DEF: NextTrip Seeks Shareholder Approval for Major Dilution, Capital Raises

NextTrip, Inc. is seeking stockholder approval for significant common stock issuances from preferred stock conversions and an equity line of credit, alongside director elections and auditor ratification, amidst increasing net losses and negative shareholder returns.

Summary

• Stockholders will vote on the election of two Class II directors, William Kerby and Jimmy Byrd, to serve until the 2029 annual meeting.
• The appointment of Haynie & Company as the independent registered public accounting firm for the fiscal year ending February 28, 2026, is up for ratification.
• Approval is sought for the issuance of more than 19.99% of outstanding common stock upon conversion of Series J, K, L, M, N, O, P, and Q Preferred Stock and exercise of certain warrants, issued between December 31, 2024, and September 15, 2025, to comply with Nasdaq Listing Rule 5635(d).
• Approval is also requested for the issuance of common stock to certain insiders (William Kerby, Donald Monaco, Andy Kaplan, Jimmy Byrd, Carmen Diges, Stephen Kircher) upon conversion of Series L and Q Preferred Stock, issued between December 31, 2024, and September 15, 2025, under Nasdaq Listing Rule 5635(c).
• Stockholder approval is sought for the issuance of more than 19.99% of outstanding common stock under an equity line of credit with Alumni Capital LP, dated September 19, 2024, to comply with Nasdaq Listing Rule 5635(d).
• The company may seek approval to adjourn the Annual Meeting to solicit additional proxies if necessary.
• Net losses have increased year-over-year, reaching $(10,198,684) for fiscal year 2025, up from $(7,339,276) in fiscal year 2024 and $(5,033,496) in fiscal year 2023.
• Total Shareholder Return (TSR) has been significantly negative, with a cumulative loss of 91.3% for the three years ended February 28, 2025.

Sentiment

Score: 2

Explanation: The filing indicates significant financial distress with increasing net losses and severely negative Total Shareholder Return. The company is heavily reliant on capital raises, including substantial dilution for existing shareholders and related party transactions, to sustain operations and pursue growth. While the capital raises are necessary, their terms and dilutive impact, coupled with poor historical financial performance, point to a very challenging outlook for common stockholders.

Positives

• The company is actively pursuing capital raises through various preferred stock issuances and an equity line of credit, which could provide necessary funding for business growth and partnerships.
• The Board has established clear corporate governance structures, including Audit, Compensation, and Nominating and Corporate Governance Committees, with a majority of independent directors.
• The company adopted a Compensation Recovery Policy on November 29, 2023, aligning with SEC and Nasdaq rules, which promotes accountability for executive compensation in the event of accounting restatements.

Negatives

• The proposed conversions of preferred stock and exercise of warrants could result in significant dilution of existing common stockholders' interests, with a potential 26.6% dilution from preferred conversions and up to 38.3% if all related warrants are exercised.
• The pro-forma book value per share is expected to decrease from $0.059 to $0.043 after the proposed conversions, indicating a reduction in tangible asset value per share.
• The company has experienced increasing net losses, from $(5,033,496) in FY2023 to $(10,198,684) in FY2025, indicating worsening financial performance.
• Total Shareholder Return (TSR) has shown substantial cumulative losses over the past three fiscal years, reflecting poor stock performance.
• Certain preferred shares and warrants were issued at prices below the Nasdaq Minimum Price, and some to insiders at prices less than market value, requiring shareholder approval due to Nasdaq rules, which could be perceived negatively by shareholders.

Risks

• Failure to obtain stockholder approval for the conversion of preferred stock and exercise of warrants could limit the company's ability to convert these securities and access capital.
• Failure to obtain stockholder approval for the equity line of credit could severely limit the company's ability to raise additional capital.
• Significant dilution from the conversion of preferred stock and exercise of warrants, as well as future sales under the equity line of credit, could negatively impact the price of common stock and the percentage interest of current common stockholders.
• The company's increasing net losses and negative Total Shareholder Return indicate ongoing financial challenges and potential difficulties in achieving profitability.
• The company's reliance on related party loans and debt conversions for funding, including those from the CEO and Chairman, may raise concerns about potential conflicts of interest and financial stability.

