Integral Technologies' (ITKG) CEO Doug Bathauer on Q4 2016 Results - Earnings Call Transcript

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Integral Technologies, Inc. (OTCPK:ITKG) Q4 2016 Earnings Conference Call October 13, 2016 5:15 PM ET


Doug Bathauer - President, Chief Executive Officer, Treasurer, Director

Bart Snell - Chief Financial Officer, Secretary


Thor Larsen - Private Investor


Greetings and welcome to the Integral Technologies Incorporated corporate update and financial results conference call for the period ending June 30, 2016. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

I will now turn the call over to the Integral team.

Unidentified Company Representative

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 involve 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 a result of such factors, risks and uncertainties, as competition in the markets for the products and services sold by the company, the ability of the company to execute its plans, other factors 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 ended June 30, 2015, as filed with the Securities and Exchange Commission and available at, and the parties maybe unable to agree upon definitive agreements. You are urged to consider these factors carefully in evaluating the forward-looking statements.

Doug Bathauer

Well, good afternoon or evening everybody, depending on which time you are in. It’s always a pleasure to get the opportunity to speak to everyone. Today, the structure of this call and the agenda really isn't going to be a lot different than anything in the past. We will start off with Bart giving a bit of overview of the financials of the company. Then, I will provide an update, as far as a general business update, some of things that are going on now and also things that we see going into the future, and then if there is some time left, we will do a little bit of Q&A as well.

So right now, I will turn it over to Bart and we will go from there.

Bart Snell

Thanks Doug. This afternoon, we will cover some of the highlights of our 2016 performance for the full year and we will be finalizing our 10-K in the next couple of weeks. As you know, we have been an on-time filer of our quarterly and annual statements. We have limited resources internally which restrained this quarter preparing for recently released proxy statement as well as some newly required highly technical statistical analyses required by our auditors and GAAP to value the derivative liabilities relating to our convertible debt.

So looking at some of the highlights for a minute, our operating results for the full year tracked the previous three quarters reported in our 10-Qs for those of you that have followed us. Revenue, due to sales of our electrically active materials, increased about 109% year-over-year. Operating expenses were down 23% year-to-year, reducing our funding requirements. And specifically, SG&A was down 23% over 2015, while R&D was up just 1% as we continued to support our external customers and ramped up our support of the bipolar battery section.

The net loss for the year increased 5%, driven down by our reductions in operating expense that were partially offset by the increase in interest expense due to our higher levels of debt as we went through the year. Cash used in operating activities decreased 30% along the lines of our reductions in operating expenses, and cash provided by financing expenses was essentially unchanged or about the same as it was in 2015.

As we pointed out in our continuing disclosure of our Qs, we have a continuing need to raise capital. That being said, the reduction in our cash used in operating activities by about $1 million year-over-year and the increasing sales of our materials is reducing our external funding requirement needs.


Doug Bathauer

Yes. One point of clarification I will have you provide there, Bart, is as far as the convertible debt, that was something that was disclosed in our last quarter, but we have not incurred any new convertibles.

Bart Snell

There has been no incremental debt, no.

Doug Bathauer

Okay. That's one important point I do want to point out.

Bart Snell


Doug Bathauer

Yes. That was one that we incurred which was essentially to wipe out all other convertible debt and that is essentially when it happened, and it's still the only one remaining that we have not incurred anything further from that.

Bart Snell

Correct. That's exactly right.

Doug Bathauer

Right. And one other thing too and this is a question we do get a lot from the shareholder base is the decrease in cash used, but yet the loss is just a little bit higher. It would seem as though if there is less cash used, maybe the loss would be lower too. What would be the difference between those two?

Bart Snell

Well, the reduction in operating expenses is a true reduction and for the most part in cash requirements. The increase in the interest expense is a non-cash item, so it doesn't consume cash. So if you will, the net loss is the result of a decrease in cash derived expenses slightly offset by the increase in non-cash interest expense.

Doug Bathauer

And then for the next 20 or 30 minutes, I do want to go into a little bit of what's been going on in the last few months. There have been a lot of questions and a lot of curiosity, of course, as to what's been going on and we will go through that and we will see how things go as to whether we will break this up into two sections of Q&A or whether we will just do one. And of course anytime, Bart if you feel like you need to chime in there, please do.

