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spk02: All right, everybody. Thank you so much for joining us here today. You are in the right place for the IIOT Auxis second quarter results investor conference call. You probably already know this, but the company's ticker symbol is I-T-O-X. Now, before the call gets started with CEO Cliff Emmons and COO Karen McNamara, I need to give you the forward-looking statements. Of course, these forward-looking statements can be found at the bottom of every press release and every filing the company has done with the Securities Exchange Commission. So this call may contain forward-looking statements that reflect management's current views about future events and financial performance. Forward-looking statements often contain words such as expects, anticipates, intends, or believes. The company's forward-looking statements are subject to a number of risks and uncertainties that may cause actual results and events to differ materially from those projected in the forward-looking statements. Risks and uncertainties that could adversely affect the company include without limitation the loss of major customers, the company's failure to obtain new contracts, their inability to patent products and processes, their infringement of patents held by others, their inability to finance the company, and other risks and uncertainties that are discussed in the company's most recent filings with the Securities Exchange Commission. The forward-looking statements in this call are made as of the date of this call, which is August 30th, 2022. The company undertakes no obligation to update their forward-looking statements, whether as a result of new information, future events, or otherwise. So as you heard, I'm going to be joined today by Cliff Emmons, CEO of the company, and Karen McNamara, COO for the company. To learn more about the company, visit oxyscorp.com, O-X-Y-S-C-O-R-P.com. And I encourage you as well to pull up the press release. Here's the dateline. Thursday, August 25th, 2022. IIOT Auxis Inc. reports second quarter results and upcoming investor conference call is the headline. A lot of key accomplishments within that press release that the company will be discussing today on this call. So with that, let me first welcome Cliff Emmons. Cliff, how are you today?
spk03: I'm doing well, Stuart. Thank you.
spk02: Well, congratulations, Cliff, on a strong quarter. It's now time for you to share your opening comments with our listeners and your shareholders. Cliff, the call is yours.
spk03: Thanks, Stuart. It's great to be here with you and Karen to share our great results this past quarter and answer our shareholder questions. Let me start by saying we're pleased to report we had our best quarter since the COVID pandemic began. Our revenue for the quarter ending June 30th, 2022 exceeded the total revenue for 2021, which we anticipated in our quarterly reporting for the first quarter of 2022. We had several accomplishments to date in 2022 that are moving the needle. And two, I want to highlight today are, first, our partnership with Eratos Sensor Networks, the Canadian Indoor Air Quality and IIoT platform company continues to blossom. Building on the collaborative agreement we executed with the company in the first quarter, we signed an algorithm development subcontract with them this quarter, and we are negotiating additional potential subcontracts in the area of business development and product development. Secondly, Our structural health monitoring business continues to build momentum. The initial contract extension we announced in the first quarter generated the revenue we reported in this second quarter. Also, the full year 2022 through 2023 extension proposal we submitted in the second quarter received verbal approval to continue monitoring services. We expect the formal approval for the entire proposal to be received sometime this quarter. This segment of our business generated several investor questions, which I'll address further a bit later in this call. Bottom line, a truly strong quarter for us, Stuart.
spk02: Well, thank you for that, Cliff, and you referenced those investor questions. We've gotten quite a few here, and I do encourage the investors to continue to reach out to us. This is the forum for that so that we can answer the questions to all the investors at all one time so they get those responses. So Be patient. Understand compliance, which means we can't individually answer your questions via email. The company can't. I can't. So this is the forum for it. So, Cliff, our first question is for you, and I'm going to summarize it. They want to know, basically, management moving forward. How are you going to navigate the balance between the company needing to raise funds and financing, but also understanding what is needed to preserve shareholders' value and trust?
spk03: Mr. Stewart, I believe trust is created by making a promise and keeping it. And a good example of trust is the guidance we gave for revenue in the second quarter and delivering that revenue, which we did. We'll continue to give clear guidance and we'll work diligently every day to continue delivering results. Another way to instill trust is through consistency and transparency. On our last call with shareholders, I explained that our line of equity will be our main source of funding to supplement revenue and fund ongoing operation. Our leadership and board of directors continue to stand by that decision, which demonstrates our consistency. On the subject of transparency, there were additional shareholder questions concerning details on our line of equity, which Karen will address shortly. Finally, and most importantly, we serve our shareholders by transforming our line of equity funding into shareholder value by using those funds to execute the following process. We do this by first securing non-disclosure agreements, NDAs, with prospective customers and strategic partners. Secondly, We leverage NDAs into proof of concepts, POCs with those customers and partners. Finally, we successfully execute those POCs into software as a service SaaS contracts and drive top line revenue growth. This is exactly what we did for our DOT customer. We demonstrated value and they rewarded us with a contract extension. We expect that as our customers, shareholders, and the market continue to see us deliver results, the market will validate our increased shareholder value with top-line revenue growth and higher market capitalization.
