Ener1 Inc. (NASDAQ:HEV)
Q1 2009 Earnings Call
May 11, 2009: 5:00 pm ET
Charles Gassenheimer - Chairman & Chief Executive Officer
Jerry Herlihy - Chief Financial Officer
Ulrik Grape - Executive Vice President, Sales and Marketing
Daniel Betts - Principle Engineer and Executive Management Team
Jeff Seidel - Vice President, Corporate Strategy
Naoki Ota - Chief Operating Officer
Rachel Carroll - Vice President of Corporate Communications
Steve Milunovich - Merrill Lynch
Dilip Warrier - Thomas Weisel
Michael Lew - Thinkequity
Bryce Dille - JMP Securities
Raj Seth - Cowen & Co.
Jeff Osher - Harvest Capital
Good day ladies and gentlemen and welcome to Ener1 2009 first quarter conference call. Today’s call is being recorded. If you have any objections, you may disconnect at this time. Your line has been placed on a listen-only mode until the question-and-answer segment of today’s conference call.
I would now like to turn the call over to Rachel Carroll, Vice President of Corporate Communications for Ener1 Incorporated. Please proceed ma’am
Thank you. Good afternoon and welcome to the Ener1 management call to discuss first quarter results for 2009. Participants on today’s call will be Charles Gassenheimer, Chairman and CEO of Ener1; Jerry Herlihy, Chief Financial Officer for Ener1; Ulrik Grape, CEO of EnerDel and Executive Vice President of Sales and Marketing for Ener1; Daniel Betts, who is the Principle Engineer and on the Executive Management team for EnerFuel, Ener1 fuel cell subsidiary; Jeff Seidel, Vice President of Corporate Strategies Ener1; and Naoki Ota, Chief Operating Officer for EnerDell will participate in the Q-and-A section of the call.
Prior to commencing the call, I’d briefly like to remind listeners that certain statements made on the call constitute forward-looking statements that are based on management’s expectations, estimates, projections and assumptions. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Therefore actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors.
I will now turn the call over to Charles Gassenheimer, Chairman and CEO of Ener1 for opening remarks.
Thanks Rachel. The last quarter marks a period of remarkable progress for the EnerDel team. On our fourth quarter earnings conference call, we laid out in great detail the top 10 focus customer programs in the automotive, military and stationary power markets. We expect to announce up to 60% of these programs by the end of the year.
The announcement of the letter of intent signed with Fisker Automotive on May 8 is the second public announcement we have made from this list. We expect up to 50% of these programs to generate revenues in 2009 and look forward to updating the market on subsequent programs in the coming weeks and month. I would refer to Ulrik to provide further information on the business development in his section of the call.
Ener1 has also been incredible busy responding to request from the United States Department of Energy to advance our loan application under the ATVM program. As a recap, Ener1 has applied for $480 million in low interest loans under this program, which would expand our Indianapolis facilities from a current capacity of 30,000 electric vehicle packs per year running at full capacity; to a 120,000 EV packs per year by 2015, and in doing so create an estimated 3000 jobs in the US. I’ve asked Jeff Seidel to provide more details on our progress here.
I would also like to use this call as an opportunity to update the market. On the excellent progress we are making at our fuel cell subsidiary, EnerFuel. Daniel Betts one of our Principle Engineers will provide information on the additional federal funding opportunities available, to the work they are doing with fuel cell rage extenders for plug-in hybrid.
First of all I would like to turn the call over to Jerry Herlihy, our Chief Financial Officer who will summarize the financial highlights from the quarter.
Thank you, Charles. We filed our Form 10-Q shortly, just a little while ago containing our un-audited financial statements prior to the call. The financial highlights are as follows. Revenues for the first quarter of 2009 were $8.2 million compared to $97,000 in 2008. Gross margin was $1.4 million for the quarter.
The operating loss was $10.6 million for 2009, compared to $5.7 million in the prior year quarter. Significant non-cash operating items in the 2009 quarterly results of $3.1 million include $1.8 million of depreciation and amortization and $1.3 million of stock-based compensation expense. 2008 amounts for depreciation and stock expense were $107,000 and $831,000 respectively.
Operating expenses were $12 million in 2009, compared to $5.8 million in 2008, as Enertech operations were included for a full quarter in 2009. Research and development expenses were $6.3 million in 2009. General and administrative expenses were $4.6 million in 2009.
