Exhibit 99.1
Open letter from the Chairman of the Board:
As we greet the New Year, Upgrade International Corporation's
(OTCBB: UPGD) management is pleased to provide this report regarding the
company.
Since early 1998, Upgrade's primary objective has been
to commercialize the UltraCard technology. This continues to be Upgrade's
primary objective. From the initial investment of $500,000 in exchange for 18%
of UltraCard, Inc., Upgrade has gradually increased its ownership of UltraCard
into a majority position, currently 54% (which was achieved in 2001). This
increase in ownership, achieved through continuing infusions of capital into
UltraCard, has driven the efforts toward commercialization of the UltraCard
technology. We intend to continue to fund the research and development of
UltraCard to commercialization.
Like most research and development companies, UltraCard
has had numerous challenges and obstacles to overcome during the last four
years. UltraCard's management believes that they have developed the technology
to the point that it is now on the verge of commercialization. To that end,
UltraCard has entered into a non-binding letter of intent ("LOI") and is in the
process of finalizing a definitive agreement with Kaifa Technology (HK) Ltd, a
subsidiary of Great Wall Technology ("Kaifa") to complete the development and
manufacture of the UltraCard read/write assembly. UltraCard and Kaifa believe,
after a preliminary review, that there is significant synergy between the
UltraCard technology and Kaifa's existing products and manufacturing
capabilities.
Established in 1985, Kaifa has become one of the world's
largest OEM (original equipment manufacturer) suppliers of magnetic
recording components for the leading hard disk drive (HDD) manufacturers.
Products include head gimble assemblies (HGA), head stack assemblies (HSA), thin
film, magnetoresistive (MR) and giant magnetoresistive (GMR) heads. Kaifa's
expertise also includes automation and test equipment, servo/channel electronics
and X & Y (a critical parameter of the UltraCard reader/writer) stage actuators
(and related test equipment). Kaifa's corporate offices are located in Hong Kong
and its manufacturing is done Shenzhen, People's Republic of China.
Kaifa is very familiar with China's "Golden Card"
project and the potential it represents (Kaifa currently has one division that
manufactures point of sales terminals which incorporate integrated circuit
readers). We believe that UltraCard's technology will allow Kaifa to utilize its
expertise (hard drive component and system manufacturing) to access this high
growth marketplace. Once proven, Kaifa believes that UltraCard's "hard drive on
a credit card" technology will represent one of the biggest opportunities in the
ever-evolving hard drive industry.
Kaifa's proposed development and completion of
UltraCard's read/write assembly is subject to, among other things, the
negotiation and execution of definitive agreements, UltraCard's commitment of at
least $3 million to Kaifa's commercialization effort, satisfactory completion of
all due diligence, and approval of Upgrade's and Kaifa's boards of directors.
Kaifa estimates that it will take approximately four (4) months from the time of
funding to produce the first commercial units of the UltraCard reader/writer.
The specifications in the LOI call for the first commercial reader/writer to be
a 5 1/4" inch half height (the standard dimensions of a DVD, CD-ROM drive found
in a personal computer tower). This form factor will be further reduced to a
half height 3 1/2 inch" during the first year of production of the
reader/writer.
We anticipate that the card will have a storage capacity
of 20MB using GMR technology. Additionally, one of Kaifa's affiliated
companies, Intercard Limited, has had preliminary discussions with UltraCard to
produce the card body. The Kaifa and Intercard agreements, once finalized, will
supercede all previously announced agreements concerning commercialization of
UltraCard.
The primary remaining piece to the commercialization of UltraCard's
technology is the production of the "shim" insert (the proprietary hard
drive-like media insert that is inserted into and extracted from the UltraCard
card body when the UltraCard card body is inserted into the UltraCard read/write
device). Currently, UltraCard is in negotiations with several potential
manufacturers for the "shim" insert and expects to announce a manufacturing
supply agreement sometime in the 2003 calendar year.
