IDT Corporation Business Update Call Transcript

Jun.26.08 | About: IDT Corporation (IDT)

IDT Corporation (NYSE:IDT)

Business Update Call Transcript

June 19, 2008 4:30 pm ET

Executives

Howard Jonas

Jim Courter

Analysts

Clayton Moran – Stanford Group

William Ostrand - Oppenheimer and Company

James King – King Financial

Isaac Schwartz - Robotti and Company

David Smith - Orion Capital

Allan Young - Raging Capital Management

David Bonsal – Universal Money Centers

Operator

Greetings and welcome to the IDT Corporation Chairman’s Report. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Howard Jonas. Thank you, you may begin.

Howard Jonas

Hi, before I begin, let me get the legal stuff out of the way. Thank you for joining us, I am going to update you on the company’s recent progress implementing the plan set forth during our third quarter earnings call. We will analyze IDTs current situations and future prospects. I will then take questions and we will have to wrap up at five thirty. Because I will be discussing details of IDT's operational plan and showing my vision for the company’s future, it is particularly important to the call that any forward-looking statements made during the course of this call either during my initial remarks or in the question and answer period that follows, whether in general or specific in nature are subject to risks and uncertainties that may cause actual results to differ materially from those which we anticipate. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that we file periodically with the SEC. We assume no obligation to update any forward-looking statements that we have made or may make, or to update you on the factors that may cause actual results to differ materially from those that we forecast.

And now I will start the call. As I know you guys are shareholders and you, like me are suffering from the low share price, so I thought I would tell you a humorous story. A guy dies and his wife calls up the newspaper to put in an obituary. She says, “My husband died and I want to put in an obituary. They say “If you want we can tell you full page ad for $2000 and it will have a picture of your husband and it w will tell all about what we did in his life and it will be a good commemoration.”And she says “Well that's a little more than I was looking to spend.”

Well for $1,200 we can sell you a half page and it will be a black and white photo. And she says, ”that’s still more than I was looking to spend.” Well we can tell you a half of a column for $500 and there will be no picture but we can put in some bold type. And she says “no that’s that's more thanI was looking to spend.” They say, “well are you looking to spend,” and she say's “what’s the cheapest you have.”

And they say “the cheapest 5 word for $25.” She says “Okay, Schwartz dead, Buick for sale.” We are not dead, the reports of our demise are much exaggerated, in fact this is a renaissance call marking I think, you will see the beginning of you know a big upward trajectory and black ink for us. But we have become as cheap as Schwartz’s wife; I think we would try to get it even for four words. We would try to bargain them down to $20 if we could. Let me tell you where we are, and where we are going. Right now, after having lost a lot of money largely due to fraud in the debit card industry, which has cost us hundreds of million of dollars, which the government is finally addressing

And probably too much overhead, too many platforms, the Star business operations which we’re closing. The company is now operationally profitable. Operationally profitable means that if you took out the cost of severances and closing things down and so forth and so on, there will be profitability. That profitability will begin to become manifest in the October to January quarter. In that quarter for the first time you will see black ink, cash flow black ink , free cash flow black ink generated by IDT’s operations.

The reason this will be coming about is because unless there is some unexpected drop in sales and actually we’re looking at sales increasing in telecom, unless there is some unexpected drop in sales, we are expecting a minimum of $40 million in profitability from our trimmed down telecom unit. Second, we are expecting a minimum of $8 million in profitability from our ESCO, our energy resale unit. We are expecting $6 million in profitability from our, and this is cash flow profitability, from our retail, I am sorry , from our display advertising business.

In general, because I am leaving our smaller things, we’re looking at about $60 million in annual profitability for the company based on operations. Now we have to take away from that corporate overhead. We’re bringing our corporate overhead down from the $40 million that it was at and we are aiming to get it to $12 million. But we assume we’re going to get it $15 million. That means there will be $45 million in operating profitability.