Our financial results now include the operations at Enertech International since the acquisition in October 2008. Despite a challenging worldwide economy and a depreciated Korean won, Enertech was profitable in the first quarter of 2009 with net income of $141,000 and sales of $7.9 million. EBITDA for Enertech for the quarter was $1.3 million.
Capital expenditures were $5.8 million in the 2009 quarter, which includes $3.1 million at Enertech related to planned acquisition of cell production capacity and $2.7 million, which was for expenditures that EnerDel related to commitments in place at December 31, 2008.
Cash at March 31 was $6.5 million. Ener1 has a $30 million loan facility with Ener1 Group to finance operations during 2009. We have borrowed $10 million under the facility through May. Enertech has adequate operational funding and also has access to loan facilities from Korean banks in the amount of $3.5 million which was available at quarter end.
The net loss after non-cash items was $7.4 million. Cash used for working capital was $4.4 million. Shareholder’s equity is $85.8 million. In addition to the net loss, the decline in shareholders equity from year end is attributable primarily to new accounting rules that classified certain warrants as derivatives and by the foreign exchange valuation decline due the decline in the Korean won. Ener1 total assets are $133 million.
I would now like to turn the call over to Ulrik Grape, Ener1’s EVP and CEO of EnerDel. Thank you.
Thank you, Gerry. I would like to give an update on the customer pipeline; provide details on the letter of intent sign with Fisker Automotive as announced last Friday, May 8; as well as update the market on a couple of exciting developments at EnerDel.
Last Friday, May 8, Ener1 announced that it had signed a letter of intent with Fisker Automotive, to potentially supply batteries for the Karma line of vehicles, which on current production targets will be the first plug-in hybrid electric vehicle on sale in the United States by June 2010.
This letter of intent marks the end of a long period of discussion and diligence on both sides. Hour packs will now undergo a series of reliability and performance checks to determine the supply contract, which we expect it to be finalized in the next two to three months.
Anyone familiar with Fisker Automotive will understand what an exciting opportunity this is for the company. The Karma line of vehicles is lined by Henrik Fisker, who is famously the Design Director for Aston Martin, as well as BMW; his phenomena’s with world class design and engineering. The Karma has an existing customer backlog and will be the first plug-in hybrid in its established network of 32 dealerships as early as June of next year.
The LOI is testimony to the quality and design of the EnerDel battery system and to our ability to ramp and meet the aggressive time to market for production volumes of up to 15,000 vehicles per year. I look forward to providing details on this project over the coming months.
On the fourth quarter conference call, Ener1 highlighted 15 active programs and then a top 10 focused list of customers for the balance of 2009. These top 10 customers represent advance discussions with customers that are in the process of testing EnerDel cells or packs and will provide either near term revenue opportunities or are strategic importance to the company.
Fisker was on this list and we expect to continue to execute on this list. For more details on what this will potentially mean to the company in terms of contract value and production timelines, please refer to the fourth quarter earnings presentation that could be downloaded from Ener1 website at www.ener1.com.
EnerDel has received increased recognition for the quality of its product, engineering talent and ability to product to-date, at a time when the majority of battery supply contracts have yet to be announced.
We have identified what we consider to be the leading 10 projects out of nearly 90 potential customer opportunities, to create a diverse portfolio of customer in automotive, military and stationary power and in so doing, maximize our revenue opportunity. We will continue to execute against this plan and updates the market over the coming weeks and months.
Testing and evaluation is a continuous effort, and I would like to update you on the recent debuses test performed on our packs. The so-called drop test entails that a complete EnerDel EV pack of 26 kilowatt hours, it’s about close to 600 pounds in weight, was dropped from a height of about 10 meters, which is roughly 30 feet, onto a telephone line flat on the ground. We are extremely pleased to report that no explosion, no flame, no vented gases, and no thermal event took place and believe this continues to reinforce the safe that has been engineered into our products.
Before I pass the call over to Daniel and Jeff for an update on the federal funding opportunities, I would like to make some brief comments on a couple of exciting developments in EnerDel.
After years of prototype and pilot production, we were deeply honored on Friday to welcome Indiana Senator Evan Bayh to inaugurate, what is now the flagship lithium-ion battery plant in the United States. From a seat on the Energy and Natural Resources Community Senator Evan Bayh, Democrat of Indiana, access of hard end supporter of electric drive-in legislated process.