Future Outlook

The company aims to gain flexibility in raising additional capital through the approval of preferred stock conversions and an equity line of credit to support business growth, current announced partnerships, and collaborations. The Board continually evaluates its leadership structure and may combine Chairman and CEO positions in the future if deemed beneficial.

Management Comments

• "We have adopted a virtual format for our Annual Meeting to provide a consistent and convenient experience to all stockholders regardless of location."
• "Your vote is important no matter how large or small your holdings in the Company may be."
• "Our Board believes that Mr. Kerby is qualified to serve as a member of our Board on the basis of his deep knowledge of our Company and the travel industry in which the Company operates due to Mr. Kerby’s position as Chief Executive Officer of the Company."
• "Our Board believes that Mr. Byrd is qualified to serve on our Board on the basis of his experience in operational and corporate development leadership."
• "Our Board believes that our Board should be a diverse body, and our Nominating and Corporate Governance Committee considers a broad range of backgrounds and experiences."
• "Our Board currently is committed to the separation of the offices of Chairman and Chief Executive Officer. However, our Board continually evaluates our leadership structure and could, in the future, decide to combine the Chairman and Chief Executive Officer positions if it believes that doing so would serve the best interests of our Company and our stockholders."
• "The Compensation Committee does not use TSR or net income (loss) in its compensation programs. However, the Compensation Committee does utilize several other performance measures that it considers appropriate under the circumstances, including Company market capitalization, actual performance vs. budget and quarterly forecasts, customer success and capital raising efforts, in order to align executive compensation with the Company’s business and performance objectives."

Industry Context

The company operates in the travel and media industries, as evidenced by the CEO's background and the acquisition of FSA Travel, LLC. The need for significant capital raises and the focus on equity lines of credit suggest a growth-oriented strategy, potentially in a competitive or capital-intensive market. The virtual annual meeting format reflects a broader trend towards digital engagement and cost efficiency in corporate governance.

Comparison to Industry Standards

• The company's increasing net losses and significantly negative Total Shareholder Return (TSR) contrast sharply with typical expectations for healthy, growing companies in the travel and media sectors, which often aim for profitability and positive shareholder value creation.
• The proposed dilution levels (26.6% to 38.3%) from preferred stock conversions and warrants are substantial and generally higher than what is considered favorable for existing common shareholders in established industry players, indicating a significant cost of capital or a distressed financial position.
• The issuance of preferred stock and warrants to insiders at prices below market value, requiring Nasdaq approval, suggests a reliance on internal funding sources or a challenging environment for attracting external capital at favorable terms, unlike more robust companies that can secure funding at market or premium valuations.
• The deferral of director cash compensation until a public financing is completed is an unusual practice for publicly traded companies and may signal liquidity constraints or a strong incentive for directors to support capital-raising efforts, which is not a standard practice among industry leaders.
• The company's compensation committee explicitly states it does not use TSR or net income (loss) in its compensation programs, instead focusing on market capitalization, budget performance, customer success, and capital raising. While other metrics are valid, the exclusion of fundamental profitability and shareholder return metrics for executive compensation is atypical compared to many industry peers who link executive pay directly to these key financial outcomes.

