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spk01: Good afternoon, ladies and gentlemen. Welcome everyone to the Next Tech 3D AI second quarter 2023 results conference call. All lines have been placed on mute to run any background noise. After the speaker's remarks, there will be a question and answer session. Instructions will be provided at that time for you to queue up for questions. I'd like to remind everyone that this call is being recorded today, August 22nd, 2023. I will now turn the call over to Julia Viola, Investor Relations at Next Tech 3D AI.
spk00: Hello and welcome to the Nextech 3DAI Q2 2023 earnings call. With me on the call are Evan Gappleberg, Chief Executive Officer, and Andrew Chan, Chief Financial Officer. Today, after markets closed, Nextech 3DAI released its unaudited financial and operating results for its second quarter ended June 30, 2023. A copy of the earnings disclosure is available on our website and on CDAR. Some of the information discussed on this call is based on information as of today, August 22, 2023, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in our CDAR filings. During this call, we will discuss IFRS results and key performance indicators. Neither this call nor the webcast archives may be recorded or otherwise reproduced or distributed without prior recognition from Nextech 3DAI. To begin our call, Evan Gappelberg, CEO, will discuss Q2 2023 highlights as well as recent business developments, followed by Andrew Chan, CFO, who will review our financial results and outlook. Finally, Evan will provide closing remarks before opening up the line for a question and answer period. I'll now turn over the call to CEO and founder of Nextech 3DAI, Evan Gappelberg.
spk11: Thank you, Julia. So, hello, everyone, and thank you for joining us for our Q2 earnings call. In 2023, we are at, you know, we're a little past the halfway mark because we're in Q3 now. But as far as today's numbers go, this represents the 50-yard line for 2023. And in 2023, it's important to underline that Nextech 3D AI became a pure play technology company. That transitioned. has yet to be recognized by our investors as we see our AI capabilities, as we see the demand for 3D models, and as we see our production capabilities continuing to ratchet up in 2023 and beyond. 3D models, as I've said many times before, but now I'm going to lean in even stronger. They are no longer a nice to have. They are a necessity in e-commerce and even beyond e-commerce into gaming and manufacturing, which we are starting to gain momentum in. These industries, which are massive, multi-trillion dollar industries, are all pivoting. 3D. And it should not be underestimated how huge an opportunity this represents for early investors in Next Tech. Amazon is the leader in the e-commerce space. They have roughly a 70% market share. They are by far the single largest enterprise customer. If you add Everybody else up in the entire e-com ecosystem, it only adds up to 30% of the market. Amazon is the giant. They are our largest customer for 3D models. And they're going all in on 3D. The world has pivoted, make no mistake about it, to 3D models. And 3D models are are the future of e-commerce. To compete in the next decade in e-com, in medicine, in education, in events, you will need a 3D model. And that is what Next Tech makes, 3D models, which positions us for rapid growth for many years to come. It was a huge challenge. getting here, it took five years, but we are here now and we see nothing but blue sky opportunities in the market going forward. Supplying Amazon demonstrates Nextech's technical proficiency and leadership in 3D modeling for e-commerce and really sets us up for success with other big enterprise accounts. Because if it's good enough for Amazon, it's good enough for everybody. But we are still hunting. Amazon is not the last stop for us. We are still hunting. We have a large number of enterprise deals that are moving forward. We already service Target. We already service Kohl's. We already service CB2s, Procter & Gamble, Ison, and many others. But we're not done. We're still hunting and we still have very, very large enterprise deals, as I said, that are moving forward. This industry is massive. It's a massive, massive opportunity for the company. And it is starting to accelerate in Q3 2023. So we're eight months in and we are seeing a ramp up for demand continuing. In 2023, especially starting now, which we're in Q3, this is another week, will be two-thirds of the way done with Q3. And we see Q3 accelerating and Q4 actually accelerating even further in 2023. The demand for 3D models in e-commerce, we believe, is only just really getting started and it's going to shift into overdrive in my opinion we're going to see the demand get to a frenzy where just like during covid you had everybody that was in in any kind of business searching for virtual events and virtual event platforms That was back during 2020, which had a significant impact on our business because we were in that business at the time. I believe that it is starting to happen again, only this time it's for 3D models. And it's a much, much more sustainable, decade-long megatrend. And I believe that right now, starting in Q3 2023, we are starting to see liftoff in the demand for 3D models. If you look at the potential future catalysts, we're signing more contracts with major players, and Nextech really is cementing itself as the world's leading