Greetings, and welcome to the Laser Photonics Corp.'s Second Quarter Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Siegel, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria. With me today are Wayne Tupuola, Laser Photonics CEO; and Jade Barnwell, who just joined the company as CFO. Any forward-looking statements made during this conference call, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include, but are not limited to, the specific risks and uncertainties discussed in the reports that we filed periodically with the SEC. Laser Photonics assumes no obligation to either update any forward-looking statements that we have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. I will now turn the conference call over to Wayne. Take it away, Wayne.

Thank you, Brian, and good morning, everyone. Thank you for joining Laser Photonics Corp.'s quarterly earnings call. I'm going to [indiscernible] CEO of Laser Photonics Corp., and I'm thrilled to share some exciting updates with you today. We reported a soft quarter in Q2 reporting revenue of $1 million as compared to $1.35 million for the same period in 2022. The decrease was primarily related to delayed CapEx spending by customers. While this impacted our second quarter results, I'm encouraged by the progress in our sales and marketing efforts in expanding our pipeline, which are expected to drive long-term positive sales trends. Given that in our target markets of materials [facing] automotive, aerospace and semiconductor, laser cleaning products fall under CapEx spending. Sales cycles can take 6 to 12 months and often fluctuate quarter-to-quarter. In recent quarters, economic conditions, including interest rate increases, have been putting pressure on sales with respect to interest rates -- higher rates have caused customers to delay capital equipment spending as many customers, large and small [indiscernible] companies, to purchase our equipment. In Q1, we began increasing R&D investments to maintain our technological superiority. We equipped our application center with state-of-the-art robotic laser blasters and developed new complementary technologies. Moving forward, we intend to make further investments in R&D to innovate and guarantee the company's long-term future, and I will touch on one of these platforms in a minute. Before I go into some of our exciting product innovations that are coming from our R&D investments, I'd like to welcome Jade Barnwell to the team as our newly appointed CFO. Jade has proven success in managing financial growth at larger companies, and we look forward to leveraging the experience she brings. Now I'd like to introduce our latest product developments, the Titan FX platform, for…

Thank you, Wayne, and welcome, everyone. As Wayne mentioned, our second quarter revenue decreased from the same period last year by 28% to $1 million. Our gross margin on those second quarter revenue increased by 600 basis points year-over-year to approximately 71% as our mix was more heavily weighted towards our higher-margin CleanTech systems. Operating income was breakeven this quarter, but benefited from a $700,000 mark-to-market from noncash stock issuance costs related to our IPO, which as mentioned on last quarter's call, [was Saturday] in April and therefore, needed to be mark-to-market upon delivery. Beyond this noncash cost, the most significant change in our operating cost structure was the increase in sales and marketing resources, R&D investments, NASDAQ and SEC compliance costs and went for our new facility. GAAP net income and earnings per share were breakeven, down from last year's $0.3 million and $0.07, respectively. Excluding the previous mark-to-market gains, net loss and loss per share would have been $0.7 million and $0.08, respectively. From a balance sheet and cash flow perspective, we finished the quarter with $9.9 million in cash and no debt. This balance represents a $0.9 million decline during second quarter resulting from our operating activities. Now I'd like to provide some commentary about the full year 2023. Looking at our operating expenses and given our continued growth investments in R&D, sales and marketing and expanding our distribution channel, we expect these costs to rise further throughout the rest of the calendar year. That concludes my prepared remarks for today. We can now move to questions.

[Operator Instructions] Our first question comes from Chuck Lipson with CSL Associates.

Wayne, we have a pretty demoralized shareholder base. There's been a lot of management changes, projections haven't been made. And we keep hearing about all the opportunities that we have. Why have sales declined? When we've been going to the trade shows, we haven't heard -- we keep hearing this remarkable amount of opportunities for our lasers and yet the sales aren't there at all. When and how are we going to turn the ship around? When do we start seeing some sales? We just got some projections that marketing costs are going to increase, but why is sales fail to materialize? Fortunately, we still have some cash, but it's -- we used to hear about new customers almost weekly. And now we haven't heard of a new customer in months. Could you give us why we should have a lot of hope going forward [indiscernible] pessimistic?

