Superconductor Technologies Inc.
Q4 2018 Earnings Call Transcript

Published: 21 Mar 2019

[Operator:]

Good day, and welcome to the STI Fourth Quarter and Year End 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Moriah Shilton of LHA. Please go ahead, ma’am.

[Moriah Shilton:]

Thank you, Ian. Good morning and thank you all for joining us for STI's fourth quarter and full-year 2018 conference call. If anyone has not yet received the earnings press release, it is now available at the company's website. If you would like to be added to our distribution list or if you would like additional information about STI, you may call LHA at 415-433-3777. With us from management today are Jeff Quiram, President and Chief Executive Officer; and Bill Buchanan, Chief Financial Officer. I will review the Safe Harbor provisions of this conference call and then I will turn the call over to Jeff. Various comments regarding management's beliefs, expectations, and plans for the future are forward-looking statements and are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and are subject to various risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ from those expressed in the forward-looking statements and those differences could be material. Forward-looking statements can be affected by many other factors, including those described in the Risk Factors and the MD&A sections of STI's 2017 Annual Report and Form 10-K. This document is available online at STI's website, www.suptech.com or through the SEC's website, www.sec.gov. Forward-looking statements are based on information presently available to senior management and STI has not assumed any duty to update any forward-looking statements. Jeff will begin with an update on STI's Conductus wire program. And then turn the call over to Bill for a review of the financials, after which Bill will open up the call for Q&A. And now, I would like to turn the call over to Jeff.

[Jeff Quiram:]

Thank you, and good morning, everyone. Last year this time, we discussed on the earnings call our decision to focus our Conductus wire product development efforts on superconducting magnet applications. In large part, due to the attractive revenue potential forecast by several key customers. One year later, we believe that the expected demand from potential customers and the related potential revenue clearly confirms the correctness of that decision. The ever-increasing number of companies are now pursuing high field low temperature magnet applications such as next generation electrical machines, NMRs, proton and particle accelerators and fusion devices. For example, there are approximately two-dozen nuclear fusion participants, including start-ups, government initiatives, and commercial company projects such as Lockheed Martin's compact fusion reactor. All these entities are attempting to accomplish the goal of delivering energy in a clear environmentally friendly and cost-effective manner. In 2018, we successfully developed enhanced conductors wire that delivered 1.5 times the critical current performance and more importantly doubled the in-field magnet performance. These wired optimization efforts included the $4.5 million NGEM project awarded by the Department of Energy to STI and its partners TECO Westinghouse Motor Company, Massachusetts Institute of Technology, and the University of North Texas. And are synergistic with many of the super conducting magnet applications being pursued at this time. We recognized approximately $2 million in revenue from the start of the project in June 2017 through the end of the first budget period in September 2018. As we have discussed previously, we conducted our R&D efforts utilizing our production systems to ease the transition as we ramp up wire volume production. In the third quarter, the specifications for this high-performance magnet wire were finalized and are now being utilized in our manufacturing runs. In the fourth quarter, we started integrating production enhancements designed to improve process control in order to maximize yield. The completion of these upgrades requires us taking our production off line for a short period of time. However, demand from our potential customer at that time were such that we pushed all the needed production upgrade until the first quarter of 2019. We are currently completing that production transition process, which involves a certification of each of the four steps required to manufacture Conductus wire in high-volume. Today, our operations team has certified two steps with the template in the high [indiscernible] procedures locked for higher volume. We are now concentrating our efforts on the two open items to HCF’s deposition machine and the final step of our copper encapsulation. The deposition machine is in the final stages of routine maintenance and system upgrades, which include heater and temperature control upgrades, new heat shields and the rebalancing of the [drawn]. This effort is required to improve process stability necessary to deliver higher yields and increase capacity. On copper encapsulation, we are working with outside suppliers to optimize methods for full production, long length, and high volume. We anticipate the remaining certifications will be signed off by operations in the second quarter. In 2019, we are focused on ramping production volume as our customer demand has transitioned from qualifying samples to kilometers near term with tens of kilometers later this year. We anticipate begetting delivers of kilometers of wire starting in the second quarter. We are currently focused on increasing capacity, piece length, and yield for our commercial customers. Once these efforts are successfully completed, we expect to begin the second budget period for our Department of Energy project. In this budget period, utilizing TECO design, we will be focused on producing components for a 5,000-horsepower motor using our Conductus wire. The wire utilized in this budget period will require 10% performance improvement over that obtained in budget period one along with long piece length and improved yield. Again, the stated goal of the project is to improve performance of Conductus wire to 1,440 amps operating at 65k, 1.5t [indiscernible] field and lowering the cost by improving yield. Now, Bill will provide a review of the financials. Bill?

