Overview
We design, manufacture and sell direct current,
or DC, power systems for applications primarily in the telecommunications market and, to a lesser extent, in other markets, including
military, electric vehicle charging, cogeneration, distributed power and uninterruptable power supply. Within the telecommunications
market, our systems provide reliable and low-cost energy for applications that do not have access to the utility grid or have critical
power needs and cannot be without power in the event of utility grid failure. Within this market, we offer three configurations
of our DC power systems, with output power ranging from 5 kW to 20 kW and with three possible sources of fuel: diesel, natural
gas and liquid petroleum gas.
Our DC base power systems integrate our
DC generator with automated controls that are programmed to efficiently charge various battery chemistries to provide backup energy
during a power failure. In addition, these systems are also used to provide prime power in off-grid and bad-grid locations in telecommunications
towers. Substantially all of our net sales are derived from sales of our DC base power systems to Verizon Wireless.
Our DC hybrid power systems combine our
DC base power systems with lithium-ion batteries (or other advanced battery chemistries) to efficiently store energy from DC generator
or grid systems to provide back-up power or prime power. Our DC hybrid power system replaces lead acid systems with longer-life
and higher efficiency lithium-ion batteries equipped with our proprietary battery management system, or BMS, which protects batteries
from being over charged or over discharged during daily use.
Our DC solar hybrid power systems combine
our DC hybrid power system with solar panels to produce and store lower cost energy generated by the solar panels into lithium
batteries, thereby reducing a DC generator’s run time and operating costs.
Historical Background
We began operations in 1979, and in 1980
we released our first product, a solar powered vaccine refrigerator/freezer for use in remote areas worldwide. This product was
developed in support of a World Health Organization initiative and the U.S. Agency for International Development, and was administered
by the NASA Lewis Research Center. Since then, we have continued to expand our capabilities and product lines within the solar
and renewable energy industries.
In 1984, we designed and manufactured test
carts for Hughes Aircraft Company that provided cooling systems for testing F-14 radar assemblies. During the same period, we also
supplied Martin Marietta with computerized environmental control units for testing laser guided missile launch systems and a cooling
system for a Phalanx Gun system to General Dynamics.
During most of the 1980s, we generated a
majority of our revenues through development contracts with the U.S. Department of Defense and major defense companies for the
design of DC power and cooling systems. We retain design rights on all of our engineering and product development contracts. In
1991, we began commercialization of technologies originally pioneered by these military contracts, which led to the development
of proprietary permanent magnet alternator and power electronics for DC power systems. During that period, we also manufactured
solar powered refrigerators used by foreign aid agencies to store and preserve vaccines in field-operated medical care centers.
During the 1990s, we developed and commercialized
an advanced Permanent Magnet Homopolar Hybrid, or PMHH, DC alternator that is lighter and more efficient than a conventional AC
alternator. Over the ensuing years, our generators and controls were extensively field tested in a variety of military applications.
Our PMHH DC alternator technology was used as an auxiliary power source in military vehicles and as a prime power generator for
military missions in the field. During this time, we also engineered, manufactured and sold power systems for various other applications
including oil and gas fields, rural homes and farms and telecommunications. We also generated revenues by providing short-run production,
prototyping and design services to develop energy efficient DC power systems for customers within the military, renewable energy
and telecommunications markets.
With the significant growth of the telecommunications
market in the 1990s, we elected to transition from manufacturing products primarily for military applications to the development
of products for the telecommunications market. We were one of the first to introduce high efficiency, light weight, compact DC
power systems to this market.
In 2005, we developed and manufactured a
computerized ground support unit for Martin Marietta that was used in the U-2 aircraft and in the Global Hawk Unmanned Aerial Vehicle.
During the same year, we developed our low-cost, higher efficiency 8000 Series DC alternators and our fully integrated next generation
Supra Controller™ Series power control system which is designed to monitor engine controls, power controls and battery management
in a single integrated system.
From 2006 to 2011 we made significant improvements
to our DC hybrid power systems for prime and backup power applications for all of our targeted markets; introduced our next generation
of 8000 Series DC alternators with increased power output, efficiency and lower production costs and our Supra Controller™
Series of DC generators and hybrid systems with remote monitoring and controls; obtained UL 2200 listing for our DC generators
and introduced lithium-ion battery hybrid systems with our proprietary BMS; made significant fuel efficiency improvements to our
DC hybrid power systems by integrating solar panels, lithium-ion batteries to develop a high efficiency, off-grid power source
for remote telecommunications tower locations; and we integrated our technologies into an outdoor container which can be field
deployed in remote areas with minimum installation time.
In 2008, we began demonstrating our DC power
systems to telecommunications companies. These systems can supply additional hours of operation by directly supplying DC power
to the radio equipment located at a cell site after the storage capacity of back-up batteries has been exhausted. In 2013, after
four years of extensive field testing, we received product approval of our DC power systems from Verizon Wireless, the largest
telecommunications provider in the U.S. We were authorized to demonstrate and market our DC power systems directly to Verizon Wireless’
regional facilities throughout the U.S.
During the 2013 and 2014, we shipped $1.7
million of our DC hybrid power systems, which included our DC generator, solar panels and lithium-ion batteries, for use in remote
areas by two of the largest telecommunications providers in Australia.
During 2013 and 2014, demonstrations and
acceptance of our DC power systems by telecommunications providers have resulted in unprecedented growth in our sales, which led
us to move our production facilities to our current location. During the past two years we have made significant investments in
our manufacturing capacity through the addition of automated equipment and the design of efficient automated processes, tooling,
jigs and fixtures.
Markets
We operate primarily within the telecommunications market
and, to a lesser extent, in other markets including military, electrical vehicle charging, cogeneration, distributed power and
uninterruptable power supply.
Telecommunications
We believe that telecommunications services
are a key driving force for the socio-economic development of any nation and that the significant increase in the use of data among
smart mobile device subscribers and the rollout of 3G and 4G technologies services across the globe will result in a significant
increase in the amount of investments made in telecommunications infrastructure. Due to the saturation of the subscriber base in
developed nations like the U.S. and Europe, we believe that the focus of telecommunications providers is shifting to adding new
services such as internet and video to increase the active usage of smart mobile devices. We believe that some of the key aspects
fueling the growth of telecommunications operators include:
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improved operational efficiency of telecommunications towers, with an emphasis on reducing power consumption and power generation costs;
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increased active user base through the expansion of networks in remote or rural areas in developing nations; and
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increased densification and data transfer speeds that increase the usage of additional services like internet and video on smart mobile devices.
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Because older cell sites were often located
indoors, within buildings pre-equipped with air conditioning and large AC power systems as backup sources for power, the telecommunications
industry originally found it convenient to use AC power systems. However, in order to be used by the base radios, antennas and
batteries located at cell sites, the AC power needed to be converted into DC power through the use of rectifiers (i.e., devices
that convert alternating current into direct current). The older rectifier technology used at cell sites is generally unreliable
at high temperatures. As a result, older cell sites required air conditioning that, in turn, required a significant amount of AC
power in order to operate.
Telecommunications providers and tower operators
have invested significant capital in upgrading their current infrastructure from legacy switch-mode rectifier technology to digital
rectifiers to increase power conversion efficiency. Current rectifier technology that is being installed at telecommunications
sites has a power conversion efficiency of 96%, as compared to 70% for older rectifier technology, significantly reducing the heat
generated and the need for air conditioning. In addition, these and other technological improvements have allowed telecommunications
providers to install outdoor cell sites with no air conditioners and, in some cases, powering them with generators and renewable
energy systems, such as solar. This trend towards using outdoor cell sites and removing air conditioners has provided telecommunications
providers and tower operators with the opportunity to use DC power systems as a backup or primary source of power, since all base
radios, antennas and batteries located at cell sites use DC power. This opportunity is further demonstrated by the significant
increase in sales of our base DC power systems to Verizon Wireless over the past two years.