Yes. Thanks for your question, Chuck. And I think if we reviewed from the starting of the company, back in 2020, where we showed the initial start and a lot of R&D went into the products and an aggressive move to try to gain confidence in adapting this particular technology because that's the first phase of our gain in scale model, which is for the customers to adapt the technology and adopt. Many of these organizations have received the beta units, and they formed protocols and procedures into the manufacturing process would take some time. Now we've gained some tractions in the initial start with the first 3 years the company has been in business. And we put a lot of investments from our parent founder, ICT Investments, which have put a lot of investments. And unfortunately, we could take the company as far as we could then decided to take it to market. And once that happened, we spent quite some time doing so, and it sort of delayed the momentum that we had going. So with this being said, most of the growth that you've been seeing from the end of -- or mid-stage of 2022 into the first quarter of 2023 was a result of prior to investments into the company moving forward. So now that we're fully funded, we need to continue the progress, continue getting the good news out through a strategic marketing plan, which we've incorporated. We've grown the marketing department, and we have a phenomenal group down there that's going to basically get the news out. And this being said, it takes about 6 months to get the message out and then you have the sales cycle that will take another 6 months. So this is an investment year, obviously, after the fund are raising, and we expect to see good results in the near future. I hope that this has answered your question as far as what we experienced, and we see a lot of positive traction. We have a very good sales group that's making monumental leaps and growth in acquiring the new interest in this disruptive technology. We took it to market, addressing a $46 billion opportunity, and I think it's greater than that globally because most people are trying to transition out of the hazardous abrasive sandblasting. And I think it takes time for them to exit that particular type of process and develop new protocols and procedures. Most of the characteristics of this technology has just been sanctioned by most coating companies that were giving directions on how abrasive blasting works. And now they need to develop laser blasting criteria for government agencies and the private sector as well. So my -- yes, go ahead.

So it's all well and good. But last year, we had like -- I think it was the Navy, we had the Emerson, we had GE. I take it, they all had beta platforms for our product, have we heard back from them? Are we making any progress in getting real orders?

Yes, absolutely. There again, -- the one unit is being infectious to the entire organization, but internal protocols and procedures take time. And this turns into multiple units. And that's our goal, is to try to get the first unit in the door, let them write the protocols and procedures. And from there, it just takes off. And again, as I've mentioned earlier in the call, the -- some of these obstacles are derived from things that are out of our control. And every company has to face this in these turbulent times. And we need to respect that and try to create new opportunities, new verticals that we've already familiar with and trying to address those types of situations that they're facing.

Your projections that you made on the last conference call, do they still hold any water? Or are they under review? Because we've always -- we lowered them once and now it seems that for this quarter, we thought probably were a little too optimistic last quarter.

Well, I think from quarter-to-quarter, again, the Feds have been raising the interest rates, making it unbearable, inflation has gone up. A lot of the customers are having difficult times trying to make decisions on CapEx, as I mentioned earlier in the call, and these are some of the things that we need to deal with. It's pretty straightforward. But I have hope in the economy turning around. And there's still a corrosion problem all that needs to be resolved. So as there is a shortage of wheat worldwide, there's going to be a turmoil in these types of situations.

All right. Well, hopefully, we can turn it around a little quicker [indiscernible] as a shareholder.

Absolutely. Thank you for your question.

[Operator Instructions]

Okay. We've got some questions through the webcast. The first is -- the company has made comments in its SEC filings regarding actions to improve control weaknesses. Can you provide updates on the control environment?

Yes, Jade, I think you can take that one.

Can you repeat that question one more time, please?

Yes. The company in its SEC filings has identified weaknesses in controls. And as said it's taking actions, can you talk about the actions that the company has taken to improve its controls?

Well, first of all, the obvious control we placed is having the CFO. So I joined just 15 days ago. So that is my to-do list on my to-do list. I can't provide you details at this moment, but I am reviewing the procedures and process that we have in place. And at the same time, we strengthened our Board of Directors to go over our procedures as well.

Okay. Next question is, are your products truly 100% American made as you advertise?

Yes, Brian, thanks for that question. So I think what needs to be understood in America is that things have changed throughout the last 4 decades who manufactures what in our society today. And America is not capable of producing 100% of all the components known to man. Even our latest fighter jets, some of the components are not 100% made here in the United States for defense of our country. So -- and as you know, the semiconductor chip alone is not made 100% in our country. And this is why we have a semiconductor chip shortage. We rely on outside sources. So certain components are required to be made by other countries. Nonetheless, we manufacture major components here in the United States. And we are responsible for the design and the functionality of our product, and it's 100% manufactured and assembled here once components are available in the open market. Now if our third tier of vendors are supplying it from other countries, we have no control of that. But it's what's available with American customers, our vendors, solid to American customers. The availability of the supply chain is a trying task for any company that's manufacturing today. Nonetheless, 100% assembled here, components are received, we're not in the business to make a major manufacturing products that is not our expertise. So we'll have to pull from United States companies or global companies to the degree that whatever is available for us to use, that's what we use. But we've definitely pressed the components threshold to what's ever available, the latest technology that's in our products, and we have this capability. And I don't think anyone else competing with us does the same thing. So hopefully, that answers your question.

