News, I hate to bring bad news but their is other battery companies with news.
Q1: Could you run through some of the balance sheet items?
Ans: Improvements on every front. R&D came in at $1.7MM, Marketing < $1MM, G&A $2.6MM. As the transition to China continues, they are reducing the work force in NI. Aiming for a target of $4MM/qtr rate.
How would you characterize the Segway deal in terms of revenue opportunity?
Ans: Pleased with the opportunity to work with Segway for many reasons:
- Segway has a demanding engineering group that looked at VLNC's technology at every possible angle,
- their decision to incorporate VLNC battery in their future product launch, not only from the potential revenue standpoint but also the validation of Saphion technology by Segway's engineering group.
Segway has presented their new product to some of their dealers. Initial response from dealers was very high. Too early to predict the size of revenue potential at this point. But they are planning to launch the new product next year. Segway is excited by the potential of expanding their current market into the commercial market since the Saphion battery has increased the Segway runtime from 4 hours to 8 hours. Four hours of runtime was a limitation for Segway to crack the commercial market because it is not practical to recharge the battery every four hours.
Q2: Could you elaborate on the product that the military is evaluating? Is the "2590 power system" the one that they are evaluating or K or U Charge?
Ans: The good news is that VLNC has sold to the military every "flavor" of VLNC battery: N Charge, K Charge, U Charge, and the new 2590 product. Two categories of applications the military is looking at, for the large format battery:
(1) electric vehicles (robotic applications such as unmanned vehicles)
(2) 2590 system for communications applications in Field Operations
Is the power cell a Gen I or II cell?
Ans: It is Gen II. A good development work was accomplished this qtr where they cycled the power cell for a continuous discharge at 10 amp. Very few Li-ion technologies are able to succeed in this test. VLNC was successful in this test, performing better than a standard cobalt oxide cell. That is, VLNC battery is performing better than other cobalt oxide batteries at the same energy density. It was important because many times VLNC has said that their battery has a lower energy density than a cobalt oxide battery. But, in the power cell construction, VLNC is probably at the same energy density or even a bit better than the cobalt oxide and much better than any other battery in the cycling capability.
Q3: Margin and Gross profit for the qtr?
Ans: -29%. Currently 80MM shares outstanding. Expecting 82-83MM shares out at the end of this qtr, depending upon the funding needs of this qtr. Cash burn at $7-7.5MM/qtr, expecting to go down to $4MM/qtr after the transition to China is completed, in about 2-3 qtrs. $500K gain from sale of equipment from NI plant. Have the building, some land, and some equipment for sale.
Q4: Any chance for purchase orders? Timeline for cash flow break even?
Ans: Hard to predict when customers will order. VLNC will have a complete product portfolio. VLNC is driving the costs down as they transition to China.
Every deal VLNC is going after is huge. For example, it will take $50MM order for a fleet of 5000 Electric Vehicles.
It depends upon how long each customer will take to qualify VLNC technology. For example Segway engaged VLNC within weeks after VLNC presented their technology to Segway. Segway has a very short cycle to commercial production.
The number of customers evaluating VLNC proto types increased from 15, 6 months ago, to 40 in this qtr. The size of the sales funnel is quite large. VLNC technology has not been rejected so far. The first re-orders from EV manufacturers have started coming.
Before you guys came on board, there was a doubt about VLNC having a product? With 40 customers evaluating your product, the demand for VLNC product may snowball?
Ans: Quite so. When the new mgmt team came on board, the technology was on paper. Now it has reached a large number of customers. A very difficult task for battery companies is to take the technology from paper, go through commercial manufacturing, and bring to a large number of satisfied customers.
In the past 150 years, only four core technologies have made it: lead acid, NiCd, NiMH, and Li-ion.
Commercial manufacturing is where a lot of difficulties are faced. Takes a lot of effort to go from invention on paper to a commercial product. In that respect, N Charge has served us to validate the Saphion technology.
A second major accomplishment on the (battery manufacturing) cost front, was to bring down from $7.76/whr, and three years later, to the current 70-75 cents/whr. After the production in China begins, the cost will go down to 30-45 cents/whr.
A third major transition is customers that you brought up. With a complete battery product portfolio, competitively manufactured at a low cost, collaborating with a variety of customers in a wide variety of applications, VLNC stands a good chance for a significant growth in revenues.
Q5: Any progress on communicating with the Wall Street?
Ans: Kevin is continuing the effort to get the word out to the Street. The challenge is to predict the future and allow their analysts to do the same. Deals like Segway and Tyco legitimizes the Saphion technology and makes it easier to communicate with the Street.
Q6: Has there been any changes to you revenue guidance given early this year, $2-3.5MM/qtr?
Ans: eighth consecutive qtr of increasing revenue.
Timeline for revenues from Tyco and Graham Field?
Ans: Received an order from Tyco as a result of their NEBS certification, for three field trials. Expecting order from Tyco, a little bit in Q4 FY05. As the field trials move to the Pilot stage, and then to the full scale implementation, expecting a ramp starting Q1 FY2006 (Apr-Jun 2005) and Q2 FY2006 (Jul-Sep 2005).
Steps - Tyco evaluation of K Charge, NEBS Certification, Field trials at customer locations, Pilot testing, Final full-scale commercial implementation.
With Graham Field, Medtrade show was a really good place to showcase VLNC product. Initially Graham Field was planning their product sale after the reimbursement from the Medicare was approved. At the trade show, many dealers felt that this product would sell even without the Medicare reimbursement - due to the long runtime and the lighter battery weight. Expecting sales from Graham Field starting Q1 FY2006 (Apr-Jun 2005).
Q7: Number of Tyco customers' installations where K charge being tested?
Ans: Three customers. If the field trials are successful, the order volume would ramp up. In the exclusivity agreement with Tyco, there is a minimum quarterly order requirement. In the first year, the sales volume is low. In the second year, it ramps up as the field trials transition to pilot scale and then full-scale implementation.
The exclusivity agreement bars Tyco from buying batteries from any other source?
Ans: Yes! Working on similar agreements with other partners. Too early to talk about them here.
Is the Gen II technology easy to scale up to large format?
Ans: Both Gen I and Gen II can scale up to large format. Gen I gives tremendous float and cycling capability (2000 cycles), ideal for the telecomm, backup power, and some consumer appliances. Gen I offers 2-3 times more energy compared to a lead acid battery and 2000 cycles.
Gen II gives both energy and the rate capability (draw more power quickly from the battery).
VLNC is not competing against the existing Li-ion technologies that are addressing computer and electronics markets. VLNC is competing with the old technologies such as lead acid, NiCd, and NiMH.
Q8: When will you get those purchase orders?
Ans: They'll have a complete product portfolio, manufactured at low cost, and large sales funnel for a variety of applications. Hard to predict when a PO will show up. One deal in the EV market will be worth $50MM for a fleet of 5000 vehicles. Some EV manufacturers are re-ordering earlier than expected. As they incorporate the VLNC battery in their own products in the second round of their product launch cycle and if their product takes off, VLNC will benefit from their sales growth. By Q1 and Q2 of FY2006 (Apr-Sep 2005), "all the planets will be aligned".
The above notes is subject to errors. Check with the 10Q for accuracy. Ram
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