Good evening, ladies and gentlemen, and welcome to Nextech AR Solutions Corporation 2022 Q2 results Conference Call. All lines have been placed on mute to prevent any background noise, and 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, Thursday, August 18, 2022. I would now like to turn the call over to Julia Viola, Investor Relations at Nextech AR Solutions Corporation.
Hello, and welcome to the Nextech Q2 2022 earnings call. With me on the call are Evan Gappelberg, Chief Executive Officer, and Andrew Chan, Chief Financial Officer. Today, after markets closed, Nextech AR Solutions Corp released its financial results for the Q2 ended June 30, 2022. A copy of the earnings disclosure is available on our website and on SEDAR. Some of the information discussed on this call is based on information as of today, August 18, 2022, 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 SEDAR filings. During this call, we will discuss IFRS results and key performance indicators.
A detailed description of our key performance indicators is available in our MD&A, which can be found on SEDAR. Neither this call nor the webcast archives may be recorded or otherwise reproduced or distributed without prior written permission from Nextech. To begin our call, Evan Gappelberg, CEO, will discuss 2022 Q2 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 the call over to CEO and Founder of Nextech AR Solutions, Evan Gappelberg.
Thank you, Julia. Good afternoon and good evening, everyone. Thank you for joining us from around the globe today. In 2022, we have emphasized over and over again the rapidly growing demand for our 3D modeling and AR solutions, really for the transformation to Web 3.0, especially in e-commerce. This demand that we've been talking about is evident through our regular announcements disclosing a multitude of new deals closed in Q1 and Q2 of 2022, all related to 3D modeling. The new deal- flow is continuing into Q3 and serves to reinforce the narrative we've been public about, which is there is a rapid acceleration.
There is a massive new urgency and new demand that we are seeing for 3D models in e-commerce across various industries and product categories, which include but aren't limited to furniture, sports equipment, clothing, accessories, artwork, appliances, lighting, auto parts, and much more. Now, looking back gives me some sense of what to expect as I look forward. It's been four and a half- year since the founding of Nextech in 2018, with CAD 3 million and a dream of becoming the first pure play 3D AR public company. During that time, we've navigated in and out of a number of businesses that, in hindsight, acted as bridges and test beds, proving our resilience and ability to pivot.
During this time, however, we were always planning for this momentous moment in history, making calculated decisions about our in-house development of our 3D technology, as well as picking and choosing the best strategic acquisitions that would position us for the 3D tidal wave that we believed was coming sometime in the future many years ago. We have been steadily working towards this moment, making acquisitions. We've made 10 acquisitions to date, testing our technology in the real world and developing our technology to prepare for the digital transformation and Web 3.0. Well, ladies and gentlemen, I am pleased to announce that the time is here now. How can I be so sure? How can I make such a bold statement? It's because we have been closing 3D modeling contracts at the fastest pace in our company's history.
It's because Google is now indexing 3D models higher in organic search. It's because the largest prime marketplace, Amazon, has gone 3D. It's because Shopify has gone 3D. It's because Walmart, Target, Kohl's, NAPA, all companies that we either currently have contracts with or are talking to, have all gone 3D. The world has now pivoted to 3D. Make no mistake about it, 3D is here, and it's here to stay, and it will be a big part of a multi-trillion dollar, multi-decade mega trend that is now being called the metaverse. To enter the metaverse, however, you need a 3D model, and that is what Nextech makes, 3D models, which we are now scaling the production of.
For the first time, we're hearing from our customers that they are either told to buy 3D models from leadership or planning on buying 3D models in the near future. In fact, I had a call yesterday from a major customer of ours that was talking about a 3-year plan to purchase over 100,000 3D models. This has never happened before in the history of Nextech, and it signals to me that the market is here. The demand has shown up. The demand for 3D models, in my view, will only accelerate throughout the second half of 2022, and I believe that in 2023, we will see demand shift into high- gear, similar to what happened with our virtual events business during the pandemic in 2020, which had a significant impact on our valuation. I believe it can and will happen again.
If you look at our major customers, we're signing major customers, but we're also signing small and mid-size e-commerce customers for 3D models as well. In Q2 and even into Q3, we're experiencing a rapid expansion of major 3D modeling customers with some of the biggest retailers. These include new contracts with brand-new customers, as well as bigger add-on contracts for more 3D models with existing customers, including NAPA Auto Parts, Kohl's, CB2, Kmart Australia, just to name a few of our major customers. The biggest fish in the e-commerce ocean by far is the Prime marketplace. It is Amazon by far. It's not even close. Amazon is the biggest fish in the e-commerce marketplace and represents, at least for the business that we used to own and operate, our e-commerce business, about 70% of sales.
