ZBB Energy's CEO Discusses F1Q13 Results - Earnings Call Transcript

Nov. 6.12 | About: EnSync, Inc. (ESNC)

ZBB Energy Corporation (ZBB) F1Q13 Earnings Call November 6, 2012 11:00 AM ET

Executives

Eric Apfelbach – President and Chief Executive Officer

Will Hogoboom – Chief Financial Officer

Charles Stankiewicz – Chief Operating Officer

Analysts

Ankur Desai – MDB Capital Group LLC

Ramesh Venugopal – VantagePoint Capital Partners

Operator

Good morning ladies and gentlemen, and welcome to the ZBB Corporation Quarterly Conference Call. After prepared remarks, we will be opening the call to a Q&A period. (Operator Instructions) As a reminder, this call is being recorded.

It is now pleasure to turn the call over to Mr. Eric Apfelbach, President and CEO, please go ahead Mr. Apfelbach.

Eric Apfelbach

Thank you, Matt. Good morning everybody and welcome to the ZBB call. This is Eric Apfelbach. I’m the President and CEO of ZBB Energy Corporation and I’m joined today by Will Hogoboom, our CFO, and Chuck Stankiewicz, our Chief Operating Officer. First, Will, will review the financials, and then I’ll brief you on the status of the global strategy and Chuck will brief you on the operating activities. and then I’ll close with an overview of various business development activities. Will?

Will Hogoboom

Thank you Eric, and good morning everyone. Thank you for joining us today for ZBB’s conference call for our first quarter of 2013, which ended September 30. ZBB energy’s press release containing first quarter results was sent out by market wire yesterday, November 5. The press release may also be found on our website at zbbenergy.com. I would like to call your attention to the following Safe Harbor statements.

Certain statements made in this conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended that are intended to be covered by the Safe Harbor created by those sections.

Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations can generally be identified by the use of forward-looking terms such as believe, expect, may, will, should, could, seek, intend, plan, estimate , anticipate, or other comparable terms.

Forward-looking statements in this conference call may address the following subjects among others. Statements regarding the sufficiency of our capital resources, expected operating losses, expected revenues and expenses, and our expectations concerning our business strategy.

Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements, as a result of various factors including those risks and uncertainties described in the risk factors and the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our most recently filed Annual Report on 10-K and our subsequently filed Quarterly Reports on Form 10-Q.

We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution participants in this conference call not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein or elsewhere to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Now I will walk through the details of our financial results for the first quarter of 2013 as compared to the first quarter of fiscal 2012. Our revenue for the first quarter was $1.8 million, which was up 11% from the same period a year ago. It is important to note that with the commercialization of our new ZBB EnerSystems products, the Company’s business model is transitioning as product sales are becoming a larger percentage of overall revenue.

As such, during the first quarter, our product revenue was $1.6 million, which was a 610% increase in product sales from the same period a year ago, and our engineering services revenue was $218,000, which declined 85% from the same period a year ago. The engineering services will continue to be an important part of our business going forward, but we expect product revenue to be the larger percentage of our overall revenue.

Our product revenue for Q1 consisted of revenue for four different EnerSystems, including our system that was installed at the Illinois Institute of Technology. Q1 revenue also included $703,000 for the components sales to our China joint venture.

Total costs and expenses for the three months ended September 30 increased approximately $1.4 million compared to last year, which was primarily due to the increase in cost of product sales. Product costs reflect the early higher production costs due to startup production costs, higher initial material costs for low volume purchases and the initial low production volume.

We expect target margins to improve from our current levels as our cost-cutting measures are implemented beginning in Q2 and Q3 production. Costs of engineering and development sales decreased by $481,000, as our engineering and development agreements from the last year keep it off when we moved more into production. Our advanced engineering and development expenses increased $461,000 due to our shift from engineering contracts to product developments and pilot plant operation for the Company’s ZBB EnerStore and ZBB EnerSection systems.

Overall, our net loss increased by approximately $1.2 million in the current year quarter, compared to the same quarter last year, because our overall gross margin was 16% on $1.8 million of revenue in Q1 of this year, compared to 61% gross margin on $1.6 million of revenue in Q1 last year.

The change in gross margin is due to the shift from engineering services to product sales. As mentioned, we expect our product gross margin to improve as we begun to realize our reductions and product costs. For the fourth quarter our net loss was $0.04 per share versus $0.05 per share in the prior year’s first quarter. Excuse me, I meant to say for the first quarter, our net loss was $0.04 per share versus $0.05 per share in the prior year first quarter.

The net loss per share decreased mainly due to the additional number of shares outstanding this year. The Company’s cash balance at the end of the September 2012 quarter was $4.6 million and accounts receivable were $1.2 million. Our current backlog as of today is $5.3 million, including product backlog of $5 million and engineering contract backlog of $300,000. Our product backlog consists of approximately 20 sales contracts including the order we booked yesterday for $860,000 for Hybrid Motor Controllers, plus the prior order from the same customer, our DoD orders, commercial and micro-grid orders and power control systems orders.

Of the $5.3 million of backlog, we have received $650,000 in advance payments from customers. Excluding these payments, shipment of the product backlog will result in approximately $3.8 million of cash flow to the company over the next two quarters.

We have procured the major of the inventory required to fulfill our backlog and therefore, we expect the majority of the product and the engineering contract backlog to result in net cash flow to the Company of approximately $3 million. Our average monthly cash burn not including inventory purchases continues to be about $900,000 for a month in fiscal year 2013.

We do expect our cash burn rate to decline as we move through the year. We believe that working capital to fund operations through the end of the fiscal year, in June it’s dependent on closing additional sales orders and/or raising additional capital. Our sales are beginning to ramp, and we are currently implementing plans to reduce costs and exploring various alternatives including strategic partnership transactions and that will be available.

Thank you. Now, back to Eric.

Eric Apfelbach

Thank you, Will. So this was another busy quarter at ZBB. and as expected, we began to see a significant increase in our product revenue this quarter. Our factory also made significant progress during the quarter to ramp production of both our electronics products, and our flow battery products. ZBB now has integrated systems running in more future market growth segments than any other storage vendor. This achievement allows us to learn quickly what real customers need to place additional orders and where our product plans are offered true value in those segments.

In addition, we have proven that we have the ability to design and field advanced products much faster than our competition. With an increasing number of units shipping to an increasing number of customers, we have been allocating a larger portion of our resources to final commissioning at customer sites. While these initial installations have not been issue-free, we are learning quickly, and can now better anticipate these issues before the units shipped. We are also incorporating some practical changes to the equipment to make sure, it is more robust for shipping and for commissioning at the customer sites. Our commission improves and engineering staffs are doing a great job maximizing our limited resources for this function.