Bart Snell


Doug Bathauer

And Chris, for everybody's benefit just, again I don't know how much time we will have for Q&A, but just to kind of save some time, if you could give the instructions for that now, that way people can get in queue and if we do have the time, they will already be in queue rather than take that time later to give those instructions.


Sure thing, Doug. No problem. [Operator Instructions].

Doug Bathauer

Thank you. Well, first thing I want to start off with and it's pretty similar to how we start almost every call, just really a reminder of where we are going as a company and from a high level where we are headed. And this is one of those instances where I know 75% of you tune out at this part of it. This is actually an instance where I really would like everybody to tune in because it really will be a significant lead into what we are about ready to talk about.

But as you know, as we have announced, when we moved to Evansville, just here within the last two years, we really talked a lot about improved manufacturing and how we really wanted to have increased capacity, we wanted to have room for expansion, better lab testing facilities, and also bringing in some high volume plastics manufacturing expertise. Certainly, none of those things were ever taken anything away from Jasper and what their capabilities were. Jasper has certainly been a very valuable partner and they continue to be a very collaborative partner with us to this day, but Jasper did not possess those kind of capabilities .They didn't have high volume plastics manufacturing nor did they have that lab capability.

So for us, it was very important to have those things. And comments we have heard over the last couple of years is and I think it's been on conference calls like this as well, things like, oh, it was your attitude, build it and they will come or are you getting the cart ahead of the horse. Those kind of things. And that's not necessarily the case.

In this business, really what we are trying to do is supply plastic. You really have to have a certain level of capacity and expertise in order to actually get the orders and the volume of orders that you want. So that was really a strategic move on our part back then knowing that we needed to improve on that aspect of our business. So I just kind of want to leave you with that, and we have dramatically improved our capability over the last couple of years. And again, that will lead us into a little bit more our conversation coming up here in just a few minutes.

And again, just a reminder and this is important, although it may not seem to be that at the moment, just a little reminder about what ElectriPlast is and what the core of our technology and then as far as the patents, how it performs and what ElectriPlast really does is, ElectriPlast is a highly conductive plastic. And by highly conductive, those are applications that are typically going to be truly used as a conductor, like in our battery plates or used in various things for EMI shielding. Things that house high power electronics. Those are really what a lot of the highly conductive materials do.

And as I have been pounding the table for the last two, three, four years, this is a huge market on the verge of a very dramatic growth. And that dramatic growth is really driven by the macro trends that we see out there. The electrification of the vehicle, that's a trend that is not going to stop and in our generation, we may very well see those are the only vehicles being produced are electric vehicles.

Lightweighting of vehicles. And certainly energy conservation, wind, solar, all those things are really leading into the highly conductive plastic market. And again just for clarification, I have gotten questions about this recently is, when you see the size of the conductive plastics market and it's something in the $3 billion to $5 billion range currently and this is just conductive plastics as a whole, primarily that market is mostly made up of things that are not highly conductive plastic.

Most of that market is in your lower conductive market side of things. And whereas the market we talk about is really in the highly conductive things that really haven't started being fully embraced and fully utilized just because the macro trends haven't been there. And again, I won't belabor it, but reduced carbon fiber prices, all those things have really lead into why that is on the verge of very rapid growth.

The challenges of that market, as we have talked about many times on these calls, is adoption of new material into that. Right now and if you look across essentially every electric vehicle on their high power electronics, you are going to see cast aluminum boxes that contain those high power electronics. That's what is used for shielding currently. It will take some time before those are displaced with conductive plastic.

And of course the other challenge is, it takes a highly engineered effort in order to get some those in there. We are extremely excited about the highly conductive market, but as you all know on this call, sales cycles have been a little bit long and we know they are there and things are percolating and we are on of the verge of very many things but again it's difficult with exactly how long will it be until there is full adoption all across the board.

But I say that because one thing we have really not been able to fully utilize is the other part of the conductive plastics market, which is the lower conductive plastic. And the lower conductive plastics part of the market, again when you look at estimates from industry about the conductive plastics market as a whole, generally what that is referring to are things that to do with static dissipation, for example, at a gas pump, various electronics, things where you are going to cause some sort of static dissipation and there are multiple automotive applications where the buildup of static would really cause a lot of problems, that's when you see those estimates that's primarily dealing with the static discharge in the lower conductive portion of the market.

