Superconductor Technologies Management Discusses Q2 2013 Results - Earnings Call Transcript

Superconductor Technologies (NASDAQ:SCON)

Q2 2013 Earnings Call

August 13, 2013 11:00 am ET

Executives

Cathy Mattison

Jeffrey A. Quiram - Chief Executive Officer, President, Director and Member of Stock Option Committee

William J. Buchanan - Chief Financial Officer, Principal Accounting Officer, Vice President, Controller and Assistant Secretary

Operator

Ladies and gentleman, thank you for standing by. Welcome to the STI Second Quarter 2013 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, August 13, 2013.

I would now like to turn the call over to Cathy Mattison. Please go ahead.

Cathy Mattison

Thank you, Marrissa. Good morning, everyone, and thank you for joining us for STI's second quarter conference call. By now, you should have received the copy of the press release. If you have not, please feel free to contact LHA at (415) 433-3777, and we will get that out to you right away.

With us from management today are Jeff Quiram, President and Chief Executive Officer; and Bill Buchanan, Chief Financial Officer. I will review the Safe Harbor provisions of this conference call, and then I will turn the call over to Jeff. Various comments regarding management's beliefs, expectations and plans for the future are forward-looking statements and are made in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ from those expressed in the forward-looking statements, and those differences could be material. Forward-looking statements can be affected by many other factors, including those described in the Risk Factors and the MD&A sections of STI's 2012 annual report on Form 10-K. These documents are available online at STI's website, www.suptech.com, or through the SEC 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 forward-looking statements.

And now, I would like to turn the call over to Jeff. Please go ahead.

Jeffrey A. Quiram

Thank you, Cathy, and thank you, all, for joining us today. I will provide an update on our Conductus Wire program, and then Bill will review the financials.

I'm pleased to report that last week, we completed a very successful public offering of our stock. Our goal for this offering was to raise the necessary capital to fully execute on our business plan, which is to produce Conductus Wire in sufficient quantity for STI to achieve positive cash flow from operations in the second half of 2014. This offering was sized to achieve that goal even though it required us to raise a large amount of capital relative to the prevailing market value of STI.

This offering was well received by both existing and new investors, and we were able to raise the entire amount of capital we desired. In fact, we had indications of interest from investors that far exceeded the amount of capital we wished to raise.

As a result of this successful offering, we are now positioned financially to attack an HTS wire market that continues to be extremely attractive. As we have discussed in the past, there are simply not enough HTS wire to supply the market's needs. Companies with plans to bring superconducting products to market must secure a supply of HTS wire for 2014 and beyond. We intend to be a significant and successful wire supplier to help fulfill this industry demand beginning next year.

During the second quarter of 2013, we made great progress in the ongoing production ramp of our pilot RCE machine. We also attained the important milestone of shipping Conductus wire against 3 existing purchase orders from industry-leading multinational companies. The shipments consisted of Conductus wire that attained critical current performance between 250 and 400 amps per centimeter width for the various specific customer application. Our wire is undergoing qualification for use in devices such as Superconducting Fault Current Limiters and high-field magnets.

I'm happy to report that since mid-July, when we provided an update, we have shipped additional Conductus wire as we continue to fulfill these existing purchase orders.

In the last several weeks, we have also been preparing to ship Conductus wire to a new customer that is performing a detailed technical evaluation for a new application. Since we believe that our wire will meet the stated technical performance requirements, this new first-stage customer may be the latest to place a purchase order for the Conductus wire necessary to complete qualification in their device.

These wire shipments are notable for several reasons: first, they indicate serious market interest in Conductus wire; second, these shipments deliver the first wire revenue for STI in the second quarter, which is very satisfying for our team.

While the amount of revenue is very modest at this point, we are extremely pleased with the ongoing customer qualification efforts. We believe that very soon, these companies will require significant quantities of HTS wire at various lengths to successfully complete upcoming smart grid projects.

Our intent is to secure business with these customers as we transition from pilot to full production in preparation for the availability of commercial quantities of Conductus wire in 2014.

As we continue to make great strides in our wire program, the electrical device industry continues to pursue projects that represent significant opportunities for STI. The industry is adopting high-temperature superconducting technology to address problems unsolvable by conventional means. In fact, the majority of our purchase orders are from industry-leading multinational industrial companies with product development teams in place. Many have pipelines of products they plan to launch using the game-changing technology of HTS wire. To do so, they need a reliable supply of that wire.

