UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20212022
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.SIGMA ADDITIVE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
nevada | 27-1865814 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
3900 Paseo del Sol
Santa Fe, NM 87507
(Address of principal executive offices)
(505) 438-2576
(Registrant’s telephone number)number, including area code)
SIGMA LABS, INC.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | ||||
| The NASDAQ Stock Market LLC |
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 ☒ 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 and post such files).
Yes ☒ 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.
Large accelerated filer | ☐ | Accelerated Filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 20, 2021,November 11, 2022, the issuer had shares of common stock outstanding.
SIGMA LABS,ADDITIVE SOLUTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.)
Condensed Balance Sheets
(Unaudited)
September 30, 2021 | December 31, 2020 | September 30, 2022 (Unaudited) | December 31, 2021 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 13,064,394 | $ | 3,700,814 | $ | 4,800,680 | $ | 11,447,047 | ||||||||
Accounts Receivable, net | 666,740 | 331,562 | 367,770 | 412,192 | ||||||||||||
Inventory | 856,547 | 659,651 | 967,432 | 710,080 | ||||||||||||
Prepaid Assets | 130,675 | 90,735 | 177,724 | 114,278 | ||||||||||||
Total Current Assets | 14,718,356 | 4,782,762 | 6,313,606 | 12,683,597 | ||||||||||||
Other Assets: | ||||||||||||||||
Property and Equipment, net | 201,752 | 138,626 | 244,838 | 232,282 | ||||||||||||
Intangible Assets, net | 868,265 | 753,122 | 1,084,205 | 925,111 | ||||||||||||
Long-Term Prepaid Asset | - | 26,000 | ||||||||||||||
Total Other Assets | 1,070,017 | 917,748 | 1,329,043 | 1,157,393 | ||||||||||||
TOTAL ASSETS | $ | 15,788,373 | $ | 5,700,510 | $ | 7,642,649 | $ | 13,840,990 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts Payable | $ | 223,157 | $ | 128,937 | $ | 403,547 | $ | 206,442 | ||||||||
Deferred Revenue | 85,480 | 77,957 | 129,689 | 148,855 | ||||||||||||
Accrued Expenses | 432,615 | 243,815 | 287,645 | 625,942 | ||||||||||||
Total Current Liabilities | 741,252 | 450,709 | 820,881 | 981,239 | ||||||||||||
Long-Term Liabilities: | ||||||||||||||||
Stock Appreciation Rights | 93,525 | 48,341 | ||||||||||||||
CARES Act Deferred Payroll Tax Liability | 37,728 | 37,728 | ||||||||||||||
Total Long-Term Liabilities | 131,253 | 86,069 | ||||||||||||||
TOTAL LIABILITIES | 872,505 | 536,778 | 820,881 | 981,239 | ||||||||||||
Stockholders’ Equity | ||||||||||||||||
Preferred Stock, $ | par; shares authorized; and issued and outstanding, respectively1 | 1 | ||||||||||||||
Common Stock, $ | par; shares authorized; and issued and outstanding, respectively10,499 | 5,995 | ||||||||||||||
Preferred Stock, $ | par value; shares authorized; shares issued and outstanding1 | 1 | ||||||||||||||
Common Stock, $ | par value; shares authorized; shares issued and outstanding10,499 | 10,499 | ||||||||||||||
Additional Paid-In Capital | 53,086,908 | 38,262,744 | 54,193,981 | 53,442,431 | ||||||||||||
Accumulated Deficit | (38,181,540 | ) | (33,105,008 | ) | (47,382,713 | ) | (40,593,180 | ) | ||||||||
Total Stockholders’ Equity | 14,915,868 | 5,163,732 | 6,821,768 | 12,859,751 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 15,788,373 | $ | 5,700,510 | $ | 7,642,649 | $ | 13,840,990 |
See accompanying notes to condensed financial statements.
3 |
Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.)
