Integral Technologies' CEO Discusses F2Q2014 Results - Earnings Call Transcript

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Start Time: 02:48 January 1, 0000 4:02 AM ET

Integral Technologies Inc. (OTCPK:ITKG)

F2Q2014 Earnings Conference Call

February 20, 2014 02:45 AM ET

Executives

Doug Bathauer – Chief Executive Officer

Bart Snell – Chief Financial Officer

Analysts

Dale Earnhardt – Earnhardt & Associates

John Hall – Hall & Associates

Operator

Greetings and welcome to Integral Technologies’ Second Quarter Conference Call.

This conference call contains forward-looking statements within the meaning of Section 27A of the 1933 Securities Act and Section 21E of the 1934 Securities Exchange Act. These statements include, without limitation, predictions and guidance relating to the Company’s future financial performance, and the research, development and commercialization of its technologies. In some cases, you can identify forward-looking statements by terminologies such as, may, should, expects, plans, anticipates, believes, estimates, predicts, potential, continue, or the negative of these terms or other comparable terminology.

These forward-looking statements are based on management’s current expectations, but they involved a number of risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in the forward-looking statements, as the results of such factors, risks and uncertainties as, one, competition in the markets for the products and services sold by the Company, two, the ability of the Company to execute its plans, three, other factors that detailed in the Company’s public filings with the SEC, including, without limitation, those described in the Company’s Annual Report on Form 10-K for the year ending June 30, 2013, as filed with the Securities and Exchange Commission and available at www.sec.gov. And for the parties may be unable to agree upon definitive agreements. You are urged to consider these factors carefully in evaluating the forward-looking statements.

I would now like to turn the conference over to Doug Bathauer of Integral Technologies. Thank you. Please go ahead.

Doug Bathauer

Welcome everyone, this is Doug Bathauer, CEO of Integral Technologies. And I do want to walk in to our first ever quarterly conference call. With that welcome, I want to set a bit of an expectation for what the quarterly conference calls will look like going forward. We’ll have them every quarter, to go along with the reporting of our financials. We provide an overview of the Company strategy, talk about how we are progressing towards accomplishing the strategy.

We’ll review of financials, but we’ll also talk about some of the events going on, macroeconomic events in the world is going on that are affecting our business. So that, just want to set that expectation, every quarter we’ll be doing this so we’ll be having this dialogue at least four times a year.

Today’s call specifically, today’s a little bit different than that as of our first one, it will be just a bit although not dramatically. So that I do want to set one expectation right up front. There is no earth shattering announcement coming out through this call, no major thing I’m getting ready to talk about, no hype, this is really just a discussion of how we’ve been building the business and how we’re really preparing for the growth of things to come. I just want to get that right out in the open that’s where we’re going.

And, so today’s call is going to be 60 minutes long, so really anticipate that going over that we want to stick pretty strictly to ride around that 60 minute barrier. On the call will be myself, and Bart Snell, who is the newly appointed CFO, he is on the call with us as well. I’ll start off giving a bit of an overview of the business, talking about our business model I don’t think we’ve really ever done that before. And again, as I said earlier, talk about some of the macro events that are affecting our business, some of the milestones that we’re looking for and the investor should be looking for. We’ll talk about a base [ph] a little bit on the financials and then you’ll also hear from Bart and hear well about his vision for the company, and certainly he’ll talk a little bit about the financials, bear in mind, he has been the CFO for so many hours so, how in depth we get maybe a little bit, may not be as in depth, but it is going to be in this future.

So, there is the ground work laid and then once all that done, we will have Q&A with whatever times left. In ballpark, probably 10 to 15 minutes will be available and we’ll just answer what we can. But we’re again, we’re going to stick pretty much to the 60 minutes for now.

Okay. I want to really talk about our business and where the company is going, why we’re taking the approach we’re taking and where we’re headed with this. And I do want to reference back to the CEO letter that we put out last year. Really what we had talked in that was, collaborations with other companies, through joint development agreements, their licensing various things that everything revolved around collaboration.

And over the last 12 months we’ve been successful at achieving a lot of that collaborations we’re going after. And we’re still going to continue to on further collaboration and further collaborating with those partners. But the one thing that we’ve never done is really explain why that’s the approach that we’re taking, why that’s we’re going about the business that way it is. I think it’s really important for the investor to understand everything does fit with and, our plan that does fit with than I thought of business strategy. But what I have to do and this will be probably the boring part for a lot of you.

That this was what’s really driving our business decisions and why that we’ve chosen to build the collaborative route, and everything we’ve done from an internal changes some of the recent press releases, it’s all driven by really the macroeconomic events that are going on that’s affecting our business and how we need to approach things.

So I do want to start with macroeconomic events. And that’s really just the big stuff that’s going around that affects all of us. Some of these will be obvious, some of that may be not so as obvious, but I don’t tend to be condescend into any point of the aspect.

The first general thing that really is driving a lot of this are energy costs. And just for example, gasoline prices have more than – have doubled over the last five years. We all see that and live that in our daily lives. With that, there has been some government regulation coming on top of that which is the CAFE standards. We talk a lot about that.

For me really, to say what that means, I mean the CAFE standards is what the automobile companies are required to have their fleets miles per gallons at. It has to be at 54.5 miles per gallon by the year 2025. So in ten years from now they have to double the efficiency of their vehicles. If you don’t start improving efficiency six months before that deadline hits, that starts years in advance. Right now, we are right in the middle of transportation, rapidly moving to improve their fuel efficiencies, because the government tells them they have to.

