11-NOVEMBER-2022 MICHAEL WAGNER TRANSCRIPT - FTX Collapse Emergency Town Hall:
Obviously joining today on more of a sombre tone but, you know, obviously not the reason we wanted to get together here today, what I want to provide some reassurance around first and foremost though is that our resolve is still very strong. We’ve taken some time to discuss the events of this week with our team and the conviction across team members and the passion and the enthusiasm has not faltered whatsoever. Our team i believe is committed to continuing the development of the vision of Star Atlas and further beyond that, although the announcement has just gone out, I’ve already received a number of communications across social media, direct messages and otherwise fro people in the community and I just want to say i’m sincerely appreciative of those positive comments and of the strength of the community itself.
Now I don’t want today to be perceived to be entirely negative, yes there were some negative events overall but ultimately this week has been quite an emotional rollercoaster, coming off of breakpoint we had an absolutely fantastic time while we were out there, presenting both on games day as well as a key note on the main stage and meeting with a number of team of builders across the solana ecosystem, forming relationships, establishing pathways to partnerships but more importantly, demonstrating to the world exactly what we are capable of, the calibre of the talent that we have here, the calibre of the product that we are building and the response there was overwhelmingly positive. We proved to the world this weekend just what’s possible and just what we are capable of and we were expecting this week to be one of celebration. Unfortunately that is just not the case. I don’t want to offer any excuses as to how this situation transpired, there was an unfortunate chain of events in which I did not / we did not have access to our FTX account over that time being out of the country and some other coincidences and not having sufficient backup measures in place where someone would have accessibility to that so unfortunately I was relatively trapped there even with information coming in and as we were monitoring the situation there was little to be done and by the time I returned from lisbon it was already too late, withdrawals were already suspended. So where we go from here is we continue to focus on building. Once again our team has 100% resolve in continuing to forge forward and build the vision that we’ve laid out for Star Atlas. Period.
Now we’re also analysing how best to navigate these relatively uncertain waters as we pursue all of our development efforts and yes it’s impactful and there’s many different paths that can be taken here. But we’re going to be taking a conservative approach, we’re going to be making some adjustments internally. We’ve been extremely active in communicating with any relationship and partnership that we have in our network to identify sources of capital, now the current environment is not one that is optimal for undertaking a capital raise for obvious reasons, generally the macro economic environment is bad but beyond that, when you have a catastrophic collapse of the second largest exchange in the world with a contagion effect bleeding into many additional financial service around crypto currency its not a great environment to be raising in, but with that said, based on our preliminary conversations and discussions we’ve been having and once again some of the people that are advising or communicating with within our own network, we understand that people are interested in what is it we are doing, interested in participating in some type of capital raise event. I have confidence that we’ll be able to identify those sources of capital in addition to making the expense reductions across our own team is necessary and again having the support of our team in being able to do so for whatever period of time or length of time that is although I do hope that to be relatively short as well as some other optionality that I won’t be extensively discussing here on the town hall today but the key point is that we once again do have a number of opportunities in front of us. We are still in a position of strength on our balance sheet despite loss of capital on FTX and I have strong confidence that we are going to be able to pull through this, not only because of our team but also because of the community and because of the support that everyone has been showing us already.
If I may just make one additional comment just in terms of transparency and the communication I do think it’s important to emphasise that is was not easy for us to withhold information over the course of the week but as these events were unfolding its important for us to ensure that we were representing our situation accurately to the community and so we obviously delayed any type of communication although we were preparing for and prepared for this to come out depending on the outcome of the transpirings of this week. Here we are today and I also did want to ensure that I could discuss this with our team intimately before jumping on and having the conversation with the community so once again I feel good at least coming out of the conversation with the team that we had earlier today and we rolled immediately into one of our regularly scheduled tech demos, there was still a lot of enthusiasm there and we saw a lot of great updates as well. These are always my favourite calls, we do these ones every 3 weeks they’re always my favourite calls to be on just seeing the progress of development across the ecosystem but yeah here we are so, Santi I think the easiest thing to do or best thing to do is just, we’re here to answer questions, probably not too much else needs to be said right now but happy to be available and offer some reassurance and respond openly to any of the questions that are out there….
