UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Pursuant to Section 240.14a-12 |
Sigma Additive Solutions, Inc.
(Exact name of registrant as specified in its charter)
N/A
(Name of person(s) filing proxy statement, if other than the registrant)
Payment of Filing Fee (check the appropriate box):
| ☒ | No fee required. |
| ☐ | Fee paid previously with preliminary materials |
| ☐ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
SIGMA ADDITIVE SOLUTIONS, INC.
3900 Paseo del Sol
Santa Fe, New Mexico 87507
TO THE STOCKHOLDERS OF Sigma Additive Solutions, Inc.:
You are cordially invited to attend an Annual Meeting of the stockholders of Sigma Additive Solutions, Inc., a Nevada corporation (referred to herein as “SASI,” “Sigma,” the “Company,” “we,” “us” or “our”), which will be held virtually, via live webcast on December 28, 2023, at 10:00 a.m. Mountain Time. You will be able to attend the Annual Meeting by first registering at http://www.viewproxy.com/Sigma/2023/htype.asp no later than December 27, 2023, at 11:59 p.m. Eastern Time. After registering, you will receive a meeting invitation and password via e-mail with your unique link to join the meeting. Stockholders will be able to listen, vote and submit questions during the virtual Annual Meeting.
At the Annual Meeting, our stockholders will be asked to consider and vote upon a proposal, which we refer to as the “Acquisition Proposal,” to approve the issuance of shares of our common stock pursuant to that certain Share Exchange Agreement dated October 12, 2023 (as amended from time to time, the “Exchange Agreement”) among Sigma, NextTrip Holdings, Inc. (“NextTrip”), NextTrip Group, LLC, the parent company of NextTrip (the “NextTrip Parent”), and William Kerby, in the capacity as the “NextTrip Representative”, in exchange for all of the issued and outstanding capital stock of NextTrip. We refer to the exchange as the “Acquisition” and to the shares of our common stock issuable pursuant to the Exchange Agreement as the “Exchange Shares.” A copy of the Exchange Agreement is attached to the accompanying proxy statement as Annex A. In connection with the Acquisition, we are asking our stockholders to approve amendments to our Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) as reflected in the form of Certificate of Amendment to the Articles of Incorporation attached as Annex B to the accompanying proxy statement (the “Amendment”).
Upon the closing of the Acquisition, the NextTrip Parent’s members, which we sometimes refer to as the “NextTrip Sellers,” will be issued a number of Exchange Shares equal to 19.99% or our issued and outstanding shares of common stock immediately prior to the closing of the Acquisition. Under the Exchange Agreement, the NextTrip Sellers will be entitled to receive additional Exchange Shares, which are referred to as the “Contingent Shares,” subject to NextTrip’s achievement of future milestones specified in the Exchange Agreement. The Contingent Shares, together with the Exchange Shares issued at the closing of the Acquisition, will not exceed 6,000,000 shares of our common stock. Assuming all the business milestones are achieved and no other change in our outstanding shares as of September 30, 2023, the NextTrip Sellers will receive Exchange Shares equal to approximately 88.5% of the outstanding shares of our common stock immediately following the issuance of all the Exchange Shares and Sigma stockholders as of immediately prior to closing of the Acquisition will retain the balance of approximately 11.5% of such outstanding shares. Following the closing of the Acquisition, and subject to stockholder approval, the Company will change its corporate name to “NextTrip, Inc.” References to NextTrip, Inc. mean the Company following the Acquisition and such name change.
Apart from the Acquisition, Sigma entered into an Asset Purchase Agreement with Divergent Technologies, Inc. (“Divergent”), dated October 6, 2023, pursuant to which Sigma has agreed to sell to Divergent certain assets, consisting primarily of patents, software code and other intellectual property (the “Asset Sale”). It is anticipated that the Asset Sale will take place promptly after the closing of the Acquisition.
Sigma’s common stock is listed on The Nasdaq Capital Market under the symbol “SASI.” We currently expect that the trading symbol for the common stock will be changed in connection with the Acquisition to better align with the new name of the Company.
In connection with its evaluation of the Acquisition, the board of directors of Sigma (the “Board”) engaged Lake Street Capital Markets, LLC (“Lake Street”) to act as its financial advisor. Lake Street has rendered its opinion that, based upon and subject to the assumptions, limitations and qualifications set forth in their opinion, the issuance of the Exchange Shares to the NextTrip Sellers under the Exchange Agreement is fair, from a financial point of view, to Sigma. A copy of Lake Street’s written opinion is attached as Annex C to the accompanying proxy statement.
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At the Annual Meeting, our stockholders will be asked to consider and vote upon:
| 1) | the Acquisition Proposal to approve the issuance of the Exchange Shares in exchange for all the capital stock of NextTrip and the other terms and conditions of the Exchange Agreement and the transactions contemplated thereby; | |
| 2) | the approval of the Amendment to (a) change the Company’s corporate name to “NextTrip, Inc.” (the “Name Change” and the “Name Change Proposal”) following completion of the Acquisition; | |
| 3) | the approval of the Amendment to increase the authorized shares of our common stock (the “Capital Increase” and “Capital Increase Proposal”) from 1,200,000 shares to 100,000,000 shares; | |
| 4) | the election of two Class III directors (the “Election of Directors Proposal”) to serve until the 2026 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal; | |
| 5) | the approval, on a non-binding advisory vote basis, of the compensation payable to Sigma’s named executive officers as disclosed in the accompanying proxy statement (the “Say on Pay” and the “Say on Pay Proposal”); | |
| 6) | the recommendation, on a non-binding advisory vote basis, of the frequency of future advisory votes on executive compensation (the “Frequency of Say on Pay” and the “Frequency of Say on Pay Proposal”); | |
| 7) | the approval of the Sigma Additive Solutions, Inc. 2023 Equity Incentive Plan (the “Equity Incentive Plan” and the “Equity Incentive Plan Proposal”); | |
| 8) | the ratification of Haynie & Company as our independent registered public accounting firm for our fiscal year ending December 31, 2023 (the “Ratification of Accountant Proposal”); | |
| 9) | the adjournment of the Annual Meeting by the Chairman thereof to a later date to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Annual Meeting, there are not sufficient votes to approve the Acquisition Proposal or the Amendment (the “Adjournment Proposal”); and | |
| 10) | the transaction of such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. |
Each of these proposals is more fully described in the accompanying proxy statement, which each stockholder is encouraged to carefully read and consider.
We are providing the proxy statement and accompanying proxy card to our stockholders in connection with the solicitation of proxies to be voted at the Annual Meeting and at any adjournment or postponement of the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please take the time to vote by one of the means described in the accompanying proxy statement. YOUR VOTE IS VERY IMPORTANT.
Thank you for your participation. We look forward to your continued support.
| Sincerely, | |
| December 1, 2023 | /s/ Jacob Brunsberg |
Jacob Brunsberg President and Chief Executive Officer |
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SIGMA ADDITIVE SOLUTIONS, INC.
3900 Paseo del Sol
Santa Fe, New Mexico 87507
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS.
To Be Held on December 28, 2023
YOUR VOTE IS VERY IMPORTANT.
PLEASE VOTE YOUR SHARES PROMPTLY.
NOTICE
IS HEREBY GIVEN, that you are cordially invited to attend an Annual Meeting (the “Annual Meeting”) of stockholders
of Sigma Additive Solutions, Inc., to be held virtually, via live webcast on December 28, 2023, at 10:00 a.m. Mountain Time. In order to attend the meeting, you must register at http://viewproxy.com/Sigma/2023/htype.asp
by 11:59 p.m. Eastern Time on December 27, 2023. Stockholders attending the Annual Meeting will be afforded the same rights
and opportunities to participate as they would at an in-person meeting. We encourage you to join us and participate online. We recommend
that you log in a few minutes before 10:00 a.m., Mountain Time, on December 28, 2023 to ensure you are logged in when the
Annual Meeting starts. You will not be able to attend the Annual Meeting in person.
The purpose of the Annual Meeting is to consider and vote upon:
1) the Acquisition Proposal – approval of the issuance of the Exchange Shares in exchange for all the capital stock of NextTrip and the other terms and conditions of the Exchange Agreement and the transactions contemplated thereby;
2) the Name Change Proposal – the approval of the Amendment to change the Company’s corporate name to “NextTrip Inc.” following completion of the Acquisition;
3) the Capital Increase Proposal – the approval of the Amendment to increase the authorized shares of our common stock from 1,200,000 to 100,000,000 shares;
4) the Election of Directors Proposal – the election of two Class III directors to serve until the 2026 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal;
5) the Say on Pay Proposal – the approval, on a non-binding advisory vote basis, of the compensation payable to Sigma’s named executive officers as disclosed in the accompanying proxy statement;
6) the Frequency of Say on Pay Proposal – the recommendation, on a non-binding advisory vote basis, of the frequency of future advisory votes on executive compensation;
7) The Equity Incentive Plan Proposal – the approval of the Sigma Additive Solutions, Inc. 2023 Equity Incentive Plan;
8) the Ratification of Accountant Proposal – to ratify the appointment of Haynie & Company as our independent registered public accounting firm for our fiscal year ending December 31, 2023;
9) the Adjournment Proposal – the approval of the adjournment of the Annual Meeting by the Chairman thereof to a later date to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Annual Meeting, there are not sufficient votes to approve the Acquisition Proposal or the Amendment; and
10) the transaction of such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
The
accompanying proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is part of
these proxy materials, can be accessed directly at the following Internet address: http://www.viewproxy.com/Sigma/2023.
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Only holders of record of the Company’s common stock at the close of business on November 20, 2023, or the “Record Date,” are entitled to notice of the Annual Meeting and to vote and have their votes counted at the Annual Meeting and any adjournment or postponement of the Annual Meeting. We intend to mail these proxy materials beginning on or about December 1, 2023 to all stockholders of record entitled to vote at the Annual Meeting.
A complete list of the stockholders entitled to vote at the Annual Meeting will be available for examination during regular business hours for the ten (10) days prior to the Annual Meeting by request. You may email us at frank.orzechowski@sigmaaddditive.com to coordinate arrangements to view the stockholder list.
After careful consideration, the Board unanimously recommends that you vote, or instruct your broker or the agent to vote:
| ☐ | “FOR” the Acquisition Proposal; | |
| ☐ | “FOR” the Name Change Proposal; | |
| ☐ | “FOR” the Capital Increase Proposal; | |
| ☐ | “FOR” each of the individuals nominated for election as Class III directors pursuant to the Election of Directors Proposal; | |
| ☐ | “FOR” the Say on Pay Proposal; | |
| ☐ | “EVERY THREE YEARS” on the Frequency of Say on Pay Proposal; | |
| ☐ | “FOR” the Equity Incentive Plan Proposal; | |
| ☐ | “FOR” the Ratification of Accountant Proposal; and | |
| ☐ | “FOR” the Adjournment Proposal, if presented. |
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (1) THROUGH THE INTERNET, (2) BY PHONE OR (3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before the closing of voting at the Annual Meeting. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished to you by such bank, broker or other nominee, which is considered the stockholder of record, in order to vote. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. Without your instructions, your broker can vote your shares only with respect to routine matters such as the Name Change Proposal, the Ratification of Accountant Proposal and the Adjournment Proposal. Without your instructions, your broker or other agent cannot vote on the Acquisition Proposal, the Capital Increase Proposal, the Election of Directors Proposal, the Say on Pay Proposal, the Frequency of Say on Pay Proposal or the Equity Incentive Plan Proposal.
If you fail to return your proxy card, grant your proxy electronically over the Internet, submit your vote over the phone, or vote virtually at the Annual Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Annual Meeting. If you are a stockholder of record as of the Record Date, voting virtually at the Annual Meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain from the record holder a valid “legal” proxy issued in your name in order to vote virtually at the Annual Meeting.
We encourage you to read the accompanying proxy materials carefully. If you have any questions concerning the Acquisition, the Annual Meeting or the accompanying proxy materials, would like additional copies of the proxy materials or need help voting your shares of common stock, please contact our Chief Financial Officer and Secretary, Frank Orzechowski, at (203) 733-1356 or frank.orzechowski@sigmaadditive.com.
Thank you for your participation. We look forward to your continued support.
| By Order of the Board of Directors, | |
| Sigma Additive Solutions, Inc. | |
| /s/ Jacob Brunsberg | |
| Jacob Brunsberg | |
| President and Chief Executive Officer |
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TABLE OF CONTENTS
| 6 |
This proxy statement, including information incorporated by reference into this proxy statement, contains forward-looking statements regarding, among other things, Sigma’s plans, strategies and prospects, both business and financial. Although Sigma believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, Sigma cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under “Risk Factors” in this proxy statement and from time to time in Sigma’s other filings with the Securities and Exchange Commission, or the “SEC”. Many of the forward-looking statements contained in this presentation may be identified by the use of forward-looking words such as “believe”, “expect”, “anticipate”, “should”, “planned”, “will”, “may”, “intend”, “estimated”, “aim”, “on track”, “target”, “opportunity”, “tentative”, “positioning”, “designed”, “create”, “predict”, “project”, “seek”, “would”, “could”, “continue”, “ongoing”, “upside”, “increases” and “potential”, among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this proxy statement and the materials incorporated by reference herein are set forth in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:
| ● | the occurrence of any event, change or other circumstances that could give rise to the termination of the Exchange Agreement; | |
| ● | the ability to maintain the listing of NextTrip, Inc. common stock on Nasdaq following the Acquisition; | |
| ● | expectations as to when the Acquisition will close; | |
| ● | changes adversely affecting the business of the Company or NextTrip before or after the Acquisition; | |
| ● | management of NextTrip, Inc.’s growth; | |
| ● | general economic conditions; | |
| ● | NextTrip, Inc.’s business strategy and plans; | |
| ● | the result of future financing efforts; and | |
| ● | and the other factors summarized under the section entitled “Risk Factors.” |
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement. All forward-looking statements included herein attributable to any of Sigma, NextTrip, the NextTrip Parent or any person acting on any party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, none of Sigma, NextTrip and the NextTrip Parent have any obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
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This Summary Term Sheet provides an overview of material information regarding the proposed Acquisition and may not contain all of the information that is important to you. You should carefully read this entire proxy statement, including the Exchange Agreement attached as Annex A and the written opinion of Lake Street relating to the Acquisition attached as Annex C, for a more complete understanding of the Acquisition and the Exchange Agreement and related matters. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in the section titled “Where You Can Find More Information” beginning on page 124.
| The Acquisition (page 32) |
|
Sigma, NextTrip, the NextTrip Parent, and the NextTrip Representative have entered into the Exchange Agreement. The Exchange Agreement provides for our acquisition of all the capital stock of NextTrip in exchange for our issuance to the NextTrip Sellers the number of shares of our common stock equal to 19.99% of the outstanding shares of our common stock immediately prior to the closing of the Acquisition (the “Closing Shares”), plus additional Contingent Shares upon NextTrip’s achievement of milestones specified in the Exchange Agreement as follows: |
| Milestone | Date Earned | Contingent Shares | ||||||
| Launch of NextTrip’s leisure travel booking platform by either (i) achieving $1,000,000 in cumulative sales under its historical “phase 1” business, or (ii) commencement of its marketing program under its enhanced “phase 2” business. | As of a date six months after the closing date | 1,450,000 Contingent Shares | ||||||
| Launch of NextTrip’s group travel booking platform and signing of at least five (5) entities to use the groups travel booking platform. | As of a date nine months from the closing date (or earlier date six months after the closing date) |
1,450,000 Contingent Shares | ||||||
| Launch of NextTrip’s travel agent platform and signing up of at least 100 travel agents to the platform (which calculation includes individual agents of an agency that signs up on behalf of multiple agents). | As of a date 12 months from the closing date (or earlier date six months after the closing date) | 1,450,000 Contingent Shares | ||||||
| Commercial launch of PayDelay technology in the NXT2.0 system. | As of a date 15 months after the closing date (or earlier date six months after the closing date) | 1,650,000 Contingent Shares, less the Exchange Shares issued at the closing of the Acquisition | ||||||
| Alternatively, independent of achievement of the foregoing milestones, for each month during the 15-month period following the closing date in which $1,000,000 or more in gross travel bookings are generated by NextTrip, Inc., to the extent not previously issued, the Contingent Shares will be issuable in the order indicated above up to the maximum Exchange Shares issuable under the Share Exchange Agreement. | ||||||||
| In no event, however, will the Contingent Shares, together with the Closing Shares, exceed 6,000,000 shares of our common stock, subject to adjustment in the event of future stock splits, reverse stock splits and similar events. | ||||||||
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Our stockholders immediately prior to the closing of the Acquisition will continue to own their shares of our common stock. As a result of the Acquisition, NextTrip will become a wholly owned subsidiary of Sigma, which, subject to stockholder approval of the Name Change Proposal, will change its name to “NextTrip, Inc.”
Assuming all the milestones are achieved and no change in our outstanding shares as of September 30, 2023, the NextTrip Sellers will receive Exchange Shares equal to approximately 88.5% of the outstanding shares of our common stock immediately following the issuance of all the Exchange Shares and Sigma stockholders as of immediately prior to closing of the Acquisition will retain the balance of approximately 11.5% of such outstanding shares.
The Exchange Shares will be issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act.
The Exchange Agreement provides that in the event our stockholders approve the Acquisition Proposal but not the Capital Increase Proposal, to the extent that we do not have sufficient authorized shares of common stock available for issuance of the Exchange Shares, in lieu thereof, we will issue shares of a new series of convertible preferred stock in form and substance satisfactory to the NextTrip Representative which, among other things, will provide for voting on an as-converted basis and will be automatically converted (on a one-for-one basis) into shares of our common stock once stockholder approval for an increase in our authorized shares of common stock has been obtained. | ||||
| NextTrip Holdings, Inc. (page 78) | NextTrip is a closely held, innovative technology company engaged in building next-generation solutions to power the travel industry based upon its proprietary NXT2.0 booking technology platform acquired in June 2022. Previously, this technology powered the business of Bookit.com, an online leisure travel agent generating over $450 million in annual sales as recently as 2019 (pre-COVID-19 pandemic). | |||
| Management following the Acquisition (page 33) | Neither Sigma nor any of its affiliates has an ownership interest in or is otherwise affiliated with NextTrip or its affiliates and, except for the Acquisition, there have been no transactions or dealings between Sigma and the other parties to the Exchange Agreement or their affiliates during the periods for which financial statements of the parties are included in this proxy statement. | |||
| Jacob Brunsberg, our current President and Chief Executive Officer, will resign from such position upon the closing of the Acquisition. William Kerby, the co-founder and Chief Executive Officer of NextTrip, and Donald P. Monaco, a member of the Board of Managers of the NextTrip Parent, will be appointed as Chief Executive Officer and as a director, respectively, of NextTrip, Inc. It is anticipated that four of the five current directors, including Mr. Brunsberg, and the Chief Financial Officer of Sigma will continue to serve in the same capacities with NextTrip, Inc. and that the executive officers of NextTrip will continue to serve as its executive officers following the acquisition. | ||||
| Stockholders’ Meeting (page 10) | At the Annual Meeting to be held virtually, via live webcast on December 28, 2023, at 10:00 a.m. Mountain Time, our stockholders will be asked to approve the issuance of the Exchange Shares and other terms and conditions of the Exchange Agreement and the transactions contemplated thereby. Our stockholders also will be asked to approve the related Name Change Proposal and the Capital Increase Proposal, as well as the Election of Directors Proposal, the Say on Pay Proposal, the Frequency of Say on Pay Proposal, the Equity Incentive Plan Proposal, the Ratification of Accountant Proposal and, if presented, the Adjournment Proposal. | |||
| Financial Accommodations (page 33) | Subject to certain limitations, NextTrip agrees in the Exchange Agreement to provide us with a line of credit of up to $400,000, which may be used to support our business and operations, pay transaction expenses and other liabilities. |
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Nasdaq Listing (page 33) |
Our common stock is listed on The Nasdaq Capital Market, or Nasdaq, under the symbol “SASI.” We currently expect that the trading symbol for our common stock will be changed after the Acquisition to better align with the new name of the Company. The closing of the Acquisition is subject to the satisfaction of Nasdaq’s standards for continued listing of NextTrip, Inc. common stock, among other conditions referred to below. | |||
| Certain Covenants (page 36) | The Exchange Agreement contemplates that following the Acquisition we will sell certain patents, trademarks and other intellectual property pursuant to the previously announced Asset Purchase Agreement, dated as of October 6, 2023, with Divergent Technologies, Inc., or Divergent. The Exchange Agreement also contains customary covenants of the parties regarding the operation of their respective businesses pending the closing of the Acquisition or termination of the Exchange Agreement. | |||
| Closing Conditions (page 38) | The closing of the Acquisition is subject to our stockholders’ approval of our issuance of the Exchange Shares in connection with the Acquisition, as well as other customary conditions. We currently expect that the Acquisition will be completed promptly following the Annual Meeting if the Acquisition is approved. | |||
Our Board’s Recommendations (page 82) |
Our Board of Directors has unanimously approved the Exchange Agreement, the Acquisition and the other transactions contemplated thereby and the related Amendment of our Amended and Restated Articles of Incorporation and recommends that our stockholders approve the issuance of the Exchange Shares in the Acquisition and other terms and conditions of the Exchange Agreement and the transactions contemplated thereby and the Amendment. | |||
Opinion of Lake Street Capital Markets, LLC (page 48) |
Lake Street Capital Markets, LLC has provided a written opinion, dated October 12, 2023, to our Board of Directors to the effect that, as of the date of the written opinion and based on and subject to the matters described in the written opinion, the issuance of the Exchange Shares to the NextTrip Sellers under the Exchange Agreement is fair, from a financial point of view, to Sigma. |
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE ANNUAL MEETING
The following are answers to some questions that Sigma stockholders may have regarding the Acquisition Proposal, the Name Change Proposal, the Capital Increase Proposal and the other matters being considered at Sigma’s Annual Meeting of Stockholders, which is referred to herein as the “Annual Meeting.” We urge you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the Acquisition and the other matters being considered at the Annual Meeting. Additional important information is also contained in the Annexes to this proxy statement and in the documents incorporated by reference herein.
| Q: | Why am I receiving this proxy statement? |
| A: | The Board is soliciting your proxy to vote at the Annual Meeting because you owned shares of Sigma common stock at the close of business on November 20, 2023 (the “Record Date”) for the Annual Meeting and are therefore entitled to vote at the Annual Meeting. This proxy statement summarizes the information that you need to know in order to cast your vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares of Sigma common stock. |
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| Under rules adopted by the SEC, we have mailed the full set of our proxy materials, including this proxy statement, the proxy card and our Annual Report on Form 10-K for the year ended December 31, 2022, to our stockholders of record as of the Record Date, beginning on or around December 1, 2023. The proxy materials are also available to view and download at http://www.viewproxy.com/Sigma/2023. | |
| Q: | When and how will the Annual Meeting be held? |
The Annual Meeting will be held virtually at 10:00 a.m. Mountain Time on December 28, 2023. In order to attend the meeting, you must register at http://viewproxy.com/Sigma/2023/htype.asp by 11:59 p.m. Eastern Time on December 27, 2023. You will not be able to attend the Annual Meeting in person.
| |
| Q: | How do I attend and participate in the Annual Meeting online?
|
| A: | The Annual Meeting will be a completely virtual meeting of stockholders and will be webcast live over the Internet. Any stockholder can attend the virtual meeting live by registering at http://www.viewproxy.com/Sigma/2023/htype.asp. The webcast will start at 10:00 a.m. Mountain Time. Stockholders as of the Record Date may vote and submit questions while attending the Annual Meeting online. You will not be able to attend the Annual Meeting in person. Stockholders attending the Annual Meeting online will be afforded the same rights and opportunities to participate as they would at an in-person meeting. |
To enter the Annual Meeting, you will need the control number, which is included in your proxy materials if you are a stockholder of record of shares of our common stock or included with your voting instructions and materials received from your broker, bank or other agent if you hold your shares of common stock in a “street name.” Instructions on how to attend and participate are available at http://www.viewproxy.com/Sigma/2023/htype.asp. We recommend that you log in a few minutes before 10:00 a.m. Mountain Time to ensure you are logged in when the Annual Meeting starts. The webcast will open 15 minutes before the start of the Annual Meeting.
If you would like to submit a question during the Annual Meeting, you may log in to the virtual meeting using your control number, type your question into the “Ask a Question” field, and click “Submit.” | |
| Q: | What happens if there are technical difficulties during the Annual Meeting? |
| A: | We will have technicians ready to assist you with any technical difficulties you may have accessing the Annual Meeting, voting at the Annual Meeting or submitting questions at the Annual Meeting. If you encounter any difficulties accessing the virtual Annual Meeting during the check-in or meeting time, please refer to the technical support information located at http://www.viewproxy.com/Sigma/2023/htype.asp.
If we experience technical difficulties at the Annual Meeting and are not able to resolve them within a reasonable amount of time, we will adjourn the Annual Meeting to a later date and will provide notice of the date and time of such adjourned meeting at http://sigmaadditive.com/investors/proxy-materials and in a Current Report on Form 8-K that we will file with the SEC. For additional information on how you can attend any postponement or adjournment of the Annual Meeting, see “What happens if the Annual Meeting is postponed or adjourned” below. |
| Q: | Will a list of record stockholders as of the Record Date be available?
|
| A: | For the ten days prior to the Annual Meeting, the list of stockholders of record on the Record Date will be available for examination by any stockholder of record for a legally valid purpose by request. You can contact our Chief Financial Officer and Secretary, Frank Orzechowski, at (203) 733-1356 or at frank.orzechowski@sigmaadditive.com to coordinate arrangements to view the stockholder list. |
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| Q: | On what matters will I be voting? |
| A: | Sigma, NextTrip, the NextTrip Parent, and the NextTrip Representative have entered into the Exchange Agreement dated as of October 12, 2023 pursuant to which Sigma has agreed to issue the Exchange Shares in exchange for all the capital stock of NextTrip, which we refer to as the Acquisition. A copy of the Exchange Agreement is attached to this proxy statement as Annex A, and Sigma encourages you to read it in its entirety.