Another thing that actually started a few years ago what were stimulus dollars. A lot when the automotive industry really went through the problems that damaged the whole economy of the issues, a lot of stimulus dollars and by a lot I mean, billions of stimulus dollars were put into the transportation industry, and a large percentage of those dollars were put into the electrification of transportation.

And to bring this home a little bit more I mean, when you go back several years ago you might have seen the Toyota Prius to run around the neighborhood, and that would be about, got it. Now, it’s not uncommon to see an auto electric car in the neighborhood, it is not – and they are projecting electrical vehicles are going to be triple over the next seven years the number of them out there, and the infrastructure is being built around to support that, charging stations are popping up all over the country. So this is something that is very much a part of again the macroeconomics that ultimately is driving our business.

All those factors are really driving the overall lightweighting industry. Unaware of lightweighting has been around for many years, that plastics and various other materials. But there is a huge resurgence in the last couple of years with lightweighting. And those of you that I talked to, I used this phrase all the time, if you were to Google lightweighting three years ago you will get a response from Google saying, did you mean as though you’ve misspelled lightweighting.

Now what you will find our business divisions around lightweighting, consortiums around lightweighting, conferences worldwide nearly every week, lightweighting is an industry all in and of itself. And within the lightweighting industry in this – these are pretty much news articles you are going to see every week. New materials is what is leading the way in the lightweighting industry, this new materials as a whole. Some exotic materials from variations of plastics and variations of metal.

Ford just recently announced, they’re cutting several hundred pounds off of their body of their trucks. New materials is really a huge macro event that that’s driving the lightweighting.

And in particular, one material that has seen its use go up dramatically has been carbon fiber. Carbon fiber has been around for 50 plus years. So it’s by no means a new material. Has always been available on abundance as simply you’re using carbon material to produce this fiber. But for years, it’s been a high-tech specialty material and used a lot in, the NASA used it, a little bit of aerospace used, found its wave in golf clubs, but that was a material that was looking for a lot of use.

And nobody had really figured out that huge applications for it, until very recently. And right now, carbon fiber use has gone out as I said earlier, has gone up dramatically, and what the effect that that’s having is that, that demand’s increased, a tremendous amount of supply has come into the market as well. There are people supplying carbon fiber now that won’t be even involved in it five years ago, consequentially the price of carbon fiber has come down dramatically. So to make this really simple, it’s gone from a specialty material to a commodity. And the projections for carbon fiber prices to go down a little bit over 50% over the next few years as well.

So this isn’t a spike down in price this is part of long-term trend where it’s going to continue down. And so I know by now you’re already saying, oh my gosh, I did really get on to the call here and learn about carbon fiber and what, why do I care. But, I’ll tell you why really we care the company and U.S. investor’s care. It really gets back to a couple years ago, we’d announced our material but EP-CF/66 which was really a nylon-based resin utilizing carbon fiber as the conductor.

Probably when I noticed to the investing world, so that it was just another material, just another thing added to the product line yada, yada I get it. What that really was though was the strategic move at that time by the company. In particular, that was Mo Zeidan, our Chief Technology Officer really wanted to start building our development more around carbon fiber, since he really saw the trend of carbon fiber going down which was going to help our cost go down.

It doesn’t matter what industry you’re in, what industry you’re trying to sell into, what advantage do you have, cost will always be part of an issue, it will always be part of the barrier to entry. So we’re always trying look for ways to reduce cost. So that was the key strategic move that Mo implemented almost two years ago. But what’s happened is, and we couldn’t have foreseen this happening as rapidly as it has, the price of ElectriPlast has gone down by over 50% over the last two years. And in large part, it’s because of the carbon fiber prices dropping so dramatically and we already had a material that have been developed, that have been tested. Had some prototype it’s a well known, well used at this point. Way ahead of anybody else.

That’s the big macroeconomics driving our business. And with all those factors that I bring up, and back to why we have the business model we have. All those factors that are driving things are actually very powerful forces. And sitting down from the company perspective, we’ve realized last year this is going to be a really big industry. And that is plastic as a whole, particularly using it on higher conductivity shielding applications which is what ElectriPlast is designed for is going to be a huge industry in and of itself.

So from a company perspective, we really needed to take a look at our own infrastructure and thank and we support this. This demand that’s coming this Tsunami if you will, coming at us is that something that quite small little Integral and handled when it comes and that fact is, we really came to the conclusion that trying to do this by ourselves with not something that we’re going to be able to do quick enough, we were going to be able to build up customer, we were going to be able to provide the infrastructure or help the capital needed to support the coming Tsunami.

That is why our business model really revolved around, bringing in strategic partners that we collaborate with that has interests the same as we do. Which is the commercialization of ElectriPlast, the large volumes of the distribution, all of those things. That’s why we have the business model that we have and it wasn’t from the standpoint of, I just want to get a few big companies involved to say we’re involved with them. By having the likes of the Hanwha and BASF as identified involved, those are capital expenditures that we don’t have to spend for various things and that also that supply chain that’s already out there that allows us to expand ElectriPlast as rapidly as we would like to.

To this industry, the conductive plastic industry particularly for the shielding applications is getting ready to go through a huge surge we’re at the top right now, and if continue to shouldn’t say if we continue, if we didn’t do something dramatic to support this, somebody else would end up taking the lead. Fortunately, we have the lead on the technology and we have the best performing out there, getting those key partnerships in place were key to rapidly growing to its best quick as we wanted to.

So essentially what we can – what we ran into as you got to be careful of what you ask for, all these macroeconomic events drove business right now to us and so we’re sitting there with the best performing conductive plastic, as identified independent testing. We’re also sitting there with engineering who more about in more, who knew more about how do you apply conductive plastics than anybody, and then you all of a sudden you have pricing that was made it very doable to fully commercialize, we did have infrastructure placed for to do that. That’s what we’ve been doing over the last 12 months particularly, the last six to eight months as building up the infrastructure required to support all that.