I've seen that number over and over again, about 70% of a company that's in the e-commerce space, about 70% of their sales happens on Amazon. We announced on July 12th that we began supplying the world's largest Prime marketplace with 3D models. Now, that's in Q3, not Q2. This represented a significant new development, and it does represent potentially massive growth for Nextech for many years to come. Signing a deal with Amazon, however, does demonstrate Nextech's technical proficiency and leadership in the 3D modeling for e-commerce space. Believe me, Amazon only works with best in breed. If you look at Amazon, there's over 1.5 million registered active Amazon sellers with hundreds or thousands of models for each one of those sellers. There's an average of 1,800 new sellers that are signing up on Amazon every single day.
They have about 250 million product SKUs. It's just a massive opportunity for Nextech, and it's just getting started in Q3. No revenue in Q2. The numbers just released did not include any revenue from this. In Q3, we anticipate CAD a few hundred thousand in revenue as we start to scale with Amazon, and we expect we will quickly grow to CAD 1 million in revenue through Q4 of 2022. As we enter 2023, we are gearing up our production for the possibility of doing CAD 1 million a month in Amazon revenue alone. Amazon, however, is clearly not the only customer we have. Although they are significant in the potential revenue over the coming years, we have other customers that are also quite significant.
We're currently in talks with some of the world's largest brands to supply hundreds of thousands of 3D models. Kohl's, Walmart, Jacuzzi, Fortune Brands, just to name a few. The more contracts we sign with major players, the more Nextech cements itself as the world's leading supplier for 3D models, and the more companies will ultimately see us as such and come knocking on our door. The business opportunity and demand for Nextech to produce 3D models and AR experiences for retail and e-commerce has never been greater, and we are extremely excited for what the future holds. We will take full advantage of this opportunity. E-commerce is over a $5 trillion global industry expected to grow by another $1 trillion in the next year or two, and 3D models are fundamentally transforming online shopping. Why? It comes down to one thing, ROI.
There's a 40% reduction in returns, 93% higher click-through rate. Up to a 250% increase in conversions. Nothing else comes close to this ROI in e-commerce. Not video, not direct messaging, not next day delivery. With our 3D modeling technology, we are perfectly positioned to ride this mega trend for the foreseeable future. We are the on-ramp for Web 3.0, and we have achieved a perfect product market fit with 3D models in e-commerce. Consumers, which really drive the bus, they prefer retailers who have 3D and AR experiences. 3D models are also enabling virtual product photography, which is a huge new business opportunity for us. We are launching this very soon. It will replace product photography for web and e-commerce sites, saving companies millions of CAD and generating significant revenue for Nextech.
We offer all these solutions in one integrated platform, one end-to-end solution, which we believe is very, very valuable and becoming more valuable every quarter. Nextech is creating tremendous value for the e-com ecosystem, and it's just getting started with this transition to 3D models. It's only a matter of time. I think it's gonna happen in Q4 of 2022, when the breakout for everything 3D happens, where there's a FOMO, where companies are gonna feel pressure to adopt 3D models. If they don't, they will feel like they are going to be left behind by their competitors. Everything today is perfectly aligned for Nextech to experience dramatic growth over the coming year. Google has even come out, and they're supporting us. As mentioned before, they're now ranking 3D models higher than 2D images.
Imagine if your product that you sell gets ranked higher by Google. That's the wind at your back. That's the position that Nextech is in. If an e-commerce site has 3D models on their site, those 3D models will organically show up higher in search results over an e-commerce site that just has 2D images, giving them a huge competitive advantage, and again, creating this FOMO, this massive amount of new demand for 3D models, and we are here to supply that demand. As we improve our AI and 3D model production capabilities, we expect to be able to grow our 3D modeling capabilities by as much as 1,000% in 2023.
Now, if you look at what we've done to date, we've set ourselves up with a SaaS platform strategically integrating with all the third-party platforms, which we've talked about previously. This SaaS integration with all of our product lines really has quite significant implications for our scalability and our revenue growth, which is why we made them a priority earlier this year. We are setting ourselves up for higher annual recurring revenue year-over-year, driven by our monthly recurring revenue streams month-over-month. As reported in our Q2 results today, we're up to almost CAD 1 million already in Q2 of 2022. This growth is a huge validation of our efforts to disrupt the emerging multi-billion-dollar 3D model market.
