UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172018

OR

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38015

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 10, 2017,8, 2018, the issuer had 4,718,6518,700,204 shares of common stock outstanding.

SIGMA LABS, INC.

For the quarter ended September 30, 2017FORM 10-Q

FORM 10-Q

TABLE OF CONTENTS

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PART II. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Sigma Labs, Inc.

Condensed Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these condensed financial statementsstatements.

3Sigma Labs, Inc.

Condensed Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these condensed financial statementsstatements.

4Sigma Labs, Inc.

Condensed Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these condensed financial statementsstatements.

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SIGMA LABS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

September 30, 20172018

(Unaudited)

NOTE 1 –- Summary of Significant Accounting Policies

Nature of Business – On September 13, 2010 Sigma -Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, acquired 100% of the shares of B6 Sigma, Inc. by exchanging 6.67 shares of Framewaves, Inc. restricted common stock for each issued and outstanding share of B6 Sigma, Inc. The acquisition has been accounted for as a “reverse merger” and, accordingly, the operations of Framewaves, Inc. prior to the date of acquisition have been eliminated. Unless otherwise indicated or the context otherwise requires, the term “B6 Sigma” refers to B6 Sigma, Inc., a Delaware corporation, which, until the short-form merger referenced below, was our wholly-owned, operating company acquired in September 2010; the terms the “Company,” “Sigma,” “we,” “us” and “our” refer to Sigma Labs, Inc., together with B6 Sigma, Inc. Prior to December 29, 2015, we conducted substantially all of our operations through B6 Sigma. On December 29, 2015, we completed a short-form merger of B6 Sigma into Sigma. As a result, B6 Sigma became part of Sigma and no longer exists as a subsidiary.

B6 Sigma, Inc., incorporated February 5, 2010, was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. The CompanySigma believes that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries including aerospace, defense, oil and gas, bio-medical, and power generation. The terms the “Company,” “Sigma,” “we,” “us” and “our” refer to Sigma Labs, Inc.

Basis of Presentation –- The accompanying financial statements have been prepared by the Company in accordance with Article 8Generally Accepted Accounting Principles (“GAAP”) in the United States of U.S.America and applicable rules and regulations of the Securities and Exchange Commission Regulation S-X.(“SEC”) regarding interim reporting. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 20172018 and 20162017 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 20162017 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended September 30, 20172018 and 20162017 are not necessarily indicative of the operating results for the full year.

Reclassification –- Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation in the current-period financial statements. In addition, $153,013 of issuance costs associated with the February 2017 capital raise have been reclassified from operating costs to a reduction in additional paid in capital and $35,680 reported as revenue in the first nine months of 2017 has been reclassified to deferred revenue.

Continuing Operations - The Company has sustained losses and had negative cash flows from operating activities since its inception. In 2017 and the first nine months of 2018, management has reported a change of strategy under which the company ceased to make sales and installations for research and development applications in order to focus its efforts entirely on potential customers already manufacturing 3D metal parts and therefore, already in need of quality improvement. The result of this change between September 2017 and the third quarter of 2018 was a significant decrease in revenues which the Company hopes to replace with orders for serial production use. The Company has raised significant equity capital as it continues to develop new products with commercial applications that may increase future revenues. On February 21, 2017, the Company closed an underwritten public offering of equity securities resulting in net proceeds of approximately $5,097,000, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The Company was able to fund operations for 2017 with these funds and end the year with a cash balance of $1,515,674. On March 28, 2018, Sigma received $535,000 in full payment of the Morf 3D note and related accrued interest balance. In addition, on April 6, 2018, the Company closed a private placement offering of equity securities resulting in net proceeds of approximately $877,500, after deducting commissions and other offering expenses payable by the Company. On June 26, 2018 the Company closed a public offering of equity securities resulting in net proceeds of approximately $2,068,900, after deducting placement agent commissions and other offering expenses payable by the Company. As a result, the Company currently has sufficient cash and working capital to fund operations through the first quarter of 2019 and is anticipating that proof of concept contracts may be closed in the last quarter of fiscal 2018 generating additional cash flow in the near term.

Loss Per Share – -The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options or note conversion features were excluded from the diluted earnings per share computation due to the anti-dilutive effect they would have on the computation. At September 30, 2018 the Company had 250 Convertible preferred stock shares, 3,228,500 warrants, 697,207 stock options and a $50,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,200,707. At September 30, 2017 the Company had 1,701,500 warrants, 279,938 stock options and $1,000,000 in Convertible Notes Payable outstanding. The total number of shares of common stock underlying these instruments was 2,481,438.

The following data shows the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the periods ended September 30, 2018 and 2017:

Recently Enacted Accounting Standards –- The FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.

Recent Accounting Standards Updates (“ASU”) through ASU No. 2015-012018-18 contain technical corrections to existing guidance or affects guidance to specialized industries or situations. The Company has evaluated recently issued technical pronouncements and has determined that, other than ASU 2014-09 (Topic 606) and the related ASU 2018-18 (Topic 808), addressed below, these updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

In May 2014, the FASB issued ASU 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. On January 1, 2018, we adopted Topic 606 and all related amendments (“new revenue standard”) to those contracts which were not completed as of January 1, 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. There is no adjustment to the opening balance of retained earnings due to the cumulative effect of initially applying the new revenue standard determined to be immaterial. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact the standard will have on its financial statements.

Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.

NOTE 2 - Notes Receivable

On May 1, 2017, the Company made a loan in the principal amount of $250,000 to Jaguar Precision Machine, LLC, a New Mexico limited liability company, pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered by Jaguar to the Company. The loan bore interest at the rate of 7% per annum, was due and payable in full on May 1, 2018, was secured by certain assets of Jaguar, and is convertible at the Company’s option into 10% of the outstanding shares of the common stock of Jaguar unless Jaguar exercises its right under specified circumstances to repay all principal and accrued interest on the loan. The purpose of the loan was to provide working capital to Jaguar to, among other things, start up a metallurgical laboratory and become ASM9100 certified for contracts related to AM of high-precision aerospace and defense components, in furtherance of our strategic alliance. Sigma received from Jaguar priority for use of certain machines and services of Jaguar. On April 27, 2018, the promissory note was amended whereby the due date of the note was extended to June 1, 2018 in exchange for a cash payment of $5,000 received on May 1, 2018, 50% of which will be retained as payment for the 30-day extension. On June 6, 2018 the promissory note was amended whereby the due date was extended to August 1, 2018 in exchange for cash payments of $10,000 by each of June 7, 2018 and July 1, 2018, $8,000 of which is to be retained as payment for the 60-day extension. The first of the $10,000 payments was received by the Company on June 6, 2018. On June 15, 2018, the Company received a $150,000 payment from Jaguar, $17,803 of which was applied to accumulated interest through that date and $132,197, the balance, of which, was applied to the principal balance of the note. No payments have been received since that date. The holder of the promissory note has committed to paying the remaining principal balance along with accumulated interest on or before December 31, 2018. The September 30, 2018 principal balance of the note was $117,803 and the accumulated interest balance due was $2,346.

On March 27, 2017, the Company made a loan in the principal amount of $500,000 bearing interest at the rate of 7% per annum to Morf3D, Inc., an Illinois corporation, pursuant to a Secured Convertible Promissory Note dated March 27, 2017 delivered by Morf3D to the Company. The $500,000 loan principal and $35,000 of accumulated interest was paid in full on March 27, 2018.

NOTE 3 - Inventory

At September 30, 2018 and December 31, 2017, the Company’s inventory was comprised of:

NOTE 4 - Notes Payable

At September 30, 2018 the Company had a $50,000 convertible note bearing interest at a rate of 10% per annum outstanding which was due on October 18, 2018. On October 18, 2018, the note was amended pursuant to which the due date was extended to April 18, 2019. Under the amendment, Sigma paid the $3,444 total accrued interest balance as of October 18, 2018 and agreed to make future payment dates of accrued interest on December 31, 2018 and April 18, 2019.

NOTE 2 –5 - Stockholders’ Equity

Common Stock

Effective March 17, 2016, our Amended and Restated Articles of Incorporation were amended pursuant to a Certificate of Change Pursuant to Nevada Revised Statutes 78.209 (the “Certificate of Change”) filed with5, 2018, the Nevada Secretary of State. The Certificate of Change provided for both a reverse stock split of the outstanding shares of our common stock on a 1-for-100 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”).