We have had multiple opportunities over the years for that business, because certainly as customer request come in and as we meet with customers, there have been multiple opportunities for sales in that market. The challenge we have had though, is we really didn't have anything to fill that gap in the lower conductive for various reasons. One, there is a little bit of a different manufacturing method. Number two, the size of those orders tend to be much larger because these are for some parts that are lots of them made. And so we really just didn't have the capacity to participate in that market. Consequently, we more or less had to pass on that.

As that business has come in or the opportunity for that business, it's just a gap we couldn't fill. So what we have been doing particularly over the last year, we really have put a lot of our focus on that as we got our feet underneath just here a little bit in Evansville and really been improving our manufacturing capability and what we are able to do. So where we are now is we do now have a lower conductive line of conductive plastic.

And keep listening to me, because there is a lot more to add to this, okay. It's not just a line, there is more to talk about. This, in by no means whatsoever displaces anything we have been doing the last 10 years. This is just a compliment. We now have the conductive plastic line from the lowly conductive plastic all the way to the high conductive. So we now have materials that could meet your needs for static discharge all the way up to making a battery plate where it serves as the conductor.

And we have been working on this for at least the last year. Getting the portfolio in place, making sure we can manufacture and make it, meet the various specifications that we need and of course making sure that there is a market for those. The nice thing about some of the lower conductive market is, it does not require all the engineering because it's not as technical as some of the highly conductive things. And in many, many cases there is already a market for that. So you have the opportunity to displace other people. There is just a lot more opportunity out there and the lead time is not nearly as long as what it is on the highly conductive.

The reason I bring that up now and why I really start the call up with that a little bit is because we not only filled our line completely from top to bottom, we have also been generating sales from that product line. And this has been going on for roughly the last two or three months. Initially, we really wanted to take baby steps getting into this, because we are going from relatively low volume as a company to relatively high volume. And the thing that we really wanted, although we have been preparing for this for a couple years, we really didn't want to just dive head into it and be inundated and not really be able to come up with the quality product the customers are looking for or not be able to meet customer demand from a timely standpoint.

And over the last, particularly three to four months, it's definitely been a bit of a transition. It's been a lot of work on this end just really being able to support the demand that's already coming in. But really what I want to say now, it's really what a lot of you been waiting to hear me say for years, me or my predecessors. We now have multiple sales in multiple industries and as we speak now, as I look at our production board behind me, we are roughly at about a two week backlog on orders.

Over the last two to three months, we have delivered commercial orders to automotive Tier 1s, industrial companies, molders, consumer electronics. We have also had repeat orders from customers for certain material. We have really entered into a whole different realm from where we have been in the last several years. To put this a little bit in perspective and I am really doing my best not to speak in superlative, but over the last two to thee months, we have produced and sold more material than what we have in the last 10 years combined. And it really, all of this was made possible, I wouldn't say simply, but it was really made possible because of our move to Evansville roughly two years ago and the expertise that we now have here with Nova Polymers.

And I get asked a lot about asked a lot about Chang Rim where we did announce the largest order in company history. That was probably roughly a year ago. We have had at least four orders that far exceed the Chang Rim quantity that was there. And our capacity has gone up dramatically since that period of time. Back in that period of time, it took us a few days to produce the Chang Rim order. To give you an example, yesterday we completed an order that was roughly the same size as Chang Rim and it took us about four hours. But again, back to it was really all in this long preparation to get to this point because we didn't have access to that sort of manufacturing and manufacturing expertise, we just wouldn't be able to do it and this lower conductive market has been essentially the low-lying fruit for a long, actually I shouldn't say low-lying fruit, it's actually been there for some time, but we have just not had the ability to capitalize on it.

And again a little bit more perspective, because I know I will get a lot of questions about this as time goes on, from an order size standpoint, we are getting orders anywhere from a small order from 100 to 200 pounds up to the 3,000 to 4,000 pounds range. We are not at a point yet where we are getting those orders in the tons, 10,000 to 20,000 pounds. We are not at that point yet, but we are getting nice orders, decent volume and at this point in time we are really at a point where we feel pretty comfortable in handling what's coming over there or what's coming to us.

I do want to add about a little bit. We, from a revenue standpoint, which I am sure everybody is curious and wondering about, as I am sure you are Bart, we will start seeing a little bit of this revenue, a little bit of it will show up in Q1, which just ended a couple weeks ago. But for the most part, we will actually start seeing this revenue hit in the current quarter we are in which is Q2. We have intentionally not done a big rollout of the new product yet. Quite frankly, that's largely in part because if we did that we really don't want to get to the point where we can't handle on the manufacturing side. I may have mentioned it before, but we are taking relatively, more or less, baby steps because the priority right now is deliver a quality product, deliver it in timely manner and make sure we have customers that are going to be repeat customers that we continue to have for years to come.