Sigma’s stockholders are being asked to consider and vote upon proposals relating to the Acquisition; specifically, to adopt and approve the Acquisition Proposal, the Amendment to effect the Name Change and the Capital Increase, which, among other things, provide for: (a) issuing the Exchange Shares; (b) changing the Company’s name to “NextTrip, Inc.” following the Acquisition; and (c) increasing the authorized shares of our common stock from 1,200,000 to 100,000,000 shares. Sigma’s stockholders are also being asked to approve the election of two Class III directors, the Say on Pay Proposal, the Frequency of Say on Pay Proposal, the Equity Incentive Plan Proposal and the Ratification of Accountant Proposal.
Sigma’s stockholders may also be asked to consider and vote upon the Adjournment Proposal to authorize the Chairman of the Annual Meeting to adjourn the Annual Meeting to a later date or dates to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Annual Meeting, there are not sufficient votes to approve the Acquisition Proposal or the Amendment. |
Stockholders are encouraged to vote as soon as possible after carefully reviewing this proxy statement and the Annexes attached hereto. If Sigma stockholders fail to adopt and approve the Acquisition Proposal, the Acquisition cannot be completed.
| Q: | Why is Sigma proposing the Acquisition? |
| A: | Based on a lengthy and extensive evaluation of possible strategic transactions, due diligence investigation of NextTrip and the industry in which it operates, including the financial and other information provided by NextTrip, our Board of Directors believes that the Acquisition will provide Sigma stockholders with an opportunity to participate in the future growth potential of NextTrip. The Asset Sale as contemplated by the Exchange Agreement will allow our stockholders to realize the value of Sigma’s current assets as well. |
| Q: | Who will be the directors of the Company following the Acquisition? |
| A: | As of the closing of the Acquisition, Donald P. Monaco, a member of the Board of Managers of the NextTrip Parent, will be appointed as a director of NextTrip, Inc. We currently anticipate that four of the five current directors of Sigma, including Jacob Brunsberg, will continue to serve as directors of NextTrip, Inc. Under the Exchange Agreement, the NextTrip Representative will be entitled to appoint one additional director of NextTrip, Inc. to replace a then-existing director (other than individuals previously appointed by the NextTrip Representative) upon NextTrip’s achievement of each of the milestones specified in the Exchange Agreement. |
| Q: | Who will be the executive officers of the Company immediately following the Acquisition? |
| A: | Immediately following the Acquisition, the executive management team of NextTrip, Inc. is expected to be as follows: |
| Name | Position | |
| William Kerby | Chief Executive Officer | |
| Frank Orzechowski | Chief Financial Officer |
It is anticipated that the current executive officers of NextTrip will continue to serve as its executive officers following the Acquisition. |
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| Q: | Will the Company continue business and operations after the Acquisition? |
| A: | Yes, the Company will continue the business and operations of NextTrip after the Acquisition. NextTrip is an innovative technology company that is building next-generation solutions to power the travel industry. NextTrip, together with its wholly owned subsidiaries, is a travel company that connects people to new places and discoveries by utilizing digital media engagement, seasoned planning expertise, and unique inventory to curate custom vacations across the globe. By bridging technology, media and product offerings, NextTrip engages with the travelers of today while also building relationships with the travelers of tomorrow. The Exchange Agreement contemplates that the Asset Sale will take place promptly after the closing of the Acquisition.
Pending the Acquisition and the Asset Sale, the Company has reduced its employee headcount and suspended product development activities to reduce our expenses. The Company is continuing to operate and support its existing customers who have maintenance agreements and leases in place, supporting new installations in the field, and actively seeking potential sales of the PrintRite3D systems and software to customers who have lease agreements in place, systems on consignment, or otherwise express interest in Sigma’s products available for sale. The Company completed two such sales in the quarter ended September 30, 2023, and believes additional sales are achievable going forward as we progress towards closing the Acquisition and the Asset Sale. |
| Q: | What material factors did the Board consider in approving the Acquisition? |
| A: | In approving the Acquisition, the Board considered a number of positive and negative factors described in the “Sigma’s Reasons for the Acquisition” section beginning on page 41 of this proxy statement, and overall believes that the positive factors outweigh any negative factors.
Please also read with particular care the detailed description of the risks described in the “Risk Factors” section beginning on page 19 of this proxy statement. |
| Q: | Why is Sigma proposing the Name Change? |
| A: | The Board is submitting the Name Change Proposal for our stockholders’ approval to better align our name to reflect the NextTrip business following the Acquisition. |
| Q: | Why is Sigma proposing the Capital Increase? |
| A: | On September 22, 2023, we effected a 1-for-20 reverse split of our outstanding shares of common stock and authorized shares of common stock to regain compliance with the minimum bid price requirement for continued listing or our common stock on Nasdaq. The Board is submitting the Capital Increase Proposal for our stockholders’ approval to provide sufficient authorized shares of common stock to issue the Exchange Shares in the Acquisition, to implement the Equity Incentive Plan and for future capital raising, incentivizing directors, officers and employees, possible strategic acquisitions and other corporate transactions, whether or not the Acquisition is completed. |
| Q: | Why is Sigma proposing the Election of Directors? |
A: |
The term of our Class III directors ends at the Annual Meeting. Our Nominating and Corporate Governance Committee has recommended, and our Board of Directors has approved, the nominations of Dennis Duitch and Kent Summers for re-election as Class III directors. If elected, Messrs. Duitch and Summers will serve as directors until the 2026 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to their earlier death, resignation or removal. |
| Q: | Why is Sigma proposing the Say on Pay Proposal? |
| A: | The Say on Pay Proposal is an advisory vote required by SEC regulations that is non-binding and affords an opportunity for our stockholders to weigh in on executive compensation for Sigma executives as disclosed in this proxy statement, including compensation payable in connection with the Acquisition. Although it is non-binding, our Board of Directors will give consideration to the outcome of the vote in connection with its future executive compensation decisions. |
Q: |
Why is Sigma proposing the Frequency of Say on Pay Proposal? |
| A: | SEC regulations require Sigma to conduct a non-binding advisory vote at least every six years on the frequency of future advisory votes on executive compensation. Although it is non-binding, our Board of Directors will give consideration to the outcome of the vote in connection with determining the frequency of future advisory votes on executive compensation. |
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Q: |
Why is Sigma proposing the Equity Incentive Plan Proposal? |
A:
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Our Board of Directors has adopted the Equity Incentive Plan, subject to stockholder approval, to replace Sigma’s former 2013 Equity Incentive Plan, which has expired. Our Board of Directors believes the Equity Incentive Plan is necessary to attract and retain the types of employees, consultants and directors who will contribute to our long-range success, provide incentives to align their interests with those of our stockholders and promote the success of our business following the Acquisition, or otherwise. |
| Q: | Why is Sigma proposing the Ratification of Accountant? |
| A: | The Ratification of Accountant Proposal is to afford our stockholders an opportunity weigh in on of our appointment of Haynie & Company as our independent registered public accounting firm in connection with the preparation of our audit financial statements for the year ending December 31, 2023 and other financial disclosures. |
| Q: | What common stock will current Sigma stockholders and the NextTrip Sellers hold in the Company after the Acquisition? |
A:
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Upon the closing of the Acquisition, the NextTrip Sellers will be issued Exchange Shares equal to 19.99% of our issued and outstanding shares of common stock immediately prior to the closing. Under the Exchange Agreement, the NextTrip Sellers will be entitled to receive additional Contingent Shares, subject to NextTrip’s achievement of future milestones specified in the Exchange Agreement. The Contingent Shares together with the Exchange Shares issued at the closing will not exceed 6,000,000 shares of our common stock, subject to adjustment in the event of stock splits, reverse stock splits and similar events. If all the milestones are achieved and assuming no other change in our outstanding shares as of September 30, 2023, the NextTrip Sellers will receive Exchange Shares equal to approximately 88.5% of our issued and outstanding shares of common stock immediately following the issuance of all the Exchange Shares and Sigma stockholders immediately prior to the closing of the Acquisition will retain the balance of approximately 11.5% of such outstanding shares.
The Exchange Agreement provides that in the event our stockholders approve the Acquisition Proposal but not the Capital Increase Proposal, to the extent that we do not have sufficient authorized shares of common stock available for issuance of the Exchange Shares, in lieu thereof, we will issue shares of a new series of convertible preferred stock in form and substance satisfactory to the NextTrip Representative which, among other things, will provide for voting on an as-converted basis and will be automatically converted (on a one-for-one basis) into shares of our common stock once stockholder approval for an increase in our authorized shares of common stock has been obtained. |
| Q: | Will there be any controlling stockholder after the closing of the Acquisition? |
| A: | No. The closing of the Acquisition will not constitute a change in control of the Company, and there will not be a controlling stockholder immediately after closing of the Acquisition. However, depending upon the achievement of milestones under the Exchange Agreement and other changes in the outstanding shares of our common stock, the issuance of the Contingent Shares might result in a change in control of NextTrip, Inc. at that time and could result in the NextTrip Sellers as a group holding a controlling interest in the Company. |
| Q: | What conditions must be satisfied to complete the Acquisition? |
| A: | The Exchange Agreement sets forth a number of conditions to the completion of the Acquisition, including the approval of the Acquisition Proposal and the Amendment at the Annual Meeting, satisfaction of Nasdaq’s continued listing standards and other customary closing conditions. For a summary of the conditions that must be satisfied or waived prior to completion of the Acquisition, see the section entitled “The Exchange Agreement” beginning on page 32 of this proxy statement. |
| Q: | Will the Exchange Shares be subject to any transfer restrictions? |
| A: | Yes. The Exchange Shares will be issued without registration under the Securities Act, in reliance upon an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless the Exchange Shares have been held for at least six months and subject to other conditions. |
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| Q: | When is the Acquisition expected to be completed? |
| A: | If approved at the Annual Meeting, it is currently anticipated that the Acquisition will be completed promptly following the Annual Meeting, provided that the conditions to the completion of the Acquisition have been satisfied or waived. |
| Q: | What will happen to Sigma if, for any reason, the Acquisition is not completed? |
| A: | If the Acquisition Proposal is not approved at the Annual Meeting or the Acquisition is not completed for any reason, we intend to proceed with the Asset Sale and may attempt to complete another strategic transaction, such as a reverse merger, if there is a viable option to do so. Otherwise, our Board of Directors is likely to consider winding up and dissolving Sigma, which would require stockholder approval under the NGCL. If the Acquisition in not completed and another strategic transaction were to materialize, there can be no assurance that it would be on terms as attractive as those provided for in the Exchange Agreement. While the Exchange Agreement is in effect, and subject to very narrowly defined exceptions, Sigma is prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination except with NextTrip. Completion of the Acquisition also is part of our plan submitted to Nasdaq to regain compliance with Nasdaq’s minimum stockholders’ equity requirement. If the Acquisition is not completed, it is likely that our common stock would be delisted from Nasdaq, with all the attendant risks described in the “Risk Factors Relating to the Acquisition” section of this proxy statement, |
| Q: | What happens if I sell my shares after the Record Date, but before the Annual Meeting? |
| A: | If you sell or transfer your shares of the Company after the Record Date but before the Annual Meeting, you will retain your right to vote at the Annual Meeting but will transfer ownership of the shares and will not hold an interest in NextTrip, Inc. if the Acquisition is completed. |
| Q: | Are there risks associated with the Acquisition that I should consider in deciding how to vote? |
| A: | Yes. There are a number of risks related to the Acquisition and other transactions contemplated by the Exchange Agreement that are discussed in this proxy statement. Please read with particular care the detailed description of the risks described in “Risk Factors” beginning on page 19 of this proxy statement. |
| Q: | How does the Board recommend that I vote? |
| A: | Our Board of Directors recommends that Sigma stockholders vote, or instruct their broker or other agent to vote: |
“FOR” the Acquisition Proposal;
“FOR” the Name Change Proposal;
“FOR” the Capital Increase Proposal;
“FOR” each of the individuals nominated for appointment as Class III directors pursuant to the Election of Directors Proposal;
“FOR” the Say on Pay Proposal;
“EVERY THREE YEARS” on the Frequency of Say on Pay Proposal;
“FOR” the Equity Incentive Plan Proposal;
“FOR” the Ratification of Accountant Proposal; and
“FOR” the Adjournment Proposal, if presented.
You should read the discussion in the “Background of the Acquisition” section beginning on page 42 and the discussion of each of the proposals for a discussion of the factors that the Board considered in deciding to recommend the approval of the Acquisition Proposal and related proposals.
| Q: | How do I vote? |
| A: | After you have carefully read this proxy statement and have decided how you wish to vote your shares of Sigma common stock, please vote promptly. |
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Stockholders of Record and Voting
If your shares of Sigma common stock are registered directly in your name with Sigma’s transfer agent, Issuer Direct Corporation, you are the stockholder of record of those shares and these proxy materials have been mailed or e-mailed to you by the Company. You may vote your shares by Internet, telephone or by mail as further described below. Your vote authorizes Jacob Brunsberg, the President and Chief Executive Officer of the Company, as your proxy, with the power to appoint his substitute, to represent and vote your shares as you direct.
| ● | To vote online during the Annual Meeting, follow the provided instructions to join the meeting at http://www.viewproxy.com/Sigma/2023/htype.asp, starting at 10:00 a.m. Mountain Time on December 28, 2023. The webcast will open 15 minutes before the start of the Annual Meeting. | |
| ● | To vote in advance of the Annual Meeting through the internet, go to www.FCRVote.com/SASI to complete an electronic proxy card. You will be asked to provide the company number and control number from the Notice or the printed proxy card. Your internet vote must be received by 11:59 p.m. Eastern Time on December 27, 2023 to be counted. | |
| ● | To vote in advance of the Annual Meeting by telephone, dial 1-866-402-3905 and follow the recorded instructions. You will be asked to provide the company number and control number from the Notice or the printed proxy card. Your telephone vote must be received by 11:59 p.m. Eastern Time on December 27, 2023 to be counted. | |
| ● | To vote using the enclosed proxy card, complete, sign and date the enclosed proxy card and return it promptly in the accompanying postage-paid envelope. If you return your signed proxy card to us before the Annual Meeting, the proxy will vote your shares as you direct. If no directions are given, the proxy will vote your shares in accordance with our Board’s recommendations. |
Beneficial Owners
If your shares of Sigma common stock are held in a stock brokerage account, by a bank, broker or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your bank, broker or nominee that is considered the holder of record of those shares. As the beneficial owner, you have the right to direct your bank, broker, trustee or nominee on how to vote your shares via the Internet or by telephone if the bank, broker, trustee or nominee offers these options. You can also sign and return a proxy card. Your bank, broker, trustee or nominee will send you instructions for voting your shares. Please note that you may not vote shares held in street name by returning a proxy card directly to Sigma or by voting at the Annual Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or nominee. Furthermore, brokers, banks and nominees who hold shares of Sigma common stock on your behalf may not give a proxy to Sigma to vote those shares without specific instructions from you.
For a discussion of the rules regarding the voting of shares held by beneficial owners, please see the question below entitled “If I am a beneficial owner of shares of Sigma common stock, what happens if I don’t provide voting instructions?” “What is discretionary voting?” and “What is a broker non-vote?”
| Q: | How many shares must be present to hold the Annual Meeting? |
| A: | The presence in person or by proxy of at least one-third of the outstanding shares of Sigma common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. The inspector of election will determine whether a quorum is present. If you are a beneficial owner (as defined above) of shares of the Company’s common stock and you do not instruct your bank, broker or other nominee how to vote your shares on any of the proposals, your shares will nonetheless be counted as present at the Annual Meeting for purposes of determining whether a quorum exists. Stockholders of record who are present at the Annual Meeting in person or by proxy will be counted as present at the Annual Meeting for purposes of determining whether a quorum exists even if such stockholders abstain from voting. |
| Q: | How many votes do I and others have? |
| A: | You are entitled to one vote for each share of Sigma common stock that you held as of the Record Date. As of the close of business on the Record Date, there were 780,423 shares of Sigma common stock outstanding. |
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| Q: | What vote is required to approve each proposal? |
| A: | The Acquisition Proposal, as well as the Say on Pay Proposal and the Frequency of Say on Pay Proposal, which are advisory votes, and the Equity Incentive Plan Proposal and the Ratification of Accountant Proposal will each be approved if the number of votes cast in favor of each such Proposal exceeds the number of votes cast against each such Proposal. The affirmative vote of the holders of a majority of the outstanding shares of our common stock as of the Record Date is required to approve the Name Change Proposal and the Capital Increase Proposal. The two nominees for election as Class III directors receiving the highest number of votes will be elected as Class III directors. If presented, the Adjournment Proposal will be approved, whether or not a quorum is present at the Annual Meeting, if the number of votes cast for the Adjournment Proposal exceeds the number of votes cast against the Proposal. |
| Q: | How will our directors and executive officers vote on the Amendment, Acquisition Proposal and the Executive Compensation Proposal? |
| A: | As of the Record Date, the directors and executive officers of Sigma as a group owned and were entitled to vote approximately 4,827 shares of our common stock, representing less than 1% of the outstanding shares. Sigma expects that each of its directors and executive officers will vote their shares in accordance with the recommendations of our Board of Directors. |
| Q: | What will happen if I fail to vote, or I abstain from voting? |
| A: | Your failure to vote or your abstention from voting will have the same effect as a vote against the Name Change Proposal and the Capital Increase Proposal. Abstentions will not have any effect on the outcome of the vote on the Acquisition Proposal, the Election of Directors Proposal, the Say on Pay Proposal, the Frequency of Say on Pay Proposal, the Equity Incentive Plan Proposal, the Ratification of Accountant Proposal or the Adjournment Proposal, if presented for a vote. |
| Q: | If I am a beneficial owner of shares of Sigma common stock, what happens if I don’t provide voting instructions? What is discretionary voting? What is a broker non-vote? |
| A: | If you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares will not be voted with respect to any proposal for which your broker does not have discretionary authority to vote. Even though Sigma’s common stock is listed on Nasdaq, the rules of the New York Stock Exchange determine whether proposals presented at stockholder meetings are “discretionary” or “non-discretionary.” If a proposal is determined to be discretionary, your broker, bank or other holder of record is permitted under New York Stock Exchange rules to vote on the proposal without receiving voting instructions from you. If a proposal is determined to be non-discretionary, your broker, bank or other holder of record is not permitted under New York Stock Exchange rules to vote on the proposal without receiving voting instructions from you. A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a non-discretionary proposal because the holder of record has not received voting instructions from the beneficial owner. |
We are advised that the Name Change Proposal, the Ratification of Accountant Proposal and the Adjournment Proposal are discretionary proposals; however, each of the other proposals to be presented at the Annual Meeting is a non-discretionary proposal. Accordingly, if you are a beneficial owner and you do not provide voting instructions to your broker, bank or other holder of record holding shares for you, your shares may not be voted with respect to any of the proposals other than the Name Change Proposal, the Ratification of Accountant and the Adjournment Proposal, if presented. A broker non-vote would have the same effect as a vote against the Name Change Proposal and the Capital Increase Proposal. Broker non-votes will have no effect on the outcome of the vote on any of the other proposals.
| Q: | What will happen if I return my proxy card without indicating how to vote? |
| A: | If you sign and return your proxy card without indicating how to vote on one or more of the proposals, the Sigma common stock represented by your proxy will be voted in favor of each such proposal. Proxy cards that are returned without a signature will not be counted as present at the Annual Meeting and cannot be voted. |
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| Q: | Can I change my vote after I have returned a proxy or voting instruction card? |
| A: | Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting. You can do this in one of four ways: |
| ● | you can grant a new, valid proxy bearing a later date; | |
| ● | you can send a signed notice of revocation; | |
| ● | if you are a holder of record, you can attend the Annual Meeting and vote at the Annual Meeting, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given; or | |
| ● | if your shares of Sigma common stock are held in an account with a broker, bank or other nominee, you must follow the instructions on the voting instruction card you received in order to change or revoke your instructions. |
If you choose either of the first two methods, you must submit your written notice of revocation or your new proxy to the Secretary of Sigma, as specified below under “What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?” no later than the beginning of the Annual Meeting. If your shares are held in street name by your broker, bank or nominee, you should contact them to change your vote.
| Q: | Do I need identification to attend the Annual Meeting? |
| A: | Yes. You will be asked to provide the company number and control number from the printed proxy card. |
| Q: | Are Sigma stockholders entitled to dissenters’ or appraisal rights? |
| A: | No. Sigma stockholders do not have dissenters’ or appraisal rights in connection with any of the proposals under the NGCL and will not be afforded any such rights. |
| Q: | What do I do if I receive more than one set of voting materials? |
| A: | You may receive more than one set of voting materials for the Annual Meeting, including multiple copies of this proxy statement, proxy cards and/or voting instruction forms. This can occur if you hold your shares of common stock in more than one brokerage account, if you hold shares directly as a record holder and also in street name, or otherwise through a nominee. Other circumstances may apply. If you receive more than one set of voting materials, each should be voted and/or returned separately in order to ensure that all of your shares of common stock are voted. |
| Q: | How can I find out the results of the voting at the Annual Meeting? |
A:
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Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be published in a Current Report on Form 8-K that we expect to file within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form 8-K within four business days after the Annual Meeting, we intend to file a Current Report on Form 8-K to publish preliminary voting results and, within four business days after the final results are known to us, file an additional Current Report on Form 8-K to publish the final results. |
Q: |
What proxy materials are available on the internet? |
A:
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This proxy statement, and the documents incorporated by reference herein, are available at http://www.viewproxy.com/Sigma/2023. |
| Q: | Whom may I call with questions about the Annual Meeting, the Acquisition, or the other Proposals? |
| A: | Sigma stockholders should contact our Chief Financial Officer and Secretary, Frank Orzechowski, via email at frank.orzechowski@sigmaadditive.com or by telephone at (203) 733-1356 with any questions regarding the Annual Meeting or any of the proposals to be presented at the Annual Meeting. |
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| Q: | What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors? | |
| A: | Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2024 annual meeting of stockholders, our Corporate Secretary must receive the written proposal at our principal executive offices not later than August 2, 2024, which is 120 days prior to the first anniversary of the mailing date of this proxy statement. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to:
Sigma Additive Solutions, Inc. Attention: Corporate Secretary 3900 Paseo del Sol Santa Fe, New Mexico 87507
As for stockholders who wish to present a proposal or to nominate a director candidate at the 2024 annual meeting of stockholders, but not to include the proposal or nomination in our proxy statement, our amended and restated bylaws state that the proposal or nomination must be received by us no later than August 2, 2024, which is 120 days prior to the first anniversary of the mailing date of this proxy statement. The proposal or nomination must also contain the information required by our amended and restated bylaws. A proposal or nomination to be presented directly at the 2024 annual meeting should be addressed to us as set forth above. For the 2024 annual meeting, we will be required pursuant to Rule 14a-19 under the Exchange Act to include on our proxy card all nominees for director for whom we have received notice under the rule, which must be received no later than 60 calendar days prior to the anniversary of the Annual Meeting. For any such director nominee to be included on our proxy card for next year’s annual meeting, notice must be received no later than October 28, 2024. | |
Post-Acquisition, NextTrip, Inc. will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the material risks described below before deciding how to vote your shares of Sigma common stock. You should also read and consider the risks associated with the business of Sigma because these risks may also affect NextTrip, Inc. after closing of the Acquisition. These risks can be found in Sigma’s Annual Report on Form 10-K for the year ended December 31, 2022 and most recent Quarterly Reports on Form 10-Q, which are incorporated herein by reference. If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on Sigma or the businesses, financial conditions or results of operations of NextTrip, or ownership of NextTrip, Inc. securities following the Acquisition. You should also read and consider the other information in this proxy statement and the other documents incorporated by reference into this proxy statement. Please see the sections titled “Other Matters” and “Where You Can Find More Information” on pages 124 and 124 of this proxy statement. In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Risks Related to the Acquisition
Failure to complete the Acquisition could negatively impact Sigma’s stock price and we may not be able to avoid dissolution.
If the Acquisition Proposal is not approved at the Annual Meeting, or the Acquisition is not completed for any reason, we intend to proceed with the Asset Sale and may undertake to windup and dissolve the Company unless another strategic transaction such as a reverse merger transaction materializes. Completion of the Acquisition is part of our plan submitted to Nasdaq to regain compliance with Nasdaq’s minimum stockholders’ equity requirement. If the Acquisition is not completed, it is likely that our common stock would be delisted from Nasdaq, with all the attendant risks described below in his section. Furthermore, if the Acquisition is not completed, the price of Sigma’s common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of Sigma’s common stock would reach the price implied in the Acquisition or at which it trades as of the date we announced the Exchange Agreement or the date of this proxy statement. Accordingly, if the Acquisition is not completed, there can be no assurance as to the effect on the future value of your shares of our common stock.
Subsequent to the consummation of the Acquisition, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and share price, which could cause you to lose some or all of your investment.
