Superconductor Technologies Inc.
Q2 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Good day everyone and welcome to the STI Second Quarter 2015 Conference Call. As a reminder, today's conference is being recorded. And at this time, I'd like to turn it over to Ms. Cathy Mattison. Please go ahead, ma'am.

[Cathy Mattison:]

Thank you, Herring. Good morning and thank you for joining us for STI's 2015 second quarter 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 turn it 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, and including those described in the risk factors and the MD&A sections of STI's 2014 Annual Report on Form 10-K. These documents are 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 overview and then turn the call over to Bill for a financial review. And now, I would like to turn the call over to Jeff. Please go ahead.

[Jeff Quiram:]

Thank you, Cathy, and good morning everyone. I will begin with an update on our Conductus wire program. High temperature superconducting technologies allows our customers to remedy problems unsolvable by conventional means. There are three product applications for which our Conductus HTS wire is currently being evaluated and tested. They are fault current limiters, high field magnets and power transmission cables. The primary customer interest in Conductus wire, it is from industry leading multinational companies with active part involved in teams in place. Many have pipelines and products that will be planned to launch using the AIM changing issue as wire technology. A reliable supply of high performance wire is critical to these customers. Since our last call in May, we have made significant progress in our customer evaluation activities through ongoing improvements in our conductors wire and production equipment performance. First I will review the fault current limiter market. As we've discussed on past calls, fault current limiters have emerged as a major near term opportunity for STI. For approximately 250,000 power substation currently in operation worldwide, there is significant market potential for this solution. Large current spikes can damage or destroy important components in the grid, circuit transformers. Utility to spend billions of dollars each to maintain and protect the grid from these potentially destructive fault currents. The Department of Energy has identified many immediate benefits to the grid provided by superconducting fault current limiters. Fault current limiters require significantly lower capital expenditure than a substation upgrade and do not experience to strike the failure during a power surge. They enhance system safety, stability, and efficiency by protecting against damaging fault currents and wire cost, and the improved grid liability when renewal energy sources are added to the system. The expected benefit of fault current limiter deployment is the reduction of wide array black cost, fewer localized disruptions and improved recovery time when disruptions do occur. These solutions also provide a compelling value for operators by minimizing or eliminating expenses equipment replacement and reducing maintenance cost. These significant benefits are driving the adoption of this new technology. Several fault current limiter suppliers have delivered impressive results in projects with global utilities. These results have spurred a growing number of device manufacturers to pursue fault current limiter development. The manufacturers must provide investing class performance with the solution has to be widely deployed in existing and new medium and high voltage substations. As a result, they require Conductus wire to pass extensive electrical testing that replicates to thermal cycling of the superconducting wire in high current operation. This summer, Conductus wire demonstrated significant improvement from multiple customers and applications. We believe we will meet all the performance parameters of one or more customers in the next few months. In June and July of 2015, multiple superconducting fault current limiter customers verified conductors 550 Amp currently handling and recognize superior mechanical properties. These test results demonstrated dramatic improvement in the last iteration of testing. Our customers are responding very quickly and providing detailed guidance and feedback. The evaluation process has transitioned from a specification driven past bill testing methodology to a much more collaborative effort that also addresses wire supply metric such as forecasting, delivery lead times and price. Our goal is to ensure that Conductus wire availability can fulfill their expected demand. Now I will review the opportunities we are targeting with our partner, the Robinson Research Institute. Robinson has developed an innovative Roebel cable technology that utilizes multiple strands of HTS wire in a unique winding configuration to manufacture a single cable that delivers extremely high current carrying performance and other impressive benefits. For example, when Roebel cable is utilized in a magnet application, it reduces alternating current or AC loss, increases stability via current sharing between the wires, and provides greater strength. Working with customers in AH [ph], Robinson has dealt both NMR maintenance and utilities built transformers that utilize this simulator Roebel cable. In the second quarter we reached an important milestone with Robinson by completing Conductus wire applications for Roebel cable. Conductus wires superior performance in the presence of a very high magnetic field in conjunction with the Roebel cable's low AC loss provides an ideal product solution for magnets and many other high performance applications. As we have stated in the past, Robinson has a strong presence in Asia, together we will continue to aggressively pursue a number of opportunities with customers that plan to deploy Roebel cable in superconducting devices. We recently received our first order for a demonstration project with a customer introduced to us by Robinson. We expect to ship wire for this project in the third quarter. Turning to our top power superconducting cable demonstration project, our customer is still eager to test our conductors wire for this application. However, due to other internal lab resource commitments our customer has informed us that it now expects to complete the evaluation in late August. We remain confident that we will meet the customer requirements and become an approved STIs wire supplier for its superconducting power transmission cable. We continue to prioritize our efforts for customers we believe are the best positioned to aggressively deploy superconducting devices in the near term. This prioritization process has allowed us to increase the velocity of shipments to these key customers as they complete qualification testing. Although the qualification process has taken longer than we initially expected, we believe that with our new production machine increasing, the quantity of high performance wire available, we are well positioned to meet all customer wire requirements in the next couple of months. Now on the review of the Conductus wire performance and production. Since our last call we have delivered significant improvements in both areas. In June, our production system achieved record current handling performance delivering in excess of 900 Amps at 77 kelvin in self-field on a single wire. This further demonstrates the effectiveness and scalability of STIs proprietary RCE-CDR process. We continue to increase the run lengths and output of high performance Conductus wire manufactured on the production machine and have consistently producing wire with high current handling performance. We have begun to utilize this wire output to complete qualification and valuation testing with our customers. Moving on to the marketing side, in September STI will present a technical paper at the 12th European Conference on Superconductivity called EUCAS. We are honored to participate in this international form for the electrical utility and superconductivity industry. This conference brace together with global suppliers, academia, and other scientists working on disruptive superconducting technology to address critical needs in the electrical grid, fault services and advanced research industries. In summary, we are very encouraged by the progress we have made to qualify our wire for use in one or more applications in the next few months. We continue to believe that 4 kilometers along the high-field magnet applications are very attractive initial commercialization opportunities with near term demand. We expect that Conductus wire has been - we are excited that Conductus wire has been approved for use in Robinson's Roebel cable. We continue to pursue multiple opportunities for new product solutions that combine the strengths of our high performance Conductus wire with Robinson's superconducting device technology. Now to Bill for review of the financials. Bill?