It's definitely preliminary for us to provide any sort of guidance or projections or anything like that from a sales standpoint and this goes for the overall portfolio, but we are really hopefully at this stage of the game to be cash flow positive just from this portion of our portfolio. We really hope be cash flow positive in calendar year 2017. And again, just to give everybody an expectation, we don't anticipate a full-blown product rollout on this until early next year, early 2017 because at this point in time, I don't know how to put it, we have our hands full with the orders that we have and we really just want to just gradually wait into this rather than just jump into it all at once. We not only want to get customers, we want to make sure we maintain customers.

And again, I want to reiterate, this is still very much a part of the ElectriPlast portfolio. It just targets a different segment of the market. It's much more in the lower conductive market rather than the high conductive. And lower lead times. We still see the larger high growth really coming from the highly conductive. But as you all know, we don't want to wait any longer for that, go to where that current business is. Obviously, we are still pursuing very heavily on the highly conductive as well.

And I will just take, that was a mouthful I realize, so let me just take maybe one question here and then I will get on to the rest of the update. Whoever is up first, Chris?

Question-and-Answer Session


All right. No problem. We have first online is Tim Hoak [ph], a private investor. Please proceed with your question.

Unidentified Analyst

Hi, Doug. I have been around here quite a while, and I definitely appreciate your stewardship since you have taken over as CEO. Everyone and especially those of us who have been around for a while are interested in the potential profits. And I am wondering if you could talk a little bit about the margins and pricing in the new lower conductive plastics?

Doug Bathauer

Fair question. Let me give you an answer to that. From a pricing standpoint, I will speak to what we have done, what we have actually already shipped out the door, delivered to our customer and is invoiced for. And it definitely changes a lot by volume. Obviously, if you do a small order, you are going to charge more per pound versus a large order, but it's been somewhere at volume, again depending on what it's composed of. Because just like our highly conductive, this plastic can be composed of various things. It may have a different level of stainless steel or different level of carbon fiber.

And also one thing I want to add to that too, Tim, is we now have the ability to add various other things, because we’re here at Nova, a very common filler to plastic is glass. We have the ability to add glass or whatever else you need to do, which is again a capability we did not have two years ago. Sorry, I am feeling like a plastics guy. I apologize.

But the pricing is typically somewhere in the at-volume. It's somewhere in the $4 to $7 range is what we are overseeing in the volume cases. By volume, I mean 1,000 pounds and higher. And there are few of those particular blends that may go a little bit higher than that, but typically nothing lower than the $4 to $5 range is typically on the low side.

And from a margin standpoint and the things really need about some of things are in this portfolio is, it really runs the gamut. Some of these are kind of niche little things and some of them are a little bit more commoditized. But we recently just completed an order where it was, I hate to even say it in case the customer is listening, but one of the orders we most recently just completed was roughly about 200% margin, and make no mistake that's absolutely positively on the high-end. But on the lower end, it's in the 30% to 40%. So we are still very much in a high margin business.

And certainly, if we really got into doing some of those very mammoth orders into the multiple tons, I would anticipate maybe those margins coming down a little bit. But again for perspective, it's really been in a very high margin business at this point in time, even though the conductive plastics market as a whole is in, whatever it is, $3 billion to $5 billion market. It's still a relatively small playground and not tons of people out there. But the point is, when I just recently spoke at the Conductive Plastics show, that's the first conductive plastic show held in North America. So conductive plastic has been around for a bit, but it's just now to where the industry is really starting to move along.

Unidentified Analyst

Thanks. I appreciate it.

Doug Bathauer

That pretty much answers that. Anything else?

Unidentified Analyst

No. That was great. I appreciate it.

Doug Bathauer

All right. I appreciate it. Now what I want to do is just go ahead and traditionally what we have done in the past is run down, give you a bit of some of the open item business that everybody's aware that are out there publicly. I want to give everybody a little bit of update on that, because for the most part we have progressed on all those things since our last call and just kind of let you know what's going on in various things, battery and electric cars and all that stuff.