Although we have conducted due diligence on NextTrip, we cannot assure you that this diligence revealed all material issues that may be present in NextTrip’s business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our and NextTrip’s control will not arise. As a result, we may be forced to later write down or write off NextTrip’s assets or incur impairment or other charges that could result in losses after closing of the Acquisition. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about NextTrip, Inc. or its securities. In addition, charges of this nature may cause NextTrip, Inc. to be unable to obtain future financing on favorable terms or at all.
The unaudited pro forma financial information included in this proxy statement may not be indicative of what our actual financial position or operational results would have been.
The unaudited pro forma financial information included in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Acquisition been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for more information.
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We will have limited protection in the event that any of the representations and warranties made by NextTrip Parent or NextTrip in the Exchange Agreement ultimately proves to be inaccurate or incorrect.
Sigma will have limited protection if any representation or warranty made by NextTrip or the NextTrip Parent in the Exchange Agreement proves to be inaccurate or incorrect and such representations and warranties will not survive the closing. Accordingly, to the extent such representations or warranties are incorrect, Sigma would have limited or no indemnification claims with respect thereto, may not recover any damages it may have suffered and may not have sufficient cash on hand or other resources to seek to pursue an alternative strategic transaction or avoid the dissolution and liquidation of Sigma in the event that the Acquisition does not close.
We may waive one or more of the conditions to the Acquisition.
We may agree to waive, in whole or in part, some of the conditions to our obligations to complete the Acquisition, to the extent permitted by our Amended and Restated Articles of Incorporation and applicable laws. For example, it is a condition of our obligation to close the Acquisition and that NextTrip’s representations and warranties are true and correct in all respects as of the closing date, except for such inaccuracies that, individually or in the aggregate, would not result in a Material Adverse Effect (as defined in the Exchange Agreement). However, if the Board determines that it is in the stockholders’ best interest to waive any such breach, then the Board may elect to waive that condition and close the Acquisition.
Our ability to successfully operate and grow NextTrip’s business will be largely dependent upon the efforts of William Kerby, who will be appointed as the Company’s Chief Executive Officer upon the closing of the Acquisition, and other executive officers of NextTrip, who are expected to continue to serve as executive officers of NextTrip following the Acquisition. The loss of any of such key personnel could negatively impact the business and operations of NextTrip, Inc. and its ability to grow the business of NextTrip.
Our ability to successfully operate and grow NextTrip’s business following the Acquisition will be dependent upon the efforts of William Kerby, the co-founder and Chief Executive Officer of NextTrip, who will become our Chief Executive Officer upon the closing of the Acquisition and upon the efforts of the other executive officers of NextTrip, including Lindsey North, the President of NextTrip. Although we expect all of such key personnel to remain with NextTrip, Inc. and NextTrip following the Acquisition, it is possible that we will lose some key personnel, and the loss of their services could have a material, adverse effect on the business and operations of NextTrip, Inc. and NextTrip or the ability to grow their business. In addition, NextTrip does not have key-man insurance on the life of Mr. Kirby or other executive officers. Furthermore, our assessment of these individuals may not prove to be correct.
A market for our common stock may not continue, which would adversely affect the liquidity and price of our common stock.
Following the Acquisition and in light of our recent reverse stock split, the market price of our common stock may fluctuate significantly due to the market’s reaction to the Acquisition and general market and economic conditions. An active trading market for our common stock following the Acquisition may never develop or, if developed, it may not be sustained. In addition, the market price of our common stock after the Acquisition can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our common stock becomes delisted from Nasdaq for any reason and is relegated to the OTC Bulletin Board (an inter-dealer automated quotation system for equity securities that is not a national securities exchange), the liquidity and price of our common stock will be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your shares of common stock unless a market for our common stock can be established or sustained.
Although we expect that our common stock will remain listed on Nasdaq after the Acquisition, there can be no assurance that we will be able to comply with the continued listing standards of the Nasdaq.
To continue listing our common stock on Nasdaq subsequent to the closing of the Acquisition, we will be required to demonstrate compliance with Nasdaq’s continued listing standards, including that our common stock trades at a minimum of $1.00 per common stock and we maintain a minimum stockholders’ equity of $2.5 million unless we meet alternative requirements. We cannot assure you that we will be able to meet Nasdaq’s continued listing standards. In addition, the issuance of the Contingent Shares upon NextTrip’s achievement of the milestones set forth in the Exchange Agreement could result in a “change of control” under Nasdaq rules. If a change of control occurs, NextTrip, Inc. will be required to re-qualify for initial listing under the Nasdaq initial listing rules, and there can be no assurances provided that NextTrip, Inc. will be able to satisfy the initial listing requirements.
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If, after the Acquisition, the Nasdaq delists our common stock due to our failure to meet its continued listing standards, or for failure to re-qualify under Nasdaq’s initial listing standards in the event of a change of control, we and our stockholders could face significant material adverse consequences including:
| ● | a limited availability of market quotations for our securities; | |
| ● | a determination that our ordinary shares are a “penny stock,” which will require brokers trading in our ordinary shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our ordinary shares; | |
| ● | a limited amount of analyst coverage and more limited universe of potential investors in our securities; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
If the Acquisition’s benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.
If the benefits of the Acquisition do not meet the expectations of investors or securities analysts, the market price of our common stock prior to the completion of the Acquisition may decline. The market values of our securities at the time of the Acquisition may vary significantly from their prices on the date the Exchange Agreement was executed, the date of this proxy statement, or the date on which our stockholders vote on the Acquisition Proposal.
In addition, following the Acquisition, fluctuations in the price of our common stock could contribute to the loss of all or part of your investment. Prior to the Acquisition, there has been no public market for NextTrip’s securities. Accordingly, the valuation ascribed to NextTrip and our common stock in the Acquisition may not be indicative of the price that will prevail in the trading market following the Acquisition. If an active market for our common stock develops and continues, the trading price of our common stock following the Acquisition could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our common stock and our common stock may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our common stock may not recover and may experience a further decline.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
The obligation to disclose information publicly may put NextTrip at a disadvantage to competitors that are private companies.
Upon completion of this Acquisition, NextTrip, Inc. will be required to disclose occurrence of matters that are material to NextTrip, Inc. and its stockholders that the Company would not be required to disclose if NextTrip, Inc. was a private company. NextTrip’s competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with NextTrip. To the extent compliance with U.S. laws increases expenses or decreases NextTrip’s competitiveness against such companies, the public listing could adversely affect NextTrip Inc.’s financial condition or results of operations.
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NextTrip may not realize anticipated growth opportunities.
NextTrip expects that it will realize growth opportunities and other financial and operating benefits as a result of the Acquisition. NextTrip cannot predict with certainty if or when these growth opportunities and benefits will occur, or the extent to which they actually will be achieved. For example, the benefits from the Acquisition may be offset by costs incurred in connection with the Acquisition, or as a result of being part of a public company. See “Risks Related to NextTrip Holdings’ Business and Industry” for a fuller discussion of the risks relating to NextTrip Holdings following the Acquisition.
The Company and NextTrip will incur significant transaction-related costs in connection with the Acquisition.
The Company and NextTrip expect to incur significant nonrecurring costs associated with the Acquisition before, at, and after closing the Acquisition. The Company and NextTrip will also incur transaction fees and costs related to formulating and implementing post-Acquisition plans, including increased employment-related costs.
The Acquisition will trigger compensation to our executive officers.
Our executive officers will be entitled to compensation if the Acquisition is completed as described in the “Proposal 5 – Say on Pay Proposal” section of this proxy statement, and, as such, have interests in the Acquisition that differ from our stockholders generally.
The Acquisition might entitle the holders of our outstanding warrants to elect to cause us to repurchase their warrants.
Under the terms of our outstanding January 2020 and April 2020 warrants to purchase up to 185,156 shares of our common stock at a current exercise price of $6.00 per share, the warrant holders, at their election, may cause us to purchase their warrants at purchase price equal to the “Black Scholes Value” (as defined) of the warrants at any time within 90 days following the public disclosure of the completion of a “Fundamental Transaction.” Depending on the achievement of milestones under the Exchange Agreement and the issuance of the Contingent Shares and other changes in outstanding shares of our common stock, the Acquisition might constitute a Fundamental Transaction. If so, any such election by the warrant holders to cause us to purchase their warrants would reduce the amount of cash otherwise available to us for available for use in the business and operations of NextTrip, Inc. following the Acquisition.
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Risks Related to NextTrip’s Business and Industry
References in this section to “NextTrip” and the “company” refer to NextTrip and its subsidiaries.
NextTrip’s revenue is derived from the global travel industry, and a prolonged or substantial decrease in global travel, particularly air travel, could adversely affect its operating results.
NextTrip’s revenue is derived from the global travel industry and would be significantly impacted by declines in, or disruptions to, travel activity, particularly air travel. Global factors over which NextTrip has no control, but which could impact its clients’ willingness to travel and, depending on the scope and duration, cause a significant decline in travel volumes include, among other things:
● widespread health concerns, epidemics or pandemics, such as the COVID-19 pandemic, the Zika virus, H1N1 influenza, the Ebola virus, avian flu, SARS or any other serious contagious diseases;
● global security concerns caused by terrorist attacks, the threat of terrorist attacks, or the precautions taken in anticipation of such attacks, including elevated threat warnings or selective cancellation or redirection of travel;
● cyber-terrorism, political unrest, the outbreak of hostilities or escalation or worsening of existing hostilities or war, such as Russia’s invasion of Ukraine and the military conflict in Israel, resulting sanctions imposed by the U.S. and other countries and retaliatory actions taken by sanctioned countries in response to such sanctions;
● natural disasters or severe weather conditions, such as hurricanes, flooding and earthquakes;
● climate change-related impact to travel destinations, such as extreme weather, natural disasters and disruptions, and actions taken by governments, businesses and supplier partners to combat climate change;
● the occurrence of travel-related accidents or the grounding of aircraft due to safety concerns;
● the impact of macroeconomic conditions and labor shortages on the cost and availability of airline travel; and
● adverse changes in visa and immigration policies or the imposition of travel restrictions or more restrictive security procedures.
Any decrease in demand for consumer or business travel could materially and adversely affect NextTrip’s business, financial condition and results of operations.
NextTrip needs additional capital, which may not be available on commercially acceptable terms, if at all, which raises questions about its ability to continue as a going concern.
As of August 31, 2023, NextTrip had $5.6 million in total assets, $7.1 million in total liabilities, negative working capital of $4.2 million and a total accumulated deficit of $18.8 million. It had net loss of $5.4 million and $2.2 million for the fiscal year ended February 28, 2023 and the six months ended August 31, 2023, respectively.
NextTrip is subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the emerging nature of the markets in which it competes, NextTrip anticipates operating losses until it can successfully implement its business strategy, which includes all associated revenue streams. Its revenue model is new and evolving, and NextTrip cannot be certain that it will be successful. The potential profitability of this business model is unproven. NextTrip may never achieve profitable operations or generate significant revenues. NextTrip’s future operating results depend on many factors, including demand for its products, the level of competition, and the ability of its officers to manage its business and growth. Additional development expenses may delay or negatively impact the ability of NextTrip to generate profits. Accordingly, it cannot assure you that its business model will be successful or that it can sustain revenue growth, achieve, or sustain profitability, or continue as a going concern.
NextTrip believes that in the aggregate, it could require several millions of dollars to support and expand the marketing and development of its products, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space and systems for managing the business, and cover other operating costs until its planned revenue streams from all products are fully implemented and begin to offset its operating costs.
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In the event NextTrip is unable to raise adequate funding in the future for its operations and to pay its outstanding debt obligations, NextTrip may be forced to scale back its business plan and/or liquidate some or all of its assets or may be forced to seek bankruptcy protection.
NextTrip has outstanding indebtedness, which could adversely affect its business and financial condition.
Risks relating to its indebtedness include:
| ● | increasing its vulnerability to general adverse economic and industry conditions; | |
| ● | requiring it to dedicate a portion of its cash flow from operations to principal and interest payments on its indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes; | |
| ● | making it more difficult for it to optimally capitalize and manage the cash flow for its businesses; | |
| ● | limiting its flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates; | |
| ● | possibly placing it at a competitive disadvantage compared to its competitors that have less debt; and | |
| ● | limiting its ability to borrow additional funds or to borrow funds at rates or on other terms that it finds acceptable. |
If distributors are unable to drive customers to their websites and/or NextTrip is unable to drive visitors to its websites, from search engines or otherwise, this could negatively impact transactions on the websites of NextTrip’s distributor websites as well as its own websites and consequently cause NextTrip’s travel revenue to decrease.
Many visitors find the distributors and NextTrip’s websites by searching for vacation rental information through Internet search engines. A critical factor in attracting visitors to NextTrip’s websites, and those of its distributors, is how prominently its distributors and NextTrip are displayed in response to search queries. Accordingly, NextTrip utilizes search engine marketing, or SEM, as a means to provide a significant portion of its visitor acquisition. SEM includes both paid visitor acquisition (on a cost-per-click basis) and unpaid visitor acquisition, which is often referred to as organic search.
NextTrip plans to employ search engine optimization, or SEO, to acquire visitors. SEO involves developing NextTrip’s websites in order to rank highly in relevant search queries. In addition to SEM and SEO, NextTrip may also utilize other forms of marketing to drive visitors to its websites, including branded search, display advertising and email marketing.
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The various search engine providers, such as Google and Bing, employ proprietary algorithms and other methods for determining which websites are displayed for a given search query and how highly websites rank. Search engine providers may change these methods in a way that may negatively affect the number of visitors to NextTrip’s distributors’ websites as well as its own websites and may do so without public announcement or detailed explanation. Therefore, the success of NextTrip’s SEO and SEM strategy depends, in part, on its ability to anticipate and respond to such changes in a timely and effective manner.
In addition, websites must comply with search engine guidelines and policies. These guidelines and policies are complex and may change at any time. If NextTrip or its distributors fail to follow such guidelines and policies properly, the search engine may cause NextTrip’s content to rank lower in search results or could remove the content altogether. If NextTrip or its distributors fail to understand and comply with these guidelines and policies and ensure their websites’ compliance, NextTrip’s SEO and SEM strategy may not be successful.
Unfavorable changes in, or interpretations of, government regulations or taxation of the evolving product offerings, Internet and e-commerce industries could harm NextTrip’s travel division operating results.
NextTrip has contracted for products in markets throughout the world, in jurisdictions which have various regulatory and taxation requirements that can affect its travel division operations or regulate the rental activity of property owners and managers.
Compliance with laws and regulations of different jurisdictions imposing different standards and requirements is very burdensome because each region has different regulations with respect to licensing and other requirements. NextTrip’s online marketplaces is accessible by travelers in many states and foreign jurisdictions. Compliance requirements that vary significantly from jurisdiction to jurisdiction impose added costs and increased liabilities for compliance deficiencies. In addition, laws or regulations that may harm NextTrip’s business could be adopted, or interpreted in a manner that affects its activities, including but not limited to the regulation of personal and consumer information and real estate licensing requirements. Violations or new interpretations of these laws or regulations may result in penalties, negatively impact NextTrip’s operations and damage its reputation and business.
In addition, many of the fundamental statutes and regulations that impose taxes or other obligations on travel and lodging companies were established before the growth of the Internet and e-commerce, which creates a risk of these laws being used, in ways not originally intended, that could burden property owners and managers or otherwise harm NextTrip’s business. These and other similar new and newly interpreted regulations could increase costs for, or otherwise discourage, owners and managers from listing their property with NextTrip, which could harm its business and operating results.
Furthermore, as NextTrip expands or changes the products and services that it offers or the methods by which it offers them, NextTrip may become subject to additional legal regulations, tax requirements or other risks. Regulators may seek to impose regulations and requirements on NextTrip even if it utilizes third parties to offer the products or services. These regulations and requirements may apply to payment processing, insurance products or the various other products and services NextTrip may now or in the future offer or facilitate through its marketplace. Whether NextTrip complies with or challenges these additional regulations, NextTrip’s costs may increase, and its business may otherwise be harmed.
If NextTrip is not able to maintain and enhance its NextTrip brand and the brands associated with each of its websites, its reputation and business may suffer.
It is important for NextTrip to maintain and enhance its brand identity in order to attract and retain property owners, managers, distributors and travelers. The successful promotion of its brands will depend largely on its marketing and public relations efforts. NextTrip expects that the promotion of its brands will require it to make substantial investments, and, as its market becomes more competitive, these branding initiatives may become increasingly difficult and expensive. In addition, NextTrip may not be able to successfully build its NextTrip brand identity without losing value associated with, or decreasing the effectiveness of, its other brand identities. If NextTrip does not successfully maintain and enhance its brands, it could lose traveler traffic, which could, in turn, cause property owners and managers to terminate or elect not to renew their listings with it. In addition, NextTrip’s brand promotion activities may not be successful or may not yield revenue sufficient to offset their cost, which could adversely affect NextTrip’s reputation and business.
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NextTrip’s long-term success depends, in part, on its ability to expand its property owner, manager and traveler bases outside of the United States and, as a result, its business is susceptible to risks associated with international operations.
NextTrip has limited operating and e-commerce experience in many foreign jurisdictions and is making significant investments to build its international operations. NextTrip’s plans to continue its efforts to expand globally, including potentially acquiring international businesses and conducting business in jurisdictions where it does not currently operate. Managing a global organization is difficult, time-consuming and expensive and any international expansion efforts that NextTrip undertakes may not be profitable in the near or long term or otherwise be successful. In addition, conducting international operations subjects NextTrip to risks that include:
| ● | the cost and resources required to localize its services, which requires the translation of its websites and their adaptation for local practices and legal and regulatory requirements; | |
| ● | adjusting the products and services it provides in foreign jurisdictions, as needed, to better address the needs of local owners, managers, distributors and travelers, and the threats of local competitors; | |
| ● | being subject to foreign laws and regulations, including those laws governing Internet activities, email messaging, collection and use of personal information, ownership of intellectual property, taxation and other activities important to its online business practices, which may be less developed, less predictable, more restrictive, and less familiar, and which may adversely affect financial results in certain regions;
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| ● | competition with companies that understand the local market better than NextTrip does or who have pre-existing relationships with property owners, managers, distributors and travelers in those markets; | |
| ● | legal uncertainty regarding its liability for the transactions and content on its websites, including online bookings, property listings and other content provided by property owners and managers, including uncertainty resulting from unique local laws or a lack of clear precedent of applicable law; | |
| ● | lack of familiarity with and the burden of complying with a wide variety of other foreign laws, legal standards and foreign regulatory requirements, including invoicing, data collection and storage, financial reporting and tax compliance requirements, which are subject to unexpected changes; | |
| ● | laws and business practices that favor local competitors or prohibit or limit foreign ownership of certain businesses; | |
| ● | challenges associated with joint venture relationships and minority investments; | |
| ● | adapting to variations in foreign payment forms; | |
| ● | difficulties in managing and staffing international operations and establishing or maintaining operational efficiencies; | |
| ● | difficulties in establishing and maintaining adequate internal controls and security over its data and systems; | |
| ● | currency exchange restrictions and fluctuations in currency exchange rates; | |
| ● | potentially adverse tax consequences, which may be difficult to predict, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; | |
| ● | political, social and economic instability abroad, war, terrorist attacks and security concerns in general; | |
| ● | the potential failure of financial institutions internationally; | |
| ● | reduced or varied protection for intellectual property rights in some countries; and | |
| ● | higher telecommunications and Internet service provider costs. |
Operating in international markets also requires significant management attention and financial resources. NextTrip cannot guarantee that its international expansion efforts in any or multiple territories will be successful. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability and could instead result in increased costs.
The market in which NextTrip participates is highly competitive, and it may be unable to compete successfully with its current or future competitors.
The market to provide listing, search and marketing services for the travel industry is very competitive and dominated by key players, such as Expedia and Booking.com. In addition, the barriers to entry are low and new competitors may enter. All of the services that NextTrip’s plans to provide to property owners, managers and travelers, including listing and search, are provided separately or in combination by current or potential competitors. NextTrip’s competitors may adopt aspects of its business model, which could reduce its ability to differentiate its services. Additionally, current or new competitors may introduce new business models or services that NextTrip may need to adopt or otherwise adapt to in order to compete, which could reduce its ability to differentiate its business or services from those of its competitors.
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In addition, most of NextTrip’s current or potential competitors are larger and have more resources than we do. Many of its current and potential competitors enjoy substantial competitive advantages, such as greater name recognition in their markets, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. In addition, NextTrip’s current or potential competitors may have access to larger property owner, manager or traveler bases. As a result, its competitors may be able to respond more quickly and effectively than it can to new or changing opportunities, technologies, standards or owner, manager or traveler requirements. For all of these reasons, NextTrip may not be able to compete successfully against its current and future competitors.
If NextTrip is unable to introduce new or upgraded products, services or features that distributors, travelers or property owners and managers recognize as valuable, it may fail to (i) drive additional travelers to the websites of its distributors, (ii) drive additional travelers to its websites, (iii) retain existing property owners and managers, (iv) attract new property owners and managers, (v) retain existing distributors, and/or (vi) attract new distributors. NextTrip’s efforts to develop new and upgraded services and products could require it to incur significant costs.
In order to attract travelers to NextTrip’s distributors, as well as its own online marketplace while retaining, and attracting new, distributors, property owners and managers, NextTrip will need to continue to invest in the development of new products, services and features that both add value for travelers, distributors, property owners and managers and differentiate NextTrip from its competitors. The success of new products, services and features depends on several factors, including the timely completion, introduction and market acceptance of the product, service or feature. If travelers, distributors, property owners or managers do not recognize the value of NextTrip’s new services or features, they may choose not to utilize its products or list on its online marketplace.
Attempting to develop and deliver these new or upgraded products, services or features involves inherent hazards and difficulties, and is costly. Efforts to enhance and improve the ease of use, responsiveness, functionality and features of NextTrip’s existing websites have inherent risks, and it may not be able to manage these product developments and enhancements successfully. NextTrip may not succeed in developing new or upgraded products, services or features or new or upgraded products, services or features may not work as intended or provide value. In addition, some new or upgraded products, services or features may be difficult for NextTrip to market and may also involve unfavorable pricing. Even if it succeeds, it cannot guarantee that its property owners and managers will respond favorably.
In addition to developing its own improvements, NextTrip may choose to license or otherwise integrate applications, content and data from third parties. The introduction of these improvements imposes costs on it and creates a risk that it may be unable to continue to access these technologies and content on commercially reasonable terms, or at all. In the event NextTrip fails to develop new or upgraded products, services or features, the demand for its services and ultimately its results of operations may be adversely affected.
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NextTrip is exposed to fluctuations in currency exchange rates.
Because NextTrip plans to conduct a significant portion of its business outside the United States, but reports its results in U.S. dollars, NextTrip faces exposure to adverse movements in currency exchange rates, which may cause its revenue and operating results to differ materially from expectations. In addition, fluctuation in its mix of U.S. and foreign currency denominated transactions may contribute to this effect as exchange rates vary. Moreover, as a result of these exchange rate fluctuations, revenue, cost of revenue, operating expenses and other operating results may differ materially from expectations when translated from the local currency into U.S. dollars upon consolidation. For example, if the U.S. dollar strengthens relative to foreign currencies NextTrip’s non-U.S. revenue would be adversely affected when translated into U.S. dollars. Conversely, a decline in the U.S. dollar relative to foreign currencies would increase NextTrip’s non-U.S. revenue when translated into U.S. dollars. NextTrip may enter into hedging arrangements in order to manage foreign currency exposure, but such activity may not completely eliminate fluctuations in its operating results.
If NextTrip fails to protect confidential information against security breaches, or if distributors, property owners, managers or travelers are reluctant to use it online marketplace because of privacy or security concerns, NextTrip might face additional costs, and activity on its websites could decline.
NextTrip collects and uses personally identifiable information of distributors, property owners, managers and travelers in the operation of its business. NextTrip’s systems may be vulnerable to computer viruses or physical or electronic break-ins that its security measures may not detect. Anyone that is able to circumvent its security measures could misappropriate confidential or proprietary information, cause an interruption in NextTrip’s operations, damage its computers or those of its users, or otherwise damage NextTrip’s reputation and business. NextTrip may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches of its systems, or the systems of third parties it relies upon, such as credit card processors, could damage its reputation and expose it to litigation and possible liability under various laws and regulations. Concern among distributors, property owners, managers and travelers regarding NextTrip’s use of personal information collected on its websites could keep them from using, or continuing to use, its online marketplace.
There are risks of security breaches both on NextTrip’s systems and on third party systems which store NextTrip’s information as it increases the types of technology that NextTrip uses to operate its marketplace, such as mobile applications. New and evolving technology systems and platforms may involve security risks that are difficult to predict and adequately guard against. In addition, third parties that process credit card transactions between NextTrip and property owners and managers maintain personal information collected from them. Such information could be stolen or misappropriated, and NextTrip could be subject to liability as a result. NextTrip’s property owners, managers and travelers may be harmed by such breaches, and NextTrip may in turn be subject to costly litigation or regulatory compliance costs, and harm to its reputation and brand. Moreover, some property owners, managers and travelers may cease using its marketplace altogether.
The laws of some states and countries require businesses that maintain personal information about their residents in electronic databases to implement reasonable measures to keep that information secure. NextTrip’s practice is to encrypt all sensitive information, but it does not know whether its current practice will be challenged under these laws. In addition, under certain of these laws, if there is a breach of NextTrip’s computer systems and NextTrip knows or suspects that unencrypted personal data has been stolen, it is required to inform any user whose data was stolen, which could harm its reputation and business. Complying with the applicable notice requirements in the event of a security breach could result in significant costs. NextTrip may also be subject to contractual claims, investigation and penalties by regulatory authorities, and claims by persons whose information was disclosed.
