SEC Form 10-Q filed by NextTrip Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated Filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of September 13, 2024, the issuer had shares of common stock outstanding.
SIGMA ADDITIVE SOLUTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEXTTRIP, INC. (FORMERLY SIGMA ADDITIVE SOLUTIONS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
| May 31, 2024 (unaudited) | February 29, 2024 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Promissory note receivable, net | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Security deposit | ||||||||
| Goodwill | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Note payable | ||||||||
| Notes payable - related parties | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholder’s Equity | ||||||||
| Preferred Stock, $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Common Stock, par value $, and shares authorized, respectively; and shares issued and outstanding, respectively | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See
accompanying notes to condensed financial statements.
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NEXTTRIP, INC. (FORMERLY SIGMA ADDITIVE SOLUTIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended May 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue (exclusive of depreciation and amortization, shown separately below) | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating Expenses | ||||||||
| Salaries and benefits | ||||||||
| Stock based compensation | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Professional service fees | ||||||||
| Technology | ||||||||
| Organization costs | ||||||||
| Depreciation and amortization | ||||||||
| Other expenses | ||||||||
| Total Operating Expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other Income (Expenses) | ||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss from continuing operations before taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net gain from discontinued operations, net of taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Preferred dividends | ( | ) | ||||||
| Net Loss Applicable to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per common share from continuing operations(*) | $ | ) | $ | ) | ||||
| Basic and diluted loss per common share from discontinued operations (*) | $ | $ | ||||||
| Basic and diluted loss per common share (*) | $ | ) | $ | ) | ||||
| Basic and diluted weighted average number of common shares (*) | ||||||||
| * |
See accompanying notes to condensed financial statements.
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NEXTTRIP, INC. (FORMERLY SIGMAADDITIVE SOLUTIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three Months Ended May 31, 2024, and May 31, 2023
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
| Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balances, February 29, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Preferred Stock Dividends | - | - | ( | ) | ||||||||||||||||||||||||
| Common Shares Issued for Conversion of Preferred Stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock Options Issued to Employees | - | - | ||||||||||||||||||||||||||
| Balances, May 31, 2024 | ( | ) | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
| Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, February 28, 2023(*)
| $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances, May 31, 2023(*) | ( | ) | ( | ) | ||||||||||||||||||||||||
| * |
See accompanying notes to condensed financial statements.
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NEXTTRIP, INC. (FORMERLY SIGMA ADDITIVE SOLUTIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| May 31, 2024 | May 31, 2023 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss – Continuing Operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Noncash Expenses: | ||||||||
| Depreciation and amortization – property and equipment and intangibles | ||||||||
| Depreciation of right of use asset | ||||||||
| Stock-based compensation | ||||||||
| Change in Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| Security deposit | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| NET CASH PROVIDED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Capitalized software development costs | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of convertible securities | ||||||||
| Note Payable | ||||||||
| Advances from related parties | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH FOR PERIOD | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Disclosures: | ||||||||
| Noncash Investing and Financing Activities Disclosure: | ||||||||
| Preferred stock dividends | $ | $ | ||||||
| Disclosure of Cash Paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
See accompanying notes to condensed financial statements.
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NEXTTRIP, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
May 31, 2024
NOTE 1 - Business Description and Going Concern
Sigma Additive Solutions, Inc. (“Sigma”), the legal acquiror of NextTrip, was initially incorporated as Messidor Limited in Nevada on December 23, 1985, and changed its name to Framewaves Inc. in 2001. On September 27, 2010, the name was changed to Sigma Labs, Inc. On May 17, 2022, Sigma Labs, Inc. began doing business as Sigma Additive Solutions, and on August 9, 2022, changed its name to Sigma Additive Solutions, Inc.
On March 11, 2024, Sigma filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada, pursuant to which, effective as of 12:01 a.m. Pacific time on March 13, 2024, among other things, Sigma’s corporate name was changed from Sigma Additive Solutions, Inc. to “NextTrip, Inc.”
The Company’s corporate office is located at 3900 Paseo del Sol, Santa Fe NM 87507 The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries, NextTrip Holdings Inc. incorporated October 22, 2015, and Extraordinary Vacations USA, Inc. incorporated on June 24, 2002.
Prior
to the Exchange Agreement as described below, NextTrip Holdings, Inc. (“NextTrip”) was a wholly owned subsidiary of NextTrip
Group, LLC (“Group”), which in turn, was a wholly owned subsidiary of NextPlay Technologies, Inc. (“NextPlay”).
All of the business operations of Group were conducted through its subsidiaries. On January 25, 2023, NextPlay and Group entered into
an Amended and Restated Separation Agreement (“Separation Agreement”), Amended and Restated Operating Agreement (“Operating
Agreement”), and Exchange Agreement (“Exchange Agreement”, and together, the “Agreements”), whereby
NextPlay transferred their interest in the travel business to Group. Pursuant to the Exchange Agreement, NextPlay exchanged Membership Units of Group for Preferred Units of Group, with a value of $per unit. Prior to the exchange for Preferred
Units, Group had a payable due to NextPlay of $,
representing cash advances and payment of expenses by NextPlay on behalf of Group, while NextPlay had obligations to provide ongoing
support to NextTrip. Such liability was settled by the issuance of the Preferred Units and the waiver of all of NextPlay’s ongoing
support obligations except for a $
The Company provides travel technology solutions with sales originating in the United States, with a primary emphasis on hotels, air, and all-inclusive travel packages. Our proprietary booking engine, branded as NextTrip 2.0, provides travel distributors access to a sizeable inventory.
The
Company owns
Reverse Acquisition
On October 12, 2023, Sigma entered into a Share Exchange Agreement (as amended, the “Exchange Agreement”) with NextTrip, Group, and William Kerby (the “NextTrip Representative”). Under the terms of the Exchange Agreement, the parties agreed that Group would sell and transfer to Sigma all of the issued and outstanding shares of NextTrip in exchange for restricted shares of Sigma common stock (the “Closing Shares”), issuable at closing, and the right to receive up to an additional restricted shares of Sigma common stock upon satisfaction of certain milestones set forth in the Exchange Agreement (the “Contingent Shares,” and together with the Closing Shares, the “Restricted Shares”), which Restricted Shares are issuable to the members of Group, on a pro rata basis, under the terms of the Exchange Agreement, subject to certain closing conditions (the “Acquisition”). Upon the closing of the Acquisition on December 29, 2023, NextTrip became a wholly owned subsidiary of Sigma.
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The Contingent Shares, together with the Closing Shares, will not exceed shares of Sigma common stock, or approximately % of the issued and outstanding shares of Sigma common stock immediately prior to the closing. The Acquisition will likely result in a change of control, with the members of Group receiving an aggregate number of shares that exceeds the number of shares that held by the legacy shareholders of Sigma. As a result, the Acquisition is accounted for as a reverse acquisition of NextTrip by Sigma, whereby Sigma is treated as the legal acquirer and NextTrip is treated as the accounting acquirer. As a result, the historical financial information presented is that of NextTrip.
In accordance with ASC 805-40-45-1, the consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (NextTrip, Inc., f/k/a Sigma Additive Solutions, Inc.) but described in the notes to the financial statements as a continuation of the financial statements of the legal subsidiary (NextTrip), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent. Comparative information presented in the consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent.
Under ASC 805-40-45-2, the consolidated financial statements represent the continuation of the legal subsidiary except for the capital structure, as follows:
| (a) | The assets and liabilities of the legal subsidiary recognized and measured at their pre-combination carrying amounts; | |
| (b) | The assets and liabilities of the legal parent recognized and measured in accordance with the guidance in this topic applicable to business combinations (ASC 805); | |
| (c) | The retained earnings and other equity balances of the legal subsidiary before the business combination; | |
| (d) | The amount required to be recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary outstanding immediately before the business combination to the fair value of the legal parent determined in accordance with the guidance in ASC 805 applicable to business combinations. However, the equity structure reflects the equity structure of the legal parent, including the equity interests the legal parent issued to affect the combination. Accordingly, the equity structure of the legal subsidiary is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition. |
The assets and liabilities of Sigma Additive Solutions, Inc. were recognized at fair value pursuant to ASC 805.
