NextTrip, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-looking statements This Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including, but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this document are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and elsewhere in this report. Corporation Information We were incorporated as Messidor Limited in Nevada on December 23, 1985 and changed our name to Framewaves Inc. in 2001. On September 27, 2010, we changed our name from Framewaves Inc. to Sigma Labs, Inc. We commenced our current business operations in 2010. Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (505) 438-2576. Our website address is www.sigmalabsinc.com . The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q. 16 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 amounts in the accompanying consolidated financial statements and related notes. These estimates and assumptions have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. 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. Our significant accounting policies are disclosed in Note 1 to the Financial Statements included in this Quarterly Report on Form 10-Q. 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 Three Months Ended June 30, 2021 and June 30, 2020 We generate revenues through PrintRite3D® hardware and computer-assisted instruction (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 additive manufacturing (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 three months ended June 30, 2021, we recognized revenue of $144,148, as compared to $167,688 in revenue recognized during the same period in 2020, a decrease of $23,540. The decrease is primarily due to no revenue from the Company’s Rapid Test and Evaluation (“RTE”) program in the second quarter of 2021, versus $29,864 of such revenue in the second quarter of 2020. Our Cost of Revenue for the three months ended June 30, 2021 and 2020 was $116,397 and $57,684, respectively, an increase of $58,713. The increase is primarily attributable to costs incurred in connection with the installation and support of previous PrintRite3D sales, as well as support of current and legacy RTE’s, partially offset by a decrease in manufacturing costs of our PrintRite3D units as a result of engineering enhancements. 17 Sigma’s total operating expenses for the three months ended June 30, 2021 were $2,168,651 as compared to $1,526,554 for the same period in 2020, an increase of $642,097 as further described below. Salary and Benefits costs were $985,348 for the three months ended June 30, 2021 compared to $605,295 for the same period in 2020, an increase of $380,053. This 62.8% cost increase is primarily a result of employee salary increases and average full-time employee headcount increasing by 10 over the second quarter of 2020. Salaries increased by $319,348, employee benefits increased by $16,626, employer payroll taxes increased by $13,058, and SAR’s expense increased by $23,129. Stock-based Compensation was $116,441 for the three months ended June 30, 2021 compared to $270,818 for the same period in 2020, a $154,377, or 57.0% decrease. This decrease is primarily due to stock options awarded to employees in June of 2020, whereas with the exception of stock option grants to new employees in 2021, stock option awards were not made to employees during the three months ended June 30, 2021. Research and Development expenditures of $280,700 were incurred during the three months ended June 30, 2021 compared to $111,647 in the same period of 2020, a $169,053 increase. The increase is primarily attributable to $73,638 for CT scans related to new development work, $21,332 related to optics redesign, $33,310 for ongoing enhancements and bug fixes related to PrintRite3D v7.0, and purchases of lab supplies, and parts and materials of $31,771. Investor & Public Relations expenses of $114,762 were incurred during the three months ended June 30, 2021, as compared to $97,702 incurred during the same period in 2020. The increase of $17,060 is primarily due to an increase in expenses for trade shows and conferences of $26,267, partially offset by a decrease in marketing and advertising costs of $13,655, as the Company discontinued its Network Newswire service. Organization Costs for the three months ended June 30, 2021 totaled $158,529, as compared to $80,096 for the same period in 2020. The increase of $78,433, or 97.9% is due to an increase in shareholder services costs of $34,109 related to the special shareholders meeting held in May of 2021, and $60,802 related to stock options expense for non-employee directors, whereas options were not granted to non-employee directors until July 2020. Partially offsetting these increases was a decrease in non-employee directors’ cash compensation of $17,173 in the second quarter of 2021 as compared to the same period in 2020. Legal & Professional fees incurred in the three months ended June 30, 2021 were $244,019 compared to $212,496 incurred during the same period in 2020. The increase of $31,523 is primarily due to an increase in recruiting fees of $64,000 related to new hires during the period, an increase in consulting fees of $9,112 and an increase in IT services of $2,738, partially offset by a decrease in legal fees of $24,626, and lower accounting and audit fees of $19,700. Office Expenses incurred during the three months ended June 30, 2021 were $151,871 compared to $78,843 incurred during the same period in 2020, an increase of $73,028, or 92.6%. The increase is primarily due to increased travel costs of $40,973 as a result of the easing of COVID-19 restrictions, an increase of $15,540 in dues and subscriptions, primarily related to new software applications, including customer relationship management, product lifecycle management, and compliance, an increase of $10,272 in postage and shipping, and an increase in office supplies of $5,344. Depreciation and Amortization expense for the three months ended June 30, 2021 was $25,783, compared to $17,970 for the same period in 2020. The primary reason for the increase is due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations. Other Operating Expenses were $91,198 for the three months ended June 30, 2021, compared to $51,687 incurred during the same period in 2020. The increase of $39,511 is primarily due to higher insurance premiums of $32,839 in 2021. In addition, increased SEC filing fees of $4,956 related to various registration statements were incurred in June 2021. In the three months ended June 