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Edited Transcript of POLA.OQ earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q3 2019 Polar Power Inc Earnings Call

GARDENA Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Polar Power Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arthur D. Sams

Polar Power, Inc. - Chairman, President, CEO & Secretary

* Luis Zavala

Polar Power, Inc. - CFO & VP

* Rajesh Masina

Polar Power, Inc. - COO

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Conference Call Participants

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* Craig Edward Irwin

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Jeffrey Kobylarz

Diamond Bridge Capital, L.P - Analyst

* Shawn Severson

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Presentation

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Operator [1]

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Good day and welcome to the Polar Power, Inc. Third Quarter 2019 Financial Results Conference Call. Today's conference is being recorded now at this time.

Now at this time, I would like to turn the conference over to Mr. Shawn Severson. Please go ahead, sir.

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Shawn Severson, [2]

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Thank you. And good afternoon, everyone. I'd like to thank you for taking the time to join us today for Polar Power's third quarter 2019 conference call. Hosts today, Arthur Sams, Polar Power's Chief Executive Officer; Raj Masina, COO; and Luis Zavala, Chief Financial Officer. Arthur will begin by providing a review of the key events in the quarter. This will then be followed by Raj who will provide an operational update as well as updates on key strategic objectives. After which, Luis will discuss the financial results.

A press release detailing this quarter's results crossed the wire today at 4:05 Eastern Time and is available on the company's website at www.polarpower.com. We would also encourage you to view the website for additional information, an overview of Polar Power's business as well as the LinkedIn page. Following management's prepared comments, we will open the call up for questions.

Before we begin, I would like to remind everyone that statements made today on the call and webcast, including those regarding future financial results and industry projections, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we'll refer you to the company's website for more supporting industry information.

At this time, I'd turn the call over to Arthur Sams, Polar Power's CEO. Arthur?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [3]

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Thank you, Shawn, and welcome, everyone, to Polar's Third Quarter 2019 Earnings Conference Call. During today's call, I'll briefly discuss our financial highlights for the quarter followed by an update on our business strategy. Luis will then provide greater financial details during this call.

A brief summary of the financial highlights. Revenues for the third quarter 2019 were $6.9 million. Backlog at the end of the third quarter was $3 million. Gross profit for the quarter stood at $2.2 million, and net income for the quarter totaled $25,000 -- $48,000, which is $0.00 basic and diluted share. So again, I'm correcting myself, at $48,000.

Now I'd like to provide you with the business update and review some of the key highlights for the quarter. Last quarter, we have initiated a strategic review of our business and strategy to make sure that we are optimizing our resources to pursue the best growth opportunities. For our basic strategic review, we're making some adjustments to our business plan and operations to better drive growth and diversification.

Let me take a moment to remind everyone of our business model. We provide power and cooling solutions. We're not just a generator manufacturer. One of the major components for our solar hybrid micro-grid system is the generator set. Polar chose DC generator technology because the solar photovoltaic fuel cells and batteries are all exclusively DC. Also, DC micro-grids transmit power across businesses more efficiently than AC. Therefore, we believe that DC generators are more efficient than AC generators in modern micro-grids and solar hybrid systems.

When an application requires AC power, for example, your home, a simple DC-to-AC converter is installed. Most solar photovoltaic homes already have DC-to-AC inverters installed. As solar hybrid system or micro-grid or distributed power generation becomes more prevalent, we believe that the industry will turn towards the high-end performance and reliability of DC generators, which is what we bring.

We compete with traditional power sources of power based on performance. We're not always the lowest price from a capital expenditure standpoint, but we believe that we are among the lowest from an operational expenditure standpoint. We believe that our customers will recognize the long-term value of our products, including higher performance, lower operating cost, better reliability, lighter weight, smaller packages and lower maintenance.

I also want to reiterate our belief that the domestic telecom market is a compelling growth for Polar, including the last-mile carriers. As we explained in last quarter, we're experiencing a period of short-term volatility with our Tier 1 wireless communications carriers mostly centered around shifting budgets to 5G rollouts, mergers and acquisitions among the Tier 1. Also, there is an uncertainty as to how much backup power is actually required on the site. Now shipments and sales are being postponed to 2020. But even with this guidance from our Tier 1 wireless communications customers, we're continuing our focus on diversification and accelerating our targeting of last mile of rural carriers.

To facilitate this initiative, we're expanding our U.S. distribution network while introducing new products, including propane and natural gas generators powered by Toyota engines. We're also moving forward with our energy storage systems. Offering complete energy and cooling solutions, we believe, gives us the leading position in industry technology. Furthermore, we have recently completed and passed all of our emissions testing required by EPA and presently awaiting for certification to begin marketing our environmentally-friendly product line to both residential and commercial customers.

Our strategy for targeting the domestic telecom market is a combination of direct sales and dealerships and leveraging our channel partners who are currently servicing our products. Tier 1 and approximately 12 of the larger last-mile telecom companies will continue as a direct account to Polar. The smaller last-mile carriers and emergency services using UHF and VHF radios will be sold through dealerships that can also offer service. Our plan is to include having the same dealerships offer our solar hybrid systems for off-grid and backup for all applications.

As part of our strategic review, we are actively expanding into markets outside of the telecom market. It's noteworthy that telecom applications make up less than 15% of the sub-40 kilowatt generator sales among the large generator manufacturers. And most of their sales involve home and commercial backup power applications. Our market analysis after meeting with 30 of the largest LPG refineries and distribution companies indicates a significant interest in our solar hybrid LPG systems for telecom, industrial, residential and commercial uses. The recent power shutdown in California -- or shutdowns in California has outlined a significant opportunity for our new propane and natural gas product line. Now a quick note, LPG stands for liquid petroleum gas, and this is a term commonly used overseas. The fuel -- the LPG fuel is a combination of propane and butane. Domestically, in the U.S., we use propane 100%.

Now moving on. The California fires and actions by the electric utilities to minimize the risk of their equipment causing fires has created an unstable grid in many residential areas. Generator companies have rushed in to fill the need with low-cost backup generators in the cost range of $4,000 to $9,000, and these generators are operating on either natural gas and propane or both. In a short period of time, we expect that many customers will discover that these low-cost backup generators will not meet their expectations due to low reliability and higher maintenance cost. The difference between moving forward with backup power is that we expect the outages to be longer -- of longer duration. Instead of being just a few minutes or a few hours, they can go in days at a time.