[Bill Buchanan:]

Thank you, Jeff. We did not record revenue in the fourth quarter as we remained focused on ramping production from sample size orders to kilometer length orders. In the fourth quarter of 2017, we recorded $307,000, most of which came from our ongoing DoE NGEM project. Total R&D expenses amounted to $697,000 and were $550,000 in the prior year quarter. SG&A expenses were $884,000 compared to $766,000 in the year ago quarter. Net loss for the quarter – for the fourth quarter of 2018 was $2.3 million or a loss of $0.70 per basic and diluted share, compared to a net loss of $1.9 million or a loss of $1.73 per basic and diluted share in the fourth quarter of 2017. For the full-year, total net revenues were $1.6 million compared to $446,000 for 2017. Net loss for the year 2018 was $8.1 million or $4.03 per basic and diluted share compared to a net loss of $9.5 million or $9.06 per basic and diluted share in 2017. Please note, the share and per share data for both periods was adjusted for the 1-for-10 reverse stock split effective on July 24, 2018. Under the balance sheet, as of December 31, we had $5.6 million in cash and cash equivalents. We raised approximately $10 million in net proceeds from equity related offerings in 2018. In 2018, $7.1 million was used to fund our operation and $200,000 was provided by net changes in our working capital. Based on our current forecast, we expect our existing cash resources will be sufficient to fund our planned operations well into the third quarter of 2019. And now operator, please open the call for questions.

[Operator:]

Thank you. [Operator Instructions] We’ll now take our first question from Sameer Joshi of Wainwright. Please go ahead.

[Sameer Joshi:]

Hi, Jeff. Hi, Bill. Thanks for taking my questions.

[Jeff Quiram:]

Yes, good morning Sameer.

[Bill Buchanan:]

Good morning.

[Sameer Joshi:]

Good morning. And so, the DoE revenue, when do you expect the second phase of that to begin?

[Bill Buchanan:]

We’re – Sameer, we’re – we believe it will probably be late in the second quarter, late in the second quarter or early in the third, and then really that’s a function of – it does require us to focus on it and dedicate some machine runs to that program. And right now, we really are at the point where we want to have all of our – all of our runs focused on the wire for our commercial customers that are really looking to build their devices. So, we continue to talk with the DOEs. The DOE understands kind of where our schedule is and what we’re trying to accomplish as your partners. So, I don't think there's any real surprises there from anybody, but it’s really a function of having the commercial customers take precedence at this moment. And so, it will be a quarter from now or so at the earliest probably.

[Sameer Joshi:]

Understood. So, coming to the potential commercial customers, can you elaborate or give some color on the kinds of customers that you’re talking to, the numbers and the average length of wire per year that these customers are talking about?

[Jeff Quiram:]

The majority of the customers that are actively looking for large quantities of wire right now are in the magnet applications. And so, we have several orders in-house. And again, like we said, we’ve transition from just providing qualifying order lengths, so small lengths of tens of meters to hundreds of meters. So, it’s now having folks that want kilometer lengths of wire or kilometers of wire. I shouldn’t say they are not necessarily continuous kilometer lengths, but they need kilometers in that overall volume. So, that's why we’re really focusing our energy on being able to run the machine, and then really doing the work associated with getting the higher yield and the higher throughput that we really need to ramp production. And so – but again, magnet applications are really leading the charge at the moment.

