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 SeptemberJune 30, 20182019

OR

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

Commission file number: 001-38015

Sigma Labs, Inc.

(Exact name of registrant as specified in its charter)

3900 Paseo del Sol

Santa Fe, NM 87507

(Address of principal executive offices)

(505) 438-2576

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

(Former Name or Former Address, if Changed Since Last Report

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 8, 2018,August 14, 2019, the issuer had 8,700,20413,812,590 shares of common stock outstanding.

SIGMA LABS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Sigma Labs, Inc.

Condensed Balance Sheets

(Unaudited)

TheSee accompanying notes are an integral part of theseto condensed financial statements.

Sigma Labs, Inc.

Condensed Statements of Operations

(Unaudited)

The

See accompanying notes are an integral part of theseto condensed financial statements.

Sigma Labs, Inc.

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed financial statements.

Sigma Labs, Inc.

Statement of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

The

See accompanying notes are an integral part of theseto condensed financial statements.

SIGMA LABS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

SeptemberJune 30, 20182019

(Unaudited)

NOTE 1 - Summary of Significant Accounting Policies

Nature of Business -Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma 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 Generally Accepted Accounting Principles (“GAAP”) in the United States of America and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim reporting.America. 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 SeptemberJune 30, 20182019 and 20172018 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, 20172018 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended SeptemberJune 30, 20182019 and 20172018 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 ASCAccounting Standards Codification (“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 SeptemberJune 30, 20182019 the Company had 250 Convertible preferred stock shares, 3,228,5003,620,610 warrants, 697,2071,108,192 stock options and a $50,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,200,707.4,753,802. At SeptemberJune 30, 20172018 the Company had 1,701,500350 convertible preferred stock shares, 3,228,500 warrants, 279,938664,707 stock options and $1,000,000 ina $50,000 Convertible NotesNote Payable outstanding. The total number of shares of common stock underlying these instruments was 2,481,438.is 4,268,207.

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 SeptemberJune 30, 20182019 and 2017:2018:

Recently Enacted Accounting Standards - The FASB established the Accounting Standards Codification (“Codification” or “ASC”)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”).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. 2018-18 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,February 2016, the FASB issued ASU 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes2016-02, “Leases” which was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the revenue recognition requirements in Topic 605, “Revenue Recognition” (Topic 605),balance sheet 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 comparativedisclosing key 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.about leasing arrangements. The amendments in this ASU 2016-02 are effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted.2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact thehas evaluated this standard and determined that it will have on itsnot currently require any adjustment to Sigma’s financial statements.reporting.

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 (“Jaguar”), pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered by Jaguar to the Company. The loan borebears interest at the rate of 7% per annum, was originally due and payable in full on MayAugust 1, 2018, wasis 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. NoIn the first six months of 2019 payments have been received since that date.totaling $45,000 were received. The payments were applied first to the accumulated interest balance on the note and then to the remaining principal balance. 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, 20182019. The June 30, 2019 principal balance of the note was $117,803$79,875 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.$166.

NOTE 3 -– Inventory

At SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company’s inventory was comprised of:

NOTE 4 - Notes Payable

At SeptemberJune 30, 20182019 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, 2018,2019. At June 30, 2019 the accumulated interest balance on 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.$1,028.

NOTE 5 - Stockholders’ Equity

Common Stock

Effective March 5, 2018, the 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$1.22 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”).

In May 2018 the holder of our Note Payable converted $50,000 of the principal balance of the Note into 25,000 shares of common stock and exercised its warrant on a cashless basis resulting in the issuance of 4,800 shares of common 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 exercise price of $1.08 per share. The net proceeds to the companyCompany 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 as compensation.

In January 2019, the Company issued a total of 200,000 shares of common stock to directors valued at $1.50 per share, or $300,000, with such shares to vest ratably over four quarterly installments, subject in each case to such director’s continuing service as a director.

