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, or the impact of COVID-19 on our business, 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. 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 September 30, 2021 and September 30, 2020 We generate revenues through licensing our PrintRite3D® hardware and software edge computing platform to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. 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 September 30, 2021, we recognized revenue of $700,237, as compared to $248,526 in revenue recognized during the same period in 2020, an increase of $451,711. The increase is primarily due to increased PrintRite3D® unit sales, including the Company’s first multi-unit sale, which was to a U.S. Department of Energy contractor, as well as a single unit sale to a U.S. National Laboratory. Third quarter 2021 revenues were partially offset by a return from a first quarter sale of $72,000. Our cost of revenue for the three months ended September 30, 2021 and 2020 was $164,766 and $97,785, respectively, an increase of $66,981. The increase is primarily attributable to additional PrintRite3D unit sales, partially offset by a decrease in certain material costs, and lower costs associated with the Company’s Rapid Test and Evaluation (“RTE”) program. Our gross profit for the three months ended September 30, 2021 was $535,471, or 76.5% of revenues, as compared to $150,741, or 60.7% of revenues for the same period in 2020. 18 Sigma’s total operating expenses for the three months ended September 30, 2021 were $3,026,888 as compared to $1,362,513 for the same period in 2020, an increase of $1,664,375. Salary and benefits costs were $1,222,760 for the three months ended September 30, 2021, as compared to $657,889 for the same period in 2020, an increase of $564,871 or 86%. Employee salary increases, together with 13 additional employees contributed $289,356, while associated taxes and benefits contributed $75,511, and increased expense associated with the stock appreciation rights granted to executive management in August 2021 contributed $200,004 to the increase. Stock-based compensation was $659,512 for the three months ended September 30, 2021, as compared to $58,219 for the same period in 2020, a $601,293, increase. This increase is partially due to a timing difference as stock options were awarded to employees in the second quarter of 2020 versus the third quarter of 2021, as well as an overall increase in stock options granted to employees, including our thirteen new employees in August 2021, and fully vested stock options granted to the Company’s newly hired Senior Vice President. Research and development expenditures of $131,772 were incurred during the three months ended September 30, 2021 compared to $79,673 in the same period of 2020, a $52,099 or 65% increase. The increase is primarily attributable to $27,500 in CT scans related to new development work, $5,019 related to optics redesign, and $19,580 in purchase of lab supplies and part and materials. Investor, public relations and marketing expenses of $119,622 were incurred during the three months ended September 30, 2021, as compared to $66,794 incurred during the same period in 2020. The increase of $52,828 or 79% is primarily due to an increase in tradeshow expenses of $38,699, and the reclassification of proxy management expenses from Investor Relations to Organization Costs of $26,135 in 2020, partially offset by decreased advertising costs of $8,252 in 2021. Organization costs of $342,112 were incurred during the three months ended September 30, 2021, as compared to $173,041 in the same period in 2020. The increase of $169,071 or 98% is primarily due to additional $6,465 in Shareholder Services, $11,450 in Organization Costs, and $151,156 in Stock Options expense from grants made to non-employee directors in August 2021. Legal & professional fees incurred in the three months ended September 30, 2021 were $261,075 compared to $133,273 incurred during the same period in 2020. The increase of $127,802 is primarily attributed to increased legal fees of $20,415, increased accounting fees of $7,244 related to certain regulatory filings, increased recruiting fees of $56,805 related to new hires, increased consulting fees of $51,966, and increased information technology expense of $1,517, partially offset by a $10,145 reclassification of other professional services to research and development. Office expenses incurred during the three months ended September 30, 2021 were $172,238 compared to $84,357 incurred during the same period in 2020, an increase of $87,881, or 104%. The increase is primarily due to increased travel costs of $54,864 as a result of easing of COVID related travel restrictions, an increase of $12,659 in dues and subscriptions, primarily related to new software applications including customer relationship management, product lifecycle management, and compliance, an increase of $9,312 in postage and shipping, increased training and education expense of $6,082 and an increase in supplies and miscellaneous expenses of $4,964. Depreciation and amortization expense for the three months ended September 30, 2021 was $27,689, compared to $50,167 for the