So again, that’s just in a nutshell why that business model is dealt the way that it is, is to support all of those things coming in. So, it wasn’t just a lot of happening [ph], it really done with a lot of thought. So with that in mind, we’ve had a few press releases and the few company events here over the last two months, in regards to the Detroit, Philadelphia.

I want to touch on those just to make it a little clear as to why we’ve done those things. And as again it’s all fits back into what is driving our business, what’s our corporate strategy, what’s our business model.

We do have those big relationships with us now, with Hanwha, with BASF, with Delphi, we still had to support those relationships. And the kind of support we’re talking about isn’t just somebody who picks the phone and says, hey great, nice to talk to you, it’s, blah, blah, blah, it requires some in-depth engineering support, because you’re talking about applications. And in many cases, you’re talking about high-power electrical applications it’s a common material engineer, quite frankly, is it going to really know that much about. It really requires us the background in the electrical engineering to know how to properly apply those, again to apply ElectriPlast.

So what we found is, the more the business was growing and the more the demand was growing, the more demand well that was put on engineering. And we’ve really – we were at a point where we could not support what was coming in. I referred to that ground for a long time, I don’t remember the number came from, the 350 NDAs or whatever that’s been talked about. We get leads constantly and we do talk with a lot of companies we have over the years.

Numbers really don’t mean a lot when you’re really trying to do business, it’s how well you can support that to turn it into business. And that’s why -- we’re redirecting our resources towards Detroit to support what’s coming in the door. We’re not interested in how many people we talk to, how many companies have interest in this. Quite frankly, that doesn’t really mean that much, it’s how do you turn that interest in those companies into sales and into dollars. And you do that, by being able to technically supply what they need.

So, a little more detail on Detroit. Right now it’s staffed with engineers. It did not require a capital expenditure to speak up to start up with. We’ve had some test equipment at our microscope testing, equipment, et cetera. We had those things, but those have been in various consultant facilities in the Detroit area. It’s never been centralized. So what we’ve done is, we’ve centralized all of our equipment and we’ve centralized our engineering all in one place.

What that allows us to do, it allows us to do our own material testing. We can do that in-house now rather than using various consultants around the area. And we’ll continue to build around an engineering team and around the Detroit center as resources allow. We’re not going to see a rapid, adding 20 engineers or anything like right off the back, we’re going to gradually grow as the business grows. We are fortunate and excited to have Bob Pavlovic come on Board. Everybody read his resume probably saw the press release of him. He and Mo worked very well together and between the two of them, I’m confident in saying, there is no two people in the world that know more about conductive plastic applications than those two people.

They’ve both been in the trenches in particularly the last few years Bob has been in the trenches, when you, our commercial order it’s probably that was small for the Fisker Karma. Bob is the one who designed that, he is the one who put it into production. These are two people who really know how to apply the material. Feeling very comfortable with these two guys being able to support what’s coming in particularly from the big strategic people who we’ve already talked about.

So with Detroit, then the decision really was made to close down the Philadelphia office. And with that I mean, certainly some of the consideration on our capital resources that also our business model really was moving further and further away from direct sales. As I had mentioned earlier, all the sales leads in the world don’t really mean anything to much you can support them on the engineering side.

But we are really at a point from a company, that we don’t really require that direct sales at this point in time and that for a few reasons. We have Hanwha who certainly can help us out in Asia from a customer standpoint, we had BASF in North America, who has currently North American, of course people all over the world. It really has got to the point where our urban direct sales wasn’t a necessary part of the business any more, and redirecting those resources towards the engineering was much more meaningful. So that was really the decision around Detroit and why we did that, it was a re-allocation of resources. Not so much all over out there trying to cut cost, but really putting the dollars towards what’s going to make the business grow.

And really in a nutshell, over the last six to eight months, we’ve really the last year we’ve been putting the infrastructure in place that’s really needed to support this business. And doing it with a very methodical thought out plan in getting the right people in the right places to carry that out. We’re really pleased with where we are. I said pleased not satisfied, never going to be satisfied. There is plenty of more things that we need to do to continue to drive this home and just keep building on what we already have.

Now I also want to talk little bit about some of the milestones. By milestones it’s really obviously as a company you want to continue to progress, you always want to be working towards your target and of course our target is, we want to make a bulk load of money, as everybody on this call wants to do. It doesn’t happen overnight as some of you on this call realized that it hasn’t happened overnight, but there’s a lot of things that have to be done in order to do that. And I really want to be clear when we have these calls and certainly when we do our press releases. I want to be very clear with where we’re going as a company and some of the milestones that we really want to – that we are shooting for and we want the investors understand, this is what we’re trying to do and here’s how we have to get there, here are the milestones that have to be met.

So that’s one thing and now Bart do you want to talk to that just a little bit and again I bring Bart in at this point of the conversation, because more or less he more of an objective observer who has been with new technology before and maybe as it can bring a little bit more light to this.

Bart Snell

Thanks Doug. Yes, I’d be happy to and also just want to take a brief moment to thank the Board and Doug for having the opportunity to join the team and to build and so now there is as we founded the business for where they brought us to people like me can join and really hopefully build on all of that.

As Doug was talking about milestones, I have worked with other early-stage technology companies and it’s easy to be really excited about the opportunity and to not think through the fairly complicated steps that must occur in sequence and opposed to unparallel usually for a technology to evolve and get from tech – from a capability of potential to a reality in a product as that is driven around or used by consumers.