Also in January 2019, the Company issued 88,431 shares of common stock upon the cashless exercise of Unit Purchase Options issued in our June 2018 public offering.

In January and February 2019, the Company issued a total of 70,230 shares of common stock upon the exercise of 70,230 warrants having an exercise price of $1.08 as compensation.resulting in gross cash proceeds of $75,848.

On August 31, 2018,In March 2019, the Company issued 100,0001,500 shares of common stock upon conversionto the Company’s Vice President of 100Business Development in connection with his achievement of performance milestones, with such shares vesting immediately.

Also in March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of Series C Preferred Stockcommon stock and warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,230, after deducting placement agent commissions and other offering expenses payable by the Company.

In May 2019, the Company closed a private placement of equity securities in which it issued on June 26, 2018 (as described below under “Preferred Stock”).400,000 shares of common stock and warrants to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement agent commissions and other offering expenses payable by the Company.

Deferred Compensation

In previous years and in the ninesix months ended SeptemberJune 30, 2018,2019, the Company issued to various employees, directors, and contractors shares of the Company’s common stock, subject to restrictions, 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 reduction ofan increase to stockholders’ equity. During the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, $153,000 and September 30, 2017, $213,449 and $192,248$156,875, respectively, of the unvested compensation cost related to these issues was recognized.

AsAt June 30, 2019, there was $150,000 of September 30, 2018 and December 31, 2017, the balance of unvestedunrecognized deferred compensation expense to be recognized was $64,066 and $31,576, respectively and is recorded as prepaid stock compensation asover the remainder of those dates.the year.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 250 and 0 shares of preferred stock were issued and outstanding at September 30, 2018 and December 31, 2017, respectively.

On April 6, 2018, Sigma issued 1,000 shares of the Company’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 aggregate of 750,000 shares of the Company’s common stock, for 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 140,000 shares of common stock, at an exercise price of $1.47 per share, as compensation.

On June 26, 2018, as part of the public offering described in Note 1, the Company issued 350 of the Company’s newly-created non-voting Series C Convertible Preferred Stock, which were convertible into 350,000 shares of common stock, and warrants to purchase an aggregate of 105,000 shares of the Company’s common stock. The warrants have an initial exercise price of $1.08 per share, 11% above the closing price of the Company’s Common Stock reported on The NASDAQ Capital Market on June 26, 2018, subject to adjustment in certain circumstances.

Stock Options

In October 2018, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by 900,000 shares of our common stock to a total of 1,650,000 shares. As of SeptemberJune 30, 2018,2019, an aggregate of 750 shares and 697,20725,460 shares of common stock were reserved for issuance under the 2011 Plan and the 2013 Plans,Plan, respectively.

On February 21, 2018,During the six months ended June 30, 2019, the Company granted Mark Cola, a former officer of the company, two ten-year options under the 2013 Plan to purchase an aggregatea total of 61,750286,925 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,18 employees 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 $1.56 per share, and1 consultant with vesting periods ranging from 3immediately upon issuance to 4 years beginning February 26,January 2019.

On April 19,During the six months ended June 30, 2018, Sigmathe Company granted John Rice, our President and Chief Executive Officer, three options to purchase up to 20,000 sharesa total 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 28,750374,769 shares of common stock to 15 employees and 1 consultant with such option having an exercise price of $1.22 per share, and with 1,438 shares vesting periods ranging from immediately upon grant and the balance vesting in four annual installments over fourissuance to 4 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,beginning March 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 tenfive 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.

Total share-based compensation expense included in the condensedconsolidated statements of operations for the ninesix months ended SeptemberJune 30, 2019 and 2018 is $474,566 and 2017 is $783,167 and $505,630,$584,589 of which $569,718$321,149 and $313,382$438,039 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 ninesix months ended SeptemberJune 30, 20182019 and 2017:2018:

Assumptions:

Option activity for the six months ended June 30, 2019 and the year ended December 31, 2018 was as follows:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $1.40 closing price of our common stock on June 30, 2019. 22,916 of the 2019 option grants have an exercise price currently below $1.40.