During the quarter, our new business development efforts have continued to make strong progress even though the headwinds in the macroenvirnoment have been significant. It is our belief that our bookings in revenue, growth will continue to be lumpy as these new markets in macro issue sort themselves out.

Predictability of closing date has been challenging as the customers or projects get behind the schedule or as the scope of the project can change. Our means of overcoming these delays is to increase our lead generation of qualified leads and to spend more time better understanding the order closing process particularly with the government orders where a project can have a number of contractors and subcontractors that can delay the closing of an order.

I’ll expand more on this effort to increase qualified leads later in my talk when I address the specific segments. During the first quarter, we posted several achievements. some of these were key to enabling our revenue growth plan; first, we shipped 25 ZBB EnerStores during the quarter to clients around the world. Second, we completed the ETL Listing to UL 1741 on our 125kW inverter. Third, we promoted Chuck Stankiewicz to COO. Chuck has been with us for now about a year, and he has been instrumental and continuing to lower our production costs and ensuring our ability to deliver product worldwide as we scale the business.

We also added Tony Siebert as VP of Sales and Product Marketing to head up the Worldwide Sales efforts. Tony brings more than 20 years of worldwide experience both in sales and engineering from the utility and industrial equipment industries. Tony’s experience is a key attribute for adding more qualified leads for accelerating bookings. Fourth, we successfully installed and commissioned our first 500kWh energy management system, and that included our ZBB EnerStore storage and our EnerSection inverters. We installed this on the Illinois Institute of Technology campus in the Galvin Perfect Power micro grid application.

And finally, we received repeat orders from our China joint ventures, as they continue to ramp, repeat orders exceeded $600,000. In addition since the end of the first quarter, we signed a long-term OEM supply agreement with a major engine manufacturer for hybrid bus electronics. we received from the major vehicle or engine manufacturer orders of $500,000 in the first quarter being delivered in the second quarter with an addition of almost $900,000 for new orders on the second quarter.

We also received a development order and to be followed by prototype order for electronics to be applied to an innovative generation technology that is including a hydro generation system. We shipped in eight unit ZBB EnerStore and EnerSection power control center for micro grid installation at the joint dates for hydro system installations in Honolulu, Hawaii.

At this point, I’m going to hand you over to Chuck to do a quick overview of our operations. and then I’ll return to the business development side of the business.

Charles Stankiewicz

Thank you, Eric. Good morning everyone. Three quarters ago, we said we were at an inflection point, and now we are on the growth side out of that inflection point, as it’s reflected in our increased product sales to $1.6 million. during our last conference call, we suggested that a measurement of our success in transitioning commercially oriented high volume manufacturing will be our ability to shift systems to different customers in multiple applications.

Since the beginning of our fiscal year in July 1, we have shipped 44 EnerStore of V3 modules together with EnerSection Power and Energy Control Center components that are being used in multiple projects that are located throughout the United States including Hawaii.

Although the experience gained during our product development testing and validation provided the extremely valuable information, nothing can completely prepare a new system for the various customer applications and locations except for installing the systems and learning first hand what works well and what can be approved upon.

During the last six months, we have seen multiple examples of both. The size and scope of these projects have included grid and off-grid applications, large 1 MWh and small 50 kWh amounts of ZBB supplied energy storage, the integration of photovoltaic solar power together with other energy storage such as lead acid batteries on our patented DC power configuration and the interconnection to the grid with 12 kW or 125 kW ETL Listing to UL 1741 standard inverters.

Fortunately, the issues we have encountered have been relatively easy to fix, and have allowed us to provide a more robust, easier to operate and maintain system with each subsequent installation. Although we are certain that additional learning will take place as the systems gain more operating time, we are also confident that these initial installations had demonstrated that the EnerSystem will satisfy design and application targets.

As stated in our September call, product cost reduction is essential for the success of ZBB. We have previously stated that our goal is to achieve a 30% reduction in the material cost for the V3 battery module from initial bills by the end of our calendar year. we can confirm that these goals haven’t met. These cost reductions together was less informed from our system operating experience gained over the last six months will allow us to enter the New Year with an EnerStore product that can generate low margin, while at the same time being easier to install, commission and operate in the field.

In addition to our EnerSection products, we’re also producing power electronic products that cover the entire spectrum of the green energy applications. Our electronics are currently being utilized for the control of hybrid transportation systems. wind turbine and hydro generation, each of these products utilized proprietary design and control electronics from ZBB.

I will now hand it back to Eric to discuss sales and business development activities.

Charles Stankiewicz

Thank you, Chuck. One area that we have not covered extensively in recent calls that as ZBB’s intellectual property strategy and status. so I wanted to update everybody on this important topic this morning. while ZBB has an excellent core IP position, we initiated a more aggressive offensive and defensive patent strategy earlier this year. We initiated this as it became more clear that we had a valuable differentiated position for future smart grids and micro grids.

To accomplish this, we engaged the IP group of MDB Capital. this is a very capable group that worked with the company to accomplish patent mapping, prioritization of filings and drafting of the key disclosures. this process has resulted in the filing of five utility patents between August and November, and the generation of over 30 key disclosures.

Over the next six months, we expect to file about 20 utility patents as a result of this effort. This party of IP in combination with our core position forms an important picket fence around very important areas of our smart storage strategies; it’s our belief that this will be a core pillar in building the enterprise value of the company.

Let me turn to sales and business development now. We continue to be very encouraged with the increasing quality and quantity of opportunities in our sales pipeline. By quality, I’m referring to the excellent fit we are seeing between the customers’ true needs and our existing products that’s ability to deliver that value.

Also we like seeing the difficulty our competitors have and matching our capabilities in these installations. These advantages are what will enable ZBB to continue to grow our market share, as we have mentioned in the past however, we expect our bookings to be lumpy due to the nature of the customer base and the fact they were entering in new market with a new product.

In order to continue to build on our strategic sales capability, as I mentioned, we announced the addition of Tony Siebert as VP of Sales and Marketing. Tony came to us from American superconductor and ABB. he has worked with many of our key team members in prior roles and has an excellent understanding of the strategic sales process and the customer needs in these markets.

Tony covers domestic sales what we are focusing Dan Nordloh more on international business development initiatives. The timeframe in which we have clear bookings visibility is about four quarters. Currently our funnel of identified opportunities in our served market is a bit over $35 million. Our served market definition here includes all geographies with the exception of China. We determined customer budget, authority, need, timing to decide whether an opportunity is truly qualified and belongs in the funnel.