Also that you have to take our investments and just funding our IT, our intellectual property, recouping in some lawsuits, and some real estate investments and of course, our investment in Shale Oil AMSO, which we’re looking at as about $15 million. So, even though in my opinion thats profitability because its money that’s being invested, you take the $30 million away from $60 million, you should see $7.5 million a quarter thinking black ink, in profitability from operations of the company. In addition to that, you have some explosive possibilities for growth within the company.

I will leave Shale Oil for last. One explosive possibility is Zedge. This is the largest Internet mobile portal in the world. It has 10 million users who download ring tones, and videos, and message each other, and so forth. It’s a community like Facebook, but for people who are mobile. And as broadband mobile becomes a bigger and bigger thing, we think this we’ll become one of the most important portals on the Internet. It’s probably 50 times the size of Nokia’s portal, which they have invested $200 million in.

So we think this is just going to be, I think its $50 millionI’m sorry. We think that this is going to be absolutely a home run business. We have maybe $1.5 million left to invest in it. There are a lot of strategic investors who are coming to us now who want into it, so we probably will close some arrangement in the next month. So, that will not be on the balance sheet at all, only a tremendous positive.

Number two, in our telecom unit we having this discussion at the CEO and Chairman level with one of the largest telecom providers in the world. We are talking to a couple of them, we have our preferred business combination that we would like to make. We think that it would at least triple and even that’s a way understatement. IDT’s telecom divisions revenues and profits, should that come about, and make thus by far the leading terminator of international calls and leading seller of prepaid products in the world.

Number three; we believe that we own real time communications in the Internet. We've been engaged in a long and costly suite with Ebay to prove that. But think that there is a very good chance of our prevailing and I don’t have to, obviously it would be a big thing to own the IP for real time communication on the Internet.

Our food division has gone profitable. The Vero’s brand, one of the big chains is taking it into 2500 of its supermarket now across the country, this is was probably before that happens, probably 27 of the items, We think that brand is going to have great value. Our debt business is functioning well. We think there is a possibility of that becoming a viable stand-alone company. I would like to focus for a moment on our shale oil business. Shale oil is 50% of the carbon fuel reserves in the world. 50% of those reserves are located on federal land primarily in Colorado spilling over into Wyoming and Utah.

That land has more oil in it, more potential oil in it than the entire Middle East. Four companies have federal contracts to do expletory work on that land; Chevron, Shell, IDT and OSEC. OSEC is really in Utah and they really have a contract to do above ground retorting, which is something that’s been done for long time in places like Estonia, which just received a huge investment from Petrobras and Mitsui and we wish them well. But the real heart of getting the oil out is something called in-situ retorting., which means heating the ground, heating the rock that has this thing called kerogen in it that the oil stored in to 700 degrees.

And that releases the oil from the rock, it starts to pour down and according to Shell’s estimate, and we seen their installation in the Valley – in the Piceance Valley where they have recovered the oil. In Colorado they can bring it up to $26 a barrel. And there over a trillion barrels of oil, one trillion barrels of oil in that Valley. Its enough to solve all this nations fuel needs and to turn us into a net exporter of oil.

The reason Shell is not being allowed to develop the property that is inproduction already is because they are having a problem with the environment. And part of the problem with the environmentalists has to do with the fact that there is an acquifer, that half way down to the Shale Oil there is water that provides drinking water in Western Colorado. Shell is working above the aquifer, what they do is pump out the water from below they were working and they freeze, they create a freeze wall so that no water cannot get in. The water, if any oil drips down, the water is not polluted with it. Once they remove the heat from the rock and extract the oil and things have cooled down, they unfreeze the water and it goes back and everything is clean. The environmentalists are also well concerned that what if something happens to the freeze wall and what if it doesn’t work and the water comes in, there will be oil drops afterwards, a million concerns which I don’t really think are legitimate. I think Shell has all sorts of extra layers of protection to ensure that that won’t happen.

