOCO with no takeover premium being paid. The resolutions to place NANOCO's cash on return to shareholders at risk. The requisitionists have not presented a coherent plan or strategy for the businesses, and the board nominees have never served on any UK,

30:35 public, company. So we strongly recommend, that you vote against because we believe that their proposals would be damaging to NANOCO's future prospects and shareholder value. Now, Now comes to the end of the presentation. We will now go on monitoring questions that are coming up on the board during the course of the presentation here. And I can assure you that we will answer as many of those questions as we can in the next few minutes. So I shall pass now to Brian to go through the first of these questions. Apologies if the speed with which we answer these questions the combination of that with my accent.

31:30 Is being recorded and, folk can listen to it afterwards if anything is going quickly, but there is a huge amount of questions that have been submitted. And we have tried to group them where there are repeats, we only answer one, etcetera, and equally where there are, long, very long statements with lots of embedded assumptions, and then we tend not, we won't be reading those out, we'll just be, actually pulling out the key question. I should, point out, we can't provide any commercially confidential information as disclosure of such information may compromise the interest of the company. And similarly, we can't respond with information that's subject to, legal professional privilege.

32:12 A number of questions that we've received are repeats and insinuations, raised in the requisitionists various publications. Again, these have already been addressed in our letter to Mr. Amity's lawyers and also in the two circulars issued for the capital reduction and for the requisition general meeting. And I would like to make one final comment before we start. We do feel that the two sides in this debate are playing by very different sets of rules. NANOCO in all of our publications are required to independently verify, by our lawyers, by reference to third party evidence, every single statement of fact made or where it's a board opinion, clearly highlight that these, things are our opinion.

32:58 Whereas the requisitionists seem able to publish whatever they want without any verification, even if the truth that contradicts their position is readily available in public documents. Those documents included including audited, annual reports and accounts that they've either not reviewed or have just chosen to ignore. So shareholders should bear this in mind when reading communications from either side. And indeed, the letters that were published this morning, the errors and the misleading statements have obviously continued in them. Because we read with interest that someone who was made redundant from the company a number of years ago is actually still today leading one of our R and D teams.

33:47 So turning to, the specific questions, where it, deals with remuneration, partly because I'm personally named in some of these questions, it's Chris who attends our remuneration committee, who's going to answer those questions. So Chris, if you can deal with question number one. Yep, thanks. And I'm actually going to take a couple of the questions in one, if I may. The first one is I've read the remuneration report from the year of Michael Edelman's departure and can find no reference to any plan for a million dollar settlement bonus. How can this not have been made public? And why was Michael Edelman paid a million success bonus for the Samsung litigation? Well, this is simply not true, and is another example of requisition as being misleading.

34:35 Doctor Edelman was paid $35,000 per annum on a retainer, during the Samsung litigation because of his extensive knowledge of the history. And all of his salary details are fully disclosed in the group's annual report and the S430B statement. All this information is in the public. And the other one is related to it. What is or was the threshold for Brian Tenner's settlement bonus from the Samsung litigation? And again, let me be absolutely clear that none of the executive directors are entitled to a settlement bonus. Options and bonuses are fixed by the remuneration committee and there is nothing related to the settlement. There is no basis, whatever, for assertions and insinuations that any director acted out of self interest in settling the Samsung litigation.

35:36 But again, all of this is a matter of public record in our in our reporting. Brian? Okay. Next question. Why was Ron Epstein of epicenter law paid $5,000,000, and how could he give independent advice if he only got paid when a Samsung settlement was achieved? Well, unfortunately, this is another statement that is not true and yet another example of misleading narratives, being put out by, the, requisitionists. Mr. Epstein received a fraction of that amount, and I should point out that he worked for free for almost four years. So unlike, you know, other litigation counsel who were being paid discounted fees, Mr. Epstein worked for free for almost four years, in return for a fraction of that sum.