Senator Bayh also carefully monitors the activities of the Department of Energy and has become the Senates most active part of the department’s leadership, with efficiency and effectiveness in the distribution of loan and grant funds. Senator Bayh has been consistently supported the EnerDel’s efforts to receive federal funding. At Friday’s event, he declared in front of company employees and assembled media; “I will be your advocate in Washington.” Full details of the event, including photos and videos of plant in Indianapolis may be viewed on the Ener1 website.
Present at that ceremony we’re also representatives of the Department of Energy, the Indiana Energy Systems Network and Argonne National Laboratory. It was also on slighted that we learned that the lithium titanate chemistry co-developed by EnerDel and Argonne National Labs, specifically for HEV applications, won an excellence in technology transfer award for its very high power battery system.
According to Khalil Amin, Senior Research Fellow at Argonne, the HEV technology is unquestionably the safest among the most reliable and lowest costs lithium-ion battery on the market. We are proud to be associated with such a prestigious American Institution and wish to offer our sincere congratulations to our colleagues at Argonne National Lab on receipt of this exciting award.
With that, I’d like to turn the call over and introduce Daniel Betts, who runs our fuel cell subsidiary in Florida for an update on additional federal funding opportunities available to the company. Daniel.
Thanks Ulrik. EnerFuel is developing advanced high temperature PEM fuel cell systems and is currently focused on developing a range extender for electric vehicles. The company’s fuel cell technology target system and fuel cell factory design simplicity, which we expect will be sold in lower cost and higher reliability power plants.
A majority of EnerFuel’s technical and managerial employees, have over 12 years industry experience. A large portion of EnerFuel employees, who were former employees of Paladin Energy Systems and/or energy partners, both pioneer fuel cell companies.
By the close of 2008, EnerFuel successfully integrated into an EV, a prototype high temperature PEM fuel cell range extender. The system incorporates a compact and light weight, three kilowatt fuel cell power system, to operate in hybrid arrangement with the vehicles lithium-ion battery system. The present system is designed to extent the prototype vehicles driving range by 50%.
With the hydrogen content in the vehicle, the fuel cell is capable of providing 20 kilowatt hours of energy into the battery throughout the course of a day. The total fuel cell system weighs 176 pounds, including the hydrogen tank, power electronics and fuel cell stack and a 200 lithium-ion battery system would weigh approximately 330 pounds. This prototype extended range EV is being used by the company for technology valuation and testing.
EnerFuel is concentrating its development on power systems and operating hybrid arrangement with batteries and at power levels within three kilowatts to 15 kilowatts. These contracts with most competing fuel cell vehicle power plants that target 30 kilowatt to 100 kilowatts with minimum battery have registration. This competing vehicle has higher stability for the creation of a national wide hydrogen vehicle fueling infrastructure, and to the cost of membrane electrode assemblies and platinum, our target fuel cell systems are not acceptable.
EnerFuel is aggressively pursuing funding from the federal government and we’ll be meeting with the OE managers this Tuesday in Washington, D.C. for this cost potential financial support. Despite that EV range extended, some of these funding opportunities include development and fuel testing of backup power with sharing systems and development and fuel testing of portable backup power systems.
Our funding is being pursued for three different applications. Our base technology in all three is the same; are simplified; mid power, high temperature PEM fuel cell system in hybrid arrangement with batteries.
At this point, I would like to pass the presentation to Jeff Seidel, VP of Corporate Strategy.
Thank you, Daniel. Since our last conference call in March, we have made good progress with the Department of Energy regarding our application for the Advanced Technology Vehicle Manufacturing or ATVM program. We are in the process of technical and financial due diligence with the Department of Energy. DOE has appointed Ernst & Young, A.T. Kearney and Sentech to conduct due diligence on our application.
Today, we have responded to a series of inquiries from Ernst & Young, through direct meetings, phone conference calls and regular responses. In March, we wrote two separate responses to questioners, regarding financial viability and technical viability. On April 2, we visited with Ernst & Young and DOE in Washington to provide an overview of our business and respond to a series of details surrounding our ATVM application.
On April 17, we conducted a detail conference call with Ernst & Young and A.T. Kearney, focusing on our core revenue accounts. On April 28, we hosted A.T. Kearney at our Indianapolis manufacturing facility. We conducted a detail tour of our sub-manufacturing capability and discussed the macro environment as it pertains to our market share assumptions and potential market penetration.
Over the same time period, we have submitted revisions to our financial model and three separate documents supplementing our original application. While we have little in terms of feedbacks from the DOE at this point, we believe we are well along with the review process of our ATVM application. We believe we are responding well and in a timely fashion to DOE request for information.