As we've previously indicated, 3D models for e-commerce and annual recurring revenue are going to be the area of business that we believe can scale quite quickly. Annual recurring revenues is what investors should pay close attention to in order to measure the health and the growth really of our company. Shopify, another big player in the e-commerce ecosystem, believes as we do, the future of e-commerce is 3D. We've integrated with Shopify. We continue to pick up customers off of Shopify. We've integrated with WooCommerce, BigCommerce, and we've basically put our 3D model-making solution called ARitize 3D in front of the millions of merchants that are out there globally, which again positions us in front of this massive 3D model for e-commerce opportunity, which is estimated to be worth $200 billion.
Started to emerge really at the end of 2021, and now it's continuing through the first half and now into the second half of 2022, and we continue to believe that we're gonna win more and more business, and as time goes on, capture more and more market share. We believe that our competitors will not be able to compete for long just because we have such a vast array of solutions. If you look at our solutions, we keep adding more. We are going to soon be adding our CAD-to-poly studio, which again is gonna be a 3D essentially production studio for the creation of 3D models from CAD files. You can change the colors in the studio. You could change the mesh.
You could change the textures, it's a full on creation studio, and it'll have the virtual photography built in as well. Now, apart from ARitize 3D and 3D modeling, Nextech also owns a portfolio of quite valuable companies that contain breakthrough technology and industry-disrupting products. We are working towards unlocking the value of these assets and businesses, and that really brings us to our spatial computing platform, ARWay, which is getting stronger and stronger every single day. ARWay is being spun out, as previously announced. ARWay really is a next-generation computing platform for the real-world metaverse, and it drives new revenue with out-of-the-box augmented reality mapping solutions. It's a no-code platform. Anybody can use it, and we've already launched the mobile app. I suggest if you're interested, you could download it. It's just ARWay in the app store. It's on Google and i...
iOS. We have an SDK that also was recently launched. We also have a studio, so you can go into a web-based studio and edit maps and create exciting AR experiences. ARway really opens Nextech 3D AR technology solutions to new substantial markets for use by creators, brands, and companies. It really extends our reach much, much further beyond just e-commerce. Even though that's huge, we actually think that there's even more potential with ARway. We've always been focused since day one on increasing shareholder value, which is why we announced the spin-out of ARway in June. The spin-out will result in ARway being a standalone public company, and we believe it'll be the first publicly traded pure-play spatial computing platform, which is quite exciting for our shareholders.
I am pleased to update that we are working diligently to bring this transaction to market. It's quickly moving forward, and is anticipated to start trading in October on the Canadian Securities Exchange and shortly after that on a U.S. exchange. When the spin-out is completed, Nextech will receive about 20 million shares that will be issued. 4 million of those will be distributed to Nextech shareholders on a pro-rata basis. If you own shares in Nextech today, when we spin out ARway, you will get a share for free in the new public company called ARway. This will give Nextech shareholders ownership in yet another exciting public company with a spatial computing platform, which I believe is perfectly positioned for growth in, again, the rapidly emerging Web 3.0 world.
There will also be zero dilution to the holdings of Nextech shareholders. As a result of the spin-out, I believe the true value of ARway's business and technology will get the recognition it deserves and see a positive revaluation which will benefit Nextech shareholders, which will continue either through their indirect ownership through Nextech. Nextech will remain the largest single- shareholder of ARway, or through the shares they get through their dividend. I'm quite confident that the spatial computing is the technology of the future. It's the next big thing that possibly even bigger than 3D modeling, and I think it could be the most important technology breakthrough in the twenty-first century. Because spatial computing essentially merges many disruptive technologies, including 3D models, augmented reality, VR, AI, and all the Web 3.0 technologies.
It expands the concept of traditional computing by adding a 3D object's location in space in relation to other objects or locations. When we look at that, we look at our 3D models. We've integrated our solutions where you can now be in a spatial map and populate that spatial map with the 3D models that we make for our e-commerce customers, setting the stage for additional business from our e-com customers that also have brick-and-mortar stores. Again, we continue to combine tech, integrate tech, and create new tech through those integrations, and ultimately creating our moat with this end-to-end solution for creators and brands that's really unseen anywhere else. If you look at our future, ARway is only one of many assets that Nextech has incubated with the potential for the development into commercial stage businesses.