STI's technology enables a variety of new applications coming to market, and our strategy is to target applications that are either already active or are preparing for a market launch in the near term. The Superconducting Fault Current Limiter market has emerged as a significant market opportunity. A growing group of device manufacturers are pursuing the fault current limiter development.

Several companies have reported positive results for projects with utilities that include a suite of superconducting systems, including superconducting cables, fault current limiters and supporting cryogenics.

For example, Nexans and the German utility, RWE, have recently teamed up with the city of Essen, Germany in a project called AmpaCity to install the longest superconducting cable in the world. This installation will also be the first to combine a superconducting cable with a resistive Superconducting fault current limiter for overload protection.

Depending on the particular design used, Superconducting Fault Current Limiter systems require between 10 and 30 kilometers of superconducting wire per three-phase device. Several fault current Limiter designs do not require wire in long lengths. In a single device, hundreds of 5- to 10-meter wires are made into coils that are stacked in columns to form a conductor bank.

STI is now fulfilling several purchase orders for Conductus wire with leading Superconducting Fault Current Limiter suppliers. We continue to believe that the fault current limiter applications represent an excellent opportunity for Conductus wire as our customers look to address the expected market demand.

We believe that the shorter wire lengths required will also allow us to maximize yield as we transition to the commercial scale of 1-kilometer lengths in 2014.

Conductus wire is also suitable for a variety of other applications, including superconducting high-field magnets, power cables, motors and generators.

As we have previously discussed, STI is currently providing Conductus wire in lengths of 5 to 10 meters for customer qualification efforts. Our first commercial wire production suite is expected to produce 750 kilometers of wire per year.

At today's market prices, this annual production volume would generate approximately $37.5 million in revenue for Conductus wire.

By fostering customer relationships with large multinational companies with established sales channels, we believe that we have positioned STI to satisfy market demand as we move to produce commercial quantities of Conductus wire.

As part of our ongoing marketing program to promote Conductus wire, STI will exhibit and present at the upcoming EUCAS 2013 Superconductivity Conference in Genova, Italy in September and the 11th at EPRI's Superconductivity Conference in Houston, Texas in October.

We are honored to participate in these international forums for the electrical utility and superconductivity industry. The events will present the most recent scientific developments in superconducting materials and report on the current state of the industry in transitioning to a superconducting power delivery system.

In summary, during the second quarter of 2013, we demonstrated market improvement in Conductus wire current performance, yield and wire length per run. We continue to make progress in these areas as we work to achieve the performance requirements for the high-power cable project and scale up volumes to fill our backlog of purchase orders. We look forward to completing the fulfillment of the purchase orders from our second-stage customers and expect to establish commercial relationships with one or more of these customers as we prepare to ship larger quantities of Conductus wire in 2014.

Now, I'll turn the call over to Bill for a review of the financials. Bill?

William J. Buchanan

Thank you, Jeff. As previously discussed, we have continued to sell wireless products, as we have focused on our HTS wire program. While we recorded our first revenue from the sales of Conductus in the second quarter, the amount was not material. Our 2013 revenue has been derived primarily from wireless products. Our second quarter revenue was $553,000, compared to $596,000 in the year-ago quarter.

Commercial gross margins were positive in the second quarter, compared to negative in the year-ago quarter due to our successful overhead cost reductions.

Total R&D expenses, including contract and other R&D expenses amounted to $1.4 million. This is up slightly from the prior year's quarter due to our increased efforts to improve the manufacturability of our new HTS wire products.

SG&A expenses were $1.1 million, compared to $1.6 million in the year-ago quarter. This reduction was primarily from a refund of our legal expenses associated with our Resonant spin-out. On an ongoing basis, we expect this expense to return to $1.4 million per quarter.

Net loss for the second quarter was $2.4 million, or a loss of $0.54 per share, compared to a net loss of $3.4 million, or a loss of $1.03 per share in the prior year's quarter. The total number of common shares outstanding at June 29, 2013, was 4.8 million shares. For the first half of 2013, total net revenue was $1.3 million versus $1 million in the first half of last year. The net loss from the first half of 2013 was $4.8 million, or $1.12 per share, compared to a net loss of $6.4 million, or $2.04 per share, in the prior year's first half.

On to the balance sheet. In the second quarter, $1.8 million was used to fund our cash loss and $200,000 was used to fund changes in our working capital. There were no additional capital expenditures in the quarter. We ended the second quarter with $1.6 million in cash and cash equivalents, and working capital was $1.1 million.

