"We make it by the mile. We make it by the ton."
My rough transcript of the year-end CC Q & A last Monday follows. I took the liberty of reducing some of the wording in the questions and dropped most of the courtesies in both the Q & A and probably have mispelled some names. The CC is available for perhaps another 24 hrs, so if I heard/wrote it wrong, please let me know.
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Joe Conway: Extended soliloquy ending in a question: Why haven’t you made a bigger deal of this (recent ORFC) patent?
Stan: Thank you’ve for what you’ve said . First of all I should remark that the patent is not limited to an alkaline fuel cell, so it’s broad and very basic. Secondly what we’d like to do, there’s been so much,we’re the only company I see, that I can find that has in the bubbles that have developed through the years for people making a lot of the announcements and press releases who’ve kept our situation in a very respectful and respectable way and I think we will make our announcements as we go ahead with our products rather than as we just go ahead with our patents. Our patents are extremely valuable and form the basis for everything that we have and we’re very proud of it but prouder indeed of the fact that we manufacture and
Joe Conway: Well, if I may interrupt for one minute, I have to assume since the patent was applied for 2 years ago, that it has been significantly sophisticated and improved since that time and that you must have working models running on the bench because Secretary Abraham visited the plant. I refer
Stempel: Don’t infer too many things other than what we say about it and Stan is right, we’re putting ourselves together and we’ll let ourselves do the talking
Jack Hayman: I’ve been a stockholder for many many years, about for 8 ½ years… question about OUM JV with Tyler and Intel… are we ahead of IBM consortium reported breakthrough… Could you enlighten us on any OUM progress?
Stan: Yes, our work and joint ventures with Tyler and with Intel and of course our relationship with ST Microelectronics are well documented by their statements as to the fact that they consider that our products will be the products that will take over the memory field in various very important ways. The work is going exceptionally well, relationships are going very well and we cannot because of confidentiality make any other statements except that we are very very pleased with it.
Charles Crosson: …How many megawatts did we produce last year and what proportion of that came from the new machine?
Stempel: Well last year we really had no production from the new machine because it’s in the building and startup phase, the other facility which we have is our former 5 MW machine produced about 4 MW.
Charles Crosson: And currently what proportion of production is coming from the new machine?
Stempel: As I said the new machine is in tryout and so we’re just bringing that up and we hope to have it up running later this year full
Charles Crosson: So it’s still being tweaked.
Stempel: Yes.
Carl Scala: How is the company handling tax loss carryforwards, $24M in 2001, $16M this year, and about $17M in 2003? What is the company doing to try to utilize this?
Nancy Bacon:… We have been very mindful of the assets that we have accumulated in loss carryforwards and actually in some of the structuring of the agreements that we have with Chevron Texaco we were able to utilize some of those loss carryforwards and bring those savings into the ventures as a contribution. So when you see the 10K and you’ll look at it carefully you can see some of those have been used, we didn’t let them expire. Similarly, the ones that are going to expire in the next few years we are reviewing strategies now to get some value out of those as well.
Judd Hollis: Regarding Photovoltaics…can you give any projections of what you are estimating for sales either quarterly or just for the year?
Stempel: We’ve been very careful about forecasting for the coming year. We generally don’t do that. We have an outlook that believes that we’ll have higher sales than we had in the preceding year but because of the nature, the competitive nature of the business, we don’t make forecasts.
Judd Hollis: … When will the 30 MW machine reach full production capacity…you said later in the year, were you referring to calendar year or fiscal year?
Stempel: I was referring to this year.
Judd Hollis: To this calendar year?
Stempel: Yes.
Judd Hollis: Okay, so before the end of this calendar year it will reach 30MW capacity?
Stempel: When you understand how the machine is rated, when the machine runs, it is running at that rate.
Judd Hollis: I understand
Stempel: but you may not be able to sell everything and therefore run the number of days that you need to meet your sales forecast.
Michael Latas: In answer to a question on OUM at the last quarterly CC, Stan answered the question that we still had several months left to the validation process. My question is what is that status and secondly what happens next?
Stan: I don’t remember making that kind of a direct statement. I’ve just, I’ve always said what is public knowledge which is that it is going along very well. We’re getting very wonderful reports back and we think it’s going to be a great asset for the company. It means in one device being able to do the work of over three devices: flash memory, DRAM, non-volatile DRAM which is something brand new and it really has the capability of addressing and even dominating a $100B market so I think that what we’re talking about here is the beginning of something that’s very very valuable to the stockholders.