same period in 2020, a decrease of $22,478, or 45%. The primary reason for the decrease is an adjustment in 2020 for the reclassification of a protype PrintRite3D system from finished goods to fixed assets. Other operating expenses were $90,108 for the three months ended September 30, 2021, compared to $59,100 incurred during the same period in 2020. The increase is primarily due to higher insurance premiums in 2021, and an increase in bank fees from a credit card transaction. In the three months ended September 30, 2021, our net other income & expense was net income of $439 compared to net expense of $6,241 in 2020. The increase is primarily the result of the interest paid to employees on salary reductions in 2020. Sigma’s net loss applicable to common stockholders for the three months ended September 30, 2021 totaled $2,505,198 as compared to $1,955,357 for the same period of 2020, a $549,841 decrease. The third quarter net operating loss contributed $1,279,646 to the loss increase, partially offsetting these losses was an increase in other income of $6,680, and preferred dividends of $723,124. Nine Months Ended September 30, 2021 and 2020 During the nine months ended September 30, 2021, we recognized revenue of $1,302,525 compared to $637,944 during the same period of 2020. The primary contributors to the $664,581 increase were an increase in PrintRite3D® unit sales contributing $799,221, partially offset by a decrease in revenue from our Rapid Test and Evaluation Program (RTE) of $82,064 and a first quarter sale return for $72,000. Third quarter 2021 revenues included the Company’s first multi-unit sale, which was to a U.S. Department of Energy contractor, and a single unit sale to a U.S. National Laboratory. 19 Our cost of revenue for the nine months ended September 30, 2021 was $409,493 compared to $400,172 during the same period in 2020. The increase of $9,321 is primarily due to the cost associated with our increase in PrintRite3D® unit sales, partially offset by a decrease in certain material parts, as well as a decrease in the ongoing support of legacy RTE programs, including equipment upgrades and additional labor costs. Our gross profit for the nine months ended September 30, 2021 was $893,032, or 68.6% of revenues, as compared to $237,772, or 37.3% of revenues for the same period in 2020. Sigma’s total operating expenses for the nine months ended September 30, 2021 were $6,976,944 compared to $4,448,708 for the same period in 2020, a $2,528,236, or 56.8% increase. Payroll costs for the nine months ended September 30, 2021 were $3,055,279 compared to $1,915,381 for the same period in 2020, an increase of $1,139,898. The increase is primarily due to increased salaries of $741,303 reflecting raises granted in January and 13 additional employees in 2021 as compared to 2020, an associated increase in taxes and benefits of $137,976, and $260,619 of increased expense related to stock appreciation rights granted to executive management in August, 2021. Stock-based compensation for the nine months ended September 30, 2021 was $893,431 compared to $483,208 for the same period in 2020, a $410,223 increase, primarily due annual option grants made to employees in August of 2021, including 13 additional employees as compared to 2020, and options granted to the Company’s newly hired Senior Vice President. During the nine months ended September 30, 2021, Sigma incurred research and development expenditures of $608,812 compared to $245,008 in the same period of 2020. The $363,804 increase is a result of development costs incurred in connection with PrintRite3D version 7.0 of $89,800, increased purchase of lab supplies of $115,453, CT scans conducted for new development work and a simulation project totaling $101,138, increased write-offs of obsolete inventory and metal powder of $53,082, and $26,351 related to an optics redesign. Partially offsetting these increases was a decrease in consulting costs of $22,020 due to the full time hire of a consultant in 2021. Investor, public relations and marketing expenses incurred in the nine months ended September 30, 2021 were $342,725 compared to $353,802 during the same period in 2020. The $11,077 decrease in the nine-month comparative expenditures results primarily from decrease in marketing and advertising expenses of $72,490 as a result of discontinuing Network Newswire services and the use of a public relations firm. Partially offsetting these decreases were an increase in Tradeshow expense of $38,698, and the reclassification of proxy management expenses of $26,135 to organization costs in 2020. Organization costs for the nine months ended for September 30, 2021 were $578,256 compared to $328,716 during the same period in 2020, an increase of $249,540. The increase is primarily due to an increase of $273,429 related to stock option grants to non-employee directors in January and July of 2021 verses none in the first half of 2020. Non-employee directors received their option grants at the end of July, 2020. Partially offsetting this increase was a decrease in non-employee director cash compensation of $20,931, and lower transfer agent expenses of $2,958 resulting from fewer share transactions in the first nine months of 2021. Legal and professional fees incurred in the nine months ended September 30, 2021 were $681,941, compared to $530,660 incurred during the same period in 2020, an increase of $151,281, or 29%. Legal fees decreased by $81,822 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 $9,426. Partially offsetting these decreases was an increase in recruiting fees of $147,473 related to 13 new hires in 2021, increased consulting fees of $87,301 related to an external marketing consultant and corporate consulting services, and increased IT services of $7,755. 