LETTER TO THE SHAREHOLDERS OF AMERICHIP INTERNATIONAL INC.
"Success comes from having the proper aim as well as the right ammunition."
The founders of AmeriChip International, Edward Rutkowski and Marc Walther, have always had the proper aim, finding the right ammunition has been the consummate challenge. We believe we have risen to that challenge. The accomplishments in 2007 were significant in AmeriChip International's movement from an idea to a state of the art technology and manufacturing public company.
The most significant accomplishment in the fiscal year 2007, in the opinion of senior management, was the purchase of KSI Machine and Engineering in February. We successfully secured bank financing through People's State Bank and were also approved for a Small Business Loan (SBA) for $1,300,000, which assisted in facilitating the purchase. As a result of this purchase we immediately secured Tier One Supplier Status with General Motors, Ford, Chrysler, Toyota, Honda, Magna, Caterpillar and many more. In addition, our total revenues increased from $132,000 as at 11/30/06 to over $2.6 million year as at November 30, 2007. Since we have only owned KSI Machine since February 15, 2007 we were unable to include all of their revenues in our Form 1OKSB annual report filing which was at a running rate of $3.2 million annually. With the long standing credit of KSI Machine & Engineering we were able to secure our first conventional leases on machinery for the LACC process. We also added new lasers and completed our technology lab in the Headquarters in Clinton Township, Michigan.
Throughout 2007 we evaluated the operations of KSI and our management team made significant changes to increase profitability. We increased our workforce in 2007 by 40% in order to process the new orders and filled our excess capacity. We increased our thru-put by integrating more updated tooling and advanced employee training. In addition, management believes that we successfully reduced current and long term liabilities and negotiated long-term debt under terms more favorable to the Company, implemented Business Management Systems in every phase of the operation and completed the activation of an integrated accounting and operational software to increase productivity, reduce accounting costs and significantly move AmeriChip International towards Sarbanes Oxley compliance.
AmeriChip recently received a significant order from a global manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. As the operational entity of AmeriChip International, the KSI operation will be manufacturing orders for LACC in 2008. This will include a variety of parts manufactured in the Clinton Township, Michigan plant. We have successfully worked with the governments in our area on additional properties, tax abatements and bonds for future growth due to these orders. AmeriChip has been approved as a supplier in the wind energy sector, the military market ((CCR) and has developed technology for multiple patents for the Oil Pipe manufacturing industry. Management believes that this technology will make AmeriChip International a global player in the oil pipe manufacturing industry in 2008.
Quality Control
Quality Control is always an important aspect to any large manufacturing corporation and it is the foundation for the growth of this company. AmeriChip has positioned itself as the low cost producer, but without these systems in place and adhered to diligently the Company would be unable to complete the mission.
On March 5, 2008, we announced that the Company was certified ISO/2000 and TS16949 compliant one month ahead of schedule. In the fall of 2008 we anticipate receiving our AS9100 certification for aircraft and military markets. The Company will be certified as an ISO/TS16949:2002 manufacturer after it has operated under ISO/TS16949:2002 policies over a six month period.
The aim of ISO/TS16949 is the development of a quality management system that provides for continual improvement emphasizing defect prevention and the reduction of variation and waste in the supply chain. ISO/TS19669:2002 applies to the design/development production and, when relevant, installation and servicing of automotive related parts. It is based on ISO9000.
We have made significant progress in securing orders that will require the implementation of the Laser Assisted Chip Control technology. We have completed validation on 29 different parts that has been successfully machined with the LACC technology. You can see the results of some of these parts on our website at www.americhiplacc.com under the section "See it Work". We are waiting for completed documentation on several orders at this time hopefully in this quarter. We have already started to prepare for the production by ordering machines that take several months to deliver. We are currently working with two major auto industr manufacturers on LACC projects, which will be in production in 2008.
Electronic and Business Management Systems
During 2007 we upgraded our electronic systems for submitting quotes and receiving purchase orders/contracts by implementing EDI and Covasant systems. All major automobile companies and other major manufacturers use a form of EDI where the entire, organized relationship is handled online. The military has its own on-line system for submitting quotes and we have a consultant, who is commission based, who is to actively quoting on potential projects requiring both the LACC technology and/or machining by our KSI subsidiary.