[Sameer Joshi:]

Okay. And are you building up any inventory as you continue – as the – useable inventory that – during this test phase?

[Jeff Quiram:]

We’re building up inventory of template because that machine is – those machines are still operating while we’re doing the maintenance on our RC machine. So, we have certainly been building up inventory of template so that when we return the RC machine back on, we have plenty of template to run. So, we’ve been focused on that since the first of the year.

[Sameer Joshi:]

So, the remaining two steps, which you expect to complete in second quarter, after that you should be able to start making meaningful lengths of wires, is that correct?

[Jeff Quiram:]

Well, yes. And we have significant amount of template in stock, so we won't have to – we won’t be worried at all about that supply of the – when we start running the machine and that will allow us to really focus on getting some higher – higher quantities of wire off the machine. And then of course, the final stage is the encapsulation and outside suppliers. You know, frankly those folks are – they want to run multiple kilometers in a run, so volume through them is not really going to be an issue, it’s really more the volume through our RC deposition is really where we’re focusing our efforts.

[Sameer Joshi:]

Okay. And have – say if you are able to increase the yields to desire that levels? What would your costs per kilometer be, and the price per kilometer be for the customers?

[Jeff Quiram:]

Well, I mean price of course is something that will be – is negotiated with all customers individually, and we won't really talk about that. I will say that we believe we have our costs in line and that we will be in the situation where we will have gross margins in excess of 50%. And so, I think that that is pretty consistent with where we’ve been in the past. We believe that there is – and then the goal of course, as you increase yield – increased yield does two things. Number one, it reduces the cost; and number two, it gives you more wire to sell, so increases revenue as well. So, we’re confident that we’re – our costs are still online and that we’re in position to have a nice contributing product to the bottom line once we start selling it.

[Sameer Joshi:]

Okay. One last one, so looking beyond 2019, 2020 and so on, do you expect the applications to remain in the magnetic applications? Or do you see any other kind of customers coming in and contributing to growth?

[Jeff Quiram:]

Well, there are certainly – there are certainly other applications that are being talked about and a number of customers are interested in the wire for their specific applications that are, I guess I would say, outside the magnet field, but with what we’re hearing on potential demand in magnets, I'm not sure there’s going to be any wire available. When you start getting out in the 2020, 2019, there is people talking about, you know, tens of thousands of kilometers of wire demand in those magnet spaces, and, you know, that’s many multiples of what the industry can produce today. And of course, almost by definition that magnet wire is high-performance wire, so that even takes the industry capacity today and reduces the number people who can actually provide that performance. So, I think there are opportunities, Sameer, but I – as of now – and we certainly don’t – we’re not discounting them, but as of now, they are being dwarfed by the magnet applications.

[Sameer Joshi:]

Great, thanks. It’s great to see you talk about tens of kilometers of wire later in the year, good luck on that. Thanks for that.

[Jeff Quiram:]

Okay. Thank you, Sameer.

[Bill Buchanan:]

Thank you.

[Operator:]

Thank you. And we’ll now take our next question from Steve Kruger of Foresight Investing. Please go ahead.

[Steve Kruger:]

Good morning, Jeff.

[Jeff Quiram:]

Good morning, Steve.

[Steve Kruger:]

You said that – yes, good morning. You said that the – you completed Phase 1 of the DOE contract and that the performance of the latest recipe was certified at 1.5 times critical current or performance over the initial starting performance. What was the initial starting performance? And what was the current carrying capacity of the certified wire?

[Jeff Quiram:]

At the current – at the specifications, which is the 65 kelvin and 1.5 tesla, I don't know exactly what the starting point was. I do know that we’re in the point now, Steve, where you’re carrying approximately 1,000 amps.

[Steve Kruger:]

Okay. So, then the starting point must have been like 650 or something like that if …

[Jeff Quiram:]

In that area.