36:21 It's also the case that almost all advisors in any IP litigation have an incentive related to the outcome of the litigation, and it often increases if the outcome gets larger. So if anything, that incentive would get bigger if we had achieved a higher outcome. But again, as I mentioned, Mr. Hamoudi's words earlier about the loan notes, I'd like to quote you what he said about Ron Epstein of Epicenter. He said, He may be the sharpest professional I have come across in the IP space. So once again, Mr. Hamoudi has shown himself to be inconsistent, in questioning, Ron Epstein's value in, helping generate that $150,000,000 settlement and 90,000,000 net for NANOCO.

37:10 And again, that question is answered in more detail in the circular. Next question, as a long term investor, I was surprised and dismayed to hear that Nigel has resigned twice. Why is he resigned or why did he resign and what made him stay? Well, again, I think we've already said this is just not true. And in fact, the opposite is true. In 2020, before we signed our first development agreement with a European customer, when the company had very, very limited cash resources and was downsizing to conserve cash to protect the lawsuit, Nigel voluntarily accepted that the company needed to serve notice on him to reduce any financial liability linked to his notice period, which at that time was twelve months. At the end of that twelve months notice period, with development work now firmly established with the European customer, the company, again with Nigel's agreement rescinded his notice and modified his employment contract. So this notice period was shortened to six months, matching those of the other exec directors.

38:11 So far from having resigned, Nigel has shown clear leadership in accepting, his notice being served and agreeing to the contract amendment to shorten his notice. This is the exact opposite of acting in his own interests. Next question. I was shocked to hear that the company had previously turned down a higher offer from Samsung before accepting the lower settlement money. How do you justify this? This is also not true. At no time was the company ever offered more money than was finally agreed in the settlement. And frankly, this question is almost nonsensical. Next question. The commercialization schedule has shifted, Comparing their original timeline and changes to those of, Apple and Vision Pro, one might assume that NANOCO was involved with ST Micro on this project.

39:02 What do you say about this assumption, justified or nonsense? So AR and VR headsets are indeed one potential application for QD enhanced CMOS sensors. We know that our European customers engage with many different customers of their own with a very wide range of potential applications and devices. However, we can't comment on the specific example, that's been raised in this question. We are, confident of getting commercial orders, but those commercial orders do depend on passing final validation with our customer. One of the end users who are testing the products, validating our customer's product. And then finally, of the end users who are currently testing the product, deciding to adopt the technology.

39:52 And the customer feedback that we have had supports our confidence, as does the fact that we understand that a number of potential end users are testing this technology. Next question. How do you rate the probability NANOCO will receive its first commercial order this year? I think I've already answered that in saying what the basis for our confidence is. Next question. You mentioned that there were ongoing discussions about licensing agreements with other companies. What is the status quo here and can we expect such an agreement in calendar year 2023? So in order to deliver a successful licensing program, you effectively need two key things. One is a commanding, or dominant IP portfolio.

40:38 And clearly we've already demonstrated that by the outcome of the recent litigation and the decision by PTAB to validate all 47 of the claims that were subject to IPR. The second thing you need is a deep and impacted market. Now, that's where outside of Samsung, the market today for QD TVs is relatively small, and it will take time to grow as we showed on one of those charts earlier. But again, based on what Nigel presented to you, you've seen that we've already identified potential targets for licensing or litigation. It is true that the licensing route will be much cheaper than litigation, but it still takes time. So our view is, a more realistic timeframe to secure a new license is towards the end of next calendar year. So towards the end of calendar year 2024.

41:33 Though this could be faster or slower, depending on the stance of any of those, companies that we engage with. It goes without saying that Samsung was by far and away the biggest target. Next question. Why does the board need to keep 20,000,000 of the settlement amount if commercial orders are expected by December yet states in the circular that breakeven won't be met until, calendar year 2025? I won't go through again the, uses of funds and what we're investing the money differentiate, we have said on a number of occasions that we expect initial commercial orders to be for low volume applications and hence the initial revenue would be a low end value, a few million dollars potentially.