As ARway gets spun out, there's a plan to repeat the business model with some of our other assets, continuing to increase shareholder value. That is the key. Map Dynamics is another one of our portfolio companies that we are steadily growing. The self-serve event management software solution, it creates floor plans. You can have ticketing happen if you have an event, a live event. You could buy tickets on Map Dynamics, you could buy a booth on Map Dynamics, and we're seeing a rapid growth in that business. Obviously, one mapping technology merged with the other mapping technology creates synergies. Synergies that create value. We have integrated AR wayfinding into MapD so that we now have over 800 customers that we can sell our wayfinding to for live events.
We've already done this for Restaurants Canada, for the Restaurants Canada RC Show back in May of 2022. We're already have a contract with Restaurants Canada. We've already mapped out quite a large event, the largest restaurant gathering event in Canada, and we were able to do that by combining our technology. Quite an exciting time for Map Dynamics. Moving right along, we are transforming and moving to become a pure-play technology company. We've announced earlier this summer back in June, that we are positioning the company for the next level of growth. All the stuff that I've been talking about, transforming our operations with renewed laser focus on Web 3.0 and our SaaS business. With that, we have been winding down our legacy vacuum cleaner market, e-commerce business.
This transformation is the next logical step. It does also represent. When you look at our quarterly numbers, you do see the numbers going down, but that is strictly because we are getting out of the e-com business and not we've taken our foot off the gas, and we're exiting that. If you think about that, you're gonna see a reduction in our product sales business, but you will see a growth, extremely rapid growth in our 3D modeling business. It's important that everybody understand that they're not related. As we continue to gain traction, signing new deals, winding down our legacy e-commerce business, we're now solely focused on our fast-growing, scalable business, which is our 3D modeling technology. In closing, the first half of 2022 has been challenging.
As a shareholder, we all watched small cap stocks get crushed. We watched the market get crushed in the first half of the year, which included Nextech3D.AI. The strong companies always bounce back, and I think we have only seen just the beginning of our bounce back. 2022 is proving to be a substantial year of growth for our key growth driver, which is 3D models and augmented reality. Nextech3D.AI is fully focused on obtaining greater industry leadership and penetration and becoming the world's leading 3D modeling company, if we're not that already. To do this, we've made crucial business decisions. As mentioned, winding down our legacy VCM business, which will result again in short-term reduction of our revenue. Again, don't be alarmed, as this was all planned and anticipated.
We are now gonna be replacing the legacy revenue with pure 3D AR revenue, which we expect will eclipse our vacuum cleaner revenue in 2023. We continue to integrate ARitize 3D with third-party e-commerce platforms and roll out our SaaS self-serve products to increase scalability. I believe all these decisions will pay dramatic dividends as the market is finally aligning, and soon will recognize the value of Nextech's groundbreaking Web 3.0 technology and solutions. The company and I are also doing everything we can to bring shareholder value, to increase shareholder value, and this is why, again, we've decided to spin out ARway. Web 3.0 and the Metaverse is a multi-decade, multi-trillion dollar mega-trend. Our technology, which includes 3D models, augmented reality, and spatial mapping, are the gateway.
Nextech's capture of the market share within this burgeoning AR industry is just getting started, and I've never been more excited and confident about the position our company is in and the opportunity we have before 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 AR employee working day in and day out, striving for success to achieve our company's goals. I would also like to personally thank Paul Duffy for his massive contributions to Nextech as President and Chairman of the Board. He and I have been working together for the past four years, and we are expecting to continue working together on ARway.
That Paul can focus, I've asked him to step down as chairman of the board, while I will fill the role, and he will become the Chief Metaverse Officer of ARway, which is hugely positive for the spin-out and for Nextech shareholders. I have full confidence in our company's direction, and I am looking forward to our continued growth in 2022 and beyond. With that, I'm gonna turn the call over to our Chief Financial Officer, Andrew Chan, to provide further commentary on the quarterly financials. Take it away, Andrew.