[Steve Kruger:]

And you said the ultimate goal of the DOE is to get to 1,440, but the applications that you’re talking about with your commercial – perspective commercial customers now, what kind of current do they need?

[Jeff Quiram:]

Well, that is really the – that is – part of the issue is that there's customers that have dramatic demand for wire that is not 1,440, is a lot less than 1,440. So, the real challenge for us is balancing the desire to continue to push the envelope on wire performance and getting it as good as possible. But really, we want to make sure that we are spending enough attention on the customers that exist today, and that have current demands that are significantly lower, and have devices that are designed to utilize wire that is not 1,440. So – because the reality is when the wire – whatever the device is designed to use for current, that's what they're going to carry, and so, if the device is designed at 700 amps for instance, it doesn't really matter whether the wire can do a 1,000 because it won’t be utilized. So, that is the balancing act, and that's really why we have to choose to do one versus the other at the moment.

[Steve Kruger:]

I guess the question is…

[Jeff Quiram:]

Go ahead.

[Steve Kruger:]

Is your capability for current right now, does that exceed your customers’ requirements, meet or exceed?

[Jeff Quiram:]

I’d say it meets with the margin right now, what the customers need.

[Steve Kruger:]

Okay. So, people are generally going to be looking for wire that has a current carrying capacity of less than 1,000 amps?

[Jeff Quiram:]

Yes. Almost all of the applications today are in the – well, at the high end, there are in the 600 amps to 700 amps, are really what people are looking for. There might be an outlier, a scientific device that would – like something a lot greater than that, but majority of the hot runners are in the 600-amp to 700-amp range.

[Steve Kruger:]

Yes. So, the certified capacity of the wire that you’re producing now exceeds the requirements of your customers, and so [indiscernible].

[Jeff Quiram:]

It’s sufficient for what these customers need. That’s correct.

[Steve Kruger:]

Okay. Now you said that the current carrying capacity of your new recipe was certified. What lengths of wire was used for the certification?

[Jeff Quiram:]

It was tens of meters.

[Steve Kruger:]

Okay. And what's the longest length you’ve produced so far that can meet that 700-amp capacity?

[Jeff Quiram:]

Oh! I don't know. I don't know what the exact number would be. It's probably 120 meters or something of that nature.

[Steve Kruger:]

And is that sufficiently long? Can they [splice] enough segments of that length to do what they want to do? Or is that still not aligned?

[Jeff Quiram:]

It depends on the design of the device. Most of the devices are not looking for much more than 100-meter to 150-meter lengths. Now, there are exceptions to that, but the majority of them are shorter lengths.

[Steve Kruger:]

Okay. So, if you can get the capability of the deposition machine up to where you can consistently produce multi-hundred-meter lengths, you’re going to be ready to go to ramp?

[Jeff Quiram:]

That’s – that is our belief. Yes [indiscernible].

[Steve Kruger:]

Okay, yes. Okay, good. That’s all I have right now, Jeff. Good luck, thanks.

[Jeff Quiram:]

Okay. Thank you, Steve.

[Operator:]

Thank you. And we’ll take our next question from Bill Lap who is a private investor.

[Unidentified Analyst:]

Good morning, Jeff. Thank you. Jeff, just to follow-up with the prior person from Foresight. So, are they taking wired now? Are you shipping them wired now that they’re testing with at 120-meter length at all? Are they getting that or not? The customer, are they taking samples of that length?

[Jeff Quiram:]

Well, at this instant – at this instant, our RC machine is being – we’re finishing some routine maintenance on it, so at this instant, we’re not shipping any – we’re not shipping those quantities. We have shipped tens of meter lengths and those were the last – those were the last samples that were being tested, Bill. So, …

[Unidentified Analyst:]

Okay. So based on those samples, the people are telling you, if you can produce the lengths we need, we’re ready to go and they are waiting on you. I mean they haven’t given you an order or anything, but indication of interest. They are waiting on you to produce to get the big run so that you can do it, right? I mean is that the next two – you said there is two more steps, and once that’s done, are you in the position to deliver? I mean [indiscernible]?