42:21 As those volumes grow and other devices and end users adopt the technology, then we move to a cash flow breakeven point, which we expect in 2025. The year before, we expect mass market mobile or premium mobile phones to adopt SWEAR technology. I mentioned that we'd received some additional questions this morning. I know we said we wanted questions in advance, but we didn't want to miss this opportunity to, rebut some of the insinuations and assertions made in these questions. So again, they're quite long questions, so we're just pulling out what the actual questions, were. So first one, why did the board fail to seek shareholder approval for major transactions?

43:10 Well, simple answer is the settlement did not require shareholder approval. Second question, why did the board not disclose on January 6, the financial terms in the settlement term sheet? Excuse me. We've answered this question, repeatedly before. The process we're involved in was still subject to judicial process and we were in ongoing confidential negotiations that would be jeopardized by disclosure of any of the confidential terms. Next question, why did the board not disclose the three damages amounts? And again, we've repeatedly said that we would not and could not give a running commentary on the lawsuit. All court papers were part of the public record, and we had no obligation under MAR, the market abuse regulations to announce any of those court papers.

44:04 Next question. Why did the board let Loom or Lombard ODA Asset Management join NANOCO's litigation subcommittee managing the Samsung litigation with full access to inside information. So, this question is about, Henry Turkin, who was a nominated director to the board of NANOCO, nominated by Lombard ODA. Henry was appointed to the board following shareholder approval, and all directors are entitled to attend any subcommittee meeting. When Henry stepped down from the board on 09/12/2022, he lost any right to attend any NANOCO subcommittee, and he no longer had access to inside information. Should also emphasize that all inside information that arose during, his time on the board was fully disclosed in accordance with our, disclosure obligations under MAR.

45:02 During this time of Henry's tenure on the board, there was no, settlement in prospect. Next question. The loan from Lombard ODN Richard Griffiths announced in July is a related party transaction requiring shareholder approval. The rationale for this unsecured loan was set out in detail in the circular. And no, it was not a related party transaction requiring shareholder approval. So the premise of the question is not true. I've also quoted Mr. Hamoudi saying himself that the terms of the deal were better than what could have been offered by another party. The next question is about Edison and why did the board allow NANOCO to publish highly inflated bogus damages estimates repeatedly, misleading shareholders and boosting share prices?

46:04 As explained previously, all analysts are given access to the same public information as anyone else. Edison did not have access to inside information. And while Edison provide paid for research services, Edison's opinions, as it clearly says on their own website, are their own and are not endorsed by the company. The next two questions we're going to take together. One is why did the board settle our license for a measly $65,000,000 And next question, how do you justify a measly and $65,000,000 for a worldwide license settlement? So let's be clear. The settlement agreement was $150,000,000 The net value, after cost was $90,000,000 It was not a loss as has been alleged.

46:56 And by any measure, it was a very significant settlement. I do want to deal with these last two questions in a little bit more detail. So I'll read an extract from the circular that addresses, these insinuations. In assessing whether or not to agree to the proposed IP sale and license agreements linked transact being linked transactions representing the settlement, the board took extensive advice and carefully considered the balance of potential risks and rewards that could be expected if the litigation had continued. Against the possible benefits of continuing the litigation, the board weighed the possible downside risks. These included the risk of losing a trial, winning a trial with an award based either on Samsung's damages model or on NANOCO's own low case damages model, sometimes referred to in public court papers as the die approach, both of which were considerably lower than the settlement value agreed.

47:53 Winning with NANOCO's high case damages model would inevitably have led to an appeals process, likely the last number of years with the risks of losing on appeal, a retrial or a retrial of damages only, possibly resulting in a lower damages award. The board also considered the incremental funding costs of an extended litigation process, as well as the potentially dilutive sources of that funding and the potentially significant impact of the time value of money. Any settlement process invariably involves an element of compromise to remove risks. Having weighed up the risks and rewards of continuing the litigation, the board concluded it was in the best interest of all stakeholders to accept the proposed commercial agreements. Having dealt with those eight questions from this morning, we'll now return to the submitted, questions.