Compounding these legal risks, many states and countries have enacted different and often contradictory requirements for protecting personal information collected and maintained electronically. Compliance with these numerous and contradictory requirements is particularly difficult for NextTrip because it collects personal information from users in multiple jurisdictions. While it intends to comply fully with these laws, failure to comply could result in legal liability, cause NextTrip to suffer adverse publicity and lose business, traffic and revenue. If it were required to pay any significant amount of money in satisfaction of claims under these or similar laws, or if it were forced to cease its business operations for any length of time as a result of its inability to comply fully, NextTrip’s business, operating results and financial condition could be adversely affected.
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Cyber-attacks and system vulnerabilities could lead to sustained service outages, data loss, reduced revenue, increased costs, liability claims, or harm to NextTrip’s competitive position.
In the past, NextTrip has experienced targeted and organized malware, phishing, and account takeover attacks, and may in the future experience these and other forms of attack such as ransomware, SQL injection (where a third party attempts to insert malicious code into its software through data entry fields in its websites in order to gain control of the system) and attempts to use its websites as a platform to launch a denial-of-service attack on another party. NextTrip’s existing security measures may not be successful in preventing attacks on its systems. For instance, from time to time, it has experienced denial-of-service type attacks on its systems that have made portions of its websites slow or unavailable for periods of time. NextTrip’s existing IT business continuity and disaster recovery practices are less effective against certain types of attacks such as ransomware, which could result in its services being unavailable for an extended period of time, nullify its data, expose its payment card and personal data, or expose it to an extortion attempt.
Reductions in the availability and response time of its online services could cause loss of substantial business volumes during the occurrence of a cyber-attack on its systems and measures NextTrip may take to divert suspect traffic in the event of such an attack could result in the diversion of bona fide customers. These issues are more difficult to manage during any expansion of the number of places where NextTrip operates and the variety of services it offers, and as the tools and techniques used in such attacks become more advanced. NextTrip uses sophisticated technology to identify cybersecurity threats; however, a cyberattack may go undetected for a period of time resulting in harm to its computer systems and the loss of data. This could result in financial penalties being imposed by the regulators and reputational harm. NextTrip’s insurance policies have coverage limits and may not be adequate to reimburse it for all losses caused by security breaches. Successful attacks could result in significant interruptions in its operations, severe damage to its information technology infrastructure, negative publicity, damage its reputation, and prevent consumers from using its services during the attack, any of which could cause consumers to use the services of NextTrip’s competitors, which would have a negative effect on the value of its brands, its market share, business, and results of operations.
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If NextTrip’s systems cannot cope with the level of demand required to service its consumers and accommodations, it could experience unanticipated disruptions in service, slower response times, decreased customer service and customer satisfaction, and delays in the introduction of new services.
As an online business, NextTrip is dependent on the Internet and maintaining connectivity between itself and consumers, sources of Internet traffic, such as Google, and its travel service providers and restaurants. As consumers increasingly turn to mobile and other smart devices, NextTrip also depends on consumers’ access to the Internet through mobile carriers and their systems. Disruptions in internet access, especially if widespread or prolonged, could materially adversely affect its business and results of operations. While NextTrip maintains redundant systems and hosting services, it is possible that it could experience an interruption in its business, and it does not carry business interruption insurance sufficient to compensate NextTrip for all losses that may occur. NextTrip has computer hardware for operating its services located in hosting facilities around the world. It does not have a comprehensive disaster recovery plan in every geographic region in which it conducts business, and these systems and operations are vulnerable to damage or interruption from human error, misconduct, or catastrophic events. In the event of any disruption of service at such facilities or the failure by such facilities to provide its required data communications capacity, NextTrip may not be able to switch to back-up systems immediately and it could result in lengthy interruptions or delays in its services. NextTrip has taken and continues to take steps to increase the reliability and redundancy of its systems. These steps are expensive, may reduce its margins, and may not be successful in reducing the frequency or duration of unscheduled downtime.
Loss or material modification of NextTrip’s credit card acceptance privileges could have a material adverse effect on its business and operating results.
The loss of NextTrip’s credit card acceptance privileges could significantly limit the availability and desirability of its products and services. Moreover, if it fails to fully perform its contractual obligations, NextTrip could be obligated to reimburse credit card companies for refunded payments that have been contested by the cardholders. In addition, even when it is in compliance with these obligations, NextTrip bears other expenses including those related to the acceptance of fraudulent credit cards. As a result of all of these risks, credit card companies may require NextTrip to set aside additional cash reserves, may increase the transaction fees they charge it, or may even refuse to renew its acceptance privileges.
In addition, credit card networks, such as Visa, MasterCard and American Express, have adopted rules and regulations that apply to all merchants who process and accept credit cards and include the Payment Card Industry Data Security Standards, or the PCI DSS. Under these rules, NextTrip is required to adopt and implement internal controls over the use, storage and security of card data. It assesses its compliance with the PCI DSS rules on a periodic basis and makes necessary improvements to its internal controls. Failure to comply may subject NextTrip to fines, penalties, damages and civil liability and could prevent it from processing or accepting credit cards. However, NextTrip cannot guarantee that compliance with these rules will prevent illegal or improper use of its payment systems or the theft, loss or misuse of the credit card data.
The loss of, or the significant modification of, the terms under which NextTrip obtains credit card acceptance privileges could have a material adverse effect on its business, revenue and operating results.
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NextTrip currently relies on a small number of third-party service providers to host and deliver a significant portion of its services, and any interruptions or delays in services from these third parties could impair the delivery of its services and harm its business.
NextTrip relies on third-party service providers for numerous products and services, including payment processing services, data center services, web hosting services, insurance products for customers and travelers and some customer service functions. It relies on these companies to provide uninterrupted services and to provide their services in accordance with all applicable laws, rules and regulations.
NextTrip uses a combination of third-party data centers to host its websites and core services. It does not control the operation of any of the third-party data center facilities it uses. These facilities may be subject to break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism and other misconduct. They are also vulnerable to damage or interruption from power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes and similar events. NextTrip currently does not have a comprehensive disaster recovery plan in place nor does its systems provide complete redundancy of data storage or processing. As a result, the occurrence of any of these events, a decision by NextTrip’s third-party service providers to close their data center facilities without adequate notice or other unanticipated problems could result in loss of data as well as a significant interruption in its services and harm to its reputation and brand.
If NextTrip’s third party service providers experience difficulties and are not able to provide services in a reliable and secure manner, if they do not operate in compliance with applicable laws, rules and regulations and, with respect to payment and card processing companies, if they are unable to effectively combat the use of fraudulent payments on NextTrip’s websites, its results of operations and financial positions could be materially and adversely affected. In addition, if such third-party service providers were to cease operations or face other business disruption either temporarily or permanently, or otherwise face serious performance problems, NextTrip could suffer increased costs and delays until it finds or develops an equivalent replacement, any of which could have an adverse impact on its business and financial performance.
If NextTrip does not adequately protect its intellectual property, its ability to compete could be impaired.
NextTrip’s intellectual property includes the content of its websites, registered domain names, as well as registered and unregistered trademarks. NextTrip believes that its intellectual property is an essential asset of its business and that its domain names and its technology infrastructure currently give it a competitive advantage in the online market for ALR and other listings. If it does not adequately protect its intellectual property, its brand, reputation and perceived content value could be harmed, resulting in an impaired ability to compete effectively.
To protect its intellectual property, NextTrip relies on a combination of copyright, trademark, patent and trade secret laws, contractual provisions and its user policy and restrictions on disclosure. Upon discovery of potential infringement of its intellectual property, NextTrip promptly takes action it deems appropriate to protect its rights. It also enters into confidentiality agreements with its employees and consultants and seeks to control access to and distribution of its proprietary information in a commercially prudent manner. The efforts it has taken to protect its intellectual property may not be sufficient or effective, and, despite these precautions, it may be possible for other parties to copy or otherwise obtain and use the content of its websites without authorization. NextTrip may be unable to prevent competitors from acquiring domain names or trademarks that are similar to, infringe upon or diminish the value of its domain names, service marks and its other proprietary rights. Even if it does detect violations and decides to enforce its intellectual property rights, litigation may be necessary to enforce its rights, and any enforcement efforts it undertakes could be time-consuming, expensive, distracting and result in unfavorable outcomes. A failure to protect its intellectual property in a cost-effective and meaningful manner could have a material adverse effect on NextTrip’s ability to compete.
Effective trademark, copyright and trade secret protection may not be available in every country in which NextTrip’s offerings are available over the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and still evolving.
NextTrip may be subject to claims that it violated intellectual property rights of others, which are extremely costly to defend and could require NextTrip to pay significant damages and limit its ability to operate.
Companies in the Internet and technology industries, and other patent and trademark holders seeking to profit from royalties in connection with grants of licenses, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. There may be intellectual property rights held by others, including issued or pending patents and trademarks, that cover significant aspects of NextTrip’s technologies, content, branding or business methods. Any intellectual property claims against NextTrip, regardless of merit, could be time-consuming and expensive to settle or litigate and could divert its management’s attention and other resources. These claims also could subject it to significant liability for damages and could result in NextTrip having to stop using technology, content, branding or business methods found to be in violation of another party’s rights. It might be required or may opt to seek a license for rights to intellectual property held by others, which may not be available on commercially reasonable terms, or at all. If NextTrip cannot license or develop technology, content, branding or business methods for any allegedly infringing aspect of its business, it may be unable to compete effectively. Even if a license is available, it could be required to pay significant royalties, which could increase its operating expenses. NextTrip may also be required to develop alternative non-infringing technology, content, branding or business methods, which could require significant effort and expense and be inferior. Any of these results could harm its operating results.
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Overview
On October 12, 2023, we entered into the Exchange Agreement with NextTrip, the NextTrip Parent and the NextTrip Representative, pursuant to which, among other things and subject to the terms and conditions contained therein, we will acquire all of the outstanding capital stock of NextTrip from the NextTrip Parent in exchange for the issuance to the NextTrip Sellers of the Exchange Shares. Upon the closing of the Acquisition, the NextTrip Sellers will be issued a number of Exchange Shares (the Closing Shares) equal to 19.99% or our issued and outstanding shares of common stock immediately prior to the closing. Under the Exchange Agreement, the NextTrip Sellers may be entitled to receive additional Contingent Shares, subject to NextTrip’s achievement of future milestones specified in the Exchange Agreement. The Contingent Shares together with the Closing Shares will not exceed 6,000,000 shares of common stock. Assuming all the business milestones are achieved and no change in our outstanding shares as of September 30, 2023, the NextTrip Sellers will receive Exchange Shares equal to approximately 88.5% of the outstanding shares of our common stock immediately following the issuance of the Exchange Shares and Sigma stockholders immediately prior to closing of the Acquisition will retain the balance of approximately 11.5% of such outstanding shares. The Exchange Shares will be issued the NextTrip Sellers on a pro rata basis based on each NextTrip Seller’s ownership of NextTrip Parent prior to the completion of the Acquisition.
Upon completion of the Acquisition, NextTrip will become a wholly owned subsidiary of NextTrip, Inc. and the assets, liabilities, business and operations of NextTrip, Inc. will be primarily those of NextTrip and its wholly owned subsidiaries. See below for more detailed discussion of the terms of the Exchange Agreement.
The Acquisition Structure
Upon the closing of the Acquisition, the NextTrip Sellers will be issued a number of Exchange Shares equal to 19.99% or our issued and outstanding shares of common stock immediately prior to the closing. Under the Exchange Agreement, the NextTrip Sellers may be entitled to receive additional Contingent Shares, subject to NextTrip’s achievement of future business milestones as follows:
| Milestone | Date Earned | Contingent Shares | ||
| Launch of NextTrip’s leisure travel booking platform by either (i) achieving $1,000,000 in cumulative sales under its historical “phase 1” business, or (ii) commencement of its marketing program under its enhanced “phase 2” business. | As of a date six months after the closing date | 1,450,000 Contingent Shares | ||
| Launch of NextTrip’s group travel booking platform and signing of at least five (5) entities to use the groups travel booking platform. | As of a date nine months from the closing date (or earlier date six months after the closing date) | 1,450,000 Contingent Shares | ||
| Launch of NextTrip’s travel agent platform and signing up of at least 100 travel agents to the platform (which calculation includes individual agents of an agency that signs up on behalf of multiple agents). | As of a date 12 months from the closing date (or earlier date six months after the closing date) | 1,450,000 Contingent Shares | ||
| Commercial launch of PayDelay technology in the NXT2.0 system. | As of a date 15 months after the closing date (or earlier date six months after the closing date) | 1,650,000 Contingent Shares, less the Exchange Shares issued at the closing of the Acquisition |
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Alternatively, independent of achievement of the foregoing milestones, for each month during the 15-month period following the closing date in which $1,000,000 or more in gross travel bookings are generated by NextTrip, Inc., to the extent not previously issued, the Contingent Shares will be issuable in the order described above up to the maximum Exchange Shares issuable under the Share Exchange Agreement.
The Exchange Shares will be issued without registration under the Securities Act, in reliance upon an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless the Exchange Shares have been held for at least six months and subject to other conditions.
The Exchange Agreement provides that in the event our stockholders approve the Acquisition Proposal but not the Capital Increase Proposal, to the extent that we do not have sufficient authorized shares of common stock available for issuance of the Exchange Shares, in lieu thereof, we will issue shares of a new series of convertible preferred stock in form and substance satisfactory to the NextTrip Representative which, among other things, will provide for voting on an as-converted basis and will be automatically converted (on a one-for-one basis) into shares of our common stock once stockholder approval for an increase in our authorized shares of common stock has been obtained.
Separation of Certain Assets
The Exchange Agreement contemplates that Sigma will complete the Asset Sale with Divergent and, in its discretion, sell, transfer and assign some or all of the business and assets of Sigma that exist prior to the closing date of the Acquisition, subject to maintaining our listing on Nasdaq Sigma will keep NextTrip apprised of all actions by Sigma in these regards. Sigma has agreed in the Exchange Agreement that, if the Asset Sale has not occurred within 30 days following the closing date, Sigma will form a wholly owned subsidiary and assign the remaining assets to such entity.
Financial Accommodations
NextTrip agrees in the Exchange Agreement to provide a line of credit to Sigma in the amount up to $400,000, payable in tranches over the period ending four months following the date of the Exchange Agreement, or February 12, 2024, or the earlier termination of the Exchange Agreement; provided, however, that any additional capital raised by us following the date of the Exchange Agreement, including but not limited to via our At-the-Market Issuance Sales Agreement with Lake Street Capital Markets, LLC, shall proportionally reduce the maximum amount available under the line of credit on a dollar-for-dollar basis. The funding under the line of credit may be used by Sigma to support its operations, pay legal and accounting fees and other expenses incurred in connection with negotiation of, and transactions contemplated by, this Agreement and related agreements, and pay debts of Sigma.
Nasdaq Stock Market Listing
Our common stock is currently listed on Nasdaq under the symbol “SASI.” We have agreed to use commercially reasonable efforts to obtain approval for listing on Nasdaq of the Exchange Shares. Unless NextTrip and the NextTrip Parent both agree to waive such condition in writing, it is a condition to closing that the common stock be listed on Nasdaq and no reason shall exist as to why such listing shall not continue immediately following the closing.
Executive Officers and Directors of the Company Following the Closing of the Acquisition
The following table lists the names, ages and positions of the individuals who are expected to serve as executive officers and directors of the Company upon completion of the Acquisition:
| Name | Age | Position | ||
| Executive Officers | ||||
| William Kerby | 66 | Chief Executive Officer and Director | ||
| Frank Orzechowski | 63 | Chief Financial Officer | ||
| Non-Employee Directors | ||||
| Salvatore Battinelli* | 81 | Director | ||
| Jacob Brunsberg | 37 | Director | ||
| Dennis Duitch* | 78 | Director | ||
| Kent Summers* | 64 | Director | ||
| Donald P. Monaco | 71 | Director |
In the above table, the “*” denotes that our Board of Directors has determined that the director meets the independence requirements of the SEC and Nasdaq.
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We currently anticipate that Mark Ruport, who serves as Chairman of our Board of Directors, will resign as a director in connection with closing of the Acquisition, and that Donald P. Monaco will be appointed as a director to fill the vacancy created by Mr. Ruport’s resignation.
Biographical information for each of the current executive officers and members of the Board of Directors of the Company are included below under “Election of Directors.” Set forth below is biographical information for Mr. Kirby and Mr. Monaco.
William Kerby is the co-founder and Chief Executive Officer of NextTrip. Mr. Kerby has over two decades of experience in the travel and media industries, and approximately a decade of experience in the financial industry. He acted as the architect of the NextTrip model, overseeing the development and operations of the Travel, Real Estate and Television Media divisions of the company. Mr. Kerby served as Chief Executive Officer of Verus International, Inc., formerly Realbiz Media Group, Inc., from October 2012 until August 2015 and on the board of directors until April of 2016. From April 2002 to July 2008, Mr. Kerby served as the Chief Executive Officer of various media and travel entities that ultimately became part of Extraordinary Vacations Group. Operations included Cruise & Vacation Shoppes, Maupintour Extraordinary Vacations, Attaché Travel and the Travel Magazine - a TV series of 160 travel shows. From February 1999 to April 2002, Mr. Kerby founded and managed Travelbyus, a publicly- traded company on the TSX and Nasdaq Small Cap Market. The launch included an intellectually patented travel model that utilized technology-based marketing to promote its travel services and products. Mr. Kerby negotiated the acquisition and financing of 21 companies encompassing multiple tour operators, 2,100 travel agencies, media that included print, television, outdoor billboard and wireless applications and leading-edge technology in order to build and complete the Travelbyus model. The company had over 500 employees, gross revenues exceeding $3 billion and a market cap of over $900 million. From June 1989 to January 1999, Mr. Kerby founded and grew Leisure Canada – a company that included the Master Franchise for Thrifty Car Rental British Columbia, TravelPlus (a nationwide Travel Agency), Bluebird Holidays (an international tour company with operations in the U.S., Canada, Great Britain, France, South Africa and the South Pacific) and Canadian Traveler (a travel magazine). Leisure Canada was acquired in May 1998 by Wilton Properties, a Canadian company developing hotel and resort properties in Cuba. From October 1980 through June 1989, Mr. Kerby worked in the financial industry as an investment advisor. Mr. Kerby graduated from York University with a Specialized Honors Economics degree.
Mr. Monaco is a member of the Board of Managers of the NextTrip Parent. Mr. Monaco has approximately three decades of experience as an international information technology and business management consultant. Mr. Monaco is the founder and owner of Monaco Air Duluth, LLC, a full service, fixed-base operator aviation services business at Duluth International Airport in Duluth, Minnesota, serving airline, military, and general aviation customers since November 2005. Since January 2009, he has been appointed and reappointed by Minnesota Governors to serve as a Commissioner of the Metropolitan Airports Commission in Minneapolis-St. Paul, Minnesota, and currently serves as Chairman of the Operations, Finance and Administration Committee. Mr. Monaco is also the President and Chairman of the Monaco Air Foundation, Treasurer of Honor Flight Northland, Treasurer of the Duluth Aviation Institute, and a member of the Duluth Chamber of Commerce Military Affairs Committee. Mr. Monaco previously worked as an international information technology and business management consultant with Accenture in Chicago, Illinois for 28 years, and as a partner and senior executive for 18 of such years. From August 2011 to January 2023, Mr. Monaco served as a member of the board of directors of NextPlay (known as Monaker prior to June 2020), where he served as chairman of the board of directors from August 2018 to June 2021 and as co-chairman of the board from June 2021 to December 2021. He previously served as a director at Republic Bank in Duluth, Minnesota from May 2015 until October 2019. He also served on the Verus International, Inc., formerly RealBiz Media Group, Inc., board of directors from October 2012 until April 2016, serving as chairman of the board from August 2015 to April 2016. Mr. Monaco holds Bachelor’s and Master’s degrees in Computer Science Engineering from Northwestern University.
Effect of the Acquisition
Pursuant to the Exchange Agreement, among other things and subject to the terms and conditions contained therein, we will acquire all of the outstanding capital stock and other equity interests of NextTrip from the NextTrip Parent in exchange for the issuance to the NextTrip Sellers of the Exchange Shares. The Exchange Shares will be allocated among the NextTrip Sellers pro-rata based on each NextTrip Seller’s ownership of NextTrip Parent prior to the completion of the Acquisition. Upon completion of the Acquisition, the Sigma stockholders immediately prior to the Acquisition will retain ownership of their shares of our common stock.
Effect if the Acquisition is Not Completed
If the Acquisition Proposal is not approved at the Annual Meeting, or the Acquisition is not completed for any reason, we intend to proceed with the Asset Sale and may undertake to windup and dissolve the Company unless another strategic transaction such as a reverse merger transaction materializes. Completion of the Acquisition is part of our plan submitted to Nasdaq to regain compliance with Nasdaq’s minimum stockholders’ equity requirement. If the Acquisition is not completed, it is likely that our common stock would be delisted from Nasdaq, with all the attendant risks described in the “Risk Factors Relating to the Acquisition” section of this proxy statement. Furthermore, if the Acquisition is not completed, the price of Sigma’s common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of Sigma’s common stock would reach the price implied in the Acquisition or at which it trades as of the date we announced the Exchange Agreement or the date of this proxy statement. Accordingly, if the Acquisition is not completed, there can be no assurance as to the effect on the future value of your shares of our common stock.
Reasons for the Acquisition
In evaluating the Acquisition and recommending that Sigma’s stockholders vote in favor of approval of the Acquisition Proposal, the Board, in consultation with Sigma’s senior management, outside legal counsel and financial advisors, considered numerous positive factors relating to the Exchange Agreement, the Acquisition and the other transactions contemplated thereby including the following material factors:
| ● | Sigma’s inability to generate sufficient revenues or raise needed capital to sustain its current business and operations and the prospects for NextTrip to do so; | |
| ● | the experience of NextTrip’s executive management and prospects for growth in NextTrip’s business through acquisitions or otherwise; |
| ● | The extensive processes conducted by Sigma and its financial advisers over approximately the last year prior to entering into the Exchange Agreement involving a broad group of potential strategic and financial investors and acquirers, which led to no proposal that our Board considered as favorable to Sigma stockholders as the Acquisition and other transactions contemplated by the Exchange Agreement, including the Asset Sale; and | |
| ● | The terms and conditions of the Exchange Agreement and related transaction documents, including: |
| ● | The fact that the Sigma stockholders will retain their ownership of Sigma shares following the Acquisition, which would constitute approximately 11.5% of Sigma shares assuming the issuance of all the Contingent Shares and no other change in our outstanding shares as of September 30, 2023; | |
| ● | the requirement that the Acquisition Proposal be approved by the stockholders of Sigma; | |
| ● | the fact that the Exchange Agreement provides in the event our stockholders approve the Acquisition Proposal but not the Capital Increase Proposal, to the extent that we do not have sufficient authorized shares of common stock available for issuance of the Exchange Shares, in lieu thereof, we will issue shares of a new series of convertible preferred stock in form and substance satisfactory to the NextTrip Representative which, among other things, will provide for voting on an as-converted basis and will be automatically converted (on a one-for-one basis) into shares of our common stock once stockholder approval for an increase in our authorized shares of common stock has been obtained; | |
| ● | the fact that the Exchange Shares will be issued in a transaction exempt from registration under the Securities Act and will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act; |
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| ● | the fact that the future issuance of the Contingent Shares and appointment of additional directors designated by the NextTrip Representative will be subject to NextTrip’s achievement of significant business and operational milestones; | |
| ● | the fact that NextTrip agrees in the Exchange Agreement to provide Sigma up to $400,000 of bridge financing to facilitate the Acquisition, subject to certain limitations; | |
| ● | the fact that the closing of the Acquisition does not involve a change in control of the Company for Nasdaq and other corporate purposes (although it may result in a future change in control as a result of the issuance of the Contingent Shares, if any); | |
| ● | the fact that William Kerby will become the Chief Executive Officer and Donald P. Monaco will become a director of NextTrip, Inc. in connection with the Acquisition and that the other current executive officers of NextTrip will continue to serve as its officers following the Acquisition; and | |
| ● | The fact that the Board received and considered the fairness opinion of Lake Street. |
In the course of reaching the determinations and decisions and making the recommendation described above, the Board, in consultation with Sigma’s senior management, outside legal counsel and financial advisors, considered the risks and potentially negative factors relating to the Exchange Agreement, the Acquisition and the other transactions contemplated thereby, including the following material factors:
| ● | The possibility that the completion of the Acquisition may be delayed or not occur at all, and the likelihood that the dissolution and liquidation of the Company may be its only viable alternative and the adverse impact such events would have on the value of Sigma common stock to our stockholders. | |
| ● | Our Board’s belief that the potential benefits of the Acquisition and the other transactions contemplated by the Exchange Agreement, including the Asset Sale, outweighed the risks and uncertainties of the Acquisition. |
The foregoing discussion of factors considered by the Board is not intended to be exhaustive but is a summary only of the material factors considered by the Board. In light of the variety of factors considered in connection with its evaluation of the Acquisition, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Board based its recommendation on the totality of the information presented.
Background of the Acquisition
At the beginning of 2022, management recognized that with deteriorating capital markets, the Company’s ability to raise funds to continue its software-only product development path had become and would continue to be increasingly difficult. To address these external market conditions, the Company’s management and Board of Directors commenced an assessment of our business, financial condition, results of operations and prospects. We began to accelerate the software-only product completion, identified opportunities to operate in a leaner, more cost-efficient manner, and reviewed other opportunities including inorganic options.
