NextTrip, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock trades on The NASDAQ Capital Market under the symbol “SGLB.” Shareholders As of March 23, 2021, there were approximately 554 holders of record of our common stock based on information provided by our transfer agent. Dividends We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the board of directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. However, we have paid dividends on our preferred stock pursuant to an agreement with investors and may do so in the future pursuant to future financing agreements, if any. Pursuant to the Series D Preferred Stock Certificate of Designations, the Company may not declare or pay any cash dividend or distribution on any of its capital stock, other than as required by the Certificate of Designations. 18 Recent Sales of Unregistered Securities Not applicable. Repurchase of Shares We did not repurchase any of our securities during the fiscal year ended December 31, 2020. ITEM 6. SELECTED FINANCIAL DATA. Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Sigma is a leading provider of in-process quality assurance (IPQA®) software to the additive manufacturing industry. Sigma specializes in the development and commercialization of real-time monitoring solutions known as PrintRite3D® for 3D metal advanced manufacturing technologies. PrintRite3D detects and classifies defects and anomalies real-time during the manufacturing process, enabling significant cost-savings and production efficiencies. We are dedicated to setting the quality standard for Additive Manufacturing and accelerating the worldwide adoption of 3D metal printing. We work closely with international standards organizations, renowned universities, research organizations, advanced manufacturers, and leading design and simulation software companies. PrintRite3D is printer agnostic and works with most of the leading 3D metal printers. Covid-19 Business Update As stated earlier, the worldwide COVID-19 pandemic caused a reduction, and in some cases a freeze, in capital spending within the Company’s targeted industries and had what the Company believes to be a short-term negative impact on the Company’s expected timing of generating meaningful revenue. Further, the future impact of the outbreak, including variations of the virus, is highly uncertain and cannot be predicted so that no assurance can be given that the outbreak will not have a material adverse impact on the future results of the Company. It is also uncertain as to any further disruption of the global financial markets, which may reduce our ability to access capital, either at all, or on favorable terms. Reverse Stock Split Effective February 27, 2020, we effected a reverse split of our common stock on a 1-for-10 basis. Accordingly, all common shares, stock options, warrants, and per share amounts contained in this Annual Report have been retroactively adjusted to reflect the reverse split for all periods presented. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 to the Financial Statements included in this Annual Report. However, we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements. Results of Operations Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019. We generate revenues through PrintRite3D® hardware and CAI software licensing of our PrintRite3D® technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. Additionally, we generate revenues from our contract manufacturing activities in metal AM. Our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our PrintRite3D® technologies, and it will depend on whether key prospective customers continue to move from AM metal prototyping to production. During the fiscal year ended December 31, 2020 (“fiscal 2020”), we generated an aggregate of $807,488 in revenues, as compared to an aggregate of $402,446 in revenues generated by us in the fiscal year ended December 31, 2019 (“fiscal 2019”). The contributors to the $405,042 increase were increases in new PrintRite3D® 6.0 system sales of $394,959, increased revenues from our Rapid Test and Evaluation (“RTE”) program of $37,064, increased annual maintenance revenues of $11,240, and increased revenue from contract AM jobs of $8,651, partially offset by decreases in on-site engineering and installation revenues of $47,872. Our cost of revenue for fiscal 2020 was $591,957 compared to $574,301 during the same period in 2019, an increase of $17,656. The increase is primarily due to increased PrintRite3D® 6.0 system sales, and parts and materials upgrades for certain customers. 19 Sigma’s total operating expenses for fiscal 2020 were $5,914,299 as compared to $6,211,830 for fiscal 2019, a $297.531 decrease. In fiscal 2020, salaries and benefits costs were $2,622,162 as compared to $2,354,329 for the same period in 2019. The $267,833 increase resulted primarily from salary increases and related employer payroll taxes of $148,270, employee bonuses of $127,250, and increased sales commissions of $8,800, partially offset by lower benefits costs of $23,578. Stock-based compensation for fiscal 2020 was $596,842 compared to $497,240 for the same period in 2019. This $99,602 increase resulted primarily from stock grants made to employees of $23,610 and additional stock options granted to employees of $75,992. During fiscal 2020, Sigma incurred research and development expenditures of $351,404 compared to $647,994 in the same period of 2019. The $296,590 decrease is primarily the result