Now as the high maintenance of the standard AC generators are centered around oil change and maintenance, so figure changing the oil every 8 days and an engine replacement every 200 days approximately when running 24 hours a day. In contrast, the Polar DC generator can operate up to 1 year between oil change and maintenance with an engine life of 7 years, operating 24 hours a day. Looking at other technologies, such as fuel cells, we're significantly more cost effective as changing the oil filters, spark plugs and cooling is a very small cost relative to fuel cell, whereas, changing the membrane is a very expensive event. I would also like to point out that we'll be offering systems that include waste heat recovery for space heating, hot water, pool and spa heating, making our solution even more energy efficient. Soon, we'll be able to offer micro-cogen systems, can make use of 80% of the fuel energy.

Our systems also connect with the solar PV array and uses a solar inverter to provide the AC power for the home appliances. So in other words, the DC generator acts like if it was another solar panel and feeds power along with the other solar panels into the inverter. We also believe that our new product launch will provide an optimal solution for charging electric vehicles. Many homes cannot fast charge their electric vehicles today. And soon, we expect in the near future, communities may not get enough energy from the grid to charge electric cars for residential and commercial power systems.

To accelerate our expansion into new markets and diversified customers, we have modified our organization to where our Chief Operating Officer, Raj Masina, will manage domestic and international sales. We recently significantly increased our production management personnel, allowing Raj to focus on sales. As a part of this plan, we're adjusting our international strategy to conduct even a narrower screening process and concentrating our focus on comprehensive power solutions. We plan to evaluate our international sales effort on an ongoing basis and focus efforts on the highest potential markets only.

In regard to the domestic market, we're expanding our sales infrastructure to reach new markets through strategic partnerships with our existing distribution networks. Over the past 12 months, we've been recruiting and training personnel to manage production sales and service. This is intended not only to improve manufacturing efficiencies but also free up more the senior management's time to focus on revenue-generating activities. This has been a work in progress, but now we're positioned to lever this investment going forward.

Business and industry can evolve and shift quite rapidly, and we have to stay ahead of these trends. We have a unique and superior technology platform in our DC power systems, and the challenge for us is to focus and execute on the right strategy. Our core telecom business remains a robust opportunity for Polar, and I'm very excited to be moving ahead in military, residential and commercial markets.

Now I'll turn the call over to Raj who will address our strategy for entering these residential, commercial markets. Raj?

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Rajesh Masina, Polar Power, Inc. - COO [4]

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Thank you, Arthur, and good afternoon, everyone. As Arthur mentioned, I'd like to now review our strategy and target for new market development. We recently completed a strategic review of our international sales effort, and I want to spend a few minutes talking about what we found and the adjustments we are making to improve over closing rates.

As we've outlined before, the international telecom market is a very large and diverse sector, both in terms of geographies and potential customers. Our analysis had shown that the sales effort was spread across too many prospects. And as an organization, we were not focusing our resources on the best opportunities with the highest return potential. This will change as part of my new role, analyzing and reviewing each of our customer prospects to determine where the best opportunities sit and align with sales, engineering and corporate around those targets. We believe this will help improve our close rates as well as better manage our expenses.

Next, I want to expand our strategy to more aggressively target the last-mile carriers. We believe many of the last-mile carriers are good candidates for our power systems as their operations are decompartmentalized, giving greater visibility on the equipment factors driving their OpEx and CapEx cost, which gives Polar a distinct advantage over traditional technologies. We've already landed a $1.3 million contract that we press released recently, and we're in discussion with other carriers. In fact, approximately 12 of the last-mile carriers have flowed down contracts from one of our larger customers and the FirstNet programs, giving us a compelling market.

As also Arthur mentioned earlier, we believe there's an attractive market for us in the residential and the small offices and off-grid operations. Extreme weather, man-made and natural disasters are highlighting the benefits and need for distributed energy generation. Take California and the recent wildfires and the associated grid disruptions as an example, these extreme power outages highlight the need for independent sources of electric power that won't be affected by these outages. It's important to understand that the majority of solar PV installations, which are extensive and installed in California, failed to supply power when the grid goes down, and we see exactly the same situation repeated throughout the country with fires, floods, tornadoes, hurricanes and extreme temperatures.

I want to emphasize that we're not going to target every residential home and small business, and we have no intentions of competing in the low-end backup power market. We're focused on a specific customer profile that is optimal for us. Let me give you an example.

In California alone, there are 4.88 million homes with solar. There are 570,000 electric vehicles. There are 1.18 million homes with pools. These are the type of customers that we believe will fit us or fit the profile of our product. From January 1, 2020, solar panels are mandatory in all new homes built in California. We expect others to follow this initiative, too. So as we could see, the market is quite substantial. It is important to understand that we'll pursue this market in a different direction than the incumbent residential and commercial generator suppliers.

So the first question that we ask is, why buy a load reliability light-duty generator that's designed to back up your home but is running at very limited number of hours each year using natural gas or propane? A superior solution and a much better option would be to purchase our prime power generator or micro-cogeneration unit. This system is designed to operate 24/7 with very little maintenance compared to those generators available in the market today. During peak hours, our prime power system can power your air conditioner, charge your car, heat your pool or spa, along with space heating and hot water, which creates a very high level of efficiency. Also one of the most important properties with our prime power systems is that you have the same conveniences during a power outage. Given the low cost of propane or natural gas, our solution is very economically competitive with grid power and the added benefits of CHP with reliability and power under nearly all conditions. We'll be launching this program soon, and we'll be working towards building the necessary sales and service infrastructure.

Now I turn the call over to Luis, our CFO, for the financial summary. Luis, over to you.