QUESTION:
What was the previous runway in terms of years for your current operating expense and what % was it cut down to.
ANSWER:
It’s kind of a complicated question to answer to be honest with you because there were other sources of revenue derived through FTX directly and one of our revenue sources being cut of also obviously negatively impacts the runway but suffice to say we were between 20 and 24 months depending on how we managed our expenses and budgeting previously. We are now certainly less than 1 year, we are probably 9 months or so based on all existing ongoing expenses but obviously those numbers are going to be changing as well so our objective is certainly to increase runway taking us into at least 2024 and ideally getting us out to 2025. Now there are many dynamics to that that can also change, we are optimistic on the recovery of the macroeconomic environment and on crypto markets in general and the impact that that would have on various sources of revenue for us, so many things can change buy if we look just at a snapshot in time based on where we are today, what our spend is today and what our current existing fully liquid cash reserves are, this excludes any of our balances of Star Atlas assets that we hold in treasury which are substantial and amount to a significant amount should there be a path to extracting capital as a result of that, then we are looking at between 6 and 9 months probably.
QUESTION:
In general, can you tell us what the strategy is now?
ANSWER:
Sure we’ve discussed this slightly, again it has has been the primary focus of conversations over the course of this week as to any modification or adjustments that we need to make to roadmap and product development but certainly one of the areas that we are considering is the refocus of immediate or initial resources into the completion of SAGE for a number of reasons;
- simply because the product development cycle on that is significantly shorter than that of the immersive unreal engine client that is in development but
- because it does also unlock the true economic benefits as it is developed with the entirely on chain logic that we are bringing out and would introduce some of the mechanics that I think are interesting to many of the people that are already participants, namely the ability to participate in play to earn but also all of the gameplay loops that are associated there so its, I would say, challenging for us to accelerate the development of SAGE even if we were to attempt to reposition talent within our team because the expertise of those individuals who are working on the unreal engine client is not the talent that we need for the development of SAGE so we continue to push forward we continue to push for our timeline on SAGE to whatever extent necessary and where possible we can reprioritise resources there but it is important for us to get that online and functional so people can start playing, start having fun and we believe that could be a growth factor for player acquisition going into the future. I know i’ve not discussed it heavily in the past, I’ve alluded to the fact that we also have a mobile division, a mobile companion app that is in development right now. We are looking at a Q1 (2023)Timeline on that as well and that introduces some interesting mechanics as well as revenue opportunities for us so theres a number of things were working on, one of the areas that I’m trying to navigate right now and we are discussing it extensively is we’ve expended countless resources and time attracting and securing some of the best from around the world and AAA game development and the last thing I want to do is create a roadblock to what the future roadmap looks like there so we are trying to prioritise here and trying to figure out what the best approach is so that we can keep everyone on board and everyone moving in the same direction with minimal impact to the roadmap.
QUESTION
It would bring some assurances if you could talk about numbers, how much you lost.
What’s the plan to raise capital?
What is the financial situation between Star Atlas and Sperasoft?
ANSWER
Of course so I guess starting with Sperasoft of course they were compensated. We do have an exclusive contractual agreement with them and we’ve scaled their team up over the course of development. When we originally started with them we had something like 26-28 dedicated personnel, and when I say exclusive we have a team that is fully dedicated of personnel from Sperasoft that would work with us, those individuals do not work with any other teams, they are working exclusively with Star Atlas. We started with 26 to 28, we’re upwards of 58-61 right now, those numbers vary a little bit but its going to be somewhere in that neighbourhood and their compensation is purely in the form of cash payments so I’m not sure if the question was in relation to any crypto based payments or token compensation but that dynamic does not exist in our relationship with them so it was a cash payment basis. In addition to Sperasoft though, we do actually have 7 total co-creation studios that work with us and they have a variety of expertise and areas that they work on, 6 of those are exclusive to unreal engine and one of those was the team that did the work with us on the webGL assets for SAGE. So I’m not sure if there’s anything else you want me to elaborate on there but we certainly have some flexibility although, once again we’d like to figure out how we can retain talent and how we can continue onward with relationships even in a reduced capacity for a limited period of time.
