Friday, August 29, 2008

EEStor's Potential for Production Consistency: Finger Licking Good

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Late last night, after ZMC announced it's Q3 progress, I went to bed and had a strange dream. In the dream, I'm standing at the counter of a Kentucky Fried Chicken restaurant about to place my order with what can only be described as a very intelligent-looking fast food worker who is smiling knowingly. Instead of simply making my request, I felt a deep sense of doubt and found myself saying this, "will you be able to provide me with a 3 piece meal of original recipe?" The answer was a barrage of technical jargon describing the cooking process, the worthiness of the staff and a lot of very technical terms I had never heard before. OK, I said, I'll take one. After what seemed like a pretty long wait, my tray was put in front of me and it contained--and I'm not making this up--a single chicken leg. But it was the size of a giant turkey leg. I looked up in disbelief at what I got and received an immediate response, "ok, alright, hang on a second." The tray was whisked away and another tray was put in front of me. This time I was staring at strange casserole-like mish mash of chicken pieces. At this point, I started to realize something was not right and I had to get out of there. I was so confused by the expectations I had built up over a lifetime of eating KFC, but still convinced that the ability to produce what I had once enjoyed was now somehow impossible.

And then I woke up and I was thinking about.... what else? EESU's. Sometimes after a dream, your imagination is still firing. I pictured Dick Weir talking to investors, showing them prototypes and describing his process to build them but admitting he had a little problem. The problem was that as he made and then tested the prototypes, he noticed a bit of inconsistency in their storage density. But, he ran a few tests and knew now why this was happening. The problem stemmed from the *consistency* of the underlying materials. Some batches received powder of a certain "crystallization, size, purity, and polarization" but in others all of these were off in certain ways. And so it occurred to Weir that implementing certain quality control safeguards at key steps in production would cure these issues. And these steps included in some cases improved production equipment and in others better onboard testing. The beauty of his discovery of this inconsistency in production, to Weir, was a great thing because he learned how to tweak certain things to create different storage densities. Addressing all of these issues would be a "home run" or "the holy grail" of next generation energy storage...production.

Now remember, the above is my dream and my post dream thoughts. So I got up this morning and went back to EEStor's July 31 press release and do you know what word I focused in on? The last one in the PR. "Consistency." I would argue (with Steve, if no one else) that the most important word in that entire PR is "consistency." And if you put that concept in the context of great inventions of the past, it starts to make perfect sense.

EEStor has made it very clear both to me and other sources that they have been grappling with *production issues* not new explanatory models to convince skeptics that what they are producing is theoretically possible. I would ask everyone who has an interest in the EEStory to reflect on a simple question: how are we to understand production consistency? Isn't it the simple concept of you have a production line cranking out widgets and as you're tweaking things, you find that for every 100 units you produce, 18 of them don't meet specs...then you adjust and 18 goes to 12, make another adjustment and 12 goes to 6, make another adjustment and 6 goes up to 32, then back to 12, etc etc.

If you know the error rate of a production line, you can calculate it's throughput....or as they say in networking goodput. So, now fine reader, are there dots to be connected here, beginning with those found in Zenn's most recent "Management's Discussion and Analysis?"

Throughout the document, Zenn connects to varying degrees their mission, their goals and their progress to EESU's and cityZenn. And then this:

The Company is currently engaged in negotiating a supply agreement for the cityZENN project. While there has been substantial progress and management is confident of a positive outcome, there can be no assurance that the negotiations will conclude favorably until all documents are executed. Should the current negotiations not conclude favorably, the timing of the cityZENN project would change.

Wait!?! Where's the "imminent" permitivity announcement? How can we move forward without that? You, sir, are conflating two separate issues: Zenn's investment in EEStor which hinges on a permittivity milestone announcement and Zenn's "supply agreement" with EEStor....which may now be under negotiation. Why didn't Zenn say they are negotiating with EEStor specifically? I have not read Zenn's Non Disclosure Agreement with EEStor but I'd bet its potentially interesting reading because it would reveal what it is that Zenn can't say about EEStor.

Let's talk about "supply agreements" now. (shout out to Steve for highlighting the need for copious use of quotation marks). If you're building something, which supply agreements are the most likely to have a material effect on your business?:

a) items invented a long time ago and produced for years and years  b) items invented only recently and produced by the world's first production line of said

I vote for B! (ha, pun).

Roll out bullet number 3 in Zenn's MD&A:

The press release announced the achievement of important production results moving towards the commercialization of its technology. The release indicated third-party confirmation that EEStor’s technology will meet the voltage breakdown, polarization and saturation requirements considered necessary in the development of its EESU.

In this passage, is Zenn interpreting for us the EEStor press release? And what stands between the EESU and it's commercialization? A supply agreement maybe? But what could possibly be going on that would give Zenn's management confidence "of a positive outcome?" Could it be perhaps the consistency necessary to place an order of a certain size? Is Zenn asking for 32,000 pieces of original recipe in the first 6 months with options to buy 382,334 in each of the next 7.54 months???  Is EEStor coming back and saying something like this, "look, either you place an order for 66,000 for delivery by november 30 or else we're going to build the 232,000 needed by Lockheed first." What is going on there? I definitely don't know. So, what are your theories?

Wait a second, B, go back to permittivity. You're saying that's related to investment milestones not supply agreements? Wouldnt it make sense for EEStor to announce permittivity first and collect the additional investment? Poor reader, I don't know. But I can imagine a multitude of scenarios where EEStor would be willing to throw out some aggressive negotiation requirements.

Too much speculation for you in this posting? Be my guest and start asking Zenn more and better questions.