In addition to the ATVM program, the Department of Energy has released two funding opportunities relevant to Ener1. The first FOA-26 provides $2 billion for electric drive vehicle and battery and component manufacturing, of which $1.2 billion is allocated for advanced battery manufacturing. The second, FOA-28 provides approximately $378 million for grants to establish development demonstration, evaluation and education projects to accelerate the market introduction and penetration of advanced electric drive vehicle.
I will now turn the presentation back over to Charles.
Thanks Jeff. As many of you listening to this call will agree, 2009 has been a year of unique challenges, but also unique opportunities. As the macroeconomic situation intensifies, so also have we witnessed the increased commitment on the federal level to support growing and new technology companies.
That will not only create new job and stimulate new industries, but it will also allow America to lead the world in technological innovation. After many years of power production and nearly a $0.25 billion in investments, Ener1 through its EnerDel subsidiary now has the largest built out manufacturing facility in the United States for lithium-ion batteries of automotive grade quality.
I make the distinction, automotive grade quality. Our combined management and engineering teams have over 300 years of lithium-ion battery manufacturing experience, of which a 150 of those years is in automotive. Designing, proprietary production equipment and manufacturing processes have been crucial to build out of our plant in Indiana.
With limited additional spend on equipment and machinery, we can produce up to 30,000 electric vehicle packs at our Indiana facility and sell it for an additional 15,000 EV packs in Korea. While still a relatively small player with just 480 employees, this is one of the largest built-up production facilities for the manufacturer of automotive grade lithium-ion batteries that exist in the world today.
The new facility in Noblesville and also in the state of Indiana, about 10minutes up the street from our [Hague] road facility, contains what we believe to be the first completely automated pack integration lines for lithium-ion batteries in the world today. That has captured the attention of worldwide auto industry, the global media and most importantly, the U.S. government.
I’ve often compared Ener1 to David and the field of Goliath. Have we seen a worsening economic conditions, so to we have seen a growing separation between companies with real products, real engineering talent and ability to be able to produce in volume today and those companies that are just waking up to the realization, that this is one of the most explosive growth areas of the automotive industry and they all need to play a part.
Ener1 is focused on this one goal for several years and consequently signed the first and largest battery electric vehicle contract in this space back in ’07, October with Think Global. On successful completion of final performance and reliability checks with Fisker, the EnerDel battery solution will power the first plug-in hybrids to hit the roads in the U.S. by June of next year.
A story of first, but the story doesn’t end there. 2009 is the combination of years of hard work and investment. In the next several weeks and months, we will update the market on additional customer project in the pipeline.
Ener1 has always been focused on being a total system solutions provider; not just selling customized battery solutions, cells or packs, but orchestrating a complete solution for the industry. This is exemplified in our deal with Kyushu Electric Power to develop the technology for rapid recharge fan.
In our involvement with the energy systems network, which has given us the opportunity to work with stalwarts, such as Duke Energy, Cummins, Delphi, Remy, Allison and of course on the education side Purdue University, and of course you have an update today on our fuel cell side, where we believe replacing the gasoline internal combustion engine with a fuel cell for range extension is the most likely scenario for our next generation of range extended plug-in hybrid electric vehicles.
The latest award announced for our lithium titanate chemistry, which we developed in conjunction with Argonne National Lab, has been applauded now as the model for public private partnership with the National Research Laboratory Network. Again, I echo Ulrik’s congratulations to Argonne National Lab for being recognized throughout the world, for their excellence in technology transfer. This is something that is incredibly important to the new administration and Ener1 is proud to be leading in this area.
In short, we have planned development strategy to intersect precisely with those of our countries and worlds most innovative car makers. Our confidence is high that our plant put manufacturing fact in place now. We’ll make great benefit for all of our employees, their families, for our shareholders and for everyone interested in the future of electric drive.
I sincerely appreciate your time and attention to the Ener1 story and would like to open up the call for questions-and-answers.
(Operator Instructions) Your first question comes from Steve Milunovich - Merrill Lynch.
Steve Milunovich - Merrill Lynch
Could you talk a bit about funding issues first, maybe in three parts; first of all, any progress made at Think and how that impacts your revenues as we go through the year? Second, how you’re going to fund you CapEx? I think you previously said you would look first at debts and then possibly at equity.