[Jeff Quiram:]

I would say to speak in general about the view of our customers is that they are convinced that we can provide the performance and they remain hopeful about our plan to ramp up volume, but that’s what we need to be able to indicate to them that we can start shipping them some kilometer, you know, total kilometers worth the wire, and once we do that, that’s really the box that needs to be checked, so then turn into large orders. So, I guess the way you characterize it is, are they waiting for us? Yes, they are waiting for us.

[Unidentified Analyst:]

Okay. So, once you give the next big sample of the kilometer, and they are convinced, then they are ready to order probably. So, when – and you think you’re going to have that capability in the second quarter?

[Jeff Quiram:]

We expect to deliver kilometers of wire in the second quarter, yes.

[Unidentified Analyst:]

Okay. And do we think – are we worried about the four step, like we had with FLCs? I mean is there – you know, when you’re sending them out to the last – to the vendor to code on what the copper and whatever, is that – do you foresee any problems with that because it’s not the same problems you had with the [indiscernible] meters?

[Jeff Quiram:]

Well, I mean we’re – until we’re getting a bunch of that wire and it’s working every time and we repeat the process over and over again, are we concerned? Yes. Do we feel we have good partners in place that have demonstrated the ability to provide consistent sort of work there? The answer to that is yes as well. So, I guess what’s really going to come down to you Bill is when we start – when we start this [indiscernible] and we start doing the kilometers of wire, that’s when we’re going to get a much better indication of whether we’re getting the consistency that we need. But as of now, yes, I have some concerns, but I'm not overly concerned at all. I’ll always have concerns until the wire has just flown out the door, but I think we have a good team in place, and a good set of partners in place. And so, from that perspective, I feel pretty good about where we’re at.

[Unidentified Analyst:]

And of course, your samples, you’ve been selling – have been done by the outside vendor, right? I mean less than a kilometer. Yes, so in other words, they performed, they’ve done it and it has worked right?

[Jeff Quiram:]

We have – yes, the wire that we’ve shipped to-date has had the outside suppliers doing work on them. So…

[Unidentified Analyst:]

Okay. Alright so now that if we get this order, which may not be till the third quarter and we don’t know what – you know, what the schedule would be. How are you going to finance that? Are you going to be able to get any purchase money financing on this without selling more stock or diluting the equity unless the warrants become exercised? You know the 350 warrants to stock, you know, today its traded like 6 million shares, but what would you see for financing this? Or what are you going to need to ramp up? To start making the production you got to buy inventories et cetera, right?

[Jeff Quiram:]

Yes, the challenge – the challenge of the ramp is really more of our – it’s a working capital issue, and as you start you start to ramp, the thing that we know for sure is that we will be – we will – the goal is to have a relationship. When your shipping the wire, you may get a very large order, but everyone knows that the wire will be shipped periodically and that's just kind of the way the industry has been working. And so, if you get an order for 50 kilometers, let’s say you’ll be shipping – you won’t hold the whole order and then ship all the 50 together for instance. And so, you’ll be shipping it and getting paid as you go along. But those are all to be negotiated. And you think there will be a challenge with working capital. We start moving towards the hundreds of kilometers, so there will be a view on how we finance that. How we do it is really something that will – well, we’ll take the best avenue available to us as we can Bill. So, I can’t say that. Is that vendor financing? Is that some other sort of financing? We will always weigh the value of the various transactions and do the one that we think makes the most sense for the company and for the shareholders. And so, I guess I’m not going to prejudge that at this moment.

[Unidentified Analyst:]

Would some of these customers be willing to make a substantial down payment on some of this knowing – you know, I mean they know you’re not general electric. I mean they know you are small, but you’ve got the thing they need. Do you think that they would be willing to come up with fund money or [indiscernible] about that?

[Jeff Quiram:]

So, there’re been a lot of discussions with a lot of parties about different ways to do things. I don't think I'm going to – I can’t tell you that. Yes, there’s a host of customers out there that just want to send us money.

[Unidentified Analyst:]

Okay.