Subsequent to the end of the second quarter, at the end of last week, we received net proceeds of $10.9 million from a registered public offering of our common stock and warrants. Based on our current forecast, we expect our existing cash resources will be sufficient to fund our planned operations to at least the second quarter of 2014. At the end of the second quarter of 2013, accounts receivable was $232,000. Current and noncurrent liabilities totaled $1.8 million at June 29, 2013, and were down slightly from the 2013 first quarter.

Before closing, I'd like to congratulate Resonant Inc. on the $7 million financing it completed in June. Many of you will recall that STI contributed patents to Resonant to form a company to assist mobile device manufacturers in their struggles to keep up with explosion of data demand from next-generation mobile devices. This funding enables Resonant to commercialize its RcR technology for the rapidly growing mobile communications industry.

We are pleased our shareholders are positioned to enjoy the value being created by Resonant and wish them well.

And now, operator, we are ready to begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jim Collins [ph] with Van Clemens.

Unknown Analyst

I guess the thing that comes to mind is, if it's possible to get some more quantitative numbers on, for example, the longest lengths that we can consistently make with, perhaps, the highest amp value that we can consistently make? Is there any numbers that you could maybe give us about those things?

Jeffrey A. Quiram

Well, the longest lengths that we've been producing are in the tens of meters, so we're not trying to produce at 100 meters right now because, frankly, that's not what we need to meet the demand. So we're doing it in tens of meters, and I'd say we announced what we shipped to customers is in the area of 400. There are -- so when you talk about the highest performance for our length, it's around 400 to a little bit higher, depending on the length that you're talking about. So again, good progress, moving it up towards into that 400 space. Again, the thing to note is that the majority of the other wireless provided in the industry is in the 200 to 275 range, so I think we're making very good progress there, and so that's what we're doing from a length and performance perspective, Jim.

Unknown Analyst

Okay. And then do we have more than 3 purchase orders now?

Jeffrey A. Quiram

We have, I think there are 3 active purchase orders that are still to be fulfilled, so they've either partially fulfilled or will be fulfilled in the next several weeks. And a couple of them have already been fulfilled. So 3 of them we're still working on.

Unknown Analyst

So in other words, we've had a total of what, 4 or 5, is that the idea or?

Jeffrey A. Quiram

I think it's 5 or 6.

Unknown Analyst

Okay. And then a little aside here, American Superconductor in September of 2010 got the largest wire order ever. I think it was for 3 million meters and they were supposed to start delivering and, in trying to find out exactly where they stand on that, I've been unable to find out, but I'm just wondering is this something that they -- if somebody like that lost the order, is it possible that we could get in there or somebody else get in there? Or have you heard anything at all about that order?

Jeffrey A. Quiram

Well, I do believe -- and again, American Superconductor is the industry leader, I believe, in the amount of wire that they ship in a particular period. I do believe they have been shipping against that order, from what I've heard, and so I don't -- frankly, we are not in talks with that particular customer of theirs to replace them. So -- but that's about all I know about it, Jim.

Unknown Analyst

Okay. And then, in looking at the SuperPower's product, they have the ability to make -- they, they claim is a lot of the kilometer length wire, but frequently, they are taking pieces, 300 meters and splicing them together. Can we splice our stuff? Or have we tried to splice our stuff yet?

Jeffrey A. Quiram

Well, we haven't really been splicing yet, and part of the reason for that is: number one, we don't really have any customers that want long pieces of wire with splices in them yet. I mean, I think people are willing to accept that because it's all they can get, or they can get more of it if they're willing to accept splicing. But in the instance where you have a product design that either requires a 600-meter piece of wire or a kilometer piece of wire, our customers have been pretty unanimous in their desire that they get wire of that length because, frankly, it's difficult to deal with the spices. Splices negatively impact performance, but more importantly, in a product design, they're a physical interference in the length of the wire. So all of a sudden, you got a splice that you have to deal with in the design of your coil or your cable or whatever you're doing, and frankly, they need to know where those splices are going to be. They can't just get the one where the splice shows up in different locations. So we've not really been actively trying to splice pieces of wire together because we haven't really had anybody that's been asking us do that, Jim.

Unknown Analyst

Okay, good. And then on the production machine, are we at a point where we would be starting to build that? Or just, where are we? Are we still waiting for all the data from the pilot machine before we proceed further with the production machine?

