Clear Blue Technologies International Inc.

Okay, good morning everyone and welcome. Thank you very much for your time today to join Clearblue's Q3 earnings call. We're going to be focusing today on a corporate update based upon some announcements that have been made over the last little while, some events. We thank you so much for your time. My name is Miriam Turk. I'm co-founder and CEO of Clearblue. And I'm joined today by Farouk Anwar, our CFO. And so with that, we're going to jump right in. I do want to say I am expecting that there will be many questions. Part of the benefit of being a public company is that we do get asked a lot of questions from our shareholders and get feedback. So I would encourage you to please post any questions you have in the Q&A and Farouk and I will tackle all of them this morning. Okay, so in terms of the agenda for today, we're going to give a corporate update on what's going on from a financing perspective and the ongoing operations of the company. We're then going to spend a little bit of time on going through the Q3 2024 results and also then talk about the outlook for the company. So... Three or four weeks ago, we made an announcement that two of our board members had left the company, had left the board of the company, and that at the same time, we had experienced a delay in the STDC contract. As you know, There have been quite a lot of global and economic challenges over the last four years. I think I can fairly say that it's unprecedented in our lifetime. And as a technology company, we need to invest in R&D in our product. Now, to do that, we have gotten signed contracts in good standing for R&D grants, the largest of which is the STDC contract. And because of the issues with that fund at a national level, nothing to do with our individual contract, which is in good standing, there have been uncertainty and delays as a result of that. And because of that, that presented a challenge four weeks ago, at which point we needed to let the market know that we had entered a period of uncertainty. Adding to that, we are seeing that, you know, the marketplace, the global economy and the, sorry, the economy in general, we haven't gone into a recession, things are looking good. But when you go under the cover, there's really a story of the haves and the have nots. And I think everyone has seen stories of bankruptcies and downsizing and restrictions, et cetera, et cetera. What we've seen is that our customers are also experiencing cashflow and there's a real change in how they're dealing with cashflow payments and delays. And that has caused a lumpiness in our revenue. And when you put all of that together on top of the fact that because of the historical supply chain issues that we've had over the last three or four years, which required us to invest in inventory, we have quite a large inventory on our balance sheet right now, almost $4 million. The result is that we entered into a really tight cash crunch stage, not really because of the ongoing operations from a day-to-day perspective, but really because of the historical buildup over the last four years from the story that I just provided above. So the net result is, when you look at the company's enterprise value, it's heavy on debt and light on equity. So we need to fix that. And really there's two basic things we need to deal with. We need to deal with making sure that we're cashflow positive and we're generating cash to cover our expenses. And we need to realign the debt versus the equity and reduce the debt, improve the shareholder portion of the overall equity and reduce the debt. So how are we going to do that? We do have a plan in place. I can't announce all of the details of that plan because it's not yet 100% bought into. It's not yet 100% concluded. But what I can tell you is that, you know, you kind of get a fast no and a slow yes. When we began this conversation with our key stakeholders, such as BDC, which is a secured creditor and the largest investor in the company, we got a very strong message that they wanted to work with us and resolve this issue. So we didn't get the fast no of, okay, this cannot get addressed. We've gotten... feedback from everyone that they were at the table and working with us to resolve and come forward with a solution. So how are we going to resolve the issue? Well, the first is that we have experienced some sales delays. And a lot of people will think that this is related to our emerging market Africa initiatives. That is true in that market, but we've also experienced very solid, known, planned, detailed design, detailed engineered, SPECT-approved construction projects that just took an extra two, three, four, five, six months. Projects that we've known have been planned for. We got a purchase order this week for a $300,000 order that quite honestly, we expected to ship in July, August. So the sales delays that we have experienced through our, which impacted our Q3 results are resolving and our bookings are growing. That's item number one. Item number two, we have reduced our OPEX significantly. We did a downsizing in October that reduced the overall salaries of the company by one third. We also did a cloud restructuring, which allowed us to eliminate about $600,000 in annual expense for software licenses and cloud licenses. The question would be asked, well, can you function with this reduction in staff? And we've been very strong at reviewing that. And because a lot of the large R&D projects that we needed to do have been completed, we feel confident that we can deliver that with the reduced topics. An example would be, there was a significant effort to integrate the eSight microproduct with Illumiance. That was delivered in the March, April timeframe of this year. another three, four months of bug fixes and stabilizing it and getting, you know, a, you know, release two, release 2.1.2 kind of out there to deal with all of that stuff. And the net result is it's good, it's solid, it's done. And so the large work effort around that can now be streamlined. Similarly with our Pico and Senti product. And I do want to emphasize there's always ongoing R&D that we need to do and we do plan on continuing to do R&D, but the big chunks of work have been completed. While in September and October, we had been notified by STDC that the entire program's payments were halted. We have been notified in the last two to three weeks that those payments are now flowing again. They're slow and they're delayed. So we're not going to get that payment in January as we had expected, but they are flowing. And we did reconfirm with STDC that's nothing that is that, you know, there's nothing wrong with our account or our program. We had a five month delay on the 2023 payment. And that did impact the operations for this year. That's part of the reason that we got there. But I do also want to say that STDC was established in 2001. It has been around for 23 years. It was a program that continued to be funded and supported by both liberal governments before the Harper Conservatives and throughout the Harper Conservative program. I only say that with the context that if someone has a question about whether or not you know, STDC would continue. It no longer exists as STDC. It is now part of the National Research Council program management, which includes IRAP, which is a program that's never had any problems, never had any issues and is well managed and operated. And so the question of whether a governmental change in the future would have an impact on us, one can never predict anything, but we do have a good contract and this has been around for a while. So the net of it is that we are working with our debt holders to convert some of it to equity and to provide some reasonable adjustments to terms and timelines. We are not kicking everything down the path because we want to reduce our debt and continue to pay off our debt. And we have been doing that. That is part of something that we've been doing from a cash flow perspective. But we need a window to kind of clean up the past and then Once we've got that done, we can move forward in a positive way. So from a going forward perspective, We have a plan that is not yet finalized. So I do want to re-emphasize, this is not 100% done yet. Until it's done, it's not done. But as I said, everyone's at the table working with us. We've had strong support from our suppliers. We've had strong support from our employees. We've had strong support from our major banking partners, our government partners. and from shareholders that have convertible debentures. So we're going to work on finishing that and bringing that to conclusion. We have already lowered our operations expense to get our ongoing runway in line with a revenue stream that is at its most ultra conservative would allow us to be cashflow positive. So our plan for 2025, taking the very conservative approach to what our number results would be, not saying that's what the results will be, it's just that we need to plan on more bumps happening in the future. And as a result of that, in the general market and economy, we've got to be resilient and really sound to be able to handle those things. And so we've lowered our operations expense to allow us to do that. Our plan going forward does include a reasonable amount of government grant support. So we got STDC in the plan for next year. It's $1.3 million of cash. We've got it late in the year to allow us time to kind of what the government go through. And then of course, sales growth. And I think that the exciting thing about the company and although we've been having a conversation about all of the things to be worried about, we do have exciting things so we have the new. eSight Micro integrated with the Lumion's product that has got significant value and benefit in the marketplace. We've got a lot of deals going and a lot of customers interested and that business is expected to grow. We've got new sales channels and new partnership deals that we have been building. And we've got a number of projects and deals moving forward. So our Pico product, which had been built for a large satellite partnership, that satellite partnership went down the drain in April when their satellite blew up. But we've now announced a new partnership. which is very exciting. It's with a satellite vendor that has both a low earth orbit satellite that competes directly against Starlink as well as a high earth orbit. And their plan is to integrate Pico with every satellite modem they ship to business customers. So it's a very big opportunity. We've got a strong partnership with one of the leading lighting vendors in North America. And all of those things are going to contribute to our sales growth going forward. Our objective is to conclude in December and early Q1 the activities that we've got. And then we're going to focus on building the business going forward. I'm sure there's a lot of questions about this. When we get to the end of the presentation, we will go through all of the questions that you may have. So now we're going to go through the 2020 Q3 results and year-to-date results. And although our trailing four-quarter revenue was strong, our Q3 revenue was abysmal and disappointing. And there are reasons for it, which I think under the covers are actually a good thing going forward, but I'm going to let Um, Farouk, talk about the financial numbers, um, and I'll talk about the outlook at the end. Farouk?