In addition, we now have broken opportunities in our funnel into four distinct application segments to reflect the unique customer needs, the sales process and the value proposition reflected in each. Again, our power electronics and storage modules are like a leg of black-start that can address all of these markets. so we have tremendous flexibility in a broad served available market.

Before applications in a bit of commentary on what we see happening in each one will follow. number one, the segment we call commercial. this segment is dominated by our behind the meter integration of renewable storage and the grid within buildings. Our data center application and [Colonie Manor] projects in Hawaii are good examples of this segment.

What we have learned is that our product is not only the one with electronics capability to operate with good ROI in most of these applications. and our battery has strong advantages in the areas of safety, size and cost of ownership. We call our EnerSection, the micro grid in a box for this obligation, due to its ability to integrate and route all AC and DC power within a building. At present in our funnel, this occupies about 33% for the segment.

The next segment is micro grid. this segment encompasses integrating renewables and storage within AC micro grid. This could be a remote grid that is not connected to a commercial grid or it could be grid connected. The modular DC structure with a single AC connection that can respond all power commands is ideal for this application or maybe Navy, (inaudible), IIT and SPIDERS projects are excellent examples of how we can win in this segment.

In our funnel, this currently occupies about 41%, of our forecasted funnel opportunities. The third section is utility. these tend to be owned or driven by utilities. these may be behind the meter, but also at substations or other parts of the distribution group. While we only have a few projects of this type now, we expect this to grow with the adoption of things like the new proposed FERC regulations that could enable the cost of storage to be included in the rate base. The build out of the true smart grid will strongly favor our products as well, because utilities want a network of smart storage for supply response. This sector currently is about 20% of our funnel.

And the final sector is our Power Conditioning Systems or PCS. either stand-alone power electronic systems like the 100 kW wind inverter that we sell to Synchrotek or the hybrid bus controller project that we just announced additional bookings in. The Bus Controller product that we just announced additional bookings for is the most cost-effective, retrofittable solution on the market, and it has a very large served market, this section occupies about 6% of our funnel.

When we look at the opportunities in our funnel, the product size range has also grown. We are currently quoting projects up to 2 MWh of storage. Now that we have designed bill and installed our first 500 kWh unit at IIT becomes much easier to configure and quote installations that require multiple blocks of 500 kWh storage.

In the past, we had talked about the telecom market as a product trust. While we still believe in that market, we believe the best way to enter the low end remote market is through an existing telecom equipment supplier partnership. Our current equipment set is better suited for a higher power, more integrated facilities. We do currently have very compelling opportunities in our funnels for this subsector.

Our current opinion is the ZBB’s best market entry strategy in the many of the top primary telecom markets like India, is the first target commercial building. It is clear based on the work that we have done that we could generate our product quickly for our telecom partners, but we have some new opportunities in various international markets. we are proceeding slowly in order to get the right partners lined up, and stay focused on our key markets in the U.S. and our activities in China.

Most of our international focus outside China is on Japan, India and Ireland or remote grid workouts where the economics and drivers for our products are strong. ZBB must have strong partners to make a credible entry into many of these markets. and that is why where our effort is being applied.

Let me update a bit on China. our JV Meineng Energy continues to move forward with increasing activities. They have finished building the first 10 EnerStores and are running performance and reliability cycles to ensure success in the Chinese applications. It has taken a bit longer than anticipated to bring the supply chain engineering support capabilities up to the level of product needs, because ZBB U.S. has been taking an active role in support and training while the JV adds key personnel. We are now targeting January 2013 for shipments from the JV into the China market.

Regarding our strategic collaborations, we have continued to ramp up our conversations with various strategic partners. now that we have real systems out demonstrating what they can do, it becomes much clear to collaborators, what our value proposition is and where the synergy is between the companies. It is very clear that we have a strong leverage with the integrated storage companies that have existing market channels and support infrastructure.

It’s our intent to add one of these types of companies to our collaborators lived over the next two quarters. Our existing collaborations have continued to move along as planned. Honam is continuing to be very helpful on battery component developments that can significantly benefit a price performance ratio of our battery stack. They have had this scale to complete the development as well as ramp into full production. It is also extracted that they will be a second source of battery stack by 2014, as we ramp production in both regions.

We are also at a point where we are viewing progress for our projects with the major U.S. tech companies that has invested in ZBB to help develop a novel flow battery system. That project is going well and we believe it will proceed to the next phase of development.

This effort is true R&D. so we don’t project any product information. This collaboration has generated multiple benefits, as we have worked closely together to evaluate other storage projects using ZBB products and other partners that can be brought together to help accelerate ZBB’s market entry.

In summary, we continue to achieve record quarterly product revenue with one of the most compelling product sets in the industry. Our challenge is to convert the opportunities in our funnel at a rate that enables us to meet our growth targets.

We have no doubt that the market will accelerate in the longer-term, but recognize that this timing of short-term bookings will continue to be lumpy. As I have stated, it’s our intent to reach cash flow positive with the equity capital we have raised. It will take strong bookings performance and leverage from our partners over the next quarters to make that happen.

Many of our strategic collaboration discussions we are engaged in could include an equity investment component that would also strengthen our balance sheet. We have continued to manage our cash aggressively during our ramp phase and we’ll make any needed adjustments as we progress towards our business plan goal.

The metrics of success are very clear. One, demonstrate that our early product installations prove the value proposition. Two, convert these initial product installations into additional bookings and revenue. Three, continue to drive costs out of the products and increase margins, and four, add key partnerships to leverage our ability to develop products and go-to-market. We believe we have the team, products and market opportunity to achieve these objectives in fiscal ‘13.

Thank you calling in today. we’d be happy to take any questions now.

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll take the first question; this would be from Ankur Desai with MDB Capital. Please go ahead.

Ankur Desai – MDB Capital Group LLC

Hi, guys. thanks for taking my questions. I wanted to ask first about the cost reduction as you guys are able to achieve this quarter. Are we going to start seeing the fruits of that in gross margins sort of in next quarter or is there a sort of still additional ramp (inaudible)?

Eric Apfelbach

Yeah. We have real-time COGS reduction going on almost continuously, but I think some of the bigger things will start next quarter. and if you want to elaborate, Chuck going to elaborate in detail, but there is, I would say that a tax plan to reduce COGS goes across the whole billing materials in the system.