Michael Latas: What is the latest status with the Matsushita lawsuit?
Stempel: Both parties, both Matsushita and ECD, have agreed to keep silent on the state of our negotiations other than to say that we are in the negotiation process and it is proceeding. Neither party has made any public comment on that.
Ed Stark: One of the things I’ve always been excited about is the comment Stan made a couple conference calls ago about unlocking hidden value. This would relate to the thin film cognitive computer and our catalyst. Has there been any progress made in commercialization or at least joint ventures in that area?
Stan: (quick, robust answer:) YES.
Stempel: Thanks Ed.
Ed Stark: Can you make any further comment?
Stempel: Not at this time.
Edgar Arnold: ValueLine writeups of ECD at first of the year and end of July estimates ECD sales of $120M for this coming year. Is that a doable figure or can you comment on that, from all areas?
Stempel: I really can’t comment on a forward figure like that, no.
Joel Leyden: With FC patent granted, asks for details on FC and plant buildout?
Stempel: Well Joe you’re a little bit ahead. We’re very pleased with the patent we just received. As Stan said earlier we definitely are in the process of building some demonstration cells and we’ll start to talk about a family of cells as we did with our family of batteries and different sizes. So far as a plant on the scale of the size of the PV, remember it’s taken 20 years to get where we are with PV so give us a little time to get there, but we certainly appreciate your interest.
Robert Preston: …Regarding the PV comment earlier… I understand you are expecting the 30 MW plant to come online full by the end of this year. Could you comment on what expansion plans you have for PV, maybe bring online another machine next year?
And could you talk about production costs/watt and watt output per square foot in absolute terms and maybe relate that to the competition, maybe Astropower’s Apex, their new cell that recently released?
Stempel: Well Robert let me first clarify something you said when you said that we’d be expecting 30MW by the end of the year. The way the machine operates, the speed of the machine if it was running every day, 24 hours a day, we’ll get the 30MW. You don’t slow it down or speed it up, it’s a constant rate machine. So the rate of the machine is equivalent to 30 MW per year. Now that’s multitimes what we sold last year and so we’re out developing sales contracts. Sales will be a portion of that and you have to keep that in mind. When the machine reaches capacity will then be the time as we approach that as we did the last time round which approached the capacity of our 5MW machine we stepped into the 30MW machine. We’ll be doing the same thing again and that will take us some time to get to that point.
Michael Selz:… looking at PV sales to an affiliate, Bekaert ECD, were $5.9M in 2002 and $6.0M in 2001. I’d like a better picture of what we are selling to Bekaert and how our sales are tied to Bekaert’s projection. Is there anything you can tell us about that?
Stempel: Let me ask Nancy answer that as we do sell to Bekaert.
Nancy Bacon: Because United Solar is consolidated into ECD, those are the things we talk about in our news releases and our 10Ks. The sales of United Solar are semi-finished products, that are strip cells. United Solar does all the advanced R&D and does all the high-tech manufacturing in terms of the actual solar cells, which we call the strip cells. Those strip cells, the semi-finished product, are then sold to Bekaert ECD Solar. Bekaert ECD Solar will then put them into modules and they assemble them into modules in systems and sell it to the end-users. So the real sales value from the end-user and retail point-of-view comes from Bekaert ECD Solar and I’m going to ask Steve to give you the real numbers for that for the respective period.
Steve Zumsteg: For the year ending June 30, 2001 Bekaert ECD Solar’s revenues were $8.6 million and this year we just passed was $16.3 million.
Michael Selz: So that is an important number, you are saying we’ve seen a doubling of sales, did I hear that correctly?
Stempel: Bekaert ECD
Michael Selz: Bekaert ECD has seen a doubling of sales, is that correct?
Zumsteg: That is correct.
Michael Selz: So there are some sort of pricing pressures on what we’re selling to Bekaert, is that true?
Bacon: Not really, it’s an intercompany relationship.
Ovshinsky: Well, first of all we don’t sell to Bekaert. Bekaert ECD and United Solar are approximately 50:50 JV partners with the two companies just being made and set up the way they are for various purposes including tax purposes.