On November 11, 2022, we filed with the SEC our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, in which we reported a perceived trend toward consolidation in the additive manufacturing, or AM, industry as companies aligned for profitability and that a connection with a strategic partner might augment our ability to scale, support the greater AM marketplace needs, and create shareholder value. We also reported that alignment with a strategic partner might allow for common growth, vision, and funding of the company to achieve its mission, and provide an opportunity for other strategic relationships, including potential acquisitions. From our assessment, it was determined that the primary path to accelerate growth was to align with a strategic investor in the industry that was also interested in potential market consolidation through follow-on mergers and acquisitions, or M&A. We also stated that we were engaged in identifying sources of financing either in the form of equity or debt, or a combination thereof, but that no assurance could be given as to the availability of such financing, or, if available, that such financing would be on terms acceptable to us.
Management subsequently identified approximately 20 candidates for a potential strategic investment in Sigma. After initial talks, management engaged in further discussions with three candidates that expressed the greatest interest in the opportunity and corresponding strategy. We received a verbal commitment for an investment from a candidate, but after a decline in Sigma’s market capitalization the candidate indicated that it could not provide the cash that it believed would be necessary to accomplish the parties’ strategic objectives. Given the decline in Sigma’s market capitalization, management was unable to secure another strategic investor, and the decision was made to pivot to a strategic alternatives process with the Lake Street’s assistance, which included a possible sale of the company and other M&A opportunities. This process yielded a number of options; however, we were unable to find a buyer for the entire business. As such, we determined that our best opportunity to maximize shareholder value would be to target a reverse merger, acquisition, or similar transaction in connection with an asset sale. We employed Armanino, LLP as advisors in the asset sale process in parallel with Lake Street’s M&A work.
After a thorough process in which over 120 companies were contacted, including for both M&A and an asset sale, management and our Board of Directors, in consultation with our advisors, determined that the combination of the Acquisition and the Asset Sale was the best possible strategy for our shareholders and the Company. Following are further details on this process.
The following chronology summarizes key meetings and events that led to the signing of the Exchange Agreement. This chronology does not purport to catalogue every conversation of, by, with or among members of the Board of Directors, the Company’s management, the Company’s financial advisors, legal advisors or other representatives or any other person.
Historically, the Company’s focus has been on solving the complex and challenging problem of how to best assure the high quality of metal parts manufactured in laser powder bed additive manufacturing, or 3D, printing, machines. In 2022, we shifted our business model from selling perpetual licenses of our combined hardware and software solution to subscription-based licenses and began the development of a suite of software-only product offerings, which we believed would transform our business by providing a scalable, cost-effective solution to our customers that can be more broadly connected to OEM’s, hardware, and software partners.
Beginning in April 2022, at the direction of our executive team and Board of Directors, we commenced an assessment of our business, financial condition, results of operation and prospects, including the acceleration of our development of a software-only product, pursuit of a software partner with a simpler solution to quality control in additive manufacturing, or AM, based on camera technology to bundle with our product, reducing operating expenses to conserve cash and assessment of a potential strategic investment in the Company to raise working capital which we estimated would be needed to support our business and operations through the end of the year and into 2023.
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In August 2022, management began considering ways to further reduce operating expenses, including a reduction in workforce and severance plan, and potential strategies to raise funds to augment our working capital, including a possible equity line of credit, restructuring of our outstanding warrants in exchange for the warrant holders’ exercise of the warrants and rights offering to our stockholders.
In September 2022, we determined to seek to engage an investment bank to assist in a possible bridge financing to a strategic investment in the Company by potential AM industry partners which had expressed interest in the Company with a view to entering into a letter of intent by the end of November and completing an investment in the range of $3 million to $4 million in exchange for approximately 20% of the common stock of the Company by the end of the year, if possible. We also continued to consider possible joint product development opportunities, mergers, acquisitions, and the potential sale of the Company.
On November 11, 2022, we filed with the SEC our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, in which we reported a perceived trend toward consolidation in the additive manufacturing, or AM, industry as companies align for profitability and that a connection with a strategic partner might augment our ability to scale, support the greater AM marketplace needs, and create stockholder value. We also reported that alignment with a strategic partner might allow for common growth, vision, and funding of the company to achieve its mission, and provide an opportunity for other strategic relationships, including potential acquisitions. In the same Quarterly Report, we stated our updated estimate that our existing cash on hand, together with expected revenue, would be sufficient to fund our anticipated operating costs and capital expenditure requirements through at least the first quarter of 2023. We also stated that we were engaged in identifying sources of financing either in the form of equity or debt, or a combination thereof, but that no assurance could be given as to the availability of such financing, or, if available, that such financing would be on terms acceptable to us.
Management subsequently identified a list of approximately 20 candidates for a potential strategic investment in Sigma. After initial talks, management engaged in further discussions with three candidates that expressed the greatest interest in the opportunity and corresponding strategy. We received a verbal commitment for an investment from one candidate, but after a decline in Sigma’s market capitalization the candidate indicated that it could not provide the cash that it believed would be necessary to accomplish the parties’ strategic objectives. None of the leading candidates submitted a proposal to invest in the company. During the same period, we separately pursued a possible stand-alone financing with several potential investors, including certain existing security holders of the company, prospective underwriters and institutional investors, as a bridge to a potential strategic transaction. Management was advised by the prospective underwriters, however, that it would be necessary to restructure our outstanding shares of convertible preferred stock and certain outstanding warrants in order to facilitate a possible financing.
Our Board of Directors continued meeting at least monthly through December 2022 to assess our financial condition, cash burn rate and prospects for completing a financing to raise needed working capital and the possible alternatives for preserving and possible increasing stockholder value. At a meeting of our Board of Directors on December 6, 2022, our Board of Directors approved the engagement of an investment bank to serve as underwriter or placement agent in connection with a possible public offering or private placement.
At a meeting of our Board of Directors on December 20, 2022, management reported that our bankers had advised management that it would be necessary to restructure our outstanding shares of convertible preferred stock and certain outstanding warrants to purchase common stock to modify or eliminate certain anti-dilution provisions in order to facilitate a possible financing and that management and representatives of the investment bank had reached out to the lead holder of the convertible preferred stock and warrants to discuss the terms on which it and the other holders might be willing to restructure their preferred shares and warrants to facilitate a possible financing, as well as the lead holder’s interest in participating in a possible financing.
At a meeting of our Board of Directors on January 3, 2023, management reported on the status of ongoing talks with potential strategic investors, including one potential investor that indicated it would insist on a right of first refusal to acquire the Company as part of any investment and that the leading potential strategic investor had scheduled a meeting of its board of directors on January 25, 2023 to decide whether to pursue an investment in the Company. Management also reported on its talks with prospective investment banks regarding a possible sale of the Company and recommended that our Board of Directors decide by the end of the month whether to pursue a sale of the Company if no commitment were forthcoming from one or more potential strategic investors. At the same meeting, management discussed the economic terms of a proposal by the lead holder of the Company’s outstanding warrant to restructure the warrants to facilitate a possible financing, which terms were unaffordable by the Company and therefore unacceptable to our Board of Directors.
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At the next meeting of our Board of Directors on January 10, 2023, management reported that one of the two or three leading potential strategic investors had declined to pursue an investment in the Company, that the venture capital arm of another leading potential strategic investor had expressed interest in a possible investment, and that management was responding to follow-up questions from another leading potential strategic investor.
At meetings of our Board of Directors on January 17 and January 24, 2023, among other things: management reported that (1) a technical product review by one of the leading potential strategic investors was scheduled this month, a meeting regarding possible deal structure was scheduled this month with another leading potential strategic investor, and two potential strategic investors were scheduled to meet regarding a possible co-investment in the Company, (2) management expected to hear by January 27, 2023 from the leading potential strategic investor regarding the outcome of the January 25, 2023 meeting of its board of directors, and (3) management was in talks with the holder of the outstanding shares of Series D Convertible Preferred Stock of the Company regarding the conversion of the shares.
On January 27, 2023, we reported in a Current Report on Form 8-K our agreement to issue to the holder of the remaining outstanding shares of our Series D Preferred Stock a warrant to purchase common stock in consideration of the holder’s agreement to convert, in full, its shares of Series D Preferred Stock. After several rounds of discussions, however, we were unable to reach an agreement with the holders of our outstanding warrants to restructure the warrants in order to facilitate a possible financing in terms that would be acceptable to the business. In light of this development, rising interest rates and deteriorating capital market conditions, management was advised by our prospective underwriter that it was unlikely that we would be able to raise capital in the public or private market in the near term. Also on January 27, 2023, we reiterated our previous advice that alignment with a strategic partner may allow for common growth, vision, and funding of the company, as well as an opportunity for other strategic relationships, including potential acquisitions, and that we had recently furloughed several of our workforce to conserve existing cash while we continued to pursue possible strategic or financing transactions.
Our Board of Directors continued to meet weekly or twice weekly through February 2023 during which time: (1) the venture capital arm of the second leading potential strategic investor declined to invest in the Company purportedly because the investment would be inconsistent the its investment strategy, which may have affected the leading potential strategic investor’s decision to also decline to invest or to pursue an acquisition of the Company; (2) a multi-party investment by other potential strategic investors proved too complicated; (3) our Board of Directors determined that a sale of the Company appeared to be the best option reasonably available to preserve or enhance stockholder value; (4) the Company’s launch of its software-only product was still on schedule for the end of the second quarter, but it would take time for any resulting revenues to materialize; (5) our Board of Directors authorized management to undertake to sell the Company along with exploration of other strategic alternatives, approved Lake Street’s engagement as financial advisor in connection with a possible sale and reviewed and considered a list of approximately 65 potential acquirers identified by Lake Street and management, with an emphasis on those that have previously expressed a possible interest in a possible acquisition of the Company and goal of securing a commitment for the acquisition of the Company by the end of April; and (6) management continued to consult with the prior engaged investment bank about a possible capital raise if circumstances permitted.
On March 1, 2023, we issued a press release and reported in a Current Report on Form 8-K that we had retained Lake Street Capital Markets, or Lake Street, as our financial advisor in connection with the consideration of a range of strategic alternatives designed to enhance stockholder value, including a possible strategic investment, acquisition, merger, business combination or similar transaction.
At meetings of our Board of Director held on March 7, 2023 and March 14, 2023, among other things, management reported that (1) all or substantially all of approximately 68 potential acquirers had been contacted by management and representatives of Lake Street, follow up meetings or calls were conducted with approximately 10% to 15% of those contacted, and at least one contact indicated an interest in a possible acquisition strictly on an earn-out basis but no contact had submitted an acquisition proposal, (2) the Company retained bankruptcy counsel to consider possible options should that become necessary, (3) management reported that the Company’s annualized “burn rate” had been reduced to approximately $6.6 million from approximately $9 million in 2022 and that the Company’s cash might be sufficient to last through May 31, 2023, (4) and management reported that it was exploring a possible loan financing secured by the Company’s intellectual property, or IP.
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At a meeting of our Board of Directors held on March 28, 2023, management reported that it and Lake Street were in talks with a few of the most promising potential acquirers who expressed interest in a possible acquisition based on a strategy developed by management involving a reduced workforce of a small core group of employees and substantially reduced burn rate. Management also reported that the talks suggested a lack of interest in acquiring the Company due to: (1) the AM industry continues to be largely unprofitable; (2) most potential strategic acquirers are unprofitable, so there is no value to them of the Company’s accumulated net operating losses, or NOLs; (3) the Company is not large enough to have a significant financial and market impact for potential acquirers in short term; and (4) potential financial buyers such as private equity, or PE, firms have experienced substantial declines in the value of their portfolio companies and have little or no appetite for new acquisitions unless already EBITDA positive.
On April 6, 2023, we retained Armanino LLC, or Armanino, as our advisor in connection with the possible dissolution and winding up of the Company, and at a meeting of our Board of Directors on April 11, 2023 representatives of Armanino gave a presentation regarding the process for dissolving and liquidating a distressed company and the principal elements of the dissolution and winding up process and their related services. At the same meeting, management reported that Lake Street had sent bid process letters to prospective acquirers setting forth an April 28, 2023 deadline for submitting letters of intent or other indications of interest in acquiring the Company.
On April 13, 2023, we reported in a Current Report on Form 8-K that on April 13, 2023 Nasdaq notified us that the Nasdaq Staff has granted us an additional 180 calendar day period, or until October 9, 2023, to regain compliance with Nasdaq’s minimum bid price continued listing standard based on our meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. We also reported that, according to Nasdaq’s notice, if we choose to implement a reverse stock split, it must be completed no later than ten business days prior to October 9, 2023 to timely regain compliance.
At a meeting of our Board of Directors on April 18, 2023, management reported on receipt of an informal offer from one of the leading prospective strategic acquirers to purchase the Company for $100,000 in cash and an unspecified earn-out amount. Management did not consider this a viable offer, because the Company’s cash on hand and the $100,000 upfront payment would not be sufficient to cover the Company’s current liabilities and anticipated costs and expenses pending the possible acquisition. Management also reported that Lake Street advised management that it may not be possible to obtain a fairness opinion regarding such an acquisition because of uncertainties regarding the earn-out. Management also indicated that the list of possible acquirers had been reduced to approximately 20, including three “leading” potential strategic acquirers and a possible “reverse merger” candidate, and discussed the status of the Company’s ongoing software-only product development efforts.
At a meeting of our Board on May 12, 2023, management and representatives of Lake Street reported that the strategic review process had resulted in four letters of intent, or LOIs, to acquire the Company, with each offer involving different terms, structures, values, and timeframes. Management noted that the Company had enough cash to continue operations through mid-July and possibly longer assuming certain remaining employees were furloughed. Lake Street representatives noted that Lake Street had undertaken an exhaustive process to identify approximately 86 potential acquirers, of which 32 elected to receive a bid process letter, which resulted in the four LOIs, which were summarized as follows: (1) acquirer A offered $100,000 cash upfront plus an earnout based upon achieving certain pre-defined milestones; due to the uncertainty of the earn-out amounts, if any, Lake Street would likely be unable to opine on the fairness opinion of the transaction; (2) acquire B proposed to offer Sigma shareholders the option to receive cash or equity consideration at a 20% premium to the current market capitalization of the Company as part of a larger rollup strategy that would require acquirer B to raise $70 million to $90 million and its diligence of the Company would not begin until at least late June; (3) acquirer C proposed a reverse merger in which the Company would acquire 100% of the outstanding equity of acquirer C in exchange for shares of common stock of the Company constituting approximately 97% of the Company, with Sigma shareholders and other equity holders retaining approximately 3% of the Company; the transaction would be contingent upon acquirer C and Sigma raising at least $10 million in a private investment in public equity, or PIPE, immediately prior to or concurrent with the closing of the transaction; and (4) acquirer D, a publicly traded company, proposed an all-stock transaction in which it would issue shares of its common stock at a slight premium to Sigma’s market capitalization in exchange for the outstanding equity interests of Sigma; the proposal involved no bridge financing to the Company or cash payment to Sigma shareholders. It was noted that the proposals from acquirer B and C could potentially provide a return to Sigma shareholders in excess of the current value of their investment in Sigma, but that the potential return would have to be weighed against the probability of completing each transaction. Management and its advisers considered the proposal from acquirer A, given its low upfront cash offer of $100,000, was in the nature of a wind-down option, and that if the Company were to proceed on this path, there were several original equipment manufacturers, or OEMs, that had expressed interest in licensing the Company’s intellectual property. Management also noted that three other potential bidders had not committed to submitting a LOI.
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Our Board met on June 16, 2023, along with representatives of Lake Street, Armanino, the Company’s outside counsel and special bankruptcy counsel. At the meeting, management reported that acquirer C had decided not to move forward with their proposed reverse merger transaction, citing as the primary reason the inability and uncertainty to securing $10 million in committed funding concurrent with the closing of the transaction. Acquirer C’s management suggested, however, that they would reconsider moving forward if the $10 million commitment could be secured by the Company. At the same meeting, management reported that they had met with management of acquirer D to discuss their unwillingness to include any cash as part of their proposal made it difficult for the Company to entertain, because at least a portion of the acquirer D shares to be issued in the proposed transaction would have to be converted to cash by the Company in order to settle liabilities at closing.
At a meeting of our Board on June 28, 2023, management reported that acquirer D was interested in purchasing Sigma’s IP and source code only, and reduced by two-thirds the number of shares of acquirer D common stock it would be willing to issue to acquire the Company’s assets. After discussion, the directors concluded that the new proposal was significantly below the market capitalization of the Company and should be rejected. Management also noted that they were still in talks with OEMs and other interested parties regarding a possible purchase of the Company’s IP and would be reaching out to other prospective purchasers with Armanino’s assistance.
Our Board met on July 13, 2023 together with representatives of Lake Street, Armanino, the Company’s outside counsel and special bankruptcy counsel. Management noted that due to the substantially reduced proposal from acquirer D, management Company had pivoted to explore a sale of assets in order to seek the most value reasonably available for creditors and stockholders of the Company and that Armanino was leading the process and had begun to reach out to parties that had expressed interest in the previous rounds of discussions. It was reported that a new process letter had been sent to potentially interested parties with a deadline to respond of July 28th. At the same meeting, management reported that two new companies had expressed an interest in an M&A transaction with the Company and any remaining post-sale assets; an agricultural technology, or AgTech, company whose shares are listed on the OTCQB tier of the OTC Market; and a privately held biotech diagnostics company. Management indicated that it and the Company’s advisers would pursue talks with the two companies in parallel with the asset sale process and would explore these and any other options in connection with asset sale exploration.
On July 20, 2023, we reported in a Current Report on Form 8-K that our management and Lake Street had undertaken to solicit indications of interest in a possible strategic transaction from approximately 90 potential strategic and financial acquirers, including many companies in the AM industry in the U.S. and Europe. Approximately a third of the potential acquirers who responded subsequently entered into confidentiality agreements, or CDAs, to facilitate discussions with our management and advisers and diligence regarding a possible strategic transaction, including the possible merger or acquisition of the company, the sale of all or part of the company’s business and assets, and a possible bridge financing to allow the company to retain its key employees and preserve its customers and other business pending a possible transaction.
A meeting of our Board was held on August 2, 2023 with representatives of Armanino and Lake Street and the Company’s outside counsel for purposes of (1) reviewing the status of the asset sale process, (2) reviewing proposed LOIs for a possible M&A transaction, (3) hearing management’s recommendations regarding the possible transaction and (4) considering the implementation of an “at-the-market,” or ATM, facility. The Armanino representatives reported they had contacted over 120 companies with some indicated interest in additive manufacturing regarding their interest in a possible purchase of Sigma assets. Of those contacted, 40 companies entered into non-disclosure agreements, or NDAs, and 14 of such companies were provided access to the Company’s virtual data room. Subsequently Armino received four LOIs to purchase assets consisting primarily of the Company’s IP portfolio, trademarks, source code and documentation and one verbal indication of interest in a potential licensing agreement in India. The companies submitting LOIs included acquirers A and D and an OEM referred to herein as acquirer E with which management and its advisors had been in previous talks regarding a potential strategic transaction, and Divergent Technologies, Inc., or Divergent, a privately held AM industry company, which was a relative newcomer to the process.
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At the August 2, 2023 meeting, Lake Street representatives reviewed with the directors the status of LOIs regarding a potential acquisition transaction from the AgTech company whose shares are quoted on the OTCQB tier of the OTC Market and the privately held biotech diagnostics company with which Lake Street has been in previous discussions, and NextTrip, an online travel company. It was noted that the AgTech company’s proposal contemplated that Sigma shareholders and other equity holders would retain ownership of approximately 8.25% of the post-transaction Company, which would imply a value of Sigma of approximately $2.6 million. The Lake Street representatives indicated that in their experience AgTech companies are currently difficult to finance, because of their capital-intensive nature and low operating margins, and that Nasdaq had increased its scrutiny of recent OTC-uplist transactions. As for the biotech diagnostics company’s proposal, the Lake Street representatives noted that the post-merger value of the transaction would be approximately $37 million, with $5 million ascribed to Sigma shareholders and other equity holders, and $32 million to the biotech diagnostics company’s equity holders. Although the LOI referred to the availability of bridge financing to Sigma, no amount was specified. The Lake Street representatives noted the BioTech industry was viewed by professional investors as very speculative and was also difficult to finance at present, with deals typically being highly structured.
The Lake Street representatives also reviewed with the directors the terms of the LOI from NextTrip, which valued Sigma at approximately $4.2 million, or $8.00 (post-reverse stock split) per outstanding share of common stock, in a transaction in which Sigma would acquire NextTrip in exchange for the issuance of shares of Sigma common stock. Sigma shareholders would retain approximately 8.25% of the combined Company post-transaction. The LOI contemplated that NextTrip would provide Sigma with a $200,000 line of credit under which up to $50,000 would be advanced per month pending the closing of the transaction. The Lake Street representatives noted the travel industry is currently in favor with investors as travel has increased substantially since the COVID-19 epidemic and may be easier to finance than the other industries discussed at the meeting. They noted further that NextTrip has a seasoned management team with public company experience who have been known to Lake Street for some time, and that in Lake Street’s view the proposed transaction has attractive upside potential to Sigma stockholders. Management and the Company’s advisers also noted with favor that NextTrip’s LOI would allow for the possible sale of assets being considered by the Company. In concluding its presentation, the Lake Street representatives reported that a current warrant holder of the Company had contacted Lake Street indicating an interest in submitting a last-minute LOI regarding an unspecified transaction, but that the warrant holder typically deals in highly structured transactions involving antidilution features.
The directors proceeded to discuss the multiple LOIs and whether, among other things, NextTrip was familiar with the Company’s equity holders and the nature of the Company’s outstanding warrants, which management and the Lake Street representative confirmed. The directors also discussed whether the combined post-acquisition company was likely to meet applicable Nasdaq listing requirements. Management and the Lake Street representatives indicated that these requirements had not yet been fully analyzed, but the parties understood that compliance with applicable Nasdaq would be a condition to the transaction. Management thereupon recommended to the directors that the Company pursue NextTrip’s proposal, which management believed to have the best potential to optimize shareholder value, aligned well with the Company’s timing, provided for bridge financing to the Company, and featured a seasoned management team with public company experience. As a contingency plan, should the dealings with NextTrip fail, management and the Company’s advisers would seek to re-engage with the AgTech company, the cancer diagnostics company and other potential acquirers.
On August 3, 2023, we received a summary, non-binding LOI from an investment bank on behalf of a biotech company regarding a $2 million to $3 million investment in convertible preferred stock of the Company priced at market for 51% of the Company on as as-converted basis and the right to designate four of five directors of the Company.
In our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2023, we reported that since the filing of the Current Report on July 20, 2023, we received additional written, non-binding proposals as well as revised previous proposals to purchase certain assets of the Company or acquire the Company in a merger or reverse merger transaction. We also reported we were continuing to work towards definitive agreements with interested parties.
On August 22, 2022, we reported in a Current Report on Form 8-K that on August 17, 2023 we received notice from Nasdaq that because our stockholders’ equity as of June 30, 2023 was $2,391,289, we no longer complied with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain a minimum stockholders’ equity of $2,500,000 and did not meet the alternatives of market value of listed securities or net income from continuing operations. The notice stated that under Nasdaq Rules, we would have 45 calendar days to submit a plan to regain compliance and that if our plan is accepted, Nasdaq can grant us an extension of up to 180 calendar days from the date of the notice to evidence compliance.
In our Current Report on Form 8-K filed on August 22, 2023, we also reiterated that, as disclosed in our Form 10-Q filed with the SEC on August 14, 2023, we had received several written, non-binding proposals to purchase certain assets of the Company or acquire the Company in a merger or reverse merger transaction and were continuing to work towards such definitive agreements with interested parties. We also reported management’s belief that successful completion of these transactions would enable the Company to regain compliance with Nasdaq’s minimum stockholders’ equity requirement and that we would submit our plan to Nasdaq to regain compliance.
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Management and our advisors subsequently conducted diligence regarding NextTrip and negotiated non-binding letters of intent, or LOIs, with Divergent and NextTrip which were approved by our Board of Directors at meetings held on August 25, 2023 and September 1, 2023, respectively.
On September 7, 2023, we issued and joint press release with NextTrip announcing the signing of a non-binding LOI to acquire all the capital stock of NextTrip in exchange for the Exchange Shares. We also announced the signing of a non-binding LOI to sell IP assets related to our additive quality assurance product to a strategic buyer.
Management and our advisors subsequently engaged in negotiations with Divergent and NextTrip and their advisors regarding a definitive Asset Purchase Agreement and definitive Exchange Agreement.
On September 22, 2023, we reported in a Current Report on Form 8-K that on September 22, 2023, we effected a 1-for-20 reverse stock split, which we refer to in this proxy statement as the Reverse Split, of the issued and outstanding shares of our common stock and a corresponding decrease in the authorized shares of our common stock.
On October 6, 2023, our Board of Directors unanimously approved the Asset Purchase Agreement with Divergent and received management’s update on the status of negotiation of the proposed Exchange Agreement with NextTrip.
On October 12, 2023, our Board of Directors met with management and representatives of Lake Street and of our outside counsel to consider the approval of the proposed Exchange Agreement. At the meeting, the Lake Street representatives summarized the terms of the proposed Acquisition and rendered its oral opinion regarding the fairness of the Acquisition from a financial point of view to the stockholders of the Company based on its fairness evaluation and discussed the assumptions underlying its evaluation. At the meeting, our Board of Directors requested that Lake Street deliver its written fairness opinion and unanimously approved the Exchange Agreement and authorized management to sign and deliver the Exchange Agreement.