[Bill Buchanan:]

Thank you, Jeff. During the developmental stage of our HTS wire program, we have continued to sell wireless products and the revenue was primarily from these wireless products. In our second quarter, revenue was $71,000 compared to $75,000 in the year ago quarter. The commercial gross margins were negative in the second quarter. As we bring our wire production equipment up to capacity, we expect significant gross margin improvements. Total R&D expenses amounted to $1 million and were $1.5 million for the prior year quarter. Our 2015 efforts are lower as we transition our 2G wire efforts to manufacturing. SG&A expenses were $1.3 million compared to $1.4 million in the year ago quarter. The decrease was from our cost saving efforts in early 2015. We recognized non-cash gain of $752,000 from the fair value adjustment of our warrants issued in August 2013. This amount will fluctuate quarterly based on several factors including our stock price. Net loss for the quarter was $2.4 million or a loss of $0.14 per share compared to a net loss of $55,000 or a loss of less than $0.01 per share which included a onetime gain of $3.5 million from the sale of our Resonant shares in the second quarter of 2014. The total number of common shares outstanding at June 27 was 18.2 million shares. Under the balance sheet, on June 27, 2015, cash and cash equivalents totaled $2.8 million. In the second quarter, $2.3 million was used to fund our operations and $100,000 was used by changes in our working capital. Capital expenditures for the second quarter were $95,000. We expect to spend less than $200,000 on capital equipment in the remainder of 2015 now that our Conductus wire production suite is completed. Based on our current forecast, we expect our existing cash resources will be sufficient to fund our planned operations into the fourth quarter of 2015. At the end of the second quarter 2015 accounts receivable was $39,000, current and non-current liabilities totaled $2.7 million at June 27, and included $1.5 million for the fair value of our warrant derivatives. And now operator, please open the call for questions.

[Operator:]

Thank you, sir. [Operator Instructions] And we'll take our first question from Jon Hickman with Ladenburg.

[Jon Hickman:]

Hello, good morning.

[Jeff Quiram:]

Good morning, Jon.

[Jon Hickman:]

Could you elaborate on this order for the Roebel cable. Is that just a test, I mean is the customer trying to test that product because they thought the wire was already like qualified by Roebel or by Robinson.