Will Hogoboom

That’s correct, Eric. There is going to be real savings next quarter, but then of course, remember to is that we have inventory and stuff. so it’s a trade-off a little bit between using the inventory you can now, which is cash on hand versus implementing some of the changes. but a lot of those are seeing it on a real-time and we expect units that will be shipping next quarter will have all those improvements incorporated.

Ankur Desai – MDB Capital Group LLC

Do you have the similar gross margins across the four market segments that you’ve talked about towards the end of the call?

Will Hogoboom

No. actually, we don’t. We do see some variability and I think some examples would be that some of our electronics products may have larger gross margins than some of our storage projects, and that just is an artifact of the competitive situation in that market and the value that it brings. so we do like that our revenue portfolio is getting diversified. again, we haven’t talked a lot about things like our hybrid bus controllers, because honestly, it’s a little bit out of our core message on what the company is after, but it’s clear we have an advantage in developing power electronics products that are leading edge. So people are coming to us for those, and when you can deliver something like that bus controllers that is currently in production, road tested and it offers the cheapest retrofit of bus controller in the market, a lot of people have tried to do that and failed. We succeeded with a good partnership and I think that that’s where you get the gross margin expansion.

Ankur Desai – MDB Capital Group LLC

Okay, great. This new automotive project is you expect to have, is that sort of, you didn’t speak that much about that. Is that primarily a power electronics kind of (inaudible)?

Eric Apfelbach

It’s a custom designed for a large OEM, and they have system responsibility on the platform, the bus platform, and we supply the controller that connects the energy storage with the motor that drives the drive shaft. and then you can imagine in that application there’s a lot dynamics going on between breaking, accelerating, storing energy, and then letting it go. That’s all done in that controller and that was designed and prototyped it Tier Electronics.

Ankur Desai – MDB Capital Group LLC

And then I wanted to ask a couple of questions about your cash position. So I know Will mentioned that you expected operating expenses to sort of decline somewhat from the $900,000 month level, once you know if you could give anymore detail on that sort of what we should expect?

Eric Apfelbach

Yeah. the guidance we’ve given is, our objective is to reach cash flow positive as soon as possible and the moving parts on that are getting the gross margins to continually go higher, and obviously, increase the absorption of our fixed overhead through just volume. So as you can tell, we’re ramping and we are reducing gross margins. we are very tightly controlling cash burn that we can control. we are very lean and mean company. So I think that basically, getting – you’ll see it throughout the year, all of those things are trending in the right direction to reduce cash burn continuously throughout the year.

Ankur Desai – MDB Capital Group LLC

So if I’m looking at sort of the backlog that you guys anticipate getting in the door in the next two quarters plus the cash on hand, it looks like it’s about $8.3 million, if you reduce the cash burn, the operating cash burn a little, it looks like we’re talking, you’re coming up on the years with the cash, before you (inaudible) revenue growth? Is that sort of a reasonable way to look at it?

Will Hogoboom

I don’t think I would necessarily do it just like that it’s again we haven’t given a specific model on what our quarter-to-quarter cash burn will be. but it’s again; we basically are targeting the end of the fiscal year to June to try to cross over to cash flow positive.

Ankur Desai – MDB Capital Group LLC

Okay. All right, Will. Thanks very much.

Will Hogoboom

You bet. Thank you.

Operator

At this time, we’ll take a question from John Bower, Private Investor.

Unidentified Analyst

Thanks for taking my call. I have a couple of questions on, are you seeing any more opportunities since the hurricane or are you getting any more inquiries, any comments on what Obama versus Romney, Presidency will be for you guys?

Eric Apfelbach

Yeah. Too good question, I haven’t seen anything specifically driven right from the hurricane, it’s not like generic. we’re all of the sudden; they get a draft of orders, because people want generators. but we are seeing, I have that a lot of questions about – well, if your system was in that building, how would it perform in that situation, and the utilities are trying to find ways to achieve what the micro grids and our systems honestly achieve, which is distributed storage that has smarts to run on or off the grid. so we like it, because it elevates the discussion the East Coast happens to be a place where even without our Hurricane, there are a lot of good drivers for our equipment to get as cash payback. So it has one more driver for people, let’s say hey, you know what, I won’t to be in the dark things like just happened, because I’ve got a separate in essence micro grid in a box running in my building.

Will Hogoboom

Yeah. Obama versus, we don’t know either way we’re happy.

Unidentified Analyst

Okay, Will. that’s a tough question. Let me go to my next question. Can you give any color that some of the deals in your pipeline, I mean are these sort of more by government or more by true economic?

Will Hogoboom

Yeah. Good question, we’re seeing much less government and when you say driven by government. the DOE et cetera really they kind of spent most of their budgets. so many of things we’re seeing are being driven like the sector on micro grids. you see that going up, because people with remote grids, resorts, places like Hawaii that we’ve talked about that have expensive electricity and high penetration of renewables.

those things are truly driven by economics in a need to get their grids stable with renewables. and so a good portion of our funnel is independent of government subsidies et cetera. and so the DOD meanwhile is trying to reduce diesel fuel consumption and their cost and that are huge. so anytime, they can reduce diesel fuel and pickup energy reliability at the same time, they’re going to spend those dollars. I think as you know everybody is kind of waiting in the DOD market to see what happens during the fiscal court period here. but they literary can walk in on many of these projects and say we’re going to save money by putting in this equipment, so let’s just move forward.

Unidentified Analyst

Okay. can I ask one more question?

Will Hogoboom

Sure.

Unidentified Analyst

This one is a pretty simple. what states present the best opportunities and what sales effort that you make in the states? Are you looking at the Canadian market or especially like until which used to have a huge amount of excess, potentially seeing the large excess waiting capacity with contracted systems up there?

Will Hogoboom

Yeah. so right, so in the U.S. the states with the best activity right now are Hawaii and California, again, its renewable penetration is peak rate, it’s just overall motive of the state to move forward on renewables. We also see on the East Coast quite a bit, quite a few drivers were renewable integration there is some fairly significant peak demand charges that some of those states have that we can avoid, and that’s key and then places like Alaska are strong to because, they are basically run on micro grids and diesel fuel now. So there’s a pretty strong push there. In terms of Canada…

Eric Apfelbach

Well, in terms of specifically Ontario, their states come out recently with some RFPs that we are looking and working with people to respond to. So the answer is yeah, we are actively looking at that various applications in Canada.

