VLNC Conference Call notes:
Folks: I'm gonna go out on a assumption limb and assume that, once again, this call will not be available after it has completed. Therefore, what follows is a transcription of the conference call. My apologies, at the "get-go", for any mis-spellings, mistaken writings, "mis-hearings", etc.. Others can add, or subtract, from this transcription as necessary:
Participants: Host: Bob Giger of the FRB, Lev Dawson-CEO, and other members of the management team.
Initial discussion:
There was a pre-amble by Bob G.. Perfunctory foreward looking statements were made,etc.. The call was then turned over to L.D.
L.D. then reiterated risk factors commentary. He then started by commenting that product shipments have begun to Hanil, Korea. He then stated the Irish IDB financing doesn't come with additional requirements. Their customers are looking to use VLNC's battery is their NEW products. Limiting factors is one of their major partners is in the process of being acquired(Energizer?).
He then opened the call to questions.
Question & Answer period:
1. Prudential Securities: Had a number of questions. Any products out in the market place at this time. L.D. several of the batteries are in beta test with several OEM's. P.S. any chance I could buy one at this time? L.D. He can't speak to this at this time. Most of the beta tests are being done overseas. P.S. Any idea of product availability by x-mas? He says its possible, but he's not privy to the OEM plans. P.S. Is the plant able to produce commercially right now? L.D. Yes. +$75/6 Million annualized can be produced over the next 12 months, based on customers willing to take the product, etc.. They anticipate being able to make money. P.S. VLNC uses commercial product term? What does that mean? L.D. We tweak and modify all the time. We think we have all the production capacity to meet our customers requirements not only today, but last month. We can meet our customers demands.
2. "Studio" Management. $6 Million equity financiing. Who provided it? L.D. Private individual investor.
S.M. About your burn rate, going at present rate you can last a quarter. Will you be profitable by then, or can you speak to any further plans? L.D. We're raising the minimum amount of money necessary to minimize stock dilution. Our game plan is we still have several million dollars in capital equipment arriving to facilitate our expansion, and we may need to add additional financing which we'll sell equity.
Everything arriving at plant is written off the day it arrives. This swings the cash needs widely. He spoke to IDB cash offerings once certain minimimums are reached.
3. Secola Capital: On IDB funding, the grants represents return on equipment financing already made. Are those funds only available for purchasing equipment or for other things? L.D. We can use the monies "however we like". S.C. - As question regarding the timing of IDB disbusement. L.D. IDB has modified the agreement so the cross-over point for cash is now lower. S.C. - Regarding the private equity purchases of $2/3 million, any indication that they'd add more if necessary? L.D. Yes, there've been indications that they would like to add additional monies as necessary.
4. Everett Securities: Query on Hanil plant, equipment and capabilities. Are they up to speed, or ahead of N.I.? L.D. I don't think they're ahead. They're in full testing cycle moving production down the line. He will be visiting the site next week. E.S. They have a relationship with Samsung? Will Hanil be sending beta'ing their batteries with them? L.D. No, there's no beta with Samsung at this time, but Hanil has good relationships with other Korean firms as well. E.S.: How are you handling the purchase of raw materials, etc., on your 10K. L.D. We've expensed everything to date, but now that we're shipping revenue thing will appear differently at end of 2nd quarter. A sidebar. VLNC will entertain licensing agreements once they're commercial up and operational. They have been approached by several concerns querying about licensing agreements, but right now they're "aggressively pursuing their own commercial ramp-up before entertaining licensing agreements". E.S. So I assume that ~$75 Million sales rate over the next 12 months in independent of any licensing. L.D. That's correct. (He also placed caveats all over the place regarding that 12 month sales rate, BUT did state he projects upwards of $120 Million sales rate into the future). Note: L.D. stated the third assembly machine should be in N.I. by next week.
5. AG Edwards & Sons: The orders to Hanil, any idea of revenue they expect to receive? L.D. Being conservative and discounting their sales projections, our plan is $18 Million over the next year or so.