[Jeff Quiram:]

This is the customers that has a product that they are developing that is utilizing superconducting wire in a magnet application. It is - they are not using Roebel cable, they are using straight HTS wire, and putting it in a - well, again, I can't disclose it but it's in a magnet application.

[Jon Hickman:]

Okay. So is this a test for them then? I mean where are they in the qualification process?

[Jeff Quiram:]

They are building a demonstration unit with the wire. They have already done preliminary tests on the wire, and now they are taking the wire and actually putting it into their magnet structure.

[Jon Hickman:]

So can you give us some idea of how many meters they need?

[Jeff Quiram:]

For the task or for future applications?

[Jon Hickman:]

For the demonstration.

[Jeff Quiram:]

For the demonstration it's tens of meters.

[Jon Hickman:]

Okay. So could you refresh my memory on your current REC machine at full capacity can do 750 kilometers of wire a year, is that still the case?

[Jeff Quiram:]

That poses line capacity of the machine, yes.

[Jon Hickman:]

Okay. So, the fact that you can do 900 Amps of that kind of performance in your wire, that would lead me to believe that in applications maybe your customer doesn't need as much wire because of the performance. So does that actually increase your capacity now that your performance is so much better than what we used to envision?

[Jeff Quiram:]

It doesn't - so, we're really talking about couple of different things there. So we still - the capacity of the machine is still 750 kilometers. We - but, you have wire that does 900 Amps versus wire that does 300 Amps. The value that you're extracting from that wire is significantly greater. Now with that being said, the products that uses the wire needs to be designed to take advantage of that per capacity, so the sum is - with some instances with some of the fault current limiters our customers were dealing with, they already have a product design, they already know what they need and they couldn't use 900 Amp wire in their current configuration and really gain much benefit. So in that instance you can say there is more value, in general there is more value with more Amps you can produce but only if the customer actually needs that Amp willing to pay for it. So - but long term, that is one of the things that we've talked about in the past Jon, that's one of the ways you leverage your existing infrastructure and your adjusting capacity and improve your revenue production is by getting more Amps per centimeter on the wire that will raise the revenue per kilometer and that's a long term drive that's probably never going to happen. We will always be pushing and trying to get more current out of the wire.

[Jon Hickman:]

Okay. Then, again to twist your arm a little bit, can you elaborate a little bit more on - you said in a couple of months that you would meet the qualification, at least one of your fault current limiter customers. Can you tell us where you are in the process, like what's happening right now with that process?

[Jeff Quiram:]

Well, certainly. And what we do when we do iteration, you do go through a testing regimen, you evaluate the results, you get to your old customer and it really goes through them and determine what the challenges are and where things need to be done differently. And again, we've got new reserves, the last meeting we had was with all our fault current limiter customers was really good because that iteration had gone way towards the completion. We're still not quite with [ph], so then what that - in most instances what that requires Jon is just a note term, we need another Roebel wire with taking into account some of the things we learned and then also you need to take it out and do the final finishing layer, where we're at with all those customers is, that it's a little different for all of them. Some of the wire has already been shift to the platter, other pieces will be shift very soon and then it takes us two to four weeks to get it turnaround from them based on what we're doing. And so we've produced the wire, the wire is out of our hands now, or will be out of our hands shortly for all customers, and it will be in the hand of the platter to do the final tweaking to that finishing layer and then it will come back, go to the customers, customer need to take a week or two to test. So we're in that four to six week internal process now. When you do an iteration Jon, it tends to take it's - it depends on what you're trying to fix when that iteration is between six and eight weeks. And I guess we're - we were two weeks into that process, so there is probably four to six weeks long before that next iteration is completed. And then from that completion of the next testing regiment that will know where we stand as far as meeting the performance. So I mean, is that enough?

[Jon Hickman:]

Yes, I understood. So one last question, as you're shipping the wire to customer, potential customers who are testing it or in whatever stage of qualification they are, you told us I think on a past call that you had begun to charge customers for wire, and so can you give us some idea that if somebody wants 20 meters of wire, what you're getting out of that? Whether you're able to charge the customer for that, I mean, it doesn't seem like it's appearing in the revenue line, that's why I'm asking.

[Jeff Quiram:]

Well, it's not, it's thousands of dollars. So it's not tens of thousands of dollars, it's - and I guess it wouldn't even be thousands for somebody if they just wanted one piece of 20 meters of wire, one piece, it would be hundreds of dollars.