Will Hogoboom

And just to circle back, I mentioned in my comments, the notice of pending changed the FERC putout. this is a key game changer for what we’re doing, because we know the utilities want storage, right now we’re seeing charge rates down at the Illinois Institute of Technology, they are charging our battery for minus $0.02 a kilowatt-hour. So you know the utility would love to be able to find ways to put storage on their utility network. They’ve not been able to monetize it in the rate structure before. So we see this FERC effort at the beginning of trying to give them authority to put the cost of storage in their rate structure. That will absolutely be a game changer for companies like us, who already have smart storage, put in the most challenging installations around North America and in the world. The utilities, and you know we have the UL 1741 qualification, so we can go behind the meter, we can go at a substation, and we can basically fit into any utility structure in terms of how they want to run their utility network.

Unidentified Analyst

Now what about the commercial building level on that with that concept, I mean are they, is ROI getting to the point now where it’s matter people look at this as a good business session rather than having a kind of, you look at tax credit angle or meaning, just trying to be green.

Charles Stankiewicz

Yeah, well, I mean, it really does depend on the particular part of the country, the energy sources and what the overall cost of power, but in general, if you are essentially being able to store power at negative, that has a lot of inherent benefits. A part of the reason why the cost of power is negative, it’s literally bought utilities in some of these areas money to turn down nuclear plants.

So there is an economic benefit beyond just, if you will regulations or credits and that sort of thing. But it still get back as Eric pointed out earlier, if you look at Alaska, you look at Hawaii, you look at any island areas where there are importing oil and that sort of thing and a lot these resorts commercial applications. There is our economic today. Are there pockets of the U.S. short this constrains going into an area, there could be some benefit. But our continual efforts to get the cost down and make things more and more cost effective benefit that will increase our available market today and to the future.

Eric Apfelbach

Right the progress we see that we like as we’ve got things that cancel out today are fairly good sized serve to available market with our products today, like Hawaii, Alaska, California and Japan et cetera, and then with things like what’s going on with FERC and this smart grid activities our serve to available market just explodes over time and it just become massive. And so that’s the convergence of our strategy, we are after. And we believe we’re right on track to capture that.

Unidentified Analyst

One last really simple question, how many deals are just pending, on getting some more test results from our existing customers. Were the economics depends well, the people just sitting on the financial really want to see how well your current systems are doing?

Charles Stankiewicz

Yeah, it’s hard to tell you actually how may deals, it’s a lot, what I will tell you, is when I talk about quality as a funnel, almost all of our installations right now have fields behind them that are that will come from success and those installations, so that’s data centers, buildings, micro grid and I mean we have got DoD microgrid, we’ve got campus microgrid, we’ve got building installations in Hawaii. There are very unique, we’ve got like, I said the data center thing integrating AC and DC in and out, very unique that same business model goes into the hospitals, we call that critical power now. Now that the data center in the hospital very similar from what they want to do with UPS integration with renewables. So all of the installations we have got going on now, we view as strong follow on business in those segments.

Unidentified Analyst

Okay, thank you very much.

Eric Apfelbach

Yes.

Operator

At this time we’ll go to Ramesh Venugopal with VantagePoint Capital Partners.

Ramesh Venugopal – VantagePoint Capital Partners

Hi, guys good morning, and thanks for answering our questions.

Eric Apfelbach

Good morning.

Ramesh Venugopal – VantagePoint Capital Partners

I wanted to ask you a couple of questions centering around your lessons learned with all the demo installations, and my questions it would be nice if you could address a few things. The first is about margins, you guys talked about costs, but I wanted you to comment on pricing to see if the value created is so high, why is it that you are not able to sell at a higher price or if the price is set by other factors. The second aspect of it is, what are your the challenges that you face as your products have been on the field, and how is that going to impact both your sales cycle, and also your ability to translate these demo projects to larger commercial contracts.

Eric Apfelbach

Okay, it’s good. Yeah pricing is interesting, we have a brand new product, people haven’t seen it, most of our installations are in essence first of a kind and we get extremely positive feedback from the customer on the functionality and the fact, it can do everything, it can do. So proving the value model is really going on now, there are instances now if we went and resold the same equipment, we’d probably increase the price. Many of the projects we are doing now, we didn’t know when we booked it. What the value model was, what our true pricing power was. So I think that’s one of the exciting things we are looking at right now, as I okay, if the Excel spread sheet says your ROI is too fast in essence, we should raise the price, and we’ll definitely have the ability to do that in some areas. Other areas as you know, even if your cost of ownership is the lowest of any solutions people still have a CapEx hurdle that they have to get over.

So some of those areas is more of a capital asset strategy where we’ll be working with other people, who may going on an operate model to alleviate the CapEx hurdle and to in essence, spread the price of an asset over longer periods of time, because we do believe we have the lowest cost of ownership in many of these applications. So we it’s one of the reasons we have been able to get positive gross margins on even like lithium ion batteries, which we have priced and coated lithium ion and in those cases because we are running the whole system that has an ROI model that’s enabled by electronics. We can actually price the cost of the lithium ion higher than the lithium ion supplier ever could. Again, because we’re delivering value there.

so we like that the way the things are working out there, as things mature, that’s why we’re pretty comfortable that our growth margin targets are in fact pretty conservative. The other thing there is that as we provide more value meaning smart grid, our units are installed in the buildings, in the distribution grid and the data and what’s going on in those places, it’s important information for whoever is going to run the smart grid. So, it’s IBM, Cisco, Siemens, they are going to want that data. and they are going to be sending instructions to our system to react.

I used the term supply response in my comments, because that’s what we’re after. we don’t want people to have meters in their buildings turning off their power when the grid gets overtaxed. we’d rather have our systems out there, ability to deliver power whenever you need it, and not have people lights and their conditioning go out. That’s all a very possible our systems can do that today. The business model around that will enable us to increase our gross margins in essence in the total business.

In terms of the challenges out in the field, yeah, we’re very aggressive as the company as you’ve probably have seen, we’ve shipped very leading-edge products all over the place, we’ve got, what I’d like to think about there are those we’re learning at a faster rate, the real issues and how to do this. So in all of our issues are what I would call fairly typical for our new product set going out into the field, these are challenging environments.

so we’ve got a great team on the ground, that’s why we continue to have great field engineering and operations engineering talent, because it’s an opportunity, if you see issues, we’re going to see those and be able to leapfrog our products based on things that the customer really wants. so I think it’s just one of the things when you ramp a company and new products enter these markets, you just get to deal the things quickly.

Ramesh Venugopal – VantagePoint Capital Partners

Okay, thank you.

Eric Apfelbach

Yeah.

Operator

We’ll take the next question from (inaudible) with Oppenheimer & Co.