But we are doing something different. We taken the top person from the Lawrence Livermore labs, who have worked on it. The top drilling expert in Colorado. We are working with one of the largest oil services companies in the world. And what we are planning to do, we hope to be doing coring in the fall is to go down below the aquifer into ilite layer where its much more tightly packed, the Shale Rock that the oil is in. Crack that ilite layer, hold the cracks open with new heat and infusion techniques and then apply the heat below. There is a cap-rock that protect the aquifer and bring the oil up.

That probably wont be $26 a barrel because it’s deeper down and probably would be in the $30s. But when you’re looking at oil prices. I mean when oil prices are a $, more than a $100 above what we believe the cost of this extraction would be. Our development lease with the government on a 160 acres that has $2 million barrel an acre, would convert into a 5 million acre lease. If we’re successful in environmentally in a good way bringing the oil up, those 5,000 acres has $10 billion barrels on it. It’s only half of that were recoverable, the profit would be $50 billion to the company.

Not only would there be a $50 billion profit, but we would have the technology that everybody else would want to use to get to rest of the oil, which would make all sorts of things possible. But even more important, they would change the whole geopolitical balance of the world. Also if this project is not successful and we don’t get the oil out of shale, I think that there will be no more companies operating on the New York Stock Exchange anyway. So that we wont be trading any worst than anyone else is. I think in conclusion, before I take calls, I think we’ve turned the corner –I don’t think we have turned the corner, we have strong the corner. You can expect black ink from the company in operations; you can expect many good surprises on things that go beyond normal operations for the company. In fact the one thing we don’t mention, we have a suit against Tyco, who gave us, you know what we consider $500 million in fiber, we booked it as $500 million, never delivered it. The judges rendered summary judgment against them, they’ve appealed it, and we’re waiting for the appeal to come down. If their appeal is denied, we go into the penalty phase of the trial. So much, much good to look forward to and now I will take your phone calls. Thank you.

Question and Answer

Operator

Thank you. (Operator Instructions). Our first question is from Clay Moran with Stanford Group. Please go ahead with your question.

Clayton Moran – Stanford Group

Good afternoon. Thanks for taking my questions, I have a few. The first one on the numbers that you laid out, which comes to $30 million in annualized cash flow, is that for fiscal year ’09 or does that begin, I think you said the October quarter?

Unidentified Company Representative

What I said is that you will see black ink in the October to January quarter.

Clayton Moran – Stanford Group

Okay.

Unidentified Company Representative

You would see profitability; I was looking at calendar year ’09. I guess mixed up with the fiscal quarter and so forth, but I am more looking at the quarter that’s starts in February going out a year. Because from that October to January period, your still going to have some of the costs that were involved in trimming down the operations.

Clayton Moran – Stanford Group

Okay. And then what you said about the telecom segment was interesting, why would you expand, double down on telecom, given you the commoditized nature of the business and the recent struggles you have endured there and what type of cash flow multiple would you pay for that business? And then lastly on that front, does that imply that you are unlikely to sell any of the telecom divisions as has been previously discussed?

Howard Jonas

Okay I think you misunderstood. I don’t know what your talking about, doubling down? The business is a good business, its earning a profit. That profit is going to increase. When we are talking about a strategic combination, we are talking about a giant phone company making an investment into us so that they can get the benefit of being connected to all the carrier in the world on a wholesale business and plugging into our hope prepaid distribution network on a retail basis so that together we can share the benefits of scale.

Jim Courter

Hi, Clay this is Jim Courter. Just so there is clarity with respect to that. If someone comes forward and wants to buy a piece of the telecom business, that’s still on the table. But Howards is really looking at strategic partnership with a major international communications company particularly giving them scale, unimaginable scale on the carrier side.

Clayton Moran – Stanford Group Company

Okay. Great, that’s very helpful.

Howard Jonas

Which we hope for.

Clayton Moran – Stanford Group Company

Okay. And then lastly, one of the other issues surrounding the company had been this ongoing IRS audit, its never really been fully explained. Would remind explaining what the IRS is looking into and possibly what the potential size of any liability is and if you have any sense of timing when that might be resolved, that would be helpful to?

