December 29, 2021 -- InvestorsHub NewsWire -- via Atlas Advisors, LLC -- 

NexTech AR Solutions 
(OTCQB: NEXCF) OUTLOOK 
NexTech Adds to its AR Solutions With the Acquisition of ARWAY to Pursue the Metaverse 
NexTech AR is a technology start-up and a unique public company pure play investment in Augmented Reality. It does not produce hardware, but rather uses AR to improve eCommerce results for customers as well as its company-owned sites. Its LiveX platform allows remote learning, virtual trade shows, and high-end conferencing features integrated with augment reality and is garnering traction. Its AR ad network and hologram technology should begin to contribute to revenues later this year. As one of the first movers in a multi-billion dollar market growing at almost 300% per year, NexTech should be able to grow rapidly as this nascent market explodes. 

Based on a peer blended average EV to estimated EV/sales multiple of 9.4xs, we believe NexTech stock could be worth $14.76 per share. 
Current Price (12/28/21) 

Valuation 
SUMMARY DATA 
US$1.60 
US$14.76 

WHAT’S NEW
NexTech to Buy Spatial Computing Pioneer ARWAY 

By the end of the month NexTech should close on the acquisition of UK- based spatial computing company ARWAY in a US$1 million all-stock transaction (approximately 625,000 shares.) Its key founders Baran Korkmaz and Nikhil Sawlani will join NexTech. This acquisition will provide NexTech with a spatial mapping platform critical to building the Metaverse. ARway provides an Augmented Reality Software Kit (SDK) to frame the digital world in just a few minutes. This is achieved using Unity and AI to recognize surroundings for hyper-accurate location mapping, 

NexTech will offer this capability to brands and organizations that want to create mini-metaverses like museums, corporate headquarters, theme parks, sports stadiums, campuses and more. It can be used for applications such as navigation, guided tours, and even treasure hunts. ARWAY’s no-code platform has been used by over 1000 developers in 60 countries, and includes enterprise customers such as British Telecom, Bosch, Air Asia, The City of London, the Guildhall School of Music and Drama, HCG Hospital, and Nomtek. 
The product is sold as SaaS with a freemium model and priced by usage amount. NexTech is working to integrate all its AR capabilities and making them available to all its customers through one login. 

Investors can see how ARWAY works in a video through the following link: Source: NexTech AR https://www.youtube.com/watch?v=VAn83Dvyx9s

NexTech will offer this capability to brands and organizations that want to create mini-metaverses like museums, corporate headquarters, theme parks, sports stadiums, campuses and more. It can be used for applications such as navigation, guided tours, and even treasure hunts. ARWAY’s no-code platform has been used by over 1000 developers in 60 countries, and includes enterprise customers such as British Telecom, Bosch, Air Asia, The City of London, the Guildhall School of Music and Drama, HCG Hospital, and Nomtek.

The product is sold as SaaS with a freemium model and priced by usage amount. NexTech is working to integrate all its AR capabilities and making them available to all its customers through one login.
Investors can see how ARWAY works in a video through the following link: Source: NexTech AR https://www.youtube.com/watch?v=VAn83Dvyx9s

Q2 Showed Weakness in eCommerce But AR Revenues Continue to Grow
NexTech is going through a reassessment of it business model and one of the decisions to be made is how to treat the eCommerce business. Initially it was contributing positive cash flow subsidizing the AR business, but in an effort to grow, it became a cash drain. The company is taking a closer look at returning that business back to profitability at the expense of growth and its results may be difficult to forecast until a plan emerges. In conjunction with a reevaluation NexTech took action in Q2 to right size 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. Once the platform offers self-serve to clients, operating costs should start to plummet. This is expected to happen by the end of Q4. In Q3 we expect to see a reduction of $1.5 million primarily payroll, and the benefit should be seen across expense lines as well as gross margin. The company has $15 million in the bank and plans to get the cash burn to under $1.5 million a month. We expect Q3 to show sequential revenue improvement combined with improved profitability looked at without the one-time gain of Q2.