Jeffrey A. Quiram

I think we're at the point where a very good portion of that machine is designed. Some of the long lead time items have been ordered. I would say, we're at the point where we are still learning from the pilot machine, and of course, anything we learn, our goal, of course, is to take that and apply it to the new machine to make it better. But I would say that we don't have anything in our possession yet, but as we've stated, we believe that it will be at the end of this year, as when we'll have that machine, end of this year, very early next year, that machine will be in our Austin facility and we will be able to turn that [indiscernible]. From that perspective, we're on schedule with what our goal is there.

Unknown Analyst

Okay. I guess, one final question. Just -- I'm trying to get a perspective, we used a drum and we're wrapping wire taper on the drum and we're depositing materials on it? Now the drum for the machine, the kilometer machine, is got to be what, 10x bigger than the one we're using? Is that -- how does that work?

Jeffrey A. Quiram

Well no, it's not really. It's about a 1/3 bigger in both dimensions. So 1/3 larger in diameter and 1/3 longer in width and length. So no, it's not 10x bigger.

Unknown Analyst

Okay. And then we, what, we just wind like a kilometer of tape around the drum and just continually turn it like a rotisserie, until it's done, so to speak?

Jeffrey A. Quiram

Yes, that's -- I haven't thought about it as a rotisserie, Jim, but yes, that is a good way to think about it.

Unknown Analyst

And just out of curiosity, how long would like a run take to do something like that?

Jeffrey A. Quiram

Well, the -- again, the reason -- and we've talked a little bit about this I think in the past, the reason we need to go to go to the kilometer length and the reason that, that's really going to get us the commercial volumes is because the process run, when you're depositing the superconducting materials, that process itself is actually pretty quick. So you're talking an hour to deposit those materials. But -- I mean, it's -- you have to prepare the machine, you have to draw a vacuum, you have to get it to the potential heat, the operating heat, so you have to heat it up to over 750 C. All of those things take time, and those take pretty much as much time as if doing it on a 100-meter machine or doing it on a kilometer machine. So the actual period when you're depositing the superconducting materials is pretty short, but the rest of it, and then you have to cool it down after you've had it up to over 750 C, it takes a while for it to cool down. All those things take time. But that's why we want that kilometer machine, though, because in 1 run, which pretty much takes the same time on both of those machines, you've now built 10x the length of the wire.

Unknown Analyst

Okay. That's -- well okay, that's fine. And so, I’m just trying to think. That's I guess, that's basically all I wanted to know then, but it sounds like... Okay, well again, how much closer are we to the 500 amps deal again? Last time we talked, we were a few weeks away, and of course that's seems to have been extended.

Jeffrey A. Quiram

Well, I mean, we're doing -- we're producing wire in the 400s. That wire is being shipped to people that want that. We continued to strive to get what that customer wants. Again, right now, that customer is in their summer construction season, so they're busy off doing other things and wouldn't really be ready to test it until the fall anyway, so we're doing what we can to improve that performance and then whatever wire actually we're getting off there is being consumed by others. So it's still definitely a project that we're working on, and we still have the cooperation of that customer and they still want it. They still want to build that demonstration cable. So it's just a matter of getting in the wire, where -- but it's a lot of pieces, they all need to be the consistent performance. And frankly, we have people consuming what we're already building, so we're definitely optimistic that we'll be able to get them what they need, but it really is a function of what the market is going to consume off that machine. And we'll keep fulfilling existing purchase orders if it's that or -- what we don't want to do is take all of our efforts and say, "Well, it's got to be 500 or bust." And then everyone else sits around and waits. We don't want to do that either.

Unknown Analyst

And then, I guess, again, the last question the -- what's a decent yield? Okay, it takes an hour to run this. And then, yield means, what, the whole piece is no good? Or it's good?

Jeffrey A. Quiram

Well, many times, you're running tens of meters, but the customer may only need 5 meters, for instance. So you can basically pick and choose the section along the wire that you've got that meets their requirement. So my argument would be, in that instance, your yield was -- you accomplish what you wanted to accomplish. Now did you throw some wire away, yes, but -- right now, we're not really -- yield is not really that critical of a component for us right now in our evaluation. But that's going to -- it certainly become a lot more important for us as we get into the longer machine. But right now, it's -- we're doing the runs, we're scheduling them and then just trying to get wire that we can ship out the door to customers. As far as the yield calculation, we haven't really been focusing on that much, Jim, to be honest with you.