Unidentified Company Representative

We have a $130 million reserved on our balance sheet. We believe that is ample to cover the liability that relates to the Net2Phone sale to AT&T. You know when the IRS gets around to, the IRS does things at their own pace, we don’t control it. And so, when they get to us, we’ll get to them.

Clayton Moran – Stanford Group Company

Okay. And if I could go back to the strategic, potential strategic partnership, do you have any sense of the timing of that, say if it doesn’t occur in three or six months its unlikely, or anything like that you could help us get a feel for how long we’ll wait to see the announcement of such a thing.

Howard Jonas

When you deal with large companies, it takes time so I can’t really put a timeframe on it. The sooner it happens the happier I would be if it happens, the happier I think they will be. But it takes time.

Clayton Moran – Stanford Group Company

Okay. Thank you.

Operator

Your next question is from William Ostrand with Oppenheimer and Company. Please go ahead with your question.

William Ostrand - Oppenheimer and Company

Good afternoon. Thank you Mr. Jonas.

Howard Jonas

Sure.

William Ostrand - Oppenheimer and Company

Quick question for you, I got about several questions actually that I have on behalf of myself and my clients. Starting with some of the issues we’ve discussed already. Can you define your current break down of cash, marketable securities, and investments?

Howard Jonas

No, I know that there was like $394 million of cash on the balance sheet. I know that that doesn’t account for money we have in our debt portfolio. I know that there are some liabilities; I know this is some real estate that we own. I know that we are in good shape, but I am not the CFO of the company.

William Ostrand - Oppenheimer and Company

Okay, I understand. And does that include the $130 million you have reserved for IRS.

Howard Jonas

I know that was all in our K and our Q, but I think that was a separate item.

Jim Courter

That’s a separate item.

William Ostrand - Oppenheimer and Company

It separate.

Howard Jonas

Yes.

William Ostrand - Oppenheimer and Company

Okay. Thank you. So minus that debt, how much cash do you have right now?

Howard Jonas

You mean if you take $130 million away from $400 million, how much would you have?

William Ostrand - Oppenheimer and Company

Bearing in mind that you’ve had some recent hedge fund liquidations this month.

Howard Jonas

You know I could do the math, like 400 take away a 170 is 230. But nobody says that’s its going to be 130, and nobody says that if it were aware 130 that its all going to be paid in one time and nobody says that if it was that number that we would agree to that. But we believe that the reserves are adequate, that’s all we are saying.

William Ostrand - Oppenheimer and Company

Okay that’s good. So, when you plan to receive the proceeds from the said liquidations from the hedge funds.

Howard Jonas

I don’t thinks that’s been, when do we receive, I mean – if you receive anything, you receive it that week

Jim Courter

Its ongoing. We have asked for this and as you know, some we have already achieved, and some will be unwound in 30 days, some 60, some 90. Its not going to be like years.

William Ostrand - Oppenheimer and Company

Great. Right.

Howard Jonas

But its not like we want to unwind everything out, we want a balanced portfolio so you know.

William Ostrand - Oppenheimer and Company

Yes okay. The other question my shareholder enquired about is given to the low price of your stock, why have we not seen any sort of corporate or insider stock purchases.?

Jim Courter

Okay. You saw some, I mean in my family, maybe we didn’t hit the bottom, but probably from a liability standpoint that’s good. No I am the CEO of the company and my family and I put in $3 million. So there, that’s significant, that’s material.

William Ostrand - Oppenheimer and Company

That a good chunk of cash. And given the outcome or perceived outcome from the Tyco lawsuit, what do you internally expect to receive I mean given the favorable appeal decision? What are we talking about, $10 million, $100 million?

Howard Jonas

We definetly expect to see more than $10 million but its up to the Judge and the Jury.

William Ostrand - Oppenheimer and Company

Okay.

William Ostrand - Oppenheimer and Company

I mean what can we as shareholders expect I guess is what I’m saying.

Howard Jonas

They gave us $500 million work of fiber. When we signed a settlement agreement with them to get that, Tyco the corporate parent signed onto that.