This, the technology I would say, has been validated now we need to make sure that we understand partner-by-partner, the product adoption milestones, the planning, the measurement and the communication and as we talk on the calls. We also make sure that really the financial statements we release are kind of the statement of what happened in the past, we make sure we’d put that, that progress in the context of where we are in these milestones.

For example, a partner who make a move and several partners have moved through a materials evaluation of ElectriPlast let’s say. After they finish that they also will do a process evaluation, how does this material fit in our process. They need to identify components where they can either intercept existing components of products with its new materials technology, or identify these as core new products where they can adopt it from the beginning.

And once they’ve done that product identification and targeting then they have to go through a design where have to design this with the material they need to go through a verification test on design, they pass that it needs to go through a product or production verification test, how does it work in their manufacturing process and a successful then under production, and then we get the revenue. If you will, the financial benefit that shows up in the income statement and also in the balance sheet has to follow these processes. So, what do we need to do as this innovative company as we make sure that we map our manufacturing and product departments into this type of milestone management system.

And that we work with them to reduce step-by-step the factors that put that the movement if you will, from this phase to the next phase to the next phase and as we review those the reasons for not moving forward in fact, we do move forward.

That’s for the detailed and complex understanding of each partner’s applications and their management systems in order for us to do this. So we’re going to focus on milestones, we’re going to talk about where we are financially as well, but the ultimate financial measure of success is probably not going be on a specific revenue achievement this quarter next quarter, but over the period of several quarters we’re going to take about where we are in this milestone on a progression and the financials – the financial success will fall on successful mass on achievement. So that’s been kind of companies that follow that kind of milestone management methodology if you will, tend to be successful. Companies that tend to stray and talk about just the opportunity tend to mess some of the details and as Doug mentioned, with Mo and Bob and the rest of the team and this is the team that’s going to be focused on the details and moving forward.

So Doug, let me pull it back to you.

Doug Bathauer

And I think part of that, Bart is, let me put this into an investor speak a little bit. I think sometimes as the company, sometimes what companies will do is, they view a press release at the end. And, we got a press release out now it’s over, everything is great and fine. And that really that’s very unrealistic of that really isn’t how things work, we’re all on a journey and there are various things – you have to pass along this journey to make things work. So with that kind I kind of – I’ll talk a little bit more and actually I think Brenda, do you want to allow some people to Q&A, we got a few more minutes here but just in case, so people can get started get ready.

Operator

Certainly (Operator Instructions). And, our first question comes from the line of John Harold with Harold & Associates.

Doug Bathauer

And I just want to wait a minute on those questions, okay.

Operator

Okay. No problem.

Doug Bathauer

I just want to be able to get in line and then I’ll move if we can, okay sorry about that.

Operator

It’s okay.

Doug Bathauer

I just want to follow-up a little bit with what Bart has said for milestone perspective. And announced on about Hanwha is not the end by any stretch, and that’s not the solution in and of itself, it’s as we progress as things continue and we build upon that, that’s what’s important. And we as the company, we understand that very much, I’m just not sure that we’ve always made that clear to the investor. So when I talk about milestones a little bit, there are some specific things as time moves on. As we’d have these quarterly calls. I want to make sure are very clear to everyone in really what we’re driving at, what to be looking for and what’s getting us closer and closer to, to that ultimate goal.

So with that said, I mean, Hanwha is a perfect example. Clearly the Hanwha relationship is very valuable to us, very meaningful to us. What’s important about them is, the next step of course is when the product line is up and running, but that’s something certainly to be looking for and I’ll get to Hanwha specifically in a few minutes. As I said earlier, when you’re talking about manufacturing and all these other things that have to do with selling a material to anyone, cost is the factor. Anything that we can do is going to help drag down our cost, is going to be helpful. It is either going to be a better chance of a sale or it’s going to be larger margins one or the other, that’s a good thing.

Enhancements to manufacturing, another key thing. It’s been widely talked about and I think we’ve made public statements to the effect that Jasper convert is £50,000 a month. Well it doesn’t take a lot of math to understand the £50,000 a month. And is going to support the Tsunami that I’m talking about coming at of us. So there is certainly enhancements that need to be done from the manufacturing side to support all those things coming at us. Again I’m speaking to milestones and things to be looking for as we move down the road. And of course more strategic relationships are very key to that as well.

So also I mean, I’ll leave the milestones for, I’ll leave the milestones, but I do want to go just a little bit to some current business. What I want to avoid on these quarterly calls, is kind of just going down a blow-by-blow exactly where do things are going with every single relationship. I think on this first one is important that we do that, because we’ve put the press releases out, we’ve talked about them a little bit. So I do want to give a brief update on specifically what’s going on with our three major partners and then I’ll take a little bit of Q&A. And I do want to talk a bit about financials and a little Q&A after that.

So Hanwha, they are very much a big partner. And I say that because, certainly when you’re in negotiations with somebody, there is a little bit about I don’t want to use the word contingent, that is not, that you’re negotiating a little bit. But certainly once they agreed, they are very much a collaborative partner and – we’re much in this together.

Very pleased at the speed they’re moving, very pleased at how they’re proceeding with things. We still, it’s in our press release earlier we talked about that we anticipated the Hanwha line being operational by the end of Q1. I’m sorry, yes, by the end of Q1 this quarter, that’s still our expectation. Yes, I recognized the end of the quarters and five weeks. The way things are going there right now, they’re on target for that to be operational by the end of Q1. I do want to set a little bit of an expectation for that though.