At June 30, 2019, there was $348,220 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 3.02 years.

Warrants

At SeptemberWarrant activity for the six months ended June 30, 2019 and 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.was as follows:

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, 2018In July and October 9, 2018,August of 2019, 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, 2018granted our CEO 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 amendedPresident two options to fix at 1,650,000 shares the aggregate number ofpurchase up to 22,916 and 22,922 shares of our common stock, issued or issuablerespectively under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options have an exercise price per share equal to $1.40 and $0.74, respectively, and each is fully vested.

In July of 2019, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Plan.

On October 18, 2018,Equity Incentive Plan to increase the Company increased the annual base salarynumber 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 the Company’s common stock reserved for issuance 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 ofby 750,000 shares of our common stock to 22,500,000.a total of 2,400,000 shares.

On November 1, 2018,In July of 2019, the Company granted Mr. Rice an optionoptions to purchase 68,750a total of 97,500 shares of the Company’s common stock underto 7 employees and 1 consultant with vesting periods ranging from immediately upon issuance to 4 years beginning July 2020.

In August of 2019, the 2013 Plan at an exercise priceCompany closed a public offering of $1.79 per share, with such option having a termequity securities in which it issued 2,875,000 shares of five yearscommon stock resulting in net proceeds of approximately $1,971,000, after deducting placement agent commissions and being fully vested onother offering expenses payable by the grant date.Company.

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, 20172018 and elsewhere in this report.

Corporation Information

Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (505) 438-2576. Our website address is www.sigmalabsinc.com.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 sectionSection 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.

Recent2019 Developments

In 2019, we reported several events, including the coursefollowing (in reverse chronological order):

On August 13, 2019, we announced that we have been selected by a major international OEM machine manufacturer to install our proprietary PrintRite3D® products. As part of the third quarteragreement, the OEM will complete our Rapid Test and Evaluation program and will install the PrintRite3D® in two different countries for analysis and proof-of-performance purposes.

On August 2, 2019, we closed a public offering of 2018, Sigma accomplished important internal product development milestonesequity securities in which we issued 2,875,000 shares of common stock resulting in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by us.

On July 30, 2019, we announced that ledwe will work with Airbus to the Company announcing on October 25, 2018 the rolloutcomplete a Test and Evaluation Program 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’sour 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®version 5.0 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 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 have come to believe that the future of AM manufacturing machines is that the machines must and will be “self-driving”, i.e., controlledfollowed by a closed loop control system that adjusts and directs AM machine operating controls to maintain the optimum standard of melt pool qualities for the part designs and metals in question. We believe that the hardware and software package of our PrintRite3D® Version 4 isvalidation phase on 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 testing a new proof of concept sales program that was made possible and practicable by the attainment 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 results.powderbed fusion printer.

Other Recent DevelopmentsOn June 18, 2019, we announced that we signed a non-binding Memorandum of Understanding with Materialise NV to cooperate in the integration of their MCP Controller with our PrintRite3D^® technology. Combining the sophisticated control technology with in-situ process monitoring for metal additive manufacturing will give customers maximal control on the production process, allowing them to become even more productive.

On May 14, 2019, we announced that we will launch Version 5.0 of our PrintRite3D^® platform at the RAPID+TCT 2019 Additive Manufacturing Conference in Detroit on May 21-23, 2019.

On April 30, 2019, we announced that the Company’s PrintRite3D^® software has been shown to ensure process consistency and product quality in metal additive manufacturing, according to a research study sponsored by the Defense Advanced Research Project Agency (DARPA) Open Manufacturing Program and conducted in tandem with Honeywell Aerospace at Honeywell’s Advanced Manufacturing Engineering Center. The paper, titled “LPBF [Laser Powder Bed Fusion] Right the First Time-the Right Mix Between Modeling and Experiments,” discusses the validation involved in manufacturing a challenging metal component.