Operator

[Operator Instructions] Our next question comes from the line of Jon Hickman with Banningberg [ph].

Unknown Analyst

I got on just a little late, so I'm sorry if I'm repeating some of this, or if you have to repeat some of what you already said. But if you -- I want and get out the fact that if you could produce 1,000-meter lengths today, would somebody buy it?

Jeffrey A. Quiram

Yes, I would say, if we could produce 1,000-meter length today, the answer is yes. They would buy it, they would probably be buying it for qualification purposes. Because really what you need -- so for instance, the people that need long lengths. The people that need 600-meters to 1 kilometer lengths are either a motor, a large coil manufacturer, or a transmission cable. So producing 1-kilometer length, John, would be interesting for them to evaluate. But if they were to go forward and really want to do a project, they would need 600-kilometer lengths, for instance, to do a transmission cable. They would need a couple of hundred 600-meter lengths to do that sort of high-field magnets and motors that they're looking to build. So it's a -- yes, there's demand for the long lengths but the real issue is -- but you need to be able to do a lot of them too, to really move beyond the evaluation stage. And really, that's what we're focused on as you get into, later in 2014, where you can really start getting the throughput on that machine. I think that's when the potential demand for these guys that need those long lengths can be fulfilled.

Unknown Analyst

So could you maybe pick out one of your -- you don't have to name names or anything, but one of your people you've been shipping to, and like, walk through the timeline of what might happen with the shorter lengths? And how long a qualification period is? When it might actually get into a product? And when you might get an order?

Jeffrey A. Quiram

Sure. Well, in every cut -- well, yes, I mean, I'll speak in general terms, but I don't know that I'll -- I know everyone would like me to give out very specific data on when they'll make decision, and of course, I won't be able to do that. But really, the way the process works is, you really start with the technical evaluation where you have conversations with a company that's looking to build a grid device and they're looking for wire. And they have very specific performance requirements that their device was really designed around. And so the first thing that they want to figure out is whether our wire will meet their particular needs, whether it's operating in a particular magnetic field, or whether it's -- a certain amount of current handling over the length and with consistency across the width and all of those things they test. And so they will take wire from us, and they will do a very exhaustive technical review of what it can do and how it performs. Each customer is a little bit different, some of them do very exhaustive testing and might do 3 or 4 different batteries of tests on the wire. Others are a little less comprehensive in their technical review. But it takes several weeks for them to do it, to do the testing, and then to really evaluate the results. As you can imagine, when you do these tests, you end up with a lot of information, and then it's a matter of delving in and figuring out what that information is telling them. And we're not completely privy to everything that they're testing. They give us a particular performance criteria. We deliver wire to that but I'm sure they're testing things that they're not even asking us, they're not even telling us about. Which is fine, that's their right. At the point that they've then determined that the wire will technically meet the requirements that they need for their device, that's when they go forward into the next qualification stage and that's when they need to really order more wire, longer lengths of wire and multiples of that so that they can mock up a system and go beyond just what the technical performance is and see if it actually works in their device when they build it up. That entire process from the time we ship it to them to the time that they do their mockup, it can take 60 to 90 days, is really what we believe is required. And that's based on feedback we received from several different customers. Some do it quicker than others. But in general, it takes a while because they're being careful. They want to make sure they're doing it properly because they're hoping to make some decisions off of what they find. And so they want to make sure those decisions are correct. And so then after that's performed in the 60- to 90-day process, I think that's -- then it's time for them to make some decisions on which direction to go. And then, it's -- that's when it comes on to the third stage, which is okay, now it's time to get down and start talking about supplying wire, what a supply agreement would look like, what quantities you're looking for and when and all of those sort of commitment things. And that process takes as long as it takes. That's not a process that's done in a week either. So it takes a month or 2 to work through those issues in our experience. So I guess -- I'm not sure if that's providing you enough color, but we need to finish the qualifications, and then once you finish the qualifications and you're selected, then you're at the point where over the course of a couple of months, you should be able to take it to the next level.

Unknown Analyst

So right now, you're shipping for qualification purposes?

Jeffrey A. Quiram

That's correct. A combination of that and then there are some -- and there are always new customers that are also entering the first stage where they're wanting to do a technical evaluation as well.

Unknown Analyst

So can you walk me through, again, or name a couple -- these fault current limiters don't take huge lengths of wire? What else doesn't take long lengths of wire?

