Business Concept Paper Solar Deck 24-7

By: Astral Infiniti, LLC

Daniel Decker Cal. St. Fullerton

EXECUTIVE SUMMARY

THE OPPORTUNITY The use of unmanned aerial vehicles (UAVs) by the Pentagon has grown exponentially over the last decade. Astral Infiniti, LLC was founded in 2008 in response to this growing demand. Our product The Solar Deck 24-7 is a solar powered UAV. Its patented designed allows it to fly continuously for an indefinite period of time. The UAV market is projected to double over the next decade growing from $4.9 million to $11.5 billion annually (Tealgroup, 2011). THE INDUSTRY The aerospace industry is a $218 billion a year industry, UAV’s currently account for $5.9 billion of that sum (PRI, 2012). Qinetiq, in England, has developed a solar UAV called Zephyr that uses lithium sulfur batteries. Zephyr recently set a world record by flying for a period of 2 weeks. Boeing announced their latest UAV Vulture in 2008. Astral Infiniti has a competitive advantage based on the patent that was issued for the design of the Solar Deck 24-7 in 2008. VIABILITY As a company, Astral Infiniti’s capabilities are in the area of engineering design. A joint venture with a larger aerospace company will provide us with the best avenue to successfully commercialize the Solar Deck 24-7. It will take Astral Infiniti 45 months to fully develop and test a prototype. Following a normal production schedule, the net income after taxes will reach $84,000,000 annually in year 7. The team consists of our Chief Executive Officer: Randy Hoffman, Chief Technology Officer: D. Kent Decker and Chief Marketing Officer: Daniel Decker CRITICAL ISSUES Moving forward, the critical issue to resolve is building the prototype. A major issue dealing with the prototype is obtaining high speed flywheels with the appropriate specific energy.

TABLE OF CONTENTS

The Opportunity…………………………………………………………………………………..1 The Industry………………………………………………………………………………………1 Viability…………………………………………………………………………………………...2 Critical Issues……………………………………………………………………………………..4 Exhibit 1: Prototype Costs………………………………………………………………………..5 Exhibit 2A: Pro Forma Income Statement………………………………………………………..5 Exhibit 2B: Pro Forma Balance Sheet…………………………………………………………….6 Exhibit 2C: Pro Forma Statement of Cash Flows…………………………………………………6 References…………………………………………………………………………………………7

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THE OPPORTUNITY The use of unmanned aerial vehicles (UAVs) by the Pentagon has grown exponentially over the last decade. In the present environment of high tech global conflict, countries worldwide are seeking to improve their reconnaissance, communications and strike capabilities without endangering lives. Astral Infiniti, LLC was founded in 2008 in response to this growing demand. Our product The Solar Deck 24-7 is a solar powered UAV. Its patented designed allows it to fly continuously for an indefinite period of time. Operating at altitudes above commercial airliners, Solar Deck 24-7 can essentially act as a satellite without requiring a launch into orbit, like traditional satellites, at a fraction of the cost. Current UAV systems have high operating costs due to their complex infrastructures. The MQ-9 Reaper for example requires 43 mission control personnel, 59 launch & recovery personnel, and 66 intelligence & support personnel to operate (Wheeler, 2012). Because the Solar Deck 24-7 is designed to operate continuously it will require fewer Launch & recovery personnel. Also, because it flies above commercial airspace it will require fewer mission control and support personnel. The strategy of a high altitude, long endurance (HALE) UAV design is to utilize an energy storage device that provides a high specific energy (energy per unit of weight), but also converts stored energy efficiently to a usable form. The challenge then is to integrate these two characteristics in a way that will realize the optimum performance of the UAV. The Solar Deck 24-7 design does just that by incorporating flywheel technology. Flywheels were selected for the design because they are lighter than batteries and deliver energy to the propellers more efficiently. NASA predicts flywheel specific energy will reach 1000 watt-hours/kg in the near term using high strength materials such as graphene and carbon nanotubes. Comparable battery technology has specific energy of 200 watt-hours/kg. This provides a distinct competitive advantage over competitors that use fuel cells or batteries. Astral Infiniti has developed a conceptual design and performance model of the vehicle that shows feasibility. The approach can continuously carry a 300 watt, 40 pound payload over a wide range of latitudes between the U.S borders. The UAV market is projected to double over the next decade growing from $4.9 million to $11.5 billion annually (Tealgroup, 2011). With the Pentagon increasing its UAV fleet by an average of 700 planes per year over the last decade, the Solar Deck 24-7’s superior and more efficient design will enable it to penetrate this growing market (New York Times, 2012). THE INDUSTRY The aerospace industry is a $200 billion a year industry, UAV’s currently account for $5.9 billion of that sum. The larger, well known aerospace companies such as Boeing, Northrup Grumman, and General Atomics all have existing UAVs in the marketplace. Qinetiq, in England, has developed a solar UAV called Zephyr that uses lithium sulfur batteries. Zephyr recently set a world record by flying for a period of 2 weeks. Boeing announced their latest UAV Vulture in 2008. The demonstration vehicle is scheduled to fly for 32 days in 2014. The Vulture design uses solid oxide fuel cells (SOFC) as an energy storage device. Existing and potential competition is summarized in the following table:

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Table 1: UAV Competition

Company Plane Year Altitude (ft)

Flight Duration

(hrs)

Power Energy Storage

General Atomics Predator 1994 25,000 24 Fossil Fuel

N/A

Northrup Grumman

Global Hawk 1998 65,000 36 Fossil Fuel

N/A

General Atomics Reaper 2001 50,000 30 Fossil Fuel

N/A

Boeing Scan Eagle 2002 16,000 20 Fossil Fuel

N/A

AeroVironment Global Observer

2010 65,000 168 Hydrogen N/A

Quinetiq Zephyr 2010 40,000 336 Solar Batteries Aurora Orion 2013 30,000 150 Fossil

Fuel N/A

Boeing Vulture 2014 60,000 768 Solar Fuel Cells Though the industry has many formidable competitors, Astral Infiniti has a competitive advantage based on the patent that was issued for the design of the Solar Deck 24-7 in 2008. US Patent number 8,002,216 B2 is for a “Solar Powered Winged Vehicle Using Flywheels for Energy Storage.” With the recent advancements in the efficiency of flywheels, Astral Infiniti can now make the lightest, most efficient UAVs in the marketplace. No other company can use solar power and flywheels on a winged vehicle without Astral Infiniti’s patent. The barrier to entry into the aerospace industry is the capital required to build a prototype and bring the UAV to market. To overcome this barrier we will seek a joint venture to infuse the necessary capital. VIABILITY

We have evaluated licensing, a joint venture, and production of the plane internally as options for bringing the Solar Deck 24-7 to market. A joint venture with a larger aerospace company will provide us with the best avenue to successfully commercialize the Solar Deck 24-7. As a company, Astral Infiniti’s capabilities are in the area of engineering design. Our expertise is not manufacturing or production. This makes producing the plane ourselves a less attractive option. A licensing agreement is an avenue we would explore once we have a working prototype. By seeking a joint venture, it aligns our team’s strengths with the best interest of investors. With the support of a larger aerospace company for production, we will focus on developing a prototype and marketing the Solar Deck 24-7 through direct sales. Our chief technology officer, Kent Decker has extensive experience in marketing technology to the NASA and military communities and has an established network of contacts within the target market.

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The Prototype, Funding, & Financials It will take Astral Infiniti 45 months to fully develop and test a prototype. The design needs and costs have been summarized in the prototype schedule attached as exhibit 1. Over the last four years, we have consulted with design engineers and contract manufacturers in the appropriate fields. The costs represented in exhibit 1 are accurate quotes from these representatives. The total cost of $12,780,000 combined with operating costs in the first four years puts our required capital for the prototype at $20,000,000. Building the prototype will take place in four separate stages: The preliminary design, the detailed design & component development, vehicle integration, and flight demonstration. These four stages provide natural milestone goals for Astral Infiniti over the 48 month period. This allows investors to fund the prototype in stages. The funding needs are as follows.