Going Concern – The Company has sustained losses and had negative cash flows from operating activities since its inception.
The Company currently does not have sufficient cash and working capital to fund its operations and will require additional funding in the public or private markets in the near-term to be able to continue operations. The Company currently has no understanding or agreement to obtain such funding, and there is no assurance that we will be successful in obtaining additional funding. If we fail to obtain sufficient funding when needed, we will be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations. As a result, there is substantial doubt about our ability to continue as a going concern.
NOTE 2 – Summary of Significant Accounting Policies
Basis of Presentation - The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America. The financial statements have been prepared on a consolidated basis with those of the Company’s wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at May 31, 2024 and 2023 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the February 29, 2024 audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The results of operations for the period ended May 31, 2024 are not necessarily indicative of the operating results for the full year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on the net earnings (loss) or financial position.
Promissory Note Receivable
NextPlay
is in default under the terms of its promissory note to NextTrip, and as a result, an allowance for doubtful accounts of $
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| May 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Stock Options | ||||||||
| Preferred Stock | ||||||||
| Total Underlying Common Shares | ||||||||
| Three Months Ended May 31, | ||||||||
| 2024 | 2023 | |||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Preferred dividends | ( | ) | ||||||
| Loss from continuing operations applicable to common stockholders | ( | ) | ( | ) | ||||
| Gain from discontinued operations applicable to common stockholders | ||||||||
| Net loss applicable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding used in loss per share during the period (denominator) | ||||||||
Dilutive
loss per share was not presented, as the Company’s outstanding common and preferred warrants, stock options and preferred
stock common equivalent shares for the periods presented would have had an anti-dilutive effect. At May 31, 2024, the Company had outstanding
warrants to purchase
Accounting Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.
Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite under perpetual licenses and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
The Company recognizes revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired, as satisfaction of the performance obligation, the sales price is fixed or determinable and collectability is reasonably assured. Revenue for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
The Company generates revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world.
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The Company controls the specified travel product before it is transferred to the customer and is therefore a principal, based on but not limited to, the following:
| ● | The Company is primarily responsible for fulling the promise to provide such travel product. | |
| ● | The Company has inventory risk before the specified travel product has been transferred to a customer or after transfer of control to a customer. | |
| ● | The Company has discretion in establishing the price for the specified travel product. |
Payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue at the earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
NOTE 3 – Intangible Assets
Intangible assets as of May 31, 2024, and February 29, 2024 consisted of the following:
May 31, 2024 | February 29, 2024 | |||||||
| Software Development | $ | $ | ||||||
| Software Licenses | ||||||||
| Trademark | ||||||||
| Total | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net of amortization | $ | $ | ||||||
Amortization
expense for the three months ended May 31, 2024, and May 31, 2023 was $
During
the three months ended May 31, 2024 and 2023, the Company recorded
The estimated aggregate amortization expense for years ending February 28 is as follows:
| 2025 (Remaining) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
NOTE 4 – Goodwill
The legal acquisition of NextTrip Holdings, Inc. by Sigma Additive Solutions, Inc. on December 29, 2023 was determined to be a reverse acquisition, with NextTrip as the accounting acquirer, using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of consummation of the transaction.
Pursuant
to ASC 350-20, the Company assigned its goodwill to reporting units and is required to test each reporting unit’s goodwill for
impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount. The goodwill resulting from the reverse acquisition is primarily
attributable to NextTrip’s objective to obtain access to public markets to provide funding wherewithal to fund business growth.
NextTrip’s benefit in paying for these synergies in the reverse acquisition transaction are to avoid the time and expense of organizing
and executing an Initial Public Offering (“IPO”) transaction. In the reverse acquisition, $
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NOTE 5 - Related Party Transactions
On
March 18, 2024, the Company’s wholly-owned subsidiary, NextTrip, entered into an unsecured promissory note for
a line of credit with Donald Monaco and William Kerby, the Company’s Chairman of the board of directors and Chief Executive
Officer, respectively, for the aggregate principal amount of $
On
April 23, 2024, the Company’s board of directors approved the Company’s wholly-owned subsidiary, NextTrip, to enter into a series of unsecured promissory notes with
certain related parties, including investors, directors, officers and employees, who may individually provide funds for the aggregate
principal amount of $
On
May 21, 2024, NextTrip issued an unsecured promissory note, in the principal amount of $
The
total amounts due to related parties at May 31, 2024 and February 29, 2024 totaled $
NOTE 6 – Note Payable
On May 24, 2024, the Company issued an unsecured promissory
note for $
NOTE 7 - Leases
On January 25, 2023, as part of the separation agreement with NextPlay Technologies Inc., the Company assumed control of a lease arrangement for office space in Florida.
The Company adopted ASU 2016-02 (Topic ASC 842) Leases, which requires a lessee to recognize a lease asset and a leases liability for operating leases arrangements greater than twelve (12) months.
We
determined that the arrangement was an operating lease at inception and included it in operating lease ROU assets, operating lease
liabilities - current, and operating lease liabilities - noncurrent on the balance sheet as of February 28, 2023. The office
facility was occupied by NextTrip employees through March 16, 2023, when the landlord informed NextTrip that it would not recognize
NextTrip as the tenant. The Company continued to negotiate the assumption of the lease with the landlord, but was ultimately
unsuccessful, and as a result derecognized the lease in the financial statements as of February 29, 2024. No restatement was made
for fiscal year 2023 as the Company had use of the offices at that time and was in negotiations to assume the lease from NextPlay
Technologies, Inc. No payments have been made on the lease and no expense has been recognized for the three months ended May 31,
2024. Rent expense for the three months ended May 31, 2023 totaled $
NOTE 8 - Stockholders’ Equity
Common Stock
On March 8, 2024, at a special meeting of stockholders, the Company received approval to increase its authorized shares of common stock from to (the “Increase in Authorized”). On March 11, 2024, the Company filed a Certificate of Amendment to its amended and restated articles of incorporation, as amended, with the Secretary of State of the State of Nevada, pursuant to which, effective as of 12:01 a.m. Pacific time on March 13, 2024, the Increase in Authorized was implemented.
In the first quarter of 2024, the Company issued shares of common stock upon conversion of shares of Series G Convertible Preferred Stock, shares of common stock upon conversion of shares of Series H Convertible Preferred Stock, and shares of common stock upon conversion of shares of Series I Convertible Preferred Stock.
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Preferred Stock
Under our articles of incorporation, our board of directors has the authority, without further action by stockholders, to designate one or more series of preferred stock and to fix the voting powers, designations, preferences, limitations, restrictions and relative rights granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be preferential to or greater than the rights of the common stock.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock.
The Company is authorized to issue shares of preferred stock, $ par value. An aggregate of and shares of preferred stock were issued and outstanding at May 31, 2024 and February 29, 2024. respectively.
Series E Convertible Preferred Stock
Under
the Certificate of Designations for the Series E Preferred Stock, the Series E Preferred Shares have an initial stated value of $
per share (the “Stated Value”). Dividends at the initial rate of
At May 31, 2024, shares of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of May 31, 2024, including the make-whole dividends, would have resulted in the issuance of shares of common stock.
Series F Convertible Preferred Stock
On January 4, 2024, the Company filed a Certificate of Designation of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”) with the Secretary of State of the State of Nevada, designating shares of the Company’s preferred stock as Series F Convertible Preferred Stock, par value $ per share (the “Series F Preferred”). The Series F Preferred was designated by the Company in connection with its recent acquisition of NextTrip, and, in the event that the Company does not have sufficient shares of common stock available to fulfill its obligations pursuant to the Share Exchange Agreement governing the terms of the acquisition, shares of Series F Preferred shall be issued to the previous equity holders of NextTrip in lieu of shares of Company common stock.
The terms and conditions set forth in the Series F Certificate of Designation are summarized below:
Ranking. The Series F Preferred rank pari passu to the Company’s common stock.
