Nexttrip, Inc. quarterly report, Q2 FY2016

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Filing identity and business context

The supplied filing is Sigma Labs, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016—not a filing for Nexttrip, Inc. Sigma Labs develops PrintRite3D quality-assurance software and provides related engineering consulting and metal additive-manufacturing services.

Financial results and liquidity

  • Revenue: Q2 2016 revenue was $93,824, down from $196,263 in Q2 2015. First-half revenue was $452,279, up from $381,949. Management attributed first-half revenue mainly to engineering consulting contracts.
  • Gross profit and margin: Q2 gross profit was $62,920, or approximately 67%, versus $108,001, or 55%, a year earlier. First-half gross profit was $313,794, or approximately 69%, versus $268,820, or 70%.
  • Expenses and losses: The financial statements report Q2 net loss of $741,846 versus $440,367 in 2015, and first-half net loss of $1,212,513 versus $812,248. Q2 basic and diluted loss per share was $0.12; first-half loss per share was $0.19. General and administrative and payroll costs rose; R&D expense declined.
  • Cash flow: First-half operating cash use was $914,556, compared with $718,286 in 2015. Investing cash use was $72,265 versus $19,465. Cash declined by $986,821 to $552,988 from $1,539,809 at year-end 2015. No financing cash flows were reported for either first-half period.
  • Liquidity and debt: Working capital was $724,784 at June 30, down from $1,785,728 at December 31, 2015. Total liabilities were $219,896, consisting of current liabilities; the filing reports no debt or credit facility. Management said available resources were expected to fund operations through 2016.

Material changes and developments

  • Revenue increased year over year for the first half but fell sharply in Q2. Operating losses and operating cash use increased.
  • Management linked higher G&A to investor-relations spending, consultants, and increased business activity; payroll growth reflected seven hires since June 2015. R&D spending fell as operations shifted toward production.
  • The company completed a 1-for-100 reverse stock split in March 2016 and later doubled authorized common shares to 15 million. It reported 6,219,910 shares outstanding on the balance sheet at June 30; 6,267,577 were reported outstanding as of August 10.
  • After quarter-end, the company filed an S-1 registration statement that could permit offerings of up to $23.25 million of securities, including common stock and warrants.

Outlook, risks, and unusual items

  • Management expected revenue growth from commercialization of PrintRite3D, consulting work, and contract-manufacturing orders, and anticipated a lower loss in the remainder of 2016, partly offset by higher payroll and growth costs. These are expectations, not assured results.
  • As of August 10, the company cited eight active contracts expected to generate up to approximately $263,000 of revenue in the rest of 2016, subject to performance milestones and customers not terminating the contracts.
  • The company has a history of losses and negative operating cash flow. Management said further financing would be needed to execute its plans if significant product and service revenue does not materialize; additional financing was not committed and could dilute shareholders or impose onerous debt terms.
  • Fixed-price consulting contracts expose the company to cost-estimation and delivery risks. The filing also identifies estimates around long-lived-asset impairment, stock compensation, bad debts, and inventory obsolescence as potentially material.
  • The filing’s MD&A reports different net-loss amounts from the financial statements: $712,481 for Q2 and $1,183,148 for the first half. The filing text does not explain the discrepancy.

Important facts for investors to verify

  1. Confirm the issuer identity: the provided filing is for Sigma Labs, Inc., despite the request metadata naming Nexttrip, Inc.
  2. Reconcile the MD&A net-loss figures with the amounts in the financial statements before relying on reported loss trends.
  3. Check the status, milestones, termination terms, and realized revenue from the eight contracts and the stated potential $263,000 of second-half 2016 revenue.
  4. Review the S-1’s eventual offering terms and any resulting dilution, including potential warrant exercises.
  5. Assess cash burn and financing needs against the company’s stated expectation that existing resources would cover operations through 2016.