Yeah. Hi. Thank you, Mariam. Hello, everyone. Thank you so much for joining. So let's start about, you know, talking about our Q3 year-to-date revenues, our trailing four-quarter revenues. So our trailing four-quarter revenues have been pretty strong. If you can see the graph over here, you can see that our trailing four-quarter includes Q4 of 2021. and then Q1, Q2, and Q3 of 2024. So you can see with the comparison that Q4, Q1, Q2 have been pretty good. So It's just that when we talk about Q3 2024, that's when our revenue has declined. And it's because of a number of reasons, but mainly if you look at our revenues in Q3 2024, they were 369 to 97, which yielded a trailing four quarter of 4.3 million. So trailing four quarter includes a strong Q4 plus a strong first half of the current year, where we can see a steady increase in revenue. The comparative TFQ, includes Q4 of 2022 and Q1 and Q2 of 2023, which were heavily impacted by the economic downturn, triggered by the macroeconomic events of 2022. So we are getting out of it right now. The current quarter is down significantly by around 84% compared to the previous quarter. The decrease is due to delays in customer orders as certain existing and new customers delayed their purchase orders and payments while they finalized and closed their financing. Furthermore, in the current quarter, the company experienced cashflow constraints and therefore we shifted our focus from revenue generation to cash conservation. So the company is now matching shipments to payments from customers. So, you know, and therefore certain orders we push to the next quarter just because, you know, our payment terms did not align properly. So we said, you know, Once we get our money in 100%, you pay us, and that's when we are going to ship. And as revenue is linked to shipments, so you can see over here that our inventory is pretty high, but our revenue is low because those orders have been shifted to the next quarters, and we're going to generate that revenue in the next quarter as we get our financing over there. Mariam, next stop, please.