Table 2: Prototype Phases

Phase Months Investment Required Preliminary Design 0-12 $4,000,000 Detailed Design/Component Development 13-30 $9,000,000 Integration 31-42 $3,500,000 Flight Demonstration 43-45 $3,000,000 Total $19,500,000

Typical contracts in the UAV industry cover a 5-10 year period. Initially the pentagon will purchase 2-3 planes, then gradually increase the number of planes delivered each year. The number of planes purchased tops out between 25-50 planes a year. Our target price is $10,000,000 per plane, which is comparable to prices being paid for the Reaper and Predator. Based on our research, the cost to source the components from contract manufacturers will be $3,300,000. This will give Astral Infiniti a gross margin of $6,500,000 per plane. Following a normal production schedule, the net income after taxes will reach $84,000,000 annually in year 7. Please view the pro forma financials in exhibit 2.

The Team Chief Executive Officer/President: Randy Hoffman Randy is a serial entrepreneur. He is co-founder & former president of Magellan GPS. He also served as President of the Bushnell Division of Bausch & Lomb. Randy currently serves as a member of the Board of Directors and Audit Committee Chairman of Surrex Solutions. He earned his MBA from Harvard University and his B.S. in Business Administration from USC. Chief Technology Officer: D. Kent Decker Kent is an accomplished aerospace engineer and consultant. He has worked extensively in the development of solar power systems for spacecraft applications. This work has given him an in depth knowledge of the challenges associated with creating renewable energy products. In the mid-nineties, D. Kent Decker worked closely with NASA in the development of high

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performance flywheels for the International Space Station. His accomplishments include: 6 patents for advanced spacecraft power system architectures and 9 Independent Research and Development (IR&D) awards while working as the Principal Investigator. Chief Marketing Officer: Daniel Decker Daniel is an experienced marketing professional. As an executive recruiter and financial services representative, he has worked extensively in business development and direct sales. He is currently in his last year of the MBA program at Cal. St. Fullerton, with a concentration in management. With two classes left to finish, he currently has a 3.70 GPA at the graduate level. CRITICAL ISSUES Moving forward, the critical issue to resolve is building the prototype. A major issue dealing with the prototype is obtaining high speed flywheels with the appropriate specific energy. As mentioned before, NASA predicts flywheel specific energy will reach 1,000 watt-hours/kg in the near term based on flywheels that are currently in development. However, those flywheels are not yet commercially available. NASA feels it is not a matter of if, but when. Qinetiq has already demonstrated that a HALE UAV is feasible and can be done. The only issue is that the batteries they use only last for two weeks before they need to be replaced. By replacing the batteries with flywheels that have a specific energy of 350 watt-hours/kilogram, or more, we will be able to make Solar Deck 24-7 a commercially viable HALE UAV.

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Exhibit 1: Prototype Costs

Exhibit 2A: Pro Forma Income Statement

Cost Year 1 Year 2 Year 3 Year 4 Total CostProgram Management $1,367,100 $341,775 $341,775 $341,775 $341,775System Engineering 234,000 234,000 468,000Wing Design 100,000 200,000 300,000Propeller Design 200,000 300,000 500,000Wing Mechanical Design 200,000 400,000 600,000Wing Mechanical Design 68,000 100,000 168,000Thermal Design 104,000 104,000Wing Manufacturing 400,000 400,000Propeller Manufacturing 400,000 400,000Wind Tunnel Tests 200,000 200,000Vehicle Control 104,000 104,000Vehicle Navigation 24,000 24,000Control Hardware 10,000 10,000Flywheel Development 1,000,000 2,000,000 2,000,000 5,000,000Power Train Electronics 400,000 600,000 136,960 1,136,960Propeller Motor 50,000 50,000Solar Array 50,000 48,000 98,000Software 44,000 100,000 144,000Vehicle Avionics 50,000 142,000 192,000Vehicle Integration 1,525,800 1,525,800Flight Demonstration 819,600 819,600Ground Station 334,000 334,000

$3,945,100 $5,525,775 $4,004,535 $1,495,375 $12,578,360

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Planes Sold 0 0 0 2 10 20 25Sales Revenue $0 $0 $0 $20,000,000 $100,000,000 $200,000,000 $250,000,000Cost Of Goods Sold 0 0 0 6,600,000 33,000,000 66,000,000 82,500,000Gross Profit $0 $0 $0 $13,400,000 $67,000,000 $134,000,000 $167,500,000

Operating Expenses:Salaries & Wages $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000General, Selling, & Admin 500,000 500,000 500,000 2,000,000 5,000,000 10,000,000 12,500,000R & D 3,000,000 5,500,000 4,000,000 1,500,000 10,000,000 20,000,000 25,000,000 Total Operating Exp: $4,000,000 $6,500,000 $5,000,000 $4,000,000 $15,500,000 $30,500,000 $38,000,000

