By Lisa Thompson

OTC:NEXCF

READ THE FULL NEXCF RESEARCH REPORT

On May 14, 2021, NexTech (OTC:NEXCF) signed a binding letter of intent to buy Threedy.ai for US$9.5 million in stock. At $2.00 per share, that would add 4.75 million shares to the outstanding. Threedy, founded in 2018, builds AI technologies for 3D model creation of physical products from simple 2D photos at scale. This technology can take 2D photos of symmetrical objects and using AI recognizes the object and transforms it into PLY file format. The process is automated and can be self serve, transforming a previously labor intensive process into a scalable solution. Its clients include: Walmart, Wayfair, Kohl's, Pier 1 Imports, K-mart Australia, and Lighting Plus New Zealand. The transaction could close by the end of this quarter. The two founders of Threedy will be joining NexTech's staff. NexTech plans to have this platform become the self-service AR platform for all its AR solutions including e-commerce, AR advertising, Genie in the Bottle Holograms, and AR Portals. It will replace NexTech's current labor-intensive methodology, increasing operating savings.

Q1 Results Show Strong Growth in eCommerce as Well as AR

Surprisingly, NexTech had another record quarter in Q1 2021 despite coming off the seasonally strong Christmas quarter with 210% growth year over year. eCommerce did better even in Q1 2021 than in Q4 2020. eCommerce does a balancing act between growth and margins and we hope to see more tempered growth going forward and better margins. The conferencing and AR business was sequentially down but backlog was up $514,000 sequentially to $2.0 million, while bookings were slightly down. The company announced plans to rightsize the business and expects to cut operating cost by $6 million a year as it moves to the LiveX platform and adds the automation capabilities of Threedy. We expect it will take until Q3 to start to see meaningful improvement. We expect these cuts to be primarily payroll, and the benefit should be seen across expense lines as well as gross margin. The company has $20 million in the bank and we hope that could last until cash flow breakeven given it is now burning $2 million a month.

Q1 2021 Results

For the first quarter of 2021, NexTech announced revenues of $7.7 million, up 210% over last year and 10.4% sequentially. Looking at the segment breakdown we see eCommerce was $6.0 million or 78% of sales. Its revenues were up 146% year over year and 31% sequentially.

Technology services and renewable software licenses (or the AR and events businesses) were $1.7 million, compared to $46,000 a year ago as Jolokia was bought in April 2020.

Gross margins were 42.9% of revenues or $3.3 million compared to 54.1% and $1.3 million a year ago and 48.2% or $3.4 million in Q4 2020. The decline in margin was due to product discounts in eCommerce as well as compensation associated with virtual events.

Operating expenses were $13 million compared to $2.7 million last year. Of this, $2.4 million was stock-based compensation compared to $268,000 last year. The company has a plan to reduce expenses going forward through staff reduction and hopes to save $6 million in annual expense starting in Q3 2021.

The operating loss was $9.7 million compared to $1.4 million a year ago and $7.5 million in Q4 2020. The net loss was $9.2 million versus $1.4 million and EPS loss was $0.12 compared to $0.02 a year ago. Primary shares outstanding were 77.5 million for the period, up 26%.

The company showed an operating cash flow loss of $5.2 million for the quarter and free cash flow usage of $5.3 million. The company is working to reduce its burn.

Balance Sheet Update

NexTech ended the March quarter with $7.9 million in cash, no Bitcoin, working capital of $9.0 million, and no debt or convertible debentures. On April 8, 2021, NexTech issued 2,801,500 units at $5.00 per unit and 100,000 warrants at a price of $0.5429 per warrant for gross proceeds of $14,061,790 and net of $12,844,837. Each unit is one share of common and one-half of one common share purchase warrant. Warrants are exercisable at $6.00 for a period of two years, subject to accelerated expiry provisions. It now has approximately $20 million in cash and is operating at approximately a $2 million per month cash burn rate. It is working to get that down to $1 million per month and then to breakeven. As of May 12, 2021 there were 81,194,809 primary shares and 5,375,000 options outstanding at a weighted average exercise price of $3.54. Once the Threedy acquisition closes there will be approximately 4.75 million more shares outstanding then totally 85.9 million.

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