supplier for 3D models. And we believe that more companies are going to become our customers in the next six months and the next 12 months. If you look at e-commerce, The business opportunity and demand for us to produce 3D models has never been greater. And we are extremely, extremely excited about e-commerce. The reason why e-commerce is having such a dramatic impact on our business is because with 3D models in e-commerce, you see a tremendous ROI. You're seeing a 40% reduction in returns. you're seeing a 93% higher click-through rate and up to a 250% increase in conversions. Nothing comes close to that. Nothing. Not video, not direct messaging, not even next day delivery by Amazon. With 3D modeling technology, we at Nextech are perfectly positioned for this next phase of growth in e-commerce, which is widely called Web 3.0. 3D models can be used for virtual photography. You can use them as try-ons. So you can have a 3D model, and you can literally see what a product looks like in your space. You can see what they look like on your face, on your feet, on your wrist. It opens up a whole new opportunity for consumers to feel more confident buying products online. And it's predicted that over the next decade or two that 95% of all commerce, that's right, 95%, that's pretty much everything, will be conducted online. And that's only possible because of 3D models. If companies don't adopt this technology, If they sit on their hands, they will be left behind. So everything is perfectly aligned for Next Tech as we are going to experience this dramatic growth over the coming years and decades. As our AI improves, our 3D production capabilities improve. that hits our bottom line and our profits improve. Now, if we shift our attention to our portfolio of companies, apart from A.R. Times 3D and our 3D modeling business, we own two other public companies. Nextech owns some very valuable breakthrough technology in industry-disrupting products, and A.R. Way which the symbols ARWY in Canada, ARWYF in the U.S., is an augmented reality experience platform that we own roughly 49% of the shares outstanding. It's an easy-to-use, out-of-the-box AR platform. We are targeting the indoor navigation market, just like Google owns outdoor navigation with GPS. ARWay, we are anticipating, is going to own the indoor navigation using its proprietary technology. So ARWay is having quite a year in 2023. We have over 30 pilots underway with big brands. Some of them are governments. Some of them we talk about. Some of them we can't talk about. But we did announce just, I think it was a week ago, that we signed a deal with the Irvine Spectrum Center Mall in Irvine, California, a massive million square foot mall that's a paid-for deal. They're rolling out ARWay and That is just an enormous, enormous opportunity for our way to become a leader in the mall industry, which is massive, obviously. We also recently signed a deal with Localiza. Localiza is the largest car rental company in South America. They're like Enterprise or Hertz in North America. They have over 500 locations in airports, So, you know, ARWay is doing quite well. The share price, I believe, is extremely undervalued. We are in talks with major AR glass companies about using ARWay in their ecosystem. So, we have some very, very high hopes, and we think that ARWay is going to be the dominant indoor navigation system that people are going to use, just like you use your Google Maps to drive, you're going to use ARway as you walk indoors and you navigate, whether it's a museum, whether it's a theme park, whether it's a trade show, a hospital, an airport, a warehouse. a mall it all of those all of those require some kind of navigation and arway is perfectly perfectly suited for that so we're expecting quite significant contracts for arway and we expect that business uh to do quite well in 2023 and beyond if we look at map dynamics We licensed our ARA platform to MapD, and we expect to see significant growth because it's just a perfect product market fit. You have navigation capabilities inside the MapDynamics app so that when people go to trade shows and events, they click on a navigation button, and it opens up a map. And using augmented reality navigation, you can navigate to a booth, And you'll see sponsorship. You'll see a product offering. It's just the next level experience for events. And we have some big news that we expect to announce in the near future related to that. As we look at, you know, Toggl. Toggl is another one of our spin-outs. Symbols T-G-G-L in Canada, T-G-G-L-F in the U.S. We've announced that it's had huge success with signups showing over 300% growth. But that's just the beginning. That's just the tip of the iceberg. We recently hired Anita Maté as Director of Growth Marketing from Amazon, which is just a coincidence. But she is an experienced marketer, and she now is tasked with focusing on converting users to paid SaaS subscribers. It is too early to really talk numbers because we just launched in June, and it takes a little while to ramp up. But it's fair to say that we are very, very confident with the business use cases we are seeing. And we're in discussions with large enterprise customers for Toggle that have come knocking on our door that have a dire need for its technology. So I would just say to our investors, be a little patient with Toggle. It's only been public since June of 2023. In closing, 2023 has been challenging as a