On October 12, 2023, Lake Street delivered its written fairness opinion to our Board of Directors, and we signed and delivered the Exchange Agreement.
On October 13, 2023, we issued a press release and filed a Current Report on Form 8-K to report that we had entered into the Exchange Agreement with respect to the Acquisition.
Also on October 13, 2023, we reported in a separate Current Report on Form 8-K that we had entered into the Asset Purchase Agreement with Divergent. We also reported that the closing of the Asset Sale was expected to occur subsequent to the closing or termination of the Acquisition, subject to satisfaction or waiver of customary conditions specified in the Asset Purchase Agreement.
Opinion of Lake Street Capital Markets, LLC
On October 12, 2023, Lake Street rendered its oral opinion to the Board (which was subsequently confirmed in writing) to the effect that, as of such date and subject to and based on the procedures followed, assumptions made, qualifications, conditions and limitations on the review undertaken and other matters considered by Lake Street as set forth in its written opinion, the Exchange Shares to be issued to the NextTrip Sellers in connection with the Acquisition is fair, from a financial point of view, to Sigma.
Lake Street’s opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a financial point of view, to Sigma of the Exchange Shares to be received by NextTrip Sellers in connection with the Acquisition, and did not in any manner address the relative merits of the Acquisition in comparison to any alternatives to the Acquisition, Sigma’s underlying decision to proceed with the Acquisition, or any other aspect of the Acquisition, or alternatives to the Acquisition available to Sigma. The summary of Lake Street’s opinion below is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex C to this proxy statement, and which describes the procedures followed, assumptions made, qualifications, conditions and limitations on the review undertaken and other matters considered by Lake Street in connection with the preparation of its opinion. Neither Lake Street’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Board, the Company or any security holder as to how to act or vote on any matter relating to the Acquisition or otherwise.
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In connection with rendering its opinion, Lake Street, among other things:
| 1. | Reviewed a copy of the proposed definitive Exchange Agreement dated as of October 12, 2023; |
| 2. | Reviewed current financial projections of NextTrip (“NextTrip” refers collectively to NextTrip and the NextTrip Parent) for the fiscal years ended December 31, 2024 through December 31, 2028 prepared and furnished to us by management of NextTrip (the “NextTrip Projections”); |
| 3. | Analyzed public information with respect to certain other companies in lines of business that we believe to be comparable to NextTrip, in whole or in part, which included an examination of current public market prices and resulting valuation statistics; |
| 4. | Reviewed the financial terms, to the extent publicly available, of certain other acquisitions involving the acquisition of companies we believe, in our sole discretion, to be comparable to NextTrip, in whole or in part; |
| 5. | Performed a discounted cash flow analysis of NextTrip based on the NextTrip Projections, as applicable; and |
| 6. | Performed other research and analysis and considered such other factors as we deemed appropriate. |
In performing its analyses and rendering its opinion with respect to the Acquisition, Lake Street, with the Company’s consent:
| ● | Relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to Lake Street by Sigma and/or NextTrip; |
| ● | Assumed that the financial information provided was prepared on a reasonable basis in accordance with industry and past management practice, and that management of neither Sigma nor NextTrip was aware of any information or facts that would make any information provided to us incomplete or misleading; |
| ● | Assumed that with respect to financial forecasts, estimates and other forward-looking information reviewed by Lake Street, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of NextTrip as to the expected future results of operations and financial condition of NextTrip and did not evaluate or otherwise test such financial forecasts, estimates and other forward-looking information or the underlying assumptions; |
| ● | Assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by Lake Street; |
| ● | Assumed that the executed Exchange Agreement was in all material respects identical to the last draft of the Exchange Agreement reviewed by Lake Street; |
| ● | Relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties set forth in the Agreement and all related documents and instruments that were referred to therein were true and correct, (ii) each party to the Agreement was fully and timely perform all of the covenants and agreements required to be performed by such party thereunder, (iii) the Acquisition would be consummated pursuant to the terms of the Exchange Agreement without amendment of any term or condition thereof the effect of which would be in any way meaningful to Lake Street’s analysis, and (iv) all conditions to the consummation of the Acquisition would be satisfied without waiver by any party of any conditions or obligations thereunder the effect of which would be in any way meaningful to Lake Street’s analysis; and |
| ● | Assumed that all the necessary regulatory approvals and consents required for the Acquisition would be obtained in a manner that would not adversely affect Sigma or the contemplated benefits of the Acquisition to Sigma. |
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Lake Street’s opinion was necessarily based upon the information available to them and facts and circumstances as they existed and were subject to evaluation as of the date thereof. Although subsequent developments may affect Lake Street’s opinion, Lake Street does not have any obligation to update, revise or reaffirm its opinion.
In connection with its opinion, Lake Street did not perform any appraisals or valuations of any specific assets or liabilities (fixed, contingent, or other) of Sigma or NextTrip, and were not furnished or provided with any such appraisals or valuations, nor did Lake Street evaluate the solvency of Sigma or NextTrip under any state or federal law relating to bankruptcy, insolvency, or similar matters. The analysis performed by Lake Street in connection with its opinion was a going concern analysis. Lake Street did not undertake any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Sigma, NextTrip, or any of their respective affiliates was a party or may be subject, and at the direction of Sigma and with its consent, Lake Street’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.
Lake Street did not express any opinion as to any change in the price at which shares of Sigma’s common stock may trade following announcement of the Acquisition or at any future time after the date thereof. Lake Street did not undertake to reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of the opinion and did not have any obligation to update, revise or reaffirm the opinion.
Lake Street’s opinion did not constitute a recommendation that Sigma should complete the Acquisition. Lake Street was not requested to opine as to, and its opinion did not in any manner address the relative merits of the Acquisition in comparison to any alternatives to the Acquisition, Sigma’s underlying decision to proceed with the Acquisition, or any other aspect of the Acquisition, or alternatives to the Acquisition available to Sigma.
Set forth below is a summary of the material financial analyses reviewed by Lake Street with the Board on October 12, 2023 in connection with rendering Lake Street’s opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by Lake Street. The order of the financial analyses described, and the results of these analyses, do not represent the relative importance or weight given to these analyses by Lake Street. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before October 12, 2023 and is not necessarily indicative of then-current market conditions.
The following summary of Lake Street’s financial analyses includes information presented in tabular format. Several financial analyses were employed and no one method of analysis should be regarded as critical to the overall conclusion reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Each of the analyses conducted was carried out to provide a particular perspective of the Acquisition. In order to fully understand the analyses, the tables must be read together with the full text of each summary. The tables are not intended to stand alone and alone do not constitute complete analyses. Considering the tables below without considering the full narrative description of Lake Street’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses.
While this summary describes certain of the analyses and factors that Lake Street deemed material in its presentation to the Board, it is not a comprehensive description of all analyses and factors considered by Lake Street. The preparation of a fairness opinion is a complex process that involves various determinations as to appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description.
Lake Street did not form a conclusion as to whether any individual analysis, when considered in isolation, supported or failed to support its opinion as to the fairness of the Exchange Shares. Accordingly, Lake Street believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering its opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying the opinion. Lake Street did not place any specific reliance on any individual analysis, but instead concluded that its analyses, taken as a whole, supported its opinion.
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Summary of Lake Street’s Financial Analysis
Discounted Cash Flow Analysis
Lake Street performed a discounted cash flow analysis of NextTrip. A discounted cash flow analysis is a valuation methodology used to derive an intrinsic valuation of a company by calculating the present value of its estimated future cash flows. Lake Street performed a discounted cash flow analysis of the projected unlevered free cash flows of NextTrip for the fiscal years 2024 through 2028. Free cash flow was based on the forecasted unlevered after-tax net operating profits adjusted for non-cash charges and working capital investments. The tax rate utilized in the discounted cash flow analysis was 26.5%, derived from summing the federal corporate tax rate of 21.0% with the Florida corporate state tax rate of 5.5%. Lake Street calculated the net present value of the projected unlevered free cash flows utilizing an estimate of NextTrip’s weighted average cost of capital for the discount rate. For purposes of its discounted cash flow analysis, Lake Street utilized and relied upon the NextTrip Projections, which provided a financial forecast for the fiscal years 2024 through 2028, and other financial information provided by Company management. For further information regarding the NextTrip Projections, see “Information Regarding Financial Projections Used for Fairness Opinion Analysis” below.
In calculating the net present value of the unlevered free cash flows in the discounted cash flow analysis, Lake Street utilized a weighted average cost of capital range of 18.5 % to 22.5%. The discount rate range was selected giving consideration to market-based and company-specific risks and was based on Lake Street’s professional judgment and experience. Lake Street calculated NextTrip’s terminal value by applying exit multiple ranges for Revenue of 0.8x to 1.6x and EBITDA of 8.7x to 15.1x to NextTrip’s terminal year revenue and EBITDA. Lake Street discounted the indicated terminal value to present value using the selected range of discount rates and added the present value of the unlevered free cash flows. Based on these assumptions, Lake Street’s discounted cash flow analysis indicated an estimated enterprise value range for NextTrip of $87.0 million to $178.0 million based on terminal revenue multiples, and $143.0 million to $264.0 million based on terminal EBITDA multiples, after rounding. In comparison, NextTrip’s enterprise value based on the maximum number of the Exchange Shares of 6,000,000 and Sigma’s share price of $2.42 at the time of the opinion, plus net-debt, after rounding, equaled approximately $18 million.
Selected Public Companies Analysis
Lake Street performed a selected public companies analysis for NextTrip. Although none of the selected public companies is directly comparable to NextTrip, Lake Street selected the public companies for its analysis based on their degree of similarity to NextTrip, primarily in terms of operations, geographic footprint, size, and historical and projected financial performance as compared to NextTrip. Lake Street analyzed the selected public companies listed below:
| ● | trivago N.V. | |
| ● | Travelzoo | |
| ● | Despegar.com, Corp. | |
| ● | Tripadvisor, Inc. | |
| ● | Global Business Travel Group, Inc. | |
| ● | MakeMyTrip Limited | |
| ● | Expedia Group, Inc. | |
| ● | Trip.com Group Limited | |
| ● | Airbnb, Inc. | |
| ● | Booking Holdings Inc. |
The table below summarizes observed historical and projected multiples of enterprise value to estimated calendar year 2024 revenue (“2024P Revenue”), estimated calendar year 2024 earnings before interest, taxes, depreciation and amortization (“2024P EBITDA”), estimated calendar year 2025 revenue (“2025P Revenue”), and estimated calendar year 2025 EBITDA (“2025P EBITDA”) for the selected public companies, in each case as of October 12, 2023. The EBITDA estimates for calendar years 2024 and 2025 for the selected public companies were derived based on equity research analyst estimates for the selected public companies.
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The results of this analysis were as follows:
Selected Public Companies Analysis
| Enterprise Value as a Multiple of | ||||||||
| Company Name | 2024P Revenue | 2025P Revenue | 2024P EBITDA | 2025P EBITDA | ||||
| trivago N.V. | 0.1x | 0.1x | 0.5x | 0.5x | ||||
| Travelzoo | 0.6x | 0.6x | 3.1x | NA | ||||
| Despegar.com, Corp. | 0.3x | 0.3x | 2.2x | 1.7x | ||||
| Tripadvisor, Inc. | 1.0x | 0.9x | 5.0x | 4.3x | ||||
| Global Business Travel Group, Inc. | 1.4x | 1.3x | 6.8x | 6.1x | ||||
| MakeMyTrip Limited | 4.6x | 3.9x | 29.7x | 21.1x | ||||
| Expedia Group, Inc. | 1.0x | 1.0x | 4.8x | 4.4x | ||||
| Trip.com Group Limited | 3.0x | 2.6x | 11.3x | 9.8x | ||||
| Airbnb, Inc. | 6.5x | 5.7x | 18.0x | 15.4x | ||||
| Booking Holdings Inc. | 4.6x | 4.2x | 13.2x | 11.8x | ||||
Note: 2025P EBITDA figures were not available for Travelzoo.
None of the selected public companies was identical to NextTrip. As a result, a complete valuation analysis cannot be limited to a quantitative review of the selected public companies, but also requires complex consideration and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of NextTrip.
Selected M&A Transactions Analysis
Lake Street reviewed publicly available information related to selected mergers and acquisitions transactions listed in the table below. The selection of these transactions was based on, among other things, the target company’s industry and operational similarity, the relative size of the transaction, and the availability of public information related to the selected transaction.
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Selected M&A Transactions Analysis
| Enterprise Value as a Multiple of | ||||||||
| Closed Date | Target | Acquiror | LTM Revenue | LTM EBITDA | ||||
| February, 2023 | Scott Dunn Ltd. | Flight Centre Travel Group Limited | 4.1x | 9.6x | ||||
| November, 2022 | SosTravel.com S.P.A. | Digital Destination Company | 0.6x | - | ||||
| May, 2022 | eSky.pl S.A | MCI Capital Alternatywna Spólka Inwestycyjna S.A. | 0.2x | 4.1x | ||||
| March, 2022 | E-Domizil Gmbh | HomeToGo SE | 2.0x | - | ||||
| February, 2022 | Comtravo GmbH | TripActions, Inc. | 2.2x | - | ||||
| July, 2021 | Click Travel Limited | TravelPerk S.L.U | 0.8x | 28.2x | ||||
| October, 2020 | Travel and Transport, Inc. | Corporate Travel Management Limited | 1.0x | - | ||||
| December, 2019 | Yapta, Inc. | Coupa Software Incorporated | 8.6x | - | ||||
| July, 2019 | Viajes Falabella Ltda. | Despegar.com, Corp. | 0.5x | 7.7x | ||||
| July, 2019 | Liberty Expedia Holdings, Inc. | Expedia Group, Inc. | 1.6x | 10.6x | ||||
| June, 2019 | Kiwi.com s.r.o. | General Atlantic Service Company, L.P. | 0.2x | - | ||||
| May, 2019 | VEGAS.com, LLC | MGG Investment Group LP | 0.7x | 5.3x | ||||
| October, 2018 | Stewart Travel Limited | Zachary Asset Holdings | 1.0x | - | ||||
| September, 2018 | trivago N.V. | Par Capital Management, Inc.; PAR Investment Partners L.P. | 1.3x | NM | ||||
| September, 2018 | Musement S.p.A. | TUI AG | 1.8x | - | ||||
| September, 2018 | ILG, Inc. | Marriott Vacations Worldwide Corporation | 3.8x | 19.2x | ||||
| August, 2018 | Classic Collection Holidays Limited | On The Beach Travel Limited | 0.4x | 7.6x | ||||
| August, 2018 | Neilson Active Holidays Limited | LDC (Managers) Limited | 1.0x | 20.6x | ||||
| July, 2018 | TAG | Apiary Capital Partners; Apiary Capital Partners I LP | 0.7x | 8.8x | ||||
| July, 2018 | Hogg Robinson Group plc | GBT III B.V. | 1.3x | 9.8x | ||||
| May, 2018 | Travel Counsellors Limited | Vitruvian Partners LLP | 0.5x | - | ||||
| May, 2018 | Hillgate Travel Ltd | Reed & Mackay Travel Limited | 3.3x | 20.4x | ||||
| April, 2018 | FareHarbor Holdings, Inc. | Booking Holdings Inc. | 5.0x | - | ||||
| April, 2018 | Ticketea, S.L. | Eventbrite, Inc. | 0.7x | - | ||||
Note: LTM EBITDA figures were not available for the transactions involving SosTravel.com S.P.A., E-Domizil Gmbh, Comtravo GmbH, Travel and Transport, Inc., Yapta, Inc., Kiwi.com s.r.o., Stewart Travel Limited, Musement S.p.A., Travel Counsellors Limited, FareHarbor Holdings, Inc., Ticketea, S.L.; LTM EBITDA figures were not meaningful for the transaction involving trivago N.V.
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The LTM revenue and LTM EBITDA multiples for the selected target companies were calculated based on certain publicly available historical financial data for the selected M&A transactions. No company or transaction utilized in the selected M&A transactions analysis was identical or directly comparable to NextTrip or the Acquisition.
Summary of Selected Public Companies / Selected M&A Transactions Analyses
Selected Public Companies Analysis: To determine a range of implied enterprise values for NextTrip, Lake Street multiplied its selected range of enterprise value to 2024P Revenue and 2025P Revenue multiples of 0.6x to 4.6x and 0.5x to 4.0x, respectively, by NextTrip’s 2024P Revenue and 2025P Revenue, and Lake Street multiplied its selected range of enterprise value to 2024P EBITDA and 2025P EBITDA multiples of 2.8x to 14.4x and 3.0x to 13.6x, respectively, by NextTrip’s 2024P EBITDA and 2025P EBITDA, based on the NextTrip Projections. This analysis resulted in a range of implied enterprise values for NextTrip of approximately $21.0 million to $173.0 million based on 2024P Revenue, $35.0 million to $277.0 million based on 2025P Revenue, $11.0 million to $57.0 million based on 2024P EBITDA, and $26.0 million to $117.0 million based on 2025P EBITDA, after rounding. In comparison, NextTrip’s enterprise value based on the maximum shares issuable of 6,000,000 and Sigma’s share price of $2.42 at the time of the opinion, plus net-debt, after rounding, equaled approximately $18 million.
Selected M&A Transactions Analysis: To determine a range of implied enterprise values for NextTrip, Lake Street multiplied its selected range of enterprise value to 2024P Revenue and 2025P Revenue multiples of 0.6x to 2.2x and 0.6x to 2.2x, respectively, by NextTrip’s 2024P Revenue and 2025P Revenue, and Lake Street multiplied its selected range of enterprise value to 2024P EBITDA and 2025P EBITDA multiples of 7.6 to 20.4x and 7.6x to 20.4x, respectively, by NextTrip’s 2024P EBITDA and 2025P EBITDA, based on the NextTrip Projections. Additionally, Lake Street discounted its precedent transaction enterprise value ranges to present value utilizing an estimate of NextTrip’s weighted average cost of capital for the discount rate. The discount rate range was selected giving consideration to market-based and company-specific risks and was based on Lake Street’s professional judgment and experience. This analysis resulted in a range of implied enterprise values for NextTrip of approximately $19.0 million to $68.0 million based on 2024P Revenue, $29.0 million to $103.0 million based on 2025P Revenue, $25.0 million to $66.0 million based on 2024P EBITDA, and $45.0 million to $121.0 million based on 2025P EBITDA, after rounding. In comparison, NextTrip’s enterprise value based on the maximum shares issuable of 6,000,000 and Sigma’s share price of $2.42 at the time of the opinion, plus net-debt, after rounding, equaled approximately $18 million.
Valuation multiples were selected, in part, by taking into consideration historical and projected financial performance metrics of NextTrip relative to such metrics of the selected public companies and selected M&A transactions target companies, including, but not limited to, the size of NextTrip on a revenue and EBITDA basis, historical, estimated and projected EBITDA margins compared to the selected public companies, and historical, estimated and projected revenue and EBITDA growth compared to the selected public companies.
Summary of Analysis
The range of indicated enterprise values for NextTrip that Lake Street derived from its Discounted Cash Flow Analysis, Selected Public Companies Analysis, and its Selected M&A Transactions Analysis were as follows;
Discounted Cash Flow Analysis: $87.0 million to $178.0 million based on terminal revenue multiples, and $143.0 million to $264.0 million based on terminal EBITDA multiples, after rounding.
Selected Public Companies Analysis: $21.0 million to $173.0 million based on 2024P Revenue, $35.0 million to $277.0 million based on 2025P Revenue, $11.0 million to $57.0 million based on 2024P EBITDA, and $26.0 million to $117.0 million based on 2025P EBITDA, after rounding.
Selected M&A Transactions Analysis: $19.0 million to $68.0 million based on 2024P Revenue, $29.0 million to $103.0 million based on 2025P Revenue, $25.0 million to $66.0 million based on 2024P EBITDA, and $45.0 million to $121.0 million based on 2025P EBITDA, after rounding.
Lake Street derived an estimated enterprise value for NextTrip by finding the median value of each valuation range presented above, and then took the median of those median values, which resulted in an estimated enterprise value of $50.0M for NextTrip, after rounding. In comparison, NextTrip’s enterprise value based on the maximum shares issuable of 6,000,000 and Sigma’s share price of $2.42 at the time of the opinion, plus net-debt, after rounding, equaled approximately $18 million.
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Information Regarding Financial Projections Used for Fairness Opinion Analysis
In its analysis, Lake Street relied, in part, upon the NextTrip Projections. A summary of the key NextTrip Projections are set forth in the table below:
| Fiscal Year Ended December 31, | ||||||||||||||||||||
| ($ in millions) | 2024 | 2025 | 2026 | 2027 | 2028 | |||||||||||||||
| Revenue | $ | 37.9 | $ | 69.9 | $ | 120.4 | $ | 186.3 | $ | 266.6 | ||||||||||
| Gross Profit | 7.2 | 13.6 | 23.0 | 35.4 | 53.7 | |||||||||||||||
| EBIT | 2.9 | 7.5 | 15.6 | 24.9 | 40.3 | |||||||||||||||
| Income Taxes @ 26.5% | (0.8 | ) | (2.0 | ) | (4.1 | ) | (6.6 | ) | (10.7 | ) | ||||||||||
| Net Operating Profit After Taxes | $ | 2.1 | $ | 5.5 | $ | 11.5 | $ | 18.3 | $ | 29.6 | ||||||||||
| Depreciation & Amortization | 1.0 | 1.1 | 1.1 | 1.2 | 1.4 | |||||||||||||||
| (Increase) / Decrease in Working Capital | 0.0 | (3.8 | ) | (10.1 | ) | (19.5 | ) | (31.1 | ) | |||||||||||
| Free Cash Flow | $ | 3.2 | $ | 2.8 | $ | 2.5 | $ | 0.1 | $ | (0.1 | ) | |||||||||
| Adjusted EBITDA | $ | 3.9 | $ | 8.6 | $ | 16.7 | $ | 26.2 | $ | 41.7 | ||||||||||
Neither Sigma nor NextTrip, as a matter of course, publicly discloses forecasts, internal projections as to future performance, revenues, earnings or other results of operations due to the inherent unpredictability and subjectivity of underlying assumptions and projections. As a result of these risks and uncertainties, including the risks and uncertainties described in the section entitled “Risk Related to NextTrip’s Business and Industry.” NextTrip’s future financial results are likely to differ, perhaps materially, from the NextTrip Projections. The inclusion of the NextTrip Projections in this proxy statement should not be regarded as an indication that Sigma, NextTrip or any other recipient of this information considered, or now considers, this information to be predictive of actual future results. The NextTrip Projections, therefore, should not be relied upon as public guidance or for any other purpose.
The NextTrip Projections were not prepared with a view toward public disclosure, or in compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, or generally accepted accounting principles. Neither Sigma nor NextTrip, Haynie & Company or TPS Thayer, has examined, compiled or performed any procedures with respect to the NextTrip Projections. Neither Haynie & Company nor TPS Thayer express an opinion or any other form of assurance with respect thereto. The Haynie & Company and TPS Thayer reports incorporated by reference or included in this proxy statement relate solely to historical financial information.
Stockholders are urged to review the section entitled “Risk Factors” beginning on page 19 of this proxy statement for a description of risk factors relating to the Acquisition and to NextTrip’s business and industry, and Sigma’s most recent SEC filings for a description of risk factors with respect to Sigma. Stockholders of Sigma should also read the section entitled “Forward-Looking Statements” beginning on page 7 of this proxy statement for additional information regarding the risks inherent in forward-looking information such as the NextTrip Projections.
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The NextTrip Projections were utilized by Lake Street in preparing its analysis and are not intended to influence the decision whether to vote in favor of the proposal to issue shares of Sigma common stock or in favor of any other proposal contained in this proxy statement. In light of the foregoing factors and the uncertainties inherent in the NextTrip Projections, stockholders are cautioned not to place undue, if any, reliance on the NextTrip Projections. The NextTrip Projections were prepared as of August 15, 2023 and neither Sigma nor NextTrip or Lake Street undertakes to update the NextTrip Projections for events occurring after they were prepared.
Miscellaneous
Lake Street, as a customary part of its investment banking business, engages in the valuation of businesses and their securities in connection with mergers and acquisitions, underwriting and secondary distributions of securities, private placements and other valuations for estate, corporate, and other purposes. Lake Street will receive a $250,000 fee from Sigma for providing its opinion. This opinion fee was not contingent upon the consummation of the Acquisition. Further, Sigma has agreed to reimburse Lake Street for its expenses and to indemnify Lake Street against certain liabilities that may arise in relation to its engagement. In the ordinary course of Lake Street’s business, Lake Street and its affiliates may actively trade securities of Sigma for Lake Street’s own account or the account of its customers and, accordingly, may at any time hold a long or short position in such securities. Other than currently serving as sales manager for Sigma’s ATM program, Lake Street has not performed material financial advisory or investment banking services for Sigma in the past. In the future, Lake Street may provide other financial advisory and investment banking services to Sigma for which Lake Street would expect to receive compensation. Lake Street has not performed material financial advisory or investment banking services for NextTrip or their respective affiliates.
Closing and Effective Time of the Acquisition
We are working to complete the Acquisition as quickly as possible, and we expect to complete the Acquisition promptly after the Annual Meeting if the Acquisition Proposal is approved. However, Sigma cannot assure you when or if the Acquisition will occur. The Acquisition is subject to other conditions, and it is possible that factors outside the control of both Sigma and NextTrip could result in the Acquisition being completed at a later time, or not at all.
Dissenters’ and Appraisal Rights
Sigma stockholders do not have dissenters’ or appraisal rights under the NGCL in connection with the Acquisition and will not be afforded such rights.
