| | | | | | ThinkEquity Analysts Interview with QuantumSphere CEO, Kevin Maloney
By Think Equity LLC - September 11, 2009
1) Please describe QuantumSphere.
QuantumSphere, Inc. has leveraged core skills in advanced nano-catalysts and related process chemistries to develop, manufacture, and license solutions for a broad range of portable power and clean-tech applications. The company's proprietary products, available in high volume, are used by industry-leading companies to lower costs and enable breakthrough performance in multi-billion dollar growth markets such as batteries, fuel cells, emissions reduction, industrial inks and pastes, and ammonia synthesis for food production.
2) What is your view on lithium-ion technology?
Still needs significant innovation to improve capacity while remaining stable for this market to continue to increase its growth in portable power. Good strides have been made in [the] hybrid vehicle market, but capacity suffers as a tradeoff for safety. NiMH batteries will continue to be the mainstay technology for hybrid electric vehicles for the next five to seven years. Longer term (15 to 20 years), metal-air batteries will play a role in the EV market.
3) How do you see the demand evolving in the various end-markets for QuantumSphere (i.e., consumer, automotive, etc.)?
Demand for longer-lasting portable power is driving our sales of metal-air battery electrodes and direct methanol fuel cell membrane-electrode assemblies in both the consumer and military markets. Battery and fuel cell stack manufacturers are incorporating our enhanced power designs into the next iteration of their products. On the automotive side, our developments in emissions control catalyst manufacturing technology are being validated by some of the largest emissions control systems manufacturers, who are excited about the cost savings of shifting away from precious metals catalysts and utilizing a lower cost manufacturing technique.
4) How do you envision the company's roadmap evolving over the next three years?
i. Continued expansion of our catalyst manufacturing capabilities.
ii. Optimization of QSI's ammonia-generation catalyst, and customer commercialization at the plant level.
iii. Full-scale commercialization of our emissions control catalysts.
iv. Continued customer growth in the metal-air and direct methanol fuel cell technology sectors, with integration into consumer and military products.
v. Customer-led commercialization of nano-enhanced NiMH batteries.
vi. Expansion of the R&D portfolio to include new electrochemical (e.g., CIGS solar inks) and industrial-scale chemicals synthesis.
5) Please highlight the challenges ahead.
Some customers are struggling to commercialize their next-generation technology to include our product due to weak economic conditions QSI cannot force adoption and commercialization. Many start-ups increase their burn rates and begin to scale early to support these technologies, believing they can accelerate commercialization timelines, only to be met with false hopes. We realize the hardest thing to predict is the time it takes for customers to bring their products to market. QSI has not fallen into this trap and has mitigated risk through diversification. We have developed a balanced portfolio of technologies, leveraging QSI's core competency in advanced materials and process chemistry expertise, in areas such a batteries, fuel cells, emissions reduction, and industrial chemical synthesis (e.g., ammonia). With this diversified approach, QSI is not reliant upon any one product or customer to dictate our success.
6) Please characterize the competitive landscape. Where do you believe QuantumSphere could have a competitive advantage? QSI presently has superior nano-metals and catalysts in terms of size, purity, uniformity, cost, and scalability. Potential competition may come from large companies such as Dow Chemical, BASF, and Johnson Matthey, as well as smaller specialty suppliers with more limited capabilities. Examples of key differentiators follow:- Patents: QSI's competitive advantages in nano-materials production, process chemistry expertise, and development of multiple end-use commercial products are backed by more than 32 high-value patents issued and applications pending.
- Recognition: QSI products have won multiple awards, including the Frost & Sullivan North American Product Innovation Award for QSI-Nano® electrodes (2009), the Small Times Magazine Award for Best of Small Tech Nano-material of the Year Award for QSI-Nano® manganese (2007), and the Frost & Sullivan Innovation of the Year Award for its Patented Metallic Nano Powder Manufacturing Process (2005).
- Scale: Largest volume capability of any nano-metal catalyst manufacturer with installed capacity of eight reactors capable of producing $50 million of product annually at current prices. Each additional reactor requires less than three months lead time and modest capital expenditure.
- Strategic Relationships and Customers: QSI is engaged in strategic programs with a number of leading corporations including OM Group (NYSE:OMG), major U.S. and Chinese battery manufacturers, leading U.S. and overseas fuel cells companies, leading European chemical synthesis companies, and large domestic emissions reduction/catalyst systems manufacturers.
QSI's unique capabilities present different advantages in different markets. In the battery and fuel cell markets, we provide a "drop-in" catalyst solution that increases performance without any significant changes in current manufacturing processes. In the emissions control market, we are the only company that has moved away from the wasteful processing technology, while alleviating precious metals and our customers are reaping excellent cost savings. In the industrial chemicals market, the unique morphology and activity of QSI's nano-catalyst provides large- scale ammonia manufacturers a "drop-in" solution for increasing yield, and, therefore, substantially increasing plant revenue and profit while reducing operational costs and greenhouse gas emissions.
7) What is the company's go-to-market strategy?
QSI follows a disciplined marketing strategy, engaging only in specific targeted sectors and only when securing access to industry-leading application experts and market-leading customers. QSI commercializes products in close collaboration with its lead customers, validating both high value to them and high margins to QSI. This focus has resulted in multiple validated products launched or being commercialized with leading global companies now. QSI plans to broaden its penetration with a mix of direct sales and leading global distributors.
8) How big do you envision the electric vehicle market (including autos, ebikes) will be by 2015?
The EV market will see strong growth, in part, due to the current administration's push toward greener vehicles. The ebike market will continue to see the strongest growth overseas. NiMH will continue to be the dominant battery technology through 2015. Some of our lead customers are currently using our metal-air battery technology to recharge ebike batteries and for other niche applications.
9) How do you envision U.S. and European battery manufacturers effectively dealing with the low-cost PRC manufacturers?
Continued innovation is the best way to stay ahead of the game. Labor cost is only one portion of the overall product cost and typically becomes more important when technologies stagnate. The ability to continue to develop the best technologies and provide more efficient products has been the winning formula for the U.S. and Europe.
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