48:43 Why was there a need for two RNS releases in January? It was expected that there would be little market response to the first RNS, given that it had no financial information in it. When the market reacted as it did, the board concluded that a cooling announcement needed to be made on the Monday, which is why the second announcement was made. The next question, did Lombard and Griffiths get access to inside information? I've partially already answered this, but as we said, the board is confident that at no point were individual shareholders given access to inside information during the settlement process. Now we are aware of speculation about phone calls the night and day before the stay in the trial was announced.

49:28 Purpose of the call was to negotiate reduced fees as we did with our legal advisors and others with returns linked to the outcome of the lawsuit. At no point were details of a settlement discussed. These discussions resulted in NANOCO retaining over $11,000,000 more of the litigation proceeds that would otherwise have been the case. Next question. What's the guidance or not on the value of the, outcome of the lawsuit? It's clear no one can negotiate with a third party via public announcements, telling Samson how likely we thought settlement was or what we thought the damages might be would fundamentally undermine, those very negotiations.

50:13 That much seems obvious. At all times, the company simply referred to the potential for a transformational outcome and confidence in our case and its merits, but never once to the certainty of any outcome, always emphasizing at all times the up and downside risks. Next question, if a commercial order came in tomorrow, how long would it take for you to ship dots to the European customer? If the order was a large one needing an extra shift, would you have enough raw materials and staff? And we currently ship, materials to customers every month. The lead time on our product is less than one month. If an order was received for a much higher volume application, we estimate that putting on an extra shift of labor could take between four and six months to source and train staff appropriately.

51:03 However, I should point out that order lead times and notice periods for such a large increase in volume are covered in our commercial agreements to allow for this eventuality. You've previously said customers are required to give advance notice. Tell us exactly what the customer has told you about orders, in terms of the size of the order, which materials required. I think this question's been covered above. We said we expect the initial orders to be for low volumes. And yes, we would obviously get a purchase order in advance of having to manufacture depending on the size of the order. Next question, how much of a revenue base does the current cost base of around £5,000,000 support?

51:50 So firstly, our current recurring fixed cost base supports up to around 20,000,000 of revenue from product sales and R and D services. If we had to expand this, the first two major expansions would be adding extra shifts. If we went to a 20 fourseven capacity, we would more than quadruple our capacity. By reference, that 20,000,000 of revenue, certainly the bits that are linked to production rather than R and D. If there was a risk of exhausting 20 fourseven capacity, we would need additional floor space or a new facility. But as I mentioned, we'd expect enough notice of such an event to allow, the necessary investments in new capacities to be, made.

52:38 I should point out as well that the question, talks about a £5,000,000, current cost base. Following inflationary increases and the addition of additional staff in the last, four or five months, to prepare for commercial production and higher activity levels in the business, Our current fixed recurring cost base in FY '24 is more likely to be around £6,000,000. And I should say that that excludes any non recurring costs incurred in responding to the, actions by the requisitionists, and those are substantial. Next question. Can you give us an idea of gross margins to expect if you had 20,000,000, 50,000,000, 70,000,000 of revenue? Presumably, they wouldn't be too different given that production isn't labor intensive.

53:27 Is that correct? Industry typically targets, or our industry typically targets anywhere between 4060% gross margins. That's on a fully absorbed production cost basis. The variability depending on your strength of your IP or the uniqueness of your product, etcetera. And it's fair to say higher volumes would bring lower prices, but again, the volume should compensate for those lower prices. So we would aim to maintain sort of absorb gross margin somewhere between that 4060%. Given where we are in terms of actual product launches, we can't be more specific at this time. Next question in the circulars, mention of CFQD being on test with a major TV maker.

