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Finacial Report 2002 Strategic investments, coupled with a value-based approach to help select opportunities that offer the highest potential for profitable growth have allowed us to continue to deliver on our commitment to bring nanotechnologies to market. NanoLab clearly demonstrated in 2002 that nanotechnology is no "flash in the pan." Despite the year's soft economic and market conditions, NanoLab grew substantially. This growth is due to financial discipline and our success in implementing low cost manufacturing systems. The payoff from those efforts was evident in record revenues for the company. Total revenues for 2002 were $490,200, more than double that in 2001 ($191,500). During the year ended December 31, 2002, 24% of revenues came from sales of carbon nanotubes, and other commercial products. The remaining 76% of revenues reflects sponsored Research and Development income. In 2002, NanoLab focused its R&D efforts on the scaleup of nanotube manufacturing, through an Army funded Phase II SBIR grant, totaling $370,000 for the year. The contract will continue in 2003 at the same rate. Total operating expenses for 2002 were $228k, up from $151k in the previous period of 2001. The increase in operating expenses was primarily due to increased overhead incurred by adding more full time personnel, expanding manufacturing capacity, and the increased sales and marketing expenses as NanoLab grew. As the Company's revenue base shifted from solely nanotube sales to include sponsored research, we required extensive investments in equipment, dedicated to product development. As a direct result of these year end investments, we ended the year with a only small net profit of $600. This is equivalent to $0.006 per share. "In 2002, we leveraged the Company's strengths in a number of promising areas that will be both high-value-added and high-potential-payoff investments, including nano-engineered composite materials and processing additives." said David L. Carnahan, President and Co-Founder of NanoLab. For instance, the July 2002 introduction of our NanoSperse dispersant product line was immediately welcomed by our customers, who routinely require liquids to process carbon nanotubes. In addition, in late 2002, we added a new product line of nanoparticles. The expansion of our product line to include other nanomaterials is expected to continue in 2003. In the area of composites, we have submitted proposals for funding to develop advanced components for a variety of applications. This sponsored research will form the basis for many future applications. Also during 2002, we defined several new carbon nanotube products, and increased our production capacity for both bulk powder and aligned carbon nanotube arrays. "We may be one of the few companies who can say 2002 was our best year yet... and the investments made this year will have payoffs for many years to come."