Dividends. Holders of Series F Preferred will be entitled to dividends, on an as-converted basis, equal to dividends actually paid, if any, on shares of Company common stock.
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Voting. Except as provided by the Company’s amended and restated articles of incorporation, as amended (“Articles”), or as otherwise required by the Nevada Revised Statutes, holders of Series F Preferred are entitled to vote with the holders of outstanding shares of Company common stock, voting together as a single class, with respect to all matters presented to the Company’s stockholders for their action or consideration. In any such vote, each holder is entitled to a number of votes equal to the number of shares of common stock into which the Series F Preferred held by such holder is convertible. The Company may not, without the consent of holders of a majority of the outstanding shares of Series F Preferred, (i) alter or change adversely the powers, preferences or rights given to the Series F Preferred or alter or amend the Series F Certificate of Designation, (ii) amend its Articles or other charter documents in any manner that adversely effects any rights of the holders of the Series F Preferred, or (c) enter into any agreement with respect to the foregoing.
Conversion. On such date that the Company amends its Articles to increase the number of shares of common stock authorized for issuance thereunder, to at least the extent required to convert all of the outstanding Series F Preferred, each outstanding share of Series F Preferred shall automatically be converted into one share of Company common stock (subject to adjustment under certain limited circumstances) (the “Conversion Ratio”).
Liquidation. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary (each, a “Liquidation”), holders of Series F Preferred will be entitled to participate, on an as-converted-to-common stock basis calculate based on the Conversion Ratio, with holders of Company common stock in any distribution of assets of the Company to holders of the Company’s common stock.
At May 31, 2024, shares of the Series F Convertible Preferred Stock were outstanding.
Series G Convertible Preferred Stock
On January 26, 2024, the Company filed a Certificate of Designation of Series G Convertible Preferred Stock (the “Series G Certificate of Designation”) with the Secretary of State of the State of Nevada, designating shares of the Company’s preferred stock as Series G Preferred Stock, par value $ per share.
The terms and conditions set forth in the Series G Certificate of Designation are summarized below:
Ranking. The Series G Preferred rank pari passu to the Company’s common stock.
Dividends. Holders of Series G Preferred will be entitled to dividends, on an as-converted basis, equal to dividends actually paid, if any, on shares of Company common stock.
Voting. Except as provided by the Company’s Articles or as otherwise required by the Nevada Revised Statutes, holders of Series G Preferred are entitled to vote with the holders of outstanding shares of Company common stock, voting together as a single class, with respect to all matters presented to the Company’s stockholders for their action or consideration. In any such vote, each holder is entitled to a number of votes equal to the number of shares of common stock into which the Series G Preferred held by such holder is convertible. The Company may not, without the consent of holders of a majority of the outstanding shares of Series G Preferred, (i) alter or change adversely the powers, preferences or rights given to the Series G Preferred or alter or amend the Series G Certificate of Designation, (ii) amend its Articles or other charter documents in any manner that adversely effects any rights of the holders of the Series G Preferred, or (c) enter into any agreement with respect to the foregoing.
Conversion. On such date that the Company amends its Articles to increase the number of shares of common stock authorized for issuance thereunder, to at least the extent required to convert all of the outstanding Series G Preferred, each outstanding share of Series G Preferred shall automatically be converted into one share of Company common stock (subject to adjustment under certain limited circumstances) (the “Series G Conversion Ratio”).
Liquidation. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of Series G Preferred will be entitled to participate, on an as-converted-to-common stock basis calculate based on the Series G Conversion Ratio, with holders of Company common stock in any distribution of assets of the Company to holders of the Company’s common stock.
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Redemption
Right.
At May 31, 2024, shares of the issued Series G Convertible Preferred Stock were outstanding.
Series H Convertible Preferred Stock
On January 26, 2024, the Company filed a Certificate of Designation of Series H Convertible Preferred Stock (the “Series H Certificate of Designation”) with the Secretary of State of the State of Nevada, designating shares of the Company’s preferred stock as Series H Preferred Stock, par value $ per share.
The terms and conditions set forth in the Series H Certificate of Designation are summarized below:
Ranking. The Series H Preferred rank pari passu to the Company’s common stock.
Dividends. Holders of Series H Preferred will be entitled to dividends, on an as-converted basis, equal to dividends actually paid, if any, on shares of Company common stock.
Voting. Except as provided by the Company’s Articles or as otherwise required by the Nevada Revised Statutes, holders of Series H Preferred are entitled to vote with the holders of outstanding shares of Company common stock, voting together as a single class, with respect to all matters presented to the Company’s stockholders for their action or consideration. In any such vote, each holder is entitled to a number of votes equal to the number of shares of common stock into which the Series H Preferred held by such holder is convertible. The Company may not, without the consent of holders of a majority of the outstanding shares of Series H Preferred, (i) alter or change adversely the powers, preferences or rights given to the Series H Preferred or alter or amend the Series H Certificate of Designation, (ii) amend its Articles or other charter documents in any manner that adversely effects any rights of the holders of the Series H Preferred, or (c) enter into any agreement with respect to the foregoing.
Conversion. On such date that the Company amends its Articles to increase the number of shares of common stock authorized for issuance thereunder, to at least the extent required to convert all of the outstanding Series H Preferred, each outstanding share of Series H Preferred shall automatically be converted into one share of Company common stock (subject to adjustment under certain limited circumstances) (the “Series H Conversion Ratio”).
Liquidation. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of Series H Preferred will be entitled to participate, on an as-converted-to-common stock basis calculate based on the Series H Conversion Ratio, with holders of Company common stock in any distribution of assets of the Company to holders of the Company’s common stock.
At May 31, 2024, shares of the issued Series H Convertible Preferred Stock were outstanding, which if converted as of May 31, 2024, would have resulted in the issuance of shares of common stock.
Series I Convertible Preferred Stock
On February 22, 2024, the Company filed a Certificate of Designation of Series I Convertible Preferred Stock (the “Series I Certificate of Designation”) with the Secretary of State of the State of Nevada, designating shares of the Company’s preferred stock as Series I Convertible Preferred Stock, par value $ per share.
The terms and conditions set forth in the Series I Certificate of Designation are summarized below:
Ranking. The Series I Preferred rank pari passu to the Company’s common stock.
Dividends. Holders of Series I Preferred will be entitled to dividends, on an as-converted basis, equal to dividends actually paid, if any, on shares of Company common stock.
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Voting. Except as provided by the Articles, or as otherwise required by the Nevada Revised Statutes, holders of Series I Preferred are entitled to vote with the holders of outstanding shares of Company common stock, voting together as a single class, with respect to all matters presented to the Company’s stockholders for their action or consideration. In any such vote, each holder is entitled to a number of votes equal to the number of shares of common stock into which the Series I Preferred held by such holder is convertible. The Company may not, without the consent of holders of a majority of the outstanding shares of Series I Preferred, (i) alter or change adversely the powers, preferences or rights given to the Series I Preferred or alter or amend the Series I Certificate of Designation, (ii) amend its Articles or other charter documents in any manner that adversely effects any rights of the holders of the Series I Preferred, or (c) enter into any agreement with respect to the foregoing.
Conversion. On such date that the Company amends its Articles to increase the number of shares of common stock authorized for issuance thereunder, to at least the extent required to convert all of the outstanding shares of Series I Preferred, each outstanding share of Series I Preferred shall automatically be converted into one share of Company common stock (subject to adjustment under certain limited circumstances) (the “Series I Conversion Ratio”).
Liquidation. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of Series I Preferred will be entitled to participate, on an as-converted-to-common stock basis calculated based on the Series I Conversion Ratio, with holders of Company common stock in any distribution of assets of the Company to holders of the Company’s common stock.
At May 31, 2024, shares of the issued Series I Convertible Preferred Stock were outstanding, which if converted as of May 31, 2024, would have resulted in the issuance of shares of common stock.