Earnings Before Taxes ($4,000,000) ($6,500,000) ($5,000,000) $9,400,000 $51,500,000 $103,500,000 $129,500,000Taxes $0 $0 $0 $3,290,000 $18,025,000 $36,225,000 $45,325,000Net income/Loss ($4,000,000) ($6,500,000) ($5,000,000) $6,110,000 $33,475,000 $67,275,000 $84,175,000

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Exhibit 2B: Pro Forma Balance Sheet

Exhibit 2C: Pro Forma Statement of Cash Flows

Year 1 Year2 Year 3 Year 4 Year 5 Year 6 Year 7Assets:

Current AssetsCash $300,000 $600,000 $900,000 $6,210,000 $34,585,000 $82,860,000 $148,035,000Accounts Receivable 0 0 0 5,000,000 10,000,000 20,000,000 40,000,000

Total Current Assets 300,000 600,000 900,000 11,210,000 44,585,000 102,860,000 188,035,000Long-term Assets 0 0 0 0 0 20,000,000 20,000,000

Total Assets $300,000 $600,000 $900,000 $11,210,000 $44,585,000 $122,860,000 $208,035,000

Liabilities & Owner's Equity:Liabilities

Current LiabilitiesAccounts Payable $100,000 $200,000 $300,000 $500,000 $1,000,000 $2,000,000 $3,000,000Notes Payable 200,000 400,000 600,000 600,000 0 0 0

Total Current Liabilities 300,000 600,000 900,000 1,100,000 1,000,000 2,000,000 3,000,000Long-term Liabilities 0 0 0 0 0 10,000,000 10,000,000

Total Liabilities 300,000 600,000 900,000 1,100,000 1,000,000 12,000,000 13,000,000Owner's Equity:

Capital Investment 4,000,000 10,500,000 15,500,000 19,500,000 19,500,000 19,500,000 19,500,000Retained Earnings -4,000,000 -10,500,000 -15,500,000 -9,390,000 24,085,000 91,360,000 175,535,000

Total Owner's Equity 0 0 0 10,110,000 43,585,000 110,860,000 195,035,000Total Owners Equity & Liabilities $300,000 $600,000 $900,000 $11,210,000 $44,585,000 $122,860,000 $208,035,000

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Operating Activities:

Net Income/Loss -$4,000,000 -$6,500,000 -$5,000,000 $6,110,000 $33,475,000 $67,275,000 $84,175,000Accounts Receivable 0 0 0 -5,000,000 -5,000,000 -10,000,000 -20,000,000Accounts Payable 100,000 100,000 100,000 200,000 500,000 1,000,000 1,000,000

Net cash provided/used by operating activities -$3,900,000 -$6,400,000 -$4,900,000 $1,310,000 $28,975,000 $58,275,000 $65,175,000

Financing Activities:Capital Investment $4,000,000 $6,500,000 $5,000,000 $4,000,000 $0 $0 $0Note 200,000 200,000 200,000 0 -600,000 0 0

Net cash provided/used by financing activities $4,200,000 $6,700,000 $5,200,000 $4,000,000 -$600,000 $0 $0

Investing Activities:Property, Plant, & Equipment 0 0 0 0 0 -10,000,000 0

Net cash provided/used by investing activities $0 $0 $0 $0 $0 -$10,000,000 $0

Net Increase/Decrease in Cash $300,000 $300,000 $300,000 $5,310,000 $28,375,000 $48,275,000 $65,175,000Beginning Cash Balance 0 300,000 600,000 900,000 6,210,000 34,585,000 82,860,000

Ending Cash Balance $300,000 $600,000 $900,000 $6,210,000 $34,585,000 $82,860,000 $148,035,000

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REFERENCES

Predator Drones and UAV’s (2012). New York Times. www.topics.nytimes.com. Retrieved: March 5th 2012. Teal Group (2011). “UAV Market Profile and Forecast.” www.tealgroupl.com. Retrieved: March 7th, 2012. Wheeler, Winslow (2012). “The MQ-9’s Cost and Performance.” Time Battleland. www.battleland.blogs.time.com. Retrieved: March 5th, 2012.