As a result of the Reverse Stock Split, the number of issued and outstanding shares of our common stock on March 17, 2016 decreased from 622,969,835 pre-Reverse Stock Split shares to 6,229,710 post-Reverse Stock Split shares (after adjustment for any fractional shares). Pursuant to the Share Decrease, the number of authorized shares of our common stock decreased from 750,000,000 to 7,500,000 shares of common stock. All amounts shown for common stock included in these financial statements are presented post-Reverse Stock Split.

On April 28, 2016, the Company’s Amended and Restated Articles of Incorporation were amended to increase the authorized number of shares of common stock to 15,000,000.

Effective October 18, 2018 the Articles of Incorporation were amended to increase the authorized number of shares of common stock to 22,500,000.

In 2017, the Company issued 40,934 shares of common stock to directors at an average value of $2.09 per share, or $85,408. Also in 2017, 7,750 shares previously issued to a director and 750 shares previously issued to an employee, with a combined carrying value of $9,830, were forfeited.

In January 2018, the Company issued 23,256 shares of common stock to directors valued at $1.72 per share, or $40,000.

In April 2018, the Company issued 176,744 shares of common stock to directors valued at $1.2236 per share, or $216,264.

Between May 29, 2018 and June 1, 2018, we issued an aggregate of 1,000,000 shares of common stock upon conversion of the 1,000 shares of Series B Preferred Stock issued on April 6, 2018 (as described below under “Preferred Stock”).

On June 26, 2018, as part of its public offering of equity securities described in Note 1, the Company issued 2,040,000 shares of common stock and warrants to purchase a total of 717,000 shares of common stock (including the warrants described under “Preferred Stock” below that were issued on June 26, 2018). Each warrant has an initial price of $1.08 per share. The net proceeds to the company were approximately $2,068,900 after commissions and other offering expenses. The Company also issued Dawson James Securities, Inc., its placement agent in the public offering, a Unit Purchase Option to acquire up to 191,200 Units, at an exercise price of $1.25 per Unit, consisting of 191,200 shares of common stock and warrants to purchase up to 57,360 shares of common stock at an exercise price of $1.08 as compensation.

On August 31, 2018, the Company issued 100,000 shares of common stock upon conversion of 100 shares of Series C Preferred Stock issued on June 26, 2018 (as described below under “Preferred Stock”).

Deferred Compensation

In previous years and in the nine months ended September 30, 2018, the Company issued to various employees, directors, and contractors shares of the Company’s common stock, from 7,500,000subject to 15,000,000 shares of common stock.

Effective February 15, 2017, our Amended and Restated Articles of Incorporation were amendedrestrictions, pursuant to the 2013 Equity Incentive Plan (the “2013 Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over the vesting period and recorded as a Certificatereduction of Change Pursuant to Nevada Revised Statutes 78.209 (the “Certificate of Change”) filed withstockholders’ equity. During the Nevada Secretary of State. The Certificate of Change provided for both a reverse stock splitnine months ended September 30, 2018 and September 30, 2017, $213,449 and $192,248 respectively of the outstanding shares of our common stock on a 1-for-2 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorizedunvested compensation cost related to issue (the “Share Decrease”).

As a result of the Reverse Stock Split, the number of issued and outstanding shares of our common stock on February 15, 2017 decreased from 6,307,577 pre-Reverse Stock Split shares to 3,153,801 post-Reverse Stock Split shares (after adjustment for any fractional shares). Pursuant to the Share Decrease, the number of authorized shares of our common stock decreased from 15,000,000 to 7,500,000 shares of common stock, $0.001 par value per share. As of March 31, 2017, the Company had 7,500,000 shares of authorized common stock, $0.001 par value per share.

In January, 2017, the Company issued 20,000 shares of common stock to two directors in equal amounts of 10,000 shares each, valued at $1.72 per share, or $34,404.

In February, 2017, the Company issued 5,232 shares of common stock to a director valued at $3.25 per share, or $17,004.

On February 14, 2017, The NASDAQ Stock Market LLC informed the Company that it had approved the listing of the Company’s common stock on The NASDAQ Capital Market, effective as of February 15, 2017. The Company’s common stock ceased trading on the OTCQB on February 15, 2017, and on such date the common stock commenced trading on The NASDAQ Capital Market under the ticker symbol “SGLB”.

On August 8, 2017, the Company issued 7,489 shares of common stock to a director valued at $2.27 per share, or $17,000.

On August 16, 2017, the Company issued 8,213 shares of common stock to a director valued at $2.07 per share, or $17,000.these issues was recognized.

As of September 30, 20172018 and December 31, 2016, there were 4,577,6512017, the balance of unvested compensation to be recognized was $64,066 and 3,133,789 shares$31,576, respectively and is recorded as prepaid stock compensation as of common stock issued and outstanding, respectively.those dates.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. No250 and 0 shares of preferred stock were issued and outstanding at September 30, 2018 and December 31, 2017, and 2016.

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Stock Optionsrespectively.

On September 28, 2017,April 6, 2018, Sigma issued 1,000 shares of the Company grantedCompany’s newly-created non-voting Series B Convertible Preferred Stock, which were convertible into 1,000,000 shares of common stock and warrants to purchase an officer (i) a five-yearaggregate of 750,000 shares of the Company’s common stock, optionfor an aggregate purchase price of $1,000,000. The warrants have an initial exercise price of $1.47 per share, the closing price of the Company’s Common Stock reported on The NASDAQ Capital Market on April 6, 2018, subject to adjustment in certain circumstances. The net proceeds to the company were approximately $877,500 after commissions and other offering expenses. Sigma also issued Dawson James Securities, Inc., its placement agent in the foregoing private placement, warrants to purchase up to 2,500 shares of common stock, at an exercise price equal to $1.91 per share, which was the closing market price of our common stock on September 28, 2017 (i.e., the date of grant), which option vested and became exercisable in full on the date of grant, and (ii) a five-year stock option to purchase up to 47,500 shares of common stock, at an exercise price equal to $1.91 per share (the closing market price of our common stock on the date of grant), which option is subject to vesting.

The weighted average period over which total the compensation cost of the options of $90,723 ($11,937 in 2017) will be recognized is 4 years. The weighted average exercise price of all outstanding options as of September 30, 2017 is $3.58 and the weighted average fair value of the options on the grant dates was $2.88. The estimated fair value of the options was determined using the Black-Scholes pricing model using the following assumptions:

Warrants

As of September 30, 2017, the Company had outstanding warrants to purchase a total of 80,000140,000 shares of common stock, at an exercise price of $2.00$1.47 per share. Each warrant, prior to its amendmentshare, as compensation.

On June 26, 2018, as part of the public offering described below in Note 4, had an exercise price equal to $4.13. If not exercised, the warrants to purchase the 80,000 shares will expire on October 17, 2019. In addition, as of September 30, 2017,1, the Company had outstanding warrants to purchase a totalissued 350 of 1,621,500the Company’s newly-created non-voting Series C Convertible Preferred Stock, which were convertible into 350,000 shares of common stock, atand warrants to purchase an aggregate of 105,000 shares of the Company’s common stock. The warrants have an initial exercise price of $4.00$1.08 per share. If not exercised,share, 11% above the warrants to purchaseclosing price of the 1,621,500 shares will expire on February 21, 2022. The 1,621,500 warrants tradeCompany’s Common Stock reported on The NASDAQ Capital Market under the ticker symbol “SGLBW”.

Unit Purchase Option

On February 15, 2017, Sigma Labs, Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James Securities, Inc., as underwriter (the “Underwriter”) in connection with a public offering (the “Offering”) of the Company’s securities.   Pursuant to the Underwriting Agreement, the Company has granted the Underwriter the right to purchase from the Company 70,500 Units at an exercise price equal to 125% of the public offering price of the Units in the Offering, or $5.1625 per Unit. The Unit Purchase Option has a term of five years and is not redeemable by us. A “Unit” is defined as of one share of the Company’s common stock, par value $0.001 per share and one warrant to purchase one share of the Company’s common stock, par value $0.001 per share, at an exercise price of $4.00 per share.