Stock Options
On December 28, 2023, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved the adoption of the NextTrip 2023 Equity Incentive Plan (the “2023 Plan”). shares of common stock have been reserved for issuance under the 2023 Plan., and as of May 31, 2024, all of such shares are available for issuance.
The Company’s 2013 Equity Incentive Plan expired on March 15, 2023. As such, there were shares of common stock reserved for future issuance thereunder as of May 31, 2024.
There were issuances of options for the three months ended May 31, 2024 or May 31, 2023.
The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s common stock on the grant date, but not less than 100% of the fair market value. Stock options are typically granted throughout the year and generally vest over a period from one to three years of service and expire five years from the grant date, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the vesting period for each stock option award.
Total stock-based compensation expense included in the statements of operations for the three months ended May 31, 2024 and 2023 was $ and $ respectively, all of which is related to stock options.
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| Options | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | Aggregate Intrinsic Value ($) | |||||||||||||
| Options outstanding at February 28, 2023 | - | |||||||||||||||
| Options assumed pursuant to reverse acquisition | ||||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited or cancelled | ( | ) | - | |||||||||||||
| Options outstanding at February 29, 2024 | ||||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited or cancelled | ( | ) | - | |||||||||||||
| Options outstanding May 31, 2024 | ||||||||||||||||
| Options expected to vest in the future as of May 31, 2024 | ||||||||||||||||
| Options exercisable at May 31, 2024 | ||||||||||||||||
| Options vested, exercisable, and options expected to vest at May 31, 2024 | ||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At May 31, 2024, no option had an exercise price below the $ closing price of our common stock as reported on The Nasdaq Capital Market.
At May 31, 2024, there was $ of unrecognized stock-based compensation expense related to unvested stock options with a weighted average remaining recognition period of years.
Stock Appreciation Rights
The purposes of the 2020 Stock Appreciation Rights Plan (the “SAR Plan”) are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the stockholders of the Company; and (iii) promote the success of the Company’s business. The SAR Plan provides for incentive awards only in the form of stock appreciation rights payable in cash (“SARs”) and no shares of common stock are reserved or will be issued pursuant to the SAR Plan.
SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a share of common stock on the date of grant of the SAR. The administrator of the SAR Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.
The Company did not grant any SAR’s during the three months ended May 31, 2024 or May 31, 2023.
The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the vesting period for each SAR award. The SARs are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation,” and any changes in fair value are reflected in the Statement of Operations as of the applicable reporting date.
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| Options | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | Aggregate Intrinsic Value ($) | |||||||||||||
| SARs outstanding at February 28, 2023 | - | |||||||||||||||
| SARs assumed pursuant to reverse acquisition | ||||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited or cancelled | - | |||||||||||||||
| SARs outstanding at February 29, 2024 | ||||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited or cancelled | ( | ) | - | |||||||||||||
| SARs outstanding May 31, 2024 | ||||||||||||||||
| SARs expected to vest in the future as of May 31, 2024 | ||||||||||||||||
| SARs exercisable at May 31, 2024 | ||||||||||||||||
| SARs vested, exercisable, and SARs expected to vest at May 31, 2024 | ||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At May 31, 2024, no SAR had an exercise price below the $ closing price of our common stock as reported on The Nasdaq Capital Market.
At May 31, 2024, there was $ of unrecognized stock-based compensation expense related to unvested SARs with a weighted average remaining recognition period of years.
Warrants
Warrant activity for the three months ended May 31, 2024 and the year ended February 29, 2024 was as follows:
| Warrants | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | ||||||||||
| Warrants outstanding at February 28, 2023 | - | |||||||||||
| Warrants assumed pursuant to reverse acquisition | ||||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited or cancelled | - | |||||||||||
| Warrants outstanding at February 29, 2024 | ||||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited or cancelled | ( | ) | - | |||||||||
| Warrants outstanding at May 31, 2024 | ||||||||||||
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NOTE 9 - Subsequent Events
On June 17, 2024, the Company received a notification letter (the “Initial Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) advising the Company that it was not in compliance with Nasdaq’s continued listing requirements under Nasdaq Listing Rule 5250(c)(1) (the “Rule”) as a result of its failure to timely file its Annual Report on Form 10-K for the fiscal year ended February 29, 2024 (the “Form 10-K”).
On July 17, 2024, the Company received an additional notification letter (the “Additional Notice,” and together with the Initial Notice, the “Notices”) from Nasdaq stating that, because the Company has not filed its Quarterly Report on Form 10-Q for the quarter ended May 31, 2024 (the “Form 10-Q”), and because the Company remains delinquent in filing the Form 10-K, the Company remains noncompliant with the Rule.
Neither of the Notices have an immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market, and, therefore, the Company’s listing remains fully effective.
The Notices require the Company to either file the delinquent Form 10-K and Form 10-Q with the Commission or submit a plan to regain compliance with the Rule by August 16, 2024. If Nasdaq accepts the Company’s plan, then Nasdaq may grant an exception of up to 180 calendar days from the Form 10-K’s due date, or until December 10, 2024, to regain compliance. If Nasdaq does not accept the Company’s plan, then the Company will have the opportunity to appeal that decision to a Nasdaq Hearings Panel under Nasdaq Listing Rule 5815.
On August 16, 2024, the Company submitted a plan to Nasdaq to regain compliance with the Rule, including the steps the Company will take to promptly file the Form 10-K and Form 10-Q and regain compliance. The Company has requested an extension until September 30, 2024. There can be no assurance that the Company will regain compliance with the Rule, secure an exception until September 30, 2024 to regain compliance, or maintain compliance with other Nasdaq listing requirements. On September 4, 2024, the Company filed its Annual Report on Form-10-K with the Securities and Exchange Commission.
On
August 14, 2024, at a joint meeting of the Audit Committee and the board of directors, the directors unanimously approved an increase
in the principal amount of the related party line of credit to $
Between June 1, 2024 and September 13, 2024, additional
net related party advances totaled $
On September 13, 2024, the Company’s board of directors approved
the conversion of up to
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-looking statements
This Quarterly Report contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” including but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this Quarterly Report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including factors referred to in our press releases and reports filed with the Securities and Exchange Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended February 29, 2024 and elsewhere in this Quarterly Report.
Corporation Information
Sigma Additive Solutions, Inc. (“Sigma”), the legal acquiror of NextTrip, was initially incorporated as Messidor Limited in Nevada on December 23, 1985, and changed its name to Framewaves Inc. in 2001. On September 27, 2010, the name was changed to Sigma Labs, Inc. On May 17, 2022, Sigma Labs, Inc. began doing business as Sigma Additive Solutions, and on August 9, 2022, changed its name to Sigma Additive Solutions, Inc.
On March 11, 2024, Sigma filed a Certificate of Amendment to its Amended and Restated Articles of Incorporation, as amended to date, with the Secretary of State of the State of Nevada, pursuant to which, effective as of 12:01 a.m. Pacific time on March 13, 2024, among other things, Sigma’s corporate name was changed from Sigma Additive Solutions, Inc. to “NextTrip, Inc.”
Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (954) 526-9688. Our website address is www.nexttrip.com. The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to the Company, are available, free of charge, on our website. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report.
Prior to the Exchange Agreement, as described below, NextTrip Holdings, Inc. (“NextTrip”) was a wholly owned subsidiary of NextTrip Group, LLC (“Group”), which in turn, was a wholly owned subsidiary of NextPlay Technologies, Inc. (“NextPlay”). All of the business operations of Group were conducted through its subsidiaries. On January 25, 2023, NextPlay and Group entered into an Amended and Restated Separation Agreement (“Separation Agreement”), Amended and Restated Operating Agreement (“Operating Agreement”), and Exchange Agreement (“Exchange Agreement”, and together the “Agreements”), whereby NextPlay transferred their interest in the travel business to Group. Pursuant to the Exchange Agreement, NextPlay exchanged 1,000,000 Membership Units of Group for 400,000 Preferred Units of Group, with a value of $10 per unit. Prior to the exchange for Preferred Units, Group had a payable due to NextPlay of $17,295,873, representing cash advances and payment of expenses by NextPlay on behalf of Group, while NextPlay had obligations to provide ongoing support to NextTrip. Such liability was settled by the issuance of the Preferred Units and the waiver of all of NextPlay’s ongoing support obligations except for a $1.5 million advance remaining under a promissory note, and as such NextTrip recorded the payable as contributed capital.