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Luis Zavala, Polar Power, Inc. - CFO & VP [5]

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Thank you, Raj. Now I will review the financial performance for the quarter and the 9 months ended September 30, 2019. Revenues for the third quarter 2019 were $6.9 million, representing a $1.9 million increase or 30% compared to $5.0 million last year. Backlog as of the end of the third quarter was $3.0 million compared to $11.5 million at the end of the same quarter last year. The decrease in sales backlog was primarily attributable to reduced lead times and lower sales of DC systems to Tier 1 telecom customers. As we discussed in previous quarter, we are experiencing short-term volatility with our Tier 1 telecom customers as they are shifting budgets for the second half of this year to favor 5G rollout relative to backup power. As expected, this negativity impacted our bookings for the third quarter. We believe these short-term shifts will remain -- and we remain -- I'm sorry, let me repeat that, we believe these short-term shifts -- we believe that these are short-term shifts, and we remain confident in our customers' forecast for 2020.

Growth profit for the year stood at $2.2 million, representing $0.7 million or 46% increase as compared to last year's $1.5 million. Gross margins during the third quarter increased to $32.2 million as compared to 30.2 -- I'm sorry, let me repeat that, gross margins during the third quarter of increased to 32.2% as compared to 30.2% during the same period last year as a result of improved production efficiency, coupled with reduction in engine prices acquired during the fourth quarter of 2018. Operating expenses decreased to $2.2 million in Q3 2019 from $2.3 million in Q3 2018. Operating expenses for the 9 months ended September 30, 2019, were $6.9 million as compared to $5.9 million for the same period in 2018. Operating expenses remain constant as we continue our strategy to promote our DC power in international markets.

Net income for Q3 2019 totaled $48,000 or $0.00 per basic and diluted share compared to net loss of $0.7 million or $0.07 per basic and diluted -- negative $0.07 per basic and diluted share in Q3 2018. Net income increased for the 9 months ended September 30, 2019, to $0.7 million or $0.07 per basic and diluted share compared to net loss of $0.8 million or negative $0.08 per basic and diluted shares during the same period in 2018. The increase in net income is attributable to higher revenues, resulting in higher contribution margins and improved production efficiencies during the third quarter when compared to the same period last year.

Current assets at September 30, 2019, grew to $24.3 million compared to $23 million at December 31, 2018. Inventory on September 30, 2019, grew to $14.1 million compared to $8.5 million at December 31, 2018. Cash at September 30, 2019, totaled $3.6 million as compared to $5.6 million on December 31, 2018. As of September 30, 2019, we had working capital of $21.3 million.

Now I will turn the call back to Arthur.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [6]

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Thank you, Luis. And I'd like to -- and thank you, Raj and Shawn. In line with our key strategic initiatives with additional production management that we have hired and closely worked with during the last period, we believe that now we have a better bandwidth to be able to manage purchase orders and work-in-progress inventory more effectively than what we've done in the past. We believe our new team will be able to work efficiently to make sure that expedited delivery times are unaffected -- or expected delivery times are unaffected. Also, our operations managers continue to work on optimizing inventory demand to facilitate cash flow in both the near term and long term and throughout this period with expected volatility in product sales.

I'd like to thank our shareholders for their continued support, and I'm looking forward to speaking with you all again next quarter. Now I'd like to open this up to call -- questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Craig Irwin with Roth Capital Partners.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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So Arthur, you were just talking about the balance sheet and the inventory issues. In the quarter, you had a $2 million increase in inventory, and that was more than 100% of either your negative $1.7 million in free cash or negative $1.8 million change in total cash. So the importance of that, I guess, is magnified. Can you maybe walk us through what the items are that you're building an inventory? Is this finished goods that possibly didn't make it out the door to customers during the quarter? Is this components you've accumulated for better pricing? And would you expect to liquidate this in a material way in the next quarter or 2? What do you see as an acceptable inventory level for Polar?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [3]

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Well, first of all, as time goes on, I see our inventory levels increasing, along with our market increasing. But we need inventory to reach a certain dollar amount to secure our ability to deliver on time. The other answer -- and I'll give this over to Luis who will give you more detail, but the other answer is yes, we have a large stock of engines and components and work in progress.

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Luis Zavala, Polar Power, Inc. - CFO & VP [4]

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Yes. Just to add a little bit to that, we are trying to increase the -- speed up the finished goods inventory so that we can have it in stock to speed up delivery times.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5]

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Okay. And can you maybe clarify for us, is any of this inventory specific for any individual customers and programs where you expect to be a supplier over the next year? Or is most of it sellable to pretty much any customer?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [6]

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Mostly sellable to any customer, and that's one of the strategies that we're putting in place with this diversification. The big guys, the big Tier 1s want us to be able to deliver in 2 weeks to 8 weeks' period, which means we have to have a product. But their orders, as we've seen, are not consistent. So we want to be able to supply those to the other telcos and to the other commercial and industrial accounts. A good portion of our inventory is now stacked up with Toyota engines waiting for launch, too. Raj, do you want to add something to that?

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Rajesh Masina, Polar Power, Inc. - COO [7]

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No. No. I mean that is exactly the same point, that's exclusive to Polar, right?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [8]

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Yes, exclusive to Polar.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [9]

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Great. Great. So then one of the opportunities on the telecom side that we've been maybe a little bit optimistic about is the 5G rollout and the changes to the format of the infrastructure that are going to be used in cell sites across the country. Can you maybe update us on what products you have for 5G, whether or not you're bidding on any specific programs where we could see large related orders? Have you delivered cast or prototype units to customers to potentially secure these orders related to 5G?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [10]

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Okay. One of the things that we did to put ourselves on a strategically better situation is that we're working with the manufacturers of the 5G equipment directly in Europe. And that's something being spearheaded by Adam Szczepanek out of Poland. I've made visits and met with some of the manufacturers of 5G equipment over there. So we're getting kind of a heads-up. In terms of like the wireless carriers, they really don't know how much power they need. We -- I mean a few years ago, we started at 10 kilowatts. We went to 15 kilowatts. And now we're going to 20 kilowatts. And some are calling for 25 to 30 kilowatts. But on the other hand, some of the radio equipment manufacturers are suggesting that those upper limits -- those upper sizes may not be required. That's one thing.