NOTE 3 – Note Receivable

On May 1, 2017, the Company completed funding a loan in the principal amount of $250,000 to Jaguar Precision Machine, LLC, a New Mexico limited liability company, pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered by Jaguar to the Company. The loan bears interest at the rate of 7% per annum, is due and payable in full on May 1,June 26, 2018, is secured by certain assets of Jaguar, and is convertible at the Company’s option into 10% of the outstanding shares of the common stock of Jaguar unless Jaguar exercises its right under specified circumstances to repay all principal and accrued interest on the loan. The purpose of the loan is to provide working capital to Jaguar to, among other things, stand up a metallurgical laboratory and become ASM9100 certified for contracts related to AM of high-precision aerospace and defense components, in furtherance of our strategic alliance. Sigma will receive from Jaguar priority for use of certain machines and services of Jaguar.

On March 27, 2017, the Company completed funding a loan in the principal amount of $500,000 to Morf3D, Inc., an Illinois corporation, pursuant to a Secured Convertible Promissory Note dated March 27, 2017 delivered by Morf3D to the Company. The loan bears interest at the rate of 7% per annum, is due and payable in full on March 27, 2018, is secured by certain assets of Morf3D, and is convertible at the Company’s option into 10% of the outstanding shares of the common stock of Morf3D unless Morf3D exercises its right under specified circumstances to repay all principal and accrued interest on the loan. The purpose of the loan is to provide working capital to Morf3D to, among other things, lease an EOS M 400 system for Morf3D for Morf3D to expand production for contracts related to AM of high-precision aerospace and defense components, in furtherance of our strategic alliance and in contemplation of a possible acquisition of or merger with Morf3D (although discussions regarding a possible acquisition of or merger with Morf3D are not currently ongoing).

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NOTE 4– Notes Payable

Effective October 17, 2016, the Company entered into a Securities Purchase Agreement with two accredited investors (the “Investors”) for the private placement by the Company of Secured Convertible Notes in the aggregate principal amount of $1,000,000 (the “Notes”) and warrants (the “Warrants”) to purchase up to 80,000 shares (the “Warrant Shares”) of the Company’s common stock (“Common Stock”) (subjectsubject to adjustment in certain circumstances), for aggregate gross proceeds, before expenses, to the Company of $900,000 (the “Financing Transaction”). The Notes carry a one-time upfront interest charge of a total of $100,000, which is being expensed to interest expense monthly over the 1-year term of the Notes and correspondingly increases in the Notes Payable balance each period.circumstances.

The Notes carry an interest rate of 10% per annum, calculated on the basis of a 360-day year, based on the $1 million Notes Payable effective balance. Such interest is payable every three months in cash, or, at the holder’s option, in unrestricted shares of Common Stock if a registration statement is then in effect for such shares of common stock.

In connection with the Financing Transaction, the Company entered into a Registration Rights Agreement, dated October 17, 2016, with the Investors, pursuant to which the Company filed a registration statement related to the Financing Transaction with the Securities and Exchange Commission (“SEC”) covering the resale of (i) the shares of Common Stock that will be issued to the Investors upon conversion of the Notes, and (ii) the Warrant Shares that will be issued to the Investors upon exercise of the Warrants.

The Notes are secured by the assets of the Company pursuant to a Security Agreement, dated October 17, 2016, between the Company and the “collateral agent” (as defined in the Notes) for the benefit of itself and each of the Investors.

The Notes , prior to their amendment described below, provided that they were convertible into shares of Common Stock at a conversion price equal to the lesser of (i) the final unit price of the Company’s proposed public offering initially filed with the SEC on July 28, 2016, and (ii) 150% of the closing price of the Common Stock as reported by the OTC Markets Group, Inc. on the date of issuance of the Notes (subject to adjustment as provided therein). As such, the conversion price of the Notes was $4.13, which is the final unit price of the Company’s public offering.

Each Warrant , prior to its amendment described below, had an exercise price equal to the lesser of (i) the final unit price of the Company’s proposed public offering initially filed with the SEC on February 17, 2017, and (ii) 150% of the closing price of the Common Stock as reported by the OTC Markets Group, Inc. on the date of issuance of the Warrants (subject to adjustment as provided therein), which Warrants may be exercised on a cashless basis as provided in the Warrants. As such, the exercise price of the Warrants was $4.13, which is the final unit price of the Company’s public offering.

On September 29, 2017, the Company entered into amendments (the “Amendments”) to the Notes and Warrants pursuant to which, among other things set forth in the Amendments, (1) the exercise price of the Warrants was reduced from $4.13 per share to $2.00 per share, and (2) the conversion price of the Notes was reduced from $4.13 per share to $2.00 per share. Under the Amendments, Sigma paid the Investors an aggregate amount equal to $500,000 (representing 50% of the outstanding principal balance of the Notes) plus all accrued interest on the Notes on October 2, 2017. In consideration of the foregoing, the Investors agreed to, among other things, extend the payment date of the remaining 50% of the outstanding principal balance of the Notes from October 17, 2017 to the earlier of May 18, 2018 or the closing of the Company’s next underwritten public offering of securities in which the Company raises gross proceeds of at least $3,000,000 (should the Company elect to commence and close such an offering of securities).Options

As of September 30, 2017,2018, an aggregate of 750 shares and 697,207 shares of common stock were reserved for issuance under the Notes Payable balance is $994,909 which balance was reduced to $500,000 on October 2, 2017.

NOTE 5 - Continuing Operations

The Company has sustained losses and has negative cash flows from operating activities since its inception. However, the Company has raised significant equity capital and is currently developing new product lines to increase future revenues. On February 21, 2017, the Company closed an underwritten public offering of equity securities resulting in net proceeds of approximately $5.25 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. As such, the Company believes it has adequate working capital and cash to fund operations through 2017. 

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NOTE 6 – Loss Per Share

The following data show the amounts used in computing loss per share2011 and the weighted average number of shares of dilutive potential common stock for the periods ended September 30, 2017 and 2016:

Dilutive loss per share was not presented as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per share or its effect is anti-dilutive.

NOTE 7– Subsequent Events2013 Plans, respectively.

On October 6, 2017,pursuant to an advisory agreement with the Underwriter, the Company issued to the Underwriter a total of 141,000 shares of the Company’s common stock in exchange for the surrender by the Underwriter of its Unit Purchase Option to acquire up to 70,500 Units.

On October 13, 2017,February 21, 2018, the Company granted Mark Cola, a former officer of the company, two employees five-yearten-year options under the 2013 Plan to purchase an aggregate of 20,00061,750 shares of common stock each, with each option having an exercise price of $1.49 per share. Pursuant to Mr. Cola’s employment agreement, one of the options became fully-vested on the October 10, 2018 date that Mr. Cola retired from the Company, and the other option vests and becomes exercisable ratably over 17 monthly installments on the 15th day of each month commencing on March 15, 2018, subject in each case to Mr. Cola’s continuing employment as a consultant.

On February 26, 2018, the Company granted nine employees ten-year options under the 2013 Equity Incentive Plan to purchase an aggregate of 70,188 shares of common stock, with each option having an exercise price of $1.92$1.56 per share, and with vesting periods ranging from 3 to 4 years beginning February 26, 2019.

On April 19, 2018, Sigma granted John Rice, our President and Chief Executive Officer, three options to purchase up to 20,000 shares of our common stock under our 2013 Plan. In addition, on each of April 30, May 31, June 30, 2018 and July 31, 2018, Sigma granted Mr. Rice an option to purchase up to 20,000 shares of our common stock under our 2013 Plan. The foregoing options have an exercise price per share equal to $1.88, $1.54, $1.48, $1.26, $1.47, $1.19 and $.87 respectively, which is at least the closing price of our common stock on the respective date of grant, and each is fully vested as of the respective grant date.

On April 19, 2018, Sigma granted Ron Fisher, our Vice President of Business Development, a five-year option to purchase an aggregate of 28,750 shares of common stock, with such option having an exercise price of $1.22 per share, and with 1,438 shares vesting upon grant and the balance vesting in four annual installments over the four-year periodfour years following the date of grant (1,366 shares, 4,097 shares, 6,828 shares and 15,021 shares, respectively).