The increasing trend of mobile network providers
divesting telecommunications tower operations by selling their tower assets to independent tower companies has reduced infrastructure
capital costs and increased allocation of capital to their core marketing and engineering activities. This operational change has
resulted in the rollout of new services, such as video, television and internet which has fueled the growth in data usage over
mobile networks. With the anticipated increased usage of data and video, many telecommunications tower sites in urban areas are
expected to exhaust their data capacity, requiring additional sites to be installed to meet future demand. In addition, upgrading
of current 2G networks to 3G and 4G networks in developing nations is anticipated to increase demand for additional telecommunications
tower sites worldwide, according to The Mobile Economy 2016 report published by GSM Association, or the GSMA 2016 Report. The increase
in subscriber base in rural and remote areas is also expected to drive the development of new sites or additional tenancies for
existing towers, according to the GSMA 2016 Report.
Increased data traffic has resulted in increased
investments by mobile telecommunications tower operators worldwide.
At the end of 2015, almost two thirds of
the world’s population had at least one mobile subscription, totaling over 4.7 billion unique mobile subscribers, according
to the GSMA 2016 Report. By 2020, it is estimated that over 70% of the global population will have a mobile subscription, with
close to one billion new subscribers added over the period, according to the GSMA 2016 Report. The GSMA 2016 Report also noted
that the growing number of smartphones and other advanced mobile network devices (e.g., tablets, computers and automobiles) is
expected to increase the use of data traffic at a compounded annual growth rate of 49% until 2020. As a result of this increase
in data growth, it is estimated that mobile telecommunications tower operators worldwide will invest over $1.4 trillion in the
construction of new cell towers and equipment upgrades by 2020, according to the Mobile Economy 2015 report published by GSM Association,
or the GSMA 2015 Report.
The GSMA 2016 Report states that greater availability and affordability
of smartphones, more extensive and deeper network coverage, and in some cases operator handset subsidies have resulted in an accelerating
technology shift from 2G network technology to mobile broadband networks (i.e., 3G and 4G networks) and the increased use of data-intensive
applications, such as video-streaming, thereby requiring more data capacity from mobile network providers worldwide. According
to the GSMA 2016 Report, although capital expenditures have increased since 2011, with annual global totals peaking in 2014, the
capital expenditures declined modestly by 1.5% in 2015, with much of this decline due to the fact that most mobile operators in
certain developed nations had already upgraded from 2G to 4G networks. Meanwhile, in an article published by FierceWireless on
April 27, 2016 reporting on recent first quarter 2016 earnings reports by a number of wireless carriers in the United States, FierceWireless
reported that AT&T’s total capital investment during the first quarter of 2016 increased 17.6% year over year, while
wireless capital expenditures were down slightly from the fourth quarter of 2015 due to accelerated purchases in the fourth quarter
of 2015 in order to take advantage of significant cost savings. AT&T also reported that it would be adding 2.5 times more capacity
at 75% of the capital costs compared to a few years ago. In addition, Verizon Wireless announced that although capital expenditures
declined by 9.5% during the first quarter of 2016 as compared to the first quarter of 2015 because of an acceleration in spending
during the fourth quarter of 2015 to prepare for the Super Bowl, it expected that wireless capital expenditure spending would increase
throughout 2016 as a result of its densification project. Consistent with this expectation, Verizon recently announced that capital
expenditures were $4.1 billion in the third quarter of 2016 driven in part by increased spending in wireless for densification,
an increase from the previous quarter. According to the GSMA 2015 Report, although capital expenditures in developing countries
will decline annually until 2020, these developing countries will continue to invest in upgrading current 2G infrastructure over
the next four years. The overall long-term trend is stabilization of investment levels, as capital investments over the next five
years will reach $900 billion, according to the GSMA 2015 Report.
Cisco, in its Visual Networking Index (VNI)
Global Mobile Data Traffic Forecast Update, 2015-2020, or the Cisco Report, estimates that the typical smartphone can generate
41 times more mobile data traffic than the typical basic-feature cell phone, while a 4G connection will generate over three times
more data traffic on average than a non-4G connection. The Cisco Report also noted that the increasing use of mobile broadband-enabled
smartphones will generate a significant growth in data traffic, with volumes forecasted to grow at a compounded annual growth rate
of 57% through 2019, an almost ten-fold increase. We believe all these factors described above will lead telecommunications operators
and tower companies to enhance the energy infrastructure at their telecommunications tower sites.
DC power usage is a key operating cost component
of any mobile tower operation, and therefore we believe that technologies that reduce operating and maintenance costs for tower
operators will be a key competitive advantage for manufacturers of DC power systems worldwide.
Strict mandates to provide rural connectivity
to mobile phone network providers in developing nations has lead to growth in off-grid and bad-grid tower installations.
In Sub-Saharan Africa, it is estimated that
30% of the rural population is not covered by any mobile network; meanwhile rural penetration in India is estimated to be below
40%, according to the Green Power for Mobile report published by GSM Association in December 2014, or the GSMA Green Power Report.
Estimates also indicate that by 2020 the global telecommunications industry will deploy approximately 390,000 telecommunications
towers that are off-grid, and 790,000 that are in a bad-grid locations, which are generally rural areas, according to the GSMA
Green Power Report.
According to the GSMA Green Power Report,
it is estimated that an additional 70,000 off-grid and 90,000 bad-grid towers will be deployed by 2020, with Africa and Asia accounting
for 80% of the growth, with the remainder largely in Latin America. The GSMA Green Power Report also estimates that over 66,000
new installations will be deployed in Sub-Saharan Africa, and 31,200 new off-grid and bad-grid installations will be added in India.
More than 90% of all current off-grid and
bad-grid towers use AC diesel generators, which we believe to have poor fuel efficiency and short operational life cycles. The
conversion of these tower power solutions to greener alternative power solutions, including renewable energy hybrid solutions,
could result in savings across the industry of upwards of $13 billion in fuel costs and 40 million tons of CO
2
on an
annual basis, according to the GSMA Green Power Report.
According to
Indianenergy.gov.in
,
approximately 60% of the existing towers in India are located in rural or semi-urban areas with about 12 hours a day of grid availability
and rest being operated by diesel generators, while the remaining 40% of urban towers currently rely on utility supplied power
that may be available only 10 to 20 hours a day with 4 hours operated by diesel generators. According to the True Cost of Providing
Energy to Telecom Towers in India report published by the GSM Association in 2012, or the GSMA India Tower Report, 70% of the approximately
400,000 mobile towers in India face electrical grid outages in excess of 8 hours a day. Telecommunications tower operators currently
use AC diesel generators to address the demand-supply gap. The resulting energy costs alone account for 25% of the total network
operating costs, affecting the profitability of the telecommunications tower operators, according to the GSMA India Tower Report.
The Indian telecommunications industry consumes over 660 million gallons of diesel fuel annually. According to the GSMA India Tower
Report, diesel generators currently powering most tower sites in India are responsible for over 6 million tons of CO
2
emissions annually.
Global emissions created by companies that
operate within the telecommunications industry are expected to grow at a compounded annual growth rate of 4.8%, from 151 million
tons of CO
2
in 2002 to 349 million tons of CO
2
in 2020, according to the GSMA Green Power Report. By 2020,
all off-grid and bad-grid towers globally are expected to require 7.2 TWh (terawatt-hours) of non-grid electricity and consume
150 million barrels of diesel fuel a year, according to the GSMA Green Power Report.