The second thing is with the 5G rollout, there'll be a lot of microcells going out there. And the current plan for the microcells by most of the carriers is not to back those up, but that will conflict with the markets that they're trying to service, such as autonomous vehicles or self-driving vehicles, hospitals, generally, the IoT of things. So we are working with some backup technologies that don't involve batteries, fuel cells or generators that we can back these microcell sites up for about somewhere in the neighborhood of 5 seconds to 5 minutes, depends on the area. And that way, that covers 90% to 98% of the power outages are just momentary glitches. All that said, did I answer your question?

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

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No, that broadly captures it. So one of the markets that you were maybe more vocal about in the past has been the marine market where I know your personal interests, having had some business there in the past and hobby in that market. Can you maybe update us on whether or not you're seeing a potential opportunity for Polar at the moment in the marine market? Is this something where your ability to really satisfy technical or highly demanding technical applications for small-run production, it looks like it could be an advantage over the next few quarters.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [12]

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Well, on the marine, as you pointed out, the marine market is a hobby market, not my hobby. Though I enjoy boats. But it's a very difficult market because it's dominated by home hobbyists running businesses. We have put marine on a low priority as it has always been. Marine does take a lot of customer support because what's happening is that you're putting a generator in with batteries and with electric motor on some of these hybrid sailing vessels, and then you're putting someone to run the equipment that has a basic understanding of electricity, and it goes no further than that. We'll continue to support the market, but there's larger markets out there that can give stockholders a better return on their investments.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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Okay. And then the military market in the past has also been an opportunity that we've talked quite a bit about. So you did have some really interesting business with Oshkosh in the last 18 months. Is that potentially something that could lead to follow-on orders? Are there other OEMs like Oshkosh that we can pursue with the same products? Is there the need to develop additional products to pursue the military opportunity?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [14]

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Well, with -- the military opportunity is whatever product in our sector, in our area of power generation, power conversion and stuff and cooling systems, no matter what you have, it doesn't meet their requirements. They want something custom. And that does place a lot of engineering pressure -- or a lot of pressure on your engineering resource to deliver that. But the nice thing about it is the military will pay your R&D, whereas, the telecom and other markets won't pay your R&D. We've been able to be benefited by a lot of the military testing that they perform on our product, allowing us to continuously improve the product.

Yes, there are a number of programs out there. But one thing about the military program -- military market sales is that on the big projects, you work on a project today, and that means that you can look 4 and 5 years from now on getting an order, so it's a long-term situation. So we look forward to the military in terms of one-off short production runs that could eventually lead to longer production runs, but the biggest benefit is the R&D dollars and the testing support and stuff like that. Now identifying products for the military, those would be in the larger generator sets or going upwards of around 200 kilowatts, which we do want to go after.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [15]

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That sounds good. That sounds really good. So the last question, if I may, it's kind of a difficult question to ask, but many of the shareholders will have it on their minds. A year ago, we were kind of optimistic that around half of this year's sales would come from international markets. It's obvious that this expectation is just not in your stock. But can you maybe describe for us what's worked for you in the international market, maybe what some of the issues might be for the budget or the potential award of projects there? And should we still keep our eye open for growth on the international side over the next several quarters?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [16]

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Yes. Unfortunately, our predictions of when some of these contracts were to come to fruition was greatly off. But as anyone knows, on the sales cycle, you can't predict when a customer is going to give you an order until after you received it. And overseas is maybe a little bit more difficult in terms of prediction as opposed to local, domestic markets. I would still say, as I say each quarter, we're pretty close to some good contracts. But what we actually have learned is that, again, as I mentioned on my last call, our field salesmen need more support from Polar headquarters in terms of materials, presentation, training, demonstrations and stuff like that, which is something that we're beginning to expand our support on.

We -- for example, last month, I was in Spain working with a major telco there who's present in about 35 countries, and we're presenting the Toyota unit operating on natural gas and propane or LPG, which is a combination of propane and butane. And we were told, for example, like in Chile, the government has outlawed or has severely restricted the small diesel generator sets. So the telco has to remove all those generator sets. So it is a perfect opportunity for us to replace it with the Toyota-based LPG engines driving our alternators. We're seeing more and more regulations driving customers' power direction.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [17]

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Excellent. Well, congratulations on what I would call actually a good execution in this difficult environment. We look forward to continued progress.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [18]

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Thank you, Craig.

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Operator [19]

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And we will take our next question from [Chris Dechowsky], a private investor.

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Unidentified Participant, [20]

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So I just had a question about the current ongoing quarter. I'm a little bit worried because the reported backlog is a little low. And you spend the beginning of the year, the beginning of the calendar year, upgrading your factories up to -- I believe, you mentioned that your plan was up to $15 million per quarter, and now we have $3 million backlog. So are you getting short-term orders to keep your factories at least running somehow? Are we going to see kind of like bigger costs from underutilization this current quarter?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [21]

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Okay. We are building to -- we are building for inventory, and we are still shipping generator sets, and we are looking forward to receiving orders from a more diversified customer base. Raj, do you want to add to that?

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Rajesh Masina, Polar Power, Inc. - COO [22]

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Just to add to that one, Chris. We've got some follow-on orders from Tier 1s in the past few weeks. And we've got a rolling 12-month forecast from the Tier 1 accounts, so we are building a product to the forecast. And also, the $15 million number that we have given you is basically when both factories run in full steam, a shift, 1.5 shifts. So obviously, it is not the number to basically hit in order to keep the factory live and going. We've demonstrated this quarter that even with less than $7 million of revenue, without making any major changes in factory expansion, in fact, actually, we've increased our production management, we're still able to post a positive cash flow. So I would say that we are not sure yet in terms of giving you guidance of whether we will be at a loss in this quarter or not, but we're definitely building to forecast and definitely building against orders that we have received for the past few weeks.

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Unidentified Participant, [23]

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So if I understand correctly, you do have some orders after the quarter end, but you're also building to forecast from the telecoms that have not ordered yet. They're just forecasts of what they might -- they'll probably need, and you're putting the generator inventory for that purpose. Is that correct?

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Rajesh Masina, Polar Power, Inc. - COO [24]

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That is correct.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [25]

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That is correct, and that is something that most manufacturers do is manufacture on anticipation or speculation. The key is to have enough diversification in your customers so that if your targeted customer doesn't take the product, you have at least 10 others to fill in that requirement.