So I just want to give an example of what we're seeing and the need to make this change. And, you know, so... Previously, we would push to get revenue in the quarter. And if there was a little bit of a payment delay, we would adjust the terms. We would be very flexible. In the construction industry, there are what's called distributors. And distributors are there. One of their main benefits is that they make a payment assurance. In other words, the supplier will sell to a distributor who then sells to the contractor. And the distributor basically, up until recently, you know, they would pay the supplier no matter what, and then chase the contractor for the money. That was their role. Well, the distributor industry has now changed that. And what we're seeing is distributors are saying, I'm not paying you till I get paid from the customer. So if We're seeing, and this is why we talk about the economy being have and have not, our customers starting to be more cautious on their payment terms. and when they pay us. So, you know, distributors not giving it to me exactly when I expected it anymore. Now it's like, while they are waiting for payment from their customer, then we need to be ruthless on it's not shipping until we get paid. And we made that change in Q3 in a ruthless way, like zero tolerance on adjustment of that because we needed to, and it's probably best practices going forward. And so once that realigns, then, you know, it'll kind of reset itself. But there's a small gap between revenue and cash, which we're now aligning. And so there's definitely a blip. We also have a number of customers who have deals signed, but they haven't closed their financing or their financing is just about to close. And therefore, we didn't have the cash not shipping. Farouk, if you want to keep going.