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The Company provides travel technology solutions with sales originating in the United States, with a primary emphasis on hotels, air, and all-inclusive travel packages. Our proprietary booking engine, branded as NextTrip 2.0, provides travel distributors access to a sizeable inventory.
The Company owns 50% of Next Innovation LLC (Joint Venture) and this entity is in the process of a first structure plan. No activities nor operations occurred in 2023 or 2024 for this entity and NextTrip, Inc. does not have control of the company and therefore no minority interest was recorded.
Reverse Acquisition
On October 12, 2023, Sigma entered into a Share Exchange Agreement (as amended, the “Exchange Agreement”) with NextTrip, Group, and William Kerby (the “NextTrip Representative”). Under the terms of the Exchange Agreement, the parties agreed that Group would sell and transfer to Sigma all of the issued and outstanding shares of NextTrip in exchange for 156,007 restricted shares of Sigma common stock (the “Closing Shares”), issuable at closing, and the right to receive up to an additional 5,843,993 restricted shares of Sigma common stock upon satisfaction of certain milestones set forth in the Exchange Agreement (the “Contingent Shares,” and together with the Closing Shares, the “Restricted Shares”), which Restricted Shares are issuable to the members of Group, on a pro rata basis, under the terms of the Exchange Agreement, subject to certain closing conditions (the “Acquisition”). Upon the closing of the Acquisition on December 29, 2023, NextTrip became a wholly owned subsidiary of Sigma.
The Contingent Shares, together with the Closing Shares, will not exceed 6,000,000 shares of Sigma common stock, or approximately 90.2% of the issued and outstanding shares of Sigma common stock immediately prior to the closing. The Acquisition will likely result in a change of control, with the members of Group receiving an aggregate number of shares that exceeds the number of shares that held by the legacy shareholders of Sigma. As a result, the Acquisition is accounted for as a reverse acquisition of NextTrip by Sigma, whereby Sigma is treated as the legal acquirer and NextTrip is treated as the accounting acquirer. As a result, the historical financial information presented is that of NextTrip.
In accordance with ASC 805-40-45-1, the consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (NextTrip, Inc., f/k/a Sigma Additive Solutions, Inc.) but described in the notes to the financial statements as a continuation of the financial statements of the legal subsidiary (NextTrip), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent. Comparative information presented in the consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent.
Under ASC 805-40-45-2, the consolidated financial statements represent the continuation of the legal subsidiary except for the capital structure, as follows:
| (a) | The assets and liabilities of the legal subsidiary recognized and measured at their pre-combination carrying amounts; | |
| (b) | The assets and liabilities of the legal parent recognized and measured in accordance with the guidance in this topic applicable to business combinations (ASC 805); | |
| (c) | The retained earnings and other equity balances of the legal subsidiary before the business combination; | |
| (d) | The amount required to be recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary outstanding immediately before the business combination to the fair value of the legal parent determined in accordance with the guidance in ASC 805 applicable to business combinations. However, the equity structure reflects the equity structure of the legal parent, including the equity interests the legal parent issued to affect the combination. Accordingly, the equity structure of the legal subsidiary is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent issued in the reverse acquisition. |
The assets and liabilities of Sigma Additive Solutions, Inc. were recognized at fair value under ASC 805 as described in NOTE 4– Goodwill.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. By their nature, changes in these assumptions and estimates could significantly affect our financial position or results of operations. Significant accounting estimates that may materially change in the near future are revenue recognition, impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 of the Notes to Financial Statements included in this Quarterly Report. However, we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements.
The critical accounting policies and estimates addressed below reflect our most significant judgements and estimates used in the preparation of our financial statements.
Revenue Recognition – The Company recognizes revenue in accordance with ASC 606 which involves identifying the contracts with customers, identifying performance obligations in the contracts, determining transactions price, allocating transaction price to the performance obligation and recognizing revenue when the performance obligation is satisfied.
The Company recognizes revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired, as satisfaction of the performance obligation, the sales price is fixed or determinable and collectability is reasonably assured. Revenue for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
The Company generates revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world.
The Company controls the specified travel product before it is transferred to the customer and is therefore a principal, based on but not limited to, the following:
| ● | The Company is primarily responsible for fulling the promise to provide such travel product. | |
| ● | The Company has inventory risk before the specified travel product has been transferred to a customer or after transfer of control to a customer. | |
| ● | The Company has discretion in establishing the price for the specified travel product. |
Payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue at the earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
Promissory Note Receivable
NextPlay is in default under the terms of its promissory note to NextTrip, and as a result, an allowance for doubtful accounts of $1,567,665 was established as of February 29, 2024 as collectability of the entire receivable is uncertain. During the three months ended May 31, 2024 and 2023, there was no bad debt expense recorded related to the allowance account, and the allowance is unchanged as of May 31, 2024. As of May 31, 2023, no allowance for doubtful accounts was established.
Business Overview
NextTrip, Inc. (the “Company,” “NextTrip,” “we,” “us” and “our”) is an innovative technology company that is building next generation solutions to power the travel industry. NextTrip, through its subsidiaries, provides travel technology solutions with sales originating in the United States, leisure travel, business travel, groups travel, media and tech. We connect people to new places and discoveries by utilizing digital media engagement, seasoned planning expertise, and unique inventory to curate custom vacations and business travel across the globe. Our proprietary booking engine, branded as NXT2.0, provides travel distributors access to a sizeable inventory.
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Our vision is to drive the evolution of the travel industry by merging advanced digital solutions with personalized travel services. Our core technology – a fully integrated travel booking platform – focuses on untapped and underserved sectors of the travel industry, intending to capture new markets. We expect that our future growth will be accelerated by interactive technology, immersive media and unparalleled travel industry expertise.
We believe NextTrip will revolutionize the travel industry by combining advanced digital technologies with personalized travel services. Our mission is to become the premier travel, media, and lifestyle brand, inspiring and empowering individuals to explore the world. Through our brands, including NextTrip Vacations, Travel Magazine, and Compass.TV, we aim to create a unique ecosystem that reduces dependency on traditional marketing methods, where major travel companies spend billions to attract customers.
Our strategy focuses on both the Media and Travel divisions working together to draw users into our ecosystem by offering the following benefits:
| ● | Access to a wealth of highly relevant travel videos and articles for research. | |
| ● | The ability to plan and save future travel destinations and activities on personalized profiles. | |
| ● | Options to share travel ideas and communicate with others. | |
| ● | Assistance from our concierge help desk and AI-powered solutions. | |
| ● | The convenience of booking travel online or through a call center. | |
| ● | Access to customer support before, during, and after travel. | |
| ● | The opportunity to earn rewards that encourage repeat bookings. |
Our ecosystem is built on four key pillars:
| 1. | NextTrip: A comprehensive travel booking platform that offers curated, personalized, and seamless travel experiences for every budget and interest. Powered by the NXT2.0 booking platform, NextTrip serves as our direct-to-consumer transactional hub, providing users with detailed scheduling, pricing, and availability information for airlines, hotels, rental cars, and other travel products. We also offer dynamically assembled travel packages and provide valuable content, including destination information, maps, and travel details, all supported by our customer call center. | |
| 2. | Travel Magazine: A trusted source of captivating travel inspiration, offering authentic stories, practical advice, and diverse perspectives to fuel wanderlust and create lasting vacation memories. Travel Magazine will soon launch MyBucketList, a platform designed for travelers to build and share their travel bucket lists with personalized suggestions, booking support, and local insights. | |
| 3. | Compass.TV: Our Free Ad-supported Streaming TV (“FAST”) channel, slated for launch in fall 2024. Compass.TV will offer over 1,000 hours of travel shows and long-form travel content at launch. To draw users into the NextTrip ecosystem, the launch will be supported by travel influencers, promoted to our multi-million strong email list, and marketed to major streaming platforms like Roku and YouTube. Compass.TV plans to use artificial intelligence to personalize content, convert blogs and articles to video, and enable users to create custom videos. This platform will allow users to create fully customized FAST channels featuring vacation opportunities that can be explored and booked directly through the NextTrip booking engine. | |
| 4. | PrometheanTV: A unique influencer-led platform that drives advertising revenue and content-to-commerce. We recently secured a perpetual license with Promethean TV, Inc., the developer of the Ignite TV interactive video platform. This technology will power Compass.TV and video content on Travel Magazine/MyBucketList, allowing for targeted advertising via video overlays, enabling viewers to purchase travel directly from their screens. This integration is designed to enhance customer engagement, drive ad-supported revenue, and increase travel transactions. |
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By integrating the NextTrip booking platform across all our media platforms, we will enable users to research and book travel seamlessly from any of our offerings. Our ecosystem will encompass leisure travel, wellness travel, business travel, alternative lodging, and innovative technology and media solutions. We will engage with consumers throughout the entire travel planning journey, from initial research to post-travel, offering robust product options and preferred rates in top global destinations. We believe that NextTrip stands apart from other travel companies, providing users with the tools to create personalized vacation packages and travel solutions, resulting in a more rewarding experience than traditional pre-packaged offerings. This ensures a thriving and growing ecosystem that drives both travel transactions and targeted advertising revenue while supporting consumers on their travel journeys—truly a next-generation travel company.