Then third, regarding the loans, I think Charles you said on the last call that your best expectation was that loan news might come later in the year on the R&D grant that might be kind of earlier maybe by mid-year, maybe you can update us on your thoughts there?
So, with regards to Think I didn’t on purpose leave them out of my prepared script. I’m heading over to Norway tomorrow for the worlds largest electric vehicle symposium, EVS and I plan to meet with both the trustee of Think, as well as with the senior management of Think to get a complete update.
What I can tell you today is that Think is making extremely good progress with regard to their capital ground. I know some of you continue to do your checks in terms of the network, in checking things out and it appears to us as it sure does to you that Think is on a very good path to complete their equity raised by the end of May.
When we look at the total picture, I would just reiterate comments I made on our fourth quarter earnings conference call, which is we do not believe that Think’s long term goal is to produce in Norway. We believe that it is Think’s plan to stand up production perhaps in other parts of Europe, including potentially England and then to stand up at plants here in the United States and I believe they’ve narrowed their shortlist of states down to approximately three Oregon, Indiana and Michigan.
So they continue to, I think do a very good job of rightsizing their model and we still remain very optimistic that there was a lot of room for a car like Think, globally. So we remain excited about Think.
As to CapEx, I think we’ve said previously and I’ll just reiterate, is that we don’t plan to spend any CapEx this year, that’s not funded by the government. So our $480 million of loans that we’ve applied for and as Jeff mentioned, the $1.2 billion grant program under FOA-26, which by the way the application is due May 19. So you can circle your calendars there in terms of when we plan to have our application in. So that gives you some idea of that.
I guess the other thing I would just make a note of on the CapEx side, is because we’ve already done the heavy lifting. We believe we’re production ready and for example, let use Fisker as an example; for the first phase of the Fisker contract in 2010, we would not need to install virtually any new equipment. We could produce for that contract today and meet their volume ramp up requirement.
So, we think we’re in a really good shape with regard to the way our plant is built out, both in Korea already, as well as here in the U.S., both in terms of Hague Road facility and the Noblesville facility, which I know you recently visited.
Finally, on the loan side, just to you give an update on the timing, there appears to be an acceleration of the ATVM program and the latest we’ve heard is that there are four to six applications that appeared to be on what were called the fast track. Those applications could be announced as early as the 30 days.
As to who’s going to be in that first group, we’ve heard roomers, I’m sure many of you have heard roomers well in our comment on roomers, but I would just say this, Ener1 continues to be very confident that the level of diligence that we’ve come through already, that there is a chance; I would might even say a good chance that we could be in that first group.
Your next question comes from Dilip Warrier - Thomas Weisel.
Dilip Warrier - Thomas Weisel
So, this is just about the Fisker contract; clearly you haven’t signed a contract, but congratulations on the progress. I was just wondering; if you were in a position to comment whether, you could potentially be a full supply of the Fisker or if you would be kind of one of two to three battery suppliers?
I think it’s important to note that it didn’t spring out of nowhere. We spent 12 months with the Fisker doing diligence and technology validation, so we do think this is a technology validation point to assign this LOI with them.
As to the cell supply, I have to be a bit careful there, because we don’t have a supply agreement in place yet. I think that the way I would says and I think that Fisker would agree with this. So, I’m trading carefully is, the Fisker program is ours to lose.
If we continue to perform the way, I expect the team to perform and what they’ve already done in the past, there is no reason why? We can sort of the only battery supplier to Fisker, but again we’ve got to perform, we’ve got to do the things we say we can do; we’ve got to deliver the product, the car has got to work to the specifications of Fisker, but I have every confidence in the team and I would just say it ours to lose.
Dilip Warrier - Thomas Weisel
Just related to that, just given that the battery pack sizes, almost the same; like the Think is about 26 kilowatt hours, Fisker is about 22 kilowatt or 22.5 kilowatt or so. Do you require to putting a lot of development work here to customize it or can you give us an existing set of Think solution and just sort of tweak the product?
I’m going to turn that question over to Ulrik and Naoki in Indiana and let them answer that.
It’s a very good question. I think we were able to use some of our components, including cells from really from the Think program if you will, but the battery package cells has a completely different geometry.
In the Fisker vehicle it’s more of a long tube like battery; not a tube, but a long rectangular battery, while the Think battery is more square, but in all of our programs we’re trying to utilize all the experienced base and the engineering work that went into the Think program and apply that to these other programs that we are actively pursing.
