Ann: CEO Letter to Shareholders, page-85

In general, I am pretty happy with this ANN. I previously posted some rough figures based on CAT being preferred partner and the potential revenue streams associated with taking that route, however I think FBR are making the right move in ensuring they retain control of the machines themselves and all the IP. Once a HX is sold, the IP exclusivity is threatened, as all the buyer has to do to reproduce it is pull it apart and study it. FBR need to protect the DST IP, as this is the source of potential future revenues from project 2, 3, 4... etc.

With the WaaS pathway, the potential revenue streams diminish (loss of DST sales to HX manufacturer & licenses for their proprietary 3D CAD software) due to the focus on revenue from bricklaying, however this change also makes that potential revenue pool larger by expanding access to HX to more builders who may have been unable/unwilling to justify a purchase price of $2m. It may even be economical for individuals to engage FBR to construct walls for their new home, and FBR may be able to partner with a builder or other trades to complete the home build once the wall is up. The big problems with WaaS are it is heavily capital intensive, as already pointed out, and it doesn't provide upfront seed funding for future projects (however, with the last CR of $35m, FBR indicated that was partly for future projects). 

In terms of in-house manufacturing, I can't see this being a huge problem. The length of time it took to build the first HX was due to it never having been done before, the second would have been completed much quicker as the team had already nearly completed one. Let's not forget that this is a machine mounted on the back of a truck, so realistically, FBR could enter in to an agreement with a truck manufacturer, provide the dimensions needed for the body of the HX and have them fit it prior to delivery, then just install all the parts in-house. Funding for this could be provided by partners, such as KSA or WB, even temporarily until FBR is generating revenue and able to establish debt financing.

On the subject of dilution, it is reasonable to expect when investing that ALL performance shares are likely to be met. When I made my first investment in FBR, I was of the expectation that the shares on issue would be approx 1.5b, due to performance shares and CAT options. This is slightly less now due to CAT dropping out, however will probably be propped up again in the event of another CR.

Overall, the Pivacs have shown that they have a long-term vision for FBR and that they are not afraid to make big decisions to achieve that vision, they have built a strong team around them and they have made some significant achievements. If you are a shareholder with a long-term view to hold, I think there is exciting times to come, though it won't be all champagne and celebrations, there will be further setbacks, delays and obstacles.