shareholder. Again, I am the single largest shareholder with 11 million shares. There's nobody that's taking it on the chin more than I am. But I don't stress about it. I am not stressed. In fact, I see opportunity. I see huge opportunity. In my opinion, and this is just my opinion, that 2023 is going to be a year of of significant growth for our business. And I believe that the strong companies, which Next Tech is one of, bounce back. And I think we will see a rip-your-face-off bounce back for Next Tech. I'm not going to say the day. I'm not going to say the week. But I believe Next Tech is going to bounce back quite significantly. We are fully focused as a company on becoming the world's leading 3D modeling company. To do this, we've made critical business decisions, as mentioned, by becoming a pure play tech company and jettisoning our legacy business. Just as importantly, our revenues are ratcheting up. And even more importantly, our burn rate has come down to only 300 000 a month that is a huge improvement compared to where we were in the previous years and it gives us the runway to be able to build our business to become a profitable technology company we are continuing to integrate ar aritize 3d With third-party e-com platforms, we're rolling out a SaaS product. And I believe that all these decisions that we've been making over the past year specifically is going to be paying significant dividends for Next Tech shareholders. Next Tech is capturing market share in the early days. It's seen its customers. come back for more and more 3D models and more and more renewals. And with Amazon, we believe that we have a very, very bright future. I've never been more excited and confident about the position that our company is in and the opportunity that we have in front of us. Before turning the call over, I'd like to thank our experienced executive leadership team for their hard work and dedication. and thank every Nextech employee working day in and day out, striving for success to achieve our company's goals. I also want to thank our new board members, Nidhi Kumbhra and Anthony Pizzonia, that have recently joined us, adding greater board independence. I also want to thank our loyal shareholders, for sticking with Nextech through the ups and downs. I have full confidence in our company's direction, and I'm looking forward to continuing growth in 2023 and beyond. With that, I'll turn the call over to Nextech's Chief Financial Officer, Andrew Chan, to provide full commentary on the financials. Andrew, take it away.
spk05: Thank you, Evan, and good afternoon. As a reminder, Unless otherwise noted, all figures reportedly on today's call are in Canadian dollars and under IFRS. All the preceding information are unaudited and was made available through today's press release and also available on our website and on CDAR. This is the second quarter outside of our recently filed annual results where we are preparing and presenting our financials, excluding our discontinued operations and removal of our legacy business. With that, I'd like to say our total revenue for the quarter was $1.4 million, up 8% sequentially from Q1 2023 and up 155% compared to the same quarter last year. 3D modeling revenue year-to-date increased over 460% from the same six-month period last year, contributing to close to $1 million this quarter and $2 million year-to-date. Our MAPD revenue has also increased 22% year-to-date compared to the same period last year. We continue to expand our relationship with marquee customers such as Amazon with increased 3D model production requests for Q3 and Q4 and continue to see consistent repeat revenue from growth from our hybrid events platform, MapD, throughout this quarter. Gross profit remained consistent near the 40% mark over the last few, consistent with the last few quarters. We anticipate gross profit margins to increase as we continue to implement AI technologies in our 3D model production process to allow us to increase our model creation capacity at scale. Operating expenses for the quarter was $6.5 million, which includes $1.5 million from arway.ai through the consolidation and some contributions from our recently spun out company, Toggle 3D. Overall, expenditure levels were consistent with Q1 2023 across sales and marketing, general and admin, research and development categories, and stock-based compensation. Non-stock-based compensation expenses were down $1 million this quarter compared to the same time last year and down $2 million year-to-date compared to the same period last year. This is mainly due to lower salary and wages and other compensation costs incurred last year. To help offset the cash outlay for these expenses, our previously announced employee shares for services compensation plan contributed $700,000 this quarter and $2.3 million year-to-date. Net loss from continuing operations for the period was $6.6 million, consistent with the preceding quarter, with a net loss per share of $0.06 per quarter. As of June 30, 2023, we had a cash balance of $3.8 million. In addition, we raised net proceeds of $2.2 million in July to fund our future growth efforts, and we continue to hold 13 million shares in each of ARWay and Toggle3D, with a total market value of over $18 million. This quarter continues to reflect our push towards our growing 3D modeling making abilities and the adoption of AI as we continue to scale our business. With that, I would like to return the call back to Evan.