Unidentified Analyst

Hi, thanks. Over the last four or five months, it looks like we’ve gone from a capacity constrained environment to an order constrained environment. so I’m just kind of curious what’s mainly caused the falloff and the visibility in orders, and is it the DoD spending environment or what was the driver of that change, and what might drive the change to reacceleration in the order rate?

Eric Apfelbach

Yeah. I think there’s two dynamics going on in our bookings rate; one is just the overall ability to predict some of our sales processes, the speed at which that will happen. if you look at some of the things we’ve announced, we’ve got multiple big parties involved in many of these things. So we’ll have the DoD customer, a big energy firm involved, we’ll have designer or sometimes government entities, and that adds uncertainty to the process. So we’ve seen some of these projects generally take longer than we anticipated, because of that.

The other thing that we see in terms of predictability is, we basically put out a whole first wave of equipment into these key things and key areas, and neither the customer, nor that opportunity was had ever been done before. So both the customer and also learning about, okay, what does the equipment do? How does it prove itself? How do I want to deploy it next time? Is there any changes maybe I like, like it is. There is a fair amount of skepticism in the storage industry.

I think just because of all the things going on, that’s when I refer to the macro headwinds, that’s a little bit of what we see is, people right fully slow thing, you know what okay, if I’m going to put this system in my building. I want to make sure it works well, safe and then I can sight it. And so that process of having the first wave of equipment proven, it’s probably taking a little longer than we anticipated as well.

The good news is when we talk to these customers, and when I talk about the quality of what’s in our funnel, this is what we get excited, because we see the leverage that’s in there is still there, if you look at Hawaii, I mentioned that our first unit going into a apartment building a condo complex basically, and that system is installed now, and backing up an elevator and connected to the grid, the utility in Hawaii is excited about it, because now they have a smart storage, no doubt there that they didn’t have before. The customers excited about it, because they get rid of their diesel gen set and install solar energy and save money.

So there is a large volume of opportunity in Hawaii, we estimate at once, just based on the elevator replacement market in Hawaii, which is basically by code they have to do there is over $900 million opportunity, in Hawaii, just to replace elevator operating systems and diesel backup. And then you overlay the DoD in Hawaii, obviously, we’ve got probably, what we have the most advanced strategic storage system being put in at Pearl Harbor. That they also need to cover dozens and dozens of buildings with solar and they are not going to do that without some ability to work with the utility on smoothing that power and having again our smart storage.

So I think what's interesting is, we penetrated and got these early orders before we even had equipment running in our facility, these were, many of these orders were booked back when we were just telling people what we were going to do, and they obviously really liked it. Now when you see it out there running, we see that is accelerating what will happen. But we got across this period here now, where everybody is proving out the first systems and getting their actual ROI models in place and proven. And then we think there is going to be a large opportunity to accelerate from there.

Unidentified Analyst

Okay. Is there a distribution issue or a sales issue, or some tweaks you need to make to develop a channel, to reaccelerate the order rate or…

Eric Apfelbach

Yeah there is, we deal with this constant – we want to cover a broader area, but we also have to stay focused we're still quite small company and we are 80 people. So we don’t want to get out our SKUs in this first section and ship units all over the globe, and then have trouble supporting them. We have to ensure, we are successful on these early installations and to customers not only love what they bought, but have good word of mouth of what’s there. Nobody has ever shipped an effective commercially viable flow battery before. We are the first ones to do it and the electronics are enabling.

So we really want to focus on success there. We do have huge average though with some of the strategic partners we are talking to, I would say really jump up multiple levels in terms of our channels and markets, and that’s the way we can accelerate the fastest, with strategic partnerships. But we again we are looking in key geographies India, Japan, all the island nations, because they are such compelling markets, there is a huge need. There is and we want to at least have a shot at getting a really strong partnership there, so we can go in quickly.

Unidentified Analyst

So when would you expect the cycle of reliability of the system to complete the orders to reaccelerate?

Will Hogoboom

Well, it’s a kind of a continuum we’ve got quite a bit of equipment out there running now and in process of starting to gather data. So you’re going to see that kind of continuously over the next couple of quarters, each one of our customers might have a different, what I would call qualification timeframe, which is when they will kind of say, okay, thumps up, you’ve got a green light to order your next systems based on what we’ve seen here. You can imagine the DoD might have a different metric on proving systems like this versus an apartment owner in Hawaii. What we like is again across the markets, we have it’s a fairly short cycle time in some of these areas. I mean you could see follow on orders within 30 to 60 days after they start up their first one assuming we execute the way we said we would.

Unidentified Analyst

And what about the utility market segment do you have some distribution there or waiting longer for that to action to work through the system?

Will Hogoboom

Yeah, there is not a lot of new utility orders going on for our type of storage and when I say our type, we tend to focus on longer discharge times of customers of need, one to 8 hours of discharge time. The thing that we’re seeing some of the utilities by now are kind of the frequency stabilization, where you might have 5 minutes to 30 minutes of discharge time, so rapid cycling maybe win smoothing and that’s not the strong suit of our flow battery.

So you’ll see a few announcements like that. The utilities need that in order to scale some of their win and other opportunities. What will be interesting is where we’re the FERC type of motion that we see in that industry, is that now you will be able to monetize truly the long term storage, and so we talked to a lot of the utilities we constantly look at the value propositions we can offer them, but they are utilities. They are regulated business that we’ll only do things when they can get the same kind of return for their CapEx as they have had until their shareholders. So that’s why it’s really a game changer when if FERC goes forward and actually allows storage to be integrated in the grid, which we think they will, that will totally change their math on what their CapEx plans are.

Unidentified Analyst

Okay, great. Thank you.

Eric Apfelbach

You bet.

Operator

And we’ll take the next question, this will be from [William Blanchard], Private Investor.

Unidentified Analyst

Good morning. You guys have been talking about elevators in Hawaii for two years or so, what’s different now?

Eric Apfelbach

Yeah, we booked that order quite a while ago and I don’t know, if you know the full tail there, but we booked it and then the customer found out that they needed UL 1741 on the inverter to do it. So we actually had to go back and get the UL and the inverter and then ship the units. So that’s all out there now. The nice thing about it is that anything that market has become more ready electricity prices have gone up, peak prices have gone up, renewable penetration have gone up. The utilities ability to handle more than 15% of solar has become an issue that we can solve. The challenges of other storage types in those applications has become an issue, so by that I mean, lithium ion had the catastrophic failure mode that makes it difficult to book rate in or next of a building in that size, lead acid is not welcome.