Thank you, Evan, and good afternoon. As a reminder, unless otherwise noted, all figures reported on today's call are in Canadian dollars under IFRS. All the preceding financial information is now available on our website and have been filed on SEDAR at the close of market today for your reference. Total revenue in the Q1 was CAD 3.2 million, down from CAD 6.1 million for the same quarter last- year. These revenues continue to reflect our shift in business from e-commerce and virtual events to 3D AR, the Metaverse and Web 3.0. Our product sales revenue for the quarter was CAD 2.6 million, down from CAD 4.4 million for the same quarter last- year, and down from CAD 3 million in the immediate preceding quarter, reflecting the decision of winding down our e-commerce business and solely focusing purely on technology.
Recurring software license revenues were up 15% to CAD 518 thousand this quarter compared to the same quarter last- year, and we saw a 40% increase in 3D recognized subscriptions revenue and a 1% increase in revenues related to our hybrid events platform, MapD, compared to Q1 2022. This is a result of the revenue recognized from our 30% growth of ARR to CAD 991 thousand this quarter. Gross profit also came in lower at CAD 1.6 million compared to CAD 2.3 million for the same period last- year, but on higher revenues. While we maintained a 52% gross profit margin compared to 38% gross margin compared to the last quarter.
Product sales gross margin saw an improvement from the immediate preceding quarter of Q1 2022, an increase of 55% from 42% as we focused on more profitable items during this wind down phase. Technology services gross profit margins increased up to 37% from 27% in Q1 2021, as the focus now has shifted to the more profitable 3D and AR products. We anticipate gross profit margins to increase even more as we continue to scale the business through these products. Operating expenses for Q2 was CAD 7.2 million, down CAD 1.6 million from the same period last- year, and down CAD 300,000 from Q1 2022. There were approximately CAD 1 million of significant one-time expenses related to acquisition bonus payments and settlement of employment contract agreement obligations that were expensed this quarter.
Otherwise, there would have been a greater reduction in expenses presented. The decrease in operating expenses in this quarter continues to be from sales and marketing and research and development expenses, similar to the immediate preceding quarter. This is a continuation of our effort to shift our growth related to spending to our 3D business. During the past few quarters, we have now restructured our sales force and marketing spend to a more cost-effective model for new pursuits in AR sales, which resulted in a 55% decrease in sales and marketing expense compared to the same quarter last- year, and a 30% decrease from Q1 2022.
The decrease in research and development cost continues from Q1 to be the result of our shifting and of our development focus to AR products, resulting in overall lower headcount in this area by 34% from the comparative quarter and a 14% decrease from Q1. As previously mentioned, the CAD 1 million one-time expenses contributed to the CAD 4.5 million of G&A costs. Excluding those costs would result in a CAD 3.5 million expense, which would be flat against the same quarter last-y ear and the immediate preceding quarter. After announcing cost reductions through the latter part of last- year, we have made significant progress in achieving net cash used in operating activities of CAD 3 million during the quarter and continue to actively monitor and reduce our expenses where necessary to better align ourselves with anticipated revenues and future growth.
We had a net loss in Q2 of CAD 8.9 million, compared to CAD 5.9 million in Q2 last- year, and a loss of CAD 7.7 million in Q1, driven mainly by the CAD 2.7 million impairment related to the wind down of the e-commerce business. Excluding the impairment, the charge of net loss would be CAD 6.2 million, which is one of the lowest in recent quarters. As of June 30, 2022, we had cash of CAD 7.1 million, inventory of CAD 2.4 million, and a positive working capital of CAD 7.1 million. Subsequent to the quarter, our employees signed up for a shares for services compensation plan that will save us, the company, approximately CAD 1.5 million per quarter, extending our cash runway.
Based on our current projections of sales and cost reductions, we feel this is sufficient capital to finance our business over the next 12 months. This quarter reflects months of hard work from Nextech employees related to cost management and the refocus of our business. I'm very proud of each and every one of the Nextech employees and would like to thank them personally for contributing to and sticking with us through this exciting journey. With that, I turn the call back over to Evan.
Thank you, Andrew. On behalf of Nextech, I'd like to thank everyone for taking the time today to join us on this call. Also like to thank all of our employees, all of our shareholders, all of our partners for their continued support as we remain focused on providing long-term value. Operator, we are now ready for the Q&A.
Thank you. If you would like to ask a question at this time, please press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. As a reminder, star one to ask a question. Our first question will come from Lisa Thompson with Zacks. Please go ahead.