On March 26, 2019, we announced the appointment of the Company’s new Business Development Manager, Americas, who will be responsible for developing key accounts through the Company’s Rapid Test and Evaluation Program and for bringing PrintRite3D INSPECT^® into deployment across serial production operations in North and South America.

On October 18, 2018, Darren Beckett’s title was changed from Vice PresidentMarch 15, 2019, we closed a public offering of Engineering to Chief Technology Officerequity securities resulting in net proceeds of the Company.approximately $1,679,230, after deducting placement agent commissions and other offering expenses payable by us.

On August 29, 2018,February 26, 2019, we announced that we were awardednamed a contractmember of the Manufacturing Technology Centre (“MTC”) located at Ansty Park, Coventry, UK. Being a member of the MTC enables us to share and provide expertise and solutions for a number of MTC’s projects and also network with MTC’s existing members, including some of the UK’s leading aerospace companies.

On February 12, 2019, we announced that we were named a member of the Additive Alliance of Fraunhofer IAPT, a leading network for additive manufacturing (“AM”). As the first US company to be granted a membership in connection withthe Alliance, Sigma became part of the global research consortium to advance the development and implementation of AM. The membership enables us to demonstrate our PrintRite3D^® hardware, softwaretechnology to key players in the market of metal AM.

On February 5, 2019, we announced that the U.S. Patent and engineering servicesTrademark Office has issued a Notice of Allowance for U.S. Patent Application No. 15/276,452, “Optical Manufacturing Process Sensing and Status Indication System.” The patent application covers a system of sensors configured to measure optical emissions generated by a federally funded organization involvedscanning heat source during an additive manufacturing (AM) process and to analyze the data collected.

On January 17, 2019, we announced we were awarded a Test and Evaluation Program contract with a leading global materials and service provider in AM. The program is designed to demonstrate the value of Sigma’s PrintRite3D^® product capabilities and performance and to validate and quantify the repeatability and variability of AM production processes. So far we have had delays, diversions, and logistical alterations typical of many newly launched programs, yet importantly, there have been no negative performance issues in the space industry. UnderRTE test results. The prototype RTE installation was with Materialise in 2018 and culminated in the contract,project announced in June 2019 to integrate Sigma’s technology with Materialise’s MCP control system. As of the date of this Quarterly Report, of our sensor arrays will determinetwo most advanced RTEs in process, one states an expectation to add a second PrintRite3D® installation, and communicate the other expects to enter the phase two evaluation (multiple machines of differing OEM brands) over the next 60-120 days.

The size and quality of manufactured partsthe demanding high technology ‘brand name’ companies currently participating in, real timealong with those teed-up to enter the end-user.RTE program, appears to confirm that the program is Sigma’s most auspicious highway to success and material revenue driving into 2020 and beyond. The Airbus RTE announcement on July 30, 2019 followed by our OEM double-RTE announcement on August 13, 2019 demonstrates that the market’s uptake of this program initiative is accelerating.

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

Three Months Ended June 30, 2019 and June 30, 2018

We expect to generate revenue primarily by selling and licensing our IPQA technologies, selling technical support services, and contract manufacturing and selling specialty parts and studies to businesses that seek to improve their manufacturing production processes and 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, and it will depend on ifwhether key prospective customers continue to move from AM metal prototyping to production.

Three Months Ended SeptemberDuring the three months ended June 30, 2018 and 2017

In the third quarter of 2018,2019, we recognized revenue of $128,593$33,582, as compared to $78,046$98,663 in revenue recognized during the same period in 2018, a reduction of 2017, an increase$65,081. $10,000 of $50,547. A revenue decreasethe reduction is directly attributable to the absence of $37,903 fromany government programs betweenprogram work in 2019, while the two quarters was offset by a $69,000 increase in commercial sales and $22,472 in contract AM service revenueremaining 55,000 of it is attributable to the 100% dedication of our printer to Internal R&D in the thirdsecond quarter of 2018 compared to no such sales2019 as we accelerated development of the Inspect product, as well as an overall decline in the third quarterAM revenue.