[Jon Hickman:]

Okay, thank you. That's nice clarification. I'll let someone else ask a question.

[Jeff Quiram:]

Thank you.

[Operator:]

[Operator Instructions] And we'll take our next question from Andrew Shapiro with Lawndale Capital Management.

[Andrew Shapiro:]

Hi, following up on Mr. Hickman's question, maybe from a different angle here. So certain applications have different current handling and other technical requirements and presumably as I think you just answered, the more difficult the hurdle, the fewer - the more difficult the hurdle, the larger the mode and greater value add our Conductus wire is, and I would assume also the fewer the competitors. So where in this different applications that you've talked about the FCLs, the Roebel cable, the power transmission cable or other applications, where do these different applications stack up in terms of required current carrying capacity and other technical requirements in terms of difficulty and level of competition?

[Jeff Quiram:]

So Andrew, it is - so let's just talk about fault current limiters first. It is absolutely function of the design and the approach that the supplier of that fault current limiter trumps in designing the product. So there are some designs that are utilized in high performance wire and in that instance then the competitor current is quite low in the area of one to two. If you're getting up over 500 Amp performance, there are some kilometer suppliers that put a design in place that uses a lot lower performing wire. So they need a lot more of it but the number of competitors that can put outflow that requirement is lot lower too. So we're tending to focus most of our efforts on those that are building fault current limiters that have designed their product to take advantage of high performance wire, and in that instance the number of competitors is very low, like I said, less than a handful.

[Andrew Shapiro:]

Okay. And then with the other applications, where do they rate relative to the FCL application?

[Jeff Quiram:]

So we've got like magnet applications you mean?

[Andrew Shapiro:]

Yes, magnet, Roebel cable, the power transmission cable, this is leading to my follow-up question, these other applications are - might have - might, I don't know, you're going to tell us here, have a higher technical requirements and down the road maybe worth a whole lot more in dollars per kilometer but they are kind of late around the adoption curve than where you are on FCLs but I'm trying to first understand where do they stack up in terms of difficulty in technical specification and thus presumably level of competition to know what kind of dollar value per kilometer selling wire to those customers and those applications might prove to be?

[Jeff Quiram:]

Sure. Well magnet applications are very interesting ones, in that there are - they are interested in two different performance characteristics. They are interested in how much current the wire can carry because, again, the last current you carry the more wire you need while the more wire you need in a magnet that just means the bigger the magnet is. And in so many instances that's a challenge, they want that magnet to be as small as possible. But the other side of it and probably the more important is, the actual performance of the wire in the presence of that field, so when you turn the magnet on how does the wire performance stack up because in most instances we - I think we've talked about this a little bit in the past, a great news involve superconducting wires that carries a lot of current and when you carry a lot of current and you wrap it up in a magnet that can create a very large magnetic field so carrying a lot of current is good. On the other side though, the magnetic field that actual existence of that magnetic field actually impedes the ability of the superconductor to carry high [ph]. So it's kind of a - it's a little bit of a seesaw, little bit of teeter-totter on, yes you can jam up the curtain handling but then that magnetic field is stronger and then it dampens the build-in wire to carry current. The great news for us and this is what we've talked about a few times in the past is that we've demonstrated the amount of reduction we give in current carrying is significantly lower on our wire in the presence of that high magnetic field than in others. And we believe that, that is a function of the way the structure of the wire, the way we are able to build that superconducting film and so the good news is, we can deliver in both, high performance and we don't get the hit as much when they turn it on. So now I guess the point is, it's hard to compare - it's that harder to do than the fault current limiter wire, well it might be if the magnet requires high current carrying at the same time. There are magnets that might say they only require 400 Amps, and for us that would be easier than providing a 650 Amp wire to a fault current limiter customer for instance.

[Andrew Shapiro:]

Right. Well, presumably the price per kilometer you will get if a different product application is a function of the difficulties that you've just discussed and the level of competition because there is no competition I'm sure and margins would be quite good. So now when you contract with your first customer, arguably it will be in fault current limiters just because it sounds like the timing of approval in the application testing phases that you've been discussing, maybe you will surprise us one way or the other. But it sounds like you're making fault current limiters, so when you contract with your first customer - if it's potentially for a lower current application, a lower revenue dollar per kilometer application, how do you preserve flexibility to begin that relationship - how do you preserve flexibility with the first customer to enable you to begin a relationship down the road with a higher value added - higher dollar per kilometer application?