William Ostrand - Oppenheimer and Company

Okay.

Howard Jonas

When the time-time for us to get the fiber, Tyco the corporate parent refused to sign onto that. And we said that they are not signing on that, I mean the thing wasn’t completed, we are not taking it. If its just a subsidiary, Tyco Submarine Systems, because they might not be there. The judge agreed that that was wrong and so they should have to pay damages on that, but the appellate court overruled that. But it’s up to the courts to decide how much we were damaged. We think it was substantial.

William Ostrand - Oppenheimer and Company

All right. Well, good luck with that.

Howard Jonas

Thank you.

William Ostrand - Oppenheimer and Company

And congratulations gentlemen, I appreciate your time.

Howard Jonas

Thank you.

Operator

The next question is from James King with King Financial. Please go ahead with your question.

James King – King Financial

My question has actually has been asked and answered. Thank you.

Howard Jonas

Okay.

Operator

The next question is from David Bonsal with Universal Money Centers. Please go ahead with your question.

David Bonsal – Universal Money Centers

Good afternoon.

James King – King Financial

Hi.

David Bonsal – Universal Money Centers

I’m wondering at what depth are you seeking to recover in-situ oil in the oil shale project in Colorado?

Howard Jonas

About 3000 – 2000 to 3000 fleet down.

David Bonsal – Universal Money Centers

And are you using steam injection or some other form of energy?

Howard Jonas

We are hoping to use – there are different forms of energy that available, steam might be one thing under consideration.

David Bonsal – Universal Money Centers

All right. Thank you very much.

Howard Jonas

Okay.

Operator

The next question is from Isaac Schwartz with Robotti and Company. Please go ahead with your question.

Isaac Schwartz - Robotti and Company

Hi, I was just wondering that the CapEx plans in the oil shale business look like?

Howard Jonas

I mean if we want to bring up to 50 billion barrel, yeah I mean if we want to bring up the 10 billion barrels. I mean, you are talking about billions and billions of dollars, but we would raise that. I mean look in all probability, Shale will eventually be a free standing subsidiary because what if somebody who is investing in telecom company, I mean I think it wil be the other way around. What if somebody who is investing in an oil company wants a part of a telecoms company, they are unrelated so obviously, as the development succeeds, it would become a free standing company that would have its own enormous capital needs. That’s what the oil business has, but it has enormous returns.

Isaac Schwartz - Robotti and Company

What was the fourth company that you have mentioned, Chevron, Shell, you guys and OSA?

Howard Jonas

There’s a company called OSEC. They are not in the same group, that there are three of us in the Piceance Basin where most of the shale is . We have the rights to do in-situ retorting and to bring it up. OSEC is in Utah, in a separate place and what they have the right to do is mine the shale and then put into some sort of retorter, like a machine that heats it up, you put it in and it spins it around and you mix it in with other things and you heat it up and the oil comes out. It’s a more cumbersome process to mine, but its something that’s already done, they are looking ways to do it better.

Isaac Schwartz - Robotti and Company

Given that this is all happening on go on federal government land are you – are you paying some sort of rent to the federal government to get to test out the different methods? How does that work?

Howard Jonas

No, it does not the government took proposals for who could best do it. There were some people who had much money, like Exxon who will turned down. They chosen it on the basis of methodology. And without having to pay in, the company that won the rights, EGL, we believe 75% of one point in time, we later on increased that holding to I think 89.5%. But it was done on merit and so there was no fee do when lease converts to the full 5000 acres, then there will be a royalty that is due to the government on whats brought up. But there is discussion as to whether that would be a mining royalty or a drilling royalty. It would be good for the government, but it wouldn’t really eat that much into what we would owe here business this is not an auction situation. This is sort of a reward for having succeeded in the development.

Jim Courter

It would not be a bidding situation, it would be negotiated royalty between IDT and the Bureau of Land Management.

Isaac Schwartz - Robotti and Company

Okay thanks. And then are you guy’s presently buying back repurchasing shares?