Hello, everyone. I apologize in advance for not guessing vacuum cleaner sales correctly for the quarter, which is probably the biggest issue in the mess, which is something I don't know anything about. You have so much going on, I think I'm just going to narrow it down to a few things. Andrew, thank you for so much detail on the financials. He answered a lot of questions already. Evan, could you just talk about what needs to be done to get to these higher revenues and all these orders you have coming in? Like, what physically do you need to do?
Physically? Well, I mean, hi, Lisa.
Yeah.
This isn't a physically challenging job. It's more mentally challenging. I hear you.
Well, you got to write emails and hire people and stuff like that, right?
We're pretty locked in as far as headcount. We do not need to add additional expenses from where we are today. We are in the process of scaling our production capabilities of the models for today are you know the customer that's demanding the most is Amazon, and it really is insatiable. You know, but they're not the only ones. From our standpoint, the hardest part is going to be mapping it out, which we've already started to do on a calendar to be able to meet the demand that is now apparent. You know, just continuing to meet that demand will be a challenge. My CTO is working overtime to enhance our AI and machine learning technology.
I meet with him now multiple times a week, and he's creating some take-your-breath-away AI technology that creates 3D models. I don't want to say out of thin air, but it's a whole another level than what we've been able to do previously. It's really just improving our technology to be able to meet the coming tsunami of demand.
Okay. One question about the virtual product photography. Can you talk about that?
Yeah.
Is that going to be like an entirely different product line or revenue model?
Yeah
anything like that? Go ahead.
That's a very interesting new piece of technology. We are creating a studio, which I think will be launched in September-October time frame. Within that studio, you'll be able to import 3D models, whether we make them for you or you have them already. Within that studio, you will be able to change the color of that 3D model. There'll be some textures that you can, you know. It's literally point and click. It's kind of a design studio for 3D modeling. Within that, you will have the product photography, so you could stage and create virtual showrooms, and use that for catalogs, use it for your website, and it'll be a SaaS business where you'll pay to play, you'll pay for usage. That's launching.
It, you know, all of this, Lisa, puts us in a position to be that one integrated platform end-to-end solution, which has always been our dream, but it's now turning to reality because we have the dream team.
All right.
Yeah.
Okay. That sounds good. Andrew, my only question in accounting is, what's deferred assets?
Yeah. Sometimes when we, because our contracts with the models are over, you know, ARR, so like 12-month period, so some of the costs that we incur are kind of upfront. It's really just trying to match better the costs with the revenue that's coming in over a 12-month period, if not longer, depending on how long customers sign their contracts for.
Okay. You've created the model, but you're not going to get paid except over the 12-month period. Great.
Exactly. Yeah.
Okay. All right. Just checking. That was new. Thank you. That's all my questions for now. I'm glad to see the continued expense reduction. Really doing a great job there.
Thank you, Lisa. Yeah, that was a heavy lift.
Yeah.
It's done.
Well, I'm sure you get more with the spin-off and then also as the product sales wind down.
Yep. Yep, exactly. The spin-off and product sales contributed heavily to that. Again, a lot of thought goes into, you know, the strategy to meet the goals. It's more mental work. It's just a complex equation. But thanks for recognizing that, Lisa.
All right. Thank you. Bye-bye. Good night.
Yeah. Bye.
As a reminder, that is star one if you would like to ask a question. Our next question will come from Scott Buck with H.C. Wainwright & Co. Please go ahead.
Hi. Good afternoon, guys. Thank you for taking my questions. Evan, you did a really nice job laying out the revenue cadence for the remainder of the year in terms of the modeling business. Could you give us a sense of what the business mix shift does to gross margin, you know, as we exit 2022 and into 2023?
Yeah, it's an interesting question. I had the same conversation with Andrew this week. As time goes on, our gross margin is going to dramatically increase. We do have some upfront costs, as Andrew just mentioned. Initially, you know, we're creating the models, and then we're charging over time for those models, and then we're adding additional services like the virtual product photography. As we get deeper into the relationship, as time goes on, the margins goes up as we start to recoup our cost and as we start to sell more software services to the customers. The goal is to, you know, be north of 70% in gross margins, but I don't have a timeframe as to when we'll achieve that.
Great. That's helpful. Then, you know, sort of as a follow-up to Lisa's question on OpEx, how much in annual OpEx is tied up in, you know, what will be ARway, the separate entity? Curious what the cost savings are just removing that app off of your P&L.
It's about CAD 100,000 per month, call it CAD 1.2 million.