So, okay, first I do want to talk about, we have mentioned in previous filings is an electric car that we are anticipating an order from. So, I am going to group this together in Tier 1 interest. I am going to group this together as a whole. So in particular to that electric vehicle, we are waiting. I don't know how else to put it. Automotive can move very slow and this is no exception to this. All the internal paperwork and all the documentation that has to be provided, that has been done, and us along with the Tier 1 are simply just waiting for that order.

And as a whole, over the last, I would say, three months, we are really starting to see a lot more activity from Tier 1s and I will go so far as to say, Tier 1s globally. It's pretty regular now that we are getting Tier 1 orders. And again, let me be clear, these tend to be prototype orders for small pounds, but it's all for things that's coming up, almost all of them.

At least to this point, interestingly they have not been for the bigger enclosures, they are for connectors. So I think we just today -- we just completed another small prototype run for one of the Tier 1s, and it is for a connector on an electric vehicle. And Tier 1s, I don't know how much everybody knows about it, you don't really know exactly which model you are working with or what car you are working on, but at this point, it seems to be about, we know of one model for sure, but there’s at least two others that it appears to be this particular Tier 1 is looking to get us move into.

So again a lot of pickup in that in just the last few months. This was a little bit quiet maybe a year ago, but certainly lots picked up on the Tier 1 side. And again almost all focused on the electric vehicle side of things.

Cable and wire, definitely one of the most popular questions that I get. I will speak in generalities with that. We have two separate technologies on cable and wire. One is our shielded wire, which we have announced a joint development agreement on that some years ago. It's been going, unfortunately and frustratingly. I am very limited to what I can say about that, but speaking generalities, the progress has been, we have made a lot of progress on that this year. Much more progress this year than that the year prior.

And that's essentially about all I can say and I apologize for that. I would love to disclose much, much more than that, but particularly when you are dealing with larger companies, sometimes it's difficult to be able to give a lot of information out.

And our bundled shielding, again, I share the same excitement I had about that two conference calls ago, but unfortunately I just can't. We just haven't really moved that all forward much as we would like to, just from a limitation on internal resources. There is just so many of us and there has been a tremendous amount of focus on the batteries, which I will get to a little bit later. And then, obviously, a tremendous amount of focus on commercializing the new product line. It's really just been very difficult to be able to pursue and move the bundled shielding project any further. We really hope to get that sometime in early Q1, start moving down that path with it. But it's really just has been something we have not been able to spend a tremendous amount of time on just because of, again, just lack of internal resources to do that.

Next, again we get a lot of questions about this is, LeddarTech, which is something we announced some months ago. What I can say about them is, they have really been pleased with the performance and how things worked in this. It's fair to say that's more of a proof of concept order, albeit it was a commercial order with our product and is being used by consumers, but they are very small parts but it looks as though that going to be somebody that we are to be working with well into the future and certainly hope to have repeat business from them. But again, very pleased with the performance and we are working with them on some other things as we speak.

Next thing is Hanwha, popular topic the last three years. We continue to develop things with them. We are not at the point of big commercialization yet, which is where we would all like to be, but we are supporting them primarily with automotive projects. They see the market similar to the way we do which is, there is a lot of opportunity in shielding and connectors within the automotive sector. Again, long lead times but I am sure you have all been reading, there is real global push towards electrification of automobiles. It started long time ago, but the Paris Agreement really threw gas on the fire, if you will and you are really starting to see from a global perspective a real push towards the electrification of the vehicle. And on our end what that means, they are trying to lightweight. Make it lighter, increase range and more importantly you have all those high power electronics and they all need shielding.

Another thing too, which we don't talk about, I don't know if we have actually talked about but Hanwa, we are also a fiber reseller for conductive composites. So we do derive, when Hanwa does do, when they are conducting business and using carbon fiber, they actually buy the carbon fiber from us. So just as a small little tidbit.

Another thing we get a lot of questions about and understandably so is the global commercialization agreement, which actually we have been talking about it forever, I realize that. And we filed an 8-K on that in November. I can tell you right now that given the developments that we have had with the addition to our portfolio and with the battery development, that agreement is officially on hold. And the reason for that is sometimes the nature of license agreements can be very onerous to those people who actually hold the patent or are licensing them out.