Howard Jonas

I think about it everyday and then I think about all the potential we might have to do something else and that we should keep our powder dry. I haven’t done it lately, though at this price, I wish the price would go up so I wouldn’t have to think about it so much

Isaac Schwartz - Robotti and Company

And has it been any reprising of options?

Howard Jonas

No.

Isaac Schwartz - Robotti and Company

And are you getting pressured for many of your executives that there hasn’t been?

Howard Jonas

No, but I guess that they are listening to this call, and maybe they’ll be picketing outside my office after the call is over, but not so far.

Isaac Schwartz - Robotti and Company

And how much turnover has there been it a senior management level – with voluntary and involuntary, maybe you could…

Howard Jonas

Look we have restructured the senior management of the company, I think there are, you know 50% old faces and 50% new faces. I don’t really want to 100% answer that question because if I were to say that everything was involuntary, that would cast a very bad light on the people who left. So I will rather not get into the voluntary and involuntary thing.

Isaac Schwartz - Robotti and Company

Okay. Well I thank you, do you have plans to do more frequent calls in the future?

Howard Jonas

No, I thought that this was really a moving into the black for first time in 14 years was a seminal moment that deserved a phone call.

Isaac Schwartz - Robotti and Company

Okay thank you.

Operator

Your next question is from David Smith with Orion Capital. Please go ahead with your question.

David Smith - Orion Capital

Hi, gentlemen good afternoon.

Howard Jonas

Good afternoon.

David Smith - Orion Capital

I have a couple of questions. First Howard in regards to your earlier comments related to possibility of a future alliance on a global scale in the Telecom space. What's the contingency plan for that business line, if that in fact you don't execute on that?

Howard Jonas

Make more money, and look for different partner.

David Smith - Orion Capital

Right, okay in regards to the easy pre-paid phone cards division, could you address or drill down a little bit deeper where you see that business going on a standalone basis as opposed to being roped in as part of the broader Telecom business line?

Howard Jonas

Well, that the business is stabilized around the $27 million and $28 million month levels. And we think that there is going to be good growth now in instruments that are designed to go with cell phones, where a cell phone automatically dials into a number, it recognize it and then it dials out bound. In 99% of cell phones in the country, even if you middle class, you cannot make an international calls. So, we think that's a big area of growth. We are going very well with our pre-paid credit cards, so we think that will be a good growth in the financial services area. And we think with government enforcement will be able to sell more cards for the immigrant population. So I don't know if that answer's your question, I hope it does.

David Smith - Orion Capital

It certainly shed some more light, so in your mind, to takes from this call managements thoughts on that business line, it's turned the corner in regards to some of the recent, as defined as the last several quarters worth of turbulence that business line was facing, whatever repairs needed to happen and take place and happened and for the strategy for to broaden that business you think have been implemented.

Howard Jonas

Oh yeah, for instance we just signed a three renewal with Walgreen’s on Tele-cards which is probably the most important chain in the county. I mean people don't go into Wal-Mart to buy a debit card. So I think that's big part of confidence in the company, and…

Jim Courter

Let me just add and say something the Prepaid business can’t be really looked at in isolation, as you probably know. Prepaid business is an anchor tenant to the carrier business, the wholesale business. And the wholesale business is reliant to a degree on all the traffic from the prepaid business to negotiate the good rates. So there is a tremendous amount of synergy between those two businesses and one can’t be looked at in isolation from the other.

Howard Jonas

Great.

Analyst

And understood. So.

Howard Jonas

Okay.

Analyst

So, this is more a function of good execution by you folks on the management side. Rather than changing the playing field, It’s just focusing in on and finding the better opportunities in the existing playing field?

Howard Jonas

Yes.

David Smith - Orion Capital

Okay. Thank you for that. And just one more question related to the Shale oil. I know previous caller questioned about what the CapEx cost would be for that. Your response was more predicated on the long-term view of, yes there will be billions of dollars once the billions have been extracted. And in the short-term, until for lack of a better term, you guys got “hit oil.” What do you anticipate those costs in the short-term being, until you can show to the market that this is something that is truly there and then I think anybody with form of intelligence, would agree with you that once you guys can prove that can happen, the money will be there.