Jeffrey A. Quiram

The fault current limiters are the devices that tend to get by with shorter lengths of wire, just because of the way they design it. Most other applications, so things like high-field magnets, things like motors and generators, those are all in the hundreds of meters, so whether it's 500 meters or 600 meters to 1 kilometer, most of those applications require longer lengths because they require a lot more wire. And ...

Unknown Analyst

So you're shipping to people then in all of those groups?

Jeffrey A. Quiram

We have shipped wire to people in all those categories.

Unknown Analyst

Okay. So going forward, some of the milestones we might expect are the -- now that you're shipping for qualification in 2, 3, whatever months, there might be the possibility of hearing about actual, what, let's give you 6 months -- actual orders?

Jeffrey A. Quiram

Well, yes. I mean, right now, what our mission is, on the business side, is to really secure -- we have a plan on how much wire we're going to build in 2014, and our mission on the business side is to secure orders to consume what we plan to produce in 2014. And so that's our mission. That's what we're doing right now. And so -- yes, we're focusing our efforts in that area and that's more -- what's we're hoping to -- I think there'll be milestones associated with that as we move from that stage to success .

Unknown Analyst

And you would tell us about those milestones, right? I mean, those would be press release events?

Jeffrey A. Quiram

Well, yes, and now, again, I can't -- we'll certainly announce it because it will be meaningful to us. It's always a little bit of a mixed bag on it. It depends of the customers. Some customers are interested in being named, others are not. So there may be a scenario where we make an announcement, but we may not be able to name the customer. We just have to play that by ear as we complete those negotiations.

Unknown Analyst

Okay. And you're still -- believe that you can have that big machine fully functional by next -- by mid next year, right?

Jeffrey A. Quiram

Yes.

Unknown Analyst

Actually producing wire?

Jeffrey A. Quiram

Producing volume by the middle of the year, yes.

Unknown Analyst

Okay, I think, that was -- when do you think you'll have the Q out?

Jeffrey A. Quiram

Bill?

William J. Buchanan

Later this afternoon.

Operator

[Operator Instructions] Our next question comes from the line of William Laph [ph], private investor.

Unknown Shareholder

Jeff, I just want to clarify something, when John Hickman was talking to you, like the fault meter, you have more than one manufacturer that testing your wire?

Jeffrey A. Quiram

That's correct, we do.

Unknown Shareholder

Okay, so isn't the goal here, if they need all this wire and we only have 1 machine, isn't the pressure on some of these people that are talking to you, that the faster they move and accept it and get their design ready to go, and they have a chance that they need to have your production that they better move now because someone else may take up the production? Is that kind of a business approach you've been using on some of these?

Jeffrey A. Quiram

Well, sure. I mean, the thing is, we don't really necessarily have to say that, Bill. I mean, I think everybody recognizes that one of their big impediments to launching their product is availability of the wire they need to build it. So they've been struggling -- I think the market in general is struggling to get wire. I think that they pretty much all recognize that, that dynamic isn't going to change in the next couple of years. So if they are planning on launching a project and a program in 2014, or 2015, they're going to need a wire supplier, and our mission is to be that for 1 or 2 of them. And I think they all recognize that anyone of them can consume pretty much everything we'll build in 2014, so the third guy in the door is probably not going to get much.

Unknown Analyst

Has that fault meter, is there more than 2 manufacturers testing the wire on that, can you say that?

Jeffrey A. Quiram

I would say there's, yes, there's more than 2. And as far as the number of people that have announced fault current limiters and plan on bringing them in the market, I mean, the number is more than 5. So it's quite a few. And again, these are all very large companies. So it's ...

Unknown Shareholder

And has someone -- what is the farthest someone's gone on the testing of the fault meter. I mean, how far that they've got the material, they did the technical co-evaluation and now, are they at the qualification, are they actually building the wire -- using the wire in a test of their own fault meter with it in?

Jeffrey A. Quiram

There are people doing qualification testing using our wire in fault current limiter designs today, yes.

Unknown Shareholder

So they actually have a product that they're testing with our wire in it.

Jeffrey A. Quiram

Yes, that's correct.

Unknown Analyst

And what did they give you for a timetable as to when they would know if it meets that? You got 1 fault meter guide, that's probably the earliest in the process. He's probably ahead of anyone else, but how far -- what did she tell you as to when he'll know his satisfaction? But he may be using others, but has he given you any timetable?