spk02: Well, with that, we're going to welcome to this call Karen McNamara. Karen, thanks so much for joining us. We do have some questions for you now.
spk01: Great. Thank you.
spk02: You bet. Now, Karen, here's your first question. It's around the filing of post-effective amendment and form Ds. Can you talk about the rationale for these new forms?
spk01: Yes, absolutely. So there's many different forms that we need to file for compliance for the SEC. And many of our shareholders are probably aware that we had an active S-1 registration from 2021. we were close to exhausting the number of shares previously registered in the S-1 under the equity financing agreement with GHS. In order to register new shares under the same equity financing agreement with GHS, the company had to file a new S-1 for 100 million shares, and it also needed to deregister the previously filed S-1 and any remaining shares. And they did this through a post-effective agreement. Now, through all of that, what remains is an active S-1 for 100 million shares under the equity financing agreement with GHS. Now, on the other hand, Form Ds that you see more regularly, those are for compliance for private offerings under Regulation D and are connected to the line of equity.
spk02: Well, Karen, let's stay with you for this next question. Here it is. There have been some questions around compensation of the officers and if they should be investing in Auxis on the open market. In other words, buying back shares as individuals. Could you please share some information about the compensation of the officers in support of the company?
spk01: Yes. So before I get to kind of current state, I would like to give a little history. of the compensation of both Cliff and myself, which began back in 2018 when we joined the company as full-time employees. So for 2018 through 2019, our compensation was accrued and not paid out. We each forgave over $100,000 in accrued compensation at the end of 2019. And we both currently have unpaid accrued compensation of at least $100,000 each. As I mentioned in a previous call, we have needed to minimize monthly expenses until we could stabilize our funding. In addition, in 2020, we both made minimum wage with minimum hours for a period of time. A little bit later in 2020, we were fortunate enough to be approved for a PPP loan that was eventually forgiven. Our contracts were updated for minimum wage, but at a rate of less than 50% of our demonstrating earning potential. CLIF continued to accrue at a part-time basis for 2020 and 2021 to minimize monthly expenses. In 2022, we had stabilized our funding with the line of equity and extension of DOT. Cliff then went full time, and we hired a full time machine learning engineer. So all good news, you know, once we had stabilized that funding, we were able to both be full time, again, at that less than 50% of demonstrated earning potential. continuing to try to minimize monthly expenses. And lastly, Cliff and I do both hold shares of Oxus and haven't sold any or plan to because we believe in the mission of this company.
spk02: Very good. Thank you, Karen. Cliff, let's go back to you. Going back to structural health monitoring business, and I know you've covered a few of these questions with your opening comments, but we've received several questions in the list, and I want you to get your recap and earlier answer and also field some of these additional questions. Does that work for you, Cliff? Sounds good, Stuart. Okay, so here we go. So let's nail through a few of these all at once. Was Q2 revenue derived from the DOT contract extension April through June? Was the extension proposal for 2022 through 2023 approved? And since the passage of the U.S. infrastructure bill, have other DOTs, Department of Transportation, been engaged? Has the International Bridge Conference approved? led to other business opportunities, domestic and foreign. There's a handful in there, Cliff. Again, the call is yours.
spk03: Thanks, Stuart. The structural health monitoring vertical is a key source of our revenue in 2022 and 2023. So it merits some recaps and additional details. So yes, Q2 revenue was derived from the DOT extension contract between April and June. The DOT extension proposal for the 2022 through 2023 fiscal year has been verbally approved, and we have been allowed to invoice for monitoring services in Q3. However, we have not yet received written approval for the entire proposal, which included substantial equipment and software upgrades. We expect to receive the written approval for the entire project sometime this quarter. We have started to use our network to engage other state DOTs here in the U.S., and we have plans to mine public bridge databases to target bridges of similar construction and their asset managers, state or municipal DOT leaders. We also expect the passage of the U.S. infrastructure bill will positively impact state and municipal DOT leaders to employ monitoring systems to better manage their bridge assets. The keynote presentation Javier Diaz, CTO of Aingura gave at the International Bridge Conference in Barcelona has led to other business opportunities both in structural health monitoring as well as other business verticals in both domestic and foreign markets. All of this makes us bullish about growth for our structural health monitoring business.