Bear in mind, the only people who’ve ever made ElectriPlast in the entire world is Jasper Rubber. Those certainly once that line becomes operational, Hanwha is going to have a little bit of their own testing and things like that they do. It’s not going to be years of testing or even months for that matter, but they are going to have to do a little bit of qualifying of their own line.

They only bring that out, because I don’t want the expectation to be as soon as they flip the power switch on, production orders are going out the door. That’s not going to be how, that won’t be the case. We certainly anticipate a lot of great things from them and we expect a lot of great things from them in the short-term. But it will not be instantaneous which when that line starts operating. Just want to be clear about that.

The other thing I want to add about that is, the Asia business and the Asia opportunities we are very excited about. For whatever reason, business seems to move much quicker in Asia. And the Asian market as a whole tends to be much more receptive to adopt this new technology. Hanwha was a very partner of ours certainly that have manufacturing on that region, but along with their relationship in front of ours we really see Asia as a big driver to the business. So, that with Hanwha I’ll leave it at that. And certainly that line becomes operational, we’ll be more than happy to talk about it and get further expectations once that in place. Again, saddling about how that’s moving now.

Delphi, and I think we had our conference call I talked about this just a little bit. That this the relationship again we’re very pleased with it. It’s a very active relationship, but from an expectation standpoint don’t anticipate a lot of incremental updates from us on how Delphi is progressing. And I need to explain that a little bit more thoroughly, because bear in mind, what that agreement is for their developing a product that gives them a compelling advantage over their competitors and it’s really not in their interest at all to make public statements of how they’re doing on the development.

What I can tell you is, outside us and them are both pleased with what’s taken place so far. The relationship is very active and things are progressing. And it will be have to be vague and don’t anticipate a lot more about that on a regular basis. That’s about the specifics that I will be able to give, because quite frankly warned by agreement I’m not really allowed to say much more than that and it’s going to be up to them. And there is no reason along they would ever want to talk about how they’re doing till the – until it’s ready for full commercialization. One other key point I do want to point out there, is we are in approved material within Delphi. That is of major importance in general.

Okay. And of course the next is BASF. Absolutely we’re thrilled to having them as a partner. And again I can only be so specific about how that relationship’s going specifically what’s going on. But, we’re actively meeting with companies together. That much I can say I comfortable of saying. And, obviously that is a company we would love to further our relationship with, because there is nobody with a larger customer base in the world in plastics business than BASF. And those are by no means the only things we have going on, but we’re – there are other things in various stages as a relation – relationship but those are the key big ones and we’re really pleased with how all those are going.

And now we’ll touch on financials a little bit and then we’ll get into Q&A and obviously I’ll let Bart comment a little bit on this.

Bart Snell

Of course in general, we’re not pleased with the financials at all. We feel like we’ve done a really good job building the infrastructure of the company, getting the business in line with the way we wanted to be following a disciplined business model. We haven’t, we need to get more disciplined with the financials as well. And we are in the process of doing of that and Bart will be instrumental in doing that as well. A couple of specifics I do want to touch on.

If you saw the last quarter our current cash position were somewhere under $50,000 we have increased our cash position, yes, we have raised money to do that. That was all done with restricted stock, none of those shares are able to be sold into the market for at least six months. There is a lot of very solid retail investors who believe in the Integral and in the future growth of the company. I feel like it’s fair to bring that up to let you know that we’re in – we’re in a better financial position than we were when that quarter was filed. But more importantly, I really want to address something that we hear a lot about and certainly something that bothers me excuse me, is convertible debt.

We have that convertible debt on the books for the last at least two years. And, we’re not happy about it and sometimes as a micro-cap company you get – you do what you have to do sometimes, I don’t know how else to put it. A convertible debt does give you access to capital and it does allow you to do some things that you need to do, but it comes at a cost. And I will be real candid about what that cost has meant to us, it’s cost us over the last two years there has been 4 million shares sold into the market over the last two years from convertible debt holders.

And quite frankly, as the CEO that’s not a price I’m willing to pay. Because, when you look at that kind of indiscriminate selling into the market, that hurts everyone of us. And that’s not the kind of debt that we’re going to continue having, and that’s a part of what we’re looking from the financial standpoint and our financials, that’s part of what we’re taking a serious look at how do we eradicate that because, everybody on this call is interested in this one for the technology. But number two, you want to see that share price go up. And, when you have people in there who are again indiscriminately selling, it really throws off the balance of the market. And again that’s something that we don’t like and we have no intention of using any further.

And with that on the financials, I just want to throw it back to Bart just for a few minutes and Bark side’s not going to be last in minutes, because I still want to keep this close to an hour. And if you were just kind of give a quickie viewpoint of how you see things, your vision for the Company, I mean more from the CFO perspective than anything else.

Bart Snell

Okay Doug. Again, just brief and I touch on Company is going to be, we are going to look forward and it’s going to be a bit more complex and I want to make sure that we, from the financial reporting perspective when it comes to Qs and Ks that we’re able to communicate that increasing complexity is clearly as possible. From a balance sheet perspective, you said it. The company is a growth company and it’s been raising money throughout its life and it’s going to continue. We’re going to continue to need to do some additional capital funding.

What we look forward to doing is starting to translate some of as we communicate and execute on some of these milestones management. We’d like to really continue to educate new investors as well as existing investors. And, I would suggest probably as we do address our capital needs, see if we can do that less frequently and at lower cost per transaction, so that from all of our perspectives what we’re doing is building the market value and doing it in a way that’s more cost effective.

And I look forward to working with you Doug to do that, because this is actually to say the first review ever that I’ve been into that, that’s been a challenge in a lot of early stage companies – pre-revenue companies in a way make that transition quite successfully, the capital markets are quite open to these stores and particularly given the progress the companies made and the large market opportunity that we see in front of us.