Our Cost of 2017. Our cost of revenueRevenue for the third quarter ofthree months ended June 30, 2019 and 2018 was $56,309 as compared to $81,214 during the same period$60,625 and $68,568, respectively, a reduction of 2017.$7,943. The decrease of $24,905 wasin our gross margin is primarily dueattributable to the non-recurringadditional travel and labor costs associated with the implementationon-site and remote collaboration involved in initiation of our Early Adopter Programthe Company’s Rapid Test and Original Equipment Manufacturer (OEM) Partner Program in the third quarter of 2017.Evaluation programs.

Sigma’s total operating expenses for the thirdthree months ended June 30, 2019 were $1,569,064 as compared to $1,422,511 for the same period in 2018, an increase of $146,553.

Salary and benefits costs were $581,356 for the three months ended June 30, 2019 compared to $426,049 for the same period in 2018, an increase of $155,307. This 36% cost increase correlates to a net increase of five full-time equivalent employees between the two periods which is a 31% increase in employee count.

Stock-based compensation was $220,360 for the three months ended June 30, 2019 compared to $423,067 for the same period in 2018, a $202,707, or 48%, decrease, primarily due to 2018 second quarter vesting of options granted to our former CEO in connection with his amended employment agreement.

Research and development expenditures of $118,845 were incurred during the three months ended June 30, 2019 compared to $95,049 in the same period of 2018, a 25% increase. The increase primarily results from the purchase of upgraded PrintRite3D^® components and various pieces of specialized equipment as part of our continued acceleration of technology development.

Outside services fees incurred in the three months ended June 30, 2019 were $1,401,087$218,919 compared to $1,095,206$177,929 incurred during the same period in 2018, a 23% increase. The increase is primarily attributable to recruiting fees for senior employees.

Office expenses incurred during the three months ended June 30, 2019 were $184,068 compared to $110,936 incurred during the same period in 2018, an increase of $73,132, or 66%. The increase is primarily due to increased travel costs of $59,936, and other miscellaneous office expenses of $13,196.

Sigma’s net loss for the three months ended June 30, 2019 totaled $1,593,491 as compared to $1,388,804 for the same period of 2017,2018, a $305,881$204,687 increase. OurThe reduction in gross profit contributed $57,138 to the increased loss, while increased operating expenses are comprised of internal operating and sales expenses, outside service fees, research & development costs, and depreciation & amortization.contributed $146,553 to the increased loss.

Six Months Ended June 30, 2019 and 2018

During the six months ended June 30, 2019, we recognized revenue of $98,032 compared to $202,078 during the same period of 2018. The most significantprimary contributors to the $104,046 reduction were revenue decreases of $32,300 from the absence of any government work, $63,000 is attributable to the 100% dedication of our printer to Internal R&D in 2019, and the balance from an overall decline in AM revenue.

Our cost of revenue for the six months ended June 30, 2019 was $157,180 compared to $142,363 during the same period in 2018. The increase of $14,817 is primarily due to the additional travel and labor costs associated with the on-site and remote collaboration involved in initiation of the Company’s Rapid Test and Evaluation programs.

Sigma’s total operating expenses is personnel costs, comprised of payroll and stock-based compensation expense. Payroll costs infor the third quarter of 2018six months ended June 30, 2019 were $524,508$3,076,162 compared to $335,495$2,599,641 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 compensationa $476,521 increase.