Condensed Statements of Operations
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
REVENUES | $ | 700,237 | $ | 248,526 | $ | 1,302,525 | $ | 637,944 | $ | 188,245 | $ | 700,237 | $ | 476,749 | $ | 1,302,525 | ||||||||||||||||
COST OF REVENUE | 164,766 | 97,785 | 409,493 | 400,172 | 79,713 | 164,766 | 312,879 | 409,493 | ||||||||||||||||||||||||
GROSS PROFIT | 535,471 | 150,741 | 893,032 | 237,772 | 108,532 | 535,471 | 163,870 | 893,032 | ||||||||||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
Salaries & Benefits | 1,222,760 | 657,889 | 3,055,279 | 1,915,381 | 1,227,805 | 1,222,760 | 3,704,633 | 3,055,279 | ||||||||||||||||||||||||
Stock-Based Compensation | 659,512 | 58,219 | 893,431 | 483,208 | 275,418 | 659,512 | 613,833 | 893,431 | ||||||||||||||||||||||||
Operating R&D Costs | 131,772 | 79,673 | 608,812 | 245,008 | ||||||||||||||||||||||||||||
Investor, Public Relations & Marketing | 119,622 | 66,794 | 342,725 | 353,802 | ||||||||||||||||||||||||||||
Operations and R&D Costs | 152,245 | 131,772 | 442,548 | 608,812 | ||||||||||||||||||||||||||||
Investor, Public Relations and Marketing | 46,832 | 119,622 | 293,458 | 342,725 | ||||||||||||||||||||||||||||
Organization Costs | 342,112 | 173,041 | 578,256 | 328,716 | 140,522 | 342,112 | 260,088 | 578,256 | ||||||||||||||||||||||||
Legal & Professional Service Fees | 261,075 | 133,273 | 681,941 | 530,660 | 252,886 | 261,075 | 608,830 | 681,941 | ||||||||||||||||||||||||
Office Expenses | 172,238 | 84,357 | 472,335 | 310,947 | 183,608 | 172,238 | 692,640 | 472,335 | ||||||||||||||||||||||||
Depreciation & Amortization | 27,689 | 50,167 | 76,502 | 86,150 | 26,857 | 27,689 | 88,302 | 76,502 | ||||||||||||||||||||||||
Other Operating Expenses | 90,108 | 59,100 | 267,663 | 194,836 | 86,783 | 90,108 | 263,747 | 267,663 | ||||||||||||||||||||||||
Total Operating Expenses | 3,026,888 | 1,362,513 | 6,976,944 | 4,448,708 | 2,392,956 | 3,026,888 | 6,968,079 | 6,976,944 | ||||||||||||||||||||||||
LOSS FROM OPERATIONS | (2,491,417 | ) | (1,211,772 | ) | (6,083,912 | ) | (4,210,936 | ) | (2,284,424 | ) | (2,491,417 | ) | (6,804,209 | ) | (6,083,912 | ) | ||||||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||||||||
Interest Income | 2,981 | 77 | 10,053 | 959 | 278 | 2,981 | 3,025 | 10,053 | ||||||||||||||||||||||||
State Incentives | - | - | - | 151,657 | - | - | 76,628 | - | ||||||||||||||||||||||||
Exchange Rate Gain (Loss) | (490 | ) | (252 | ) | (333 | ) | (1,674 | ) | ||||||||||||||||||||||||
Exchange Rate Loss | (6,184 | ) | (490 | ) | (16,950 | ) | (333 | ) | ||||||||||||||||||||||||
Interest Expense | (2,052 | ) | (6,066 | ) | (5,434 | ) | (12,741 | ) | (1,978 | ) | (2,052 | ) | (5,367 | ) | (5,434 | ) | ||||||||||||||||
Loss on Dissolution of Joint Venture | - | - | - | (201 | ) | |||||||||||||||||||||||||||
Other Income | - | - | 1,092,441 | 361,700 | - | - | - | 1,092,441 | ||||||||||||||||||||||||
Total Other Income (Expense) | 439 | (6,241 | ) | 1,096,727 | 499,700 | (7,884 | ) | 439 | 57,336 | 1,096,727 | ||||||||||||||||||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | (2,490,978 | ) | (1,218,013 | ) | (4,987,185 | ) | (3,711,236 | ) | (2,292,308 | ) | (2,490,978 | ) | (6,746,873 | ) | (4,987,185 | ) | ||||||||||||||||
Provision for income Taxes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Net Loss | $ | (2,490,978 | ) | $ | (1,218,013 | ) | $ | (4,987,185 | ) | $ | (3,711,236 | ) | $ | (2,292,308 | ) | $ | (2,490,978 | ) | $ | (6,746,873 | ) | $ | (4,987,185 | ) | ||||||||
Preferred Dividends | (14,220 | ) | (737,344 | ) | (89,347 | ) | (1,744,471 | ) | (14,220 | ) | (14,220 | ) | (42,660 | ) | (89,347 | ) | ||||||||||||||||
Net Loss Applicable to Common Stockholders | $ | (2,505,198 | ) | $ | (1,955,357 | ) | $ | (5,076,532 | ) | $ | (5,455,707 | ) | $ | (2,306,528 | ) | $ | (2,505,198 | ) | $ | (6,789,533 | ) | $ | (5,076,532 | ) | ||||||||
Net Loss per Common Share – Basic and Diluted | $ | (0.24 | ) | $ | (0.42 | ) | $ | (0.53 | ) | $ | (1.74 | ) | $ | (0.22 | ) | $ | (0.24 | ) | $ | (0.65 | ) | $ | (0.53 | ) | ||||||||
Weighted Average Number of Shares Outstanding – Basic and Diluted | 10,494,560 | 4,675,749 | 9,602,666 | 3,137,459 | 10,498,802 | 10,494,560 | 10,498,802 | 9,602,666 |
See accompanying notes to condensed financial statements.