In the fall of 2007, we initiated the process of developing Business Management Systems throughout the Company. In my experience, I have learned that companies that are successful and excel to their full potential are not run by dictatorships but by a system that is clearly defined to its employees with their input and participation. We formed a committee of management and employees that are reviewing, writing and implementing all systems from shipping/receiving, accounting, orders, safety and many others. We have developed flow charts with written documentation and they are constantly updated for a flexible and responsive Business Management System. These systems will be instrumental in ensuring that AmeriChip International and its subsidiaries are in place to adhere to Sarbanes Oxley compliance in 2008.
Management and the Board of Advisors
In 2007 we made changes to the management of the Company and the Advisory Board which management felt were in the best interests of the Company. As I have previously stated, it is the goal of management to constantly refine and redefine the management team until we have a cohesive team working in concert with our outside independent advisors. Our aim is to one day qualify for a more sophisticated trading board that attracts a different kind of investor. In order to achieve that goal; we need to grow into that kind of company, even before we qualify. To that end we had a good hard look at our senior management team, evaluated strengths, contributions, contacts, accomplishments and experience. We hired Roger Paquette, John Ullom and Daniel Green. We also strengthened our audit/accounting team by engaging Jewett, Schwartz, Wolfe & Associates as our new auditors. In addition, we engaged outside CFO consultants for third party opinions on internal operations with great success.
A very important addition to the team is Mr. John Rehfeld whom we engaged as an Advisory Board Consultant in January 2008. We look forward to tapping into his extensive management, business, and investment expertise. Mr. Rehfeld is now working closely with our management team to help AmeriChip prepare for rapid growth and to help maximize shareholder value.
Mr. Rehfeld currently is a Director Advisor for eight emerging growth companies, and currently serves on five company boards, including three public companies, and is an acknowledged expert on Board of Directors and industry compliance. For example, he is Chairman of the Orange County (California) Forum for Corporate Directors, a leading professional association for helping build excellence in corporate governance.
In February 2008, we appointed Mr. Kenneth W. Mann as President and Director of AmeriChip Canada Inc., who replaces Rhonda Windsor. Mr. Mann has over 20 years' experience in senior management positions in manufacturing, distribution, transportation, consumer goods, and information technology. During his career, Mr. Mann has administered a total of 400 employees with an operating budget of $220 million. Mr. Mann also served for over 16 years as an elected municipal official in a Montreal suburb. Recently, Mr. Mann has garnered experience as an Information Technology Account Executive / Recruiter / Manager for several Toronto, Canada based human resources firms.
Mr. Mann has over 30 years experience in Information Technology for major Canadian Corporations such as Canadian Pacific Rail. Standard Brands, Wabasso and Crane OE Canon Inc.. Ken has been given a mandate to assist the Board in securing Canadian acquisitions that present synergy with AmeriChip's business model. In addition, as AmeriChip grows, Mr. Mann will provide valuable assistance in recruiting new members of the Company's executive base. Ken also sits on the Compensation Committee.
Ms. Windsor continues to serve on our Advisory Board and is a Special Advisor to the President and CEO.
In order to meet our commitment to becoming NASDAQ compliant and as part of our overall goal to move to a more sophisticated trading board, we are currently reviewing candidates who will qualify as independent board members. We anticipate making all of these appointments by the end of May 2008. Another element of being NASDAQ compliant is to create greater financial transparency. Last year we purchased Microsoft Great Plains accounting software and we are currently integrating all divisions of the Company, AmeriChip International, KSI, AmeriChip Tool and Abrasives and AmeriChip Canada onto this software. This software, when fully integrated, will be a key component in enabling us to be fully Sarbanes Oxley compliant.
We have hired a full time accounting manager who is responsible for the complete implementation of the accounting systems and she is also on the Business Management Committee.
We are currently conducting interviews for a fulltime Controller whose appointment will be instrumental in significantly reducing accounting costs.