So, we’re going to continue to communicate that on these quarterly calls and on our releases. And hopefully that some of this progress will start to translate this up into as you said, a return for all of us long-term.

Doug Bathauer

And then fair and said, but I do want to get to some Q&A. All we’re going to have just 10 minutes or so for that looks like. But Brenda, it’s okay if you would just go ahead and allow the first couple of questions there.

Question-and-Answer Session

Operator

Certainly. Our first question comes from the line of Dave Earnhardt with Earnhardt & Associates. Please proceed with your question.

David Earnhardt – Earnhardt & Associates

Hey guys. Good to have a conference call and learn a little bit. My question regards why the new CEO came to Integral? I see he worked extensively with IBM. I’m wondering what exactly he saw about Integral, that interested him that caused him to make the dip?

Doug Bathauer

Obviously is a question for you Bart.

Bart Snell

Okay, thanks Dale. Appreciate it. I don’t want to say it was a new brand. It won’t too grip. One, I enjoy working with growth companies and as we look objectively at Integral. And I’ll probably become less objective over time that as we look at it today. We have a business that’s really in the midst of its transition as I said earlier from kind of the technology to a real product company. The product – those products are in, scattered in several very large markets. And, we particularly in any mobile market anything that you can do to reduced weight, reduced cost is a good thing. And as Doug mentioned earlier, the macro factors are all moving in the favor of this Company.

So, when someone invites you to join in with what I would also add as Doug mentioned, a really high quality engineering and leadership team, you just have to say thanks I mean, that’s a great opportunity. So I think we’re all looking at not because I’m here, but I think looking from my perspective of joining team today. I’m really excited, because I think what we’re going to talk about for a lot of, for the most part we’ll stumble, but we’re going to talk about advances, progress and we’re going to see that translate into market value.

David Earnhardt – Earnhardt & Associates

Looks like things are come and get it and I appreciate your frankness on the answer and wish you the best of luck.

Bart Snell

Thanks Dale.

Doug Bathauer

Thanks Earnhardt.

Operator

Thank you. And our next question comes from the line of John Hall of Hall and Associates. Please proceed with your question.

John Hall – Hall & Associates

Good afternoon. I’ve got several questions and I know you guys are interested upon. So I try to get you these as quickly as possible. However, as a portfolio manager these are questions that I really need the answer. For Dough, in reading the 10-Q it looks likely the first payment from Hanwha was put to the deferred liability and when we recognized that income over your tenure period, you tell us – you tell me what the reason for this is?

Doug Bathauer

I could tell you the reason for that, but I think it would better coming from Bart. So I’ll let you tackle that one that to Bart and I’ll chime in and add something to that.

Bart Snell

Very briefly we have accounts lead to torching you guys. So the way we accounts with things is – we’ve received the money, it’s all done that’s in the bank. Where we have to report that from a FASB perspective is we have limited debits and credits to place things. So we’re flat was really a good thing. A future license, recognizing license income and while we would love to recognize that all frankly when we receive the cash payment and showing $250,000 of other income coming from that fee. That really is not we can have that debate but for now that’s from a FASB perspectives as we work with the outside accountants.

That something that would need to be recognized equally over 10 years, 25,000 a year, we’ve recognized 12,500 so far to the six months for the year and the balance of that unrecognized income shows up as deferred liability. If you think liability is bad and that’s bad if you look at in another way it’s a home for future income on the – in the income statement.

Doug Bathauer

And let me interpret a little bit and correct me if I’m wrong Bart. We’ve received the quarter with $1 million from Hanwha and we put at the bank and they can’t take it back. And, we are as a fully reporting company we have to go with what the auditor says from the standpoint of how things are accounted for. Again, from me being a non-accountant type it doesn’t particularly make any sense to me why we have to, we got the money, we cashed the check if you will, it’s ours, it makes no sense to me whatsoever why we have to put that into the deferred liability. And count that again, that was just more of it, less a decision on us – ours and more of an decision from an auditor’s standpoint. Did I say that fairly enough there Bart.

Bart Snell

Yeah absolutely.

Doug Bathauer

And, there – there will be payments another $250,000 they’re contractually bound that as well.

John Hall – Hall & Associates

Great, well thanks for the explanation. Secondly, in regarding the [indiscernible] from this morning, the company said its transitioning into commercial production and this obviously means that the 13-year of a way that is finding nearing its end I guess shareholders would help. The old management team never really has the confidence or desire to participate in any inside of buying of the stocks. So that the past stands of management still hold true today or do you guys really think that stock that’s attracted down here, that’s best willing to step to any buy the stocks and the open markets yourselves along side of your shareholders? And it’s between – stock for years?

Bart Snell

Yeah, there is really two questions there.

Doug Bathauer

The first one was when you referenced the press release. And I do want to address that. I probably wasn’t supporting about that, I think should have been. Everything we’ve done over the last 9 months to 12 months as far as the things I talked about building infrastructure, the partnerships and all that, that is very much to what was said in that press release. Is it getting ourselves prepared for that production, that’s why that was set. And then for your question about stock speaking for myself absolutely.

Personally, I think the stock gets undervalued personally from a personally perspective yes, I will be buying stock in the open market, I think this company as you referenced to the 13-year, I remember what you referenced there as far as the 13-year drought or whatever it was. I think there has been a lot of focus put on the past and not a lot of focus put on than now and the future. What we’d been able to do over the last – two years is we’ve really built a nice little company, and we now have the infrastructure support Tsunami that’s getting ready to come crashing down on us.