[Jeff Quiram:]

Yes, that's a very good question. And it is - yet a lot of it goes into the negotiation around the commitments on both sides, both parties whether what are they committed to, how much wider is the customer committed to taking, not what we think is here is out forecast. No, we actually had a firm order and then are committed to taking it versus what are we committed to supply. And so I think a lot of times Andrew that will be how it plays out and the level of commitment that probably either party is willing to make will be a function of whether it meets all their businesses or not. So we would have to look at and say, yes, we would like to have maintained flexibility for the future but if we can get a commitment from a current customer that provides us the sort of revenue performance and profitability that we need, we probably will always be willing to sign up for that. We worry about that next customer when it comes, because again, ultimately where that flexibility comes from is you just increase capacity, you put it in other machine.

[Andrew Shapiro:]

Right. Now you've said - I think you have said in the past that even one of these customers has a potential to have a need and demand to commit for, I guess the full years capacity on your current machine, is that right?

[Jeff Quiram:]

I would say most of the customers that we're dealing with, most of the large industrial customers that are building a product, half business plans that could consume everything we would build. If they would use the side deal of all our wire they could consume everything we could build, yes.

[Andrew Shapiro:]

Okay. So then it would seem as if I guess as one or two applications move along the testing phase, those who first had a shot at this with you, the STI types. If they want to lock up your production because they need to start acting sooner rather than - I mean, in other words, we might start getting - I don't know if it is auction but they not might start needing the speed up their process and get this thing approved, right?

[Jeff Quiram:]

Well, I think I've said multiple times in the past that I think for us the harder - the first customer is going to be the hardest one to get because I think everybody's had a little bit of the view that the industry supply constraint were concerned about our business cases on whether we can get enough of the inputs to be able to deliver on what we think we can sell as end product. But nobody has really made the move yet, at least on our front. And we're bringing - we're probably, we're one of the couple of industry participants that's bringing a new supply, a new significant quantity of supply to the market. And, so yes, I think that we're attractive from that perspective, and I think once one moves, then you'll start to see more movement and then it goes back to the first question you asked was so then how do we balance that and how do we meet everybody's needs and we'll do as good as we can but I think ultimately we probably in our current configuration with our current product capacity, we probably can't meet everybody's needs, if everybody we're working with [indiscernible] you approved and I want you to be my wire supplier, I don't think we could do it for all of them.

[Andrew Shapiro:]

Now let's say you get to your customer here and you're going to produce wire, they are going to pay you, you're going to produce some more wire, they're going to pay you but there is going to be a level of working capital flexibility the company might need here to do it. Do you have an estimate on how much that might be in terms of working capital needs in between your payables and receivables?

[Jeff Quiram:]

Yes, I mean - again, the raw material cost for the wire are relatively low, so less than 10%. And so when we start - when you start looking at what the - and then of course it's all, that's also driven by what are the terms, what are the payment terms, what are the lead times and things of that nature. We have a view of what our working capital would be to hit various revenue levels on a quarterly basis and of course as would make perfect sense, as those numbers go up, the working capital requirements go up as well. But it's several million dollars, we get one of the large order from one of these fault current limiter suppliers, our working capital requirement will be several million dollars in the near term.

[Andrew Shapiro:]

Well, presumably you can get a loan against a portion of that against a solid contract anyway.

[Jeff Quiram:]

That's not our view Andrew.

[Andrew Shapiro:]

Okay, my final question if I could ask, and thank you for allowing me to get these questions in. Where are - you mentioned you've got cash forecasted into Q4, while we're into Q3 right now, so it's not a lot of runway. Where does the company stand with respect to the quantity and strike price of warrants that are currently in the money or near the money or near exploration?

[Jeff Quiram:]

There is a group of warrants that just recently expired. So from the transaction that we did in 2013, and in that transaction there are another - I don't know Bill, how many is it, like 6 million warrants?

[Bill Buchanan:]

Yes, it's about 6 million, a little over $1.63.

[Andrew Shapiro:]

So it's still quite a way out of the money.

[Jeff Quiram:]

Yes.