According to Deloitte’s article “
Tower
Power Africa 2014
,” or the Tower Power Report, the operators of an estimated 170,000 cell sites, with an estimated 145,000
off-grid sites, on the continent, face a high cost of expansion, with limited power supply being a factor. With regulators and
service level agreements targeting 99%+ uptime, outages are generally unacceptable. Because power is intermittent and the sensitive
radio equipment cannot handle large voltage fluctuations, most of these sites rely on diesel generators as primary or heavily-used
backup power, running as long as 18-20 hours a day, even at sites connected to the electrical grid. We believe better fuel efficiency
of our DC hybrid power systems and DC solar hybrid systems lower operating costs of telecommunications towers when compared to
AC diesel generators. Given that approximately 60% of the operating cost of a telecommunications tower relates to power generation,
we believe the off-grid and bad-grid markets are ideally suited for our energy efficient products.
A 2012 report published by ATKearney, or the
ATKearney Report, outlines a trend of mobile network providers divesting tower operations assets to reduce operating costs.
According to the ATKearney Report, a significant
number of mobile network providers throughout the world are contemplating selling off tower assets, including the related energy
infrastructure, to independent tower service companies. Based on our experience, we believe that many mobile network providers
focus their efforts on expanding networks, expanding their subscriber base and upgrading technology of active radio equipment and
pay little or no attention to investments in reducing energy costs. However, many tower service companies, which in many cases
are real estate companies and/or service companies, are further divesting from daily operations, maintenance and service of power
generating equipment and are contracting required equipment operation services to independent third-party energy service companies,
especially in off-grid and bad-grid applications, according to the ATKearney Report. A description of these companies is set forth
below:
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Tower Service Companies:
Companies that operate and maintain telecommunications towers for their mobile network provider tenants. Tower service companies typically bundle their services with other standard functions dedicated to site security, monitoring active equipment and upgrades of passive infrastructure such as power generating equipment and normally charge a fixed monthly fees for services rendered. A tower service company’s energy generation cost can constitute more than half of mobile operators’ operating expenses, with about 65% of this for tower site equipment, according to a Green Telecommunication white paper published by the Telecom Regulatory Authority of India, or the Green Tech White Paper. We believe that as a result, tower service companies are incentivized to seek long-term opportunities for improved energy efficiency, energy cost reduction and cost predictability.
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Energy Service Companies:
These are dedicated energy providers that own and operate energy assets at telecommunications tower sites. Energy service companies derive revenues from selling energy to mobile network providers as well as to tower service companies and we believe share similar incentives as tower service companies to reduce energy costs by upgrading energy assets.
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There are two types of contracts most common
between mobile network providers and tower companies, a fixed fee monthly contract or a pass-through model where all the costs
associated with operating the cell tower are passed on to the mobile network provider. Pass-through contracts do not incentivize
service companies to reduce energy costs. In India, the focus for telecom operators has shifted greatly to operational optimization
and prudence, resulting in an increased emphasis on efficiency, with efforts to reduce costs related to power and fuel being among
the key initiatives, according to The Future is Data report published by Deloitte in June 2015, or the Deloitte Report. Today,
there is more public and regulatory pressure to reduce telecommunications tower emissions, especially emissions from diesel generators.
Alternative solutions like solar, battery storage, cleaner fuel and fuel cells are being explored to reduce the carbon footprint
of telecommunications towers in densely populated urban areas. As an example, according to the Deloitte Report, operators are increasingly
pushing for fixed power and fuel cost arrangements, rather than the traditional pass through contracts. In Africa during 2014,
82% of the towers were owned by tower service companies according to the Tower Power Report.
We believe that the increased trend towards fixed power cost
arrangements with tower companies will increase the emphasis on technologies that are more fuel efficient than current legacy systems.
In addition, we believe this trend may result in an increased integration of renewable technologies, such as solar, to reduce operating
costs and reduce emissions. We believe that the replacement of lower efficiency legacy equipment provides us with an opportunity
to introduce our DC power systems with integrated renewable energy technologies earlier than the normal equipment replacement cycle.
In February 2015, Verizon Wireless sold 11,000 cell tower assets to American Tower Corporation for $5.0 billion in cash and then
leased the tower space back from American Towers on a monthly basis for 28 years. The leased cell towers will operate Verizon Wireless
equipment. Verizon Wireless has also announced plans to use the proceeds of the sale to upgrade its current infrastructure and
to implement its network densification plan under which it plans to focus wireless capital spending on adding capacity and density
to its existing 4G and LTE networks. In addition, Verizon Wireless has announced plans to develop and deploy 5G wireless technology
which would require further expansion of its existing small cell tower technology, in building solutions and distributed antenna
solutions, all of which require backup generators to support Verizon Wireless’ redundancy goals and objectives. These actions
by Verizon Wireless to reinvest capital into upgrading equipment at cell tower sites, including power generation equipment, have
benefited us during the last two years.
The increased need for communications during
natural and manmade disasters has resulted in an increase in demand for reliable and efficient DC power systems.
After hurricane Katrina in 2005, the Federal
Communications Commission, or the FCC, established an independent panel, or the Katrina Panel, which proposed regulations requiring
mobile network providers to install emergency backup power for their equipment in case of a power outage during emergency in its
“
Independent Panel Reviewing the Impact of Hurricane Katrina on Communication Networks – and its Report and Recommendations
to the Federal Communications Commission
,” issued in 2006, or the Katrina Report. The FCC ultimately adopted the Katrina
Panel’s recommendations set forth in the Katrina Report in 2007. In particular, all local exchange carriers and commercial
mobile radio service providers must have an emergency backup power source for all assets that are normally powered from local grid-connected
AC commercial power, including those inside central offices, telecommunications sites, remote switches and digital loop carrier
system remote terminals. Mobile network providers are encouraged to maintain emergency backup power for a minimum of 24 hours for
assets inside central offices and 8 hours for telecommunication sites, remote switches and digital loop carrier system remote terminals.
The Katrina Panel also noted in the Katrina
Report that during the hurricane and throughout its aftermath, the power necessary to support the communications networks throughout
the region was generally unavailable. Many of the backup batteries and generators that were installed did not provide adequate
backup reserves and the network sites went off-line.
After hurricane Sandy in 2012, one of the largest wireless carriers
in the U.S. began an initiative of upgrading existing tower infrastructure to add backup power generation capacity with minimum
reserve of 72 hours, three times the hours federally mandated by the FCC. Our DC power systems, which provide significant fuel
efficiency and reliability, have received approval from three of the top five U.S. mobile networks to be used in backup power generation
applications. Our total net sales, especially to Verizon Wireless, have significantly increased since the enactment and implementation
of this initiative.
Military
The rapid deployment and improved fuel efficiency
of mobile electric power is a key component of military combat operations.
Food, communications and weapon systems
are the lifeblood of a military unit. With few exceptions, military communications operate from 28 volts DC or 48 volts DC sources.
Currently, many guns (including howitzers), cannons and motors use computers and require DC power. We believe that the demand for
DC power with the military is increasing as the use of pulsed energy weapon systems (i.e., weapons that either use pulses of electricity
to fire ammunition or operate by sending an electric current to a target) are more widely used on the battle field. This increased
use of electronics in military missions has resulted in an increased need for DC power and for more efficient ways of generating,
storing and distributing energy. The military has assigned a special program management department to oversee the development and
standardization of a new range of higher efficiency mobile power generators ranging in size from 5 kW to 200 kW. With pulsed weapon
systems, DC power requirements can climb as high as 6 megawatts.
The objectives of the creation of a new
generation of power generators are:
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enhanced mobility, reliability and maintainability;
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improved fuel efficiency;
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reduced system size and weight;
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reduced infrared and acoustic signatures;
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increased survivability in rugged combat operations; and
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reduced total cost of ownership.