spk02: Thank you, Andrew.
spk11: On behalf of Next Tech, I want to thank everyone for taking the time to join us. And operator, we're ready to answer questions.
spk01: Thank you, sir. If you would like to ask a question on the phone lines today, you can press star 1 on the telephone keypad. To remove yourself from the queue, it is star 1 again. We do have some questions that were submitted from Lisa Thompson from Zach's Research. And that is, what percent of Q2 revenues are from Amazon? Do you expect that to increase or decrease? The second question is, is the 3D model business just... Hold on.
spk11: Hold on. Let's go one by one. Can you answer that, please?
spk05: Yep. So, cumulatively, up until Q2, Amazon's contributed a little under 50%, so around 49% year-to-date of our revenue. We continue to expect that to increase until Seller Central opens in which we'll be directly dealing with our customers, with the customers rather than through Amazon. I don't know if you want to add anything further to that, Evan.
spk11: Yeah. So just to add a little more to that, Andrew, that once Seller Central opens, technically the merchants – will be buying direct from Nextech, not Amazon. And so, in theory, our dependence on Amazon is likely to go down in the future, even though our revenue is likely to go up, if that makes sense. Operator, we're ready for the next question.
spk01: Thank you. Her next question is, is the 3D model business just e-commerce websites? Are there any customers doing any other than that?
spk11: It's not just e-commerce websites, although that is the lion's share for sure.
spk01: Thank you. Her third question is, how is Q3 going? I would imagine customers are eager to get models up before Black Friday. and have them available through the shopping season. Is there a push for that deadline, or is most of what you do furniture and such and not Christmas items?
spk11: Yeah, I would say that there's some seasonality, but not like a traditional e-comm site owner's seasonality, but we are seeing an uptick in business in Q3. And as mentioned previously, we are projecting a jump to $1.7 million in revenue for our Q3. So, yes, we're seeing an increase in demand.
spk01: Thank you, sir. Our next question comes from Scott Buck with HC Wainwright. Please go ahead.
spk10: Hi, good afternoon, guys. Thanks for taking my questions. Quickly, Evan, first one, what is the timing around Seller Central and when that opens up to you guys?
spk11: That is the billion-dollar question, Scott. We've been geared up and gearing up for it for quite some time. I still believe it's going to happen Q3, so that would make it, you know, in the next five weeks, we expect it to open up.
spk10: Great. Thanks for that, Evan. And then I want to ask about where are you today in terms of 3D models generating capacity, and where will you be kind of exiting the year once the AI is implemented?
spk11: In terms of capacity, we are getting, let's just say, stretched a little. But we are ramping up our team and our capabilities. So it is constantly this kind of push-pull that's happening. As far as where we end up at the end of the year, it's a tough answer. I would just say that our technology is getting significantly better. and our profit margins are going to get significantly better in Q4. And so, you know, we expect the business to be significantly more profitable and to be able to do more volume. So I just can't give you an exact number for Q4.
spk10: No, that's helpful, Evan. And just to clarify, it sounds like gross margins for the fourth quarter could potentially be higher than what you've guided for the third quarter?
spk11: Andrew, am I right in saying yes?
spk05: Yeah, for sure. I mean, I think with technology, you know, it's a ramp-up period. And, you know, the longer you kind of run with it, the more efficient you become with it.
spk10: Yeah, no, it makes a ton of sense. And then last one, Evan, if you could just touch on If there's any kind of update around NASDAQ and what you guys might do there in terms of enough listing, that'd be great.
spk11: Yeah. As you know, we applied. There's been some comments which we've been answering. Nothing earth shattering. And, you know, it's moving forward. There's nothing at this point to report other than it's on track.
spk10: All right, super. Appreciate the time, guys. Thank you very much. Thank you, Scott.
spk01: We'll take our next questions from Christopher Sakai with Singular Research.
spk09: Christopher, I was wondering if you could give us a little bit flavor in terms of 3D models you have delivered, if I remember correctly, for 60% growth in terms of complexity level of those models that you delivered.
spk11: Say that again? You're asking...