Yeah, for sure. I just wanted to add one more thing in there is that typically our payment terms are we take 100% before shipment. So there's a significant deposit at the start of the order. So we get the deposit. That's when we start working on the order. And then when we finalize the order, then we wait for the money to come in before we ship it. And depending on the customer, what we used to do, we were flexible that as long as we've got 50% of our money in, we can ship and you can pay us later. But that was causing us to have a receiver and chase after payments and whatnot. So now we've basically clamped down on that. And we're like, we're not shipping until we get a significant amount of our money in the door. So, yes, thank you, Maryam. So the next tab, we're talking about our trailing forecourter revenues for our different sectors. So if we look at our revenue by vertical, you can see over here our telecom vertical is significantly improved, and it is 3.4 million compared to 1.6 million. And It's basically because our telecom vertical, we completed the integration of Eastside hardware product. And so together with the clear blue smart power management platform integrated into the Eastside hardware, it's yielding a strong sales growth. So this, together with the recovery from the 2022 downturn, we can see a 110% increase in trailing forequarter in the telecom industry, in the telecom sector for us, and accordingly, 93% growth in the Middle East and Africa segment, which is linked, basically. what is uh what is down slightly is our lightning vertical and accordingly the us markets uh which is the timing of orders as we discussed and you know now it is expected to increase as we start shipments in in the next quarters and uh we've also uh brought new products like new cami and senti products which uh which we're marketing into the us market as well So both of those are going to grow in the future. So this vertical is also going to grow in the future. Next slide, please. So if we look at our revenue by product, so there's a decrease in Nanogrid, which is attributable to the customer deployments. Nanogrid customers have delayed rollouts due to funding delays, as Miriam spoke about, and we're working closely with these customers. We expect two of our large customers to get their funding financing completed in December. And so this would result in new orders coming in. The POs actually received. So we were already spec'd in. We're working on, you know, on an engineering of the product but as soon as they get their funding the orders would start to flow so as if you look at our east side micro you can see that significant increase over here that is now a fully integrated smart power management platform and is now gaining a strong traction in the market as um and you know and and we see that there's also certain cross sales from um with our clear blue nanogrid customers, and they're choosing Eastside for larger systems and retrofit projects as well. And for PicoSenti, while still there's small revenues, it's beginning to increase, and there's good adoption on the solar lighting and IoT and satellite telecom markets for that. Mariam, next tab, please. So now let's talk about our recurring revenue. So recurring revenue is the revenue that the company earns from its energy as a service and Illumium's ongoing management services and cloud software. Every single system that Clearblue has ever sold includes an ongoing service component. So Clearblue manages and operates these power systems on an ongoing basis for our customers. This is at the heart of our business and our value proposition. proposition. As telecom customers increase, wireless telecommunication bandwidth to support an ever-growing customer base also increases. And also, you know, the power needs for those sites. This ongoing growth of telecom systems and ongoing operation and maintenance of the power needs to keep the system functioning is what drives the growth in our recurring revenue. As you can see, addition to our telecom customer rollouts over the years is having a really nice impact on the growth of our recurring revenue. So recurring revenue includes all revenues from existing installed systems that are under ongoing management by Clearblue. So customers, while sometimes undertake to expand the capacity of their sites, as telecom traffic grows and these one-time transactions are also included in our Clearblue recurring revenue. So we see a decrease in, we see an increase for the trailing four quarter, which is a trend that is continuing as I said, but for the current quarter, there's a decrease because it's just these one time transactions got delayed and that would be coming in the next quarters. So that's why we could see a decrease in this quarter, but overall the trailing four quarter is a steady increase of 5% compared to the previous corresponding trailing four quarter. William, next up, please. Do you want to speak about the bookings?

Yep. So our bookings are continuing to be positive. And we do see a strong potential for the number to grow quite nicely, even in the next two to three weeks. There's a lot going on. Our bookings consist of two components. One is orders and POs that we have, which we expect to ship in the next couple of months. And then secondly, the ongoing deferred recurring revenue. So as you can see, our total bookings is 3.5 million. Of that, 2.7 will be in the next 12 months. And $500,000 is in year two and beyond in terms of ongoing orders and recurring revenue beyond that. Farooq, do you want to talk about our gross profit?

Yeah, for sure. So this is a good story with our gross profit. So if you look at the graph on the right, we can see that the company has been able to grow its margin over the years and now is maintaining margins of over 40, 45% range. While high inflation and increasing commodity prices, there has been pressures on the company margins. However, in most cases, company has managed to either innovate lower costs elsewhere or to pass a portion of these increased costs of materials to its customers, which is made possible due to our value proposition and software and service. So gross margin in Q3 2024, as well as for the trailing four quarter 2024, we can see it's 46% of sales and increase from 2023. This is largely as a result of the change in the sales mix, where revenue from Eastside Micro, which is a highly integrated Eastside microsystem with our software, has resulted in a higher growth of margin for the quarter. Having said that, the company does have cost pressures and with new products on the line where Pico, Senti are coming online, the company's margins are expected to decrease. So, you know, we would expect margins from, you know, mid-30s to lower 40s, you know, something around that is what we expect to see. But around the mid to high 30s is what we would expect for the foreseeable future. Next slide, please. So when we see our EBITDA and adjusted EBITDA for the what the trailing four quarter, trailing four quarter. It's an improvement. We see that our EBITDA has improved from a negative 2.7 million, 2.5 million. That's basically because of our increase in revenue and, you know, not a, not a proportionate increase in cost of goods sold. Our gross margins have improved. So you can see over here that our EBITDA is improved for the quarter, for the trailing for quarter. However, the trailing, if you just look at the quarter for Q3 of 2024, we can see that our EBITDA is negative, but it's also because our revenue compared to the previous quarter is pretty low. So compared to previously Q3 2023, we had 2.2 million revenue and now we've got 369,000 revenue. So you can see that there's decrease in gross profit, but overall our EBITDA is down accordingly. So the company is undertaking a detailed exercise to reduce its overheads, as Mariam spoke about, and we've laid off a portion of our workforce. We have reduced our software licenses and reduced the expenditure on the cloud. We're moving to a different platform. you know, different technology to improve our cost on the cloud that we have. And that's why we expect that all of these cost savings plus increase in revenue going forward, we expect our EBITDA and adjusted EBITDA to improve. Thank you, Miriam.