So in short, we would have given up a significant amount of control of the company and the technology in the future commercialization. We would given up a significant amount of control for not what we really feel as nothing returned. The relationship with that particular company is still intact. We still talk with them. It's just that at this point in time, we are not currently pursuing that agreement right now. Again that's something that may pick back up in the not too distant future. It may very well but, again, certainly given the success we are seeing with lower conductive we really want to hang onto that and just the mere presence of that would significantly change any type of agreement that we would have entered into with on that global commercialization.

And certainly that's something we couldn't really talk about a few months ago because we didn't really want to talk about the addition of a portfolio, completing our portfolio on the product side. We really didn't want to talk about that publicly until we knew we were going to have some success. We certainly understand from a shareholder standpoint, patience can wear up a little thin over time. So we really didn't want come out and talk about a newer portfolio, until we actually had success generating sales and be able to comment you with that.

And certainly that really figured into that global commercialization agreement, again from that 8-K filed in November. That weighed pretty heavily on us on that decision. So definitely a deal we could have signed last year but just not something that we really felt was going to provide the level of commercialization we need to ultimately provide the return to the shareholder that we are all looking for. But again, relationship intact, agreement on hold for the time being.

Chang Rim, with them, the Chang Rim order that we announced some time ago, which was, up until then, was the largest order we ever produced that really hasn't -- they are improving that particular product. It didn't have quite the -- they needed to do some improvement before they can go with the global distribution of that particular product. Chang Rim has been to Detroit and has been collaborating with Mo and Bob up there on that particular project. And we are continuing to provide them with materials for various projects.

There is a couple of automotive things they are working on with, I think we had to motor a while back but again, as you get in automotive sometimes those lead times can take a long time and it's no different in Korea than it is in the U.S. Still the most short-term opportunity still there still appears to be that consumer electronics application that it just really doesn't have any visibility from that here in the short-term. So that's one that hasn't turned out with the volumes and the timing that we expected from them. Still a great company to work with and great partner, as far as that goes.

Next thing, of course, I do want to talk about is batteries. It's difficult to say what's the most exciting development here, whether it's batteries or the new product line but it's certainly a neck-and-neck race. We have really been seeing some success with our batteries and really pleased with the development that we are seeing with that. As we stated in the press release maybe six or eight weeks ago, we produced 100 or so plates. We have enough to make another 15 to 20 batteries with that.

And here is something I do want to clarify for everybody. We have got those names floating around a little bit there, ABC, Advanced Battery Concepts and Ultimate Battery Company. Here is the clarification I want to make. We make bipolar plates and to my knowledge, we are the only people in the world are making plastic bipolar plates. And for all the various reasons that we have talked about in press releases and in conference calls, we have a tremendous advantage over other plates out there. From a lightweighting standpoint, from a size and shape and conductivity, all that's the case. The thing what we don't have is we are not battery manufacturers.

Advanced Battery Concepts, that is what they are. Advanced Battery Concepts, to my knowledge and my knowledge is based upon what I know from the North American battery market and what I hear from feedback within that market, they have the most advanced bipolar battery technology on the planet. And if you find somebody better, shoot me an email or give me a call. I would love to hear about it, but their technology is what is regarded in the industry as the best. And they are a phenomenal partner for us.

So where the relationship of Advanced Battery Concepts works in for us, we take our plates, put them in their battery and that's how the relationship works. They are not currently being, Advanced Battery is not currently selling batteries with our plates in it. We are simply doing the testing, doing various variations of it, taking our plates and using them within the infrastructure of their battery. And I can't even begin to express what a great relationship that has been in and how much that has, I won't say shortcut it, it's really saved us a lot of time, money, effort with the plate technology, because we are leaning on a tremendous amount of expertise with them within the battery industry.

I know there is a lot of discussion and there is a little bit of confusion as far as our plates go within the investor base, but primarily our technology right now, we are certainly the plates could be used in multiple applications, but the best application for us right now is primarily in the deep cycle part of the market, ones that require, that has the deep discharge, golf carts, wheelchairs, all those type thing, that's really the best place for the bipolar and that's where we really see the best place for our battery. The stop-start motors on hybrid electric cars. It's just a vast opportunity that's out there but we have to continue to go through those key steps to advance the technology in order to do that.

I do want to cover the Ultimate Battery. There has been a lot of questions about that, simply because this is just limited information that we can get out there via press release. Ultimate Battery Company, certainly that MOU follows the pathway that we want to take with our battery technology. I will be the first one to tell you, we don't want to become a battery company. We don't. What we want to do as our core business is we want to sell millions and millions of pounds of ElectriPlast. That's what we want to do.