I think this was another question before that one was our strategy to generating capital or raising capital, so, I mean, obviously what we want to do is everything that we can to continue to develop out, refine and enhance revenue streams that flow into us as a company, NFT sales being one of those, obviously marketplace fees being another of those, any SFT sales, things like the graphic novel, that’s another one and those are largely our forms of revenue today to whatever extent and possible in the future naturally we’ve been collecting ATLAS as a form of payment for all of those NFT sales and that would be an avenue for capital for us as well. Now I think as I’ve stated we were not liquidating ATLAS into the market, we were retaining that ourselves which means we also hold a position that has a significant negative unrealised loss that we are exposed to as a company and that was a loss that I was comfortable dealing with in the short term because we have conviction around what we are building we have a lot of confidence in ourselves so its more challenging, what I can say is even on the tail end of this event we’ve not been going out selling tokens, we do not not necessarily have a plan on selling tokens although that option would probably exist particularly in, i have to be a little but careful here, we could structure some deals directly with individual parties to sell direct to high conviction buyers of tokens, that would potentially be an option for us. More importantly and probably the larger source of capital would be obviously working with some venture capital group and again we have a number of relationships there and inroads there and we’ll be initiating those conversations as soon as possible. We’ve been preparing materials and we effectively have presentation, fully prepared presentation, probably by sometime later in this evening. We’ll be ensuring we finalise and polish any of that and then engaging in conversations whether that starts this weekend or going into next week. Now with all that said, given the environment, given the likely skittishness of VC’s in the space right now, it’s very difficult for me to say what the timeline would look like on, well our goal would be to get something done in 4 to 6 weeks before the end of the year, no pun intended but it could very well extend out 3-6 months, thats also very possible. Now we could continue onward at full speed for the next 6-9 months as I mentioned without making any adjustments whatsoever and we can make a big bet that we would encounter improved markets and increased demand as a result of all of the product that we are rolling out. That is unlikely to be the strategy that we take. I would like to see us with no less than 12-18 months of runways which puts us in a comfortable position to navigate through the market cycle and get into a more optimistic time for us to more broadly promote and have more features and products available for people to interact with. So that was 2 questions…(reminder on funds lost question)
We would fund our bank account on a quarterly basis, unfortunately that funding would have been coming up at the end of November is when we would have been making that transaction so we did have a higher balance on there than I had originally thought, but in spirit of full transparency there was just shy of $15m on FTX at the time… I appreciate the questions but with that said, realistically bringing in $10-15m is not a large amount, it probably sounds like a lot of money to people here present on the call. Admittedly it is a lot of money its not the way we would have wanted to see those resources get allocated which is having them essentially lost to fraud but at the same time, $10-15m is not a lot of money especially given we’ve seen months of revenue that were in excess of $60-70m so, different market environments, different levels of demands so we have to work through that right now.
QUESTION
Looking for VCs comes with strings attached, can we come up with something for the community to bypass the need for VCs?