A.E.: Any recurring objections being heard from their OEM's testing batteries and the state of the product in terms of energy densities, etc.? L.D. No. He's heard no objections. But he's making sure they don't "ship 5000 pieces of junk to a customer....THAT would sink us". He's focused on making sure the customers are not disappointed, so they're being very candid with them at all steps of the process.
A.G.- Is there any customer out there just waiting for VLNC to prove themselves? L.D. - They've been told this by several of the OEM's.
6. AG Edwards & Sons: Can you clarify the building of volumes of inventory, and are you saying that as it relates to the volume issue have you overcome any/all problems related to volume production. L.D. There are no technical issues preventing us from volume production. Everything produced over the next month is committed at this time, and we're building batteries at a "significant" rate. But we're being very careful with quality, and are willing to scape anything if it isn't up to spec's. We've not scraped anything to date, and customers are lining up. We also have re-package customers who are waiting on things to settle out before ordering. A situation he hopes will be over-come soon. We have the capability of making, with several million dollars of investment, (he went on to point out the specific functional aspects--coating, laminating, extraction, etc..), of making ~$75 million dollars in product. This should all come clear shortly. In the mean-time we can meet current requests. With the IDB money, more than enough, we can finance to increase our "run rate" to our 12 month projections and beyond.
7. Secola Capital: How rapidly is your generation 2 catching up with generation 1 in terms of shipping?
L.D. 2nd generation is fairly new "stuff", with 20% increase in energy density. Gen. 2 testing isn't complete. The customers are concerned with Gen 1. VLNC credability rests on Gen 1. But with Gen 2.We're really getting up there in terms of energy density. He mentioned that he knows of no one using maganese oxide which is very cheap. Everyones using cobalt oxide, which is now going upwards of $65 a lb., a significant cost component for their competition.
8. A.G. Edwards & Son's: Question regarding competitive environment. When beta testing does your competitor test both your product and your competitors? Etc., etc. Trying to get a handle on the technological advantages of VLNC's product. L.D. - We know of no one trying to build a large battery(4" x 4") like we do. So as such no one can match performance in that area. Also, anyone using cobalt oxide is having problems smoothing over the re-charge problems, ie. plating, etc.. so a "thick" anode is required. Manganese has none of these problems, ie. they can have higher energy densities with a smaller anode, and at a significant cost advantage. This is a significant achievement, and at a much lower cost battery. As for the customer beta testing comparing against the competition....he would imagine they'd do this if they could get their hands on a competitive battery.
9. Loew & Company: Question regarding Hanil machinery. Is it for small, large, or both? L.D. - For small cell production. But they have just done a $8 Million request to install machinery for large cell. They've released an order for quite a bit of equipment, able to product 4" x 4" and larger. L.C. - Is the equipment going directly from the Italian manufacturer directly to Hanil, or is it going through N.I. L.D. - We are taking the lead in this equipment, so we're releasing the orders for the equipment because we're helping to design it. L.C. - Does VLNC get any royalties from Hanil because of the patentable aspects of the equipment. L.D. - They're a subsidiary.....also, when we order a certain amount of equipment the manufacturer can not provide this equipment to anyone else. L.C. Question regarding additional floor space. L.D. Spoke to the need to upgrade aspects of the line, adding another mixing room, etc., etc.. L.C. What's happening in Henderson now? L.D. - We're manufacturing "strange" new films for Alliant Tech., and laminating films as well. We're doing experimental runs of Gen 2 & Gen 3. And we're doing a fair amount of R&D here. We have a significant amount of film making capacity at that location.
L.D. then concluded by saying "we're hopeful to get some purchase orders, and that we're ramping up production in a careful, quality oriented way over the next 12 months." Goodbye.
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Whew!! That about sum's it up. Once again, sorry for any typo's, mis-statements, etc., but I wanted to get this out to all those who may not have been able to participate in the call, as well as having a historical reference point for future arguments(heh), discussions, etc..
Regards!
John |