30, 2021, our net other income & expense was net income of $295,393 compared to net other income of $506,912 in 2020. The 2021 net positive contribution is primarily from a gain of $290,156 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering. In 2020, the net positive contribution consisted primarily of $151,657 in New Mexico state job incentive credits, and $361,700 from the recognition of our PPP loan as a government grant. Sigma’s net loss applicable to common stockholders for the three months ended June 30, 2021 totaled $1,859,767 as compared to $1,601,518 for the same period of 2020, a $258,249 increase. The second quarter net operating loss contributed $724,350 to the loss increase, while the decrease in other income contributed an additional loss of $211,559. Partially offsetting these losses was a decrease in preferred dividends of $677,660 for the quarter ended June 30, 2021. Six Months Ended June 30, 2021 and 2020 During the six months ended June 30, 2021, we recognized revenue of $602,288 compared to $389,418 during the same period of 2020. The primary contributors to the $212,870 increase were an increase in PrintRite3D® unit sales contributing $276,242, partially offset by a decrease in a RTE program revenue of $67,200. Our cost of revenue for the six months ended June 30, 2021 was $244,728 compared to $302,387 during the same period in 2020. The decrease of $57,659 is primarily due to a credit in the first quarter related to a customer exchange of a PrintRite3D unit sold in December 2020, lower build costs as a result of engineering enhancements of our PrintRite3D units, and lower costs of supporting legacy RTE programs. Sigma’s total operating expenses for the six months ended June 30, 2021 were $3,950,057 compared to $3,086,195 for the same period in 2020, a $863,862 increase as further described below. Payroll costs for the six months ended June 30, 2021 were $1,832,520 compared to $1,257,492 for the same period in 2020, an increase of $575,028. The increase is primarily due to employee salary increases and higher average employee headcount of 7 during the first half of 2021, resulting in increased salaries of $421,207, plus $28,270 in employee benefits and $34,202 in employer payroll taxes. Also contributing to the increase was $26,924 in sales commissions and bonuses, and $60,615 of expense related to the Company’s Stock Appreciation Rights plan. Stock-based compensation for the six months ended June 30, 2021 was $233,919 compared to $424,989 for the same period in 2020, a $191,070 decrease, primarily due to stock options granted to our CEO vesting in the first quarter of 2020 with no such vesting in the first quarter of 2021, and stock options awarded to employees in June of 2020. With the exception of stock option grants to new employees, stock option awards were not made to employees during the six months ended June 30, 2021. During the six months ended June 30, 2021, Sigma incurred research and development expenditures of $477,040 compared to $165,335 in the same period of 2020. The $311,705 increase in these expenditures during the first six months of 2021 is a result of development costs incurred in connection with PrintRite3D version 7.0 of $81,477, increased purchases of lab supplies of $97,382, of which metal powder purchases totaled $14,161, argon gas totaled $15,434, laboratory facility upgrades totaled $8,852, and cables and cable making supplies totaled $19,075, CT scans conducted for new development work and a simulation project totaling of $93,638, increased write-offs of $40,350 in obsolete inventory, and $21,332 related to optics redesign. Partially offsetting these increases was a decrease in consulting expenses of $22,926 due to the full-time hire of a consultant in 2021. Investor and Public Relations expenses incurred in the six months ended June 30, 2021 were $223,103, compared to $287,009 during the same period in 2020. The $63,906 decrease in the six-month comparative expenditures results primarily from a decrease in advertising expenses as a result of discontinuing Network Newswire services and use of a public relations firm. Organization Costs for the six months ended June 30, 2021 totaled $236,145, as compared to $155,675 for the same period in 2020. The increase of $80,470 is primarily due to $122,273 of stock option expense for non-employee directors in the first half of 2021 verses $0 in the first half of 2020, as such grants were not made to non-employee directors until the second half of 2020. Partially offsetting this increase was a decrease in non-employee director cash compensation of $22,305, and a reduction in shareholder services expenses of $19,498. Legal and Professional fees incurred in the six months ended June 30, 2021 were $420,866, compared to $397,386 incurred during the same period in 2020, an increase of $23,480, or 5.9%. Legal fees decreased by $101,966 due to expenses incurred during the first quarter of 2020 in connection with our January 2020 private offering, Nasdaq related matters, and our February 27, 2020 reverse stock split. Also contributing to the decrease were lower accounting related expenses of $16,670. Partially offsetting these decreases was an increase in recruiting fees of $90,667 related to ten new hires during the first half of 2021, and increased consulting fees of $45,211 related to an external marketing consultant, and corporate consulting services, and increased IT services of $6,238. 18 During the six months ended June 30, 2021, Sigma’s office expenses were $300,096 compared to $226,590 in the same period of 2020. The $73,506 increase in these expenditures primarily resulted from $21,381 in postage and shipping, $26,231 in computer hardware and software related to new hires, payroll servicing fees of $10,009 due to new hires and a first-year fee discount that ended in 2020, and increased dues and subscriptions of $23,127 related to subscriptions to new software applications, including customer relationship management, product lifecycle management, and compliance. Partially offsetting these increases was a decrease in travel expenses of $8,425 in the first half of 2021. Depreciation and Amortization expense for the six months ended June 30, 2021 was $48,814, compared to $35,983 for the same period in 2020. The increase is primarily due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations. In the six months ended June 30, 2021, our net other income & expense was net income of $1,096,290, as compared to net income of $505,941 during the same