ANSWER
I will say that we have never taken venture capital in the history of Star Atlas and it was never really one of the paths that we wanted to take. We were fortunate in 2021 ito catch a market cycle and present a vision that was very attractive to a lot of people and so we saw a pretty immediate success in revenue generation, so while it wasn’t attractive for me to go down the venture capital route, we’re in a position now where that’s probably the most feasible approach to this, in terms of where would I prefer to see equity going, well we already have a long term incentive plan within the company where equity is component of that for all of the team members that are working with us and building value and building what it is that Star Atlas is. We are discussing right now internally as to whether or not that’s a viable approach to offset any payroll reduction that we may have to implement as a method of retaining employees. If there is a payroll reduction then there’s compensation in the form of either equities or tokens which we do as RTU restricted token units and those get distributed out on a vesting schedule. I would much prefer to do that for the team, these are the people building the product. I would rather them be rewarded for the upside rather than going outside to a capital source. If we are able to do that then we can retain a lot of the talent, we try to minimise the time frame between now and when we’re able to get more into a positive net cash flow position and in the meantime our team benefits from that. I don’t know if that’s possible yet, a lot of discussion going on with HR and with legal and what routes we have available to us. Second to that the community has been our strongest supporter, you all have been the ones buying the assets and communicating and participating and contributing to, once again, what star atlas will become. This is a sensitive topic, again for me to discuss. Again I don’t want Dan to kill me here, I would love to identify a path where we could get the community involved in this, you know, and I don’t know if that option is available, perhaps it’s something that we can discuss, that would be the next priority for me is how do we figure out a path to enabling the community that’s been involved with us for so long to participate in any type of opportunity, so I don’t know on that and then a third priority is obviously making sure that we have the cash, that we have the runway and we have the time to continue building and getting into improved markets once again, so we’re navigating all of this live…
I do sincerely appreciate it. I just want to offer back in return that we’re here and we’re not going anywhere either. We’ll make the adjustments necessary were going to figure this out, were going to continue building, nobody is going away, once again the response from the team was not a sombre one, we had largely positive response and encouragement in the messages that I received directly from the team members as well so we’ll see where the chips fall on that one but I’ve ultimately, despite the scenario, I feel good about our path forward.
QUESTION
During this sort of time will the team seek to further strengthen the relationship with Epic Games?
ANSWER
Our relationship is quite strong with Epic games, there’s not an avenue I believe for any form of capital infusion as a result of that but they’ve been supportive of us, we have close relationships both with the core Epic group and Unreal Engine team as well as their separate division which focuses on Epic Games store. Both of those teams have been very supportive of us and of our progress. Beyond that we will continue to work with them as closely as possible including a variety of marketing channels going into the future but beyond that I don’t know at this time if there’s any access to capital nor do I think that’s a high probability.
QUESTION
How have we gone from $200m to $10m?
ANSWER
Sure it’s a fair question. First and foremost ATMTA is registered in the united states which means that we do have to pay federal income tax on every dollar of revenue that we generate and that federal minimum income tax rate is 21% and in addition to that we have employees across 20-25 states within the united states as well as internationally that’s no surprise. That means that we do also have to pay taxes on an international basis as well as having to pay state income tax on gross top line revenue as well so that’s impactful, that was in the 10s of millions of dollars. In addition to that a major source of revenue for us, no surprise is in the form of ATLAS. Arguably, I dont have the specific number off hand right now, I would say something in the neighbourhood of 40-50% of our revenue was in the form of ATLAS. ATLAS which we did not sell intentionally because we see ourselves as being one of the utility drivers as one of the initial token sinks as we continue on with game development. Obviously token pricing has come down over time the rates that we were collecting ATLAS at, at inception are substantially lower than what they are today, largely market cycle related but that means that we do have a significant, as I said significant, negative unrealised net loss on those balance sheet assets, so outside of that, we’ve been building the company for 2 years now, we’ve been focussed heavily on the AAA game development and scaling up the team over the past year, yes that’s true but the cash that is on hand that i’m referring to is the pure liquid cash either USDC or cash that is presently in our bank in the form of USD. That is cash that I am considering immediately available and accessible to us. Now we still have some probably $20-30m in assets in the form of ecosystem tokens but I do not consider those to be immediately liquid to us and so therefore I am not factoring those in our runway.
Not what we wanted to be presenting on today but I felt it important to at least be informative as quickly as possible with the community and openly communicate, again our conviction here is still strong, I have enormous confidence in us and I have enormous confidence that we’re going to be able to weather this and come out and emerge on the other side significantly stronger even than we are today. It’s optimistic but that’s how I operate and I’m just speaking the truth so, sincerely appreciate the support that you’ve shown us all along, guys, we’re going to be here, we’d love to see your continued support and we will find a way through this.