People have said out there, they don’t want high temperature batteries near buildings, and vanadium redox batteries are too large for those distributed areas near buildings. So we’ve got a tremendous product advantage there both on our electronics and our battery. so times of the essence, I hate to let the markets sit there kind of right like that, but we’re going as fast as we tend to go into to that, we think there’s going to continuing market opportunity there that’s measured in the hundreds and millions of dollars.

Unidentified Analyst

Okay, now do you expect that Hawaii yourself or is there an example of one of these strategic partners you’re talking about, say the elevators on an island?

Will Hogoboom

Right, right, now good question. There’s multiple things going in Hawaii that definitely would benefit from strategic partners, one is at the utility scale, there may be very large deployments that the utility may want to do. There’s smart grid activities in Hawaii that would be great to partner with. So if we can ship the network as smart storage, somebody is going after network, we’re probably short-term not going to be that company to overlay true cyber security smart gird.

So our system will give data and take instructions from that smart grid supplier. The other one is possibly financed, there are some good own and operated models in Hawaii, because of the credit structure that could accelerate that market. and with our balance sheet, we’re not probably going to be able to finance yet. so that’s another area, and we see all of that going on, the elevators, yeah, there is various energy service companies that have very good penetration into those sub segments in Hawaii that again would be great companies to basically go in and say all right, we’re part of a building management system of which the elevator in the back up is part of that.

Unidentified Analyst

Okay. You mentioned earlier in the call, I didn’t catch whether you said two months or two quarters, were you helping to announce some strategic partners, which was that?

Will Hogoboom

I said, two quarters.

Unidentified Analyst

Two quarters, okay.

Will Hogoboom

Yeah.

Unidentified Analyst

That’s a little longer. okay, next I expected to hear more about Honam on this call, I know you were entering into negotiations with them, are they now working out or going slower or what’s the story there?

Will Hogoboom

Yeah. Honam is, their core business is actually petrochemicals, and they’re trying to get into batteries. So that our partnership has been moving forward, as planned, I would say, we’ve completed the whole first phase, now really what we’re doing is trying to figure out a commercialization and product plan and since Honam is not a current battery system supplier or in the energy business or the grid business, they’ve got to sort out internally how far they want to go into the battery business.

Right now, what’s obvious is, they can be an exceptional battery component supplier and manufacturer of the plastic battery stack and that’s actually where they provide the most value and the most leverage to the product. The other point, they’ve been very helpful is obviously, they are a big company in South Korea, and they’ve got ties into Japan. so their introductions and their positions getting us to be relevant in that region have been very helpful. so I would expect the Honam relationship could continue forward and focus on the components that matter in the battery stack and second source and supply of the battery stack itself. We do believe that they given their supply chain, should be able to produce the battery stack at much lower cost than anybody else in the globe, they have all of the chemical supply chains.

Unidentified Analyst

Okay, that’s good. Korea, as I understand it is really doing a lot of research and deployment on smart gird improvements and what not, if Honam isn’t quite the right company in Korea, are you looking it for other partners there?

Eric Apfelbach

Yeah. There’s two other types of partners we talk to in Korea, one is on the electronics side, because Honam definitely does not have the strength on the electronics side. So our EnerSection provides a lot of value there and there are some very strong power electronics companies there. And then obviously on the more on the smart grid side, we did ship and install equipment on the Jeju Island smart grid. so a lot of people know us from our work at Jeju Island, and we definitely are talking to other parties as well.

Unidentified Analyst

And on that particular project that you did install on the island, are there some milestones on that, we should be looking at or the people in Korea would be using the results from, when would they have results if they could actually use to make purchasing decisions for more units?

Will Hogoboom

The Jeju Island smart grid was literally like a demonstration system and I’ll say unfortunately, the timing on that, we shipped our old batteries, so the next major thing there is to update that and put one of our V3 batteries on that smart grid, and also one of our new EnerSection. So that’s what you’ll see next, some of our new products are also shipping to Honam. They have a fairly substantial lab they’d fill there. And so that and we have been quoting and talking to other entities about building applications in Korea. Joe, I think it is a good example though they don’t have a ready-made channel through the markets that we actually go into. so we’re working together to say well, how are we going to do that in South Korea is they can make introductions, but they don’t. They don’t have Honam energy and battery guys calling on customers.

Unidentified Analyst

Right.

Will Hogoboom

And so that’s really where our focus is right now.

Unidentified Analyst

So, I want to just understand you say there is an actual order then to replace the experimental older versions with the newer versions?

Will Hogoboom

Yeah, exactly, we have a system that we just shipped over there actually and then continued and then there is other opportunities as well that came out of that right and so we basically were prioritized, which system ships where to that partnership.

Unidentified Analyst

All right. thank you very much.

Will Hogoboom

You bet.

Unidentified Analyst

And good luck.

Eric Apfelbach

Yeah, thank you.

Operator

Moving forward, we’ll take the next question from [Stephen Moroney], Private Investor.

Unidentified Analyst

Good morning. How are you?

Eric Apfelbach

Very good. how are you Stephen?

Unidentified Analyst

Good, I heard you guys, brought up the telecom issue, and I know that telecom gets way back number of years, two or three years to (inaudible)

Eric Apfelbach

Right.

Unidentified Analyst

And I was wondering if you could comment on we saw, I’m sure you guys probably noticed that GE has moved ahead and really gotten a major volume contract in Africa, and it’s kind of really disappointing, because that we ultimately would have an edge there so to speak, (inaudible) GE and why not, but I was wondering if, is there any movement there and are we going to see anything maybe in the next year, and the reason I ask that question is, because it seems like most of the projects you guys do are high, one off highly complicated engineering feats whereas a telecom application like that maybe you would be able to get much more volume from whoever the partner would be?

Will Hogoboom

Right. Yeah, and I mentioned in my comments that in we bisected that market, there’s small low dollar off-grid telecom installations and then there is some larger grid integrated, larger installations. The smaller AC and DC, primarily DC installations, we view that that market is so different that we’re really focused on getting a telecom equipment supplier, look us as a good example, to basically use our equipment to go into those markets versus plus trying to sell directly a finished piece of equipment. We think that there is enough specific information they need to have to be successful there that we’d like to partner closely with the telecom supplier. the batteries, the primary market we’re looking at there for telecom is India.

we have looked at Africa as well; Africa is a bit more challenging from a business perspective. and so our real effort there is to take the prototype activity, we’ve already completed. So we did two revisions of smart, what I’d call smaller scale systems that would be – what would make up the telecom system. And then to get, we just need a really good company on the ground in those markets to take the product in the market and support it. some of the things as we’ve evaluated those markets, it’s clearly challenging once you ship the equipment. Solar panels go missing, copper goes missing, there is – you need the right feet on the ground there to do it successfully.