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Rajesh Masina, Polar Power, Inc. - COO [26]

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With the same product.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [27]

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For the same product.

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Unidentified Participant, [28]

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And can you tell us whether those forecasts have proved accurate in the past?

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Rajesh Masina, Polar Power, Inc. - COO [29]

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They've usually been in line with the forecast. They have been sometimes even exceeding their forecast. And as Arthur said here once again, we don't want to be working with 1 customer's forecast. We want to have enough companies that we're working within the road, I expect, if one slows down, we've got 3 more to pick up and take those products.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [30]

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But that is the way the business is done. You have to be able to produce and deliver when the customer needs it. So that does involve some risk, but you mitigate the risk by increasing your customer base.

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Unidentified Participant, [31]

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Okay. I understand. And in previous calls, you talked about how you almost welcome kind of the follow-up orders in Tier 1 accounts in order to satisfy the Tier 2 customers that you said were not willing to wait that much for orders. And you told us about this Tier 2 market that's there just -- they would just require kind of like the ability for you to execute orders on the shorter term. And now that you don't have this large backlog, is that happening? Are you getting those Tier 2 orders?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [32]

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Well, we announced a few weeks back, we got 1 Tier 2 order, or what we like to call last mile, of about $1.5 million. That was from 1 customer, for example. And we are going to the other companies. But it's not like turning on a light switch where as you turn on a light switch, they come out. It will take some time to book these orders. Now one other thing about forecast, the forecasts generally, from our experience, have turned out to be pretty accurate. The only difficulty is when. That's where it has proven not to be too accurate, when. The amounts are good, but the delivery dates are always changing from our customers.

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Rajesh Masina, Polar Power, Inc. - COO [33]

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It's lumpy between the quarters.

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Unidentified Participant, [34]

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I see. And they expect a short turnaround for everything. Is that because they don't want to have accounts payable balances or so on?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [35]

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These are large companies with a lot of bureaucracy. And so I don't think it's so much -- it's intentional, outside the fact that they don't want to warehouse the generators. What they like to do is have the generators ordered and drop-ship to the installation site, that's their goal, and in that way, minimizes handling. So they're working on just-in-time.

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Unidentified Participant, [36]

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Okay. And if I may ask a couple of questions about your new product. First of all, from somebody in California where we've got to fear those power blackouts, could you tell me about your residential, commercial product? I know right now, usually, that market is served by Generac. But as you mentioned, all their products kind of have very short run time until the breakdown, and so they're not really kind of a replacement, they're just strictly for emergencies. So can you tell us what kind of prices you're targeting? Is it going to be how much works? Is it going to be then the Generac generators? Is it going to be much smaller? Is it going to be -- I mean you should -- are you going to have advantages with less vibration and less noise and so on?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [37]

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Well, first of all, the Generac packages that I've seen recently advertised, that run on natural gas and propane, are small 900 cc to 1,000 -- at a 100,000 cc of displacement, operating at 3,600 RPM. So that's pretty loud, pretty hard on the engine, and they are squeezing as much power out of the engine to try to get a peak rating of 20 kilowatts. We're taking a similar size, 900 cc engine, and running in the speed range of 1,600 to 2,400 RPM. And at those speeds, we're really quiet. But our engines are also very heavy duty. They're cast iron blocks as opposed to aluminum blocks. We're mounting them in soundproof enclosures as opposed to a lightweight aluminum shield with a plastic top on it.

These engines are coming out of applications that do run them -- these Toyota engines are run 24 hours a day, 7 days a week in Japan, powering their air conditioning equipment that operates off the natural gas grid as opposed to our air conditioners that operate off the electric utility grid. And this is another market we see for cooling solutions is to provide air conditioning off natural gas as opposed to electric grid.

We see this equipment going into the backyard, being able to heat the home, heat the house, charge the car. The whole idea is that you'll have 3 sources of energy: one is utility, the other one is your solar and the third is your natural gas. So if you got problems with any one of them, you can switch around and get your best operating cost, your best reliability and, more importantly, get electric power when you need it. I mean I've seen solutions coming from the state of California about using fuel cells or using battery storage. That won't work, too much energy demand for a battery storage or way too much CapEx and OpEx costs for a fuel cell. And I can't imagine that the stuff in your freezer just kind of lasts too well with your power grid going on and off. I can see people getting sick with tainted food eaten after it's been defrosted improperly. Anyway, did I answer your questions?

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Unidentified Participant, [38]

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Yes, mostly. But can you give me any kind of just general information about the price in comparison to, let's say, the Powerwall or the Generac systems?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [39]

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It's too early to give you sharp pricing, but let me give you something general. One of the ideas about using our product is to minimize the battery. Your batteries are very expensive storage source and very -- in terms of both of the capital purchase and the operational cost because -- and anywhere between 4 to 8 years when you have to replace that battery, again, you're hit with a heavy cost. The generators that we have, we're expecting at least a 7-year life on those, as much as 14 years, 15 years' life, and that's running them heavy, that's running them hard. But what we'd be looking at is a price of between, let's say, $18,000 to, let's say, $35,000.

Now here is the difference between, let's say, what you're buying from Polar is that if you got a swimming pool, you're not spending money on your swimming pool heater or the heater -- or the furnace for your house. So you're combining appliances into 1 appliance, 1 appliance that's going to use less fuel energy, 1 appliance that's going to be lower on your monthly bill. So it's a complex comparison of costs because, again, we're providing more than just a generator set that backs up your home for a few hours a day, we're talking about a generator set that can run your home 24 hours a day. Did that kind of answer your question?

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Unidentified Participant, [40]

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Yes. So what you're saying is that your product will also scavenge the heat from the engine or will you use the electricity to heat the pool and the house?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [41]

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No, it's scavenge heat off the engine. Our goal is to utilize 80% to 90% of the fuel's energy, which is a combination of electricity and heat.