Organizational History
Historical Monaker Group Business
NextTrip’s travel business was the principal business of NextPlay (then, Monaker Group, Inc. (“Monaker”)) until June 30, 2020, when Monaker entered into a share exchange transaction with HotPlay Enterprise Limited (“HotPlay”), resulting in HotPlay becoming a wholly owned subsidiary of Monaker and HotPlay’s business becoming the principal business of Monaker. Prior to this share exchange, the primary focus of Monaker had been its travel business, which included the sale of vacation rentals, and in particular, ALRs, to consumers through its proprietary booking engine. To support its travel offerings, Monaker introduced travelmagazine.com, featuring travel and lifestyle content to appeal to travelers researching destinations and planning future vacations. In January 2023, NextPlay spun the NextTrip business out to its founders to separate it from NextPlay’s primary business.
COVID-era Transition and Technology Development
The spread of the COVID-19 virus globally beginning in January 2020 severely impacted our business. Beginning in March 2020, many U.S. states and foreign countries began issuing “stay-at-home” orders and closed their borders to interstate and international travel. Such restrictions on travel, together with other measures implemented by governments around the world, severely restricted the level of economic activity around the world and had an unprecedented effect on the global travel industry. The public’s ability to travel was severely curtailed through border closures, mandated travel restrictions and limited operations of hotels, airlines, and additional voluntary or mandated closures of travel-related businesses from December 2019 through the beginning of 2022 (and beyond in some jurisdictions). Measures implemented during the COVID-19 pandemic led to unprecedented levels of temporary and permanent business closures, cancellations and limited new travel bookings, having a severe negative impact on our business, financial condition and results of operations.
Due to the significant decrease in demand for the travel related services provided by us during the peak of the COVID-19 pandemic, we shifted our focus to developing and enhancing our program offerings. For example, we began to develop our online media platform -TravelMagazine.com allowing consumers to research future travel options as well as enhancing the functionality of our booking engines, including developing a booking engine platform that allows customers to book packaged vacations and wellness programs along with the development of a platform to arrange and manage business travel.
Acquisition of Bookit.com Asset
Following NextTrip’s separation from NextPlay, our team focused on the continued technological development of its booking platform. As part of this development, we acquired a travel platform in June 2022 to help power our proprietary NXT2.0 booking technology. Previously, this technology powered the Bookit.com business, a well-established online leisure travel agent generating over $400 million in annual sales as recently as 2019 (pre-pandemic). As part of the acquisition of the assets of Bookit.com, we were not only able to acquire a proven technology platform that could be integrated with our core travel sectors, but we were also able to secure the Bookit.com database with millions of past travelers and opt-in consumers.
Since 2022, and the acquisition of the Bookit.com business, we have been focused on the holistic development and integration of the NXT2.0 technology platform, which serves as a base for current and future technology projects as well as proprietary system enhancements. This integration includes re-engaging with and re-negotiating more than 250 contracts with hotel, airline, and cruise suppliers, and securing unique product inventory of more than 3 million lodging, air and tour product suppliers at exceptional rates to over 2,100 destinations in 200+ countries worldwide.
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Through this strategic offering, we will focus on key areas of opportunity in the travel sector and drive enhanced booking conversion rates. Our proprietary technology, when combined with media, product offerings and customer service, provides a unique lane to serve mid- to luxury travelers.
Recent Developments
Acquisition by Sigma; Name Change
In December 2023, we completed the Acquisition, which resulted in NextTrip becoming a wholly-owned subsidiary of a public company and the principal business of the Company moving forward. To align the new business with NextTrip’s travel-focused business model, the Company recently changed its name to “NextTrip, Inc.”
Acquisition of Promethean FAST TV Exclusive License
We recently entered into a perpetual license agreement with Promethean TV, Inc. (“Promethean”), the owner and developer of the Ignite TV interactive video platform used for driving engagement and commerce. This license will form the basis for our FAST channel – Compasss.TV allowing for targeted advertising via video overlays, allowing the viewer to purchase travel from their screen. This integrated technology is intended to boost engagement with customers driving ad-supported revenue and travel transactions.
Our Fully Integrated Travel Booking Platform
We have established a direct-to-consumer presence though a number of websites, powered by the NXT2.0 booking platform. Today, the primary leisure platform is hosted on nexttrip.com and the media platform is hosted on travelmagazine.com.
NextTrip sells travel services to leisure and corporate customers across these websites. Our primary focus is our current offerings of scheduling, pricing and availability information for booking reservations for airlines, hotels, rental cars, as well as other travel products such as transfers, sightseeing tours, shows and event tickets. NextTrip sells these travel services both individually and as components of dynamically assembled packaged travel vacations and trips. In addition, we provide content that presents travelers with information about travel destinations, maps and other travel details.
Our online travel publication, travelmagazine.com, provides travelers around the world with inspiration for future vacation destinations and trips. The publication offers written articles, videos, and podcasts. The website is expected to be supported by advertising and allow for research and booking of vacation products.
Travel Products and Services
We are building an ecosystem with technology and product offerings that will include leisure travel, wellness travel, business travel, alternative lodging, technology and media solutions. We engage with consumers and distributors throughout the travel planning journey from planning through post-travel. Through direct relationships, we have established robust product offerings and preferred rates across the top destinations world-wide. Our primary product offerings are as follows:
| ● | NextTrip Leisure brings travel solutions and a proprietary booking engine that allows customers to book customized travel, including vacation packages, airline tickets, hotel reservations, tours and activities, curated journeys, cruises, wellness and group travel. | |
| ● | NextTrip Solutions offers technology solutions for product and inventory management as well as white label offerings including NextTrip products under their brand, and technology solutions. We are also developing a travel agent portal to drive bookings and travel agent brand loyalty. | |
| ● | NextTrip Media includes Travel Magazine and the Compass.TV experience, which is currently in development. These digital solutions engage consumers at the initial phases of travel planning, offering relevant content, destination information and immersive online experiences as well as solutions for travel suppliers. This ecosystem, once fully developed, is expected to allow users to create their own fully customized FAST channel featuring vacation journey opportunities that customers can explore prior to booking the actual vacation. |
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Products and Services for Travelers
Search Tools and Ability to Compare. Our online marketplace nexttrip.com provides travelers with the tools to search for and filter several travel products including air, car, accommodations (including ALRs) and activities based on various criteria, such as destination, travel dates, type of property, number of bedrooms, amenities, price, or keywords.
Traveler Login. Travelers are able to create accounts on our website(s) that give them access to their booking activity through the website. Members will also have access to special rates and discounts on the NextTrip product.