During the nine months ended September 30, 2018, options to purchase 288,076 shares of common stock vested, and $569,718 of compensation cost was recognized. As of September 30, 2018, there were options to purchase 697,207 shares issued and outstanding under the 2013 Plan. Of this amount, there are vested options exercisable for 373,689 shares of common stock. No options were exercised during the nine months or the quarter ended September 30, 2018.

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service and expire ten years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

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Total share-based compensation expense included in the condensed statements of operations for the nine months ended September 30, 2018 and 2017 is $783,167 and $505,630, of which $569,718 and $313,382 is related to stock options, respectively. There was no capitalized share-based compensation cost as of September 30, 2018 and 2017.

The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the nine months ended September 30, 2018 and 2017:

Warrants

At September 30, 2018, the Company had outstanding warrants to purchase a total of 3,228,500 shares of common stock; 1,621,500 warrants at an exercise price of $4.00 per share, which if not exercised, will expire on February 21, 2022, 890,000 warrants at an exercise price of $1.47 per share, which if not exercised, will expire on October 07, 2023, and 717,000 warrants at an exercise price of $1.08 per share, which if not exercised, will expire on June 26, 2023.

On May 31, 2018, 24,000 warrants with an exercise price of $2.00 were exercised in a cashless exchange transaction resulting in the issuance of 4,800 shares of the Company’s common stock.

NOTE 6 - Subsequent Events

Between October 3, 2018 and October 9, 2018, the Company issued an aggregate of 250,000 shares of common stock upon the conversion of 250 shares of the Company’s Series C Convertible Preferred.

Between October 18, 2018 and November 1, 2018 the Company issued 101,475 shares of common stock upon the exercise of warrants at an exercise price of $1.08 per share.

On October 18, 2018, the 2013 Plan was amended to fix at 1,650,000 shares the aggregate number of shares of our common stock issued or issuable under the 2013 Plan.

On October 18, 2018, the Company increased the annual base salary of Darren Beckett, our Chief Technology Officer, from $135,000 to $180,000, effective retroactive to September 16, 2018, and granted Mr. Beckett an option to purchase 20,000 shares of common stock under the 2013 Plan at an exercise price of $1.206 per share. The option has a term of five years and vests as follows: 1,000 shares will vest and become exercisable on September 16, 2019; 3,000 shares will vest and become exercisable on September 16, 2020; 5,000 shares will vest and become exercisable on September 16, 2021, and 11,000 shares will vest and become exercisable on September 16, 2022, subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable vesting date.

Effective October 19, 2018, our Amended and Restated Articles of Incorporation, as amended, were amended pursuant to a Certificate of Amendment filed with the Nevada Secretary of State to increase the authorized number of shares of our common stock to 22,500,000.

On November 1, 2018, the Company granted Mr. Rice an option to purchase 68,750 shares of the Company’s common stock under the 2013 Plan at an exercise price of $1.79 per share, with such option having a term of five years and being fully vested on the grant date.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-looking statements

This Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including any projections of revenue or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this document are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162017 and elsewhere in this report.

Overview

Sigma Labs, Inc. (the “Company,” “we,” “us,” or “Sigma”) is a software company that has developed In-Process-Quality-Assurance (“IPQA”) software known as PrintRite3D®. This technology is also sometimes referred to as Real-Time-Computer-Aided Inspection (“CAI”).  Sigma believes that its PrintRite3D® solves the major problem that has prevented large-scale metal part production using 3D printers.

3D metal manufacturing is a technology that uses lasers to form or create parts out of welding powdered metals into a 3-dimensional (3D) object. The quality of these parts can vary from any given part to another on a single production run. Therefore, traditional after the fact quality inspection methods do not assure quality of 3D printed parts. Sigma believes that the best, indeed, only way to attain high yields for both manufacturing quality and cost efficiency is an IPQA® approach that looks at each part in real time as it is being manufactured and determines in real time whether it meets quality specifications.

GE Aviation has stated that it plans to commit $3.5 billion by 2020 to, among other things, build a metal 3D production facility for its Leap engine and other engines to produce Leap engine 3D printed metal parts. Since September 2016, GE has spent over $1 billion buying controlling interests in AM equipment manufacturers, Concept Laser and Arcam AB, and invested over $300 million creating AM manufacturing capability in both the United States and India. However, unless companies that utilize a 3D production facility like GE Aviation are able to effectively check each part for conforming attributes of shape, density, strength and consistency in real-time during the manufacturing process, we believe that such companies will be at risk of letting some substandard parts through and, also, be unable to improve the workflow and high-quality yields of 3D printing functional metal parts. We believe that our software, which can be positioned “inside” the 3D metal printer, solves these problems by assuring each part is being made to the quality specifications of the computer file as such part is being made. In essence, our software enables 3D prototyping to become 3D manufacturing. Instead of performing quality assurance (“QA”) post production or after the fact, our PrintRite3D® software has been designed to fundamentally redefine traditional QA by embedding quality assurance and process control into the manufacturing process in real time.

We have filed patent applications on our In-Process Quality Assurance™ (“IPQA®”) process and procedure for advanced manufacturing. In addition, we anticipate that our core PrintRite3D® software will enable our customers to combine their digital manufacturing technologies with our 3D manufacturing QA to achieve both cost savings and more reliable parts. Vertical markets that we believe would benefit from our technology and software include aerospace, defense, bio-medical, power generation, and oil & gas industries. We provide our software products to customers in the form of Software as a Service (“SaaS”). 

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About 3D Printing

3D printing (“3DP”) or additive manufacturing (“AM”) is changing the world by going directly from computer graphics to actual parts. 3D printing has been applied to the manufacture of plastic parts for decades. 3D manufacturing of metal parts involves directing a laser or other energy source at a layer of powdered metal and melting it. These layers become melted together from the bottom up. Worldwide revenues attributable to 3D manufacturing for metal products were $88.1 million in 2015 (Wohlers Report 2016, 3D Printing and Additive Manufacturing State of the Industry – Annual Worldwide Progress Report).

The application of 3D printing to high-tolerance, precision manufactured metal parts has only recently emerged. 3D printing of metal parts today represents only a minor percentage of all 3D manufacturing. However, we believe the greatest future growth for 3D printing appears to be in metal parts, given the interest and investment being made by Fortune 100 companies, Federal government laboratories and agencies as well as university-based institutions. Emphasis from these high-end manufacturers and technology leaders is strongly focused on helping the transformation of analog manufacturing of precision, high-tolerance parts in the U.S. today to a digital enterprise of tomorrow complete with automation, robotics and closed-loop process control. We believe that the on-going success of 3D printing for metal parts will be highly dependent upon the evolution of digital quality assurance procedures used, such as our PrintRite3D® process control.

About Quality Assurance in 3D Printing

Current methods for providing quality in 3DP are generally either inaccurate due to use of procedures that do not recognize and measure the primary quality issues of 3D metal manufacturing or are cost prohibitive due to the expense of equipment required to examine the interior of complex dense parts such as 3D can create, and further, may be inaccurate due to misuse of statistically based assessments.  After 3D-manufacture, costs are normally incurred by using non-destructive technologies such as ultrasound and non-traditional x-ray scanning technology on these parts, and old-fashioned visual inspection. Destructive testing of 3D parts is a mis-applied carryover from current Subtractive Manufacturing quality assurance practice in which the great consistency of CNC machines  permits quality inspectors to infer the quality of a production run by cutting up and analyzing a statistically relevant number of parts. The test result of the parts that are destroyed and analyzed have been, at great time and expense, statistically demonstrated to be representative of the rest of the parts in the production lot. The underlying premise of quality assurance for Subtractive Manufactured parts is that if a machine is set up properly, then all parts it produces will be the same. This simple, effective and accurate quality system does not apply to Additive Manufacturing, in which each part is built in an average production lot of 5-20, and in which quality variance may occur from part to part and within any part notwithstanding that the AM machine settings are the same. Therefore, unable to rely on a traditional statistically based quality system, 3D Manufacturing’s optimum quality assurance system would evaluate the quality of each individual part.  PrintRite3D®’s in-process quality inspection approach of each part individually allows a manufacturer to use AM to form a single part, such as a hip replacement or one spare aircraft part needed on an aircraft carrier, or several lots of the same part, in large quality – each approved or rejected in real time and based upon 100% inspection during fabrication. We offer our customers’ the ability to use real-time sensors to track individual scans of each layer, and our software continuously analyzes the part health so that when it is finished we can determine if it meets the production quality standard set by the customer. We believe our PrintRite3D® software could reduce inspection costs by a factor of 10 and development time for new parts by 50% or more. Most importantly is the ability of our software to reduce risk associated with the qualification and certification of printed parts.