[Jeff Quiram:]

They want to buy wire and they need the wire to be able to successfully execute on their business plan. We’ll continue to talk with them and do what makes the most sense for everybody. And our goal of course and everyone's goal is to be able to ramp production and get some volume out there. And so, we’ll do what makes the most sense to be able to do that Bill.

[Unidentified Analyst:]

Okay. Well, that sounds like you’re in the right direction and this call is what we’ve been waiting for. I mean you still have to make the last – you know, you’re at [ADI] line. You’re almost at the goal line, so that’s good. Thank you.

[Jeff Quiram:]

Alright, thank you Bill.

[Operator:]

Thank you. [Operator Instructions] We’ll now take our next question from Andrew Shapiro of Lawndale Capital Management. Please go ahead.

[Andrew Shapiro:]

Hi, thank you for taking my question. These would be some follow-ups to what Bill had to say, just to get a little bit more color. I understand you'll, you know, get the financing that you can to deliver on the product at the lowest cost of capital as possible so to get a feel for the timing of the cart before the horse type of situation. You have – I think your press release said about $5.6 million in cash at the end of December, are you able to give us an update of your cash balances around now?

[Jeff Quiram:]

Well, it will be filed on the K next week, so that will give you a better view, but I don't – I mean, we burn less than 2 million a quarter and that hasn't changed. And so, I guess …

[Andrew Shapiro:]

No, that’s a good handle there. But now given where you are in cash around now and the timing of when you would make deliveries, can you educate us a little bit on kind of like when – the payment terms that – we call it the whole payables, receivables cycle that this line of business is likely to entail, so we could get a feel for like what kind of working capital ramp up might be needed before you start collecting on the receivables that these customers would be generating for us?

[Jeff Quiram:]

Well, the majority of the customer that we’re talking with at the moment are – they are – we’re not dealing with an international – you know, I think, in lot of times, when you get concerned about well, what are the payment terms? They tend to be pushed all payment terms as you move into potentially other areas of the world. We are – the customers that we’re talking with now are – they’re all pretty much associated with what goes on in North America, what goes on in Europe. So, from a payment term perspective, you have a 30-day, a 45-day sort of cycle. So, from that perspective, we’re not looking at financing, you know, sort payables where your sending wire and getting paid in six months. So, I guess I just wanted to throw that out right away as kind of the general terms.

[Andrew Shapiro:]

Okay.

[Jeff Quiram:]

And then as you then go forward and decide – and again, this is all very much speculation, Andrew, because, you know, we haven’t negotiated that large order with that customer yet. So, I don't really want to spend my time talking about negotiating strategy on this call, but everybody recognizes that we’re not in a position to finance anybody’s receivables or anybody’s payables I guess I should say. We’re able to, you know, hold our product for extended period of time before paying us. I mean I don't think that anybody that looks at us realizes that that's not the position that we’re in. And so, I think any customer that wants to move forward with us will recognize that will have to be a relationship where we’re going to ship to wire and we’re expected to be paid for it and we’ll see what the time is between those two…

[Andrew Shapiro:]

Well, let me add a little – maybe add a little more color to the question because I understand you’re – you know tip toeing them. You need to tiptoe about some of this. Are we dealing with international customers where the wire is going to be on a boat and, you know, it takes longer? For example, Tesla, when they started shipping their cars to Europe, you know, that was a time lag where they are not collecting the cash as much as they were when they were doing domestic sales, right? So, is this an international – are your near-term customers international or domestic? Can you say that?

[Jeff Quiram:]

Both.

[Andrew Shapiro:]

Okay.

[Jeff Quiram:]

And the good news is that when you're talking about kilometers of superconducting wire, it isn’t like shipping a car, it isn’t like shipping a big reel of conventional cable either. The good news is, you can throw it at a box and throw it on an airplane.