of completed product development, as well as the reduced use of consultants during the year. Sigma’s investor and public relation fees incurred in fiscal 2020 were $434,852, compared to $417,750 in fiscal 2019. The increase in the comparative expenditures results primarily from an additional investor relations consultant of $90,369, increased investor conferences and virtual shareholder meetings of approximately $20,000, partially offset by decreased advertising and trade show expenses of $100,000. Organization costs for fiscal 2020 were 425,847, compared to $530,958 for the same period in 2020. The decrease of $105,111 is primarily attributable to lower directors’ compensation in 2020 of $135,944 and investment bank consulting fees of $31,500, partially offset by increased shareholder services costs of $49,149 as a result of a special shareholders meeting held in March 2020 and costs incurred for the conversion of Series D Preferred Stock throughout 2020. Legal and professional service fees in fiscal 2020 were $676,142 compared to $664,403 paid in fiscal 2019. The increase of $11,739 is primarily attributable to an increase in legal fees of $128,010 related to a special shareholders meeting, Nasdaq compliance related matters, and our 2020 financings, and an increase in IT services fees of $17,101, partially offset by reduced utilization of recruiting firms of $49,851 and consultants of $86,574. During fiscal 2020, Sigma’s office expenses were $416,580 compared to $747,881 in the same period of 2019. The $331,301 decrease in these expenditures resulted primarily from reduced travel costs of $309,451 as a result of COVID-19 restrictions, and lower office supplies expense of $56,371 due to employees working remotely for most of the year, partially offset by an increase in postage and shipping costs of $18,446 related to PrintRite 3D returns from expired RTE programs. Depreciation and amortization expense in 2020 was $105,175, as compared to $192,569 in 2019. The decrease of $87,394 is primarily the result of our fully depreciated 3D printer in 2020, partially offset by an increase in patent amortization expense during the year. Other operating expenses for fiscal 2020 totaled $285,295, compared to $158,706 for fiscal 2019. The increase of $126,589 is primarily due to an increase in insurance premiums, in particular our Director’s & Officer’s policy premium which increased by $115,396. In fiscal 2020, our net other income & expense was net income of $498,629 compared to net income of $62,836 in 2019. The increase of $435,793 is primarily due to increased incentives from the State of New Mexico of $99,780 and income from the Company’s Payroll Protection Plan loan of $361,700, partially offset by a decrease in interest income of $17,702 and an increase in interest expense of $5,223. Sigma’s net loss before preferred dividends for fiscal 2020 decreased $1,120,710 overall and totaled $5,200,139, as compared to a net loss before preferred dividends of $6,320,849 for fiscal 2019. Net loss applicable to common stockholders for fiscal 2020 was $7,009,414, as compared to $6,320,849 for fiscal 2019. The 2020 net operating loss component of the overall loss being $684,917 lower than in 2019 and the other income component being a $435,793 higher. Preferred stock dividends were $1,809,275 in 2020 and $0 in 2019. Liquidity and Capital Resources As of December 31, 2020, we had $3,700,814 in cash and working capital of $4,332,053, as compared to $86,919 in cash and a working capital deficit of $98,315 as of December 31, 2019. On January 12, 2021, the Company closed a public offering of common stock resulting in net proceeds of approximately $4,532,444 after deducting commissions and other offering expenses payable by the Company. In February and March of 2021, the Company received net cash proceeds of $1,136,010 from the exercise of outstanding warrants. We believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2021. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the research, development, and commercialization of our products, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including: ● The cost of expending, maintaining, and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; ● The effect of competing technological and market developments; ● The revenue from the sales of our existing and future products; ● The cost of operating as a public company; and ● The other factors listed under Item 1A “Risk Factors.” Our major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and preferred stock), and from warrant exercises. On March 15, 2019, the Company closed a public offering of equity securities resulting in net proceeds of approximately $1,679,230 after deducting commissions and other offering expenses payable by the Company. In May 2019, the Company closed a private placement of equity securities resulting in net proceeds of approximately $515,000, after deducting placement agent commissions and other offering expenses payable by the Company. In August 2019, the Company closed a public offering of equity securities resulting in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by the Company. In September 2019, Aegis Capital Corp. partially exercised its over-allotment option granted by the Company in the foregoing August 2019 public offering, resulting in net proceeds of $148,800 after deducting placement agent commissions. In January 2020, we completed two private placements consisting of shares of our