To all newbies curious about VLNC:
It's time to once again refocus this thread on it's main topic since, once again, personality conflicts threaten to abrogated this threads purpose. So:
I. Overview:
VLNC's mission statement is the commercialization of a product most would consider needed by the electronics community. That is, a Lithium Polymer battery. The intrinsic merit of this product is its light weight to energy density proportions, it's environmentally "green" aspects, and its high form fitting, malleable qualities. It's drawback? It's a pain in the ass(excuse my "French") to develop the mass manufacturing capabilities to produce it, as evidenced by lot's of talk out of industry heavy weights about their intentions, this by way of over hanging the market, but not much in the way of true capability by any/all parties involved to date. VLNC, using as a basis certain Bell Lab's inspired technology/patents, has spent the past two years(with the return of a former CEO--one Lev Dawson), attempting to do just this, too.
II. Major occurances/accomplishments to date:
During this two year period VLNC management has reworked the manufacturing capabilities out of their pilot plant in Henderson, Nevada, and sent the reworked methodologies(and equipment) back to their main plant in Mallusk(just outside of Belfast), Northern Ireland. Public documentation available to date indicates they're moving along on completion of some aspects of this plants buildout, with latest documentation indicating management is targeting the end of this year for reaching the first of their goals.
A partnership with Delphi(former division of GM) successfully concluded, and Delphi has gone on to announce their own line of Lith-poly products(LiPoTek) to be ready some time in the next year or so. This is indirect confirmation that VLNC's R&D has merit. Note VLNC reaps little benefit from this collaboration in terms of royalties, etc., as everything is pass-through to Bell Lab's for a proscribed period. Management is hopeful of deriving earnings from the selling of key aspects(laminate/goo) to Delphi, but there are no assurances of this.
Certain partnerships have move to new levels of development.
First, their joint partnership with a company in South Korea(Hanil), dedicated to the same manufacturing objective, has reached a point where VLNC has provided refined product to Hanil to facilitate that entities objectives. Note that VLNC shares 50% of all monies Hanil gleans from the sale of manufactured product. Target timeframes for Hanil manufacturing commencement vary, but approximately mid-2nd quarter year 2000 seems a safe assessment(imho).
They also have a partnership with a military subcontractor(Alliant). The contractor is in pursuit of obtaining the Army's contract for a new, 21st Century, assault rifle to be generally deployed amoung U.S Armed Forces. This rifle is powered by VLNC's battery. Contract has yet to be finalized and announced, although recent press from Alliant indicates testing was successful.
During the last conference call management, in the form of CEO Lev Dawson, stated they are pleased/excited by their progress. So much so they are projecting a production run rate out of their N.I. facility of approximately $75 Million by the end of next year. Additionally, such production as they may have accomplished has been "spoken for"(this a statement from the CEO) for the month of August/Sept.. These are first time statements out of a reticent management team. Management also stated several potential clients are now examining their product, but has made no public claims of imminent contracts or purchase orders about to occur. Indeed, as of their August 10Q filing they state not having manufactured any batteries on a commercial scale as yet. Please note that employment at the N.I. facility is now in excess of 160 employees.
Key insiders in the company have been found to be purchasing shares in the company over the past several months, with their own monies. These insiders are: Carl Berg(Director: purchased 103,000 shares in August/September, total holdings: 3,364,697), Alan Shugart(Director: purchased 20,000 in August, total holdings: 120,000)
III. Financing:
The company's current burn rate cannot be sustain without outside financing, as they have no earnings to speak of. This past year has seen the commencement of certain financing arrangements to accomplish this.
First, a floor-less convertible agreement between VLNC and a hedge fund by the name of Castle Creek, with the floor-less commencing on July 27, 1999. The fixed conversion price of this convertible is ~$6.03, converting 7,500 shares of Preferred for a certain number of VLNC common(1,289,171). The floor-less aspect deals with the ratio of additional VLNC common shares converted upon conversion for any VLNC price less than the aforementioned $6.03 at the time of conversion. If the price were to maintain itself above the $6.03 threshold, then Castle Creek will see a 6% increase in the number of shares convertable for every year the instrument is held. Please note, some hedge funds are not known to hold instruments for the long term. Castle Creek appears to be one of them as they have converted, in August, approximately 40% of the above mentioned 7,500 preferred to common shares. This after the stock price declined in price to approximately $4. It was shortly after the price rebounded from this level that Castle Creek converted ~40% of their Preferred instrument. What they then did with these shares cannot be publicly determined(or perhaps better stated....verified), although it is a subject of endless speculation.
Additionally, since the signing of the Castle Creek agreement, VLNC management has undertaken several rounds of "just in time" financing. Each round netted for the company approximately $3,000,000 in exchange for roughly 500,000 shares of common(note--this is a "soft" assessment, as VLNC was at a different price when each agreement was rendered). There have been three rounds of such financing with each financing round stated to be a significant institutional investor. It has been determined that one of the rounds(the second) was indeed purchased by an international bank known as HSBC. **Please note that based on all available cash burn rate data VLNC should have announced another round of "dribble" financing, yet as of this date, hasn't, thus indicating another mechanism is now in effect by which run monies are gleaned.**
Both of the above areas have funded VLNC through this point, with the downside being that from the first of the year until now shareholder dilution has occurred, with outstanding common now around 31 Million. Further dilution is anticipated(by me). Also, total size of the "short" in VLNC has moved significantly to the upside, and now tops ~2,800,000 shares, from a size of 1,051,630 at end of December last year.
IV. Legal:
VLNC is engaged in class action suits.
First, a shareholder suit stemming from a mid-90's failure to achieve mass manufacturing capability of their product. This resulted in a stock valuation rapidly achieving such a point as to reflect this reality. In other words, it crashed. A shareholder suit, at first considered without merit, was salvaged by the legal community, and as a consequence is on-going at this time.
Second, the company filed a breech of contract suit against Powell Electrical Manufacturing and others, seeking relief based on rescission and damages for breach of a contract. Powell, in return, has cross-filed against VLNC. Current motion is stayed pending settlement discussions.
Third, Klockner, the manufacturer of the original manufacturing lines, sued VLNC for breech of contract. VLNC, in turn, has sued stating the manufacturer was never able to deliver on the promise of the machinery's capabilities. The case will go to trial in March, 2000.
V. Summary:
VLNC is a high risk, speculative holding. My above synopsis should not be taken to represent the full extent of VLNC's current situation. You should do such due diligence as you deem appropriate for your own satisfaction. Still, these points can be taken to mean that, despite all difficulties, VLNC management appears to be fully involved in attempting the leap from a R&D organization to a full-blown mass manufacturing concern.
Arguably the risks are large, as too are the rewards. And there are no assurances of success. Don't bet the mortgage on the success of this proposition. Use only such monies as you're willing to place in the loss column of your tax return, should it come to that. This changes, of course, should the company be successful and announce OEM purchase orders at some point in the future. And only management can confirm when/if this is to occur. All sources outside of management, or such reliable data "sinks" as the SEC filings, etc., regardless of their opinion about VLNC merits, are suspect.
Disclaimer. I am a speculator betting on a positive outcome for VLNC's endeavor, and have followed this company for at least 6 years(although I haven't been invested in them through-out the period). Good luck with your d.d.!
John~ |