So as we have talked about for the last year or so, we really want to take our bipolar technology, our battery technology, use that into a wholly owned subsidiary, various reasons for that. One of which is, everything that we do as ElectriPlast, we are dealing purely with material business of things. The battery is very much an application. So as I said for at least the last year, we want to monetize this business. So just to briefly describe what that MOU is with Advanced Battery, our intention is to sell the battery technology and in return for that we would receive cash but more importantly what we would receive is, we will be the exclusive supplier of the material and we would also receive a license agreement on top of that.

Every time they sell a plate, we are going to receive money off that as well. So the way we view that, that's just a huge win all the way around for us. We are going to do what we wanted to do, which is sell pellets and we also get to derive revenue off of that, off of the sell of the plates as well. So the ownership of the technology, if we enter into the right agreement is not paramount to us making money off of it is, is the most important thing.

But particular to Advanced Battery, they are an interesting group. I have to be careful what I say here. It's not made up of a bunch of battery executives. I don't believe we have presented it that way nor do I want to present it that way. It's a group of successful business people who have taken newer stage technologies and moved them into commercialization. So there is various terms of that MOU that we are not allowed to disclose. But I will give you the high level part of it. If they are able to achieve the commercial aspect of it, then that agreement will get signed in by us. If they are not, then quite frankly, it won't.

To this point, they have done what they said they were doing. The discussions are going they way they are supposed to with various commercial partners there. But it's really going to be a wait-and-see. This is not something with Ultimate Battery Company that will go on for multiple years. This is something we will know in a number of months. Whether or not this is actually going to get executed and go to the floor where we actually execute the MOU.

On the flip side, that's not all of our eggs in the Ultimate basket, if you will. We are also taking, at this point we are talking with various companies about licensing and sale of the battery technology to various people, both in the battery world and outside of it. So just to be clear on The Ultimate Battery Company, business people who are connected to the people who would be, it would be a commercial opportunity within batteries. It's not just three or four guys sitting in a room thing they would like to own a battery company, okay.

And we are coming up on a hard stop in about seven or eight minutes. So I have one more topic to cover and then we will just ask whatever questions we can. The last thing too, I believe last conference call somebody ask about increasing shares. That is something that we are going to do. I just want to make sure I put it forth in a conference call first. There will be a proxy coming out, maybe as early as, should be as early as this evening and that actually is going to be increase our authorized shares. It's actually something that it's a necessity for various reasons.

One, we still have 20-some millions shares left in our gap table but that's not something you want to really run too tight. We are at the now where, as I said, we hope to be cash flow positive in calendar year 2017. There is still going to be a little bit of a gap between now and then. As Bart said, we have reduced our cash expenses by over $1 million. So we are really getting that burn down quite a bit. But just to give flexibility and also it gives us some flexibility with some industry partners as well from the ability to potentially use some equity and some of those things. So just so you know, that will be coming out. Don't want you to be blindsided by that.

And in conjunction with that, we will also be having a meeting at an open house in Evansville in the plants on November 12. You will be hearing a lot more about that in the next week or two. At that, we will have demos, product displays, you can see the new manufacturing line. I doubt it will actually be running that day as it is on a Saturday just to be as accommodating as we possibly can for the retail shareholders.

Again, I am running out of time, so let me go real quickly to the next question and whoever that happens to be there, Chris?


All right. Your next question comes from the line of Chuck Castle, a private investor. Please proceed with your question, sir.

Unidentified Analyst

Hi Doug. I will be brief. I know you recently went to a battery show. In fact, I think you spoke at it. What feedback did you get from that show?

Doug Bathauer

Yes. Good question. They are all good questions, right Chuck.

Unidentified Analyst


Doug Bathauer

Actually, Bob spoke at the battery show in Michigan and that's actually the show that we had a booth at last year. His presentation was actually very highly technical, but it was very -- we really did receive quite a bit of positive feedback from that. And the whole idea for us, the reason we did present at that show, I shouldn't say present, the reason we did display at that show was really, there was really no need as most of the people in the industry know we are anyway and this was the first time where Bob can really showcase all the development that we have making with it. And there really was quite a bit of interest from that. And again, we are not sitting just solely with all of our eggs in The Ultimate Battery basket. There was a fair amount global interest from people in the technology.