[Andrew Shapiro:]

Do you have any warrants that are currently in the money, I'm just trying to figure out where presumably you might need one more tranche of capital to get you to the first contract where I'm assuming once you announce the contract; we have a shot at the other warrants going in the money?

[Jeff Quiram:]

Yes, I would agree with that.

[Andrew Shapiro:]

So, you build there may be another slug, does the company currently have a shelf? How do you anticipate, I guess financing this incremental time horizon before landing the contract?

[Jeff Quiram:]

We do have a current shelf and we're also making - we're also taking some other steps to create flexibility so that either via the shop or via another offering. So there will be some filing coming soon to just provide us some additional flexibility. So I think we'll have the flexibility Andrew to raise the money and then it's just going to be a function of what's the situation in the market and where we are with our customers and what is the situation when it's time to raise the task. And - but yes, I mean, we're taking steps to give ourselves more flexibility I guess would be the way I would say it.

[Andrew Shapiro:]

Okay, great. Thank you very much.

[Jeff Quiram:]

Thank you, Andrew.

[Operator:]

And we'll go next to Bill Lap, a private investor.

[Bill Lap:]

Good morning, Jeff and Bill. I think a lot of the questions have been asked but I'd like to home in a little more on the fault meter. Do you think Jeff, of all these things we are going at this point, what do you think is the most likely first contract, the fault meter or the magnetic?

[Jeff Quiram:]

I think, if I guess, I would say that probably the most likely significant contract will be with the fault current limiter customer.

[Bill Lap:]

Okay. And then let's - I will hold that. Now on the magnetic, is that a very, would that be a very big order? I mean maybe got just demonstration unit diverging at, but do they anticipate quite a bit of wire, what do you think that would be - we don't know who it is or anything about - what did they forecast they would need for wire?

[Jeff Quiram:]

There - they could vary as well be a very large potential consumer of wire. But I don't know what I necessarily put it in the near term. I think that they are bringing something to market that is revolutionary in the field that they are working in. I think that the time to deployments and all that are going to be more significant. I think ultimately it could be a very large consumer of wire but I don't think it will be - it won't - if we get a first order from them, it will be nice order, we'll be happy to have it but it won't necessarily - well it won't be the one that makes us profitable.

[Bill Lap:]

Okay. But it won't be an order - you don't anticipate getting an order from them before the fault meters, right?

[Jeff Quiram:]

Well, we might but like I said I don't think it's going to be - it won't be of a scale that an order from a fault current limiter customer would be.

[Bill Lap:]

Okay. But what it would be is good to have both maybe, I mean in other words, if you got that it would be a foot in the door for credibility and the fault meter could come in as long as we didn't tie up your whole machine.

[Jeff Quiram:]

Yes, absolutely, we're very excited about the application that they are working on. A big - it has some very significant potential in the coming years. Those who know, if we did Luois wouldn't be working on it. As part of purchase process, we think it's a great opportunity, that's why we're working on it but we had lined up from a near term perspective, I don't - it's not going to be the one that gets us to profitability.

[Bill Lap:]

Okay. So let's go back to the fault meter people. So you haven't been qualified by any of them yet, it's not - is it the wire that's not making you qualified or is it the copper, the layering of the wire? And I had one guy that only needed the copper fixed; my understanding was the first guy that you were in the front runner with. Is it just a capital layer?

[Jeff Quiram:]

Yes, I would say from the customers perspective, they would equate well, they say all of that what we're saying. The superconductive wire without the copper, it doesn't meet their need so they are looking at it all in totality. I would say the majority of what we're working on Bill, we're not having real issues on carrying the current necessary and doing things of that nature. Most of what we're dealing with right now is in that final finishing layer.

[Bill Lap:]

So I think working it - I mean you have once supplied, it's finishing all three of the fault meters requirements, they all need copper but different ones, but am I correct in that?

[Jeff Quiram:]

They all need copper.

[Bill Lap:]

Right and they are all using the same finisher, I mean you're using the same supplier, you're going to a vendor that finishes it, puts the corporate, one. Is there one vendor that doesn't?

[Jeff Quiram:]

We have been dealing with a couple of vendors on the copper, I guess I don't know for a fact build that all three of these applications are going to one, I think they are but I'm not sure. And all three of the copper requirements are different, they are not the same because it's the function of the device, more or less.