Bacon: Yeah Stan is exactly correct and they were set up mainly for tax purposes, one is a LLC and the other is a C corporation. But if you look at the two combined, they are 50:50 ventures and we share in terms of both the losses and the profits that we’re looking forward to on a 50:50 basis. So there isn’t really any pressure on that strip cell sales, it’s just a matter that’s the semi-finished product.
Donald Shorling: Where does the GE program stand?
Stempel: Basically, the GE program right now we have put on hold because of the influence of the new occurrence of BluRay. The current DVD growth is primarily in the write-once area, not the rewritable area, but BluRay which is really focussed on video instead of computer storage and so working with GE Plastics we’re taking a look at the projections again because the DVD rewritable has slowed somewhat and it is anticipated that with BluRay it will pick up by mid of this decade. And so we’re taking a look at the actual market we want to head for and we’ll be doing that in just a few weeks as a matter of fact to reset our direction. Technically the program is doing very well. We’re embossing up to 8 disks per second. That’s 24 times faster than moulding and the approach we are using is very very compatible with BluRay which is expected to be primarily DVD rewritable which is our technology. Stan?
Ovshinsky: Yeah, it’s very important to understand that the relationship with GE is increasing and not at all anything that is just on a standby. We work with them in various areas; we have this strategic alliance and have a very close and very positive relationship. BluRay means that we’re able to use ultraviolet which gives us a much smaller pore size, the whole industry has been waiting for, and that will be a takeoff period.
Donald Shorling: my other question is: Do you plan to expense stock options?
Stempel: We haven’t reached a final decision on that yet but we are certainly paying attention to what the SEC is recommending and all of the various writings on that. You know some corporations have made that decision. It’s under review here at ECD.
David Holme: I continue to be very impressed with your technical progress but what’s in it for the stockholders? You have to have a lot of patience and all this. Should the board consider say a 2 to 5% stock dividend for a period of time to reward those of us who are continuing to invest in yours or should investors wait until these hit the bottom line before we invest in the company?
Stempel: Well I’ll take that as a suggestion and we’ll consider that but as you know ECD has not paid a dividend. We are now moving from a lot of years of work developing the technology to the commercialization phase and obviously Stan and I and the team feel that that’s really what’s going to be helping the stock.
Eric Augustine: I keep reading in the NY Times and elsewhere, written by various knowledgeable people how nobody wants electric cars because the range on these vehicles is somewhere around 40 miles and that flies in the face of everything that we have said and everything we’ve been able to produce. What I fail to understand is the lack of education that is out there for the public and in some cases for these professional writers. Is there anything that we can do to make Energy & Energy’s potential and products better known to the public? And I would think in the battery side, an agreement with Matsushita is probably one of the things that is holding up that recognition.
Stempel: Thanks for your question. One of the things we do have to do is a massive education job and it started this year with the Electric Vehicle Association putting a larger segment of its’ budget into public education and public knowledge. We are starting to see some awareness now of the HEV, the hybrid electric vehicle, but the plug-in hybrid still has some work to go before the public understands that and electric vehicles as you know is constantly misstated that 40 mile figure continues to be put forth and as you know mileage is at 100 to 160 per gallon. 200 miles is quite achievable with nickel metal hydride batteries.
Ovshinsky: By the way Eric, the hybrid, we’re not talking about plug-ins which are an advanced form and which are beautiful, the hybrid electric vehicle is really going full blast with the Japanese having introduced both the Prius and the Civic, the Honda Civic, and Toyota is coming forth with the Estima which is a beautiful minivan and all of the big Three as well as other areas of the world are, all of the big Three are very much heavily going into hybrids and it will be the car of the future starting now and if we make it with our nickel metal hydride we are the enabling technology for that huge new industry.
Eric Augustine: As to your cash, of your loss of $20M, how much of that was cash?
And how much cash do you continue to have on hand as of September 30th?
Zumsteg: Well we still continue to have approximately a $115M in cash and we have equity losses in our financials of about $4M so let me give you a good number for our loss from the K for operations. K from operations, we utilized just about $20M in K for operations for the year. When you take all the plusses and minuses that were involved, we did a good job of collecting our working capital but we had other cash uses.
Tony Pisciotta: Gentlemen for the past several quarters we’ve seen progressively decreasing royalty revenues on the battery side. The reason that’s been given is always increased efficiencies by the manufacturers and reducing prices. When do you think that that graph of supply vs. cost reduction is going to cross and when can we expect a reversal of this trend? And I guess related to that, when can we expect some sort of royalties to be paid by these new Chinese licensees, when will they start manufacturing?
