QuantumSphere Issues Company Update

Download QSI Press Release Here

Targeting Initial Sales & Plant Integration by End of 2016
Currently in Sales Discussions with Multiple Plant Operators

logo.pngSANTA ANA, CA – (Accesswire) – July 12, 2016QuantumSphere, Inc. (OTCQB: QSIM), a developer and manufacturer of advanced catalyst materials designed to increase process efficiencies and production output in commercial-scale chemical plants, today issued the following company update from its Chairman and Chief Executive Officer, Kevin Maloney.

Ladies and Gentlemen,

These past several months have been very exciting and productive for QuantumSphere. We believe we are at a major inflection point as we have commenced the sales phase of our lead nanocatalyst product for the ammonia industry. In coordination with our industry-leading Swiss-based commercialization partner, Casale, S.A., we have targeted the second half of 2016 to secure an initial sale and plant integration, which we anticipate will generate revenue for us in early 2017. To this end, we are currently in sales discussions with multiple plant operators.

After 13 years of research and development, a commercial validation via JH Group in China (a subsidiary of global Fortune 500 company, ChemChina), execution of joint development agreement (JDA) with Casale in May 2015, followed by a key ammonia patent issuance in March 2016 and execution of a 10-year commercialization agreement with Casale in March 2016, we want to update the investment community with our near-term opportunities and longer-term strategic vision. We are thrilled to be transitioning from the research and development phase to the commercialization and a revenue-generating phase.

What We’ve Done

We have invested nearly $35 million over the past 13 years in the development, validation, and patenting of our various technologies. FeNIX™, our lead high-performance catalyst accelerator technology, has been validated in existing commercial Chinese ammonia plants to significantly improve process efficiency and production output by up to 15%, resulting in lower energy consumption and greater revenue and profits for chemical plant operators.

Our FeNIX product is applied as a coating to existing standard commercial ammonia catalysts and is considered a “drop-in” solution which is critical when introducing and commercializing a new catalyst technology in the conservative chemicals industry. Accordingly, no change to existing ammonia production processes is required and no capital expenditure is required.

As of today, we have 10 issued patents and 1 patent pending. We also have 4 registered trademarks. We have expended a substantive amount of capital and effort in establishing our intellectual property portfolio and we will continue to file additional patents where appropriate.

We have identified the key channels for market penetration with the established market leaders in converter technology and catalyst technology. These are the two technologies required for ammonia production. We have aligned ourselves with a major player, Casale, in the converter technology and refurbishment value chain that will allow us to penetrate and serve the dominant ammonia producers globally. We will select our long-term catalyst technology partner in the next 6-12 months.

By way of background, we have been working with Casale (http://www.casale.ch) for the past 6+ years. These efforts have resulted in a joint development agreement being executed in May 2015 and, more recently, a commercial sales agreement signed in March 2016. The commercialization agreement shortly followed the issuance of our key ammonia synthesis patent – System and Method for Ammonia Synthesis. Casale’s technology is utilized in approximately 40% of the global production volume of the $100 billion ammonia market. Nearly 200 million tons of ammonia are produced annually with more than 82% going to fertilizer products to support global food supply.

On average, Casale refurbishes around 15 plants annually, on a global basis, each of which are shut down for equipment upgrades and typically reloaded with fresh commercial iron catalyst designed to increase plant operating efficiency. Our 10-year renewable commercialization agreement has an approximate up to $75 million annual revenue potential in the ammonia sector thru Casale alone which is represented by up to 15 plants per annum and an anticipated $5 million per plant revenue potential on average.

Our pilot plant in Santa Ana, California is fully operational with 16 production reactors representing Version 8.0 of our manufacturing platform technology. Our current production capacity is over 3,000 kilograms (three metric tons) annually and will serve 2-3 small to mid-size plants per year, depending upon the size of the ammonia plants and their respective catalyst volume requirements. Our FeNIX nano iron accelerator product is applied as a coating onto existing standard commercial iron catalysts, which are used in the ammonia industry on the basis of a 1.5% loading vis-à-vis the weight of the standard commercial iron catalysts. In sum, the current capacity in our pilot scale facility would allow us to coat up to 200 metric tons of standard commercial iron catalysts, on an annual basis.

Where We Are Today

We are now entering the initial commercialization phase with our partner Casale in addressing our market opportunity within the $100 billion annual ammonia market. Per our commercialization agreement, Casale is responsible for the sales and marketing efforts of FeNIX to its existing and prospective customers, and thus we avoid the expense of having to establish a sales and marketing team. We are working, in parallel with Casale, to educate the global ammonia community about the efficacy of QSI’s FeNIX technology to improve production efficiency and increase profits and to identify lead commercial customers. In addition, pursuant to the terms of our commercialization agreement with Casale, we do not pay Casale any reseller, distribution or other fee to sell our FeNIX product alongside Casale’s well-established ammonia converter technology utilized in approximately 40% of global ammonia production. Casale views FeNIX as a potential competitive advantage in the sale of its technology to new and existing customers.