Travel Blog. Travel guides, videos and pictures as well as travel articles can be accessed through travelmagazine.com.
Security. We use a combination of technology and human review to evaluate the content of listings and to screen for inaccuracies or fraud with the goal of providing only accurate and trustworthy information to travelers. NextTrip is Payment Card Industry compliant to ensure the safety and security of its customer credit card data.
Communication. Travelers who create an account on our websites will receive regular communications, including notices about places of interest, special offers, new listings, and an email newsletter. The newsletter will be available to any traveler who agrees to receive it and offers introductions to new destinations and properties, as well as tips and useful information when traveling.
Since the COVID-19 pandemic arose, we have primarily focused on developing our booking engine and establishing relationships with suppliers to increase the size of our instantly bookable inventory. The booking engine has produced little revenue to date because of, among other reasons, the efforts that have been taken to integrate the NextTrip travel platforms with the Bookit.com technology since its acquisition in the summer of 2022. The new platform was launched in beta in May 2023 with a limited number of hotel properties in Mexico and the Caribbean. We have expanded our distribution since launch to include over one million hotel properties worldwide and have completed a full launch of the leisure travel website in May 2024.
Key Revenue Drivers
NextTrip’s fully integrated travel booking platform serves as the foundation of our revenue-generating business. The platform contains a robust booking engine with merchandising capabilities that drive increased conversions and higher per revenue transactions. We plan to leverage the bookit.com foundational travel database consisting of several million customers to further drive revenues. Those revenues consist primarily of commissions and bookings but are expanding to include affiliate commerce, advertising and sponsored content (via Compass.TV and Travel Magazine).
In addition, as the booking platform expands, it establishes an opportunity for product expansion and revenue from technology licensing, including white-labeling key technology. A monthly software-as-a-service (“SaaS”) model is being established around key technology developments and innovative platforms, including turn-key booking solutions, product management and targeted audience offerings.
Advancing Travel: Future Research & Development Driving Growth
As we expand the reach of our booking platforms, including to different underserved areas of the travel industry, we plan to focus on future technologies to drive growth by investing in research and development.
Compass.TV
As FAST gains momentum globally, we are in the process of developing Compass.TV, with a targeted launch in the fall of 2024. Our innovative travel channel is being developed in conjunction with our perpetual license with Promethean discussed above. With over 1,000 hours of relevant travel content secured, Compass.TV intends to utilize artificial intelligence (“AI”) to personalize content, convert blogs and articles to video, and empower users to create custom travel channels. Integration with the NextTrip Concierge desk will enable seamless booking and assistance.
NextTrip recognizes the pivotal role of video in promoting travel sales and engagement, hence our focus on incorporating video across platforms. To maximize effectiveness, NextTrip has entered into the license with Promethean enabling targeted advertising and transactional capabilities without interrupting content.
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Travel Magazine
We are transforming our Travel Magazine website into a social media platform catering to all things travel. The site was re-launched mid-2024, and features enhanced media capabilities and targeted advertising using the Promethean solution. A private consumer section called “MyBucketList,” is targeted for release in the fall of 2024 and will feature connectivity to booking engines, AI travel planner assist and AI-driven content creation.
My Bucket List
With My Bucket List, NextTrip is building a technology solution catered to travelers to build and share their own travel bucket list with personalized suggestions, booking support and local insights.
Results of Operations
Three Months Ended May 31, 2024 and May 31, 2023
During the three months ended May 31, 2024, we recognized revenue of $188,793, as compared to $19,562 in the same period in 2023, an increase of $169,231, or 865%. The increase was primarily due to the implementation of the BookIt asset as well as the integration of Expedia into our booking engine, NXT 2.0. Expedia significantly increased our product offering from 12-15 hotel chains to over 250,000 properties worldwide, including hotels, resorts, and alternative accommodations.
Our cost of revenue for the three months ended May 31, 2024 was $173,581, as compared to $17,718 for the same period in 2023, an increase of $155,863, or 880%. The increase was primarily attributable to the increase in sales from the launch of NXT 2.0 in the first quarter of 2024 as compared to the first quarter of 2023.
Our total operating expenses for the three months ended May 31, 2024 were $1,967,613, as compared to $1,031,825 for the same period in 2023, an increase of $935,788, or 90.7%. The increase was primarily attributable to the relaunch of the NXT 2.0 booking engine in March of 2024, as well as the integration of Sigma Additive Solutions, and the transition to public company status.
Salary and benefits costs were $626,752 for the three months ended May 31, 2024, as compared to $407,609 for the same period in 2023, an increase of $219,143, or 54%. The increase was comprised of: (a) an increase in salaries and benefits of 212,371 due to the conversion of booking engine contractors to employees and new accounting staff, and (b) an increase in taxes and benefits of $29,153. Partially offsetting the increase was a decrease in SAR expense of $22,381 due to revaluation in March of 2024.
Stock-based compensation was $16,394 for the three months ended May 31, 2024, as compared to $0 for the same period in 2023, an increase of $16,394. This increase was primarily a result of two employees that moved from Sigma Additive Solutions to NextTrip in 2024.
We incurred general and administrative costs of $27,555 during the three months ended May 31, 2024, as compared to $69,103 in the same period in 2023, a decrease of $41,548, or 60%. The decrease was primarily the result of an amortized lease expense in 2023 for $37,026 and $5,485 in penalties associated with the lease liability. Partially offsetting the decrease was an increase in filing fees of $1,796.
We incurred marketing costs of $156,188 during the three months ended May 31, 2024, as compared to $40,781 during the same period in 2023. The increase of $115,407, or 283%, was primarily due to the relaunch of NXT 2.0 booking engine in March of 2024 and ongoing maintenance with Travel Magazine. Marketing and advertising expenses increased by $50,525, contracted marketing services increased by $49,115, and Travel Magazine costs increased by $15,767. During the same period in 2023, the priority was the development of the booking engine, and the product was not ready to market.
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We incurred technology costs of $184,669 during the three months ended May 31, 2024, as compared to $35,893 during the same period in 2023. The increase of $148,776, or 414.5% was primarily attributable to an increase in dues and subscription services of $99,649 for external travel services used in connection with our booking engine, and an increase cloud database and software expenses of $49,127 to host the booking engine.
Professional service fees incurred in the three months ended May 31, 2024 were $523,873, as compared to $134,370 incurred during the same period in 2023, an increase of $389,503, or 290%. This increase was a result of: (a) an increase in investor relations of $31,875; (b) an increase in legal expense of $173,911 due to the reverse acquisition and associated transactions; (c) an increase in accounting fees of $25,062 for audit and related financial services; (d) an increase in consulting fees of $89,613 due to a contract in connection with an independent financial advisory firm; (e) an increase in consultants contracted for services of $69,042 related to the FastTV channel, and maintenance and bug fixes with the booking engine.
Organizational costs for the three months ended May 31, 2024, were $28,737 as compared to $0 for the same period in 2023, an increase of $28,737. The increase resulted primarily from shareholder services expenses in connection with the Acquisition, transfer agent fees, and filing services.
Depreciation and amortization expense for the three months ended May 31, 2024 was $287,586, as compared to $336,339 for the same period in 2023, a decrease of $48,753, or 14.5%. The decrease was primarily due to no new equipment purchases and an increase in fully amortized intangible assets as of May 31, 2024.
Other operating expenses were $115,859 for the three months ended May 31, 2024, as compared to $ 7,730 for the same period in 2023. The $108,129 increase was primarily due to the additional cost of directors and officers insurance of $88,158 and an increase in merchant processing fees of $13,402.
In the three months ended May 31, 2024, we realized net other expense of $35,225, as compared to net other expense of $65,390 in the same period in 2023. The decrease in net other income of $30,165 was primarily due to a decrease in interest expense associated with convertible loans due to their conversion in connection with the Acquisition.
Preferred dividends for the three months ended May 31, 2024 were $10,668, as compared to $0 for the same period in 2023. The increase was due to dividends associated with outstanding shares of Series E convertible preferred stock assumed in the Acquisition.