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Once the Advanced Medium Mobile Power Sources,
or the AMMPS, the U.S. Department of Defense’s third generation of military power generators, is fully implemented in vehicles
and stationary platforms, it is expected that the new generators will save over 50 million gallons of fuel per year, according
to the Mobile Electric Power Systems Command Brief issued by the U.S. Department of Defense in 2009. The new generation of mobile
electric power generators will also have the capability to connect together to form an efficient power distribution center to create
“power islands” that serve both DC and AC loads. In addition, solar and wind power is being added to AMMPS to create
hybrid systems that can function as self-sustaining power sources in remote areas. The next generation of power systems are required
to provide 21% higher fuel efficiency, reduce noise and weight and be capable of performing in extreme environments. Our DC hybrid
power systems, with integrated controls that manage energy produced by solar and lithium battery solutions, provide higher fuel
efficiency than traditional fossil fuel powered power systems currently used by the military. We believe our complete line of commercialized
DC hybrid power systems in use for the past decade provides us with a competitive advantage in meeting stated power system goals
outlined by Department of Defense.
Improvements in sensors, navigation and
communication technologies have led to increased integration of situational awareness systems that allow all combat assets to communicate
and coordinate both defensive and offensive efforts in combat. Reliance on these systems has led to an effort to integrate DC auxiliary
power units ranging in size from 3 kW to 20 kW onboard combat vehicles independent of engine driven alternators. Integration of
auxiliary power units to run climate control and on-board electronics while idling saves a significant amount of fuel and maintenance,
a critical asset during combat operations. We believe that the integration of smaller horsepower auxiliary power units to operate
climate control and on-board electronics systems, rather than large horsepower vehicle engines while idling, may save a significant
amount of fuel and maintenance, both of which are critical assets during combat operations.
During the past two decades, we have shipped
2 kW and 30 kW advanced power units, comprised of hybrid vehicle power systems, auxiliary power systems and prime power systems,
to the U.S. Department of Defense and to its prime contractors for a wide variety of missions covering the land, sea and air. During
the years ended December 31, 2016 and 2015, sales of auxiliary power systems designed for use in military combat vehicles represented
1.3% and 1.3%, respectively, of our net sales.
Electric Vehicle Charging
As of December 2015, over 462,000 electric
cars and vans have been registered in the U.S., which is approximately 0.66% of the total automobile market, according to a Global
EV Outlook 2016, report published by the International Energy Agency, or the Global EV Report. The total population of electric
vehicles has steadily grown from 172,000 in 2013 to 410,000 in 2015, according to the Global EV Report. In California, the market
share of plug-in electric vehicle reached 3.1% in 2015, far outpacing other states, according to the Global EV Report. This rapid
growth is a result of better product offerings and technological improvements in battery technology. In addition, companies like
Tesla, Nissan, General Motors and Ford have released new lower cost products with a higher range per charge. Further large reductions
in battery prices will result in electric vehicles becoming a more economic option than gasoline or diesel cars, according to the
Global EV Report. In addition, according to Global EV Report, the Paris Declaration on Electro-Mobility and Climate Change announced
the deployment of 100 million electric cars by the year 2030.
We believe that as the population of on-road
vehicles grows, the need for services such as road side assistance will be essential to rapidly charge vehicles stranded due to
lack of charge. We also believe that the need for mobile off-grid chargers in remote areas where no electric grid is available
will be essential part of the charging infrastructure required for electric vehicles.
In 2011, we developed prototype mobile
chargers for four of the major electric car manufacturers to demonstrate how our DC power system equipped with rapid charger
software could be used as mobile, off-grid chargers, for on-road electric vehicle testing. Our off-grid DC fast chargers,
installed on a pickup truck or a trailer, are designed with electronics and charging algorithms that can fully charge most
small OEM electric vehicles stranded on the road in 45 to 60 minutes. We plan to further develop this technology in the
future to market off-grid hybrid chargers for commercial applications like resorts, shopping centers and convention centers.
During the year ended December 31, 2016, we sold one additional mobile charger.
We believe there is a larger need for residential
electric vehicle chargers that can reduce charge times to less than two hours. We plan to develop residential electric vehicle
chargers that use a combination of natural gas and solar energy to rapidly charge electric vehicles. These products will be designed
to reduce peak loads on existing grid resources while rapidly charging the vehicle. In addition our chargers can be used as a backup
power source in case of power outages.
Cogeneration/Distributed Power/Uninterruptable
Power Supply
Micro combined heat and power DC generators
are the leading low carbon solution for cost effective use of energy sources.
With rising levels of greenhouse gases and
increased demand for power worldwide, governments, companies, and consumers must find energy efficient methods to generate power.
Cogeneration, also known as combined heat and power (CHP), or MicroCHP when applied to a small business or home, offers a cost
efficient and environmentally responsible solution.
Any type of power generation creates excess
heat. Typically, this excess heat goes unused and is released as waste into the natural environment. Cogeneration is a process
that recycles this excess heat and repurposes it for a number of practical applications, without any additional fuel consumption.
CHP, for example, can use the excess heat from electricity production to space heat commercial buildings. MicroCHP can likewise
use excess heat from electricity production to warm a home or small business.
MicroCHP systems provide a number of advantages
over traditional power generators. For example, MicroCHP systems utilize as much as 85% of the heat from the primary energy source
for useful purposes, whereas modern heat engines without cogeneration utilize at most 45%. Likewise, MicroCHP systems are able
to increase the total energy use of the primary energy fuel source. At the same time, MicroCHP systems are highly adaptable, and
can repurpose excess heat for space heating, water heating, refrigeration, or excess electricity production.
The market for MicroCHP is expected to grow
from $2.29 billion in 2015 to $4.44 billion in 2020, at a compounded annual growth rate of 14.2%, according to a global forecast
report published by Markets and Markets in February 2016, or the Markets and Markets Report. Major factors, such as autonomous
heat and electricity generation at a reduced cost, progressive government support in Europe and Asia, and the desire of businesses
and individual consumers to reduce their carbon footprint, are driving the MicroCHP market across the globe, according to the Markets
and Markets Report.
The Asia-Pacific market is the largest market
for MicroCHP, with Japan and South Korea leading the market due to favorable government subsidies. The U.K., where over 14 million
households are thought to be ideally suited for MicroCHP installations, offers a 10.63% incentive subsidy for MicroCHP projects.
Likewise, the U.S. federal government offers a 10% tax credit to promote energy efficiency. Moreover, the U.S. Department of Energy
has set a goal for MicroCHP to attain 20% of electric generation capacity by the year 2030. Denmark is the leader in the MicroCHP
market worldwide, comprising 55% of its total energy production according to the Markets and Markets Report.
We believe that a variety of markets should
consider MicroCHP, including those that require both heat and reliable base load electricity throughout the year. In particular,
the reliable power generated through MicroCHP would benefit bad-grid markets where electrical outages are frequent and costly.
At the same time, MicroCHP systems are advantageous in markets where the cost of electricity is relatively high and the cost of
natural gas is relatively low, such as the Northeastern U.S., California, Alaska and Hawaii.
We believe MicroCHP is also well-suited
for a variety of industries. For a typical MicroCHP system, the ratio of usable heat to electricity is 1:1. Therefore, the benefit
to be derived from this higher system efficiency depends upon steady heat usage. Markets that use the largest fraction of hot water
relative to electric usage throughout the year include lodging (e.g., hotels and dormitories), laundries, dairy and some agricultural
applications and multifamily residential buildings. Because these markets rely on steady heat usage relative to their electricity
consumption, we believe they would benefit from the cost savings associated with a MicroCHP system.
We shipped our first DC hybrid cogeneration
systems in 1995, which included our DC micro-gen system coupled with a DC generator, air-conditioning compressor and heat exchangers
providing heating and cooling. Increases in electricity pricing over the past decade, the advent of charging stations for electric
vehicles, technological improvements in heat exchangers and chillers, and government subsidies, have created an ideal market for
our MicroCHP DC hybrid products. We plan to develop next generation of MicroCHP systems to address small commercial and residential
markets. We did not sell any of these products during the years ended December 31, 2016 and 2015.
Uninterruptable Power Supplies and Data Centers
The convergence of voice and data networks and
increased reliance on digital networks combined with the unprecedented demand on power grids are resulting in an increase in the
global need for backup power.