And then I actually spoke at the Conductive Plastic show in Philadelphia, just the couple of weeks ago. And that was definitely not near as technical, because if you know me, my limitations on technical only go so high, but that was speaking to our industry, the conductive plastics industry. And it was really an interesting presentation because one, I was really presenting to our peer group and that was actually very well-received as well. As I spoke earlier in the call, all of the people there were focused on the lower conductive things. We were the only company that actually presented with an actual application.

And we did, oddly enough, I shouldn't oddly enough, but it was surprising to me, we were approached by a couple of people that were not in the conductive plastics industry, just within on the Tier 1 side of things that were actually having a little bit of dialogue about the technology right now. And the reason we do that, the reason we go to those shows, number one, we do it because we were asked. We were more than happy to do it. But we really want to make sure, particularly on the battery side, we are out there, we are visible and we are very much a part of that industry. Relationships, as you all know, are very important and we just want to make sure we continually be known within that industry. And it just happened to worked out that way that the two things we were invited to which were almost back-to-back happen to be battery related. So we will take it.

And hopefully I have covered most everything else and I have time for one, I mean literally I have one minute left because the times on these are pretty stringent these days. So last question and I will answer within 60 seconds. Next question there, Chris, whoever that may be?


Yes. And our final question comes from the line of Mr. Thor Larsen, a private investor. Please proceed, sir.

Thor Larsen

Hello Doug. How are you?

Doug Bathauer

Doing well.

Thor Larsen

Very good conference call. I just want to, as I hear you expanding on Evansville, I sense there is a need to increase additional help in Evansville. Are you hiring more people there?

Doug Bathauer

Actually where we are right now, Thor, is we currently have one full time line operator. And when we get some of those larger orders, we actually utilize some of, because we operate inside of Nova Polymers, which is a plastics company and when we get some of the larger orders that we can't handle or that are difficult for us, we actually utilize some of Nova's people to do that. For example, the order we just ran yesterday, that was a 1,500 pound order, we used one of their machines but we used our line operator.

So right now, to be perfectly blunt about, I am not exactly, we are going to see how things go as far as how quickly things move and it's the other reason we don't want to move too quickly on this. We may lean a little bit more on Nova rather than incur the added expense of employees because right now we are kind of in the best of both worlds because we are able to lean on them and leverage that relationship right now.

So I don't have that answer. It really just depend on how quickly things come about. And it could be where Nova does a lot of the manufacturing for us. It's really, we are not sure yet what's going to be the most cost-effective.

Thor Larsen

Yes. And then the other point is in the engineering all the way in Detroit that you are trying expand into, it seems that you are being --

Doug Bathauer

As resources allow, we definitely would like to do that because certainly from an application standpoint and we would definitely be further along with the bundled shielding and other applications that we have more engineering bandwidth. That's the one good. The other good thing about our lower conductive portfolio, we don't really have to lean on engineers near as much for that. But yes, certainly that's what we would love to do, but resources, we are still trying to, we cut the cash burn by about $1 million last year. That gets us in a little better spot but we would like to continue to contain expenses until we actually get the cash flow into support operations.

Thor Larsen

I understand.

Doug Bathauer

I would just apologize, if there is any other questions, I am really sorry. We really just have to do a hard cut-off at 60 minutes on these conference calls. Any other questions, feel free to shoot Scott or Eric an email. I have been a little more difficult to reach the last few months, primarily because been much more involved in manufacturing than I thought I would but certainly I am coming up for air. So if there is some people who have been used to talking to me, if it's really something important that you would rather hear from me, let Scott or Eric know and I would be more than happy to talk to about it to you because at the end of the day, people can say what they want what's the most important part of the business, but in a public company, I can tell you and I mean this very sincerely, it's our shareholders, they are most important thing to us because we couldn't do any of this. We couldn't be doing the things we are doing now if it was not for the continued years of patience and support by our shareholders. Again, we never want you to feel marginalized or neglected or anything like that even if it may seem that way at times, I never want to do that and I certainly can be a victim of that at times.

So anyhow, I appreciate everybody's time, appreciate everybody's patience and look forward to talking to everybody on the next call and invitations will be going out as far as the open house here in Evansville, which is coming up here in about a month and we would love to see everybody here. So take care. Have a good night. Thanks. Bye.


Thank you Doug. Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation. And you may disconnect your lines at this time. Have a wonderful rest of the day.

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