Okay, great. That's helpful. Last one from me. Just on the timeline for the spin, it sounds like October, but can you remind us what steps need to take place between now and then? Are there, you know, approvals you're waiting for? Is there a shareholder meeting? I mean, what do we need to just, you know, keep in the back of our minds?
Yeah. Andrew, can you lay that out for Scott, please?
Yeah, exactly. You know, there's obviously working with the CSE, and so have to get through that process. You know, this will be kind of brought forward as, like you said, shareholder approval at the AGM, which is scheduled kind of I believe in early October. You know, those are kind of the barriers, the two main barriers that we have to achieve or have to go through.
Okay. That's great.
Yeah. I would just say, Scott, there are less barriers than, you know, checking the boxes, you know, in terms of timing. We're pretty confident. We're working with council and in constant contact with them. You know, this is something we've actually done before, and we're doing it again, so we do have a playbook, so we're pretty confident with the timing going into October.
Yeah. Sorry, I didn't mean to use the word barrier. Everything's going kind of to plan at this point. It's just, you know, it's just procedures that we have to go through at this point.
Yeah. Thank you.
Sure. No, I appreciate that. Evan, I guess one more question. When we think about the modeling business in 2023, what do you suspect Amazon will be in terms of total revenue in that business? Just trying to get a sense of customer concentration.
That's a good question. I don't have a clear answer as we stand here today, but my guesstimate is that it'll be north of 50% of our revenue. It could be a lot more. There's multiple streams of opportunity with Amazon, one being the 3D modeling, and there's a couple of others that are equally as large that we're exploring with them. It truly is a partnership. We're working together to try and solve some of their problems, which is, you know, meeting demand, essentially. It's hard to gauge, but it's going to be significant.
Okay. I appreciate the color there. Congrats on the progress, guys.
Thank you, Scott.
Thanks, Scott.
Our next question will come from Dan Stevens. Please go ahead.
Good afternoon. I wondered if you could share a little bit more information about the shares for service plan. Specifically, do you have any idea how many shares you're going to be issuing per year for this plan?
We actually filed the shares for services plan, so it's all public information. You could find the filing. We don't have an exact number because it varies based on the share price. If the share price goes up dramatically, there'll be a lot less shares. If the share price goes down dramatically, there could be. Well, not more, but it'll swing. There is a limit cap of about 7 million shares. That would be the cap at this stage.
That would be CAD 7 million per year or just all together?
No. No, not necessarily. That would be as we are talking today, the program that we have in place allows for approximately 7 million shares to be issued over the next 12 months, yes.
Okay. All right, thank you very much.
You're welcome.
Again, that is star one to ask a question. Our next question will come from Michael Farah. Please go ahead.
Hey, good afternoon, everybody. Andrew and Evan, good afternoon to you as well. Hope you guys are doing good. Thank you so much for the presentation. It was very good, very informative. I really liked Lisa's question. Evan, you gotta do more physical stuff in that business, buddy.
Yeah, I'm gonna get my shovel. I'm gonna get my sandbag.
I know, right? Just a quick, just one question. Can you give us an update on the patent situation? Have there been any correspondence from the USPTO in terms of office action letters? The, I guess a B part to that would be, are there any new patents that may be filed in the coming months?
There's nothing new. We did file 4, possibly 5, patent applications. We've filed those, and we're still, you know, waiting. It does take time. We are working on some new patents as well. You know, ARway has the potential to have a number of patents filed after that is spun out.
Okay. Do you know if your counsel is taking any kind of fast track with the 5 patents that you did file?
We always take the fast track.
Right. Okay. Yeah. I understand having been in that business that it definitely rolls at the speed that they roll out. Last question, just really, really quick. On the spin-out, how many shares do you anticipate? Again, of course, it's a pro rata situation, but how many shares would you anticipate? Say, somebody owned 100,000 shares, how many shares of the new entity as a dividend would they get?
It's approximately 4%.
4% of what you currently have?
Correct.
Gotcha. All right. Well, thank you so much. You please tell your team, as I always say, to thank them for all of their dedication, and things are looking good. Let's keep the ball rolling.
Thank you, Mark.
With no further questions, I'd like to turn the call back over to Evan Gappelberg for closing remarks.
Well, just thank you all for joining today. We appreciate your questions. We appreciate your investing in Nextech3D.AI, and we look forward to doing this again in Q3. Everybody, have a great night. Bye-bye.
This will conclude today's conference. Thank you for your participation, and you may now disconnect.