period in 2020. The increase is primarily a result of a gain of $1,092,441 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering, partially offset by 2020 New Mexico state job incentive credits of $151,657 plus $361,700 from the recognition of our PPP loan as a government grant. The grant was recognized during the second quarter of 2020. Sigma’s net loss applicable to common shareholders for the six months ended June 30, 2021 totaled $2,571,334 as compared to $3,500,350 for the same period in 2020, a $929,016 decrease. Contributing to this decrease was an increase in other income of $590,349 and a decrease in preferred stock dividends of $932,000, partially offset by an increase in our net operating loss of $593,333. We financed our operations during the three and six months ended June 30, 2021 and 2020 primarily from revenue generated from PrintRite3D® system sales and engineering consulting services we provided to third parties during these periods and through sales of our common and preferred stock. We expect that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our PrintRite3D®-related technologies. Liquidity and Capital Resources As of June 30, 2021, we had $14,731,115 in cash and working capital of $15,572,454, as compared with $3,700,814 in cash and working capital of $4,332,053 as of December 31, 2020. 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. In January 2021, the Company closed a public offering of its securities in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company. In March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering costs payable by the Company. Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement. The warrants entitle the holders to purchase one share of our common stock at an exercise price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date. If all of the warrants are exercised by the holders thereof, the potential gross proceeds to the Company will be $9,460,800. During the first quarter of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net proceeds to the Company of $1,136,010. 19 We believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2022. We have based this estimate on assumptions that may prove to be wrong, such as our current expectations of revenue generation and burn rate, 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; and ● The cost of operating as a public company. During the remainder of 2021, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues generated from sales of our PrintRite3D® technology. We expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology, including the May 2021 release of version 7.0, 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). As the second quarter of 2021 progressed, the Company continued to be adversely affected by the COVID-19 global economic slowdown, which has resulted in lower revenue than anticipated. Several customers have delayed purchase orders, and although they have not been cancelled, the timing of when they might be received continues to be uncertain. Two key industries with which we do business, aerospace and oil and gas, have experienced a reduction in the global demand for their products due to the pandemic. We have also experienced delays in purchase orders from universities and research institutes. As a result of the decrease in the demand for our products from customers and potential customers in these and other industries, the Company expects that revenue from these sectors will remain under pressure. It is impossible to know at this time how long companies will limit capital expenditures and if the industries that have been most negatively affected will resume normal purchasing. However, due to the need to have more flexibility in supply chains with the ability to respond quickly to shortages in parts or products, we believe that the crisis will eventually accelerate the adoption of 3D printing, which would be a positive trend for the Company. Net Cash Used in Operating Activities Net cash used in operating activities during the six months ended June 30, 2021 increased to $3,266,620 from $2,435,387 during the same period in 2020, a $831,233 increase. Contributing to this increase was the gain of $1,092,441 on the derivative liability, increased inventory of $200,426, an increase in prepaid assets of $133,286, a decrease in stock-based compensation of $67,784 and increased net loss of $2,984. Partially offsetting these increases was a decrease in accounts receivable of $172,977, a decrease in cash used to settle accounts payable and accrued expenses of $479,880, and depreciation and amortization of $12,831. Net Cash Used/Provided by Investing Activities Net cash used by investing activities during the six months ended June 30, 2021 was $108,021, which compares to $98,710 of cash used by investing activities during the same period of 2020, an increase of $9,311. This is primarily attributable to lower patent costs offset by and increased purchases of furniture and equipment. 20 Net Cash Used/Provided by Financing Activities Cash provided by financing activities during the six months ended June 30, 2021 increased to $14,404,942 from $4,892,944 during the same period in 2020 due to the receipt of $14,869,899 of proceeds less $1,600,967 of offering costs, in connection with our January 2021 and March 2021 private and public offerings and exercise of Preferred Warrants. Cash provided by financing activities during the same period in 2020 resulted from the receipt of $3,600,000 in proceeds less $820,228 of offering costs in connection with our January 2020 and April 2020 offerings, $2,141,100 in proceeds from the exercise of warrants, and 22,072 from the deferral of payroll taxes pursuant to the CARES Act, partially offset by the payment of the remaining outstanding principal balance on a convertible note payable in the amount of $50,000. 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 issuance of securities or by borrowing funds from lenders to fulfill our business plans. 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 no assurance as to the amount and availability of any required future financing or the terms thereof. The Company is unable to predict the effect that the ongoing COVID-19 pandemic may have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay or scale back a portion of our commercialization efforts and operations. We have no credit lines as of July 22, 2021, nor have we ever had a credit line since our inception. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.