And so that’s what we’re working on, we definitely believe our product has a good overlay. but we in essence made a prioritization decision to within the companies is that we’re going to focus on the product size we have now and get that to be successful, because our served available market now is very large. So we have to be successful there and not try to chase both things at once with our limited resources. And so that’s where we are right now, I don’t know if that answers your question.

Unidentified Analyst

No. Yeah I just wanted a little bit of color on that.

Eric Apfelbach

Yeah.

Unidentified Analyst

I got pulled in and out of my office here, trying to call…

Eric Apfelbach

Okay.

Unidentified Analyst

And so if I can go back and listen later.

Eric Apfelbach

Okay.

Unidentified Analyst

But the sales force funnel that was previously at $35 million has that increased at all and what type of conversion rates are you guys seeing? And the sales cycle, is it a six months from lead to potential closing, or do you have any kind of metrics internally that you could talk about on that?

Will Hogoboom

Yeah few comments, one is, our sales funnel from the last call, officially is about the same size in terms of number of dollars. My view of it is the quality of what is in there and has gone up those or I like to see that. And that again reflects what I said earlier about the fit of the opportunity and the qualification of that opportunity with what we can do easily, in a market we have already served. So our conversion rate so far has been slow as we mentioned and lumpy. But obviously, it's our job right now and our whole objective here is to pull as much of that through that funnel as possible and as fast as possible. That's obviously a huge – number one priority of the company right now.

Those cycle times that the sales lead time, and those processes varies very widely that’s I’ll say. We’ve had some sales opportunities, from initial discussions to booking, can be 60 days, and we've got some that have gone on two years. Again, if somebody is building a large resort or doing some major DoD project, multiple rounds of RFQs can go out things like that. So it's a big diversity in timeframe. Again that we expect that to continue to tighten that so, it’s directionally correct, because again our product is modular and standard, so we can architect a system very quickly to respond to a customer need.

We are trying to drive down our lead times, again that’s easier for us to do because we have standard modules, and then as the customers get more mature industry I would call it in terms of what they – how they apply our system and how they install, we think that will accelerate. It will become a lot easier. I think you made a comment that these are engineering intensive projects. They are really not for us. We have a huge advantage because of the way we engineered our products. We can basically sit down with a customer and say, okay tell us about your solar, what do you want to do that? You have win, do you want a gen set, choice your grid interface, how much power do you need. What do you want to monetize? And then we can basically take our modules of electronics and storage, put it together factory tested here and ship it and then install and starts up very quickly. So we don’t have to reengineer a lot of things, when a customer gets us a new kind of opportunity.

Unidentified Analyst

Got it. Two questions, the FERC, in your FERC order that you’re talking about I didn’t catch the title of the order?

Will Hogoboom

That’s not an order we are talking about FERC starting to initiate change of the regulatory environment that the utilities operate in, so they just initiated comments to basically get the ability to monetize the cost of storage in their rate base.

Unidentified Analyst

Okay.

Will Hogoboom

Yeah, that’s a big.

Unidentified Analyst

Long term storage versus frequency…

Will Hogoboom

Yeah, exactly, so that would be a huge advantage or huge improvement in the way of storage market looks for utilities in the U.S.

Unidentified Analyst

Great. And the last question I have is concerning financing I noticed, depending on sales and potential strategic partnerships, why not that a financing may, would that you may needed take for financing, what in the event of that strategic partnership doesn’t occur and that sales aren’t materializing and expected, what do your foresee, how do you expect to raise the fund necessary to, would you go back to market similarly as you did in June, or do you have any idea or produce any color on that?

Eric Apfelbach

We are working a lot of issues and we kind of plan on success, we have successfully financed the company at every time we needed to. The strategic financing is definitely our preference right now and where we are focused because of what we really want there is increase channel size, so that’s a win-win deal, we get accelerated channel and we can do an equity investment that will accelerate the company. So that’s where we are focused. We do have other options that are discretion as we move down field, we’ll evaluate those but as you probably know we have that’s three shelf out there, and other things we could consider if we get to that point.

Unidentified Analyst

Okay. And the strategic would that look similar to something like a Honam type deal with somebody that would potentially be more capable of selling into whatever vertical there?

Eric Apfelbach

Exactly we would Honam was a joint development partnership more than anything, what we are looking at now is our channel partnership and more of a strategic business relationship. And yeah, we would like that to include in equity component.

Unidentified Analyst

Yes, all right well, thank you for your time and hope to see back and call next quarter.

Eric Apfelbach

You bet thank you.

Operator

You have one more question in queue. This will be from [Anthony Sassano], Private Investor.

Unidentified Analyst

Hello.

Eric Apfelbach

Hello, we are here.

Unidentified Analyst

Yes, Eric. I want to thank you for all of your continuing efforts on increasing the company and have a question about, I do get too much more elaboration on California do you know about that?

Eric Apfelbach

Yeah, we didn’t talk a lot about California in particular, we view it obviously, it’s a huge market. There are increasing their effort to put storage in renewables in general. We have a sales person located there for that reason, so that we can stay close to all of the activities there, we have systems in our backlog that we expect to install in California and so it’s a key place for us to operate and we expect it to be a very good market.

Unidentified Analyst

Okay. And some people are finding it a hard time to locate the sales person, to actually get a hold of her, I think her name is Catherine.

Eric Apfelbach

Right.

Unidentified Analyst

Yeah.

Eric Apfelbach

She is there. Although she might have been in Hawaii, she covers a lot as well, so she goes back and forth and covers the Southwest part of the country. So…

Unidentified Analyst

Okay, is there a number that can be called to reach her.

Eric Apfelbach

Sure if you want to email in, we certainly can give you her phone number offline, just email into anyone in our sales department and they can give you her cell and her landline.

Will Hogoboom

And her e-mail address.

Eric Apfelbach

And her e-mail address.

Unidentified Analyst

Okay, great. And, again, thank you very much for all your efforts and I really appreciate the update on everything.

Will Hogoboom

You bet, thank you.

Operator

Okay, so we have no further questions in the queue, I will turn it back over to your host for any additional closing remarks.

Eric Apfelbach

Okay, thank you Matt. Thanks for everybody for attending today. We look forward to talking in our next quarter and giving an another update. And good luck, elect and getting your votes in today. Okay, that’s, we’re done.

Operator

And ladies and gentlemen that does conclude today's conference call. Thank you all for your participation, you may now disconnect.

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