54:12 Has there been disappointing news on that front? No, there has not been disappointing news on this front. The supply chain processes are long and involved and customers invariably take time to make a major decision to adopt new technology and change their supply chains. And what is positive is that a major TV brand unilaterally approached NANOCO to discuss our materials, and we're still in discussions with them. Next question. Do you believe that the market expected any settlement could include a sale of IP? The truth is the market appears to have had multiple different expectations regarding the possible outcome of the litigation. That was included going all the way through to a court enforced damages award possibly after, you know, appeal courts and Supreme Court.

55:05 There was speculation that there could be a settlement with a license or a settlement with IP, or even as many will be aware, there was speculation that the litigation could end in the acquisition of NANOCO itself and the entire IP portfolio. So details of the IP disposal are set up in some detail in the circular. Next question is in two parts. Could you justify the requirement for questions to be submitted in advance? And I've noted the comments made by Mr. Hamoudi that there are serious questions over their independence, means the current board independence. I view the network of related parties on the Transforming NANOCO website, which seems compelling. Could you please explain why this view is wrong?

55:57 So on questions in advance, we ask for questions to be submitted in advance to allow them to be considered properly and answered accordingly. This approach also allows all shareholders a fair chance to submit questions to be considered rather than just, those who are fastest at typing. Today's presentation also focused on matters already raised in the circular. And given that that was issued last week, that gave investors plenty of time to consider, what their questions might be and to submit those questions. The second part of the question on board independence, the circular clearly sets out why the alleged connections between the directors and certain shareholders are totally spurious. And if directors were actually connected to every investment fund that has ever invested in any company of which they've been a director, except for first time directors, it's likely there would independent directors working in any listed company in London.

56:56 Next question. Chris, this one's for you about options. Indeed. So the board, the question is the board of NANOCO issued option awards executive for directors in October 2022. The following price target must be reached, which is nil below 55p, 25% from 55p, 60% from 62 and 100 percent from 70p. Will there be a change here? Will this agreement remain as it is, even in the event of a capital reduction? Firstly, overwhelmingly approved the published option scheme rules, which cover a change of the capital structure of the group. The RNS announcing the 2022 options make clear that based on total shareholder return, not just the share price.

57:43 And furthermore, the scheme rules specify that any change would be by reference to the degree to which performance conditions have been achieved. So these are stretching targets. And I think shareholders should be encouraged that executives only invest their options at share prices substantially higher than the current share price. I'll take the next one as well if I may. Will the board be willing to protect our cash by taking voluntary pay cuts to their salaries until such time a sustainable organic profit is secured and the company can maintain these salaries without dipping its hands into our cash? This does seem a slightly strange question. Would like to point out that all the board and Brian has already made reference to Nigel took cuts in remuneration when the company was particularly short of cash.

58:36 So I think, directors have already indicated, their commitment in that regard. The group operates a remuneration policy in full compliance with The UK corporate governance code And as set out in some detail, in the circular and the group's annual report on accounts for a number of years, the group remuneration policy and directors remuneration report have been approved by shareholders with 96% or more votes in favor in each of the last four years and 99% in favor of the remuneration policy two years ago. Board remuneration has been conservative for a number of years. Independent benchmarking shows executives are paid either at median lower quartile or lower decile rates and not above that. And the NEDs are similarly conservatively paid.

59:29 Back to me. Next question. Why does the board think that chat on web forms and legal documents, behind a paywall is an acceptable way to communicate information with shareholders rather than using RNSs? So, the board explicitly communicated in many formal communications, such as interim and final results, that a wide range of potential damages methodologies and models exist in IP litigation cases, including, the one involving NANOCO. We consistently refer to a range of possible outcomes, assuming that a trial was successful, from a low case using the smallest separable component of a TV to a high case using the value of the whole TV. The board does not participate in any web forums or use them to disseminate views, information, or for that matter, misinformation.