Uninterruptable power supply systems are
used in a variety of application including homes, offices, banks and hotels. Batteries are coupled with an inverter/charger to
continue to provide power during loss of the utility grid. Other applications include security systems, medical devices, computers
and data services.
In most industrial and commercial applications,
uninterruptable power supply battery systems are used to temporarily provide base load for a short duration of time, until backup
industrial generators are capable of providing the base load. The power ratings of backup generators for commercial and industrial
uninterruptable power supply applications can vary from 5 kW to 200 kW. We began shipping 6 kW DC hybrid systems for outdoor backup
applications in 1993.
The challenges with current
technologies with uninterruptable power supply systems center around current battery performance, poor reliability and
service life, high cost and maintenance. During 2014 and 2015, we developed back-up power systems for telecommunications
customers that integrated our DC power systems with super-capacitors as storage devices, thereby eliminating the use of
battery banks as storage devices in certain backup applications. We believe our solution provides higher reliability and
longer life than a battery-powered backup system in on-grid and bad-grid applications. We plan to further develop 5kW to 200
kW configurations of our backup DC hybrid power system products for telecommunications and data center applications. We
did not sell any of these products during the years ended December 31, 2016 and 2015.
Our Competitive Strengths
We have over a 30 year history and have
developed a reputation as a proven supplier of reliable and advanced proprietary technology products to customers within the telecommunications,
military, industrial and marine markets. We have invested significant capital and engineering expertise to develop products that
capitalize on the growing trend towards environmentally friendly and fuel efficient power generation systems. We further believe
our success will be based on the following key competitive strengths:
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Proprietary Technologies.
Our research and development efforts, which began at our inception in 1979, have resulted
in the development of DC power systems with proprietary software and controls that are configured to meet the specific needs of
our customers. In addition, we have invested significant resources in developing technologies that improve fuel efficiency and
generate lower emissions than conventional solutions available in the marketplace.
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Engineering Expertise.
We have a customer-centric approach, and we continually strive to design products that
target specific application performance requirements. We believe our direct sales and service approach gives us an advantage in
determining customer needs, thereby providing us early insight into future market trends. Over the years, our customers have experienced
a significant reduction in operating expenses and longer life cycles using our DC power systems. We believe that most of our competitors
purchase off-the-shelf components and adapt these components to meet the needs of their customers, thereby increasing the complexity
of the system and sacrificing reliability. We take a different approach in that we engineer our proprietary components and integrate
these components to provide the most cost-effective solution without compromising performance. We believe our high level of integration
reduces the size and weight of a DC power system, lowers fuel consumption and maintenance and provides greater reliability and
a longer life, all at a lower cost to the end-user.
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Manufacturing Competitiveness.
We believe that our vertical integration approach to manufacturing lowers our
production costs and improves our overall operational efficiency In addition, vertically integrated manufacturing of our proprietary
components provides us greater control and intellectual property protection over our production processes. This approach allows
us to take advantage of advanced production techniques and materials. We believe our product evolution planning, design documentation,
subcontractor relationships, and in-house manufacturing allows for fast turnaround on purchase orders. We combine our resources
with those of our subcontractors to rapidly increase production when needed.
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Strong Customer Base.
Substantially all of our net sales are derived from sales of our DC base power systems
to Verizon Wireless, although we do have other customers within the telecommunications market, including AT&T and Telstra,
and within other markets including military, electric vehicle charging, cogeneration, distributed power and uninterruptable power.
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Experienced Management Team.
Our President and Chief Executive Officer and key engineers each have over 25 years
of engineering and production experience in the design and manufacturing of power systems. Our engineers have equipment design
experience, as well as hands-on skills to build prototypes. A key factor demonstrating management’s abilities and our engineering
aptitude is our successful track record over the last 25 years of executing fixed-cost research, design and engineering contracts,
with an average of eight projects per year. Our management team has increased sales and production volumes by over 200% a year
for the past three years.
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Supply Chain Competitiveness.
Our growth in sales volumes has enabled us to source components directly from high
quality large global manufacturers thereby reducing our component costs. Although we do not have any long term contracts or commitments
with our suppliers, we utilize multiple sources for key components, such as engines, to mitigate supply shortages. During the past
ten years, we believe we have developed strong long-term relationships with a network of reliable, low-cost manufacturers in the
U.S. and abroad.
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Our Growth Strategy
We believe that the increased growth in
the use of electronic devices and components within the telecommunications, military, automotive and industrial markets has led
to the rapid rise in demand for DC power in both grid connected and off-grid applications. Our decades-long experience in design
and manufacturing of DC power systems, combined with our 30-year reputation in the industry, provides us with what we believe to
be an unprecedented opportunity to address the growing demand for DC power systems. The primary elements of our growth strategy
include:
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Further develop U.S. mobile telecommunications market.
During the past three years we have achieved significant
success in selling our DC power systems to large mobile telecommunications providers. We believe that many operators of telecommunications
towers in the U.S. are in the early stages of transitioning from AC power systems to DC power systems. Since 2011, we have invested
significant capital and effort in developing proprietary technologies and to obtain product certification and approval from the
top three telecommunications companies in the U.S. This has resulted in significant sales growth during the past two years. We
believe that we are well positioned to lead this transition from inefficient AC power systems to efficient DC power systems and
capitalize on the unprecedented growth in this market. Our immediate growth plans require us to further expand our sales, manufacturing
and service infrastructure through strategic allocation of capital in operations and plant and equipment. In addition, we plan
to increase our sales infrastructure nationwide to promote our DC power systems to all the regions in the U.S. including mid-level
mobile telecommunications tower service companies. We also plan to qualify additional independent telecommunications tower service
providers to increase our aftermarket service infrastructure nationwide.
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Expand DC power systems sales into new geographic markets.
The increased use of broadband networks (i.e., 3G
and 4G networks and soon, 5G networks), resulting in the increased use of data via internet by mobile users, requires the addition
and expansion of the telecommunication infrastructure globally. In addition, the projected increase in subscriber base in rural
and remote areas in developing countries has increased the deployment of telecommunication sites in off-grid and bad-grid areas.
While the growth of the subscriber base in the U.S. and Europe was below 1% in 2014, the growth rate in Sub-Saharan Africa was
nearly 12%, according to the GSMA 2015 Report. Given that 97% of our sales of DC power systems are to U.S. customers, which represents
only 4.7% of the total global telecommunications market, we believe a significant opportunity exists for sales of our DC power
systems to customers located in developing nations, such as India, China and Sub-Saharan Africa. To successfully penetrate international
markets, we plan to establish subsidiaries in South Asia, Africa and Australia to conduct sales and service and, when needed, we
plan to incorporate final assembly operations to reduce non-value added costs. We are also actively pursuing strategic partnerships
with established mobile telecommunications tower service companies located in Latin America, and Eastern Europe. Furthermore, we
anticipate venturing into other global markets by partnering with local service partners to rent and lease our products.
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Develop higher power DC power systems.
We are in the process of developing higher power DC power systems that
will include solar hybrid systems for prime and backup power. We believe that higher power DC power systems will provide us with
an opportunity to increase our product offerings within the data center and telecommunications markets. We plan to enhance and
further develop our existing proprietary alternator and control technologies to increase power output capacity up to 200 kW. In
addition, higher capacity DC power systems will address the backup power needs of large regional data centers and can be used for
backup or peak load sharing applications in large renewable energy installations, such as large solar or wind farms.
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Expand renewable solar energy product offerings.