spk09: so the the 3d yeah the 3d models that you deliver if you can kind of a little bit parse out the complexity level um you know it's like more complex ones are growing faster or less complex or you know a little bit if you can um parse it out yeah that would be great yeah so every single um you know batch of 3d models we make uh has simple
spk11: medium, complex, complex one, complex two, super complex. So, there's multiple reasons for all those different categories. I would say that at least 50 percent of the models are complex and above. So, 50 to 60 percent are complex and above, and the balance is, you know, more of the simple and medium.
spk09: And that trend is what it was, you know, last few quarters, or that it's changing as they go forward?
spk11: I'd say it's pretty steady.
spk09: Okay. And I see that you guys were able to decrease selling and marketing expense, there is more a factor of cost control or you think you're getting better utilization of your selling and marketing dollars?
spk11: Well, because we're dealing with Amazon, we've kind of we haven't had to spend as much on getting new customers, right? Because Amazon keeps on keeping us busy.
spk09: Okay. And so that's good. Unless you're kind of trying to go into new customers or articles, that sort of would be the trend, at least for the short period.
spk02: Correct.
spk09: Perfect. Thank you.
spk02: Thank you.
spk01: As a reminder, everyone, that is Star 1 to ask a question. We'll take our next question from Akash Makeva, a private investor.
spk07: Thank you, Operator, and good afternoon, gentlemen. I wanted to ask you, I know a previous question you just talked about was in regards to Amazon Seller Central and when that might be opening up. Evan, you mentioned that the possibility could still be by the end of this quarter in the next five weeks. On one of your recent interviews that you and Reza had done in commenting on this topic, one of you mentioned that it was either going to be quarter three, but unlikely to be Q4 because that was traditionally Amazon's busiest quarter. So they would not, you know, perhaps want to take a chance with trying something, you know, kind of opening up a new avenue in that very important critical quarter for them. So in the event, if perhaps it does not occur by the end of Q3, Do you think perhaps it would be more realistic that it may happen, say, more like maybe towards late Q1, maybe early Q2? What are your thoughts on that?
spk11: So let's be clear. It's conjecture that, you know, what I'm saying is what I think. It's not necessarily true. what's going to play out, but I am on the front lines along with Reza. And so we do have some visibility. My thinking and in conversations with Amazon is they want to open it sooner rather than later. So it's really, I think there's some pressure internally at Amazon building. And as I said, I still think it'll be Q3. Um, I don't believe that Q4, and that was me who said that, uh, would make sense, but I could be wrong. They could be like, you know what, it's go time. Let's just go with Q4. Um, but if they did wait, I think it would be early Q1. I don't think they would slow roll it because, you know, Q1, um, kind of sets the stage for, uh, a whole 2024, um, year where they can, you know, really accelerate the 3D modeling business. So that's my thinking on that. Again, this is conjecture. Until they actually come out with an announcement, nobody really can predict, right?
spk07: Okay. Thank you. Sure. And, uh, I know in your, in your, the other topic I wanted to cover was, uh, uh, in regards to, you know, your kind of your capital structure. And, um, uh, I know in your announcement today, you, you announced that, uh, your latest capital raise should be sufficient. And, uh, does not appear likely that you will need to do any further raises, perhaps for the next 12 months, I believe, as was stated. So that's great to hear. Can you, one thing, you know, this latest raise in the grand scheme of things, you know, raise slash dilution, it was not, you know, it was not very big. It was not a very big dilution, but then correspondingly, perhaps that's because it was not, you know, really a very large capital raise, $2.2 million, as you guys have pointed out. So do you feel, could you say a little bit about, I mean, are you confident that that is going to meet Next Tech's, you know, capital requirements going through 2021? this coming year or let's say the next 12 months, or at least until revenue ramps up to a level where, you know, further raises would not be necessary. Could you give us some outlook on that?
spk11: Yeah. So, you know, if you think about the capital raise and you think about the backdrop of, you know, our revenue starting to scale from $1.3 million in Q1, $1.4 million in Q2, Now we're predicting 1.7 million in Q3, maybe Q4 pops above 2 million, you know, and you put that into the equation of this lower burn, right? Where 300, as we start to see revenue come in, that 300 could turn into 200, could turn into 100, can turn into break even and then going cash flow positive. So as the revenue ramps up, as our margins ramp up our ability to not have to dip into our cash account and finance our business through our, um, our, our, our business, right. Through our revenue and cashflow goes up. So, you know, there's a pendulum that's swinging, you know, in the right direction for next tech. And that's, um, That's why I said that we don't think we're going to need to raise capital over the next 12 months if you just follow what I'm saying. We're not far away from being cash flow break-even and going cash flow positive. It's not going to take that much more 3D model production to get there.