Management Changes

Corporate Governance

Related Party Transactions

• William Kerby (CEO) and Donald Monaco (Chairman) converted $2.75 million in existing unsecured promissory notes and $500,000 in deferred salary (Kerby) into Series L Preferred Stock at $3.02 per share.
• Andy Kaplan and Jimmy Byrd (independent directors) purchased 81,250 shares of Series Q Preferred Stock for an aggregate of $260,000 at $3.20 per share.
• Carmen Diges and Stephen Kircher (independent directors) converted $152,970 in existing unsecured promissory notes (including accrued interest) into 47,803 shares of Series Q Preferred Stock at $3.20 per share.
• David Jiang (director) purchased Series I Preferred Stock for $200,000 (October 2, 2024) and $1,000,000 (February 24, 2025), and Series J Preferred Stock for $700,000 (December 31, 2024).
• NTH issued an unsecured promissory note for $391,776.54 to William Kerby on February 29, 2024, which was later converted into Series L Preferred.
• NTH entered into a $500,000 unsecured promissory note line of credit with Donald Monaco and William Kerby on March 18, 2024.
• The Board approved a related party line of credit, which was increased to $2,000,000 on August 14, 2024, with portions converted into Series L Preferred.
• NTH issued an unsecured promissory note for $455,000 to Donald Monaco on May 21, 2024, which was later converted into Series L Preferred.
• The company sold short-term promissory notes to Stephen Kircher ($100,000) and Carmen Diges ($40,000) in May and June 2024, respectively, which were later converted into Series Q Preferred.
• The company entered into two promissory notes totaling $645,000 with Donald P. Monaco Insurance Trust (controlled by Donald Monaco) on April 9, 2025.
• A $3,000,000 revolving Line of Credit Agreement was established with Monaco Investment Partners II, LP (controlled by Donald Monaco) on May 6, 2025, with an initial advance used to repay $1,045,000 in related party debt.
• Indemnification agreements have been entered into with each director and executive officer.

Stakeholder Impact

• **Shareholders:** Common stockholders face significant dilution (26.6% to 38.3%) from the conversion of preferred stock and exercise of warrants, and further potential dilution from the equity line of credit, which will reduce their ownership percentage and per-share value. The negative TSR and increasing net losses indicate a poor return on investment.
• **Preferred Stockholders/Warrant Holders:** Those holding Series J-Q Preferred Stock and related warrants stand to benefit from the conversion into common stock, potentially realizing gains if the common stock price improves, and gaining liquidity.
• **Management/Insiders:** William Kerby and Donald Monaco, along with other directors, have a substantial interest in the approval of conversion proposals, as their deferred salary and loans are being converted into preferred stock, which then converts to common stock. This aligns their interests with the company's need for capital but also highlights their significant financial involvement.
• **Employees:** The company maintains 401(k) plans and offers equity awards (stock options, SARs), which are important for employee retention and motivation, especially given the challenging financial performance. The Compensation Recovery Policy impacts executive officers' compensation in case of restatements.
• **Creditors:** The conversion of unsecured promissory notes into preferred stock and the establishment of new lines of credit (e.g., MIP Line of Credit) restructure the company's debt, potentially improving its balance sheet by reducing immediate cash obligations but also increasing the number of shares outstanding.

Next Steps

• Hold the 2026 Annual Meeting of Stockholders virtually on November 14, 2025, to vote on the proposed matters.
• If approved, convert outstanding Series J, K, L, M, N, O, P, and Q Preferred Stock into common stock on the third business day following the Annual Meeting.
• If approved, allow the exercise of related warrants issued in connection with the preferred offerings.
• If approved, proceed with the issuance of common stock under the equity line of credit with Alumni Capital LP, providing flexibility for future capital raises.
• Publish final voting results in a Current Report on Form 8-K within four business days after the Annual Meeting.
• The Compensation Committee will evaluate the director compensation program and recommend any changes to the Board.

Key Dates

Recommendation

The filing reveals a company in significant financial distress, characterized by consistently increasing net losses and a severely negative Total Shareholder Return (TSR) over multiple years. The proposed actions, while necessary for capital, involve substantial dilution for existing common shareholders (26.6% to 38.3% from preferred conversions and warrants, plus further potential dilution from an equity line of credit). This dilution, coupled with a declining pro-forma book value per share, indicates a significant erosion of shareholder value. The reliance on related party transactions and debt conversions, some at prices below market value, suggests a challenging environment for attracting external capital on favorable terms. The company's compensation committee's stated non-reliance on TSR or net income for executive compensation further raises concerns about alignment with shareholder interests. Given the worsening financial performance, high dilution, and unfavorable capital structure, a seasoned investor would likely view this as a 'strong sell' due to the high risk and poor prospects for common equity appreciation.

Keywords

Proxy Statement, Stockholder Meeting, Director Election, Auditor Ratification, Preferred Stock Conversion, Warrant Exercise, Equity Line of Credit, Stock Dilution, Nasdaq Listing Rules, Corporate Governance, Executive Compensation, Related Party Transactions, Financial Performance, Net Loss, Total Shareholder Return