Obtaining adequate funding for Upgrade and its subsidiaries has been
extremely difficult over the past eighteen months. Changes in the valuation of
technology stocks, along with the resultant decline in share prices (including
Upgrade International Corporation's common stock) and the softening U.S.
economy, have made the sources for capital for Upgrade extremely limited. During
the last eighteen months, Upgrade has managed to raise minimal capital
(primarily in the form of debt) to keep the company operational. This has
enabled Upgrade to continue to operate where many development-stage companies
were forced to cease operations. Upgrade has eliminated all but what it believes
are its essential expenses. Upgrade's management, as well as its independent
board members, currently continue to defer all compensation, as has been their
practice during the past two years.
Upgrade has reviewed many potential sources of non-dilutive
financing and has entered into an agreement with a third party to provide
capital ($15 million debt financing described in Upgrade's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 22, 2002).
While Upgrade has performed under the agreement, the financing party has been
unable to close on the transaction. Upgrade continues to focus on obtaining the
necessary financing to commercialize the UltraCard technology, manage its
existing debt, fund its operations to positive cash flow (our current estimates
set this amount between $10-15 million), and minimizing the unnecessary dilution
of our existing shareholders' value.
Upgrade has developed a strategy of attempting to sell the exclusive
marketing rights to the UltraCard technology in various geographic regions
around the world. Upgrade is currently in negotiations for such exclusive
licensing agreements among parties in Latin America, the Middle East and China.
We have not, however, entered into any definitive agreements for licensing the
UltraCard technology and there is no assurance that we will be able to
successfully negotiate and consummate such agreements. If such licensing
agreements are consummated, UltraCard will receive licensing revenue,
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which we believe will supply adequate capital to complete the commercialization
process for UltraCard, as well as manage our existing debt and provide general
operating capital for Upgrade.
Additionally, Upgrade recently entered into a $3 million dollar debt
financing, whereby Upgrade issued 85 million shares of its stock that will be
held as collateral until the loan is paid in full and then returned to Upgrade.
The loan bears an interest rate of 5.5% and has a maturity of five years. We
anticipate that this financing will close by the end of this year, however,
there is no assurance that we will consummate the financing within such
timeframe or at all.
While the research and development process has taken longer than we
expected, it is management's belief that substantial value has been created and
that the eventual value of the UltraCard technology, once commercialized, will
have been worth the wait. The decision to stay the course has not been without
controversy and criticism. In fact, many venture capital companies ("VC's")
establish rigorous budgets and milestones for development stage companies to
achieve, and if they do not meet these milestones, many companies are abandoned.
We believe that many VC's take the position that it is better to spread their
risk and invest in several technologies simultaneously on the basis that one
technology will be successfully commercialized and help them recoup their other
losses. Management believes, however, that UltraCard is a unique opportunity
that not only represents a transforming technology, but may also redefine the
entire card industry. We believe that once commercialized, the UltraCard
technology, will create an opportunity for the standard plastic card to deliver
value-add software and services on the card, thereby transforming the card
industry (which is currently a low-margin, commodity-based business) into a
high-margin, profitable industry.
While our business strategy depends upon the commercialization of
the UltraCard technology, over the past four years we have entered into various
agreements other than the acquisition of UltraCard. This strategy was designed
to enhance the UltraCard technology and position Upgrade as both a hardware
company and software company. The acquisition of a majority stake in cQue
Corporation (formerly Centurion) and the acquisition-in-process of Rockster are
intended to build on providing value-add software solutions for a smartcard
environment.
cQue Corporation has a suite of modular application software based
on Microsoft standards that work with smart cards and biometric devices to
provide multi-system connectivity, user communication, data presentation, and
system security. While most of the cQue software was designed to streamline and
improve processes within the healthcare services industry, the core components
have been adapted for multiple uses. The inclusion of Ultracard gives cQue a
competitive advantage. We are pleased to inform shareholders that the core
software has been developed and has been beta tested. We expect that it will be
commercially available in 2003. The initial product does not yet incorporate
UltraCard, but cQue intends to integrate the UltraCard into its software as soon
as UltraCard is commercially available.
