Business context and reporting period
The supplied 10-Q is for Sigma Labs, Inc. and subsidiaries, for the quarter and nine months ended September 30, 2013; it does not identify Nexttrip, Inc. as the registrant. Sigma Labs develops in-process manufacturing quality-assurance technology, including PrintRite3D for additive manufacturing, and also earns revenue from consulting services.
Financial results and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $280,831 | $456,369 | $753,080 | $650,094 |
| Gross profit | $121,464 | $190,423 | $357,234 | $209,587 |
| Gross margin | 43.3% | 41.7% | 47.4% | 32.2% |
| Net loss | $(185,427) | $(15,107) | $(504,521) | $(649,755) |
| Operating cash flow | Not separately provided | Not separately provided | $(123,826) | $(327,230) |
At September 30, 2013, cash was $1,217,298, current assets $1,428,516, current liabilities $137,796, working capital $1,290,720, total assets $1,603,657, and stockholders’ equity $1,465,861. Total liabilities were $137,796, all current; the filing reports no debt balance. Cash increased by $1,067,227 during the nine months, chiefly reflecting $1,199,412 of financing cash flow, including proceeds from stock sales.
Material changes versus comparable periods
- Quarterly revenue declined 38.5% year over year, while nine-month revenue increased 15.8%. Management says revenue was primarily from consulting, not technology sales; it also cited license fees and sales of two PrintRite3D systems for testing.
- Quarterly net loss widened to $185,427 from $15,107, despite lower cost of services, as revenue fell and expenses rose. Nine-month net loss narrowed from $649,755 to $504,521.
- Nine-month gross margin improved to 47.4% from 32.2%, while total expenses were broadly flat at $862,074 versus $859,721. Noncash stock compensation rose to $213,200 from $125,000 for the nine-month period.
- Shares issued increased to 559,266,061 from 429,167,400 at year-end 2012. A July private placement of 120 million shares generated $1.2 million gross proceeds; the filing also reports a cashless warrant exercise issuing 5,098,661 shares.
Outlook, risks, and unusual items
Management expected to commercialize IPQA technology during fiscal 2014 and expected general and administrative, payroll, and noncash compensation expenses to increase as operations and marketing expanded. It believed cash on hand and anticipated consulting revenue would cover operating and administrative expenses through 2014, but also anticipated needing additional capital. No assurance was given that funding or profitable operations would be achieved; failure to obtain acceptable financing could require curtailing or ceasing operations. The filing includes a going-concern uncertainty.
As of November 14, 2013, management cited three active B6 Sigma consulting contracts expected to generate up to $238,238 through the rest of 2013 and two Sumner contracts expected to generate up to $50,000. Some contracts are fixed-price, creating cost-estimation and profitability risk. Sigma Labs reported no credit facility or committed third-party financing. It also disclosed no off-balance-sheet arrangements or legal proceedings. A subsequent event was a director’s October 31 grant of an option to purchase 500,000 shares, with 300,000 vesting immediately and the remainder subject to later vesting conditions.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is Sigma Labs, Inc., not Nexttrip, Inc.
- Assess whether consulting revenue and cash reserves can support operations until PrintRite3D/IPQA commercialization, and whether further financing is required.
- Verify customer demand, commercialization milestones, and the economics of the GE Aviation development relationship and technology arrangements.
- Review dilution from the July placement, warrant exercise, and ongoing stock-based compensation.
- Evaluate the going-concern disclosure and the assumptions behind management’s liquidity-through-2014 statement.