Okay. I'm talking a little bit about the outlook. So we are shifting orders to a cash centric focus from a revenue centric focus. So as I've said, customers everywhere are experiencing their own cash flow challenges. So we're adjusting payment terms. Whereas revenue might have been one quarter ahead of cash. We are now making revenue align with cash. So that's hit Q3. It will also hit Q4. Q4 is going to be better than Q3, but still not at the numbers that we all want to see. But once that adjustment is done, we do see Q1 upside. In the past, we had given guidance related to the next four quarters. and what our sales funnel is looking at. As we thought that things were becoming more reliable, more predictable, and larger revenue, we started to move towards a guidance where we talked about quarterly revenue and our annual forecast. We're now backing away from that. We want to make sure that we're not getting ahead of ourselves in predicting or promoting you know, conveying something that's reliable when it's not, we still see the revenue and the projects coming. It's just, there are delays. So you're going to see us talking about forward four quarters and where we are from a sales funnel perspective. We will give you updates as the deals come in and what our bookings are. But stepping back away from here's guidance for what the quarter and what the numbers are going to be. I don't think that's appropriate at this point in time. I did, we didn't make a comment here but I just want to make it a small aside. I'm sure one of the questions will be about Trump tariffs. Again, that's going to cause short term uncertainty and short term. You know, we're focused right now about is it going to be hard to get things through the border just because there's a backup, everybody's trying to get things moved. Those kinds of things could cause delays in the quarter that could impact Q4 stuff versus Q1 stuff, et cetera, et cetera. But as you saw in our previous numbers, our US revenue is, you know, around 20% of our business. And from a product perspective, we have very good margins in that business, and we expect to be able to adjust and normalize. But there will be an uncertain period that we've got to go through. From a sales funnel, when we look at the next three quarters, it looks quite strong. The satellite deal we've announced will allow us to ramp up PICO. This is a very large contract. This is going to become, if everything moves the way it should, to thousands of units. But if there is a ramp up, and so I'm not expecting thousands of units next year, the key focus will be making sure that the units we ship and the installs we get are working, that the development is there, that they're focusing and producing well. And given that we build that very strong base in a good solid way on the ramp up, then the volume should arrive in 2026. but it is gonna impact and contribute to revenue next year. Our Senti launch and our Illumiant Cami launch is having an impact on sales. We're getting a lot of orders with new customers, nice short-term sales cycles and things are moving. So we see that as a growth metric. On the nano side, we do see large-scale rollouts planned by two of our key partners. Those two key partners had both thought that their financing would close earlier this year. We're informed by both of them that it's going to close in December, and we see it as very imminent. So I'm not saying it will close in December, but it's very close. And based upon that, we do see some nice, strong news Nano sales numbers next year, both of those two key customers and with new and other customers. On the micro side, the growth supply deal that we announced earlier this year in September, the contract is at the final contract stage. It's not signed yet and we haven't got the deposit. And as you know, we're not going to start shipping We're producing till we get the deposit. But we do see that in the numbers for next year. And we do have other orders and deals expected. So the net is our focus right now is to get... We've done what we need to do on the cash flow side, we believe. And to set us up going forward, we need to clean up some of the backlog. We're working with all of our stakeholders on the debt side. We think that what's going to turn out positive. And as we get that news, we'll let you know. And as we're working to finish that all in December so that we can focus on 2025 being a good year. I'm saying here that it's looking solid because, again, I don't want to get ahead of ourselves. We've got to deliver and see that the market is moving to come back to you and say that, you know, 2025 is very strong and super positive and high growth. That's the plan we're working towards. And as the results come in, we will give you that guidance and updates. So that's the update today. I'm going to stop sharing now and look at the Q&A and try to take all of your questions.

