Greetings, and welcome to the Laser Photonics Corp.'s Second Quarter Call and Webcast. 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 the 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 capital expenditure 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, including automotive, aerospace and semiconductor, laser cleaning products fall under capital expenditure 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. Higher interest rates have caused customers, large and small, to delay capital equipment spending and 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. I will touch on one of these platforms shortly. Before I go into our exciting product innovations stemming 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 the aerospace industry. This large platform was designed for laser cutting applications, but we also integrated it into our CleanTech product line to enhance that offering. The platform is designed to provide increased safety as it has a fully enclosed frame that meets Class 1 product enclosure standards for the laser industry. The significance of this is twofold. First, we developed this new platform in response to conversations with an existing large aerospace customer. The aerospace industry has held off using laser cutting capabilities for decades due to safety concerns related to creating stress cracks caused by the heat generated from laser applications. To this day, laser cutting is limited to rough cutting, and later it defers to downstream CNC machining capabilities. The Titan FX platform revolutionizes laser-cutting applications with our unique laser cold-cutting feature that enables the platform to work with heat-sensitive materials without compromising quality or precision. This capability opens up new possibilities for various industries, including aerospace, automotive, and electronics, where materials such as composites and plastics require delicate treatment. Moreover, our TurboPiercing technology enables rapid advanced perforations, enhancing production efficiencies and reducing cycle times for our customers. By streamlining their operations, we are helping customers achieve greater productivity that meets strict deadlines. Second, the newly developed Titan FX large format design can also be used for CleanTech Class 1 product enclosures, integrating cutting-edge laser safety features with our renowned laser blasting capabilities. The Titan FX platform will combine two essential elements for our CleanTech products: unmatched laser blasting power and enhanced laser safety. With our advanced laser technology, we already offer precision and efficiency that set us apart from the competition. Now, by incorporating laser safety into our product enclosure, we provide our customers with a comprehensive solution that addresses their performance and safety needs. In today's manufacturing work environment, most of our customers are safety conscious. Therefore, Laser Photonics is stepping up to the plate and providing solutions to modern-day problems for the workforce. Automation is also key to running a smooth and efficient manufacturing facility, and Laser Photonics focuses on helping its customers achieve this. Looking ahead, we are confident that the Titan FX platform will further strengthen our position as a leader in laser technologies. We anticipate strong demand from industries seeking advanced laser solutions that combine performance, precision and safety. By expanding our product offering to cater to the needs of CleanTech and other sectors, we are well-positioned for growth and new market opportunities. In conclusion, Laser Photonics Corp.'s Titan FX platform for CleanTech Class 1 product enclosures represents a groundbreaking development as we continue to push the boundaries of innovation in the industry. We are excited about the prospects and the positive impact this new development will have on our customers' operations and overall safety. Thank you for your continued support, and we remain committed to delivering cutting-edge solutions that will drive success and growth for Laser Photonics Corp. I will now turn the call over to Jade for a detailed financial update.

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 revenues 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 on Saturday in April and therefore needed to be marked 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 costs 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, the 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 the 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.

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. 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 have sales failed to materialize? Fortunately, we still have some cash, but we used to hear about new customers almost weekly. 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 despite being pessimistic?

Yes. Thanks for your question, Chuck. If we review from the starting of the company back in 2020, we showed the initial start and a lot of R&D went into the products and an aggressive move to gain confidence in adapting this particular technology. That's the first phase of our growth model, which is for the customers to adapt and adopt the technology. Many of these organizations have received the beta units, and they are forming protocols and procedures in their manufacturing processes, which will take some time. We gained some traction in the initial stages of this operation over the first three years since the company has been in business. We've put a lot of investments from our parent, ICT Investments, and unfortunately, we could take the company as far as we could before deciding to take it to market. We've spent quite some time doing so, which somewhat delayed the momentum that we had going. Most of the growth that you've seen from mid-stage 2022 to the first quarter of 2023 was a result of prior investments into the company. Now that we're fully funded, we need to continue the progress, continue getting the good news out through a strategic marketing plan that we've incorporated. We've grown the marketing department, and we have a phenomenal group that's going to get the news out. It takes about six months to get the message out, and then you have the sales cycle that will take another six months. So this is an investment year after the fundraising, and we expect to see good results in the near future. I hope this answers your question regarding our experiences, and we see a lot of positive traction. We have a very good sales group that's making monumental leaps in acquiring 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. It takes time for them to exit that process and develop new protocols and procedures. Many of the characteristics of this technology have 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. So yes, go ahead.