Accounting Treatment
Both Sigma and NextTrip prepare their financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). NextTrip is considered the accounting acquirer in the Acquisition, which will be accounted for as a reverse acquisition of Sigma by NextTrip. See “Unaudited Combined Condensed Pro Forma Financial Information.”
Board of Directors and Management Following the Acquisition
Immediately following the completion of the Acquisition, the Board will continue to consist of five directors, one of whom, Donald P. Monaco, shall be designated by NextTrip. Jacob Brunsberg, our current President and Chief Executive Officer, will resign upon the closing of the Acquisition and William Kerby, the co-founder and Chief Executive Officer of NextTrip, shall become the Chief Executive Officer of NextTrip, Inc. Frank Orzechowski, our current Chief Financial Officer, will continue to serve as the Chief Financial Officer of NextTrip, Inc., and the current executive officers of NextTrip will continue to serve as executive officers of NextTrip. See the “Directors and Executive Officers” section of this proxy statement.
Interests of Sigma’s Directors and Officers in the Acquisition
As of the Record Date, the directors and executive officers of Sigma as a group owned and were entitled to vote approximately 4,827 shares of our common stock, representing less than 1% of the outstanding shares. Sigma expects that its directors and executive officers will vote their shares in favor of each of the proposals to be presented at the Annual Meeting.
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See the “Say on Pay Proposal” section of this proxy statement for information regarding compensation payable to our executive officers in connection with the Acquisition.
Except as referred to above, the directors and executive officers of the Company do not have interests in the Acquisition different than the stockholders of Sigma.
Regulatory Approvals Required for the Acquisition
Under Nasdaq Listing Rule 5635(a)(1), a company listed on Nasdaq is required to obtain stockholder approval prior to the issuance of common stock, among other things, in connection with the acquisition of another company’s stock, if the number of shares of common stock to be issued is in excess of 20% of the number of shares of common stock then outstanding. Although the Closing Shares will only constitute 19.99% of our issued and outstanding shares of common stock immediately prior to Closing, if the relevant milestones are achieved by NextTrip post-closing and any of the Contingent Shares are issued, it will result in the issuance of more than 20% of our issued and outstanding shares of common stock immediately prior to closing in connection with the Acquisition.
Under Nasdaq Listing Rule 5635(b), a listed company is required to obtain stockholder approval prior to the issuance of common stock that will result in a “change of control” of the company (which may be deemed to occur if, as a result of the issuance, an investor or affiliated investor group acquires, or has the right to acquire, at least 20% of the outstanding shares of common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer and such ownership or voting power would be the largest ownership position of the issuer). You should note that a “change of control” as described under Nasdaq Listing Rule 5635(b) applies only with respect to the application of such rule.
Accordingly, in order to ensure compliance with Nasdaq Listing Rule 5635(a)(1) and Rule 5635(b), we must obtain the approval of our stockholders for the issuance of the Contingent Shares in connection with the Acquisition. Furthermore, under the Exchange Agreement, stockholder approval of the issuance of the Exchange Shares is a condition to closing the Acquisition.
Except as set forth above, the Acquisition and the transactions contemplated by the Exchange Agreement are not subject to any additional federal or state regulatory requirement or approval, except for the Nasdaq’s approval of listing of the Exchange Shares and the filings with the Nevada Secretary of State necessary to effectuate the Name Change Proposal and the Capital Increase Proposal if they are approved at the Annual Meeting.
General
On October 12, 2023, we entered into the Exchange Agreement with NextTrip, NextTrip Parent and the Next Trip Representative, pursuant to which, among other things and subject to the terms and conditions contained therein, we will acquire all of the outstanding capital stock of NextTrip from Next Trip Parent in exchange for the issuance to the NextTrip Sellers of the Exchange Shares.
Representations and Warranties
The Exchange Agreement contains customary representations and warranties made by Sigma. Specifically, the representations and warranties in the Exchange Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules delivered by Sigma, as may or may not be specifically indicated in the text of the Exchange Agreement) relate to the following subject matters, among other things:
| ● | our due incorporation, valid existence, good standing, and qualification to do business; | |
| ● | our corporate power and authority to enter into the Exchange Agreement, and to consummate the transactions under the Exchange Agreement, which are duly authorized and binding obligations of Sigma; | |
| ● | that the Exchange Agreement and each of the related transaction documents is duly authorized and is a binding obligation; | |
| ● | the absence of certain specified violations of, or conflicts with, our and our subsidiaries’ governing documents, applicable law, and certain agreements as a result of entering into the Exchange Agreement; | |
| ● | our corporate structure; | |
| ● | our articles of incorporation and bylaws; |
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| ● | our capitalization, including the number of shares of our common stock and derivative securities outstanding; | |
| ● | compliance of our business and operations with applicable laws and orders; | |
| ● | the absence of certain liabilities, undisclosed legal proceedings and governmental orders against us; | |
| ● | disclosure of all brokers or finder fees or commissions; | |
| ● | disclosure of all our material contracts; | |
| ● | filing of documents required by the SEC and compliance with the requirements of securities laws and regulations; | |
| ● | maintenance of internal accounting controls; | |
| ● | compliance with listing and maintenance requirements of The Nasdaq Capital Markets; | |
| ● | maintenance of DTC eligibility; | |
| ● | action has been taken to render inapplicable anti-takeover provisions; | |
| ● | status and filing of tax returns and tax investigations; | |
| ● | labor matters; | |
| ● | employee benefits; | |
| ● | title to assets; | |
| ● | intellectual property; | |
| ● | affiliate transactions; | |
| ● | liabilities; | |
| ● | investment company attestations; | |
| ● | money laundering and Foreign Corrupt Practices Act; | |
| ● | absence of certain changes and undisclosed events; | |
| ● | insurance; and | |
| ● | verification of accuracy of disclosures. |
The Exchange Agreement also contains customary representations and warranties made by NextTrip to Sigma. Specifically, the representations and warranties of NextTrip and the NextTrip Parent in the Exchange Agreement (some of which are qualified by concepts of knowledge and/or materiality) relate to the following subject matters, among other things related to the NextTrip and NextTrip Parent in regards to the Exchange Agreement and related transactions: duly organized and qualified requisite authority and power; binding obligations; subsidiaries; organizational documents; capitalization; brokers and finders; compliance with laws; legal and other proceedings; contracts; financial statements; taxes; adjustments or changes; disputes; U.S. Real Property Holding Corporation; tax allocation; internal accounting controls; labor matters; employee benefits; title to assets; intellectual property and data privacy; environmental laws; affiliate and employee transactions; liabilities; money laundering; foreign corrupt practices; absence of certain changes; disclosures; insurance; Investment Company Act of 1940; proxy statement information and financial disclosures; validity of representation and warranties.
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Many of the representations and warranties contained in the Exchange Agreement are qualified by a materiality standard, including in some cases a “Company Material Adverse Effect” or “Buyer Material Adverse Effect” (as defined in the Exchange Agreement). Moreover, the representations and warranties contained in the Exchange Agreement are complicated and are not easily summarized. You are urged to carefully read the sections of the Exchange Agreement, which is attached hereto as Annex A, titled “Representations and Warranties of the Sigma” and “Representations and Warranties of NextTrip.”
The representations and warranties contained in the Exchange Agreement (as well as the covenants described herein and set forth in the Exchange Agreement) were made solely for purposes of the Exchange Agreement and solely for the benefit of the parties to the Exchange Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by references to the Company’s filings with the SEC and confidential disclosures, made for the purposes of allocating contractual risk among the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to stockholders. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Exchange Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The Company will provide additional disclosure in its public reports to the extent that it is aware of the existence of any material facts that are required to be disclosed under federal securities laws that might otherwise contradict the terms and information contained in the Exchange Agreement and will update such disclosures as required by federal securities laws. The representations and warranties will not survive the closing of the Acquisition.
Covenants and Agreements
Sigma has agreed to carry on its business in the ordinary course and in substantially in the manner as currently conducted, but for the Asset Sale and the sale of up to $1,500,000 of equity pursuant to its At-The-Market Sales Issuance Agreement with Lake Street Capital Markets, LLC as contemplated by the Exchange Agreement, and has further agreed to not do any of the following, except in the ordinary course of business:
| ● | waive any stock repurchase rights or take any action or make a change regarding any options or restricted stock; | |
| ● | enter into any partnership agreements, joint development agreements or strategic alliances;
| |
| ● | increase the compensation or fringe benefits of, or pay any bonuses or special awards to, any present or former director, officer, stockholder or employee of Sigma or NextTrip; | |
| ● | except as contemplated by this Agreement, approved by the NextTrip Parent (as it relates to Sigma) or Sigma (as it relates to NextTrip), or pursuant to agreements in place at the time this Agreement is entered into, issue, deliver, sell, authorize, pledge or otherwise encumber, or propose any of the foregoing with respect to, any shares of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of Sigma or NextTrip, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of Sigma or NextTrip, or enter into other Contracts or commitments of any character obligating it to issue any such shares of capital stock of Sigma or NextTrip or securities convertible into, or exercisable or exchangeable for, shares of capital stock of Sigma or NextTrip;
| |
| ● | cause, permit or propose any amendments to any Sigma or NextTrip Organizational Documents; | |
| ● | acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, limited liability company, general or limited partnership, joint venture, association, business trust or other business enterprise or entity, or otherwise acquire or agree to acquire any assets other than in the Ordinary Course of Business; | |
| ● | adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or other reorganization; | |
| ● | adopt or amend any employee incentive plan, or enter into any employment contract or collective bargaining agreement, pay any special bonus or special remuneration, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its officers; |
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| ● | modify, amend or terminate any contract, or waive, delay the exercise of, release or assign any rights or claims thereunder; | |
| ● | sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any properties or assets; | |
| ● | incur or guarantee indebtedness, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, or make any loans, advances or capital contributions to, or investment in, any person other than to Sigma or NextTrip; | |
| ● | pay, discharge or satisfy any claims, liabilities or obligations, except in accordance with their terms as in effect, or waive, release, grant, or transfer any rights of material value or modify or change in any material respect any existing document; | |
| ● | change any financial reporting or accounting principle, methods or practices used by it unless otherwise required by applicable law or GAAP;
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| ● | settle or compromise any litigation; | |
| ● | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock; (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock; or (iii) purchase, redeem or otherwise acquire any shares of capital stock of Sigma or NextTrip or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; | |
| ● | enter into any transaction with any of its directors, officers, stockholders, or affiliates; | |
| ● | (i) grant any license or sublicense of any rights regarding any intellectual property; (ii) dispose of or let lapse any intellectual property, or any application for the foregoing, or any license, permit or authorization to use any intellectual property; or (iii) amend, terminate any other agreement to which Sigma or NextTrip is a party; or | |
| ● | commit to or otherwise to take any of the actions described in Section 6.2 of the Exchange Agreement. |
Post-Closing Covenants
The Parties each agree that they will take any further action (including the execution and delivery of such further instruments and documents) as any other party reasonably may request in the event necessary to carry out the purposes of the Exchange Agreement.
Post-Closing Financial Statements
NextTrip and its officers and employees will use commercially reasonable efforts to assist Sigma and our accountants and auditors in preparing audited and unaudited financial statements as required by SEC’s rules and requirements for inclusion in this proxy statement and any other filings with the SEC that such financial statements are required to be included in, and will provide Sigma all information, reports, documentation and financial information reasonably requested in connection with such reports. NextTrip is responsible for the costs of all audits and the preparation of all financial information required.
Directors’ and Officers’ Indemnification and Insurance
We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer to the fullest extent permitted by Nevada law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in the right of us, arising out of the person’s services as a director or executive officer, including in connection with the Acquisition. The Exchange Agreement provides that the Company will purchase a paid-up, six-year “tail” policy of directors’ and officers’ liability insurance on the same terms as our existing directors’ and officers’ liability insurance under certain circumstances.
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Public Announcements
Sigma filed a Current Report on Form 8-K on November 13, 2023, describing the material terms of the Exchange Agreement and the transactions contemplated thereby. Prior to the closing, Sigma, NextTrip and the NextTrip Parent shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the SEC or any regulatory agency or Nasdaq with respect to the transactions contemplated by the Acquisition and the Exchange Agreement. The parties shall all receive the prior written consent of the other before issuing a press release or otherwise making a public statement, filings or other communications. The disclosing party shall use commercially reasonable efforts to provide the other parties with at least three days prior notice of such disclosure and shall incorporate in the disclosure the reasonable comments of the other parties.
Efforts to Obtain Nasdaq Approval, and Continued Listing
We are also required to use our commercially reasonable best efforts to cause the Exchange Shares to be issued and to be approved for listing on Nasdaq and to continue to trade on Nasdaq following the closing of the Acquisition. Failure to continue listing will result in our common stock being illiquid.
Closing
The Exchange Agreement requires the closing of the Acquisition to take place not later than three business days following the satisfaction or waiver by the party entitled to the benefit thereof of the conditions set forth in Article IX of the Exchange Agreement (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), at the offices of the legal counsel of Sigma or NextTrip, as may be mutually agreed by Sigma and the NextTrip Parent prior to closing.
Conditions to Closing of the Acquisition
The obligations of the parties to complete the Acquisition are subject to the fulfillment or written waiver of certain closing conditions, including without limitation:
| ● | the approval of the Acquisition Proposal at the Annual Meeting; | |
| ● | absence of pending action before any governmental authority, or law or order that would prevent the closing; | |
| ● | a five-member Board of Directors in place as set forth in the Exchange Agreement, of which three shall be independent in accordance with the rules of Nasdaq; | |
| ● | effectiveness of the name change of the Company to “NextTrip, Inc.” in connection with the closing of the Acquisition; and | |
| ● | all parties making a good faith effort to ensure our common stock will be listed on Nasdaq. |
Further, the obligations of NextTrip and NextTrip Parent to close are subject to the satisfaction on or before the closing date of the following conditions:
| ● | that the representations and warranties by Sigma be true in all material respects; | |
| ● | Sigma shall have performed all covenants in all material respects; | |
| ● | absence of a pending action that would enjoin or otherwise restrict the consummation of the closing or affect NextTrip’s right to own the common stock of Sigma; | |
| ● | absence of a Material Adverse Effect (as defined in the Exchange Agreement”); | |
| ● | all material consents will have been obtained, and all required filings will have been made; | |
| ● | we will have filed all documents required to be filed by under the U.S. federal securities laws; | |
| ● | our common stock shall be listed on Nasdaq and continue to be listed immediately following the closing and not have been suspended; |
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| ● | the Exchange Shares shall have cleared and settled through DTC and DTC eligibility remains through the closing; | |
| ● | delivery of a closing certificate executed by an officer of Sigma, certifying the satisfaction of the conditions specified in the Exchange Agreement and delivery of a certificate of secretary of the Company certifying the authorizing resolutions for the Acquisition; | |
| ● | receipt of the written resignations of the resigning director and the current president and chief executive officer of Sigma, effective as of the closing; | |
| ● | Sigma shall have delivered proof of the appointment as a director and of William Kerby as chief executive officer of Sigma and shall have executed an executive employment agreement; and | |
| ● | NextTrip and the NextTrip Parent shall find all actions to be taken by Sigma in connection with consummation of the Acquisition and all documents required to be reasonably satisfactory. |
The obligations of Sigma to close are subject to the following conditions being met:
| ● | all outstanding indebtedness of NextTrip shall have been converted into shares of NextTrip’s common stock prior to closing; | |
| ● | that the representations and warranties by NextTrip and NextTrip Parent be true in all material respects; | |
| ● | NextTrip and NextTrip Parent shall have performed all covenants in all material respects; | |
| ● | absence of a pending action that would enjoin or otherwise restrict the consummation of the closing or affect the NextTrip Parent’s right to hold the Exchange Shares or the right of NextTrip to own its assets or operate its business; | |
| ● | absence of a Material Adverse Effect (as defined in the Exchange Agreement); | |
| ● | all material consents will have been obtained, and all required filings will have been made; | |
| ● | delivery of a closing certificate by each of an officer of NextTrip and the NextTrip Parent, certifying the satisfaction of the conditions specified in the Exchange Agreement, and delivery by the Parent of a certificate certifying the authorizing resolutions for the Acquisition; and | |
| ● | Sigma shall find all actions to be taken by NextTrip and the NextTrip Parent in connection with consummation of the Acquisition and all documents required to be reasonably satisfactory. |
We cannot provide assurance as to when or if all of the closing conditions will be satisfied or waived by the appropriate party. As of the date of this proxy statement, we have no reason to believe that any of the conditions will not be satisfied.
Closing Deliverables
At the closing of the Acquisition, the Company shall deliver to NextTrip and the NextTrip Parent or the NextTrip Sellers, as the case may be, the following:
(a) a certificate by an officer of Sigma, certifying the satisfaction of the conditions specified in Sections 9.1 and 9.2 of the Exchange Agreement, as such sections relate to Sigma;
(b) a certificate duly executed by the secretary of Sigma as to the resolutions adopted by Sigma’s board of directors, in a form reasonably acceptable to NextTrip, approving the Exchange Agreement and related documents;
(c) proof of the appointment of Mr. Kerby as a director and as chief executive officer of Sigma and an executed copy of the employment agreement between the Company and Mr. Kerby;
(d) written resignations as of the closing of one current director and the current President and Chief Executive Officer of Sigma;
(e) the Exchange Shares; and
(f) all other documents, instruments and writings required to affect the transactions contemplated by the Exchange Agreement.
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Termination
The Exchange Agreement may be terminated prior to the closing by:
| ● | by the mutual written agreement of Next Trip, NextTrip Parent and us; | |
| ● | written notice by any party if the closing has not occurred by December 31, 2023, (as long as such failure to close is attributable to the terminating party failing to perform a material obligation); | |
| ● | written notice by either us or NextTrip if any governmental authority of competent jurisdiction has issued a final and non-appealable order or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by the Exchange Agreement (as long as such notice was not caused by a breach of the Exchange Agreement due to the failure of such terminating party); | |
| ● | written notice by any party if any event makes it impossible to satisfy a condition precedent to the terminating party’s obligations to perform under the Exchange Agreement, unless such occurrence is due to the failure of the terminating party to perform or comply at or prior to closing; | |
| ● | if any event occurs that makes it impossible to satisfy a condition precedent to the terminating party’s obligations to perform its obligations hereunder, unless such occurrence is due to the failure of the terminating party to perform or comply at or prior to closing; | |
| ● | written notice by NextTrip or NextTrip Parent if there is a Material Adverse Effect on Sigma, or there shall have occurred any event or circumstance that could reasonably be expected to have, a Material Adverse Effect with respect to Sigma; and | |
| ● | Written notice by Sigma to NextTrip if, (i) there shall have occurred a Material Adverse Effect on NextTrip, or there shall have occurred any event or circumstance that, in combination with any other events or circumstances, could reasonably be expected to have, a Material Adverse Effect with respect to NextTrip; or (ii) in disclosure schedules delivered subsequently disclose anything which (A) has, or could reasonably be expected to have, a Material Adverse Effect with respect to NextTrip, (B) results in any representation, warranty or covenant made herein by NextTrip or NextTrip Parent being materially incorrect or misleading at the time it was made, (C) departs materially, from any disclosures relating to NextTrip or NextTrip Parent (or its financial statements, liabilities, agreements, litigation, assets, operations or prospects) that has been provided prior to the date of this Agreement, or (D) materially affects the ability of NextTrip or NextTrip Parent to complete the transactions contemplated by the Exchange Agreement and such has not been cured within the applicable cure period. |
If the Exchange Agreement is terminated, all further obligations of the parties under the Exchange Agreement will terminate and will be of no further force and effect and no party will have any further liability thereunder to any other party, except that certain obligations related to public announcements, confidential information, fees and expenses, and general provisions will continue in effect and no party shall be relieved of liability for any fraud claims or breach of the Exchange Agreement prior to such termination.
Fees and Expenses
Except as described above under “Financial Accommodations,” each party will bear its own expenses in connection with the Exchange Agreement and the transactions contemplated thereby.
Third-Party Beneficiaries
Except as set forth in Article I of the Exchange Agreement, nothing expressed or referred to in the Exchange Agreement will be construed to give any person other than the parties to the Exchange Agreement any legal or equitable right, remedy, or claim under or with respect to the Exchange Agreement or any provision of the Exchange Agreement.
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Governing Law
All matters arising out of or relating to the Exchange Agreement (including its interpretation, construction, performance and enforcement) shall be governed by and construed in accordance with the Law of the State of Delaware without giving effect to any choice or conflict of law provision or rule that would cause the application of Laws of any jurisdictions other than those of the State of Delaware.
FINANCIAL INFORMATION RELATED TO THE ACQUISITION
Financial Statements of the Company
The audited financial statements of the Company for the years ended December 31, 2022 and December 31, 2021 are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and are hereby incorporated by reference into this proxy statement. The unaudited financial statements of the Company for the nine months ended September 30, 2023 and 2022 are contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, and are hereby incorporated by reference into this proxy statement. See “Where You Can Find More Information; Incorporation of Information by Reference” and “Index to Financial Statements” below in this proxy statement.
A representative of Haynie & Company is not expected to be present at the Annual Meeting or to be available to make a comment or respond to questions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company
The audited and unaudited financial statements of the Company incorporated herein by reference should be read in conjunction with the respective “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended December31, 2022 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, which sections are hereby incorporated herein by reference.
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Financial Statements of NextTrip
The audited historical financial statements of NextTrip and its subsidiaries for fiscal years ended February 28, 2023 and February 28, 2022 and the unaudited historical financial statements of NextTrip and its subsidiaries for the six months ended August 31, 2023 and 2022 are included in the “Index to Financial Statements” section of this proxy statement.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of NextTrip
Forward-looking statements
You should read the following discussion and analysis of NextTrip’s financial condition and results of operations together with its financial statements and the related notes appearing elsewhere in this proxy statement. Among other things, those historical financial statements include more detailed information regarding the basis of presentation for the financial data than is included in the following discussion. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. NextTrip’s actual results may differ materially from those discussed below.
Business Overview
NextTrip is an innovative technology company that is building next generation solutions to power the travel industry. NextTrip Parent, through its subsidiaries, provides travel technology solutions with sales originating in the United States, with a primary emphasis on ALR properties, hotel, air, cruise, and all-inclusive travel packages. Its proprietary booking engine, branded as NXT2.0, provides travel distributors access to a sizeable inventory. NextTrip’s NXT2.0 booking technology was built upon a platform acquired in June 2022, which previously powered the Bookit.com business, a well-established online leisure travel agent generating over $450 million in annual sales as recently as 2019 (pre-pandemic).
Since 2022, NextTrip has been focused on the holistic integration of the NXT2.0 technology platform, which will serve as a base for current and future technology projects as well as proprietary system enhancements. Through this strategic offering, NextTrip will focus on key areas of opportunity in the travel sector and drive enhanced booking conversion rates. NextTrip’s proprietary technology, when combined with media, product offerings and customer service, provides a unique lane to serve mid- to luxury travelers.
The spread of the COVID-19 virus globally beginning in January 2020, severely impacted NextTrip Parent’s 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 negatively impacted on NextTrip Parent’s business, financial condition and results of operations.
Due to the significant decrease in demand for the travel related services provided by NextTrip Parent during the peak of the COVID-19 pandemic, NextTrip Parent shifted its focus to developing and enhancing its program offerings. For example, it enhanced the functionality of its booking engines, including developing a booking engine platform that allows customers to book packaged vacations and cruises along with a platform to arrange and manage business travel.
NextTrip Parent is the parent company of NextTrip and its subsidiaries, which together previously formed the travel assets of NextPlay Technologies, Inc. (“NextPlay”), a public company. All of the business operations of NextTrip Parent are done through its subsidiaries. On January 25, 2023, NextPlay and NextTrip Parent entered into an Amended and Restated Separation Agreement, an Amended and Restated Operating Agreement, and Exchange Agreement (“Exchange Agreement”), pursuant to which NextPlay transferred their interest in the travel business to NextTrip. As per the Exchange Agreement, NextPlay exchanged 1,000,000 Membership Units of NextTrip for 400,000 Preferred Units in NextTrip. The Preferred Units have a value of $10.00 per Unit, NextTrip had a payable amount to NextPlay of $17,295,873. This was partial payment that was exchanged for the 400,000 Preferred Units in NextTrip as per the Exchange Agreement. Any intercompany amount owed after the separation date is to be considered a promissory note bearing 5% interest per annum. NextPlay has a balance owing to NextTrip of $1,942,630 as of August 31, 2023. As per ASC 505-10-45-2 the reporting of the paid in capital is considered equity.
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NextTrip Parent has accounted for the business transfer on a retroactive basis. All assets, liabilities and results of operations assumed in the transaction are the basis of the financial information discussed in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations, as well as the financial statements of NextTrip Parent included elsewhere in this proxy statement.
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, and allowance for bad debts. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 of the Notes to Financial Statements of NextTrip Parent for the fiscal years ended February 28, 2022 and 2023 and the six months ended August 31, 2023, included elsewhere in this proxy statement. 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.
Summary of Significant Accounting Policies of NextTrip Parent
Basis of Presentation and Principles of Consolidation
NextTrip Parent’s financial statements and related disclosures are prepared pursuant to the rules and regulations of the SEC for annual and interim financial statements, as applicable. The Financial Statements have been prepared using the accrual basis of accounting in accordance with GAAP of the United States.
The financial statements of NextTrip Parent have been prepared on a consolidated basis with those of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Limited Liability of Managers and Members
The liability of the managers and members of NextTrip Parent shall be limited to the extent, now or hereafter set forth in NextTrip Parent’s Operating Agreement and as provided under the Florida Act.