Absolutely I’m buying shares. I mean, I don’t rehearse to put it, obviously quite there because of just announced that our CFO changed and certainly none of us were able to buy during that period of time. But, yes, the answer to your questions is yes John.

John Hall – Hall & Associates

So you’re saying that we’re going to be able to start seeing some form force file [ph] here, are we talking right away or down the road or?

Doug Bathauer

No, John I’m not going to let you tie me down that specific that in the very near future.

John Hall – Hall & Associates

Okay. But listen, earlier this month you hired Slobodan Pavlovic snatching him over from Lear, and it was noted in that particular theoretic he was somewhat of a pioneer with regard to his work around in the electric vehicles. And he knowing that Integral had won kind of deal with Fisker before they have unfortunately went bankrupt. Is this highly possible precursor to doing a deal with a company let’s say like Tesla?

Doug Bathauer

Certainly I’m going to speak to any no company names or anything like that or anybody we may or may not be doing with. But what I can tell you is, going back to Mo Zeidan, Mo founded the Hybrid Electric Division at Lear. And Bob worked in that same division and certainly most of, a lot of Bob’s patents that he has written were revolved around electric vehicles, hybrid electric vehicle and those kind of things.

And I have no issue whatsoever saying between Bob and Mo in our Detroit facility, there is no team better to provide to the electric vehicle or hybrid electric vehicle market than those two people. But I don’t care what electric car company you are, it would be an ideal fit for us and we have the expertise and the material to do that.

John Hall – Hall & Associates

Okay, listen just one question and I’ll jump back to the queue. Did Lear and think you company mentioned it might entertain a future acquisition whereby be its own manufacturer and this cut cost further. I think you were referring to the company like let’s say, Jasper?

Doug Bathauer

Fair question, not necessarily that short-term from that perspective and not – certainly not necessarily a company like Jasper. That’s really more from a regulatory why that’s in there in the past, from the disclosure standpoint we’ve put things in there like we will never be in the manufacturing business we have no desire to be in the manufacturing business. Yes, something to that effect is what had been in there from a disclosure standpoint for the last several years.

And when I start talking about milestones and things that we need to do as a company as well as business to grow, cut cost, increase capacity do all those things. I can’t say with 100% as surety that we wouldn’t be in the manufacturing business from there, we’ve played some part in our own manufacturing. And simply by having that disclosure in there saying we’ll never be in it that really at disclosure in and of itself precluded us from even having any of those discussions or even potentially entertaining the idea somewhere down the road.

So I’m not saying oh no, we’re in detox to make an acquisition right now, I’m not saying that whatsoever. But what I’m saying is, we need to increase capacity, we need to decrease costs, we really need to be dual-sourced albeit Hanwha will help solve a part of that problem but it would be nice to be dual-sourced in North America, as well.

I want to have all the options available to us to make sure we can achieve that not be locked in by always doing contract manufacturing, because when you always do contract manufacturing, certainly you will only have limited control over your costs and various things. And by the way, I see Jasper being I mean, I’m a huge fan of Jasper, great partner, love those guys over there. None of that’s in, no discouraging remarks towards them whatsoever. Again it’s more of a disclosure type thing. And anything John?

John Hall – Hall & Associates

Okay well great. Thank you guys and good luck.

Doug Bathauer

Okay, thanks. And probably we have time for one more question, maybe two.

Operator

Yes thank you. Our next question comes from the line of John Gregory, he is a Private Investor. Please proceed with your question.

Unidentified Analyst

Hey Doug, how are you doing?

Doug Bathauer

Doing well John.

Unidentified Analyst

My question is really twofold question. The remaining Philadelphia operation, is that shout down entirely with people? And then the second question is, do we still have an IP Advisory Board?

Doug Bathauer

Okay.

Unidentified Analyst

Thank you.

Doug Bathauer

Okay. First of all, there is no operation in Philadelphia any longer. Again great guys, wonderful human beings, but they are not – they are no longer have a contract with Integral and that office is closed. Secondly, the IP Advisory Board question. We did form that for a year and a half or so ago, maybe two I’m sorry for a loss of the timeframe there. That was put together really to help us with a lot of these relationships that we currently have. I can tell you right now they were instrumental in helping advisors with all three of these relationships, the people in the IP Advisory Board.

I don’t anticipate that being something that we continue well into the future with that, but it really very much served with the purpose to get everyone of these relationships involved licensing and involved our IP. And really gave us a good springboard if you will, to be able to leverage that expertise on the current agreements that we have. I mean you guys are probably, you’ve seen the Hanwha agreement that’s not a three-page document, multiple pages going with international companies, pretty intricate document, and really wanted to make sure we have all the expertise we could with that.

So right now it’s something that technically it’s active, but it’s something that I don’t anticipate as continuing with down the road. But super people involved there and really served its purpose for what we were trying to accomplish there initially.

Anything else John? Does that answer your question?

Unidentified Analyst

No.

Doug Bathauer

And then, we got one more and then I really have two shut it down.

Operator

Thank you. Our next question comes from the line of John Quackenbush, who is a Private Investor. Please proceed with your question.

Unidentified Analyst

Hi Doug. And nice to have here welcome on Board, Bart. Either one of you have to answer this question. And as an investor, I only see the share price going up with the significant revenue start to show up on books. And my question is, using whatever language you can like expect or project or whatever, do you see this having significant revenue showing up on the books?