spk02: All right, so let's go back to you, Karen. We've gotten some additional comments and questions about the existing notes and often your senior secure notes. So if you would, please provide any insights you can on that.
spk01: Yeah, so I'm going to touch on three different topics within the notes, one around transparency, one around default and one around the principle, because those seem to be the topics that the shareholders want to hear most about. So around transparency, management and our SEC attorney are diligent and take pride in being fully transparent on all of the details of the note and all other financial matters, you know, through our timely and thorough filings with the SEC. That said, we understand these documents can sometimes be tedious to access and review thoroughly. So going forward, we're going to share the principal outstanding on our notes in any quarterly communications and MD&A section of our Form 10 queues. As a reference, this detail is also included in our queues and K in Note 5 of our financials. And then secondly, on the events of default. So there was a latest amendment that I just wanted to go into a little bit more in part to allow for the note to be extended automatically instead of continually having to renegotiate including the conversion price in the event of a failure to pay the note and accrued and unpaid interest upon maturity. Although management cannot make any guarantees and the lender is always allowed to pursue any and all legal rights available to it under the loan documents, if in the future any event default were to actually occur, management is not concerned because the note has defaulted in the past and the holder has shown no willingness to foreclose on the company's assets as a secured lender While the note holder would have the legal right to foreclose in the event of default, we have no reason to believe he would given his past actions. Another important point regarding the event of default is there is no adjustment provision to the exercise price. So, we believe there is little incentive based on the holder's past actions or non-actions for the note to be in default. Talking further about the principle, The majority of the questions that we get around our notes are for the senior secure note. For clarity, the principal on this note was 205,000 at the close of Q2 fiscal 22. We've actually reduced that from Q2 of 2021, the same time last year, by $170,000. where it was previously 375.
spk02: All right. Thank you for that, Karen. Cliff, back to you. I have two questions about the future that have come in, and one requesting an update from past events. And then I'll let you do a wrap-up for us today for this whole call. So here's the first question. Does the S-1 filing have any relevance to future registration on possibly the NYSE or even the NASDAQ? Second question, final, or excuse me, please give an update on past NDAs, including ArcelorMittal, and I hope I pronounced that one right. Final question, please provide guidance on future prospects and revenue. So three questions there. Go ahead, Cliff.
spk03: Thanks, Stuart. First of all, on the S1 uplist question, Karen shared details about the S1 earlier and how it relates to our line of equity. But it has no relevance to an uplisting. However, we are exploring potential paths to uplist to one of the major indices. On the question of status of past NDAs, including ArcelorMittal. So if you pronounce it wrong, I'm also pronouncing it wrong, but I believe this is correct. My first point is not every NDA will translate into a contract. This is exactly why we continue to prospect and secure additional NDAs with those prospects. Finally, there are examples of our diligence and moving prospects beyond the NDA stage. The first is actually ArcelorMittal. That NDA led to a proof of concept, which Angura recently completed. OXIS assisted Angura with that POC under a subcontract, and we recorded revenue for that work in 2021. Angura is working with ArcelorMittal to transition the POC to a SaaS contract. The second is the several MedTech supply chain NDAs we secured in 2021. Angura recently completed two CNC machining proof of concepts in Europe, and we are planning to revisit our U.S. prospects under NDA this fall. We'll use Angura's completed POCs as use cases to propose proof of concepts with those US prospects. Finally, let me wrap up with some revenue guidance and prospecting updates. We anticipate that the momentum of the second quarter's revenue will continue into the third quarter and the second half of the year. We expect that our third quarter revenue will match or exceed this quarter's revenue. And revenue for the second half of 2022 will exceed that generated in the first half of 2022. In total, we expect that the total revenue for 2022 will exceed that of 2019. This outlook is based on the strength of our structural health monitoring business and our strong prospecting and other vertical. This includes the pending ERITAS proposals mentioned earlier, as well as proposals submitted for the EU Electrical Technology OEM, with which an NDA was announced earlier this year. We expect these strong prospects will lead to additional proof of concepts and subcontracts in the second half of 2022. The bottom line is we're optimistic for future growth at Oxus.
spk02: Well, outstanding. That is a great way to close out this call. I think everybody by now knows how to reach the company via their website and a contact form. Continue to send questions to them. They'll pass them along to me or reach out to me directly at smith at smallcapvoice.com. I want to thank both CEO Cliff Emmons and COO Karen McNamara for their participation and willingness to answer so many of your questions here today. That's going to conclude our call. Thank you so much for joining us.
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