We believe that increased environmental regulations combined
with the declining cost of solar and advanced storage batteries has accelerated the shift of the telecommunications tower operators
towards solar hybrid systems in off-grid and bad-grid regions worldwide. In addition, in many developing countries, mobile telecommunications
providers are required by the local government to increase infrastructure and coverage into non-profitable rural and remote areas
in return for lucrative urban contracts and favored spectrum availability, according to the GSMA Green Power Report. We believe
the demand for renewable energy systems in the mobile telecommunications tower market will outpace the growth of traditional fossil
fuel based power systems. In 2013, we delivered twenty solar hybrid renewable energy DC power systems to a largest mobile telecommunications
provider in Australia for installation in remote mobile tower application. We plan to expand our DC solar hybrid power system product
line to address off-grid and bad-grid applications in telecommunications and military markets worldwide. Our expanded product line
will be comprised of systems ranging from 10 kW to 200 kW that will be available in either low voltage or high voltage configurations
and designed for outdoor installations. We plan to target power markets in India and Sub-Saharan Africa where local governments
are incentivizing the use of renewable energy within the telecommunications industry through favored spectrum auctions and tax
incentives.
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Enter power rental market.
During the past five years, the telecommunications industry has undergone significant
changes in the management of assets, especially telecommunications towers. A number of mobile network providers, including Verizon Wireless,
AT&T, Sprint, Vodafone, Airtel and Reliance, have recently begun divesting operations relating to the development and management
of mobile telecommunications towers to third party telecommunications tower service companies in order to focus on the development
of new technologies and subscriber management. This change has resulted in the creation of a new category of telecommunications
tower service companies, such as Indus Towers, Reliance, American Tower, Viom Networks and Crown Castle. These tower service companies
develop and manage telecommunications tower assets and lease the capacity to the mobile network providers on a fixed cost basis.
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The Green Tech White Paper suggests that over half
of the overall cost of operating a telecommunications tower is related to the cost of energy. As a result, it has become essential
to reduce energy costs. Many telecommunications tower operators are real estate investment trusts, which in many cases lack expertise
in developing new technologies to improve operational efficiencies at a telecommunications tower sites. According to the GSMA Green
Power Report, during the past three years in Asia and Africa, telecommunications tower service companies have begun to subcontract
the power generating assets installation and management to independent service providers that install and maintain power generating
equipment at these facilities.
We believe that our DC power systems provide the
greatest opportunity to reduce energy costs at telecommunications tower facilities. We plan to introduce an equipment rental program
to enter the energy provider market in the telecommunications tower industry. We also plan to target telecommunications tower installations
located in the remote outdoor locations with high fuel and maintenance costs. We believe the market is transitioning towards independent
energy providers managing all the power and energy assets at telecommunications tower sites. We believe our DC power systems combined
with our proprietary remote performance tracking telematics tools allows us to efficiently manage and monitor our rental assets,
thereby providing lower life cycle costs to our customers.
We plan to initially introduce rentals to the mobile
telecommunications tower market in regions where we currently have factory direct service networks and then, if initial results
are favorable, we plan to expand our rental program nationwide.
We believe, this rental strategy will allow us to
also demonstrate our inherent product advantages related to lower operating and maintenance costs to the smaller U.S. telecommunications
operators (estimated at over 1,500 companies). For overseas rental programs, we plan to associate with channel partners or dealers
within the host country.
Our Technologies
Within the power generation market, AC has
been the dominant technology for over a century. The advent of components like transistors, solid state electronics, solar photovoltaic
cells, advanced batteries and LED lighting, all powered by DC power systems, has led to an increase in the use of televisions,
computers, refrigerators, air-conditioners and cell phones in our daily lives. In addition, telecommunications towers, radio antennas,
military equipment, electric vehicles and solar energy storage systems can also be powered by our DC power systems.
In 1991, we began introducing DC power systems
to provide backup and prime power for off-grid and bad-grid applications. Our initial products were predominantly designed for
military applications and used as auxiliary power for vehicles, tanks and radar sites. In the late 1990s we introduced our DC power
systems for commercial applications like mobile telecommunications towers, solar refrigerators and oil field applications.
In 1992, we developed our own proprietary
DC alternator to improve system efficiency, reduce costs and lower weight. Our design replaced a conventional 4 pole, three-phase
designs with a light weight, low cost 12-pole and 32-pole designs (i.e., designs containing 12 or 36 magnetic poles) incorporating
either 6 or 3 phases (i.e., containing 6 or 3 power circuits). Another unique aspect of the design of our DC alternators is the
elimination of bearings, internal wiring connections, and an exciter (i.e.,
a device which supplies
the magnetizing current to generate working flux
) to provide a longer life cycle than conventional motor designs in the
marketplace.
PMHH Technology
We combined the attributes of homopolar
alternator technology with a permanent magnet to develop our proprietary design model 6200 PMHH alternator. When mounted on an
engine and operated at either a fixed or variable speed, the model 6200 PMHH generates a precise amount of regulated voltage and
current. The DC output can be used to power electronics or charge batteries. In addition, we have developed a proprietary fully
integrated digital control system that manages and optimizes alternator output and engine speed, thereby maximizing power output.
In 2006, we introduced our next generation
8000 Series alternators designed for higher power and voltage applications, which features our proprietary 32-pole permanent magnet
alternator technology. The 8000 Series offers high efficiency at a low cost.
Our alternator technology is used in diverse
applications including telecommunications towers, electric vehicle charging, military tank auxiliary power and marine yacht house
power. The hardware components used in each system vary in power and voltage based on application needs.
Supra Controller™ Technology
Our power and control system architecture
is controlled by our proprietary digital control system, Supra Controller™, which contains software configured to meet specific
application needs. Our Supra Controller™ networks all components via CAN bus communications and software and has the ability
to control, analyze, monitor, record and communicate all key system parameters to ensure efficiency, safety and reliability of
the overall system. The ability to remotely monitor and calibrate each system parameter, receive system alarms and auto-reset the
system when a fault is corrected are the key differentiating factors of our DC power systems.
Battery Management System and Software
(BMS)
Most DC power systems contain backup storage
batteries to deliver power to the load equipment when a grid connection has failed or not available. In the field, various types
of battery chemistries are used as storage devices. We have designed a proprietary BMS that monitors the parameters of each cell
and controls the safe and efficient charging and discharging of the battery pack. The unique design of our BMS integrated with
our Supra Controller™ has the capability to be field configured for charging and discharging of virtually any type of battery
chemistry. Our DC hybrid systems are equipped standard with lithium battery packs for energy storage applications.
Products and Services
We broadly classify our power systems into
three categories:
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DC base power systems
. Our basic system which is centered around a DC generator. Applications include both prime power
and backup power.
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DC hybrid power systems
. Our basic DC power system with added energy storage via lithium-ion or other battery chemistries.
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DC Solar hybrid power systems
. Our DC hybrid power system with added renewable energy (i.e., solar panels).
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DC Base Power Systems
Our DC base power systems are designed for
use in prime power and backup power applications. All of our DC power systems are designed to last 20 years or more in backup applications
and meet all UL2200 standards. To maximize operational life, we incorporate (over and above our competition) the following:
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all aluminum, powder coated, enclosure with stainless hardware, which is lightweight and corrosion resistant;
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105 C rated signal wire, tinned copper strands;
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stainless steel braided covering hoses for fuel and coolant lines;
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Class 220 C magnet wire for alternator windings;
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watertight connectors in place of terminal strips and other non-sealed connectors; and
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our Supra Controller™ modules that are environmentally sealed.
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We believe that the number one reliability
issue with a generator set is the failure to start. To improve the reliability of our generators, we remove the engine’s
starting battery and replace it with a super capacitor. The super capacitor has a 15- to 20-year service life, greater cold cranking
amps and withstands greater temperature extremes than conventional starting batteries.
To reduce maintenance and help ensure that
there is always adequate oil, we increase the engine’s oil capacity to provide for a 3,000 hour (natural gas / propane) or
1,500 hour (diesel) maintenance interval. Standard oil intervals for typical generators range from 200 to 500 hours.
DC Hybrid Power Systems
In most off-grid or bad-grid outdoor applications
where DC loads are required, such as telecommunications towers in rural or remote areas, fuel costs of operating a generator accounts
for more than 60% of the total operating costs, according to the Green Tech White Paper.