Sure. So I can read out the questions and then we can see. So There's this question, and it relates to the outlook and the future outlook. So there's a question. The company has broken its promises many times in the past. Can a small dose of realism be in order for the future? Can you speak to that?

So, yes, absolutely. I don't want anybody on this call to think that management's walking around and the board is walking around thinking, you know, it's all these external things. We are being ruthless on our own analysis, our own thought processes. and what we as a company need to do better. And one of the things is that we have been, I've really reflected, I've never, I'm known for being unusually blunt, and I can't hide my emotions. I'm not the most diplomatic person. I don't lie when I believe something You get what I believe. So I've never at any time, you know, misrepresented or said something that I didn't believe, but I have been over optimistic and mostly over optimistic on timing. Timing and an expectation that the challenges are behind us. You know, at the beginning of every year, we think to ourselves, you know, oh, it's done now. COVID's done now. Okay, the inflation is done now. Okay, this is now behind us. And I think the new normal is that we have a period of uncertainty. And there's going to be new things. Like a week ago, if I had written this deck, we wouldn't be talking about Trump tariffs of 25%. So we are doing everything in our power to be more realistic and more ruthless on our forecasts and be much more conservative. on our numbers. I think one of the key aspects of that by forcing ourselves to be payment and cash centric on our revenue, that is going to allow us to, it's going to provide a check to make sure that we're not getting ahead of ourselves from a revenue and a forecasting perspective. So we do acknowledge that we have not delivered on the promises that we've made. and we're doing everything we can to adjust. We will be looking for new board members. And that will be a process. We'll be looking for nominations and new board members going forward. But in the meantime, we've got a number of advisors and mentors in the marketplace who are senior people in the venture capital world, the startup world, the finance world. And trust me, we are getting some very tough love to help us to adjust and make sure we're doing all the right decisions. I've also had many conversations with many shareholders and investment partners to get their feedback and input, and we are taking it to heart.

So, Maryam, the next question is, how do you see the company's financial liabilities impacting sales pipeline? That is, addressing the risk concern of the partnering with a company that is potentially on the verge of bankruptcy.

So, we have not seen that concern. I want to say we're not on the verge of bankruptcy and that's, I want to say that, but we are going, you know, we have some financial uncertainty that we have to work through. Our best asset is that this is a company that has been, we are still an early stage company. We've had to invest in R and D we've had to raise money. And there are, hundreds, if not thousands of those companies that don't exist. This company has made through the last four years, it has a great set of customers, a strong value proposition, a strong solution. And our customers are committed to working with us and they do understand how difficult the markets have been for all of us. So it is affecting our operational execution, but we have not seen it affecting any deals from customers going forward. We don't anticipate that that would be the case. I think also the nature of our product is that the customers have the ability to operate these systems. The systems continue to operate and function and solar panels are good and batteries are good. So dealing with the risks of that is something that we're being proactive on and don't anticipate that it should be an issue.

Okay, so the next question is, will switching to a prepaid payment term reduce competitiveness if our customers are offering longer payment terms?

Absolutely, it will. One of our biggest challenges is the word Huawei. The Chinese will provide a lot of financing capabilities that we don't provide. We've been living with that for quite a while. So when you look at the competition versus, you know, other companies that come from our markets, then it's not as big a deal as when you're dealing with compared to China. I think that our customers are also pragmatic. They don't wanna increase their debt and we have enough value and differentiation in our product that it is something that we can manage, but it does reduce our competitiveness.

Then there's a question about the low share price. So considering that the low share price, will it decrease even further if you're looking to raise capital through equity dilution? Can you speak to this point and offer clarification?

So I've seen the stock price of this company go from $0.08 to $0.70 in a period of three months. And I would not have said that in that three month period, the company was 10 times the value. The stock price is not the reflection of where we are and what our value is as the company. As one person once said to me, the only price that matters is a price at exit. So I can't comment on, I certainly don't feel that the stock price is reflective of the value of the company. The investment community looks at the enterprise value of the company and it looks at the debt and the balance sheet and it looks at cashflow. And right now, the enterprise value consists of the share price and the equity price plus the amount of the debt. When we reduce debt and we move some of that to equity, that doesn't necessarily change the enterprise value. And when you do reduce debt and improve your balance sheet and you are cashflow positive, that does improve the stock price. So we have a boulder on our backs right now that is a balance sheet that has heavy debt, even though some of it is, you know, a $4 million, 0% interest, 10-year loan, like that's fantastic money, but it still shows up as debt. So we have a boulder on our back that is debt. and we have a boulder on our back that is cash burn. Those two things getting fixed should have a positive impact on share price and enterprise value hopefully will then also go up. So that would be one of my comments would be on that. Our focus is to increase the value of the company from an enterprise value to increase the share and equity value of the company and to pay off debt. And that's what we're working on.