I’ll just make two other comments there. First of all, in terms of 22.6 kilowatt, we actually think we can get away with using a smaller pack and still meet their requirements.
So, while they may have publicly announced that 22 and change kilowatt hour battery, based on this specifications that advance lithium power systems drew up, we think our battery solution could be less than 19 kilowatt hours and still meet their PHEV 50 requirement given the higher energy density of our cells.
So I wouldn’t sort of lock in that number, I would say that we might be able to come off with a much more efficient solution using I guess as old recorded said, call at off the cell solution that we’ve developed for Think with some modification.
The other thing is I think is interesting. The shape of pack is in a T-shape and it’s very similar in fact to the Volt program. So, you can sort of draw some comparisons and analogies there; relative to what’s future business once we execute on Fisker. So, we’re pretty excited about this program on a number of levels.
Dilip Warrier - Thomas Weisel
Just one last question perhaps for Jerry and I apologize, I haven’t really gone through the financials yet, but I guess, what are some of the driving reasons behind the increase in cash burn this?
Primarily materials related to development of prototypes for our customers on the R&D side. We have a pretty steady burn rate in R&D related to wages, but the materials can go up and down by quarter, that’s why we always say, that our burn ranges between $6 million and $8 million by quarter, but at the end of the year it’s still coming in on an average, just over $6 million.
Dilip and Jerry I’d just really add one point. Let me just make sure to draw your attention. Our burn for the quarter was only about seven and change million dollars, but the balance of that was non-cash. I just wanted to make sure that you saw the 10 plus million in ops burn, only seven of that and change was cash, the rest was non-cash. I just want to make sure that point was clear.
Your next question comes from Michael Lew - Thinkequity.
Michael Lew - Thinkequity
I have another question on the Fisker opportunity. Just to confirm, I think Ulrik you just mentioned that you’re all able to use the Think cell. So that would imply that the Fisker product is going to be based on the energy cell product. Is that correct and not the LTL offering?
It’s based off of the energy cell, not off of the LTL chemistry, that is correct.
Michael Lew - Thinkequity
With regards to the LTL, the lithium titanate offerings, how many of the nine remaining near term opportunities are LTL related?
I think two of them at the moment.
Michael Lew - Thinkequity
Also with regards to Enertech, you highlighted that sales were about $7.9 million; what were the prior year comparable numbers and how much were related to the cell phone and handheld markets this quarter?
Jerry, I’m not sure if we have that figured, that information.
Yes, actually we have it in the 10-Q. The Korean won by the way was down substantially. The actual sales in Korean won were actually up over last year, because of course the first quarter of last year, was actually a down quarter for Enertech, but if you go to the cash flow statements, all of the details on a pro forma basis are explained.
Michael Lew – ThinkEquity
One last question, you talked about the EnerFuel opportunities; are fuel cells included in the 15 opportunities that you highlighted before?
No, they’re not Michael, that’s a good question. One of the reasons why we’ve chosen to highlight them on this call is that the company has done a really good job over the last 12 months of buckling down and developing a product and anytime we actually have a product, we think now is the right time to start talking about it.
The range extended fuel cell vehicle that they’ve developed is inter-route to Washington, D.C., where it’ll be on the display for the U.S. Department of Energy tomorrow and as many of you may’ve seen. There’s over $40 million in government grants and loans available for automotive fuel cells and we think EnerFuel’s got a good chances of getting some of that money, so we really do think they’re unique.
I think the other point I would make and why we think we’re differentiated is, we’re not trying to replace the internal combustion engine with a 100 kilowatt hour fuel cell system similar to some of the other fuel cell companies in the markets. The three to five kilowatt hour fuel cell system is much smaller and much less expensive and I think that’s really relatively important.
The other thing I would point out is that, because it’s a much few smaller fuel cell system, you can reform the hydrogen in your garage. You sold like as the hydrogen infrastructure problem that would be created with sort of what I call, traditional internal combustion engine, fuel cell vehicles. So, we really think we’re on a very, very exciting path. We think it’s extremely complementary to what we’re doing with EnerDel, which is why we chosen to highlight it.
Your next question comes from Bryce Dille - JMP Securities.
Bryce Dille - JMP Securities
I just have one question as it pertains to the recent announcement of the Argonne National Labs and really just from a bigger picture perspective. If I recall correctly, you guys are one of the like five participants in the DOE funded program for the next-gen batteries. Does this announcement I guess in anyway have some sort of reading out of the participants from a technology perspective in your opinion?