Because of the level of demand for cQue's products internationally,
cQue is planning for the internationalization of its offerings. This includes
creating a core internationalized version incorporating Microsoft's Unicode to
support double-byte characters found in Asian languages, tables that enable
deployment in any language supported by Microsoft Windows 2000 or higher
operating system, and interfaces for localized medical content. We anticipate
this internationalized version will also be made available during 2003 to
support UltraCard market opportunities worldwide.
Management believes that Rockster's business plan is substantially
synergistic with Upgrade and entails the development of software that enables
file transfer via the internet. Once again, we believe that the UltraCard
technology will provide a unique way to monetize a specific transaction making
possible "micro payment" transactions over the internet. We believe that
Rockster is an exciting application for
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the UltraCard, and once UltraCard is commercialized, Upgrade intends to assist
Rockster's efforts to become a successful company.
Management looks forward to 2003 with expectations of finally
realizing on five years of hard work and dedication by many people, including
supportive shareholders that have held on to and continue to share the vision
and conviction that has defined Upgrade since inception.
On behalf of the Board of Directors
Daniel S. Bland
Chairman, President & CEO
About Upgrade:
Upgrade International Corp.through its ownership interest in UltraCard Inc. and
cQue Corporation is engaged in the development and commercialization of a
patented ultra high-capacity portable data storage technology. UltraCard's
patented method for using existing hard disk storage technology is designed to
provide both highly durable media in a credit card format and an inexpensive
read/write device that management believes will become the next generation in
personal portable data storage for a broad range of existing and new markets.
Management believes that the UltraCard technology will potentially provide
numerous industrial users with a combination of high levels of security and a
greater amount of personal transportable data storage at the lowest cost in the
industry. In addition, the acquisition and development of existing smartcard
solution providers represents a strategic market strategy designed to accelerate
the integration of the technology inherent in the UltraCard into existing and
newly developing markets.
Except for the historical information presented in this document,
Upgrade's news release contains statements that are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934.
These statements can be identified by the use of forward-looking terminology
such as "believes", "expects", "may", "will", "intends", "should", "estimates,"
or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties.. These forward-looking statements include, but are not limited
to, statements regarding the anticipated benefits of proposed or future
agreements and acquisitions, future operating results, future prospects, the
capabilities and capacities of our business operations, any financial or other
guidance, and all statements that are not based on historical fact. The ultimate
correctness of these forward-looking statements is dependent upon a number of
known and unknown risks and events, and is subject to various uncertainties, and
other factors that may cause our actual results, performance, or achievements to
be different from any future results, performance, or achievements expressed or
implied by these statements. The following important factors, among others,
could affect future results and events, cause those results and events to differ
materially from those expressed or implied in our forward-looking statements:
o our ability to successfully negotiate definitive agreements and to
consummate agreements and acquisitions, including our proposed
agreement with Kaifa, our proposed acquisition of Rockster, and
any proposed financing or licensing agreements;
o our ability to continue as a "going concern;"
o our ability to commercialize the UltraCard technology;
o our ability to protect our intellectual property;
o any adverse effect or limitations caused by governmental
regulations;
o market acceptance of our products;
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o any increased competition in business; and
o other factors that we may not have currently identified or
quantified.
For a further description of various risks, relevant factors, and
uncertainties that could cause future results or events to differ materially
from those expressed or implied in our forward-looking statements, see our
filings with the Securities and Exchange Commission. Upgrade undertakes no
obligation to publicly update or revise the forward-looking statements made in
this news release to reflect events or circumstances after the date of this news
release or to reflect the occurrence of unanticipated events.
CONTACT:
For Upgrade International Corp.
Investor Relations
Daniel S. Bland or Howard A. Jaffe
e-mail: ir@upgd.com
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