In the next quarter, the next two quarters this year, whatever timeframe and I know it’s going to be estimated or whatever, but that’s really, that’s the only thing really that I can see that’s going to move the share price other than expectations and when this stock price moves upon expectations, you know how that is, it’s been up and down, but what’s the number come in and you can put earning per share and do some projections and I believe the price will go up and stay up and it reflected by that. So as an investor I’m really concerned about when we’re going to see any type of significant revenue?

Doug Bathauer

Absolutely. You can actually find significant on.

Unidentified Analyst

Yes, just things move along the companies got money coming in and being able to support it and so not having to put out more shares. And haven’t the picture the money left over I guess [indiscernible]?

Doug Bathauer

Okay I’ll…

Unidentified Analyst

Seen as significantly?

Doug Bathauer

Sure. I’ll start with that and then if you want to change.

Unidentified Analyst

Bart would be probably the best to put this to, when I say significant and not to move the share price and people say, hey we have revenue, this is going to be recurring, this is good, we can project some numbers and I can’t be specific about my expectation other than.

Doug Bathauer

I understand.

Unidentified Analyst

It would affect the share price?

Doug Bathauer

Let me start with that and I’ll then Bart if you want chime in feel free. And again, Bart is a little bit – as a bit of a handicap on this having not been with the company that long. So number one, the picture I tried I am really was trying to paint is, the offer, we had built the infrastructure now to support that business okay. That’s coming out.

Secondly, which we haven’t talked about this, is our expenses are really not that great in the grand scheme of things. We’re going to be probably in the $2.5 million range ballpark from actual cash expenses on the 12-month basis, but only to that’s a ballpark here and there, okay. It’s not going to take that much revenue to cover where our expenses are. That’s the positive. The companies we’re dealing with and the support we’re putting in place to support those companies are, I’m trying to phrase this in such a way that I don’t get myself into trouble.

Unidentified Analyst

We don’t want that.

Doug Bathauer

These are large opportunities, high volume orders and things that would get us to the point of covering expenses in a relatively short order of time. I know that’s what everybody is wanting, because essentially we’re still issuers when you get buying that to it. An issuer is somebody has to keep issuing shares to keep themselves going get it. But we’re at the point now where and I know you’ve been around for a long time, John. I know you back to what.

Unidentified Analyst

I’m almost dead.

Doug Bathauer

Everybody is actually oh, John was with questions today. You’ve been around for 13 year route if you will and you’ve heard a lots of different things. And that why we’re trying to present a little different I mean I want to say story today, it’s we’ve been building the company the last 12 months and 18 months and we actually have the infrastructures start supporting those things now. And with that is revenue coming actually to be correct I guess I should say income is that right, Bart.

Bart Snell

Yes it is.

Doug Bathauer

Is the income coming? Yes it is. How large is that? We’re not at the point to actually start providing guidance or estimates suggest yes, but can’t tell you the income’s coming in 2014. The size of frequency of it still not at that point we’re willing to jump out there and tell everybody that it what’s going to be. But the infrastructures in place, the relationship are in place everything there already that I know it’s coming. And that’s how I referenced back to those milestone things.

You’ll know when those things are coming in when the huge revenue – when the huge revenue is coming, once those milestones start falling in the place more and more you’re going to know. So anyhow it’s going to happen this year again the amount, the size I’m just not in a position where I can’t say that, I want to but I can’t. And now enough that’s too far over bounced there Bart or am I still okay?

Bart Snell

No, no I think it’s, John I appreciate your patience for the stock. I think there can be, based on what those milestones and what the achievements milestones are. There can be some –an opportunity for some significant market appreciation, depending on how significant the milestone achievement is, even its pre-revenue. So I’m -- this is a type of more product and capacity discussion as oppose the technology and capabilities we’ve been talking a lot in the past about the capabilities and potential.

I think as people start to see a steady progress, and we can communicate to you what those milestones are to get to revenue. I think it feel more confident and that let’s face it. If you take the risk avenue out of the discussion this is – could be a very valuable business but there is a lot of risk on it. So it’s our job to manage the risk down and also to communicate to everyone how we’re moving through this to get translate from potential to reality.

Some of it’s going to come from revenue frankly some of it’s also come from I think moving through some of those stages to some of these products and revenues were turning to other people’s companies. They make their own decisions, our job is to help them move through that process more quickly.

Doug Bathauer

And going on that goes back to building upon our engineering. We, it’s helping another companies to those decisions faster. And you’ve heard him John, you’ve been around a long time. You heard all the things that are going to happen and maybe half of them I mean there is common threats and a lot of things why they haven’t actually gone before they need to get as far as they’re full blown large order. Some cases it’s price, well you know what I just told you our prices down 50% off road while three years ago. Not really an obstacle any more, engineering support. And you know what, we’re providing a lot of that. And economic. Go ahead.

Bart Snell

I was going to say not to be ample launches but in fact, I’m pretty excited and about the business so I’m, liked to join this. I’ve also in the past worked with businesses that had to launch satellites on top of rockets with flammable material and that was a significant milestone or not. In the case of Integral, lot of progress has been made, the kinds of things we need to do, it’s not rocket scientist – the science it’s really execution and helping others get to their revenue stream, that is how we get our revenue stream. And, I think that’s a good thing John, it’s in the realm of – it’s a lot of different and I think more risk on our topic that we’re going to be talking about that we need to execute on.

Doug Bathauer

And Guys, I’m sorry that in the interest of time and this is FYI we pay by the minute for the call. So the interest of cost reduction. We do need to shut the call down for now. I look forward to talking to everybody next quarter. And any other questions I mean, feel free to e-mail me, e-mail through the website, we’ll do our best with answering individual questions of course we’re bound by SEC as far as how detail we can get. I appreciate everybody’s support and talk to you next time.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.

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