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Unidentified Participant, [42]

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Okay. I see. And -- all right. And about the micro sites for telecoms for 5G, there's -- the way I read about them, they're talking about just putting them on light poles and so on. So what product are you thinking about there? And how would you -- how are you -- how is your company kind of positioned to provide such a product because when I think of your company, I think you're kind of experts in the electric motors and alternators and such, and I'm not sure those products would even have moving parts.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [43]

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Okay. As I mentioned earlier in the presentation that we agree that you can't -- you don't want to use even batteries on those units. You don't even want to put a small battery in those units because some of these carriers are going to have 100,000, 200,000, 300,000 of these cell sites, these microcell sites out there, 1 carrier. And if he has to go around to all those sites every year or every 3 years replacing a battery, that's awfully expensive. And there's no way a generator is going to work and no way a fuel cell is going to work. All those are maintenance items. We're looking at capacitance-type storage systems in the area of super capacitors. And yes, we're working on the electronics to be able to make the most of energy -- to be able to extract most of the energy out of that capacitor. Now in terms to what we've done in the past, we put power systems on aircraft. We put power systems underwater. We put cooling systems into space. We've done a lot more than just build generators and motors.

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Unidentified Participant, [44]

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So you believe you have internal engineering advantage building super capacitor systems?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [45]

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Let's just say that there's guys out there in other companies that can build wonderful capacitors. We don't need to duplicate that technology. But it's how you package that, how you grab those super capacitors and then squeeze every coulomb of energy out of it to run a microcell. That's our experience. You don't have to have -- yes.

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Unidentified Participant, [46]

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I was going to say you're right because capacitors as opposed to batteries aren't constant voltage devices, so the electronics will be much more complex.

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Operator [47]

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We'll take your next question from Jeff Kobylarz with Diamond Bridge Capital.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [48]

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Just curious about the last-mile carrier where you got the over $1 million order that you announced earlier, can you say how long of a selling process that took to get that order?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [49]

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I think it started back in...

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Rajesh Masina, Polar Power, Inc. - COO [50]

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Summer of 2018.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [51]

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Summer of what is it, was it 1998 or just, Raj, before?

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Rajesh Masina, Polar Power, Inc. - COO [52]

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Yes. We've been working with this client for a while, just in small volumes. But yes, this is the first time that we basically have received an order of this magnitude from them. On this particular contract, the sales cycle was around 4 to 5 months. We've been working since the summer on this one.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [53]

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So they've been using, running our generators out in the field for maybe as long as 10 years.

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Rajesh Masina, Polar Power, Inc. - COO [54]

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Sure.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [55]

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And they can see how the generators that we delivered to them hold up against other products.

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Rajesh Masina, Polar Power, Inc. - COO [56]

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And may I also add that this client also has business in 4 other countries in the Caribbean. And so now we are talking to them about what we can offer and how we can help improve those sites there in that region.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [57]

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Okay. So they bought from you? And who did they not buy from, if you could say just in general?

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Rajesh Masina, Polar Power, Inc. - COO [58]

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An overseas company that also provides DC systems.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [59]

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Okay. All right. And as far as the potential with this customer, is there much more than this -- you did mention the Caribbean, but is there much more behind some of these...

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Rajesh Masina, Polar Power, Inc. - COO [60]

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Right. They've got more sites. So yes, they've got more sites than the ones that we received the purchase order for generators. So there are innovative ways of backing up the site, it doesn't have to be generators only, like Arthur was discussing with Chris earlier. So we're talking to them about all those options now.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [61]

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Right. Okay. And you said that there are 12 other last-mile carriers that you're pitching now.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [62]

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Major.

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Rajesh Masina, Polar Power, Inc. - COO [63]

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Major last-mile carriers as part of this particular program, but...

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [64]

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As part of the FirstNet program.

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Rajesh Masina, Polar Power, Inc. - COO [65]

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Yes, part of the FirstNet program. But other than that, I mean we have serviced close -- anywhere between 50 to 100 different last-mile carriers over the past 5 years -- 5 to 10 years.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [66]

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10 to 20 years.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [67]

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Right. Okay. Do you think -- is there going to be any beta test by these customers, these 12 that you're pitching? Or will they require other kinds of...

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [68]

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Generally, not with these last mile -- generally, not so much with these last-mile domestic carriers. At least, we've been domestic since, let's say, 1994. So we do have enough local sites we can point our finger at. And we do have -- and they do see our product very frequently when they look at Verizon or AT&T or T-Mobile sites.

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Rajesh Masina, Polar Power, Inc. - COO [69]

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So they've got good endorsement from them.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [70]

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Yes. It's not like selling to a company in Thailand or a company in Botswana.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [71]

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Okay. All right. And then on the last call 3 months ago, you said that you weren't getting orders from the Tier 1 because you didn't have a fast-enough fulfillment time, and you reduced the fulfillment time, but now you're saying that they're not ordering because they're pushing their capital spend into next year. Is that the gist of it? Is that right?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [72]

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Correct. They've got issues where they're moving money around for the 5G, for their mergers and acquisitions. I mean there are some big mergers and acquisitions recently that does tend to wreak havoc on things like generator sets.

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Rajesh Masina, Polar Power, Inc. - COO [73]

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And one of the clients also mentioned that their construction schedules -- they're behind on their construction schedules. So they don't want to end up with a ton of generators in their warehouse. As Arthur said, this is a just-in-time logistics kind of a play. And so that's the reason that we have to work with forecast, so that we're not -- they're not getting delayed. Their programs are not getting delayed because of supply chain issues downstream.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [74]

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Okay. So when do you think you will hear from these Tier 1 carriers about their 2020 need?

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Rajesh Masina, Polar Power, Inc. - COO [75]

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We're been already hearing about that in terms of forecast, but obviously that has to be converted to purchase orders. Only then will we be able to say that. Now it's also noteworthy to mention that our large competitors also, in their most recent earnings calls, also mentioned about the slowdown from the Tier 1 telecom carriers. So it's basically an industry effect, not just -- we are not immune to it.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [76]

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And again, those will be arguments for diversification.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [77]

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Sure. That makes sense, right? And about this LPG generator, anything to say about your plans to submit the engine for EPA certification or where that stands?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [78]

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Okay. Where it stands is that we passed all the emission testing required by the EPA. They have our data, and our form is filled out. And right now, we're waiting the issue of the certificate.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [79]

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Okay. Do you know how long that normally takes, the EPA, to give you that?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [80]

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I was trying to think of something funny to say, but no, we don't know how long. But it could be here next week, it could take 60 days.