Our high-performance catalyst accelerator technology offers a compelling value proposition to ammonia plant operators. Based on our 2015 commercial plant validation in China, we anticipate to deliver a 10-15% increase in catalyst activity could result in a significant improvement in process efficiency and production output and greater revenue and profits for ammonia plant operators. Commercially, these results will yield a strong ROI and IRR for ammonia producers with an approximate two-year payback over the typical catalyst life of ~10 years. Utilizing our high-performance FeNIX catalyst accelerator technology allows ammonia plant operators to win in two ways: by significantly reducing the energy costs; and by increasing production output. A 5% increase in production output can translate to millions in revenue annually for a typical sized ammonia plant.

We are currently in sales discussions with multiple plant operators. We have a particular focus on India due to their compelling need and the size of the market (#2 world producer after China). The country is under tremendous pressure to increase food production and simultaneously lessen their carbon footprint. Since 1998, India has added an entire USA-worth of population (300 million people) and in the next thirty years it is projected to add another entire USA again. The agriculture sector has the mandate to increase output by four percent per year but is struggling to achieve even that. This is particularly due to the shrinking of farmland as the country urbanizes. Clearly the country needs more productivity on less land, which translates to the need for more and better fertilizers, which translates to soaring demand for ammonia, which translates to the need for more ammonia per plant and has plants scrambling to find new innovations. This has caused the QSI FeNIX innovation to be very well received in recent high level meetings.

Within India, we are working with the lead fertilizer trade association, FAI, as well as individual companies such as IFFCO and DCM Shriram. IFFCO, the India Farmers Fertilizers Coop, is the largest producer of ammonia in India with five plants in operation and a very large current contract with Casale. We hope to see these discussions bear fruit in the second half of 2016. With so much interest and potential impact in India, FAI has recently awarded QSI one of the five select spots to present its enhanced efficiency ammonia technology at their upcoming fertilizer conference to be held in India late November 2016.

On The Battery Front: A recent report highlighted QSI’s battery technology and related financial results. As noted in our Annual Report on Form 10-K filed in September 2015, QSI previously made a decision to exit the battery components business through either the sale or exclusive license of the battery technology and related intellectual property that was originally developed for and validated by a leading global battery company. This approach allows QSI to maintain focus on producing and supplying its proprietary high surface area nanocatalyst accelerator technology for industrial chemicals applications. Through several market validations and multiple lab tests with various leading battery customers and technology providers, QSI has demonstrated the applicability of its nano manganese catalyst to improving the performance of metal-air battery technology, specifically the high rate gas diffusion air electrode for zinc air and other metal air battery chemistries.

Where We Are Going

While the date of our initial sale and integration into an ammonia plant is not yet determined, we believe when we break-through, others will follow Casale’s recommendations and adopt QSI’s FeNIX nanocatalyst accelerator technology for more efficient ammonia production. The business model is recurring in nature, given that these plants shut down for refurbishment approximately once every ten years. Thus, we believe our opportunity within the ammonia sector could be worth up to $75 million annually.

Our production capacity is economically scalable, such that an approximate $10 million capital expenditure investment can deliver up to $50+ million in additional annual revenue to QuantumSphere.

As we move towards revenue generation in the ammonia space, we continue to lay the groundwork to address efficiency and production challenges in additional chemical opportunities – pursuant to our 2015 JDA with Casale. We are especially enthusiastic about our longer-term potential within the light olefins and methanol markets.

Light olefins, a ~$300 billion global market, are the “building blocks” of plastics and polymers (as well as several other essential industrial chemicals). External lab tests have shown that QSI’s nanocatalyst technology has the potential to drastically reduce the energy consumption of the olefins manufacturing process – the single most energy-intensive process within the chemical industry.

We believe that QSI technology will have a similar impact in reducing energy consumption and increasing output in the production of methanol utilizing a high surface area nano copper catalyst accelerator. Methanol, a ~$50 billion global market, is a key intermediary in the production of paints, adhesives, and fuels. Casale technology is presently utilized in ~40% of global methanol production. Lab validations are pending.

Collectively, the ammonia (~$100 billion), olefins (~$300 billion) and methanol (~$50 billion) markets represent a ~$450 billion global annual market with several hundred million dollars in total addressable market annually to QSI.

As we transition from a research and development focus to a fundamental revenue-generating company, our financial model takes the shape and characteristics of an intellectual property (IP) company. This is evident in our projected personnel and cost structure, which include nominal sales and marketing expense given Casale will handle the foregoing, and operating contribution margins in the 50% range.

In closing, we believe our current stock price and resulting market cap are materially undervalued given our IP position and the mid and long term opportunities that exist for QSI within the industrial chemicals sector. It will take more time, effort and capital to achieve our goals but I remain optimistic about where our company is headed and I feel honored to lead our outstanding team through an anticipated wave of growth.

On behalf of the entire board and management team, I would like to thank all of our employees, customers and shareholders for their continued support.


Kevin Maloney
CEO and Chairman of the Board