Howard Jonas

Everything is done in stages, there is a $10 million dollar stage, there is a $20 million stage. There were results at those stages that caused different people to come in. And even at this stage where, we’ve spent almost nothing, and, two of the seven largest oil companies in the world are talking to us and we are in deep due- diligence with one of them. And we were looking at a hypothetical deal that would look something like on the first $50 million of expenditure, they put in $40 million and we put in $10 million. And then there is a technical advisory board set up, where they have a number, we have a number and there is a third member. If the majority of the advisory board decides that the results indicate success in the future, then an additional, lets say altogether $75 million to $100 million goes in, 80% by them and then 10% for us and they get a 30% stake in this particular field on the rights to be able to use that technology internally, the technology that is developed internally in their company. So if you looking at it from that point of view, I guess you would be looking at a $50 million dollar expenditure over 3 to 5 years. My preference is always if we have a partner and certainly quicker so that we can get the oil up.

David Smith - Orion Capital

So the short income strategy, which will feed the long term, is to bring in a strategic partner to help on the financing side, would that partner also obviously be somebody in the oil space as well …

Howard Jonas

No, we want to – that we have allot of offers. We have a lot of people coming to us, substantial people who want to invest in this opportunity. We would prefer a partner in this space because they would bring like carbon sequestration technology. They would bring all sorts of resources to the project that would be enormously beneficial. A financial partner would be a second choice you know, but we can easily get to the $50 million investment level ourselves, and prove it out a 100% ourselves. We want the partners in because the partners have all the technology you need to see this thing through.

Howard Jonas

Okay, understood. Thank you.

Operator

And this time for one last question. The last question is from Allan Young with Raging Capital Management. Please go ahead with your question.

Allan Young - Raging Capital Management

Hi, good afternoon. I wonder if you could just first help me with this specific definition of operating cash flow profitability, is that is that EBITDE, GAAP cash flow from operations, could you help me with that?

Howard Jonas

Its real cash, its like free cash flow.

Allan Young - Raging Capital Management

I would tend to look at that as, for example EBITDE less cash interest, less cash taxes, less capital expenditures. Is that something similar to what you are looking it?

Howard Jonas

Yes.

Allan Young - Raging Capital Management

Yes, so we would actually be generating and positive cash after all investment back into the business, which is pretty powerful statement I would think if that is what you are suggesting?

Howard Jonas

That’s why I said that after 14 years I am making this phone call. I think this is a seminal moment.

Allan Young - Raging Capital Management

Excellent, Excellent. It would appear to me that the cash on the balance sheet would be truly excess and you would be in a position to do something along lines of a buyback. Your reticence suggests that there could be some material alternatives, could you elaborate on what you might be thinking of, would it be a big acquisition, what kind of thing might you be thinking about?

Howard Jonas

We think about anything in particular, we are just keeping out powder dry. But I could tell you that when your are in this oil space, a lot of things come by look very interesting. We just believe the company is going to grow. I’m a 22% holder in the company, I could buyback a whole load of stock and be a 33% holder in the company, but if we succeed but what am I going to do sleep in two beds. I’d rather the company be secure and profitable.

Allan Young - Raging Capital Management

Understood, understood. Would you be willing to kind of go out on a limb and say after X amount of time, and we can debate what the appropriate amount time period is, but after X amount of time if we don’t see the kind of cash generation that we should that you’d be willing to waive your super voting rights and simply put the company up for sale?

Howard Jonas

No, I won’t be willing to say that, but I would certainly tell you that I’m out on a limb now. I’m sure many people have recordings of this call.

Allan Young - Raging Capital Management

You can count on that, I’m sure.

Howard Jonas

Thank you very much.

Allan Young - Raging Capital Management

Thanks.

Howard Jonas

Thank you guys.

Operator

Ladies and gentlemen, this concludes today’s teleconference. You may just disconnect at this time. Thank you for your participation.

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