So then the next question is, assuming for fiscal year 2025, your gross margin remains at 43% and minus your recurring revenue stream, what will be your breakeven in terms of total revenues required to reach breakeven on an EBITDA basis?

So, I'm just wondering if I'm giving too much guidance and whether the new world shouldn't give the guidance. We've reduced it significantly by reducing our salaries by a third and reducing our, so our cloud and software expenses have been dropped by $600,000. We've gotten the number down well below where it was before. I would say Compared to a year ago, it's probably cut in half in terms of what revenue we need to make in order to be cash flow positive. So I don't want to give a number, but it's down significantly. It's certainly well, well, well below 10 million in revenue. We've taken a plan that says, you know, at the most conservative level of revenue forecast, even with, you know, lumpiness, delays and other things, What does that revenue number look like and how do we make sure we're at a cash flow level that allows us to do that? And we think we have that plan in place. I do want to reiterate with the revenue mix and the products and the other things we are trying to guide the market to a normalized gross margin. should be seen in around the 35 to 40% range. I think if you go back to our Q2 numbers, you'll see that our margin was down because of the nature of the order that was shipped during that quarter. So don't assume 43% is gonna be the number going forward. We know that there are some orders that are gonna be lower and so the average should be in the 35 to 40% range.

Then there's a question about about the current cash situation. So how long can the company stay afloat in this current cash situation?

So right now the company is operating on a cash in cash out model. We don't have a huge flow of cash and we've been operating under that model since, oh, pretty much since the beginning of this year. because we did have a large delay. So everyone needs to remember that we were expecting 1.5 million from STDC in January. We didn't get it till May. We were expecting a very large payment from a customer in January that we didn't get until August because of financing problems. We were expecting a very large payment from a customer in January that didn't come until July because the shipment had been redirected due to the Red Sea Hudi missile issue and actually sat on a boat for more than six months. So the cash challenges that the company has had and the cash flow challenges, we've been living through it all of this year. As it stands right now, we're managing as it comes in, it goes out and managing very closely. And I think we're fine. That's our plan. And as long as we can close our plan, we should be okay. Yes.

And we've got cash flow projections. So what we do is we've got a short-term cash flow projection, which we manage on a day-to-day basis. Then we've got a medium-term and a long-term cash flow projection. So we're trying to manage and make sure that we can manage you know, we can manage until our cash flow positions get better. And we are working with our stakeholders to restructure ourselves, to reduce our costs, to reduce the interest costs, reduce the cash out, cash burn because of our principal repayments. And all of that will come together between the December, January timeframe. And so it's going to be tough from now until December, January. But I think once we get this thing done, I think it'll be much better. So the next question that we have is, what will your burn rate be per month in 2025?

Ruth, do you want to answer that?

Yep, so in 2025, our Q1, we are projecting a cash generation rather than cash burn. And Q2, based on, so what we do is we look at our cash. We've done, as I said, we've got a short term and a long term. long-term projection. And in terms of the long-term, I think in Q1, we've got a cash generation based on the revenues that we have booked and we've got, we project Q2 is gonna be, you know, combined Q1 and Q2 would be positive. But Q2 is going to be a little bit, because there's certain payments that we need to make in Q2, which would basically offset the additional gain that we're going to in Q3. In Q1, the additional cash generated in Q1. Q3 is when we're expecting the STDC money to come in, and we are expecting around 1.3 million to come in at that time. And once that 1.3 million comes in, we would start generating cash, conserving cash, and maintaining cash. So it's just the Q4 this year and maybe a little bit of January. But after that, we expect to be generating cash rather than burning cash.

One of the biggest focus we're going to have next year is building resiliency. Part of our challenge is we've been too much at the edge And for too long, and you can only take so many knocks at some point. So building resiliency, building cash and ending up in a strong cash position by the end of the year is the plan. And that's what we're focused on.

