10 Frequently Asked Questions and Answers

1. How is KAIT related to Anoto?

KAIT is an education software that utilizes Anoto pens to accumulate digital data and use it to analyze students’ writing, problem solving and understanding. KAIT is the software that provides valuable insights to teachers and parents. KAIT uses digital data accumulated by the Anoto pen to enable our proprietary AI algorithm to customize and personalize education for each individual student. The main IP is the software and AI algorithm. KAIT’s revenue model is to get subscription revenue (Software as a Service or SAAS model). KAIT purchases pens from Anoto and lease them to the subscription customers. Anoto gets pen revenue as well as royalty payment on software revenue from KAIT.
Why is KAIT so popular with educators? Because KAIT provides time data which was not readily available before. We provide data on how long it took a student to solve an algebra question, a geometry or a trigonometry question. Teachers only had correctness data before. If two students got a difficult algebra question correct, then the teacher had to assume they both know the topic. However, would the conclusion change if one student took one minute to solve this question while the other took seven minutes? We can also detect which subject area a student is having difficulty understanding by comparing time data among different topics. For example, average solving time for a student in algebra was 3 minutes, a geometry was 4 minutes and trigonometry was 8 minutes. It is quite apparent which topic this particular student is having problems. We can also compare average solving time for the entire class as well. Time data provides insight into a student’s thinking process which is a crucial data point in education.

2. What is KAIT@HOME?

KAIT@HOME is our remote learning solution that provides full two-way communication between teachers and students. Through our remote learning platform, teachers are able to see students’ writing and students can submit their work via Bluetooth to teachers. KAIT@HOME also has full functionality of KAIT-IN-CLASS such as auto grading, auto report generation by accessing our cloud. Current remote learning platforms are not really two way as it delivers lectures and videos from the teachers but not the other way around. Students cannot get feedback for their work and therefore feel current remote learning to be “ineffective.” COVID-19 is here to stay well into next year and we believe that the quality of remote learning should go up. KAIT@HOME can be used as a standalone platform or in conjunction with other video conferencing platforms such as MS Teams or Zoom. KAIT@HOME can handle synchronous (live) or asynchronous education (recorded) and provides flexibility in learning in the COVID-led digital age. Unlike KAIT-IN-CLASS where pens can be shared with other students, KAIT@HOME requires one pen and a pre-printed KAIT notebook per student.

3. What is Anoto’s future strategy?

When I decided to invest in Anoto’s future several years ago, my strategy was to create a killer application using Anoto technology. Hence, KAIT was created. We built the software while we were creating a new common pen platform as our pens were created by the old Anoto partners such as Livescribe, Pengen and even Hitachi. Different manufacturer meant different firmware, software and SDK. The only pen Anoto ever created was the biggest disappointment called LP2 which lasted about two years. This is why we lost money all these years as we did not have products to sell both in hardware and in software.
Now we have a software that can create demand for pens. We are also updating our apps and software for Livescribe, upgrading them from the aged legacy products that were created almost 10 years ago. We are in discussions with multiple parties on the OEM business. We are moving away from the outdated ALF software which was created by XMS more than 10 years ago, an Anoto partner which Anoto later acquired, and putting our enterprise solution on cloud.
In the last few years, our efforts to upgrade other Anoto software products were put on a back burner in order to finish KAIT fast. Now that KAIT has its own team, ability to finance its own expenses (through outside funding), we are refocusing our efforts on the remaining Anoto software platforms. I strongly believe that pens are not the end in itself but means to reach an end.
But pens also must evolve. Technology has advanced so much since we manufactured digital pens. Pen design has not fundamentally changed since our first pen developed by Hitachi Maxell called DP201. We believe we now have the know-how to upgrade our pens fundamentally. We need to make our pens easier to use, leveraging the latest technology in optics, noise cancellation etc. We are also keen on making our pens more manufacturable through DFM (Design for Manufacturing). We never worried about the scalability of production and our pens are still very labor intensive. We are now focused on automation and increasing manufacturing yield which will result in lower cost and scalability.

4. What is the value of Anoto vis-à-vis KAIT?

One of the biggest misunderstanding is that Anoto’s value is equal to the value of its ownership in KAIT. In fact, as we structured the deal, Anoto gets revenue from the sale of pens to KAIT and collects royalty on KAIT’s software revenue. Better KAIT does, Anoto’s revenue will also go up. Therefore, Anoto’s value should be much higher than the value of its ownership in KAIT.
In addition, Anoto has its own proprietary business such as Livescribe retail business, enterprise Forms B2B business and OEM business. Anoto also has its fundamental value in the value of the IP. So let me ask you, should Anoto’s valuation be less than KAIT’s equity ownership value? Shareholders should decide what is the intrinsic value of Anoto without KAIT. And I do not think it is zero or negative as the stock market does.

