Nexttrip, Inc. annual report, FY2018

Business context and reporting period

Filing identity: The supplied filing is Sigma Labs, Inc.’s Form 10-K for the fiscal year ended December 31, 2018—not a Nexttrip, Inc. filing or a quarterly report. The summary below reflects the filing provided.

Sigma Labs develops PrintRite3D, hardware and software for in-process quality assurance of metal additive manufacturing, and also earns revenue from engineering services and contract manufacturing. The company reported that it had shifted its commercial focus toward customers already producing metal parts and seeking quality improvements. Its financial statements were audited by Haynie & Company, which issued an unqualified opinion on the financial statements.

Financial results and liquidity

• Revenue fell 39.4%. Management attributed the decline mainly to lower government-program work and fewer system sales, partly offset by a $101,712 increase in contract additive-manufacturing services.
• Cost of revenue was nearly unchanged, so gross profit and gross margin declined materially. Operating expenses increased $1.42 million, including higher salaries and benefits, stock compensation, R&D, and office and travel expenses.
• At December 31, 2018, cash was $1,279,782, working capital was $1,052,015, and total stockholders’ equity was $1,735,439. Current assets were $1,747,836 and current liabilities were $695,819.
• Cash decreased by $235,892 during 2018. Operating cash use was partly offset by $403,672 provided by investing activities, principally collections on notes receivable, and $3,123,407 provided by financing activities.
• Debt was limited to a $50,000 convertible note payable, due April 18, 2019, plus accrued interest. The filing reports no long-term liabilities and no credit line.
• After year-end, the March 15, 2019 equity offering generated approximately $1.68 million net proceeds. The filing also reports a $100,000 receipt on a note receivable as part of management’s liquidity expectations.

Changes, outlook, and risks

• The net loss widened by $1.15 million, principally because of the larger operating loss; lower non-operating expense compared with 2017 partly offset that deterioration. The 2017 comparison included derivative revaluation and debt-discount amortization expenses.
• Management expected new PrintRite3D hardware and Version 4.0 software, released beginning in late 2018, and its Rapid Test and Evaluation program to support commercialization and potential revenue growth in 2019. No quantified revenue or earnings guidance was provided.
• Management stated in the MD&A that available funds and expected receipts should cover operating expenses through at least the fourth quarter of 2019. The financial-statement note instead says cash and working capital were sufficient through the end of the third quarter of 2019. This is an inconsistency in the filing’s runway statements.
• Funding depends on commercializing PrintRite3D, converting proof-of-concept engagements into production orders, contract manufacturing, and potentially raising additional capital. The company has a history of losses and negative operating cash flow; management warned that further financing might be needed and could dilute shareholders.
• Additional risks include uncertain customer adoption and production orders, competition from better-resourced manufacturers and technology providers, customer and receivables concentration, dependence on key personnel, and potential intellectual-property and contract risks. Four customers each represented more than 10% of 2018 revenue; one customer represented 64.43% of year-end receivables.
• Unusual items included $224,818 of severance and related benefits accrued on the former CTO’s retirement, increased stock-based compensation, and write-offs of patent assets associated with abandoned medical-implant work. The company reported no current legal proceedings.
• Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not provide an internal-control attestation.

Important facts for investors to verify

1. Confirm the issuer and filing period: the source is Sigma Labs’ FY 2018 10-K, despite the request naming Nexttrip and “2018 Q4.”
2. Reconcile the conflicting cash-runway statements—through Q3 versus at least Q4 2019—and assess actual subsequent cash use and receipts.
3. Track whether paid evaluations and proof-of-concept work convert into repeat production sales, and whether the 2019 commercialization expectations were achieved.
4. Review dilution from the 2019 offering and outstanding warrants, options, and convertible securities; the filing lists 3,901,867 potential shares underlying instruments at December 31, 2018.
5. Assess customer concentration, collection of receivables and notes, and the timing of the remaining note repayment.