When choosing to invest in the risky OTC sector, the most important thing for an investor to monitor are the words and forward guidance delivered by the CEO. Too often, OTC CEO's tell investors one thing and do another. This applies to future dilution, forecasts and current events. I have seen far too many unsophisticated investors swindled out of their money when a story suddenly changes, yet the individual investor's sentiment tells him to hang in there, as surely he or she can't be wrong. Sentiment turns from extreme confidence to finger-crossing hope and in investing, hope is never a strategy. Having the ability and discipline to distinguish fantasy from reality and acting accordingly is a lucrative trait that sets apart the haves from the have nots.
There is one company that trades on the OTC looking to uplist to a senior exchange, whereby its new CEO has done everything he said he would do and more along the way in turning around a floundering, but very promising company with a much sought-after conductive plastic technology, Integral Technologies, Inc. (OTCPK:ITKG). Whether it's concerning the signing of new contracts, cost-cutting, elimination of toxic preferred stock, elimination of toxic convertible debt or reduction of debt in general, Doug Bathauer has either met or exceeded every projection he's made during his reign and shareholders have watched the stock double over the past year with expectations of much more.
Most of my readers know that I've been monitoring this evolving story ever since Bathauer took over as CEO and that I've been documenting this evolution for the past year. They also know just how critical I am of the OTC sector in general and how it seems almost impossible to find a company that actually follows through with what they promise and forecast to shareholders.
I recently pointed out whereby ITKG stated they were leaving the development stage, entering the commercialization stage and that revenues would finally start to roll in after nearly two decades. Last week's 10Q revealed that for the first time in the company's history, there was an entry in the revenue column. Revenues of $91K were derived from three different sources, a portion of the license fee from Hanwha, engineering services provided to East Penn Mfg. and sales of Electriplast.
What really caught the eye of shareholders was not only the fact that revenues were finally coming in, but that the quarterly loss had been cut to $840K from $1.27 million YOY, as Integral's EPS rose to -.01 from -.02 with expenses being cut by 22%. Even more impressive is the fact that debt has been reduced to $1 million from $2.8 million since Bathauer took over as CEO and there's no way on earth you would see this type of behavior from an OTC CEO unless they expected a drastic change to the future financial condition of the company.
During last week's Q1 conference call, Bathauer fielded a question from a long time investor that wanted to know how debt was being paid down so drastically when revenues had just started to flow. In other words, where was the money coming from to reduce the debt ? Bathauer noted that most of the people signed into the conference call were indeed long time shareholders, many of them very significant holders that were from time to time exercising warrants in exchange for common stock, yet firmly holding on to that stock that's also restricted. He also reminded listeners that insiders have participated heavily in private placements, as they are extremely confident as to what's in store for the company. He was also very adamant in reiterating that the fully diluted share count will not change and obviously thanks in part to the luxury of exercising warrants while putting the stock in strong hands that have been around for years. This is evidenced by the increase in the stock price.
Investors that have held the stock for years are waiting for the big payday and if Bathauer can continue to deliver on what he says, there will certainly be cause for celebration. He noted on an October 1st conference call that one Electriplast application alone can produce $127 million in annual revenue by year five and that the company is working to provide solutions that will bring in tens of millions of dollars annually, aside from this application.
While this remains to be seen, the projected 30% margins would result in a stock that investors would see scrolling across the CNBC ticker and everyone I know associated with this company truly believes this will be the outcome. Based upon what the CEO has accomplished to date that backs up everything he's ever said or projected, I continue to find the story very compelling. In forming partnerships with several multi-billion dollar, multi-national companies in slightly over a one year period, companies like BASF (OTCQX:BASFY), Hanwha, East Penn & Delphi (NYSE:DLPH), all it will take for ITKG to be a homerun is if just one of these companies decides to use Electriplast as a solution for making an existing product more efficient. Integral Technologies claims they have started providing these efficient, conductive plastic solutions and it's now a matter of when the solutions will be implemented, not if.
Disclosure: The author is long ITKG.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.