[Andrew Shapiro:]

Okay, good. Alright, so it will be quick. There won’t be major difference between international and domestic. Your customers are probably large financially well healed because they are doing this kind of a new development of these pretty very important electrical products that they need your wire for, fair enough, so I'm not worried about the credit quality, but in terms of you building the template, you’re financing right now, and funding your one set of the inventory, you're going to be running the wire through the RCE machines et cetera and you’re building that up, is there a range of money we’re thinking of here that the company will probably need to build up the appropriate ongoing working capital cushion is it 2 million, is it 5 million, is it just a million, is there a range that you Mr. Buchanan can tell us at all at this time?

[Jeff Quiram:]

Yes. As I said, Bill do you have a view on that at the moment?

[Bill Buchanan:]

Yes. I really don't because you are asking me to speculate on the steepness of any kind of a customer expectation or ramp to deliver this wire and so it becomes very difficult. In other words, if the machine starts delivering the very high quantities that we expect that it was designed for that could put some very serious demands on working capital. So, I really do not care to speculate on the thickness of any potential customer [indiscernible].

[Jeff Quiram:]

I think we could safely say with what we’re looking at right now though it is probably – it is in the single digit millions [indiscernible] we're not talking tens of millions right now.

[Andrew Shapiro:]

Okay, good. I mean that’s helpful. Just to kind of give guidance because what, you're going to need a tranche of financing. I don't know if it’s equity we don't know if it’s debt right, you don't know if it’s some kind of hybrid in between, probably to get the company to a run ramp of delivering 50% or more margin wire and trying to…

[Jeff Quiram:]

And the steepness of the ramp will be a function of and this is where Bill is, I think Bill is exactly right, and that it is hard for him to say because some of the quantities that are being thrown about by some customers, I mean there could be, all of a sudden you could have a demand in place for, I guess a tremendous ramp and then to be honest the challenges may be more not working capital it is more, do you have the, do you need to spend some money in other ways to really ramp production.

[Andrew Shapiro:]

Right. You’re talking like equipment?

[Jeff Quiram:]

Yes. Well maybe you got to go buy another machine or maybe you have to go buy another [indiscernible] or two or whatever you need to do, and I think that’s – if the scale of the ramp is …

[Andrew Shapiro:]

I would think that customer – that customer if they are going to give that kind of order it would be helpful in facilitating the company's financing capabilities to get there?

[Jeff Quiram:]

Well, even if the customer himself wasn’t facilitating, I think just the fact that you now have an order of magnitude that you are trying to serve us will make our financing activities significantly more – well it will be more beneficial to the company to be able to…

[Andrew Shapiro:]

Yes. I mean then you're talking about forms of debt. I mean certainly not AAA rated debt, but you are talking about things where there is that. Okay, then in terms of timing, this seems where it looks like probably you will have more visibility on these orders and your progress in the second quarter, which is coming up soon along with probably the timing for when you would go for some financing or for some capital, does the company have a means of forcing conversion of warrants and about how much in potential dollars raised, meaning the warrants that are outstanding and their strike price might the company be able to tap?

[Jeff Quiram:]

Well we just answered one part of that first. We do not have a means to force conversion of warrants. So, that is not something that we can do.

[Andrew Shapiro:]

Do you have any end of money warrants, now that the stocks where it is you have any end of money warrants that are coming up for exploration in the near-term?

[Jeff Quiram:]

No. I mean the closest warrants to be in the money will be, there is a very large short tranche of warrants that are in the money at 350.

[Andrew Shapiro:]

Okay. So, we are away from that right now? Alright. Well we look forward to your next sets of warrant achievements and probably to see the terms under which you are out there attracting another [slug of capital] hopefully not to large and not too dilutive.

[Jeff Quiram:]

Very good. Thank you, Andrew.

[Bill Buchanan:]

Thank you.

[Operator:]

And this concludes todays question and answer session. I’d like to hand the call back to you for any additional or closing remarks.

[Jeff Quiram:]

Thank you. I would like to thank everybody for joining us today and we look forward to talking with you again on our next call. Good day.

[Operator:]

This concludes today’s call. Thank you all for your participation. You may now disconnect.