By using PrintRite3D® software, a high-precision manufacturer would have the ability to offer its customers product warranties and assurances that its printed parts were produced in compliance with stringent quality requirements. Orders for our software have been received from Honeywell Aerospace, Aerojet Rocketdyne, Woodward, Siemens Turbomachinery, Pratt and Whitney, and Solar Turbines.

We believe there is potential for our PrintRite3D® software to be incorporated into a majority of 3D metal printing devices made by companies like Electro-Optical Systems (“EOS”), Additive Industries, Concept Lasers, Trumpf Lasers, Renishaw, Sentrol, Farsoon, Desktop Metal and others.

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Sigma’s Cloud-Based IIoT Solutions

The process of making a 3D printed part could start with our customers loading a computer aided design (“CAD”) model of the part into the Cloud as shown in “A” in Figure 1. Next, computer aided engineering (“CAE”) and/or computer aided manufacturing (“CAM”) instructions are sent to the 3D printer (see “B”, as shown in Figure 1). Metal powder in the machine is then deposited onto the build platform where a laser beam, or other energy source, focused onto the build platform melts each successive layer of powder in 20-60 micron increments. Our PrintRite3D SENSORPAK® (see “C” in Figure 1) detects, records, analyzes and compares the part as it is being made layer-by-layer against the CAD/CAM specifications and physical reference points for quality assurance during manufacturing. Our PrintRite3D INSPECT®, Version 3.0 software determines compliance of each part for its metallurgical quality. Our alpha version of PrintRite3D CONTOUR® software determines the shape and conformity of a part in real-time manufacture with its geometric design specification.

OurPrintRite3D® CAI web-based software suite (see “D” in Figure 1) resides in situ and/or in the Cloud (see “A” in Figure 1) of the Industrial Internet of Things (“IIoT”). We enable manufacturing engineers to assure the part quality layer-by-layer, provide for manufacturing statistical process control and harvest, aggregate, and analyze Big Data from the manufacturing real-time data collected from our PrintRite3D SENSORPAK® (see “C” in Figure 1), as well as post-process manufacturing data collected by our customers (see “E” in Figure 1).

Our specialized sensor suite (see “C” in Figure 1), known as PrintRite3D SENSORPAK®, is an edge computing device. It contains the modular hardware and software necessary to connect to “cyber-physical” objects (see “B” in Figure 1) living on the manufacturing floor. It allows for bi-directional information flow between the manufacturing floor and the Cloud (see “A” in Figure 1). It starts a million-fold data reduction that finishes with our PrintRite3D® Digital Quality Record (“DQR”) and report, which provides customers with product guarantees and assurances that parts were produced in compliance with stringent quality standards. It can collect, analyze, aggregate, filter, and then further communicate data from the manufacturing floor to the Cloud (see “A” in Figure 1) and enable links to other areas (see “F” in Figure 1) of the IIoT.

Figure 1. Sigma’s Industrial IoT /PrintRite3D® Cloud Architecture

Business Activities and Industry Applications

Our principal business activities include the continued development and commercialization of our PrintRite3D® suite of software applications, with our main focus currently on the 3DP and the AM industry, as well as further developing our contract additive manufacturing business for metal 3DP to be a customer prototype center available for cutting edge 3D challenges and a concurrent means of demonstrating and proving the merit of PrintRite3D® for customers’ parts or application. Our strategy is to continue to leverage our advanced manufacturing knowledge, experience and capabilities through the following means:

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Identify, develop and commercialize our quality assurance software Apps for advanced manufacturing technologies designed to assure part quality in real time as the part is being made and improve process control practices for a variety of industries; 

Provide materials and process engineering consulting services in respect of our PrintRite3D® CAI quality assurance software Apps for advanced manufacturing to customers that have needs in developing next-generation technologies for digital manufacturing technologies; and 

Build and run a prototype and small lot contract manufacturing and demonstration division for metal 3DP beginning with our EOS M290 state-of-the-art metal printer.  

We are presently engaged in the following industry sectors:

Aerospace and defense manufacturing; and 

Energy and power generation. 

We also seek to be engaged in the following industry sectors and have begun to develop relationships with leading manufacturers in each such sector:

Bio-medical manufacturing; 

Automotive manufacturing; and 

Other markets such as firearms and recreational equipment. 

We generate revenues through PrintRite3D® hardware and CAI software licensing of our PrintRite3D® technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. Additionally, we generate revenues from our contract manufacturing activities in metal AM. By running a contract AM services operation, we are able to understand the current needs of our customers and where they are going with their next-generation product development efforts. Contract AM further allows us a means for continuing/self-funding our IPQA®-enabled R&D and product development activities for CAI software. We provide our AM contract manufacturing services to customers in the form of Quality as a Service (“QaaS”). Starting with our PrintRite3D® cloud-based SaaS model, customers will contract with us for CAE, CAM and CAI services to generate and establish a DQR for AM built parts. Each DQR is cloud-based and allows for archiving and storage of quality data, access to our big data ANALYTICS™ software App for continuous quality monitoring and improvement, and automatic industry benchmarking while maintaining firewalls between company-specific data.

In late 2015, we launched two programs − an Early Adopter Program (“EAP”) and an Original Equipment Manufacturer (“OEM”) Partner Program − designed to broaden our market presence and speed adoption of our PrintRite3D® technology. The EAP was designed to attract end user customers who have an existing, installed base of 3D metal printers and to offer them incentivized pricing in return for feedback on engineering and beta releases of our PrintRite3D® software Apps. Our OEM Partner Program was specifically designed for AM machine manufacturers seeking to embed our PrintRite3D® quality assurance software Apps directly into their machines for customers purchasing a turnkey solution for their new AM machine purchases.

We possess the resident expertise to provide manufacturing materials and process (“M&P”) engineering services and support to companies using our PrintRite3D® software Apps for metal AM. Accordingly, in addition to our primary business focus, we intend to generate revenues by providing such engineering services and support to businesses licensing our PrintRite3D® software Apps.

Our President and Chief Technology Officer has worked at or with the Edison Welding Institute, the United States Department of Energy (“DOE”) national laboratories (including the Knolls Atomic Power Laboratory, Bettis Atomic Power Laboratory, Los Alamos National Laboratory and Sandia National Laboratory) over the past 34 years. Due to his work with the DOE, our President and Chief Technology Officer has developed extensive relationships with the DOE and its network of national laboratories. Accordingly, we expect to leverage these relationships in connection with licensing and developing technologies created at such national laboratories for commercialization in the private sector.

CorporateCorporation Information

Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our current telephone number at that address is (505) 438-2576. Our website address is www.sigmalabsinc.com. The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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We incorporated as Messidor Limited in Nevada on December 23, 1985 and changed our name to Framewaves Inc. in 2001. On September 27, 2010, we changed our name from Framewaves Inc. to Sigma Labs, Inc.Recent Developments

Recent Developments (in reverse chronological order)In the course of the third quarter of 2018, Sigma accomplished important internal product development milestones that led to the Company announcing on October 25, 2018 the rollout of a combination of new products at the Formnext additive manufacturing (AM) trade show in Frankfurt, Germany the week of November 12, 2018. Sigma believes that that combination of advanced new hardware and Sigma’s new PrintRite3D® Version 4.0 software completes the evolution of Sigma’s PrintRite3D® technology from its well-stressed and tested roots in research and development, into a compact and hardened commercial-industrial product that is deployable into demanding serial production settings.