I assume you’re talking about the USABC program.
Bryce Dille - JMP Securities
Yes, I am.
There’s four companies in phase II of the USABC program and of course we’re one of those four. I think the Excellence in Technology Transfer Award that Argonne was awarded is slightly different and let me try to differentiate it more clearly. This isn’t the actually technology itself, which of course we already were awarded the R&D 100 Magazine award for that technology end of last year with Argonne.
This is a process award and so the distinction of this award is that the senior team at Argonne are now being recognized by their peers as creating the most optimal model for a public private partnership with a private company, EnerDel. So it’s really the model that they’ve created and of course my hats go off to Naoki and his technical team for working so closely with Argonne to create sort of this model that’s going to become the defect of standard for how a research lab can hurry their technology into market.
Hopefully, their clarification gives you some indication of why this is so important. Notwithstanding the fact the current Secretary of Energy, Steven Chu, notwithstanding the fact that he came out of the National Research Lab Network, he and President Obama, both believe very strongly that the technologies in the National Laboratory, Networks should be spent to market as quickly as possible.
So, I think this recognition you should assume has been viewed by Secretary Chu and even by the Whitehouse as incredibly positive. So, I think its more recognition. I think it’s positive. It clearly helps EnerDel with their visibility in Washington D.C. All of those can only be viewed as tremendously positive.
Bryce Dille - JMP Securities
If I could maybe, just kind of following on that point; what sort of impacts or presence does either the USABC or Argonne have I guess in the process of down selecting some companies as it pertains to DOE funding?
Well, that’s a good question. We don’t have full transparency into the DOE process. So, what we can do is gas, but clearly on the technical side, the DOE listens to their major National Research Lab, Argonne, in the area of transportation. So we had very little doubt that, the folks at Argonne are part of the review process for the both the loans and grants from a technical perspective; much the same way that the program management office of vehicle technologies at DOE is also the key person responsible for the grants program.
So when you look at that, you have to be careful by saying there is any one person responsible for down selecting or making final decision. Ultimately, of course that person is Secretary Chu, right. So, he is the CEO, if you will of both of these programs and that he is the ultimate decider, but you better believe that a person like Secretary Chu, would listen to the brilliant scientist he has in his lab network, especially because that’s where we was raised if you will.
I think what I’m trying to say is that there is no silver bullet here, but each of things we’ve done along the way are tremendous and incrementally helpful in identifying EnerDel as what we are tying to be, which is the leader in both research and development and manufacturing of this automotive great lithium-ion battery technology.
Your next question comes from Raj Seth - Cowen & Co.
Raj Seth - Cowen & Co.
Charles a quick question on some of the loans available to you, just to clear a little confusion I’ve got. You mentioned the FOAs-26 program that you’re going to apply for on May 19, is that a new program or is that ABMI program that I think you referred to in your last call, where I think that was the first of the many program that you might be able to see awards granted by mid year or is that something different get a little confused?
Yes, the ATVM is the direct loan program and nothing’s change there. The reason why we decided to breakout the stimulus money, the $790 billion stimulus money into their FOA is because we are going to have multiple grant application. So the FOA-26, which is the $2 billion for electric drive, that is what we refer to previously as advance battery manufacturing incentive grant program or ABMI. So the due date on that is May 19.
Raj Seth – Cowen & Co.
Okay, and you still think that you’re likely to see awards out of that program before the ATVM program?
The answer is, with the increased visibility we have on ATVM; meaning the DOE is short of in a hurry mode on it. We might see the money now potentially at the same time. Raj, remember that’s our best guess, we don’t have a crystal ball, just you don’t, but we’re trying to give as much transparency into the process.
The other thing I would point out just to answer your question on the first one. Under FOA-28, we will be co-flying for grants under that program with some auto manufactures for demonstrative program. I just want to make sure that everybody understands that there will be multiple grant applications.
Raj Seth – Cowen & Co.
A couple of more if I might, Ulrik maybe for you or anyone; back to Fisker, the plug-in hybrid type of application, I’m sure you can’t be very specific about pricing, but how was the price of a battery like this, compared to a Think battery?
Charlie, do you want me to take that?
Well, I mean it is priced I would say along the same lines as the Think program, maybe slightly more aggressive, but along the same lines I would say and they’re just likely smaller batteries. Charles has already discussed it with one of the earlier questions.
Raj Seth - Cowen & Co.