[Bill Lap:]

Okay, great. So they have different design requirements so they have different copper requirements, right?

[Jeff Quiram:]

Right.

[Bill Lap:]

Okay. So who is the one that's the closest? I mean you sent out three of them, some coming back. How far away are you on that? I mean you said four to six weeks but is it a tweaking or what? I mean just going on for six months.

[Jeff Quiram:]

We are not really in the tweaking category.

[Bill Lap:]

So you're in the 90% to 95% of it had it characterized on a percentage basis?

[Jeff Quiram:]

Yes, but - so it is in tweaking category but it's an important tweak I guess, it's one of those where - but if you don't tweak it properly it doesn't work.

[Bill Lap:]

Okay. But once you tweak it, let's assume you send a wire to him and it works and it's been tweaked, are they going to need another sample just before they would place an order or they accepted on net basis on this last sample. The backup there - their use of it. Would you send it over to -

[Jeff Quiram:]

I don't have - I can't answer that question with any strategic goals, I don't know what requirement, what the customer will require. But I can't answer that but what we believe, I believe that getting the wire to meet their performance requirements is what we require for qualification. And what exactly they do after that I can't speak with any sort of guan [ph].

[Bill Lap:]

So while all that so naïve because you said it on in press releases or in calls, that you are notwithstanding the fact you have not performed yet and you're almost there, the 90%. You are sitting down and discussing terms with all three of these people. If we do perform, here is what we want, here is what we'll do. I mean you are at in that stage you're not ready to ache anything but you having business discussions right now that how much wire you're going to need, what you're going to pay. And you're having these discussions with all three that might take, correct?

[Jeff Quiram:]

Well, I mean, I'll just - the only thing I will say Bill is all three of those customers are not in the same spot, all three of those customers aren't - and our conversations with them are not in the same place at all. I will not generalize and say that we're in final business discussions with all three, I will just say that we have moved to wire meeting, technical specifications and we're to the point of can we approve - and are we going to use in our product, and if we did what would that business look like, both conversations with those - fault current limiter customers are all in different stages but they are underway.

[Bill Lap:]

Okay. So you don't have - so let's put it this way, you have one - maybe you're resistant to say this for competitive reason, but you have one fault meter customer that's further along in the business discussion to have more detailed discussion with than the other two maybe?

[Jeff Quiram:]

There are - all three of them are in different places, some are further allowing than others, yes.

[Bill Lap:]

Okay. Do contemplate - Andrew asked you for financing, do you contemplate there would be reasonable rather than diluting the stock further rather than you could get a significant working capital advanced based on an order. Do you think you know that, that's part of your financing, is the down payment?

[Jeff Quiram:]

We're considering all things Bill, and a lot comes down to what's the likelihood that that happens and nothings off the table, so - but I guess I'm not going to make any sort of - I'm not going to make any comment about the likelihood of any of those versus others.

[Bill Lap:]

Okay. But you're more confident now than you ever been, right?

[Jeff Quiram:]

Well the water is, I mean we're - we've got better coming out and more water coming out of our factory than we have ran often. So, yes, I feel good about it. I feel good about our international bill at customers and we just - I don't know, I've said this before, we just - we need to finish it and that's what we're focusing all our energies on.

[Bill Lap:]

And did we, I mean, from a standpoint of - I think on the call here you said one customer has been shipped two weeks and it takes about six weeks. So we may no more in about four weeks from one customer, is that correct?

[Jeff Quiram:]

Yes, I mean again approximately. I mean, I'm not - four to six weeks is what I was saying.

[Bill Lap:]

And then putting it just a turnaround and stare. So as you get it from the vendor, you ship it to them and they are out there testing right away, correct?

[Jeff Quiram:]

That's correct.

[Bill Lap:]

Okay. Well, thank you. I don't think I have any other questions.

[Jeff Quiram:]

Very good. Thank you, Bill.

[Operator:]

And ladies and gentlemen, at this time this does conclude the question-and-answer portion of today's conference. And I would like to turn it back over to Mr. Jeff Quiram for any closing remarks.

[Jeff Quiram:]

I would like to thank all of you very much for joining us today. And we look forward to speaking with you again on the next call and as we provide additional updates. Thank you very much. Have a good day.

[Operator:]

And this does conclude today's conference everyone. We thank you for your participation. You may now disconnect.