newly created Series D and Series E Preferred Stock, warrants to purchase additional shares of Series D Preferred Stock and warrants to purchase shares of our Common Stock resulting in net cash proceeds to us of approximately $1,711,124. During 2020, institutional holders of the Series D Preferred Warrants exercised 6,146 of 6,156 such warrants resulting in net proceeds to the Company of $5,820,998. As of March 23, 2021, if all of the remaining common warrants to purchase our common stock are exercised by the holders thereof, the potential net proceeds to us will be $1,291,000. On April 6, 2020, we closed an offering of equity securities in which the Company sold and issued to certain institutional investors (a) shares of the Company’s common stock and pre-funded warrants, and (b) Series A Warrants (the “Private Warrants”) to purchase shares of the Company’s common stock pursuant to a private placement resulting in net proceeds of approximately $1,230,000. As of March 23, 2021, if all of the Series A Warrants are exercised by the holders thereof for cash, the potential gross cash proceeds to us will be $956,015. On January 12, 2021, the Company closed a public offering of equity securities resulting in net proceeds of approximately $4,532,444 after deducting commissions and other offering expenses payable by the Company. We will need to raise additional amounts to fund our operations, maintain compliance with the NASDAQ listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business operations. There is also significant uncertainty from the affect that the novel coronavirus may have on the availability and type of financing. To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business operations and lose our NASDAQ listing. 20 During 2021, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues generated from sales of our PrintRite 3D® technology. We expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology will enable us to further commercialize this technology into the AM metal market in 2021. To support the commercialization of our PrintRite3D® technology, we plan to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control technologies) and through the use of proceeds from sales of our securities. Net Cash Used in Operating Activities Net cash used in operating activities in 2020 decreased to $4,809,868 from $5,514,805 in 2019, which is a decrease in cash used of $704,937. This decrease is primarily attributable to: (1) a decrease in our net loss before preferred dividends of $1,120,710; (2) higher equity-based compensation expenses of $150,644 due to: (a) increased options and common share grants awarded to employees of $99,602; (b) increased stock options granted to consultants in lieu of cash of $70,096, partially offset by (c) lower equity based compensation for directors of $60,117; (3) an increase in accounts receivable of $259,282 due to increased sales; (4) a decrease in inventory growth in 2020 from 2019 of $297,700; (5) a decrease in current and long-term prepaid expenses of $319,463 primarily due to the release of collateral for a letter of credit and amortization of our three-year membership in the UK’s National Centre for Additive Manufacturing (“NCAM”); (6) a decrease in accounts payable and accrued expenses of $732,471 due to payments in 2020 related to 2019 payables as well as lower accounts payable in 2020 resulting from our improved cash position; (7) a decrease in deferred revenue of $149,439; (8) long-term Stock Appreciation Rights granted to employees and consultants of $48,341; (9) long-term deferral of Payroll Taxes under the CARES Act of $37,728; and (10) a decrease in depreciation expense of $87,394. Net Cash Used by Investing Activities Net cash used by investing activities during fiscal 2020 was $298,359, which compares to cash used by investing activities during the same period of 2019 totaling $85,798. The increase is primarily due to increased purchases of fixed assets of $54,587, additional costs incurred for patents of $36,561 and the receipt of cash from loan repayments of $121,913 in 2019. Net Cash Provided by Financing Activities Cash provided by financing activities during fiscal 2020 increased to $8,722,122 from $4,407,740 during the same period in 2019, an increase of $4,314,382 primarily as a result of the exercise of Series D Preferred warrants from our January 2020 private offering, which resulted in net proceeds to the Company of $5,820,998, partially offset by lower net proceeds from our 2020 private and public offerings over 2019. We have no credit lines as of March 24, 2021, nor have we ever had a credit line since our inception. Our ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future PrintRite3D®-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept engagements, possible strategic partnerships, and by obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining additional funding. The Company is unable to predict the effect, if any, that the novel coronavirus outbreak may have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations. 21 Inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years. We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable to a “smaller reporting company.” ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial Statements are referred to in Item 15, listed in the Index to Financial Statements and filed and included elsewhere herein as a part of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.