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Oak Ridge Micro-Energy Inc. - OKME

The selection of Oak Ridge Micro-Energy (stock symbol OKME) was made because of interest created in their latest patent overviewed in Patent Profiles this month. Just what are the conditions under which thin film batteries are incubating here?

The Product

What better reasons could be found for new battery technology than to directly power semiconductors, which are the underlying mechanisms of most exciting technology from personal computers to medical devices. Despite the gigantic growth of semiconductors over the recent years, one feature which has been lacking has been on-chip power. Integrated circuits are microscopically tiny, and rely on power from the outside. Ordinary batteries are too big to add directly to the chip, so power leads bring in current from central power supplies or circuit board mounted discrete batteries.

Extend the thinking regimen to the possibility of very tiny thin film micro-batteries which can be constructed with vacuum deposition, or other minuscule IC manufacturing techniques, to add battery power right on the chip. What would be done with it? Medical devices might be implanted with self powered ICs in brains to alleviate disease, or in eyes to see better or in ears to hear better. Wafer thin credit cards could be self powered to provide integrated identification and seamless monetary transfer services. Aerospace electronics might become more compact with integral power removing heavy power bus conductors. And what soldier would not welcome a reduction of the weight of electronics carried into battle without sacrificing performance? Even the elusive wrist radio of Dick Tracy days might become a reality. OKME is an emerging company dedicated to commercializing thin-film micro-batteries for on-chip and related applications.

To analyze OKME stock performance over the last ten years would not be representative of its true performance. Incorporated in 1986 as Vates Corp., the company later changed the name to Global Acquisitions and then in 2002 became Oak Ridge Micro. Without product or revenues, the stock price has had wild speculative variations representative of many start-ups. The time has come to change this scenario to manufacture, sell and show profits in thin film batteries. +

The Company

OKME is neither a household word nor one with a track record of making money. Although it was incorporated in 1986 as Vates Corp., and later changed to Global Acquisitions, there probably was no accumulation of battery expertise in these years. In 2002, the name was again changed, this time to Oak Ridge Micro-Energy Inc. and probably then the company became involved with micro-batteries.

In the 1990s, the Oak Ridge National Laboratory (ORNL)  experimented with methods for making lithium and Lithium-ion  micro-batteries. The work resulted in preliminary intellectual property in the late 1990s which was later made available to the public via licensing. OKME became one of the non-exclusive licensees and wisely, to acquire in house expertise, hired John B. Bates  as their Chief Technical Officer. He had been the primary micro battery inventor at ORNL and was awarded 6 patents relating to thin-film batteries during this time.

Bates work at OKME first resulted in a 2004 patent (No. 6.818,356 B1) which described an improvement in  the electrolyte to provide greater power and energy. Still not ready for production, OKME continued R & D work which resulted in the latest patent No. 6,994,933 B1 describing sealing cover barriers and planarization layers to extend battery life. The patent discussion targets lifetimes of up to 20 years, and time will tell if the patented coatings meet this goal.

OKME seems to be a singular product company, focused on the thin-film microbatteries. The description of lithium and Lithium-ion batteries in patents suggests that both primary and rechargeable versions would be pursued. There are no other products being pursued. In fact, the revenues for the third quarter of 2005 were only $280. The focus has been on product development which resulted in 324 batteries being manufactured in August of 2005.

The People

The three full time employees consist of Bates, CEO Mark  Meriwether and Manufacturing VP Yuri Trachuk. Two part time people assist them.

As of December 31, 2004, Meriwether was taking no salary, while Bates received $101,000 annually and Trachuk’s salary was not disclosed. By January of 2006, Meriwether directly held 15,062,230 shares of stock and in the previous year had sold 1,070,000 shares.

Financials

From 2002 through 2004, there has been increasing negative net income from $698,000 to $3,217,000. Gross profit is negligible and in 2004 R & D accounted for about 8% of operating expenses. The 2004 assets consisted of $1,866,000 in cash and $900,000 of plant and equipment. The company has no debt.

Expenses for the company consist of cash payments and issuance of common stock for R & D salary, materials, SG&A expense and outside services.  Between September 30, 2004 and 2005, stock valued at $1,927,001 was issued to consultants and $5,443,658 worth of stock was issued to the board of directors.

In earlier press releases, the company was expected to achieve profitability by the fourth quarter of 2005, but that has been pushed back. With over $1 million of cash, management is comfortable that it has sufficient funds to operate for the next 12 months as of November 2005.

For an emerging company the accumulation of a negative $11,466,00 of retained earnings can be a future asset as production begins by offsetting taxes, thus leaving more initial earnings to be put to work in the needed fledgling growth period.

Markets

As a startup, OKME has chosen to focus on high cost applications first. Initial users may include the military, aerospace, and medical device manufacturers. Products include remote sensors, and semiconductor diagnostic wafers. In this way, small quantities can provide large revenue streams and hopefully, high margins. Risks are also mitigated with low volume products.

The company does intend to eventually pursue high volume products such as nonvolatile memory chips or RFID (radio frequency identification tags) which are to be placed on product packaging to automatically control inventory and limit shoplifting.

Competition

There are other organizations which have opted to license the ORNL thin-film battery technology. Included are Teledyne Electronic Technologies, Cymbet, Inc., Excellatron, Inc., Infinite Power Solutions and Front Edge Technologies. These companies might be speculative R& D shops or OEM battery builders, or they need the technology for the future of their products. The field of thin-film micro batteries may progress as did micro fuel cells; there was a lot of initial activity by fuel cell start-ups, but as R & D progressed, the big manufacturers joined the ranks. Also similar to micro fuel cells, the move from laboratory to production line may not be as simple as hoped, stretching the product delivery times and the cash reserves of the developers.  

Future

Today, OKME is a pure speculative play. Neither the technology nor the company team has a proven record of performance. Any technical or business setback could spell the end of the company. Each step must be a building block to the next step, of which there are many. Step one is to see some product being delivered with data on performance accumulating. Then the applicability of the product needs to be proven with growing applications defined, built and brought to market. With proper technical successes and solid management performance, OKME could reward today’s speculative buyers handsomely.                          
               BD