So it's all well and good. But last year, we had, I think, the Navy, Emerson, and 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. The one unit is infectious to the entire organization, but internal protocols and procedures take time. This turns into multiple units. 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. As I've mentioned earlier in the call, some of these obstacles are derived from things that are out of our control, and every company faces this during turbulent times. We need to respect that and try to create new opportunities, new verticals that we are already familiar with and address those 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 lowered them once, and now it seems that for this quarter, we thought we were a little too optimistic last quarter.

From quarter-to-quarter, the Federal Reserve has been raising interest rates, making it unbearable; inflation has gone up. Many customers are having difficulty making decisions on capital expenditures, as I mentioned earlier in the call, and these are some of the things we need to deal with. It’s pretty straightforward, but I hope the economy turns around. There’s still a corrosion problem that needs to be resolved. So as there is a shortage of wheat worldwide, there will be turmoil in these situations.

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

Absolutely. Thank you for your question.

Our next question comes from Brian Siegel.

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. It stated 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 on my to-do list. I can't provide details at this moment, but I am reviewing the procedures and processes we have in place. At the same time, we strengthened our Board of Directors to oversee our procedures.

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

Yes, Brian, thanks for that question. I think what needs to be understood in America is that things have changed throughout the last four decades about who manufactures what in our society today. 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 the defense of our country. 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. Certain components are required to be made by other countries. Nonetheless, we manufacture major components here in the United States. We are responsible for the design and functionality of our product, and it's 100% manufactured and assembled here once components are available in the open market. If our third-tire vendors provide components from other countries, we have no control over that. But it is what is available with American customers from solid vendors. The availability of the supply chain is a trying task for any manufacturing company today. Nonetheless, everything is 100% assembled here; components received are made to the extent of what is available. The latest technology is in our products, and we have this capability. No one else in this competitive field does the same. Hopefully, that answers your question.

Okay. Great. Next question. You've been issuing press releases at the rate of about three per week, 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? If so, why? How do you measure this? What are the metrics you use?

Yes. In creating the marketing strategy, it's important for us to penetrate certain verticals and reach certain audiences. The cost to do this is quite effective and affordable. I believe that the volume of messaging is crucial, allowing people to see that a thriving company that has exciting news can get the word out. We've received great feedback on the open rates and responses that we have seen. While some might view it as mundane and ineffective, we're the company running this strategy, and I believe it is working. It is doing its job and hopefully will gain traction in the near term.

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

Yes. I think emerging growth companies exercise that right to remain transparent in that area. We have mentioned in our filings as executives are hired through the 8-K what the compensation is. So I think we're already doing that.

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

Yes. I think it's quite the opposite. We're not seeing significant competition in relation to the technology that we have. We've set ourselves apart by exceeding customer expectations with our technology. We've done enough to differentiate ourselves from the competition, ensuring we deliver something unique that anyone wanting to compete in this space will not achieve. Our goal is to provide solutions for our customers that no one else in the world can. I think we've taken this technology to new heights, and our companies are starting to write procedures around our product, which speaks volumes 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?

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, which helps customers transition from sandblasting, we want them to eventually switch to the Class I enclosing, which is why we introduced the Titan FX large format design to market to offer safety features. Nonetheless, the open beam system does have its place in environments, such as nuclear decommissioning, where it is necessary. The major manufacturing processes involve the assembly, calibration of optics on delivery systems, strategically replacing optics and assemblies, and software implementation. There are also communications between hardware and software that need to be optimized, along with various other processes that 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 what exactly happened there?

Sure. During the IPO process, we provided stock awards to one of the external parties, TraDigital Marketing Group. We provided stock awards intended to be exercised. At the end of '22, on December 31, we reevaluated them based on the market price. Then in March 31, we did it again because they were not issued and were actually issued on April 17. When we reevaluated in March, the stock price was higher than what we had noted on December 31 as our accrued expense in balance sheet. When we issued in April, the price went down, leading to a 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 the 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. However, trying to finalize those purchase orders through the procurement department is challenging as they prioritize choices based on global trends and economic conditions. That’s frustrating, but we are optimistic. We have positive feedback from our customers indicating that these purchase orders may be released soon, and procedures are being developed and written. Other departments within organizations are starting to inquire about new systems. All of this takes time. So I believe the third quarter looks bright for us, and we hope to surpass the 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 this year. We had 19 at the end of 2022. We are still looking to fill positions as well. It's quite challenging for us at the executive level to find people who can strategically move the company forward.

Okay. I think that's it.

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.