If you were to fall trails now without anymore CapEx, what is the capacity today, the plan? I know its mix depended, but let’s say for this kind of a battery?
Naoki, do you want to make a comment on that before I do.
As we’ve said, the big capacity of the erection, the making, we can achieve to come back through the think or the Fisker alliance. Even we have hoped, how much of it; let me calculate it. Including the Korea and Russia is the 600,000 or 700,000 of sale. That is the [Inaudible] of the inaugural. I Think monthly it will be like [Inaudible]. So they are quoting a capacity, but I know under the formation capacity we don’t have to touch much, but we can achieve like the automotives 300 to 400 part, on that level.
The lead times on some of the assembly and formation equipment is substantially less than the quoting price. So, I would feel comfortable in saying that we could achieve. I think, what I said on the call earlier was, we could fulfill the first year, which would be some where in the 6,000 to 7,000 pack range in 2010. We could fulfill that with virtually no additional CapEx.
If year, two was 15,000 vehicles or more, which would be by the way the 2011, we might have to add more formation and assembly. Clearly, if we get ATVM, then by the end of 2011, we would have doubled our footprint in Indiana anyway. So we’ll have more capacity than what we need for the Fisker program, but obviously by then we’re going to be working on much, much larger OEM programs, in conjunction with the Fisker and hopefully the Think program as well.
Raj Seth - Cowen & Co.
Last one if I might, for Jerry. Inter track revenues were 8-ish million this quarter, how should we think about that going forward for the next couple of quarters, assuming FX doesn’t move dramatically?
Yes, it’s the Korean won that’s lowered our expectations for the year and we sort of provided insight by just referring to the AKA from last year and if you take the 2007 numbers, which were around 970 Korean won to the dollar and you just used the current rate, which is around 1400 to 1450, you come up with $40 million run rate and if you take the September 30, 2008 numbers and did the same thing, you would come up with the same run rates.
The first quarters are a little lower than other quarters. So, we’re crossing our fingers that those numbers stay. The first quarter obviously, the worldwide economy is certainly more challenging, but hopefully the year is going to recover, but $40 million is probably as best as we can expect for the Enertech, but it’s able to manage its operations, provide positive EBITDA and it does have money in the bank and it does have a loan availability. Manufactured CapEx was purchased with bank loans as opposed to using corporate cash.
Your next question comes from Jeff Osher - Harvest Capital.
Jeff Osher - Harvest Capital
Just two quick questions Charles; I know the derivative liability, I think that’s related to the warrants. Can you just walk through on the balance sheet, the 66, what exactly that relates to? Secondly, as I look in my model, can you just give us the fully diluted share count when you do term profitable?
Hi Charles, I’ll take the derivatives, because I don’t think anyone else wants to actually know how to do that stuff. EITF 07-05 now requires companies to be classified as derivative liabilities, any warrants that have any price adjustments. Even if it’s a small weighted-average price adjustment, it still makes it a derivative liability. So a lot of companies are going to start classifying warrants that were previously classified and paid in capital.
So, at January 1, we have to calculate the value of those derivatives, which was around $20 million and then during the quarter we have a derivative gain that offsets that and we wind up having a derivative liability in the financial statements, which we classify as long term as $6.6 million. So we’ve had a decline in our shareholders equity related to this and it’s really a non-cash item.
The thing that’s perplexing to me; not that I wanted to get into too much of a philosophical discussion is, the reason that liabilities are considered derivative liabilities because you would have to settle them in cash, but there’s no mechanism for these derivative liabilities to be sales in cash, they’re warrant. People either exercise them or they don’t. What was your second part of the question?
Jeff Osher - Harvest Capital
Did the fully diluted bridge that? I know it’s in your Q and I guess I’ll pull this up after the call, but how many warrants are currently out? What’s the delta between the 113 million shares out?
There’s 28 million warrants at an average exercise price of $4.14 and there’s 5 million stock options in exercise prices of $3.22. So those numbers actually sit in the footnotes, you can find the tables on those. Then our weighted average shares for the quarter are 113 million, but because we are in a loss position, those warrants don’t show up in that calculation, so you would have to add those back in.
Okay. Heading up to the top of the hour, thanks very much everybody for your time and attention in Ener1. We are very, very excited about the coming three to four month period. We have a number of milestones upcoming that we look forward to keeping you abreast of and discussing on our next quarterly conference call. Thanks again for your time and attention.
Thank you for participating in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.
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