Our competition is delivering In-Process-Quality-“Monitoring” tools that we believe generally deliver un-analyzed data to their customers to utilize as they see fit. Sigma is commercializing its PrintRite3D® hardware and software package that emerged from the third quarter of 2018 and is emphasizing to prospective customers Sigma’s dedication to delivering a product which provides In-Process-Quality-“Assurance” that gathers and analyzes in-process manufacturing data and delivers actionable conclusions that improve quality. We believe that such a product is made possible because of both: (1) PrintRite3D®’s ability to detect and notify users of process and machine discontinuities that require adjustments of the computers’ lasers in order to reduce AM machine-induced quality deficiencies, and (2) PrintRite3D®’s ability, in real-time in-process manufacturing runs, to detect a growing library of randomly recurring quality deficiencies, identify the signature traits of these deficiencies, and provide warnings and options to operators to adjust input and machine control parameters to mitigate those deficiencies early enough in their development to avoid rejection of the part.

On November 9, 2017,May 30, 2018, Sigma announced its successful demonstration of proof of concept of closed-loop feedback control. As a result of Sigma’s root cause analyses of various AM quality discrepancies, we announcedhave come to believe that the Companyfuture of AM manufacturing machines is that the machines must and 3DSIM have partneredwill be “self-driving”, i.e., controlled by a closed loop control system that adjusts and directs AM machine operating controls to bring their customers closer tomaintain the realityoptimum standard of full process control overmelt pool qualities for the metal additive manufacturing (AM) process whichpart designs and metals in question. We believe that the hardware and software package of our PrintRite3D® Version 4 is a significant advancement in the realization of this vison of the future.

Concurrent with the above-mentioned product development milestones that were realized in the third quarter, Sigma has been a challenge for AM part designers and manufacturers. 3DSIM, an AM simulation leader, has jointly developed with the Company,testing a new capability for 3DSIM’s FLEX^TM softwareproof of concept sales program that simulateswas made possible and practicable by the thermal sensors’ responseattainment of such product development milestones. Beta test results have demonstrated that Sigma can now install and commence manufacturing test-runs on many AM machines in a 24-hour period and that a proof of concept and value analysis can be accomplished in a matter of weeks subject to how promptly customers and third-party laboratories commit resources and deliver their feedback on the metal AM process. FLEX^TM is the newest software from 3DSIM, the full commercial version of which is scheduled to be released in early 2018.results.

Other Recent Developments

On October 16, 2017,18, 2018, Darren Beckett’s title was changed from Vice President of Engineering to Chief Technology Officer of the Company.

On August 29, 2018, we announced that we were awarded a contract in connection with our PrintRite3D^® hardware, software and engineering services by a federally funded organization involved in the space industry. Under the contract, our sensor arrays will unveil our PrintRite3D® INSPECT™ V3.0determine and communicate the quality assurance software atof manufactured parts in real time to the international Formnext 2017 to be held from November 14-17, 2017, which will showcase current and future cutting-edge applications of additive technologies.end-user.

On October 12, 2017, we announced that John Rice, our interim Chief Executive Officer, was to be a featured presenter at the 3rd Annual Dawson James Small Cap Growth Conference on October 19, 2017 in Jupiter, Florida, and on September 29, 2017, we announced that Mr. Rice was to present at The MicroCap Conference in New York City on October 5, 2017.

On September 5, 2017, we announced that our cloud-based PrintRite3D® INSPECT® software Version 2.0 was recently installed at the advanced additive manufacturing facility operated by Siemens Industrial Turbomachinery AB in Sweden.

On August 25, 2017, we announced that the Company received an invitation to speak at the Third Joint FAA – USAF Workshop on Qualification and Certification of Additively Manufactured Parts, at which Mark Cola, our President and CTO, presented, “In-situ Monitoring for Additive Manufacturing:  Implications for the Digital Manufacturing Age,” on August 31, 2017 at the University of Dayton River Campus.

On August 22, 2017, we announced that we entered into an agreement with Digital-CAN Tech Co., LTD to serve as our non-exclusive sales agent in Taiwan. Digital-CAN has experience in a variety of industries such as aerospace, medical, tooling, industrial manufacturing 4.0 applications, architecture, product design, automotive design, and lifestyle applications. We agreed to pay Digital-CAN a commission tied to revenue generated by us as a result of customers identified by Digital-CAN. As of the date of this Quarterly Report on Form 10-Q, Digital-CAN has not earned any commissions.

On August 10, 2017, we announced that our cloud-based PrintRite3D® INSPECT® software Version 2.0 was installed at Woodward Inc. Aircraft Turbine Systems group at its Zeeland, MI location. Our PrintRite3D® software is part of Woodward’s additive manufacturing strategies to ensure that their aerospace and industrial customers receive quality product.

On August 3, 2017, we announced signing Jeta Enterprises as a new manufacturer’s representative for sales of Sigma contract printing and AM services in the Northwest region of the U.S., including Oregon and Washington states. Jeta’s strong customer base in Aerospace and Medical Devices coupled with its expertise in custom-engineered components positions it to serve a growing base of demand for advanced component manufacturing with Sigma’s suite of products and services. As of the date of this Quarterly Report on Form 10-Q, Jeta has not earned any commissions.

On July 27, 2017, we announced changes in senior management. Mr. Cola, who serves as President, was appointed as Sigma’s Chief Technology Officer, responsible for building and implementing the Sigma technological strategy and guiding key technical advancements towards digitalization in the context of the Industrial Internet of Things (IIoT). Together with our executive team members, Mr. Cola will seek to expand and grow the Company through next-generation products and key customer development in a broad range of industries. John Rice, who has served as Chairman of the Board of the Company since his appointment in April 2017, replaced Mr. Cola as Chief Executive Officer effective as of July 24, 2017. As Chairman of the Board and interim Chief Executive Officer, Mr. Rice oversees our implementation of internal and external growth, with an emphasis on internal focus technology, sales, and efficiency, and externally, reaching into the marketplace to expand the Company’s digital technical bandwidth with respect to our IPQA® technology and additive manufacturing. Mr. Rice brings substantial operating and investment experience to these tasks, including with respect to operations of startup and emerging companies, corporate finance, and mergers and acquisitions.

On July 20, 2017, we announced the June 30, 2016 publication of our U.S. Patent Application No. US 2016/0185048; Multi-Sensor Quality Inference and Control For Additive Manufacturing Processes. This patent application is related to real-time quality analysis during AM processes and the characterization of material properties using acoustic signals emitted during AM which can be used in addition to optical signals to simplify the qualification of printed parts.

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On July 6, 2017, we announced that the Company has signed a Technology Development Agreement (“TDA”) with OXYS Corporation, a technology company in Cambridge, MA working in the Industrie 4.0 space. The first project to be executed under the TDA will be a new architecture platform for the Company’s PrintRite3D® INSPECT. The Company expects that the completed project will allow for miniaturization of the sensor/hardware PrintRite3D® product, enhancements to the level of hardware/software integration moving it towards board-level integration, as well as broaden the market reach of the Company’s PrintRite3D® technology to the Smart Factory and the larger Digital Enterprise, including polymer-based 3D printing.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the accompanying consolidated financial statements and related notes. These estimates and assumptions have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. 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. Our significant accounting policies are disclosed in Note 1 to the Financial Statements included in this Quarterly Report on Form 10-Q. 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.

Results of Operations

We expect to generate revenue primarily by selling and licensing our IPQA technologies, selling technical support services and contract manufacturing and materials technologiesselling specialty parts and studies to businesses that seek to improve their manufacturing production processes and/or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations. We also expect to generate revenues though contract AM manufacturing using our in-house metal 3D printing capability. However, we presently make limited sales of these technologies and services, which include limited sales of non-exclusive licenses to use our PrintRite3D® technologies, including under our Early Adopter Program and OEM Partner Program, as described above.production-run quality yields. Our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our PrintRite3D® technologies.technologies, and it will depend on if key prospective customers continue to move from AM metal prototyping to production.