In most backup applications, such as telecommunications
and uninterruptable power supply systems, lead acid batteries are used for providing transitional power while the generator starts
up. In most of our prime power applications (including telecommunications) the goal is to reduce maintenance and fuel costs. Our
Supra Controller™ automatically cycles the generator off when the loads are small and cycles it on again when the load increases
or the battery charge is depleted. This cycling reduces engine maintenance and saves significant quantities of fuel.
Additional fuel saving are realized by using
lithium-ion batteries in place of lead acid batteries. Lead acid batteries, when compared with lithium-ion batteries, have high
internal resistance, are inherently inefficient during charging or discharging in cyclic load applications and therefore require
longer to charge, resulting in higher fuel costs. In 2011, we completed the design and testing of a hybrid power system, where
our DC power system was integrated with lithium-ion batteries to provide a longer life and higher fuel efficiency to cyclic DC
power applications such as telecommunications towers.
Our DC hybrid power systems can monitor
the charge/discharge cycle of either lithium-ion or lead acid batteries, or other battery types, on a cell by cell basis using
our BMS. Our Supra Controller™ system incorporates a CAN bus communications capability that provides communication and control
between the battery and the DC hybrid power system. Each cell in the battery pack is individually monitored for voltage and temperature,
ensuring the safety and longevity of the battery bank. These power systems include enclosures, a lithium-ion battery pack, our
proprietary BMS and our proprietary Supra Controller™ system that controls engine output, battery charging algorithms, cooling
system and power control circuits that optimize DC load outputs.
DC Solar Hybrid Power Systems
Our DC solar hybrid power system combines
our DC hybrid power system with solar photovoltaic modules and a custom engineered multi power point tracking charge controller.
In most off-grid or bad-grid outdoor applications, such as telecommunications towers in rural or suburban areas, the fuel costs
of operating a generator accounts for more than half of the total operating costs, according to the Green Tech White Paper. We
believe that incorporating renewable energy sources, such as solar, with our DC hybrid power systems is ideal solution for numerous
off-grid and bad-grid applications worldwide. Our DC solar hybrid power systems incorporate the following features:
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Hybrid power panel
. We produce distribution panel assemblies that make use of punched and plated buss bars to make the
heavy current connections between appliances. The industry standard is using labor intensive hand crimped wires and lugs which
are accomplished in the field.
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Photovoltaic Arrays
. Our telecommunications customers request photovoltaic array structures to withstand winds of 150
mph and 200 mph. We satisfy these requirements against the industry standard of 120 mph.
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Shelter
. We provide all-weather light-weight aluminum walk-in shelter that is easy to transport by truck or helicopter.
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Lightning protection
. We provide the highest degree of lightning protection through the use of air-coil type inductors
designed by us.
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Air-Conditioning
. We provide DC air-conditioning if required in very hot weather environments. We also provide cooling
systems using ambient air.
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Service and Support
Global Network Management Tools
We offer global network management services
through our telematics tool, which consists of our proprietary Supra Controller™ technology integrated with monitoring software.
This hardware is integrated into each DC power system and collects critical data from the equipment and transmits this data back
to the customer and our service department. This capability allows us and our customers to monitor system performance remotely
and to remotely update the equipment with new revision software in the field.
Our telematics capabilities and services
include:
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automated and continuous remote monitoring with auto alerts and notifications that can be transmitted via email or text messaging;
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maintenance management, which provides ability to schedule preventative maintenance based on actual equipment usage; and
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real-time, bi-directional communication capability for remote upgrades, testing and troubleshooting.
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Our telematics tools also provide information
to our customers on specific equipment utilization that provides the abilities to determine the functional status of the equipment
and proactively schedule maintenance. We believe these tools assist in reducing equipment downtime, thereby reducing the overall
cost of ownership. In addition, we plan to use these tools to monitor and provide accurate billing for our rental equipment deployed
at customer facilities.
Aftermarket and Service Parts
We offer extensive aftermarket and service
parts programs. We maintain an extensive inventory of aftermarket parts and sell parts directly to customers or through our qualified
network of service providers. In addition, we require our regional service providers to maintain sufficient quantities of aftermarket
parts in their inventory to ensure minimum downtime upon product failure.
We maintain accurate records of bill of
materials for each serial number shipped and service our products well beyond their recommended lives. In the marketplace, our
products are known for their long life and durability.
Product and Warranty Support
We offer product commissioning as an added
service to all our customers and require the purchase of such services as a condition for acceptance of any warranty claims in
the future. We offer installation of the equipment, preliminary testing, integration of equipment with other assets located at
the site and introductory maintenance and safety training. We offer various levels of fee based services to support our products
in the field. In addition, we have trained product and application engineers that deliver high quality, responsive lifetime technical
support to all our customers worldwide.
We further support our customers by using
qualified regional independent service providers to perform warranty and aftermarket service and repair on our products. Our regional
service providers are factory trained and certified prior to being authorized to repair or service our equipment. We generally
reimburse regional service providers for the warranty services they perform on our systems.
Sales and Marketing
Our direct sales and marketing approach
focuses on end users, service providers and OEM’s in the telecommunications, military, automotive, marine and industrial
markets to maintain a maximum interface with our customers. Our direct sales force strategy has achieved significant success in
marketing our DC power products to mobile telecommunications providers in the U.S. We seek to expand our direct sales force to
increase our penetration into other regions of the U.S. and into the international mobile telecommunications tower market.
We target our telecommunications tower markets
based on key market indicators related to growth in off-grid energy needs, growth in new mobile telecommunications tower installations,
regional environmental regulations and fuel prices. Our direct sales strategy to large multinational companies provides us with
the ability to design and configure a wide range of product solutions to meet regional market needs. In addition, our direct sales
strategy allows us to better understand customer application needs which, in turn, allows us to deliver systems that meet our customer’s
expectations.
We market our products through our web site
and by exhibiting our products at trade shows but historically, we have generated most of our sales through word of mouth. We rely
on product demonstrations and short term rentals to demonstrate the capabilities of our products and value proposition to large
mobile network providers worldwide. We plan to add additional capacity to our rental fleet to increase rental revenues and product
demonstrations to regional telecommunications providers in the U.S.
Distribution and Service
We market our products through various distribution
channels that promote our products and brand and provide effective aftermarket support and service. While the majority of our sales
are achieved through our direct sales force, we also utilize independent service providers and dealers to complement our global
sales strategy.
We plan to expand sales within the mobile
telecommunications tower market by adding sales offices in key target markets globally and adding regional managers to expand our
sales network in North America. We utilize a combination of factory trained technicians and independent service providers to provide
installation, maintenance, service and training at customer locations throughout the U.S. The majority of our growth is the result
of increased sales of DC power systems to telecommunications companies in the U.S. We currently provide products to the top three
U.S. mobile telecommunications providers and several independent telecommunications tower operators.
In the international markets, we utilize
local service partners to perform installation and service on our equipment. In the past decade we have shipped our DC power systems
to customers located in over 30 countries and have developed strategic relationships in an additional five countries to expand
our sales and service network. We plan to hire and train our own personnel in key strategic international markets to provide sales
and aftermarket support for our customers.
In markets other than telecommunications,
on a selective basis we have established collaborative relationships with OEM’s and value added resellers to jointly develop
products or product configurations to address market needs. A significant portion of our military sales is conducted through the
supply of components and subsystems to large defense contractors for integration into larger complete systems.
Competition
DC Base Power Systems
Within the DC power systems market, we compete
with well-established AC power systems providers and storage technologies such as fuel cells and lead acid batteries. We target
markets for our products that require continuous (prime power) or backup power of DC output power to operate electronic equipment
or to charge storage batteries.