spk07: Okay, great. Great to hear that. And finally, I just wanted to touch upon sort of the competitive landscape for Nextech. Could you, and this is sort of a two-parter, the first part being, you know, obviously this is a pretty, you know, a very fairly exciting new space in tech. And do you, is there, could you say a little bit about, is there any initiatives going on at the, you know, at what would traditionally be sort of the big large tech companies, let's say, you know, traditionally in this space, for example, Adobe is kind of the 800 pound gorilla here, but then You know, this is also an area that, you know, in terms of publishing, that is, is also an area, you know, where you have where Microsoft has been a player. And then, you know, you can this is also a natural extension for a company like Google. So can you one first comment on are any of the big giant companies, you know, tech companies, are they in this space? And and is there any competitive threat from them as far as you can see? And if not, could you just also say, like, why haven't they gotten into this space if this is such an exciting space? And once you answer that, I have a follow-up.
spk11: Yeah. So a couple of things. One is big tech companies are not pioneers. I mean, they might have been when they started, but they're not today. So they wait for some pioneering company to have a breakout with new technology and and then they acquire them. That's just their business model. Having said that, when you look at Adobe, they supply software. The big tech companies supply the software that allows the smaller tech companies to do the heavy lifting of making these 3D models. There's an ecosystem that the big companies are essentially the pick and shovel kind of suppliers. But we're going into the mines and we're mining. We're doing the heavy lifting. And so that's maybe one way to think about it. But the other thing is, is we're creating our own technology. So the AI is the game changer. And that really only... exploded in 2023. We've been working at it for quite a while, but it's gotten a lot, lot better in 2023 and it's going to continue in 2024. So again, the business model for big tech is they, they, they're not trying to, you know, be, be pioneers. There's just too many, too many companies that, that, you know, fail at that. That's just like R and D. for them. They might invest in little companies, but they wait for a company to break out and then they acquire them. So there are eyes on the industry from big tech, but they're not competing with us.
spk07: Okay. That's definitely, as a long, that's definitely nice to hear. So, in that regard, since, you know, we, I guess, at least for the time being, we don't have to necessarily focus on or perhaps worry about competition from big tech. Lately, I've been, you know, seeing on in the kind of the community and in the press and so forth that competition like you had mentioned that on, on a recent interview that, you know, Walmart was also getting into 3d. And when I looked that up, what I found was that, you know, there's a company called Hexa and, and then I, upon investigating further, I see that in fact, so they also, I guess, have some partnership or deal with Walmart, but then, I also saw that they apparently are also doing work for Amazon. And in fact, not only that, they in fact have a pretty attractive press release detailing so. So can you talk about, I guess, where they fit in into the overall picture? And you and Reza have repeatedly mentioned that you are not only a supplier to Amazon, but your relationship is essentially more deeper. It's much more of a partnership. Um, so, you know, if you, uh, have, as, as you've indicated in the past that you guys are the dominant kind of player in this space, can you, can you talk about, uh, where Hexa fits into all of that?
spk11: Yeah, I could talk about Hexa peripherally. Uh, they're an Israeli company, um, that has been at this for, I think, twice as long as Nextech. Um, And they have a very different business model than we have, number one. Number two, they don't deal with high-volume 3D model production next test. So they're essentially offering a SaaS solution. And what they offer is an array of software, meaning they'll host your 3D models. They have like virtual try-ons for 3D models. They, I think, outsource 3D model production. I don't know if they make them in-house or not, but that's not their main business. Their main business is offering all the ancillary stuff that you do with a 3D model. And so it's a quite different business model. It's a SaaS model. And what they don't do is high-volume production of 3D models for Amazon. That's what Amazon told us. And if you read their press release, which I did, they are working with a different division inside of Amazon And it's not the division that we're working with. And Amazon has one and a half million employees. They're a trillion dollar tech company. They have lots of divisions, lots of people, lots of stuff happening there. So we're not, according to everything I know, we are not competing with them directly at Amazon. Meaning we are the number one of high-volume 3D models for Amazon, we have a multimillion-dollar contract with Amazon for three years. And my understanding, what I've been told by our contact over at Amazon is they do not. And so I can't speak beyond that. I'm not in their business, meaning I don't work there. But I am aware of them. And, you know, the market, if you think about it, nobody should panic when there's a competitor. It's a good sign. I know it's hard for you to think that way. But if they're in the same business we're in, then we must not be that crazy. And you as an investor, and you as an investor aren't wrong to be invested, right? If these guys are in it and you guys are so enamored by them, then, you know, I guess there's something happening in this space that's exciting enough for them. And I think, you know, they raised like $20 million in the last year or two or something. I don't know. So, There's investing capital flowing into the space. There's going to be competition. That's actually a good thing.