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Rajesh Masina, Polar Power, Inc. - COO [81]

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And we've been working on this process for almost a year now.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [82]

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But most of that was with, first of all, tuning the engine to make the requirements and then submitting it for testing and then the -- generating the test reports and the paperwork.

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Rajesh Masina, Polar Power, Inc. - COO [83]

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But the actual testing process happened in the past 2 to 3 months.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [84]

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It happened last month.

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Rajesh Masina, Polar Power, Inc. - COO [85]

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Yes.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [86]

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Okay. All right. And the efforts with this generator in Australia, any comments at all about where that stands?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [87]

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Yes. I've already met with the 2 leading companies, Allgas and Origin. And as they explained to me, they've got about 40,000 off-grid subscribers. So right now we are working very diligently to come up with a sales tool, a presentation tool. When you look at something like a super-duper water heater that's in a mailer from the Southern California Gas Company or PG&E or whatever, the gas companies don't put that together, the vendors of the oil -- I mean of the furnace or water heater did, and they spend a lot of time putting that program together for sales, maintenance, installation, all that other stuff. So these are the details we're working on now.

But if you keep in mind that there is a glut of LPG fuel, propane, butane fuels out on the market and, at the same time, you have regulatory agencies wanting to do away with diesel, but these guys are having some issues with trying to "sell" product. So what we're saying is that it's perfect for a $1 billion company to be able to say, look, we can double or triple our sales if we go after power generation using fuel and presenting this solution to our customer base.

Now this couldn't happen before because your natural gas and LP generator sets were essentially converted lawnmower engines, riding lawnmower engines or weed-whacking engines or whatever. These are lightweight-duty engines converted over to natural gas or propane, limited hours, 200 days, serviced every 8 days or so. Now we're bringing a serious generator onto the market that gives them a year's maintenance. So in other words, you're changing your oil at every 8,000 to 9,000 hours. In generators, that's virtually maintenance-free. Matter of fact, if you look at a fuel cell, a lot of fuel cells, you have to change the membrane at 8,000 hours. We're going to be changing the fuel -- I mean the oil. And the oil is a lot cheaper than changing a fuel cell membrane. Now Raj has a comment regarding...

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Rajesh Masina, Polar Power, Inc. - COO [88]

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Yes, Jeff, there's one more market. I mean we're pursuing a few market opportunities. One of them is a huge agricultural market in the state of California. All of them are -- obviously most of -- many of them are grid connected, the water pumps, the variable frequency drives, they're mostly -- pretty much all of them run on DC power. And they're having some major issues with the recent fires and the PG&E shutdowns. Their crop is getting destroyed closer to harvest season. So we see a lot of -- a big market there for a good quality prime power generator that pays with solar because they want to be energy independent.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [89]

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Now just one other comment on that is that since we're a technology-based company, we are a high-tech company, we're looking at even other solutions for the agricultural people. For example, on farms, they use fertilizer. And one of the fertilizers, the generator can run off of it. That's your ammonia fertilizer. And they say that the ammonia fertilizers are cheaper than the LPG, cheaper than diesel, which means that the farmers can actually generate electricity cheaper than they can buy it off the grid if they use their fertilizer. And a lot of farms will have huge amounts of this ammonia fertilizer on their farms stored there, ready to use. And the nice thing about the ammonia fertilizers is that it's 0 emissions. It's as clean as a hydrogen fuel cell.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [90]

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Okay. All right. That's encouraging. Just with all these very good prospects on the horizon, hopefully next year, do you think you'll be able to run at cash flow kind of breakeven until some of these bigger -- some of these new ventures kick in? My last question.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [91]

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Luis?

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Luis Zavala, Polar Power, Inc. - CFO & VP [92]

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Yes. When our sales go back to what they were in the previous 2 quarters, we'd definitely be positive. So we will not be -- we'll be better than breakeven.

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Jeffrey Kobylarz, Diamond Bridge Capital, L.P - Analyst [93]

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Okay. But until then, do you think $5 million -- your $5 million revenue -- sorry, $7 million revenue this quarter, you're currently -- you're a little bit EBITDA positive.

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Luis Zavala, Polar Power, Inc. - CFO & VP [94]

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We don't expect to be in this position for too many quarters. I mean we are expecting -- we are working with our Tier 1 carriers. There's a lot of communication. It's just a matter of time of orders coming back in. Now going back to last year, we kind of ran through the same scenario. Fortunately, we had just acquired a second Tier 1 carrier -- or a third Tier 1 carrier that started with very aggressive purchasing in July of 2018. While the other Tier 1 carrier slowed down, this Tier 1 carrier was doing significant purchasing. So the slowdown was not really visible at that time, but it's pretty much the same thing that's happening this year. Unfortunately, all our Tier 1 carriers slowed down at the same time, but we believe they're all going to pick up. They usually start picking up definitely towards the end of the year, getting ready for the next year.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [95]

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Keep in mind that we have been in business since 1979, and we have -- we learned how to that manage our cash flows, so we don't get ourselves too deep into trouble.

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Operator [96]

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(Operator Instructions) We'll hear now from [Eric Rescue], a private investor.

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Unidentified Participant, [97]

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I think a decent amount of the things that were on my mind were answered previously on earlier questions. But one area that I want to get a little better understand of is sort of if you can give us a little more why you think you have clarity on orders that will be coming from Tier 1 over this next year. I know you said that the timing historically has always kind of been unknown, but last quarter, you told us that you expected orders to kind of come back either late Q3, early Q4. Obviously, that hasn't happened. And I think a lot of your investors still have shell-shock from when the Verizon orders dropped off a couple of years ago. And at that time, I believe you were also saying you expected orders to come back, and they never really did. So is there anything that you can kind of give us that's more concrete, more clarity, more certainty that all we have to do is wait out a couple of more months, and we're not looking at a permanent drop-off from your Tier 1s.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [98]

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Okay. Now the Verizon situation was a surprise to us, too. We still, to date, are just going by theories as to what happened then. But when you are supplying so much product to these 3 or 4 major Tier 1 suppliers, what we have learned is that it's too narrow of a focus, there's not enough customer diversification. Things come up. One company decides to acquire another and, in the process, wants to, what you might say, save all their cash, short other budgets. I mean even they can't predict when they can even consummate a merger because now it's regulated by government. So what I'm trying to say is that the solution ahead isn't trying to develop a better crystal ball, the solution ahead is to diversify your customer base, not being so dependent. We were very dependent on that 1 supplier, Verizon. And then -- yes, one customer, Verizon. And when that happened, we had to go out and then dig up some more customers which, again, was part of our IPO strategy, we're raising capital so we can diversify our product and our customer base. And that's what we've been doing fairly successful. It was a pretty short period of time before we brought on a number of other Tier 1 suppliers to replace Verizon, and our sales did get back up there.