In prime power applications, our main competitors
are well established global manufacturers of AC generators that use power conversion devices to convert AC output power to DC output
power. Our competitors include Caterpillar, Generac, Cummins, 3-Tech, Ascot, Ausonia, Controllis and Kohler. In addition, incumbent
technologies like hydrogen fuel cells are being evaluated, but currently do not have a significant market presence. Our fuel cell
competitors include Plug Power, Ballard Power and Intelligent Energy.
In backup power applications, we compete
with AC generator manufacturers as well as battery backup solution providers which utilize battery storage as a means to provide
DC output power in case of a power outage. In these applications, the intermittent use of batteries requires periodic maintenance,
charging and replacement due to the finite shelf life of a battery. Unlike battery storage products, the low hours of usage in
backup power applications significantly extends the life cycle of our DC power systems. We believe our technology provides significant
maintenance and life cycle cost advantages in backup power applications. Our competitors include battery manufacturers like Tesla,
Exide, Enersys, Panasonic, Axiom, Samsung, Deka and Trojan batteries.
DC Hybrid Power Systems
The DC hybrid power system market targets
mainly prime power applications in both off-grid and bad-grid applications. These systems utilize a DC power generator as a battery
charger that charges the batteries, while DC load output is delivered by the batteries.
We compete with well-established AC power
system resellers that combine an AC generator with lead acid batteries and deliver the end product to customers. In most cases,
these resellers are generator distributors or small dealers specializing in battery system integration. These competitive solutions
have fairly rudimentary charging and control technologies due to the use of lead acid batteries.
Our DC hybrid power systems are designed
with lithium-ion batteries which provide higher efficiency charging, zero maintenance, longer life cycle and are light weight.
In addition, our proprietary Supra Controller™ and BMS provide protection from over-charging and over-discharging of the
battery pack, thereby increasing battery life. We believe our technology provides significant fuel and life cycle cost savings
when compared to AC hybrid power systems. Our competitors include Ascot, Eltek Valere, General Electric, Schneider Electric, Alpha
Technologies and Emerson Power.
DC Solar Hybrid Power Systems
The DC solar hybrid power system market
targets mainly remote telecommunications off-grid or bad-grid sites. These systems rely on energy from solar photovoltaic panels
to charge the batteries and power the load. Any excess energy from the solar photovoltaic panels is stored in the batteries. If
the photovoltaic panels and/or the batteries are unable to provide all the power the load requires, the DC power system contributes
the additional power required.
We compete with AC generator resellers that
combine an AC generator, power converter with lead acid batteries and solar photovoltaic panels to deliver a DC power system for
remote telecommunications sites.
Our DC solar hybrid power system integrates
solar charge controllers, inverters (if required), our BMS and engine controls into our proprietary Supra Controller™ that
contains algorithms to optimize the use of solar energy while ensuring adequate charge protection for the lithium-ion battery pack.
We believe that our integrated product solution provides lower energy cost, long life cycle and lower maintenance cost when compared
to AC solar hybrid power systems. Our competitors include Ascot, Eltek Valere, General Electric, Schneider Electric, Alpha Technologies
and Emerson Power.
Manufacturing and Assembly
A significant percentage of our business
comes from multinational global corporations seeking configured product solutions ready to be field deployed with a minimum installation
time. Our manufacturing process begins with our direct sales force and engineering team defining customer application needs and
concludes with the production of a custom configured product solution. We believe our ability to have total control over the sales
and manufacturing process is a key competitive differentiator in the markets we serve.
By implementing vertical integration throughout
our manufacturing processes we believe that we reduce overall manufacturing costs, thereby increasing profitability and market
competitiveness. Our production processes encompass all aspects of production of our DC power systems, which includes alternators,
aluminum enclosures, engine configurations, control electronics, cooling systems, wiring harnesses, exhaust systems and final assembly.
Manufacturing of our proprietary technologies requires proprietary automated equipment that ensures total control and agility in
our production processes. Over the past decade, we have made significant investments in highly specialized manufacturing tooling,
jigs and fixtures that allow us to manufacture products at lower cost while maintaining the highest quality.
Our production assembly lines are designed
to be flexible, and we utilize advanced manufacturing planning software to predict, monitor and control demand levels and product
mix to provide the shortest delivery time to our customers. We utilize 3-D CAD software to product design and document assembly
instructions throughout our production process. All our products are 100% tested to customer specific application requirements
prior to shipment.
Throughout our operations we utilize computerized
ERP software that integrates all our processes from lead generation to product shipment and aftermarket support. Our focus on safety,
quality and on-time delivery is supported by employee training and information systems that monitor process and product quality,
and communicate trends and findings to senior management on a real-time basis.
Design Engineering/Research and Development
Our research and development efforts are
market driven. We conduct research and development at our facility in Gardena, California. Our research and development is focused
on the development of new technologies and product improvements, as well as reducing costs, improving product quality and reliability.
In the DC power systems market, we have developed our proprietary PMHH alternator technology integrated with an engine, control
devices and a battery management system. Over the past two decades we have been one of the first to market DC hybrid power systems
and DC solar hybrid power systems to the telecommunications tower industry.
A significant part of our research and development
effort has focused on the development of control software that integrates engine controls, power management and battery algorithms
to fully optimize fuel consumption in both prime power and backup power generation applications. We use a high level of integration
with a single control and communication module, our Supra Controller™, rather than competitive system designs with a number
of independent control modules controlling a single function. Our integrated approach ensures software compatibility, reduces complexity
in wiring, increases reliability and reduces cost.
Our engineering process begins with our
sales team identifying and defining market needs and concludes with our engineering team developing and integrating proprietary
technologies into product configurations that meet application needs. We maintain an in-house design, prototyping, testing and
application engineering capabilities including expertise in 3-D solid modeling and finite element analysis, computer based modeling
and testing, rapid prototyping, design verification testing and document publication, which includes manufacturing assembly instructions,
supplier drawings and product manuals. In addition, we utilize third party testing laboratories to certify our products compliance
to current applicable UL standards.
Since the early 1980s, our core engineering
team has been actively involved in engineering and developing new technologies for alternators, power control electronics and engine
controls, providing us with extensive experience and know-how in the design of DC power systems.
Intellectual Property
We possess a broad intellectual property
portfolio comprised of electronics, software, engines, alternators, thermal systems and production techniques. We rely on trademark,
copyright and trade secret laws to protect our intellectual property. Currently, we rely on common law rights to protect our “Polar
Power, Inc.” trade name. We protect our trade secrets and other proprietary information by requiring confidentiality agreements
from our employees, consultants and third parties that have access to such information. Despite these efforts, there can be no
assurance that others will not gain access to our trade secrets, or that we can meaningfully protect our technology. In addition,
effective trademark, copyright and trade secret protection may be unavailable or limited in certain foreign countries.
We consider our manufacturing process to
be a trade secret, and have non-disclosure agreements with current employees to protect the trade secrets held by us. However,
such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar
know-how or obtain access to our know-how and manufacturing concepts. We plan to register patents and trademarks in future to protect
our intellectual property rights and enhance our competitive position.
Suppliers
We attempt to mitigate the material adverse
effect of component shortages in our business through detail material planning and by qualifying multiple vendor sources for key
components and outside processes. In order to meet our customer demands, we forecast the supply of our long lead time items such
as engines, castings and electronic components through strategic planning of inventory levels. We plan to invest capital in tooling,
jigs and fixtures for our proprietary components to gain additional production capacity needed to meet anticipated growth in the
markets we serve.
Quality Control
We began concentrating on our quality control
in the early 1980s, much of which was required by our customers at the time, including NASA and Hughes Aircraft. In the late 1980s,
we implemented the MIL-I-45208A quality control system monitored by U.S. Department of Defense, to meet prime source requirements
for a contract we received from the U.S. Army Picatinny Arsenal, to design and manufacture an advanced battery and monitoring system
for a security device used in nuclear
munitions
depots
around the world. We are currently in the process of obtaining an ISO 9000 certification.