Q2 2021 Results
NexTech reported a down sequential quarter, but still up 73% year over year. ECommerce reported revenues of $4.4 million, up from $3.1 million in Q2 2020 or 43%. ECommerce cut back its discounting and is focusing on more profitable sales in order to return to contributing to the company’s cash generation. By comparison, eCommerce generated $1.6 million in fewer sales in Q2 than Q1, but that $1.6 million only contributed $88,000 in profits.
  
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The technology services plus renewable software licenses revenues were essentially flat sequentially at $1.7 million, but up from $431,000 last year. In addition to a seasonally slow summer, the hope of a return to in- person events shifted some plans from virtual. But that trend has reversed as certain geographies have put stricter measures in place. Jolokia was bought April 30, 2020 so next quarter will be the first with a full quarter of revenues in 2020 to which to compare.

Backlog was up $249,000 sequentially to $2.3 million, while bookings were down to $1.7 million from $2.2 million in Q1 2021.
Gross margin was 37.6% of revenues or $2.3 million compared to 61.5% and $2.2 million a year ago and 42.9% or $3.3 million in Q1 2021. The decline in margin was due to product discounts in eCommerce as well as compensation associated with virtual events.
Operating expenses were $8.1 million compared to $4.2 million last year. Of this, $1.5 million was a one-time gain on reevaluation of contingent consideration on the purchase of Jolokia upon its anniversary. Without that operating expenses would have been $9.6 million, still a reduction from the $13.0 million in Q1 2021. The company is working to reduce expenses going forward through staff reduction, and we hope to see a full quarter of savings by Q4 2021.

The operating loss was $5.8 million compared to $2.0 million a year ago and $9.7 million in Q1 2021. Without the one-time gain it was a loss of $7.3 million. The net loss was $5.9 million versus $2.0 million and EPS loss was $0.07 compared to $0.02 a year ago. Non-IFRS loss was $6.8 million compared to $1.4 million last year. Non-IFRS loss per share was $0.08 versus $0.02.
Primary shares outstanding were 82.3 million for the period, up 25%. The share count as of August 11th was 85.6 million.
The company showed an operating cash flow and free cash flow loss of $6.6 million for the quarter. The company is working to reduce its burn.

Balance Sheet Update
NexTech ended the June quarter with $15.4 million in cash, working capital of $17.6 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. The Threedy acquisition, which
th
closed on June 25 , added 3,877,551 more shares.

During Q2
On June 25, 2021, NexTech acquired Threedy.ai, for US$9.5 million in stock. Threedy’s proprietary AI will allow the production of 3D models at a much quicker pace.
Paul Duffy was appointed Chairman of the Board, Chris Burton, Executive Vice President Head of Global Sales, and Andrew Chan Chief Financial Officer.
NexTech released the “LiveX” Digital Experience Platform that enables Augmented Digital Experiences, AR E-Commerce, AR Advertising, and AR Products.

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KEY POINTS

  •  NexTech AR is a startup based in Toronto that was formed to provide services for, and invest in, businesses using Augmented Reality (AR) and hologram technologies. These technologies are used to improve sales and profits for eCommerce sites, and other verticals such as entertainment and education. This technology converts two-dimensional images of real objects and people into three dimensions. Using AR is a proven way to boost sales and reduce returns in eCommerce, and provides an engaging, economic way to provide information in the education and training space.
  •  Augmented Reality (AR) is just beginning to make its way into mainstream use and the market is exploding. NexTech AR is the only public pure play we know of that is providing services to allow companies to use AR in marketing and advertising their goods. At a small price to vendors per month per SKU, adoption of just a tiny percent of the trillions of products sold worldwide will create a massive revenue stream for NexTech AR.
  •  The company is currently has four sources of revenue:

o Its largest revenue generator is an eCommerce business that is used as a test lab and is driven by the use of AR and holograms in its marketing. Its main web site sells vacuum cleaners and accessories. It recently has started to expand the number of brands it carries. It uses these web sites primarily for in house testing, and cash flow generation but we could see the company ultimately reselling them or spinning them off later at higher valuations.
o ItprovidestheplatformLiveX,thatallowsremotemeetingsintegratedwithaugmentedrealitywith more security and features than available from mainstream video conferencing platforms, but will work with them seamlessly.
o It also has a SaaS offering to businesses that places AR renderings created by NexTech AR, or by the customer themselves, for use on their shopping websites and mobile apps, or in ad campaigns. ECommerce customers are charged a monthly fee based on the number of SKUs.
o In the future it will start to generate revenues from its new AR ad network, which allow customers to place their AR content in advertisements with one stop shopping, holograms and spatial mapping.
 With a nascent market projected to increase by 289% per year over the next five years, NexTech as a unique public pure play that could deserve a higher valuation. It currently trades at an enterprise value of approximately US $122 million or 4.7xs projected 2021 calendar sales of US$26 million.
VALUATION
Since our last report, the valuation of NexTech comps have come down, as have most of the tech names, particularly those that benefited from work at home. We have taken a group of companies involved in augmented reality as well as companies that provide conferencing. At current valuations we get an average of 17.0 times EV/2021 Sales. So using US$26 million for 2021 estimated sales, and a 17.0 multiple, NexTech could be worth an enterprise value as high as US$425 million or a market value of $440 million. Dividing by the current fully diluted shares of approximately 87 million, this would be a market value of US$5.07 per share. Even if we were to split out the eCommerce revenues and give it a separate lower

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multiple we still get a blended multiple of 5.9 times or a stock price of US$1.95. By next year that could be $4.76 using revenues of $44 million and 9.4 times with a 50/50 split.
Company
Calendar Calendar
Ticker Revenue Revenue EBIDTA Enterprise Value / Sales Included

2022E 2021E LTM Margin 2022E 2021E LTM in Average?
FLWS AMZN
NA 2,233 581,180 490,270
2,050 443,300
9% NA 1.0 13% 2.9 3.5 8% 0.9 1.0 3% 0.8 0.9 3% 0.4 0.4 13% NA 1.6 0% 3.6 4.4
1.5 1.8
1.1 y 3.8 y 1.1 y 0.9 y 0.4 y 1.7 y 5.1 y
LE 1,760 OSTK 3,190 CNXN 2,870
1,640 1,530 2,840 2,900 2,770 2,670

PETS CHWY
NA 295 10,830 8,950
292 7,660
PRTS 614 532 539 1% W 19,040 15,840 14,850 5%
1.7 1.7 y 2.1 2.2 y
 
1-800 Flowers Amazon
Land's End Overstock.com PC Connection PetMed Express Chewy

US Auto Parts Network Wayfair
Average
Company
Ticker
Calendar Calendar Revenue Revenue
6.2% 1.3 1.8 2.0
EBIDTA Enterprise Value / Sales
Included
in Average?

y y y y
Enterprise Value
2,160 1,700,000 1,610 2,480 1,150 485 39,370 909 33,320
197,943
Enterprise Value
229,000 122,000 334 103,100
90,918
         
2022E 2021E LTM Margin 2022E
2021E LTM
8.8 10.2 31.2 36.5 2.2 2.8 26.0 31.4
17.0 20.3
Salesforce CRM 31,070 26,000 22,350 16% 7.4 Snap SNAP 5,760 3,910 3,340 -20% 21.2 WiMi Hologram Cloud WIMI 194 153 118 -17% 1.7 Zoom ZM 4,000 3,970 3,280 30% 25.8
Average 14.0
RISKS

  •  NexTech is a start-up with limited operating history. There is no assurance its will evolve into a sustainable, profitable going concern.
  •  The company is operating at a loss and may continue to need to raise capital until it reaches cash flow break even which could result in dilution of current shareholders.
  •  To date, NexTech has depended heavily on funding from senior management.
  •  AR usage is just beginning to be used by early adopters and it is hard to predict how fast or even if AR will be put into use by mainstream eCommerce sites. The company’s business with AR customers is still very small and has yet to garner meaningful traction.
  •  This industry will attract many larger companies with much greater resources who could compete with NexTech in the future.
  •  The company has just launched new product lines, which make take more resources and time than expected and may not be successful.
  •  With the return to normal business operations, the need for InfernoAR’s remote capabilities may wane.

 


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SOURCE: Atlas Advisors, LLC

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