Three Months Ended September 30, 2018 and 2017

In the third quarter of 2018, we recognized revenue of $128,593 compared to $78,046 during the same period of 2017, an increase of $50,547. A revenue decrease of $37,903 from government programs between the two quarters was offset by a $69,000 increase in commercial sales and $22,472 in contract AM service revenue in the third quarter of 2018 compared to no such sales in the third quarter of 2017. Our cost of revenue for the third quarter of 2018 was $56,309 as compared to $81,214 during the same period of 2017. The decrease of $24,905 was primarily due to the non-recurring costs associated with the implementation of our Early Adopter Program and Original Equipment Manufacturer (OEM) Partner Program in the third quarter of 2017.

Sigma’s total operating expenses for the third quarter of 2018 were $1,401,087 compared to $1,095,206 for the same period of 2017, a $305,881 increase. Our operating expenses are comprised of internal operating and sales expenses, outside service fees, research & development costs, and depreciation & amortization.

The most significant of our operating expenses is personnel costs, comprised of payroll and stock-based compensation expense. Payroll costs in the third quarter of 2018 were $524,508 compared to $335,495 for the same period in 2017. The $189,013 increase resulted primarily from the strategic addition of six employees since the third quarter of 2017, three in the third quarter of 2017 and three in the second quarter of 2018, as we continue the concentrated acceleration of technology development and our expansion into the European 3D manufacturing market. Stock-based compensation for the third quarter of 2018 was $198,578 compared to $199,225 for the same period in 2017.

During the three months ended September 30, 2018, Sigma incurred research and development expenditures of $139,090 compared to $68,543 in the same period of 2017. The $70,547 increase in these expenditures resulted primarily from an increase in software and algorithm consultant costs and an increase in purchases of component parts, upgraded servers and specialized equipment directly related to the development of our PrintRite3D® 4.0 product suite that is being launched at the Formnext AM trade fair the week of November 12, 2018.

Sigma’s public company costs and investor relation fees incurred in the third quarter of 2018 were $142,821 compared to $118,586 incurred during the same period in 2017.

During the third quarter of 2018, Sigma’s office expenses were $131,629 compared to $78,044 in the same period of 2017. The $53,585 increase in these expenditures resulted primarily from additional office rent and related expenses to accommodate our new employee hires and from additional travel expense related to both our more aggressive outreach to prospective OEM and service bureau clients and our expansion into the European market in 2018.

In the third quarter of 2018, our net other income & expense was net income of $7,978 compared to net other expense of $18,536 in the third quarter of 2017. The third quarter 2018 net income was comprised of $9,862 of interest income on the remaining note receivable balance offset by interest expense on the remaining $50,000 balance of our note payable.

Sigma’s total net loss for the third quarter of 2018 was $1,320,825 as compared to $1,116,910 for the third quarter of 2017, a $203,915 increase with operating income contributing $230,429 to the increased loss and increased other income and expense offsetting it by $26,514.

Nine months Ended September 30, 2018 and 2017

During the nine months ended September 30, 2017,2018, we recognized revenue of $78,046 and $518,802, respectively, as$330,671 compared to $189,952 and $642,230 in$483,122 of revenue recognized during the same periodsperiod of 2017. The primary contributors to the $152,450 reduction were revenue decreases of $174,726 from government program work and $57,227 in 2016.new system sales, partially offset by increased contract AM service sales in 2018 of $79,503. Our cost of revenue for the nine months ended September 30, 2018 was $198,672 compared to $267,160 during the same period in 2017, a decrease of $68,488. Reduced direct labor and materials cost associated with the decline in government and commercial sales primarily contributed to the total decrease.

Sigma’s total operating expenses for the nine months ended September 30, 2018 were $4,000,728 compared to $3,209,923 for the same period in 2017, a $790,805 increase. Payroll costs for the nine months ended September 30, 2018 were $1,349,214 compared to $1,120,699 for the same period in 2017. The decrease$228,515 increase resulted primarily from the foregoing addition of six employees beginning in revenuethe third quarter of 2017. Stock-based compensation for the nine months ended September 30, 2018 was $783,167 compared to $505,630 for the same period in 2017. This $277,537 increase was comprised primarily duefrom $156,712 in vesting recognized on stock options granted to reduced programmatic sales,our Chief Executive Officer in the revenuesecond and third quarters of 2018 and the amortization of $92,371 in stock compensation cost related to stock compensation paid to non-employee directors over the nine months ended September 30, 2018.

During the nine months ended September 30, 2018, Sigma incurred research and development expenditures of $356,112 compared to $254,956 in the same period of 2017. The $101,156 increase resulted primarily from which was only partially replaced by new EAPan increase in software and OEM Partner Program salesalgorithm consultant costs and a $52,219 increase in purchases of component parts, upgraded servers and specialized equipment as part of our continued concentrated acceleration of technology development, along with the development in the third quarter of 2018 of our PrintRite3D® 4.0 product suite.

Sigma’s public company and investor relation fees incurred in the nine months ended September 30, 2018 were $426,417, compared to $362,499 during the same period in 2017. The $63,918 increase is the result of a $47,892 aggregate increase in cash fees paid to our non-employee directors, a $57,385 increase in advisory service fees and a $41,500 reduction in NASDAQ fees due to the incentivized pricing associatednon-recurring entry fee paid in 2017.

During the nine months ended September 30, 2018, Sigma’s office expenses were $337,671 compared to $226,988 in the same period of 2017. The $110,683 increase in these expenditures resulted primarily from $34,631 in additional hardware, software, supplies and office space costs in 2018 related to our additional employees, and from $76,052 of additional travel expense in 2018 related to both a more aggressive outreach to prospective OEM, service bureau and end user customers and our expansion into the European market.

In the nine months ended September 30, 2018, our net other income & expense was a net expense of $11,776, as compared to net other income of $61,678 in the same periods of 2017. The nine-month 2018 net expense was primarily comprised of a $36,733 write-off of patent and patent application costs offset by interest income of $26,948 on our outstanding note receivable.

Sigma’s net loss for the nine months ended September 30, 2018 totaled $3,880,505 as compared to $2,932,283 for the same period of 2017, a $948,222 increase, with those two programs. operating income contributing $874,768 and other income and expense contributing $73,454.

We financed our operations during the three and nine months ended September 30, 2018 and 2017 and 2016 primarily from revenue generated from PrintRite3D® system sales DARPA and Aerojet programs, engineering consulting services we provided to third parties during these periods, and through sales of our common and preferred stock and, in 2017, through the issuance of debt securities. We anticipateexpect that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our PrintRite3D®-related technologies and obtain new contract manufacturing orders in connection with our EOS M290 metal printer, as well as further perform on our engineering consulting contracts for the Aerojet Rocketdyne Booster Propulsion program and Honeywell Aerospace for the DARPA Phase III and Plus up efforts. Our Cost of Revenue for the three and nine months ended September 30, 2017 was $81,214 and $267,160, respectively, as compared to $69,259 and $207,744 for the same periods in 2016. The increases are attributable to the additional costs associated with implementation of the EAP and OEM programs.M290.

Our General and Administrative Expenses for the three and nine months ended September 30, 2017, were $576,855 and $1,814,843, respectively, as compared to $437,870 and $1,314,055 for the same periods in 2016. Our payroll expenses for the three and nine months ended September 30, 2017 were $295,890 and $973,172, respectively, as compared to $259,011 and $727,494 for the same periods in 2016. Our expenses relating to stock-based compensation for the three and nine months ended September 30, 2017 were $199,225 and $505,630, respectively, as compared to $105,641 and $236,554, respectively, for the same periods in 2016. Our research and development expenses for the three and nine months ended September 30, 2017 were $57,947 and $225,562, respectively, as compared to $37,526 and $88,504 for the same periods in 2016.

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General and Administrative Expenses principally include internal operating and sales expenses and outside service fees, the largest component of which consists of services in connection with our obligations as an SEC reporting company. The increase in General and Administrative Expenses for the three and nine months ended September 30, 2017 as compared to the same period in 2016 is principally the result of fees relating to and as a consequence of our February 2017 public offering that resulted in net proceeds of approximately $5,225,650, fees incurred in connection with investing in strategic partners, the increase in interest and finance costs on the $1,000,000 note originated in October of 2016, along with the continued development of our IPQA®-enabled PrintRite3D® technologies and our related efforts to expand our services. The increase in payroll expenses for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 is principally the result of our hiring of additional software development staff to assist in acceleration of our IPQA®-enabled PrintRite3D® technologies and 2017 increases in administrative salaries. The increase in research and development expenses for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 is principally the result of increased contract consulting combined with software and hardware upgrades required for the continued development and improvement of our software and technology. The increase in stock-based compensation costs is due to the fact that the majority of stock options were granted after September 30, 2016, thus more stock option vesting occurred in each quarter of 2017 than in the same periods of 2016.