Okay. Great. Next question. You've been issuing press releases at the rate of 3 per week plus or minus, most of which are simply reviewing use cases for CleanTech. What is the annual cost of this program? Does management actually conclude these releases are meaningful and worthwhile? And if so, why? And then how do you measure this? What are the metrics you use?

Yes. So in creating the marketing strategy, it's important for us to penetrate certain verticals and reach certain audience. And at the cost of doing so, I think we've got a phenomenal deal from our avenues of helping us with the press release is quite cost effective and quite affordable for us to release press releases on a daily basis. And I think the bombardment of messaging is quite important so that they can see that a thriving company that has an awesome message to deliver that just allows people to understand that there's a lot of exciting things going on in our company, and we're just excited to share that. I think the matrix on this we've been getting some phenomenal feedback on the open rates and people have given us great response on this. On the other hand, some may view it as mundane and not effective. But again, we're the company that's running the marketing strategy, and I think it's working. It's doing its job. And hopefully, it will gain traction in the near term to come.

Okay. Great. Second is related to SEC filings. There's been no disclosure of executive comp since you've gone public. What are key insiders and directors being compensated right now?

Yes. I think that emerging growth company exercise that right, as mentioned, to be transparent in that area. And we have mentioned as executives are hired through the 8-K what the compensation is. So I think we're already doing that, Brian.

Great. Thank you. A couple of business questions here. Are you seeing an increase in competition and in general, who are the competitors? And what is the competitive environment like currently?

Yes. I think it's quite the opposite. We're not seeing a competition of relevance to the technology that we have pressing the components threshold, exceeding customers' expectations. So I think we've done enough to set ourselves apart from the competition that it exceeds the marketing expectations of getting the message out there, making sure that there's really a hands down effort on our part to make sure that we're offering something that anyone that wants to occupy this space will not be able to achieve. And that's our goal is to try to provide a solution to our customers that no one else in the world can. And I think we've pressed this technology to the height of expectation that our companies are starting to see. They're writing procedures around our product, and that says a lot about what we do.

Okay. And then this question is more technical in nature. What are the main items that make up the manufacturing process?

Yes. When you look at some of our product lines, they're quite strategic and customized to fit our customers' needs from the Class IV open beam system that is strategic and also helps them to transition from the open process of sandblasting, it could mimic that. But eventually, we want to transition the customers from the open beam system to the Class I enclosing, which is why we took the Titan FX large format design to market so that it can offer upbuild those safety features. Nonetheless, the platform open beam system does have its space in some environments, such as nuclear decommissioning of the nuclear facilities because it does require open beam systems to decontaminate some of the materials that they're trying to clean out there. But the major manufacturing processes involve the assembly, the calibration of the optics on the delivery systems, strategically replacing the optics and assemblies and also software implementation. We also have communications between hardware and software that needs to be dialed in as well. So -- and a host of other processes that they're kind of help bring the CleanTech product line to fruition.

Okay. Great. Jade, can you help explain again exactly what the nonrecurring items were in Q1 and Q2 related to the stock issuance? And explain why -- what exactly happened there?

Sure. So during IPO process, we provided stock awards to one of the external party, the marketing form. The name is TraDigital Marketing Group. We provided the stock awards to be exercised. So at the end of '22, so December 31, we reevaluated them based on the market price. And then March 31, we did it again because it was not issued and actually, it was issued on April 17. So when we evaluated in March, the stock price was higher than what we had in -- on December 31 as our accrued expense in balance sheet. And then -- and we actually issued on April, the price went down, so we had to revaluate and that gave us gain of $700,000. Does that answer your question?

Yes, I think so. And then what I believe is the last question. What are sales looking like for third quarter? What should we be expecting the company to report when it does third quarter earnings?

Yes. We have a $4.7 million pipeline for the third quarter. But again, trying to last all those purchase orders off the desk of the procurement department becomes challenging because they're prioritizing according to how they see global trends and economic conditions. So that's the frustration right there, Brian, is we're taking it all the way as far as we can as a company. But again, it's stuck in the hands off of the decision-makers releasing the purchase orders, but we do have a positive feedback from our customers saying that there's a possibility that these purchase orders will be released soon, procedures are being written and completed. Other departments within these organizations are starting to inquire about new systems. And all of these take time. So I think the third quarter looks bright for us. And hopefully, we'll be able to surpass first and second quarter results.

Okay. And then one more question just came in. How many people have you added to the company so far this year?

We've added 21 employees. So last year, we had -- we ended 2022 with 19 employees. So now we've added 21 and still looking to fill positions as well. It's quite challenging for us at the executive out to find people that are strategic and understand how to move the company forward. So this becomes a challenge for us in finding the executives that can help us grow the company as well.

Okay. I think that's it.

Okay. Thank you, Brian.

Okay. We've reached the end of our question-and-answer session, and this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.