1:00:19 Next question. How do you propose to proactively engage with private investors explaining the Samsung settlement? I believe the, piece of the circular that I read out in some detail earlier, also our interim results regarding how the board evaluated the risks and opportunities in the Samsung litigation and the decision to accept that settlement in some detail. Just to emphasize, we evaluated the risk of losing, winning on low damages models, and then all of the different risks, appeal risks, funding risks, the time value of money. And clearly in any litigation, as you swap information back and forward between the sides, you know, the status of the litigation ebbs and flows.

1:01:12 But I would just emphasize, as we said in our published full year results in October 2022, and I quote, The risks to NANOCO therefore remain substantial, unquote. Excuse me, next question. Surely some experienced new directors, ah, this one's for Chris. Yep. Sorry. New directors with the skills and experience, the ones proposed by Mr. Hamoudi, could add a lot of value to NANOCO and also improve governance. I think we've dealt with this pretty comprehensively in our presentation. We have a number of concerns with regards to the proposed directors. And I have specifically singled out Mr. Muller in that regard. We simply don't believe that these profiles fit with the running of a UK listed company.

1:01:59 None of the proposed directors have any experience whatsoever on serving on the board of a UK listed company. And we're completely at a loss as to how they can claim to meet the governance requirements of The UK corporate governance code. So while we've been online, a number of questions have come in, with Brian, a lot of them I think we've covered or attempted to cover, in some of the questions that were submitted prior to the meeting. But there's a couple of ones here which I think which we should aim to address now and the others will review and respond as best we can over the coming days where we believe we haven't addressed them.

1:02:44 The first one is who will be physically present at the EGM? Physically present will be Brian, Nigel, myself and Liam and also Alison Fielding. Chris Bashram will be joining remotely, but physically present will be all of those. We hope as many shareholders as can make it will also come to the EGM, which will be here in London. The next one, how do I vote my shares when I hold shares through Hargreaves Lansdowne or other nominees? The circular has got a page of instructions and actually one of those instructions specifically refers to Hargreaves Lansdowne.

1:03:31 It's also possible that shareholders received the letter recently from the requisitionists where they copied verbatim the voting instructions. So, best place to look is at the circular. But in essence, you instruct your nominee to vote on your behalf. If you're tailed electronically, you can, log in and there will be instructions, as I say, on that website and in the circular how to vote your shares. The last one I'll pick out is can anyone comment on the dissolution of the company owned by Tariq and Moody, Goldenbridge, Advisory? And I have no idea. I think that's a question which should be addressed to Terry Camudi. But Brian?

1:04:16 Yeah. So the company was dissolved. Goldenbridge Advisory Limited was dissolved on the July 11, 2023, according to records at company's house. I understand, you know, letters that are currently being circulated are in the name of Golden Bridge Advisory, although it doesn't say Golden Bridge Advisory Limited. And so as Chris said, that's a question for their requisition as to why it seems that, this company has been dissolved having previously issued communications, etcetera? So I think we've used an awful lot of everybody's time. We've gone over an hour and we have done our level best to answer questions from the shareholders both submitted in advance.

1:05:09 And as I say, those which have been submitted online, we'll have a look at and where we don't believe we've answered them, we will answer them over the coming days. And we've specifically addressed the questions from Mr. Hamoudi in his letter this morning. As Brian has said, at all times, our statements have been verified by our lawyers, and we are very careful to ensure that everything we say is not only transparent and clear, but is also demonstrably true. We would expect Mr. Hamoudi to hold himself in the future, to similar standards. NANOCO is at a really exciting time in its development. It's actually at an inflection point.

1:05:56 We expect our very first production order before the end of this year. Your board is very positive and excited about the future of the company. This is a company with a bright future under the current very strong executive management. The requisitionists continue to present a false narrative. They've no sensible plan. We don't believe their board nominations are suitable. They're trying to take over your company by the back door. For that reason, we recommend all shareholders to vote against the resolutions. Perfect. Chris, Brian, Nigel, thank you very much for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations.

1:06:52 This will only take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of NANOCO GROUP PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.