spk01: We'll take our next question from Asad Rashid, investor.
spk06: Hi, good afternoon, everyone. Good afternoon, Evan. Evan, I just had a question pertaining to the ai on the gaming side of the business just wondering uh will the current inventory in your parts library assist you in developing uh the 3d models you know i mean is it something you know you build on or will this require another set of archives that's a good uh question it's um
spk11: somewhat unrelated technology, meaning the parts library, as you obviously are correct, is geared towards home furnishings and not games. So, you know, it wouldn't overlap. But the thing about, you know, gaming assets is that they, believe it or not, use... TVs, couches, chairs, in scenes, in games. So while maybe some of the stuff that's in a game, like a weapon, for instance, we would have that. Not to say we can't make one, but it wouldn't be from our AI parts-based library. But the point is that there's plenty of opportunity for us to populate scenes with 3D models from our existing inventory.
spk06: Understood, understood. So I guess with the scenario that you currently have with Amazon, for example, it's not really, I guess, with the gaming side, it's not really like a mass production of the 3D models. It's more of a case-by-case basis. Is that correct?
spk11: It could be mass production. It's still, you know, there is an opportunity there for mass production. But let's just say that it hasn't quite shown up yet. So, yeah, right now it's not mass production, but it could become that.
spk06: Makes sense. Makes sense. and uh just last question um i'm just wondering is uh is a map d spin out uh still on the cards for 2023 or uh i remember there was a news earlier on uh this year that it may be a potential yeah i i would say that um that's not something that i'm focused on today um
spk11: There are other things that have taken center stage. And, you know, really it's growing our business with Amazon right now that we're focused on and profitability.
spk06: Makes sense. Well, I appreciate it. Thank you for your time.
spk11: Thank you.
spk01: We'll take our next question from Yanlong Wang, investor.
spk08: Hey, Evan. So I have a quick question regarding the uplisting to the NASDAQ. So, you know, there is a minimum price per share around $3 or $4. So will your next tech 3D.ai do a reverse split to uplisting to the NASDAQ? Thanks.
spk11: Yes, you're correct. There is a minimum price requirement, and we have not decided to do reverse stock split as of today. So as of today, we're not doing a reverse stock split. That doesn't mean that it's 100% off the table. It just means that today we're not going to do it from these levels.
spk02: Okay. Thank you, Evan. You're welcome.
spk01: We'll take our next question from Michael Farah, investor.
spk04: Hey, good afternoon, everybody, and good afternoon to you, Evan.
spk11: Thank you.
spk04: Quick question. Yeah, I hope you guys are doing great. Please tell the team, as I've told you offline a few times, that you guys are doing a great job. Market price, stock price doesn't really reflect that at the moment, but quick question about the – employee stock compensation plan. I'm not sure I heard it all, but maybe $700,000 a month. Can you tell me, is that kind of the high number that it would be? And is there stock dilution, say, by the end of this year or however long that program runs? So, in other words, yeah, we'll be at break-even, you know, if not now, certainly in the next Q4. But then there's the stock compensation plan that is potentially taking some shares as well. Could you maybe explain that a little bit more?
spk11: Yeah. So that's a good question. The stock comp plan is a way for us to preserve our cash and be able to pay people with stock. It does have some minor dilution, a couple of percentage points. But we see the greater good in being able to preserve our cash and ultimately go cash flow positive. So there is some dilution, absolutely. But it's either small dilution through the shares services or bigger dilution through stock offerings. We're trying to not do any additional stock offerings, which it seems to to hammer the stock to no end you know which we don't which nobody likes uh but um you know so so you know we're trying to do what we can for our shareholders of course as i've said many many times um you know me being the largest so uh could i ask one more question yeah sure okay okay um
spk04: I apologize if this has been asked before, and it's a very difficult question to answer, but as of August, what is our capacity to turn out 3D models and what, in theory, you know, I won't even make you answer the future one. It's obviously, you know, the more efficient the AI program becomes, obviously that scales down into a lot of different expenses and production capacities, etc., But yeah, I mean, do you have a figure kind of on that at least right now?