No Personal Liability, except as otherwise provided in the Florida Act or by applicable law, no members, manager or officer of NextTrip Parent will be obligated personally for any debt, obligation or liability of the NextTrip Parent or of any of its subsidiaries, whether arising in contract, tort or otherwise, solely by reason of being a member, manager and/or officer of NextTrip Parent.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These differences could have a material effect on NextTrip Parent’s future results of operations and financial position. Significant items subject to estimates and assumptions include the carrying amounts of intangible assets, depreciation and amortization.
Information about key assumptions and estimation uncertainty that has a significant risk of resulting in a material adjustment to the carrying amounts of NextTrip Parent’s assets and liabilities within the next financial year are referenced in the notes to the financial statements as follows:
| ● | The assessment of NextTrip Parent’s ability to continue as a going concern; | |
| ● | The measurement and useful life of intangible assets and property and equipment; and | |
| ● | Recoverability of long-lived assets |
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Cash
Cash consists of amounts denominated in U.S. dollars.
Prepaids
NextTrip Parent records cash paid in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses are expensed over time according to the terms of the purchase. Other current assets are recognized when it is probable that the future economic benefits will flow to NextTrip Parent and the asset has a cost or value that can be measured reliably. It is then charged to expense over the expected number of periods during which economic benefits will be realized.
Receivables
Receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is NextTrip Parent’s best estimate of the amount of probable credit losses in its existing receivables.
NextTrip Parent considers receivables to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. The August 31, 2023, receivables balance includes a receivable from TGS Esports Inc. for $50,000, which is expected to be collected by December 31, 2023.
Receivables balances as of August 31, 2023, and February 28, 2023, were $5,000 and $0, respectively. Receivables from a related party as of such dates were $1,992,630 and $1,933,908, respectively. Management has determined that no allowance for credit losses is necessary as of August 31, 2023, or February 28, 2023.
Property and Equipment
Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. When parts of an item of property and equipment have different estimated useful lives, they are accounted for as separate items within property and equipment. The costs of the ongoing regular repairs and maintenance of property and equipment are recognized in the period in which they are incurred.
Depreciation
Depreciation is recognized in profit or loss over the estimated useful lives of each part of an item of property and equipment in a manner that most closely reflects management’s estimated future consumption of the future economic benefits embodied in the asset. The estimated useful lives for NextTrip Parent’s property and equipment are as follows:
| Category | Method | Estimated useful life | ||
| Furniture & Fixtures | Straight line | 5 years | ||
| Computer & Equipment | Straight line | 3 years |
Intangible assets
NextTrip Parent measures separately acquired intangible assets at cost less accumulated amortization and impairment losses. NextTrip Parent recognizes internally developed intangible assets when it has determined that the completion of such is technically feasible, and it has sufficient resources to complete the development. Subsequent expenditures are capitalized when they increase the future economic benefits of the associated asset. All other expenditures are recorded in profit or loss as incurred.
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NextTrip Parent assesses whether the life of intangible assets is finite or indefinite. NextTrip Parent reviews the amortization method and period of use of its intangible assets at least annually. Changes in the expected useful life or period of consumption of future economic benefits associated with the asset are accounted for prospectively by changing the amortization method or period as a change in accounting estimates in profit or loss. NextTrip Parent has assessed the useful life of its trademarks as indefinite.
The estimated useful lives for NextTrip Parent’s finite life intangible assets are as follows:
| Category | Method | Estimated useful life | ||
| Software | Straight line | 3 years | ||
| Software licenses | Straight line | 0.5 - 4 years |
Software Development Costs
NextTrip Parent capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the straight-line method over the remaining estimated economic life of the product.
Impairment of Intangible Assets
In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, NextTrip Parent assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors it considers important, which could trigger an impairment review include the following:
1. Significant underperformance compared to historical or projected future operating results;
2. Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic trends.
When NextTrip Parent determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, NextTrip Parent records an impairment charge. NextTrip Parent measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Intangible assets that have finite useful lives are amortized over their useful lives.
Leases
NextTrip Parent 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 months.
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
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Concentration of Credit Risk
Financial instruments that potentially subject to concentrations of credit risk consist primarily of cash. All of NextTrip Parent’s cash is held at high credit quality financial institutions. No credit risk in accounts receivable as deemed collectable.
Fair Value of Financial Instruments
NextTrip Parent follows accounting guidelines on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair Value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as the measurement date. NextTrip Parent uses the following six-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:
| ● | Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. | |
| ● | Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires a significant judgment or estimation. |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. NextTrip Parent’s assessment of the significance of a particular input to the fair value measurement in its entirety requires it to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not be indicative of the amount that NextTrip Parent or holders of the instruments could realize in a current market exchange.
The carrying amounts of NextTrip Parent’s financial instruments including cash, accounts receivable, accounts payable, accrued expenses, convertible notes and notes payable are of approximately fair value due to the short-term maturities of these instruments.
Revenue Recognition
NextTrip Parent 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.
NextTrip Parent 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 NextTrip Parent are recorded gross (the amount paid to NextTrip Parent by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
NextTrip Parent generates revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world.
NextTrip Parent controls the specified travel product before it is transferred to the customer and is therefore a principal, including but not limited to, the following:
| ● | NextTrip Parent is primarily responsible for fulling the promise to provide such travel product. | |
| ● | NextTrip Parent has inventory risk before the specified travel product has been transferred to a customer or after transfer of control to a customer. | |
| ● | NextTrip Parent has discretion in establishing the price for the specified travel product. |
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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).
From time to time, payments are made to suppliers in advance of customer bookings as required by hotels. These payments are recognized as costs of goods at the earlier of the date of travel or the last date of cancellation.
Loss Per Member Interests/Common Units
Basic loss per member interests/common units is computed by dividing net loss by the weighted average number of member interest/common units outstanding during the period. Diluted loss per member interests/common units is computed considering the dilutive effect of preferred units and convertible debt. However, no diluted loss per member interests/common units can be computed for the period as (i) the conversion price and units for preferred units is undeterminable due to the unpredictability of future events, and (ii) convertible debt is not expected to be converted as the conversion price is substantially higher than the current value of the member interests/common units.
Sales and Marketing
Selling and administration expenses consist primarily of marketing and promotional expenses, expenses related to our participation in industry conferences, and public relations expenses.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. NextTrip Parent has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
No provision for federal income taxes is necessary in the financial statements of the subsidiaries as they have elected to be treated as partnerships for tax purposes and therefore they are not subject to federal income tax and the tax effect of their activities accrues to the members.
In certain circumstances, partnerships may be held to be associations taxable as corporations. The IRS has issued regulations specifying circumstances under current law when such a finding may be made, and based on those regulations management determined that the subsidiaries are not associations taxable as corporations. A finding that the partnership is an association taxable as a corporation could have a material adverse effect on the financial position and results of operations of the partnership.
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Recently adopted accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). The FASB issued this ASU to address issues identified as a result of the complexity associated with GAAP for certain financial instruments with characteristics of liabilities and equity. Complexity associated with the accounting is a significant contributing factor to numerous financial statement restatements and results in complexity for users attempting to understand the results of applying the current guidance. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB concluded that eliminating certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance of the information provided to financial statement users. In addition to eliminating certain accounting models, the FASB also decided to enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”) guidance on the basis of feedback from financial statement users. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The FASB decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. NextTrip Parent adopted ASU 2020-06 on April 1, 2022, on a prospective basis. The adoption of this standard did not have an impact on the NextTrip Parent’s consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 requires accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. The recognition of the modification depends on the nature of the transaction in which the equity-classified written call option is modified. If there is more than one element in a transaction (for example, if the modification involves both a debt modification and an equity issuance), then the guidance requires allocating the effect of the option modification to each element. ASU 2021-04 is effective for the Company beginning in the first quarter of 2022. ASU 2021-04 should be applied prospectively to modifications or exchanges occurring on or after the effective date of the amendments. NextTrip Parent adopted ASU 2021-04 on April 1, 2022, on a prospective basis. The adoption of this standard did not have an impact on NextTrip Parent’s consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, ASC Subtopic 326 “Credit Losses”: Troubled Debt Restructurings and Vintage Disclosures. Since the issuance of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Board has provided resources to monitor and assist stakeholders with the implementation of Topic 326. Post-Implementation Review (PIR) activities have included forming a Credit Losses Transition Resource Group, conducting outreach with stakeholders of all types, developing educational materials and staff question-and-answer guidance, conducting educational workshops, and performing an archival review of financial reports. ASU No. 2022-02 is effective for annual and interim periods beginning after December 15, 2022. The adoption of this standard did not have a significant impact on NextTrip Parent’s unaudited condensed consolidated financial statements.
NextTrip Parent has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
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Results of Operations
Three Months Ended August 31, 2023 and August 31, 2022
Revenue
During the three months ended August 31, 2023, we recognized revenue of $27,663, as compared to $140,638 in the same period in 2022, a decrease of $112,975, or 80%. The decrease was due to the development and introduction of an enhanced booking platform during the 2023 period, resulting in a delay in revenue generated.
Cost of Revenue
Our cost of revenue for the three months ended August 31, 2023, was $22,118, as compared to $116,159 for the same period in 2022, a decrease of $94,041, or 81%. The decrease was attributable to the reduction in revenue in the three months ended August 31, 2023, as compared to the same period in of 2022.
Operating Expenses
Our total operating expenses for the three months ended August 31, 2023, were $1,092,546, as compared to $1,074,814 for the same period in 2022, an increase of $17,732, or 1.6%.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended August 31, 2023, was $331,549 as compared to $10,044 for the same period in 2022, an increase of $321,505, or 32%. The increase was primarily the result of amortization of software in the current period that was in development in prior periods.
Sales and Marketing Expenses
Sales and marketing expenses were $49,758 for the three months ended August 31, 2023, as compared to $263,254 for the same period in 2022. The $213,496 decrease was primarily related to deferment of marketing costs during the booking engine enhancement upgrade process.
General and Administrative Expenses
General and administrative expenses were $711,239 for the three months ended August 31, 2023, as compared to $801,516 for the same period in 2022. The $90,277 decrease was primarily related to a reduction in staff.
Net Loss
In the three months ended August 31, 2023, we realized net loss of $1,160,763, as compared to net loss of $1,021,024 in the same period in 2022. The increase in loss of $139,739 was primarily due to expense changes as noted above.
Six Months Ended August 31, 2023 and August 31, 2022
Revenue
During the six months ended August 31, 2023, NextTrip Parent recognized revenue of $47,225, as compared to $312,388 in the same period in 2022, a decrease of $265,163 or 84%. The decrease was due to the development and introduction of an enhanced booking platform during the 2023 period, resulting in a delay in revenue generated.
Cost of Revenue
Cost of revenue for the six months ended August 31, 2023, was $39,836, as compared to $252,200 for the same period in 2022, a decrease of $212,364, or 84%. The decrease was attributable to the reduction in revenue in the six months ended August 31, 2023, as compared to the same period in of 2022.
Operating Expenses
Total operating expenses for the six months ended August 31, 2023, were $2,051,039, as compared to $2,476,755 for the same period in 2022, a decrease of $425,716, or 17%, primarily due to a reduction in staff.
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Depreciation and Amortization Expense
Depreciation and amortization expense for the six months ended August 31, 2023, was $594,555 as compared to $213,356 for the same period in 2022, an increase of $381,199, or 179%. The increase was primarily the result of amortization of software in the current period that was in development in prior periods.
Sales and Marketing Expenses
Sales and marketing expenses were $90,539 for the six months ended August 31, 2023, as compared to $506,208 for the same period in 2022. The $415,669 decrease was primarily related to deferment of marketing costs during the booking engine enhancement upgrade.
General and Administrative Expenses
General and administrative expenses were $1,365,945 for the six months ended August 31, 2023, as compared to $1,757,190 for the same period in 2022. The $391,245 decrease was primarily related to a reduction in staff.
Net Loss
In the six months ended August 31, 2023, NextTrip Parent realized a net loss of $2,182,801, as compared to net loss of $2,420,100 in the same period in 2022. The decrease in loss of $237,299 was primarily due to expense changes as noted above.
Year Ended February 28, 2023 and February 28, 2022
Revenue
During the year ended February 28, 2023, NextTrip Parent recognized revenue of $383,832 as compared to $175,998 in the same period in 2022, an increase of $207,834 or 118%. The increase was a result of the removal of travel restrictions under COVID.
Cost of Revenue
Cost of revenue for the year ended February 28, 2023, was $354,921, as compared to $155,191 for the same period in 2022, an increase of $199,730, or 128%. The increase was attributable to the increase in revenue in the year ended February 28, 2023, as compared to the same period in 2022.
Operating Expenses
Total operating expenses for the year ended February 28, 2023, were $5,089,181, as compared to $5,372,302 for the same period in 2022, a decrease of $283,121, or 5.3% primarily due to a reduction in marketing costs.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended February 28, 2023, was $806,883 as compared to $1,060,587 for the same period in 2022, a decrease of $253,704, or 23.9%. The decrease was primarily the result of a reduction in amortization for software that became fully amortized and as the result of capitalizing new software developments and enhancements in the current period.
Sales and Marketing Expenses
Sales and marketing expenses were $708,047 for the year ended February 28, 2023, as compared to $1,370,889 for the same period in 2022. The $662,842 decrease was primarily related to deferment of marketing costs during the booking engine enhancement upgrade.
General and Administrative Expenses
General and administrative expenses were $3,574,251 for the year ended February 28, 2023, as compared to $2,940,826 for the same period in 2022. The $633,425 increase was the result of costs incurred to build the infrastructure for the company.
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Net Loss
In the year ended February 28, 2023, we realized net loss of $5,133,141, as compared to net loss of $5,437,764 in the same period in 2022. The decrease in loss of $304,623 was primarily due to expense changes as noted above.
Liquidity and Capital Resources
Going Concern
As of August 31, 2023, NextTrip Parent had $105,902 in cash, an accumulated deficit of $18,833,664 and a working capital deficit of $4,190,225, compared to $103,634 in cash, an accumulated deficit of $14,061,990 and a working capital deficit of $17,184,470 as of August 31, 2022. As of February 28, 2023, NextTrip Parent had $282,475 in cash, an accumulated deficit of $16,650,863 and a working capital deficit of $2,310,654 compared to $231,050 in cash, an accumulated deficit of $11,517,722 and a working capital deficit of $12,767,379 as of February 28, 2022.
NextTrip Parent has incurred losses since inception. The aforementioned factors raise substantial doubt about NextTrip Parent’s ability to continue as a going concern within one year from the issuance date of the NextTrip Parent financial statements included elsewhere in this proxy statement. To date, NextTrip Parent has financed its operations primarily through revenue generated from operations, the issuance of convertible debt and private placements of its securities.
NextTrip Parent will need to raise additional funds through equity or debt financings or other means to support the on-going operations, increase market penetration of its products, expand the marketing and development of its travel and technology driven products, provide capital expenditures for additional equipment and development costs, payment obligations, and systems for managing the business including covering other operating costs until the planned revenue streams are fully implemented and begin to offset its operating costs. Failure to obtain additional capital to finance NextTrip Parent’s working capital needs on acceptable terms, or at all, would negatively impact the NextTrip Parent’s financial condition and liquidity.
Since August 31, 2023, NextTrip Parent has raised $1,275,130 in net proceeds by selling convertible notes and common shares in NextTrip, which notes will be converted into common shares at closing of the Acquisition and exchanged for the Exchange Shares pursuant to the Exchange Agreement. With these additional proceeds, NextTrip Parent estimates that it has sufficient cash and working capital to fund its operations as described elsewhere in this proxy statement through the completion of the Acquisition. There is no assurance, however, that the Acquisition will close in a timely manner, or ever.
Net Cash Used in Operating Activities
Net cash used in operating activities during the six months ended August 31, 2023, was $1,384,397, as compared to $1,705,545 during the same period in 2022, a decrease of $321,148, or 18.8%.
Net cash used in operating activities during the year ended February 28, 2023, was $2,772,157, as compared to $3,107,383 during the same period in 2022, a decrease of $335,236, or 10.7%.
During the six months ended August 31, 2023, the net cash used in operating activities was the result of a net loss of $2,182,801, partially offset by changes in working capital of $203,849 and non-cash expenses of $594,555 related to depreciation and amortization. Changes in working capital were driven by an increase in accounts receivable of $5,000, a decrease in prepaid expenses of $18,896, an increase in accounts payable and accrued expenses of $95,741, an increase in deferred revenue of $57,156 and an increase in right of use asset in the amount of $74,848. The increase in accounts payable and accrued expenses was due to extending payment times to vendors to conserve cash in advance of obtaining additional financing.
During the six months ended August 31, 2022, the net cash used in operating activities was the result of a net loss of $2,420,100 partially offset by changes in working capital of $501,199, and non-cash expenses of $213,356 related to depreciation and amortization. Changes in working capital were driven by an increase in accounts receivables of $292,277, an increase in prepaid expenses of $300,261, an increase in deferred revenue of $245,752, an increase in accounts payable and accrued expenses of $811,832, and an increase in right of use asset in the amount of $36,153. The increase in accounts payable and accrued expenses was due to extending payment times to vendors to conserve cash in advance of obtaining additional financing.
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During the year ended February 28, 2023, the net cash used in operating activities was the result of a net loss of $5,133,141, partially offset by changes in working capital of $1,554,101 and non-cash expenses of $806,883 related to depreciation and amortization. Changes in working capital were driven by a decrease in accounts receivable of $5,503, a decrease in prepaid expenses of $48,796, an increase in accounts payable and accrued expenses of $533,193, a decrease in deferred revenue of $46,855 and an increase in right of use asset in the amount of $1,013,914. The increase in accounts payable and accrued expenses was due to extending payment times to vendors to conserve cash in advance of obtaining additional financing.
During the year ended February 28, 2022, the net cash used in operating activities was the result of a net loss of $5,437,764 partially offset by changes in working capital of $54,180, and non-cash expenses of $1,060,455 related to depreciation and amortization and non-cash impairment in intangible assets of $1,215,746. Changes in working capital were driven by an increase in prepaid expenses of $45,170, an increase in deferred revenue of $13,171, and a decrease in accounts payable and accrued expenses of $14,791. Management routinely perform an assessment of intangible assets and as a result of this assessment by management the intangibles as at February 28, 2022 were written down by $1,215,746.
Net Cash Used in Investing Activities
Net cash used in investing activities during the six months ended August 31, 2023, was $345,806, which compares to $2,153,506 of cash used in investing activities during the same period of 2022, a decrease of $1,807,700, or 83.4%. The decrease resulted from a decrease in the purchase of intangibles in the amount of $1,684,616 in 2023 compared to 2022 and a decrease in the purchase of equipment in the amount of $123,084 in 2023 compared to 2022.
Net cash used in investing activities during the year ended February 28, 2023, was $3,377,465, which compares to $1,743,859 of cash used in investing activities during the same period of 2022, an increase of $1,633,606, or 93.7%. The increase resulted from a right of use asset in the amount of $1,020,443 and an increase in the purchase of intangible assets in the amount of $637,007 in 2023 compared to 2022.
Net Cash Provided by Financing Activities
NextTrip Parent raised $1,269,852 in net proceeds from the issuance of convertible notes and $283,778 in advances from a related party in the six months ended August 31, 2023, compared to $3,731,635 advanced to the company by a related party in the comparable period in 2022.
Net advances from a related party generated $6,201,047 in net proceeds in the year ended February 28, 2023 compared to $4,905,697 in the year ended February 28, 2022.
Inflation, changing prices and rising interest rates have had no material effect on NextTrip Parent’s continuing operations over our two most recent fiscal years.
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UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION
We are providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Acquisition. The following unaudited pro forma condensed combined financial information presents the combination of the financial information of Sigma and NextTrip adjusted to give effect to the Acquisition, as well as the Asset Sale. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosure about Acquired and Disposed Businesses.”
The unaudited pro forma combined condensed financial information was derived from and should be read in conjunction with the following historical financial statements and accompanying notes, which are included or incorporated by reference in this proxy statement and incorporated herein by reference in this section:
| ● | The audited financial statements of Sigma as of and for the fiscal years ended December 31, 2022 and 2021; | |
| ● | The unaudited financial statements of Sigma as of and for the three and nine months ended September 30, 2023 and 2022; | |
| ● | The audited financial statements of NextTrip as of and for the fiscal years ended on February 28, 2023 and 2022; and | |
| ● | The historical interim financial statements of NextTrip as of and for the three and six months ended August 31, 2023 and 2022. |
The unaudited pro forma combined condensed financial information should be read together with the historical financial statements of Sigma and NextTrip incorporated by reference or included in this proxy statement along with the information in Sigma’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this proxy statement and “NextTrip’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in this Proxy Statement and incorporated herein by reference.
On October 12, 2023, Sigma, NextTrip, and Parent, entered into a Share Exchange Agreement (the “Exchange Agreement”). Under the terms of the Exchange Agreement, the parties agreed that the Parent will sell and transfer to Sigma all of the NextTrip Shares in exchange for the Restricted Sigma Shares to be issued to the Parent Members Pro Rata under the terms of the Exchange Agreement, subject to certain closing conditions (the “Merger”). Upon the closing of the Merger NextTrip will become a wholly owned subsidiary of Sigma.
The Contingent Shares, together with the Closing Shares issued at the closing, will not exceed 6,000,000 shares of Sigma common stock, or approximately 88.5% of our issued and outstanding shares of common stock immediately following the issuance of the Exchange Shares assuming no other change in our outstanding shares as of September 30, 2023. Assuming the issuance of all the Exchange Shares, including the Contingent Shares, the Acquisition would result in an eventual change of control of Sigma, with the NextTrip Sellers as a group receiving an aggregate number of shares that exceeds the number of shares that will be held by the legacy stockholders of Sigma. As a result, the Acquisition will be accounted for as a reverse acquisition of Sigma by NextTrip. Sigma is expected to change its corporate name to “NextTrip, Inc.” following the Acquisition.
On October 6, 2023, Sigma entered into an Asset Purchase Agreement with Divergent, pursuant to which Sigma has agreed to sell to Divergent certain assets consisting primarily of patents, software code and other intellectual property for a purchase price of $1,626,242, including a $37,000 earnest-money deposit previously paid to us by Divergent. The closing under the Asset Purchase Agreement is expected to occur subsequent to the closing of the reverse acquisition with NextTrip. The parties’ respective obligations to close are subject to the accuracy of the parties’ respective representations and warranties and performance of their respective covenants and satisfaction or waiver of other customary conditions specified in the Asset Purchase Agreement. In the interim, between the signing date and closing date or termination of the Asset Purchase Agreement, Sigma has granted Divergent a non-exclusive, nontransferable, non-sublicensable (except to Divergent customers and affiliates), limited, irrevocable (except in connection with the termination of the Asset Purchase Agreement), worldwide, royalty-free license to the “Licensed IP” (as defined) for testing, evaluation, and commercialization purposes.
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Sigma and NextTrip have fiscal years ending on December 31 and February 28, respectively. The unaudited pro forma condensed combined balance sheet as of September 30, 2023 combines the historical unaudited balance sheet of Sigma as of September 30, 2023 and the historical unaudited balance sheet of NextTrip as of August 31, 2023, and is adjusted for the pro forma effects of the Acquisition and Asset Sale.
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 combines the historical unaudited statement of operations of Sigma for the nine months ended September 30, 2023 and the historical unaudited statement of operations of NextTrip for the nine months ended August 31, 2023, and is adjusted on a pro forma basis as if the Acquisition had occurred on January 1, 2022 including the issuance of all contingent shares as of that date and for the pro forma effects of the Asset Sale .
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 combines the historical unaudited statement of operations of Sigma for the year ended December 31, 2022 and the historical unaudited statement of operations of NextTrip for the year ended February 28, 2023, and is adjusted on a pro forma basis as if the Acquisition occurred on January 1, 2022 including the issuance of all contingent shares as of that date and for the pro forma effects of the Asset Sale.
On September 22, 2023, Sigma effected the Reverse Split of the issued and outstanding shares of our common stock and the number of shares of common stock that we are authorized to issue. The Reverse Split combined each 20 shares of the issued and outstanding common stock into one share of common stock. No fractional shares were issued in connection with the Reverse Split, and any fractional shares resulting from the Reverse Split were rounded up to the nearest whole share. All stock options, warrants, shares issuable upon conversion of the Company’s preferred stock and stock awards of the Company outstanding immediately prior to the Reverse Split were adjusted in accordance with their terms. All share and earnings per share information in the unaudited pro forma condensed combined financial information has been adjusted for the Reverse Split.
The unaudited pro forma condensed combined financial information is for informational purposes only. It does not purport to indicate the results that would have been obtained had the Acquisition and the Asset Sale actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.
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Sigma Additive Solutions, Inc.
Unaudited Pro forma Condensed Combined Balance Sheet
September 30, 2023
(in thousands)
| NextTrip Group | Sigma Additive Solutions | Adjustments | Pro forma Combined Company | ||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets | |||||||||||||||||||
| Cash | 106 | 556 | 1,589 | (H) | 2,251 | ||||||||||||||
| Accounts Receivable, net | 5 | 59 | - | 64 | |||||||||||||||
| Receivables - related party, net | 1,993 | - | - | 1,993 | |||||||||||||||
| Inventory | - | 775 | (325 | ) | (H) | 450 | |||||||||||||
| Prepaid expenses and other current assets | 42 | 38 | - | 80 | |||||||||||||||
| Total current assets | 2,146 | 1,428 | 1,264 | ||||||||||||||||