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Unidentified Participant, [99]

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Well, that's definitely all good on diversifying the customer base. But at least in the short run, you still have -- and I guess what I'm trying to say is that, assuming that their orders are not coming in, in maybe a few weeks and they don't come in for another 6 months, how long can you maintain this cash neutral, cash positive -- cash flow positive situation without them?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [100]

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How long? Well, let's just say considering the number of decades we've been in business, I would say we've got the experiences to be able to weather all storms. And in the past, even before we went public, yes, we did have storms that took our -- that would happen to us where the sales would will go down and we would have to recover. But here's the thing though, Verizons, AT&Ts and T-Mobiles and stuff like that, those guys are not the largest guys out there buying generator sets. And we are -- again, it's been a much longer process than anticipated, but we are moving forward with larger telcos that have a greater need for product. And we're close. But how close, I cannot predict the date. And I am involved directly at some of those negotiations with the customers, and they've just got so much bureaucracy in place that they need to move to place the orders with.

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Unidentified Participant, [101]

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Is there anything that you could give us a little more on explaining why you feel you're close them right now? Even if they're still anxious...

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [102]

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Well, I should say let's look at Chile. 2005, the government told them -- told the telco there, which is one of the 7 largest telcos in the world, not just Chile, their parent corporation, that they can no longer be using diesel fuel on their generators. But they relaxed their requirements because their supply of natural gas and propane was being disrupted. It wasn't available. So now this year, the government is telling the wireless companies that they have to get their generators off their sites and replace with a cleaner fuel. Now I'm confident that I'm going to land that account with the Toyota product. The date on which I get that contract, if I was a younger person, I would say about -- it would take about 2 months. I'm an older person now, and I can say that it would be a mistake to advertise and promote that potential sales lead because you don't know when it's going to happen. But the key is to be able to get enough of those so that you are collecting orders from some of them that give you contracts sooner as opposed to later.

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Unidentified Participant, [103]

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All right. Well, that's good to hear. Switching topics a little bit. Last quarter, you'd mentioned a number of your new product, the timetable for them coming out has been delayed. I know one of those anyway. But the residential product, you said, had to do with EPA approval. But what's the status of all those products you referred to last quarter?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [104]

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We're delayed about 30 days to 60 days on those. When you're developing new products, you have your target dates and you have your delays. But we will be shipping these products very shortly. And most notably is a project that involves the U.S. Air Force in Nevada. So we will be shipping that product. And when we launch that product, we would be advertising and promoting it. That will be an energy story.

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Unidentified Participant, [105]

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You had also mentioned last call that you had a new software application that you saw as being key to sales at the time. And I believe you launched that over the last quarter. Do you have anything, an update with regards to that?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [106]

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We're still in beta on that. We're still beta on that. The product is developed, and it's in beta, and it's going through some debugging now.

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Unidentified Participant, [107]

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Okay. And then, one last question. I do applaud that you are reviewing your strategy over time and making some adjustments to the plan. But just as we're -- we've been going past these last few years, and particularly on the international front, things have been really slow and have not worked out the way we all hoped obviously. But at what point or what conditions would you have to see, to conclude and then say, hey, we don't need to just make minor tweaks to our strategy, we need to make a really big fundamental change like working through distribution partners, shutting down certain parts, effort. And maybe on an extreme, what conditions would you look to even consider trying to sell the company?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [108]

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Okay. What you're saying is at what point are we going to have our fire sale.

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Unidentified Participant, [109]

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Well, I mean at what point do you really say that, hey, our business strategy needs to be fundamentally changed up to the point that we need to look for a buyer? Just how long do we keep going before we turn it to a real problem?

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [110]

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Okay. I'm not sure how to answer that question. It's kind of like a lot of gloom and doom there. You're assuming that we're running the company into the ground and therefore, we should sell it for...

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Unidentified Participant, [111]

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Well, I'm not assuming you're running it to the ground, apologies for not being clear. Just in a worst-case scenario, let's say, orders, just they never come, never come, never come, eventually a real fundamental shift to the business strategy would happen. So what conditions would you need to see to come to...

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [112]

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If you say that the orders never come, never come and at what point do we sell the company, basically, you don't -- if the orders don't come, you don't have anything to sell.

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Unidentified Participant, [113]

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I suppose. I guess we're operating...

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [114]

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You are also talking about a scenario that really hasn't happened with me throughout my lifetime. We design and build equipment. If, for some reason, next year, that the world's powers that be decide that they don't want to have any more fits and engines, I will still sell product.

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Unidentified Participant, [115]

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All right. Well, I apologize for not being clear on that, just trying to assess tailwinds.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [116]

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Exactly. Now let me put it this way, is that my interests are in line with the investors. And if a deal comes across the table that's in the best interest of the investors, I will take a very close and hard look at it. Now there's one word I'd like to leave you with, and that's patience. If you look at what we've been able to do in this renewable energy sector and in this power section and being able to not lose millions of dollars each quarter like you have on so many other clean tech company, you will see that we do have the talent and we do have the product to move forward, I mean can you point to any companies in our sector that is doing incredibly well with so little dollar investment.

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Operator [117]

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Thank you. There are no further questions in the queue at this time. That does conclude today's conference. We thank all of you for your participation. You may now disconnect.

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Arthur D. Sams, Polar Power, Inc. - Chairman, President, CEO & Secretary [118]

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Thanks.