spk11: So here's what it comes down to. If Amazon said to us, we want 10,000 3D models in, let's say, the month of September, we would not be able to deliver in the month of September. We would say to Amazon, can you give us to December? So there's a ramp up period is my point. And so right now we're able to meet the demand. And if the demand ratchets up, we're going to be able to meet the demand again, but we'll have a bit of a backlog, which isn't a bad thing. Right. So, right. So, you know, we're keeping up with demand and we can flex up, you know, and that's, that's really the key is that as demand continues to come in, we're able to meet the demand and that's being, you know, that's being evident by our rising revenue. As you see the revenue go up, what that tells you is that we're meeting the demand. And so that's the key, you know, metric that's going to give you an indication, you know, and a lot of this is, is, driven by the demand side of the equation from Amazon. And we think when Seller Central opens up, as we've said a number of times, demand's going to increase dramatically. We will meet that demand with additional volumes from our factory, but it will take a bit of a ramp-up period. But that's okay because as we ramp up, the revenue will ramp up with it.
spk04: I know that there's an amazing amount of complexity provided and or detailed in terms of what each customer wants, whether it's the super 3D model or the, you know, hey, just give me a stick figure with a little bit of facial hair.
spk02: Yeah, yeah, yeah.
spk04: Do you think that the... let's see, how do you put this? What is the holdup with being able to, say, produce, you know, 100,000 a month? There must be something in the AI algorithm and the way that it's working, whether it's doing inter and intro, you know, layered connected nets, you know, there's something inside of that algorithm that could be improved in terms of efficiency. Is that basically what's happening?
spk11: Well, no. I mean, a lot of it is because, Each 3D model has, like you said, some uniqueness to it. So the AI is learning, and if it hasn't seen something, it can't just produce it out of thin air. It has to pull it from somewhere. Now, some of the AI can actually produce some from thin air, but it's not always accurate. Just like chat GPT.
spk04: I'm very familiar with AI technology, believe me.
spk11: Right.
spk04: I get it. It's almost gray math, if you will.
spk11: Right. So sometimes it hallucinates, right? The chat GPT sometimes.
spk04: It depends on where you put your data that you put in for the inputs and the expected outputs and the layers that you have in the neurons, et cetera.
spk11: Yeah. So a lot of the same stuff happens with 3D modeling. The bottom line is that we still need to QA. That's really the thing, right? We still need to have a human actually do the QA. And so there's just limits to what the AI can do independently. And so what we're doing is essentially assembling different parts of the 3D model. Some of it's human, some of it's AI. At the end of it, We put it all together into a photorealistic, amazing, you know, 4K 3D model, but it's just kind of, it's that. It's just not fully formed yet. The machine isn't fully capable of autonomous production.
spk04: No, no, I understand. It's a matter of putting in, say, 500, 1,000 weights together you know, per neuron, different kinds of, you know, configurations for different client needs. I had more questions, but I'll take that offline with you, Evan. And thank you so much. You guys keep up the great work. Thank you so much.
spk11: Thank you. Thank you. Thank you.
spk01: Thank you. And that does conclude the question and answer session. I'd like to turn the call back over to Evan Gappelberg for closing remarks.
spk11: Well, I'll have to say that this Q&A session was quite good. for me. I was actually pleasantly surprised with the quality of the questions and I hope I answered everybody's questions in a way that makes sense for them. I am available if there's additional questions. My opinion on the stock price is that it is not reflecting the value of the company and the upside from here is massive, just like the opportunity of 3D modeling is massive, just like Amazon and Seller Central opening up is new, massive demand. So if you connect all the dots and you think it through logically and not emotionally, I think brighter days are None of your days are just around the corner. With that, we will conclude the call. Thank you, everyone.
spk01: Thank you. That does conclude today's presentation. Thank you for your participation, and you may now disconnect.
spk11: With that, we will...
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