Jeffrey A. Quiram

Well again, as I mentioned to John, their qualification period is in the 60- to 90-day range. So some of them have been going on for a little while.

Unknown Shareholder

When you say a little while, 60 days?

Jeffrey A. Quiram

Well, we've been shipping wire, when we announced that we were starting to ship wire to people to do qualification. I think it was, we had received orders in when where was that, Bill, was it June?

William J. Buchanan

We, certainly yes, I think it was June, and we had the press release in July. Yes.

Jeffrey A. Quiram

Yes, and so there are some people that were beginning to receive wire for those qualification efforts in June. I can't say that they received everything that they wanted, so there's some that's still being shipped. But yes, there's a couple of guys that have had -- they've been doing qualification efforts for several weeks. I'm not going to get any more specific than that, Bill.

Unknown Shareholder

No, that's fine. Okay. What is -- I wasn't clear, what is your burn rate right now? You got $12.5 million after the offering, it looks like. What's your burn rate per quarter?

Jeffrey A. Quiram

We burn between $3 million and $3.5 million on average. But you'll see that in the second quarter, we burned a lot less than that, primarily because that $3 million to $3.5 million burn includes CapEx. So we didn't have a tremendous amount of CapEx in the second quarter that we just announced, so you'll see this quarter we burned what, Bill, just about $2 million?

William J. Buchanan

About $2 million, yes.

Unknown Analyst

So what do you project for the next 12 months in the burn? Do you have -- are you able to give that? I mean 'till you start getting cash flow?

Jeffrey A. Quiram

All I'll say, Bill, is we size the offering to raise the amount of cash that we thought we needed to get to the point where we have a machine that's producing sufficient quantities to attain cash flow breakeven. So I mean, I would say that we still believe our burn will be in an average of that zone, that $3 million to $3.5 million. Sometimes higher, sometimes lower, depending on CapEx. And so ...

Unknown Shareholder

Are you still pursuing strategic partnerships too, is discussions going on? And that's -- I mean, are you still thinking of that?

Jeffrey A. Quiram

Well, yes. I mean, we talk to companies every week about various things. Some are interested in doing 1 -- some want to be just a receiver of wire, others want to do specific things that have implications for what we would -- where we would spend our efforts and the types of wire we would design, for instance. And again, the only way we would do that is if there has to be some sort of a strategic implication there. That -- because again, right now, it's all about what makes sense -- to for our shareholders, what makes sense for our shareholders, is getting wire into the market and start to generate revenue. So we have a lot of conversations with a lot of people. I'd say I think you can put some of them in the strategic category. But I think that's probably about all I want to say about that right now.

Unknown Shareholder

Okay. And then, Bill, could you give us an idea now after the offering what's a fully diluted number of shares outstanding? Have you worked that up?

William J. Buchanan

Sure. Certainly. At the end of June, we have the 4.8 million shares outstanding. And with this deal right now, we put 5.7 million more common shares outstanding. Now with that said, we also have the large warrant coverage, which could go up, but those are not outstanding right now. So the total number of shares outstanding at this point is 10.5 million.

Unknown Shareholder

Now are you going to have to do a Black-Scholes formula on those warrants when you do your financials at the end of the year, the quarter, I'm not sure when you produce that? You have to do some liability?

William J. Buchanan

We, most likely, we haven't really completed our evaluation, but most likely, we will have to treat these warrants as a derivative liability. And they will be subject to some sort of fair value. We most likely will not use the Black-Scholes, but we'll use some sort of binomial, something a little more sophisticated or with more variable. Again, that's a noncash item that goes with it.

Unknown Shareholder

I understand. So but in the offering, when someone bought the shares, and maybe you don't know this, it's more for the underwriter -- the price -- the shares were sold at the $1.799, were the warrants part, I mean, from a basis standpoint, do you include some of that towards -- you reduce the stock and then price the warrants separately? Or you just price the whole thing at $1.799? Do you understand my question?

William J. Buchanan

I'm not sure your question here. Warrants are certainly totally separable, I guess you're saying of the $1.799 are we required to say how much is for common share, how much is for warrant? No, that is not a requirement by any gap at this point right now.

Operator

And at this time, this does conclude our question-and-answer session. Please continue with any closing remarks.

Jeffrey A. Quiram

I would like to thank you, all, very much for joining us today, and we look forward to speaking with you again on our next call. Good day.

Operator

Thank you, ladies and gentlemen. That does conclude our conference call for today. Thank you for your participation. You may now disconnect.

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