In the three months ended May 31, 2024, the net loss from continuing operations totaled $1,987,626 as compared to a net loss from continuing operations of $1,095,371 for the same period in 2023. The operating loss component increased by $922,420 in 2024, partially offset by a decrease in the other loss component of $30,165.
The net gain from discontinued operations of $8,909 for the three months ended May 31, 2024 consisted primarily of revenue of $11,731 from legacy Sigma customers, and a gain of $5,961 from the settlement of a trade accounts payable at a discount, partially offset by expenses of $8,783 consisting of legal expenses and Sigma’s legacy investor relations website.
Our net loss applicable to common stockholders for the three months ended May 31, 2024, was $1,989,405, as compared to $1,095,371 for the same period in 2023, an increase of $894,034, or 81.6%. The increase was primarily attributable to an increase in operating loss from continued operations of $922,420 and an increase in preferred dividends of $10,688, partially offset by a gain from discontinued operations of $8,909, and a decrease in other expense of $30,165.
Liquidity and Capital Resources
Due to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt about our ability to continue as a going concern for 12 months from the date of the filing of this Quarterly Report,
As of May 31, 2024, we had $36,679 in cash and a working capital deficit of $2,109,148, as compared with $323,805 in cash and a working capital deficit of $262,005 as of February 29, 2024. Additionally, at May 31, 2024, the amount due under our notes payable to related parties totaled $1,752,868.
Between June 1, 2024 and September 13, 2024, additional net related party advances totaled $978,822, and the aggregate outstanding principal balance of related party advances as of September 13 2024 was $2,731,690.
On September 13, 2024, the Company’s board of directors approved the conversion of up to 100% of the outstanding principal balance of the promissory notes held by Messrs. Kerby and Monaco into shares of a series of non-redeemable convertible preferred stock preferred stock yet to be designated. Messrs. Kerby and Monaco have agreed to initially convert $1,500,000, or 56.3% of their total outstanding principal balance of $2,666,790 into the new series of convertible preferred stock, and, at their discretion, may convert up to the remaining principal balance, or any portion thereof, into additional shares of such convertible preferred stock at a future date. The conversion remains subject to completion of final documentation for the transaction, including the filing of the certificate of designation for the new series of convertible preferred stock with the Nevada Secretary of State.
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Our major sources of funding have been proceeds from private offerings of our securities, advances from related parties, and issuance of convertible and non-convertible debt. We will need to raise additional amounts to fund our operations, maintain compliance with the Nasdaq continued listing requirements and implement our business plan. We currently have no arrangement to obtain any additional financing, and there is no assurance as to the amount and availability of any required future financing or the terms thereof. Any such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business and operations. To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business and operations and/or lose our Nasdaq listing.
Our existing cash on hand and anticipated revenues are not sufficient to fund our anticipated operating costs. We estimate that we will need to raise a minimum of $5.5 million in net proceeds to continue operation for the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect, or extend such resources longer than we expect.
Because of the numerous risks and uncertainties associated with the research, development, and commercialization of our products, however, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
| ● | The cost of developing and maintaining our proprietary software and NXT2.0 booking engine; | |
| ● | The effect of competing technological and market developments; | |
| ● | The revenue from the sales of our existing and future products; and | |
| ● | The cost of operating as a public company. |
The effects of a U.S. or global recession, while difficult to predict, could result in some customers delaying or cancelling planned travel.
Net Cash Used in Operating Activities
Net cash used in operating activities from continuing operations totaled $1,151,220 as compared to $591,391 during the same period in 2023, an increase of $559,829, or 94.71%.
During the three months ended May 31, 2024, the net cash used in operating activities was the result of a net loss of $1,987,626 before preferred dividends, partially offset by changes in working capital of $532,426, and non-cash expenses of $303,980 related to depreciation and amortization of $287,586 and stock-based compensation of $16,394. Changes in working capital were driven by a decrease in accounts receivable of $6,322, an increase in deferred revenue of $14,280, and an increase in accounts payable and accrued expenses of $534,493, partially offset by an increase in prepaid expenses of $19,669.
During the three months ended May 31, 2023, the net cash used in operating activities was the result of a net loss of $1,095,371, partially offset by changes inworking capital of $130,615, and non-cash expenses of $373,365 related to depreciation and amortization. Changes in working capital were driven by an increase in accounts payable and accrued expenses of $147,231, partially offset by a decrease in accounts receivable of $5,000 and a decrease in deferred revenue of $11,616.
Net Cash Used in Investing Activities
Net cash used in investing activities during the three months ended May 31, 2024 was $169,406, which compares to $165,975 of cash used in investing activities during the same period of 2023, an increase of $3,431, or 2.1%. The decrease resulted from a slight decrease in capitalized software development costs during the first three months of 2024.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended May 31, 2024 was $1,024,591, as compared to $555,745 for the same period in 2023. The increase of $468,846, or 84.4% was due to an increase in advances from related parties of $909,091 and the issuance of a promissory note for $100,000 to an investor, partially offset by a decrease in the issuance of convertible notes of $540,245.
Our ability to continue to fund our working capital needs will be dependent upon the success of our efforts to generate revenues from our operations, and by obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining additional funding. The Company is unable to predict the effect a global recession or geopolitical events, including the on-going conflict in Ukraine, may have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.
Other than the related party promissory notes as described in NOTE 5 – Related Party Transactions to the financial statements included elsewhere in this Quarterly Report, we have no lines of credit or other financing arrangements.
Inflation, changing prices and rising interest rates have had no material effect on our continuing operations over our two most recent fiscal years. However, continued unfavorable trends may affect the prices we pay for materials and other goods and services necessary to our business, thus increasing our use of cash.
We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures and changes in internal controls over financial reporting.
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer, as of the end of the period covered by this quarterly report, management identified a material weakness in disclosure controls and procedures related to a lack of personnel with sufficient expertise in generally accepted accounting principles (“GAAP”). Specifically, the Company did not have individuals with extensive GAAP experience to adequately assess and apply GAAP requirements in the preparation and review of financial disclosures. As a result of this material weakness, management has concluded that, as of May 31, 2024 the Company’s disclosure controls and procedures were not effective.
During the three months ended May 31, 2024, management took steps to remediate the material weakness discussed above by hiring additional personnel with GAAP expertise, in particular the Company’s Controller, and engaging external consultants with subject matter expertise as necessary. Management also began implementing several enhancements to its control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), including, but not limited to, establishing a monthly financial closing process, implementing account reconciliations, ensuring proper segregation of duties, and implementing new financial control software. These remediation efforts were completed by the filing date of this Report.
As a result of these enhancements, management believes that the consolidated financial statements included in this Report fairly present, in all material respects, the financial condition, results of operations, and cash flows of the Company as of and for the periods presented.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 1A. RISK FACTORS.
You should consider the “Risk Factors” included under Item 1A of our Annual Report on Form 10-K for the year ended February 29, 2024 filed with the SEC on September 4, 2024, as well as the following updated Risk Factor:
As of May 31, 2024, we had $36,679 in cash and a working capital deficit of $2,109,148. Our existing cash on hand and anticipated revenues are not sufficient to fund our anticipated operating costs. We will need to raise additional financing to fund our operations, maintain compliance with the Nasdaq continued listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business operations. We have no current understanding or arrangement to obtain any additional financing. To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business operations and may lose our Nasdaq listing.
In light of the foregoing, there is substantial doubt about our ability to continue as a going concern for 12 months from the date of the filing of this Quarterly Report,
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Rule 10b5-1 Trading Plans
During the three months ended May 30, 2024, none of
our directors or officers entered into,
ITEM 6. EXHIBITS.
* Indicates a management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SIGMA ADDITIVE SOLUTIONS, INC. | ||
| September 16, 2024 | By: | /s/ William Kerby |
| William Kerby | ||
Chief Executive Officer (Principal Executive Officer) | ||
| September 16, 2024 | By: | /s/ Frank Orzechowski |
| Frank Orzechowski | ||
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | ||
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