Payroll costs for the third quarter of 2018 was $198,578six months ended June 30, 2019 were $1,093,916 compared to $199,225$824,706 for the same period in 2017.2018. The $269,210 increases result primarily from the earlier mentioned addition of five employees since the end of the second quarter of 2018. Stock-based compensation for the six months ended June 30, 2019 was $474,566 compared to $584,589 for the same period in 2018, a $110,023 decrease, primarily due to the vesting of options granted to our former CEO in connection with his amended employment agreement in 2018.

During the threesix months ended SeptemberJune 30, 2018,2019, Sigma incurred research and development expenditures of $139,090$264,177 compared to $68,543$217,022 in the same period of 2017.2018. The $70,547$47,155 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 quarterfirst six months 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, 2018, we recognized revenue of $330,671 compared to $483,122 of revenue recognized during the same period of 2017. The primary contributors to the $152,450 reduction were revenue decreases of $174,726 from government program work and $57,227 in 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 $228,515 increase2019 resulted primarily from the foregoing additionpurchase of six employees beginning in the 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 from $156,712 in vesting recognized on stock options granted to our Chief Executive Officer in the second 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 an increase in software and algorithm consultant costs and a $52,219 increase in purchases of component parts, upgraded servers and various pieces of specialized equipment as part of our continued concentrated acceleration of technology development, alongas well as $35,333 of consulting fees paid in connection with the development in the third quarter of 2018Version 5.0 of our PrintRite3D® 4.0 product suite.PrintRite3D^®platform.

Sigma’s public company and investor relation fees incurred in the ninesix months ended SeptemberJune 30, 20182019 were $426,417,$315,107, compared to $362,499$283,596 during the same period in 2017.2018. The $63,918 increase is the result of a $47,892 aggregate$31,511 increase in cash fees paid to our non-employee directors, a $57,385the six-month comparative expenditures results primarily from an increase in advisory serviceadvertising expenses of $64,600, partially offset by a decrease in shareholder services expenses of $37,100.

Outside services fees andincurred in the six months ended June 30, 2019 were $403,489, compared to $316,352 incurred during the same period in 2018, a $41,500 reduction in NASDAQ28% increase. Consulting fees increased by $67,552 due to the non-recurring entry fee paid in 2017.addition of an application engineer consultant, and recruiting fees increased by $19,428.

During the ninesix months ended SeptemberJune 30, 2018,2019, Sigma’s office expenses were $337,671$350,178 compared to $226,988$206,042 in the same period of 2017.2018. The $110,683$144,136 increase in these expenditures primarily 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 ninesix months ended SeptemberJune 30, 2018,2019, our net other income & expense was a net expenseincome of $11,776,$57,707, as compared to net expense of $19,754 during the same period in 2018. The six-month 2019 net other income of $61,678 in the same periods of 2017. The nine-month 2018 net expense wasis primarily comprised of $52,000 in New Mexico state job incentive credits received. The net other expense for the same period in 2018 is primarily due to a $36,733 write-off of patent and patent application costsaccounting software, partially offset by interest income of $26,948$17,086 on ourthe then outstanding notenotes receivable.

Sigma’s net loss for the ninesix months ended SeptemberJune 30, 20182019 totaled $3,880,505$3,077,603 as compared to $2,932,283$2,559,680 for the same period in 2018, a $517,923 increase. Contributing to this increase was an increase in our operating loss of 2017,$595,384, consisting of a $948,222decrease in gross profit of $118,863, together with an increase within operating income contributing $874,768 andexpenses of $476,521. This was partially offset by an increase in other income and expense contributing $73,454.of $77,461.

We financed our operations during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 primarily from revenue generated from PrintRite3D® system sales and 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.stock. We expect 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.

Liquidity and Capital Resources

As of SeptemberJune 30, 2018,2019, we had $2,228,547$696,390 in cash and had a working capital surplus of $2,208,620,$685,409, as compared with $1,515,674$1,279,782 in cash and a working capital surplus of $2,273,801$1,052,017 as of December 31, 2017.2018.

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 April 6, 2018,

In March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,330, after deducting placement agent commissions and other offering expenses payable by the Company.