20 During the nine months ended September 30, 2021, Sigma’s office expenses were $472,335 compared to $310,947 in the same period of 2020. The $161,388 increase in these expenditures primarily resulted from $30,693 in postage and shipping, $27,500 in new computer hardware and software related to new hires, payroll servicing fees of $10,685 due to new hires and a first-year fee discount that ended in 2020, increased dues and subscriptions of $35,786 to new software applications, including customer relationship management, product lifecycle management, and compliance, increased travel expenses of $46,438 and increased training and education expense of $12,146, partially offset by a decrease in rent and utilities expense of $1,861. Depreciation and Amortization expense for the nine months ended September 30, 2021 was $76,502, compared to $86,150 for the same period in 2020. The primary reason for the decrease is due to a nine month catch up adjustment in 2020 from the reclassification of a prototype PrintRite3D system from finished goods inventory to fixed assets. Other operating expenses for the nine months ended September 30, 2021 were $267,663, as compared to $194,836 during the same period in 2020. The increase of $72,827 is primarily due to increased insurance premiums. In the nine months ended September 30, 2021, our net other income & expense was net income of $1,096,727, as compared to net income of $499,700 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, and $9,095 from a new interest-bearing sweep bank account, as compared to 2020 New Mexico state job incentive credits of $151,657 and $361,700 from the forgiveness of our PPP loan. Sigma’s net loss applicable to common shareholders for the nine months ended September 30, 2021 totaled $5,076,532 as compared to $5,455,707 for the same period in 2020, a $379,175 decrease. While the net operating loss increased by $1,872,976, the increase of $597,027 in other income together with a decrease in preferred dividend expense of $1,655,124 accounted for the overall decrease. We financed our operations during the three and nine months ended September 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 September 30, 2021, we had $13,064,394 in cash and working capital of $13,977,104, 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. 21 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; ● The cost of operating as a public company; and ● The increasing cost of engineering talent. During the remainder of 2021 and throughout 2022, 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 third quarter of 2021 progressed, the effect of COVID-19 on our ability to generate revenue, seemed to lessen; however, the Company continued to be adversely affected by the COVID-19 global economic slowdown, which has resulted in lower revenue than anticipated. 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. 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. Additionally, access to customer and prospect installations due to country specific regulations regarding COVID-19 quarantining has consumed resources for longer periods of time than expected, resulting in overall lower productivity and increased expenses. 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 nine months ended September 30, 2021 increased to $4,786,590 from $3,676,595 during the same period in 2020, a $1,109,995 increase. Primary drivers of the increase were increased net loss of $1,275,948, the gain on the derivative liability of $1,092,441, and increased inventory of $231,148. Partially offsetting these increases were an increase in non-cash securities-based compensation of $698,618, a decrease in accounts receivable of $94,349, and a decrease in accounts payable and accrued expenses of $721,705. Net Cash Used/Provided by Investing Activities Net cash used by investing activities during the nine months ended September 30, 2021 was $254,772, which compares to $249,452 of cash used by investing activities during the same period of 2020, an increase of $5,320. This is primarily attributable to increased equipment purchases of $28,557, partially offset by lower patent costs of $23,737 during the period. 22 Net Cash Provided by Financing Activities Cash provided by financing activities during the nine months ended September 30, 2021 increased to $14,404,942 from $8,349,676 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 $820,224 of offering costs in connection with our January 2020 and April 2020 offerings, and $5,619,900 in proceeds from the exercise of warrants, 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 October 21, 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.