5. Who is Soltworks and why are they investing in Anoto?

Soltworks is a company in Korea which specializes in VR (Virtual Reality), AR (Augmented Reality) education programs, especially for the military training. Soltworks is interested in distributing KAIT solutions to their customer base in Korea. Initially, they were the Seed stage investor in KAIT ($3 million investment in November 2019), then they discovered that Anoto is “relatively undervalued” and decided to invest in the ownership of Anoto. In addition to distributing KAIT solutions, they are also interested in distributing Anoto products in Korea. The relationship is more strategic than financial investment for Soltworks.

6. Why did you do a small offering (7 million shares) when you had 34 million share authorization?

We could have done a much bigger offering with a securities company in Sweden. But it meant a significant discount and brought bigger dilution to the company and to the shareholders. I am also a shareholder of the company and I do care about dilution and issue price. I tried to minimize the offering amount although it takes a toll on my time and efforts. Also, if possible, I would like to place shares in the hands of long-term investors rather than day traders and flippers. I may be too optimistic but I believe that there are people who believe in Anoto and who is willing to hold shares longer. It is my mistake that I was not able to get credibility from the market. Although I would like to claim that the issue of credibility was more inherited than earned, ultimately it was my own doing. I hope the next CEO will have better legacy to start from and earn the trust of our shareholders.

7. What is the organizational structure of Anoto?

We have four employees in Europe (2 in London and 2 in Lisbon). We have 27 employees in Korea and we have 3 employees in the US. Key members are VP of Engineering, Anthony Lorusso (Boston), Head of OEM business, Steve Kim, (Seoul) and Head of Livescribe and Enterprise Solutions business, Peter Ahn (North America) and newly joined Global Financial Controller, KS Na (Seoul). It is an extremely efficient organization and has a very low overhead. With a total of 34 employees globally, we cover R&D, manufacturing, sales, operations, finances and accounting. We have not increased our headcount at Anoto and kept our opex low. I never forgot that having 196 employees at Anoto do not create more revenue but only bigger losses.
KAIT has 29 full time employees and 8 consultants. Out of 29 employees, 22 are engineers. KAIT has a very efficient cost structure since our VP of Engineering is from Jordan and we utilize inexpensive Jordanian engineers to develop our system. I am very proud of our Engineering team as I have not seen such quality and productivity from the US, European or Korean engineers.

8. How does KAIT affect Anoto in terms of financial performance?

As a majority-controlled subsidiary, KAIT’s losses are consolidated into Anoto Financials. I believe Anoto will be profitable (assuming some recovery from COVID), if we deconsolidate KAIT’s losses from our books. KAIT, as a startup, is not expected to make large profits. When there’s a profit, it needs to spend the development money to upgrade products. Typically, American start ups tend to invest more in growth and R&D rather than turn profit. Google suffered losses when it did an IPO. Amazon was loss making for decades before it started ruling the world. There are countless examples, Facebook, Uber, Netflix etc.
Fundamentally, it is a business that is different from Anoto which is a listed company with quarterly reporting requirements. I truly believe Anoto is better off without KAIT financial consolidation. It still benefits from the growth of KAIT by selling more pens and capturing bigger royalty. And its equity ownership in KAIT will bring significant upside (hopefully). Isn’t sharing upside without the annual losses and taking minimum risk better for a public company?
Listed companies have a fiduciary duty to make profit and increase shareholder value. If someone wants greater return with bigger risk, one should invest in lottery or a good startup.

9. What should Anoto do next?

Anoto created KAIT. Anoto still owns the IP to create the KAIT II or KAIT III. A good CEO who is much better than me can create another KAIT or two. KAIT did not exist 3 years ago. It was merely a concept. It was created by a handful engineers without spending much money. We probably spent less than 2 million USD to develop it. Once developed, we spent more money to build sales and support network and recruit better engineers. However, looking back, it was the best ROI project that I have ever managed. So ask yourselves: why not?

10. Who will succeed you at Anoto as CEO?

I resigned from the Anoto CEO position and from the board in January 2020. I had a six-month notice period which ended in July. The board was planning on creating a search committee to find my replacement in February before we got brutally interrupted by the COVID. Lockdown made it difficult to interview potential candidates and the board decided to postpone the search. I believe I did my part at Anoto and it is truly the time to move on. My sincere hope is that I made the CEO job at Anoto easier for my successor. I believe the board will resume the search soon. So, you don’t have to put up with me too much longer, I hope.

Last words…
Anoto is no longer the company with billion dollar promises.
Thank you for remaining interested in Anoto despite all the broken promises.
What kept me going after all these years was my belief in the technology.
Please remember, the technology is good; we just did not know how to use it.