Yeah, and this is all integrated with the work that we're doing with our stakeholders. And we've already got pretty good feedback from the FedDev loan that we have. We're working towards very generous payments going on forward. on our side. So I think once we get the restructuring done, which would be done around the December, January time, we should be good.

So there's a question around, can we give more details about the plan to turn the company around? Broadly speaking, is it about turning debt holders into shareholders? It's a multifaceted plan, reducing expenses, changing our payment terms, focusing on certain deals and opportunities, new revenue in, those kinds of things are all part of the plan. However, we will acknowledge and agree that converting debt into equity will be part of the plan. I think that starting when COVID hit, the market moved towards convertible debentures from equity issuance and convertible debentures were really a form of generating equity investment in the company. And we want to make it a good deal for those dimension holders, but converting those is something they were always planned to convert at some future date as well. So, I mean, it's not like they weren't eventually going to convert into equity. That was always the plan. And I think we're just saying now, now's the time to do that. The next question is, what was the reasons why the two board members resigned? It was really a part of this whole process. I do want to say Steve Perry and Jane Kearns were coaches and mentors of this company long before they joined the board. And they continue to be coached and mentors. We have nothing but good things to say about them. As part of the process to go through these steps, it just made sense and was something that was a step in that process.

So... So the next question is, you previously mentioned on two OEM deals and have announced one. What is the status of the second?

The second one is ongoing. It's with a large North American lighting partner. And it's interesting, we haven't made the marketing partnership announcement with them because it's a large organization, takes time to do that, but we're selling on the ground all over the place with them. The partnership is in place and orders are flowing and opportunities are flowing. That's why we think our Illumion and Senti business is going to be quite positive next year. But I would expect the announcement will be probably Q2, Q3 next year before we see something more, you know, it's, I think the approach they're taking is let's, you know, usually you form a marketing partnership and then you sell and you get the installation's They're taking a more, let's get out there and see the momentum and see this is big and let's get this all working and then we'll announce. So it is underway and active work being worked on all the time. But I don't see an announcement happening until earliest Q2 next year.

Then you mentioned Huawei as a competitor. Can you please provide details about which products they compete with CBLU?

So Huawei competes with our micro product and our nano product in a big way. They have been upping their game quite a lot. They've got some good stuff and they provide some great financing. They are also starting to invest heavily in predictive analytics and AI. Our customers will say to us, you know, I just came from Huawei and I saw what they've done and it looks really great, but it's what you had four years ago. So the market is moving on smart analytics and those capabilities. And we do see Huawei as a formidable competitor. Customers are working on diversified supply chains and diversified partners. And most telco organizations are either Western focused, therefore not working with Chinese companies, or they're 50-50. Some go 100% Chinese. So we do see them as a competitor. They're the biggest player in the market.

Next question. Over the life of the company, you've stated several times that the company can be a billion-dollar company. Do you still view that as a realistic goal?

I absolutely do. Oracle Financials, Oracle's in year seven, so we're in year 10, 11 of the company. Oracle's revenue in year seven of its existence was $1 million in revenue. I believe this company has the potential to be a billion dollar company. And I believe that in the next few years, we have a potential to really start to move the needle. And as many of you will know, myself, my family, the management team who are going without paychecks. And I mean, if you saw what I looked like, we're all in and we continue to be 100% invested in this company because we see the value. And the example would be this recent satellite deal that we announced. To announce a deal like that, We're the only product that they have the potential to do that with. And if you look at the announcement, the announcement of what they're building with us is focused on our value proposition. So I absolutely believe that.

So I think this is the last question for now that we have. Do each OEM deals have minimum sales targets?

No. No. They don't. Everyone in the market is dealing with uncertainty. And there's certainly pricing and volume targets. So when you say minimum sales targets, there's no minimums in the contract. Are there sales targets? Absolutely. Okay. Okay, so that's all the questions. We will try to keep everyone up to date. I will encourage you to please reach out to us anytime. Do really benefit and appreciate everyone's support and impact and patience with us. And, you know, this has taken us four years to come to this situation through many previous knocks. We're going to get it adjusted. We're going to deal with what we've got sitting on the table that has been building up over the last four years. Our stakeholders are supportive and working with us to get that done. And then we're moving forward. Thank you very much for your time today and look forward to speaking with you in the future. Please don't hesitate to reach out.

Thank you, everyone.