Our General and Administrative expenses are expected to continue to increase as we seek further commercialization of our IPQA®-enabled PrintRite3D® technologies through increased marketing and sales efforts. Similarly, we anticipate that our payroll and non-cash compensation expenses will continue to increase as we engage more employees and other service providers to support our efforts to grow our business.

Our net loss for the three and nine months ended September 30, 2017 increased over each of the prior year comparative periods and totaled $1,116,910 and $3,049,616, respectively, as compared to $719,320 and $1,931,833 for the same periods in 2016. This increase in net loss was attributable to a decrease in revenue and an increase in expenses as noted above.

Liquidity and Capital Resources

As of September 30, 2017,2018, we had $2,691,487$2,228,547 in cash and had a working capital surplus of $2,482,056,$2,208,620, as compared with $398,391$1,515,674 in cash and a working capital surplus of $110,799$2,273,801 as of December 31, 2016.2017.

Our major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and preferred stock), and from warrant exercises. On February 21, 2017,April 6, 2018, the Company closed an underwrittena private placement of equity securities resulting in net proceeds of approximately $920,000, after deducting commissions and other offering expenses payable by the Company. On June 26, 2018, the Company closed a public offering of equity securities resulting in net proceeds of approximately $5,225,650,$2,139,000, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The principal balance in the amount of $50,000 and any accrued and unpaid interest on the convertible promissory note that is payable by us is due in April 2019.

We

During the remainder of 2018, we expect to generate revenue primarily by licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and/or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations. We also expect to generate revenues by providing contract AM services using our EOS M290 metal AM system. However, for the period from our inception through September 30, 2017, we generated revenue and financed our operations primarily from PrintRite3D®-enabled engineering consulting services as well as thru the programmatic work performed on both the DARPA Phase II and Aerojet programs we provided during this period and through sales of Sigma common stock and debt securities. We expect to further ramp upsustain our operations and our commercialization and marketing efforts which we anticipate willwithout material increase the amount of cash we will use in our operations.

cash burn rate. We expect that our continued developmentenhancements of our IPQA®-enabled PrintRite3D® technology that were developed substantially during the nine months ended September 30, 2018 and being brought to market in the fourth quarter of 2018 will enable us to further commercialize this technology for the AM metal market in the remainder of 2017.2019. However, until commercialization of our full suite of PrintRite3D® technologies, we plan to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and conducting supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control technologies) and contract manufacturing for metal AM, and through the use of proceeds from sales of our securities.

Net Cash Used in Operating Activities

Net cash used in operating activities increased a net of $479,203 during the nine months ended September 30, 2017,2018 increased to $1,801,569$2,695,939 from $1,322,366$1,950,394 during the same period in 2016.  This2017, which is an increase was primarily duein cash used of $745,545. Sigma’s higher net loss in the nine months ended September 30, 2018 contributed $912,493 to the increases in general and administrative, payroll and research and development expenses noted above which were partiallythis increase while more attentive management of payables offset $166,948 of that increased use of cash.

Net Cash Used/Provided by the net effect of changes in accounts receivable, notes payable, and accrued expenses during the period. Cash used inInvesting Activities

Net cash provided by investing activities increased during the nine months ended September 30, 20172018 was $469,899, which compares to $829,146, as compared to $79,741cash used in investing activities during the same period in 2016, due primarilyof 2017 totaling $829,146. $1,400,000 of this $1,299,045 positive swing is directly related to the $775,267 increasedebt financing of 2017. Sigma loaned funds of $750,000 in notes receivablesthe first half of 2017 and received payment of $650,000 of such loans in May and June of 2018. The additional expenditure of $69,654 related to our loans to Morf3Dpatents and Jaguar Precision Machine$38,766 for office furniture and laboratory equipment in conjunction with our strategic alliances.2018 were the significant offsetting factors.

Net Cash flowsUsed/Provided by Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2017 increased a net of $4,923,8112018 decreased to $2,938,914 from $0$5,072,636 during the same period in 2016. There were no cash flows used or provided2017, a reduction of $2,133,722. $2,126,236 of this reduction is due to our receipt of total net proceeds of $2,946,400 from our April 2018 private placement and June 2018 public offering compared to our receipt of total net proceeds of $5,072,636 from our February 2017 public offering.

The Company anticipates less loss in the fourth quarter of 2018, due to expected increased revenues from proof of concept engagements, offset by financing activitiesincreased salaries and related expenses in 2016.

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Some of our engineering consulting contracts, including the contracts from Honeywell Aerospace, Bendix King, Siemens, EOS, Solar Turbines, Pratt & Whitney and Aerojet Rocketdyne, are fixed-price contracts, for which we will be entitled to receive a specified fee regardless of our cost to perform under such contract. In connection with entering into these fixed-contract consulting arrangements, we are required to estimate our costs of performance. To actually earn a profit on these contracts, we must accurately estimate costs involved and assess the probability of meeting the specified objectives, realizing the expected units of work or completing individual transactions, within the contracted time period. Accordingly, if we under-estimate the cost to complete a contract, we remain obligated to complete the work based on our initial cost estimate, which would reduce the amount of profit actually earned under the contract.additional employees.

We do not have any material commitments for capital expenditures during the next twelve months. Pursuant to the September 29, 2017 amendments to the Notes and Warrants discussed in Note 4 tono credit lines as of November 11, 2018, nor have we ever had a credit line since our financial statements above, Sigma paid an aggregate amount equal to $500,000 plus all accrued interest on the Notes on October 2, 2017. In consideration of the foregoing, the Investors agreed to, among other things, extend the payment date of the remaining 50% of the outstanding principal balance of the Notes from October 17, 2017 to the earlier of May 18, 2018 or the closing of the Company’s next underwritten public offering of securities in which the Company raises gross proceeds of at least $3,000,000 (should the Company elect to commence and close such an offering of securities).inception.

Based on the funds we have as of November 14, 2017,11, 2018, and the proceeds we expect to receive underfrom proof of concept engagements for our PrintRite3D®-enabled engineering consulting agreements, from selling or licensing ourupdated PrintRite3D® systemshardware and software technology, and sales of contract AM manufacturing for metal AM parts, we believe that we will have sufficient funds to pay our administrative and other operating expenses through 2017. Until we are able to generate significant revenues and royalties from selling or licensing our PrintRite3D®-enabled technologies and our contact AM manufacturing services, ourat least the first quarter of 2019. Our ability to continue to fund our liquidity and working capital needs will be dependent upon the success of and revenues from existing and future PrintRite3D®-enabled engineering consulting-proof of concept contracts, follow-on contracts resulting from successful proof of concept engagements, possible strategic partnerships, contract manufacturing orders in connection with our EOS M290, metal printer, and proceeds received from sales of our securities. Revenue we generate from licensing our technologies is not expected to increase significantly during 2017 andwe also anticipate that there will be an increase in the amount of cash we will use during the remainder of 2017 in connection with our efforts to identify compatible businesses to possibly acquire that will be synergistic with our business (although there is no assurance than any acquisition will be consummated). Accordingly, we will have to obtainby obtaining additional capital from the sale of additional securities or by borrowing funds from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining additional financing. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. Such financing, if in the form of debt, may include debt covenants and repayment obligations that are onerous and that adversely affect our business operations. If adequate funds are not available to us, we may be required to delay, limit or terminate our business operationsfunding. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.

Inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years.

We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures.Rule 13a-15(e) under the Exchange Act defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our Chief Executive Officer, and our Principal Financial and Accounting Officer, as of the end of the period covered by this quarterly report, our management concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods.

Changes in internal controls over financial reporting. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarterthree months ended September 30, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not applicable.

ITEM 1A. RISK FACTORS.

The “Risk Factors” included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017 should be considered. There have been no material changes to those Risk Factors.Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

NoneNot applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS.

* Indicates a management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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