Filing identity and reporting period
The supplied filing is Sigma Labs, Inc.’s Form 10-Q for the quarter ended September 30, 2014, not a filing identified as Nexttrip, Inc. The financial information below is for Sigma Labs and its subsidiaries. The filing was signed November 14, 2014.
Business context
Sigma Labs develops manufacturing and materials technologies, focusing on real-time quality assurance for metal additive manufacturing, including its PrintRite3D system. During the period, revenue came primarily from engineering consulting; the company reported no sales of its technologies. It launched PrintRite3D INSPECT in September and purchased an EOS M290 metal printer to support part production and product development.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2014 | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2013 |
|---|---|---|---|---|
| Revenue | $92,449 | $280,831 | $322,091 | $753,080 |
| Gross profit | $56,123 | $121,464 | $145,137 | $357,234 |
| Net loss | $539,438 | $185,427 | $2,802,253 | $504,521 |
| Operating cash flow | Not separately stated for the quarter | $(729,068) | $(123,826) |
Gross margin was approximately 60.7% for the quarter and 45.1% for the nine-month period, compared with approximately 43.2% and 47.4%, respectively, in the prior-year periods. Nine-month operating cash use increased; investing activities used $265,769, while financing provided $3,684,922, primarily from stock sales. Cash at September 30 was $3,682,533, versus $992,448 at December 31, 2013. Working capital was $3,654,554, versus $1,180,973. Total liabilities were $143,041, all current; the balance sheet reports no debt.
Total assets were $4,247,259. The company reported 618,241,061 shares issued and 612,641,061 outstanding at September 30, including 5,600,000 issued but unvested shares. The cover page separately reports 618,241,061 shares outstanding as of November 12; investors should verify this difference.
Changes, outlook, and risks
- Revenue declined 67% in the quarter and 57% for the nine months, mainly because a Sumner Associates contract was not renewed and expected work under Honeywell and EWI arrangements was delayed.
- Nine-month expenses included $1,283,333 of warrant expense related to extending an investor warrant. Stock compensation was $566,950 for the nine months. The warrant charge was a major contributor to the higher net loss.
- Management expected commercialization of PrintRite3D in late 2014 and early 2015 and said it believed available funds and expected consulting revenue could cover expenses through 2015. This is management’s estimate, not a guarantee.
- Subsequent developments disclosed in the filing include delivery of the printer in October; a November Honeywell/DARPA Phase II contract worth approximately $500,000 to Sigma Labs, subject to milestones; and an EWI/NIST contract expected to generate approximately $150,000 by the second quarter of 2015. The company also expected up to approximately $235,000 of fourth-quarter revenue from three active consulting contracts, subject to milestones.
- The printer’s estimated total cost was $724,000, payable in three installments; the final payment was expected in November 2014. The filing reports $241,333 capitalized by September 30.
- Risks include sustained losses, negative operating cash flow, declining revenue, reliance on consulting and securities sales, and uncertainty about commercialization and additional financing. Fixed-price contract work also exposes the company to cost-estimation and performance risks. Management stated there was no committed third-party financing and no credit facility.
- A Form S-3 registration statement and at-the-market agreement would permit securities sales, including up to $25 million of common stock through Ascendiant, if the registration statement became effective. No securities had been sold under it as of September 30. The filing reported no legal proceedings and marked risk factors “not applicable.”
Key facts investors should verify
- Confirm the issuer identity: the supplied filing is for Sigma Labs, Inc., not Nexttrip, Inc.
- Verify the share-count discrepancy between the September 30 balance sheet and the November 12 cover-page figure, and assess potential dilution from outstanding warrants and any later securities sales.
- Check whether the Honeywell, EWI/NIST, and other consulting contracts achieved their milestones and generated the revenue management anticipated.
- Track actual printer installation, final purchase payments, commercialization progress, and related customer orders.
- Assess cash burn, operating cash generation, and financing needs against management’s stated expectation of funding through 2015.
- Review the warrant-extension accounting and the assumptions behind its $1,283,333 expense.