In May 2019, the Company closed a private placement of equity securities in which it issued 400,000 shares of common stock and warrants to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $920,000,$515,000, after deducting placement agent commissions and other offering expenses payable by the Company. On June 26, 2018,

In August 2019, the Company closed a public offering of equity securities in which it issued 2,875,000 shares of common stock resulting in net proceeds of approximately $2,139,000,$1,971,000, after deducting placement agent 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.

During the remainder of 2018,2019, we expect to sustain our operations and our commercialization and marketing efforts without a material increase in our cash burn rate. We expect that enhancements of our IPQA®-enabled PrintRite3D® technology that were developed substantially during the nine months ended September 30,in fiscal 2018 and being2019 and brought to market in the fourth quarter of 2018 will enable us to further commercialize this technology for the AM metal market in 2019.2019 and beyond. 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 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 during the ninesix months ended SeptemberJune 30, 20182019 increased to $2,695,939$2,737,650 from $1,950,394$1,472,519 during the same period in 2017, which is an increase in cash used of $745,545. Sigma’s higher2018, a $1,265,131 increase. Increased net loss in the nine months ended September 30, 2018 contributed $912,493 to$517,923 toward this increase while more attentive management of payables offset $166,948 of that increased use of cash.cash, increased inventory purchases contributed $377,440 as a result of our finished goods ramp program, and a net decrease of accounts payable and accrued expenses contributed $164,370.

Net Cash Used/Provided by Investing Activities

Net cash providedused by investing activities during the ninesix months ended SeptemberJune 30, 20182019 was $469,899,$115,920, which compares to $530,082 of cash used inprovided by investing activities during the same period of 2017 totaling $829,146. $1,400,0002018, a decrease of this $1,299,045 positive swing$646,002. This is directly relatedprimarily attributable to the debt financingMarch 2018 receipt of 2017. Sigma loaned fundspayment in full of $750,000 in the 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 patents and $38,766 for office furniture and laboratory equipment in 2018 were the significant offsetting factors.a then outstanding $500,000 loan receivable.

Net Cash Used/Provided by Financing Activities

Cash provided by financing activities during the ninesix months ended SeptemberJune 30, 20182019 decreased to $2,938,914$2,270,178 from $5,072,636$2,946,400 during the same period in 2017, a reduction of $2,133,722. $2,126,236 of this reduction is2018 due to our receipt of total netlower proceeds of $2,946,400 from our April 2018public and 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.securities offerings in 2019.

The Company anticipates less losscontinued losses in the fourth quarter of 2018, due to2019, with any expected increased revenues from proof of concept engagements, offset by increased salaries and related expenses in connection with our additional employees.

We have no credit lines as of November 11, 2018,August 14, 2019, nor have we ever had a credit line since our inception.

Based on the funds we have as of November 11, 2018,August 14, 2019, and the proceeds we expect to receive from proof of conceptrapid test and evaluation engagements for our updated PrintRite3D® hardware and software technology, and sales of contract AM manufacturing for metal AM parts, possible sales of our securities and from the repayment of loans made by Sigma, we believe that we will have sufficient funds to pay our administrative and other operating expenses through at 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®-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, and possibly by obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining additional funding. If we require and 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.

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.procedures and changes in internal controls over financial reporting.

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 three months ended SeptemberJune 30, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not applicable.

ITEM 1A. RISK FACTORS.

Not applicable.

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

Not applicable.On May 7, 2019, we issued to an accredited investor 400,000 shares of common stock and warrants to purchase a total of 200,000 shares of common stock. We also Sigma issued to Dawson James Securities, Inc., our placement agent in the foregoing private placement, warrants to purchase up to 20,000 shares of common stock, as compensation. The foregoing securities were issued in reliance upon an exemption from the registration requirements pursuant to Section 4(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.None.

ITEM 6. EXHIBITS.

* Indicates a management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith.herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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.