Business context and reporting period
Filing identity differs from the request metadata: the supplied 10-Q is for Sigma Labs, Inc., not Nexttrip, Inc. It covers the three months ended March 31, 2018, and was signed May 15, 2018. Sigma develops and commercializes manufacturing quality-assurance and process-control technologies, including PrintRite3D, and also provides engineering services and additive-manufacturing work.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Revenue | $103,415 | $114,523; down 9.7% |
| Gross profit / margin | $29,620 / 28.6% | $39,989 / 34.9% |
| Operating expenses | $1,177,130 | $1,159,494; up 1.5% |
| Operating loss | $(1,147,510) | $(1,119,505) |
| Net loss per financial statements | $(1,170,876), or $(0.23) per share | $(979,645), or $(0.26) per share |
| Cash from operations | $(612,249) | $(440,553) |
| Cash at quarter-end | $1,347,319 | $1,515,674 at Dec. 31, 2017 |
| Working capital | $1,292,394 surplus | $2,273,801 surplus at Dec. 31, 2017 |
| Total liabilities | $566,779 | $382,894 at Dec. 31, 2017 |
Investing activities provided $443,894, principally reflecting repayment of Morf3D’s $500,000 loan; financing activities were zero, compared with $5.23 million provided in Q1 2017. The quarter-end balance sheet included a $100,000 convertible note payable. The Morf3D loan and accrued interest were repaid in March. A separate $250,000 Jaguar Precision Machine note remained outstanding; its maturity was extended from May 1 to June 1, 2018 after the quarter. Cash and total assets declined from year-end, while accounts payable rose to $265,814 from $100,884.
Material changes versus the prior comparable period
Revenue and gross margin declined, and operating expenses rose modestly. Research and development expense increased to $121,977 from $54,505, mainly for upgraded servers and specialized equipment. Personnel costs declined overall, partly because Q1 2017 included a $50,000 performance bonus, while stock-based compensation increased. Other expense was $23,366 in Q1 2018, versus $139,860 of other income in Q1 2017; the prior period included $152,068 of state incentives and a $93,206 derivative revaluation gain. Q1 2018 included a $36,733 write-off of patent and patent-application costs, partly offset by interest income.
Outlook, risks and unusual items
Management expected sufficient cash and working capital to fund operations through 2018, citing quarter-end resources, anticipated consulting and product-related receipts, loan repayments, and a subsequent securities offering. On April 6, 2018, Sigma raised $1 million gross through preferred stock and warrants, with approximately $840,000 net proceeds. Management anticipated possible significant sales contracts in the second half of 2018 and fewer losses for the year, but these expectations were not assured. The company had no credit line and stated that continued funding depended on commercializing PrintRite3D, securing contracts and potentially raising additional capital. Failure to obtain funding could require delaying, scaling back or ending commercialization and operations.
The April offering’s Series B preferred stock was initially convertible into 1,000,000 common shares and included warrants for 750,000 shares; the placement agent also received warrants for 140,000 shares. These securities and later share and option grants may dilute existing holders. The company reported no legal proceedings, no new risk factors in this filing, and no off-balance-sheet arrangements. It adopted revenue-recognition Topic 606 on January 1, 2018; the opening retained-earnings effect and expected ongoing impact were described as immaterial.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Sigma Labs, Inc., not Nexttrip, Inc.
- Reconcile the net-loss figures: the statements report Q1 2017 net loss of $979,645, while parts of the notes and management discussion cite $943,965. The filing text does not provide a clear reconciliation.
- Assess whether the projected 2018 cash runway depended on receipts and contracts that were not yet secured, and on any additional financing.
- Review the conversion, warrant and exercise terms of the April 2018 financing and its potential dilution.
- Confirm collection and repayment timing for the Jaguar note and the amended $100,000 convertible note maturity.