Roger Paquette, Chief Operating Officer, has hired Jon Ullom full time manager for implementing quotes and co-coordinating order details for all manufacturing projects.
Oil Pipe Industry
Since our last meeting with representatives of major oil pipe manufacturers, we have designed and we are in the process of building, in house, our first oil pipe laser machine. This "demonstratable" will enable us to show how we machine and thread oil pipes for prospective customers. We have always been able to demonstrate the process in the lab which can be viewed on our website.
We are also working with a manufacturer of equipment who is supplying much of the conventional hardware needed to build the LACC commercial system. Ed Rutkowski and Research Director Dan Green have designed and they are building special hardware and software needed to complete the project. Our goal is to have a selfcontained machine to supply multiple threading machines to increase the number of pipes per hour with the same amount of machines. This will be effective in the oil pipe, oil drilling pipe and oil pipe coupling markets. It will also create a more "Green Environment" due to the elimination of coolants and contaminated waste in the process. These units will be manufactured by our subsidiary AmeriChip Pipe Technologies and will be available by mid-year 2008.
Conclusion
In closing, anyone who reads the newspaper or watches television is aware that global and domestic economic changes have had a significant impact on the American economy. AmeriChip is I believe, in the right place, at the right time, with the right technology.
We are the low cost producer when it comes to machining steel. We are also the low cost "green" producer. It is the firm belief of management that it is not a matter of "if' dry machining will be mandated, but "when". I am fully cognizant that the Company needs to secure large multi-million dollar LACC contracts to be true to its Mission Statement:
The Company's mission is to dominate the worldwide dry machining marketp particularly the multi-million dollar metal turning segment of machining steel parts such as shafts, tubes, hubs, stampings, wind energy components, the multi-million oil pipe coupling and threading segment along with the United States and Canadian defence markets. "
Our sales force, which was been increased by five in March 2008 is dedicated to pursuing new contracts in a diverse industry base such as mining, wind energy, automotive, aerospace, military/defense, oil pipe and heavy truck. Senior management is working to finalize large LACC contracts with automotive manufacturers, an industrial manufacturer with global leadership in a multitude of areas including mobile and aircraft equipment and intelligent truck drive train systems.
The change in the US dollar has had a significant impact on increases in the American manufacturer's ability to be competitive in worldwide industries. This event has created good opportunities for AmeriChip International and its companies. Over the next year we will be investigating acquisition opportunities in North America to increase capacity to grow our business models in a more rapid pace.
In the five years since we became a publicly traded company we have been faced with many, many challenges and potential stumbling blocks. The only difference between stumbling blocks and stepping-stones is the way you use them. Anything worthwhile achieving is not usually accomplished overnight. I would like to assure all shareholders, large and small, recent and long standing, that I am aware of your concerns, your frustrations and your hopes. I share them all with you. I can also assure you that the management team and its advisors are working hourly to achieve the goals that we have set for your Company and ourselves.
Of the many, many things I have learned from this experience, I have come to realize that creating change by introducing new technology into age-old industry cultures is a far greater challenge than expected. As we have done since this journey began in March of 2003, we shall continue to exhaust all opportunities and devote all of our energies into making AmeriChip synonymous with the phrase "Machining Redefined."
Thank you for your support in the past and we look forward to achieving our goals for our LACC technology in the future.
Marc Walther, President & CEO
This letter contains forward-looking statements. The words or phrases "would be," "would allow," "intends to," "will likely result." "are expected to," "will continue." "anticipate," "expect." "estimate." "proiect," "indicate," "could." "can," "potentially." "should." "believe." "considers," or similar expressions are intended to identify "forward-looking statements." Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include: factors set forth in the Company's periodic reports filed with the Securities and Exchange Commission which may he reviewed by accessing the SEC's EDGAR system at www.sec.gov. Statements made herein are as of the date of this letter and should not he relied upon as of any subsequent date. The Company's past performance is not necessarily indicative of its future performance. The Company does not undertake, and the Company specifically disclaims any obligation, to update any forwardlooking statements to reflect occurrences, developments, events or circumstances after the date of such statement. |