Stempel: Well of course the Chinese licensees just come on and depends on where their batteries will be sold but that stream you know is yet to come. The current royalties with the major manufacturers, their prices continue to go down, when you look at the exchange rate and you look at the manufacturing efficiencies, that explains it quite clearly. The royalties on the bigger batteries, the propulsion batteries, are just beginning to be a factor and so I think we are going to see some further decline in our royalties since we don’t expect to see any currency reversal quickly nor do we expect the price pressures on the product to let up.
Jerry Harnish: For some time I’ve been expecting an increase in significant royalty and income from OPC, optical phase change memory. What was the revenue in ’02 for OPC and what would be required to make it increase significantly?
Stempel: Let me ask Steve…
Zumsteg: Well I can tell you what the amounts are… the royalties for optical memory were 66 thousand dollars last year.
Jerry Harnish: Okay
Ovshinsky: The answer to that is very clear. Phase change memory is used now all over the world and is very successful. The big market that’s developing is rewriteable DVD and we are just waiting for a patent settlement between the two companies, one in Japan who originated it . That has taken place just a week or two ago. We all in the industry expect then there will be a forward march because it is without question a beautiful kind of product which everybody wants.
Jerry Harnish: And a quick second question here on the Chinese JVs, what were their revenues, do you have revenue numbers for them for ’02 and any idea on the revenue levels required for profitability?
Stempel: Well the joint ventures Jerry are just really starting up and getting underway, they build the plant and the equipment and we’ve been delivering the equipment and so on and we’re in the training phase now. Subhash, would you like to add anything to that?
Dhar: The installation is nearing completion and debugging is underway and we expect these plants to be operational in the next few months, so we don’t have any numbers yet.
Chris Kwon: A few months ago, you guys were doing some work with Ballard’s portable system with the metal hydride canisters with your metal hydride storage system device. I wonder what’s the status on that, are you going forward with Ballard and their portable unit or is that at a standstill?
Stempel: When you say Ballard I assume your question refers to portable fuel cell devices and we’ve had some work with various people that are involved with putting together fuel cell generators and currently that work is still in the development stage and for various reasons some of the partners have not gone forward but we continue to test well and work with them.
Chris Kwon: So you’re still at the testing stage and it’s ongoing?
Stempel: Ongoing.
Judd Hollis: Last quarter you mentioned that you were working on increasing the storage capacity of your nickel metal hydride material, I believe it’s quoted now at 7wt%.
Can you give any indication of what type of increase you might be looking at?
Stempel: The 7wt% comes at 300 degrees C. What we’re trying to do is increase the weight percent storage at what we call room temperature or low temperature at the request of the automotive manufacturers who would like a lower temperature hydride. Initially, we had a 1.6wt% at room temperature, we’re now up to 2.6 - 2.7 and we’re very hopeful here in the near future to be over 3 percent and work continues very well. At that level, we would have the capability then in a very reasonably sized volume hydride tank to be able to provide fuel for a car with a range of about 300 miles.
Joel Leyden: I was wondering if you could comment about the Federal Government position with regard to encouraging the kind of work that this company is doing, are they denying, are they neutral, are they commited to fossil fuels for the indefinite future and so on?
Stempel: Well I think the remarks I’ve made relative to the Secretary’s visit underscore where the administration is now starting to look in earnest. I mentioned the Freedom Car project which is a number of alternates to gasoline powered vehicles. We have a contract with that project and are working on others. The photovoltaic area is of great interest to the Department of Energy and working with NREL, the National Renewable Energy Lab in Colorado, we’ve had numerous projects with them over time. The renewable energy, while it’s taken a while for the administration to make note of it, certainly is coming up on to their agenda. We’ve been pleased with response of the Energy Secretary and the Department.
Ovshinsky: We are recognized all through the years, from the very beginning. ECD and United Solar have all the worlds records for thin film photovoltaic and it is now common knowledge, spoken about by various large companies who are in the crystalline material field, that’s the future thin film. We make it by the mile. We make it by the ton
Stempel: We’re now into the second round of questions and will probably draw our CC to a conclusion for the day. I thank all of you for your continued interest and support for ECD. With that I conclude the CC. Thank you all. |