4 |
Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.)
Statement of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2021 and 2020(Unaudited)
(Unaudited)
For the Three Months Ended September 30, 20212022 and September 30, 20202021
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, June 30, 2021 | 465 | $ | 1 | 10,493,598 | $ | 10,494 | $ | 52,058,003 | $ | (35,676,342 | ) | $ | 16,392,156 | |||||||||||||||
Preferred Stock Dividends | - | - | - | - | 14,220 | (14,220 | ) | - | ||||||||||||||||||||
Preferred Stock Dividends, shares | ||||||||||||||||||||||||||||
Shares Securities Issued to Directors for Services | - | - | - | - | 282,306 | - | 282,306 | |||||||||||||||||||||
Securities Issued to Directors for Services, Shares | ||||||||||||||||||||||||||||
Securities Issued for Third Party Services | - | - | - | - | 72,872 | - | 72,872 | |||||||||||||||||||||
Securities Issued for Third Party Services, shares | ||||||||||||||||||||||||||||
Securities Awarded to Employees | - | - | 5,204 | 5 | 659,507 | - | 659,512 | |||||||||||||||||||||
Preferred Shares issued for Exercise of Preferred Warrants | ||||||||||||||||||||||||||||
Preferred Shares issued for Exercise of Preferred Warrants, shares | ||||||||||||||||||||||||||||
Common Shares issued for Conversion of Preferred Shares | ||||||||||||||||||||||||||||
Common Shares issued for Conversion of Preferred Shares, shares | ||||||||||||||||||||||||||||
Common Shares Sold in Public Offering | ||||||||||||||||||||||||||||
Common Shares Sold in Public Offering, shares | ||||||||||||||||||||||||||||
Preferred Shares Sold in Private Offering | ||||||||||||||||||||||||||||
Preferred Shares Sold in Private Offering, shares | ||||||||||||||||||||||||||||
Extinguishment of Derivative Liability | ||||||||||||||||||||||||||||
Common Shares issued for Exercise of Common Warrants | ||||||||||||||||||||||||||||
Common Shares issued for Exercise of Common Warrants, shares | ||||||||||||||||||||||||||||
Offering Costs | ||||||||||||||||||||||||||||
Issuance of Fractional Shares from Reverse Split | ||||||||||||||||||||||||||||
Issuance of Fractional Shares from Reverse Split, shares | ||||||||||||||||||||||||||||
Stock Options Awarded to Directors | ||||||||||||||||||||||||||||
Securities Issued to Directors for Services | ||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | (2,490,978 | ) | (2,490,978 | ) | |||||||||||||||||||
Balances, September 30, 2021 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,086,908 | $ | (38,181,540 | ) | $ | 14,915,868 |
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, June 30, 2020 | 333 | $ | 1 | 3,926,362 | $ | 3,926 | $ | 33,151,829 | $ | (29,595,944 | ) | $ | 3,559,812 | |||||||||||||||
Preferred Stock Dividends | - | - | 339,499 | 339 | 737,005 | (737,344 | ) | - | ||||||||||||||||||||
Common Shares issued for Conversion of Preferred Shares | (3,318 | ) | (3 | ) | 1,555,550 | 1,556 | (1,553 | ) | - | - | ||||||||||||||||||
Preferred Shares issued for Exercise of Preferred Warrants | 3,568 | 3 | - | - | 3,478,796 | - | 3,478,799 | |||||||||||||||||||||
Securities Issued to Directors for Services | - | - | 8,334 | 8 | 131,142 | - | 131,150 | |||||||||||||||||||||
Securities Issued for Third Party Services | - | - | 3,500 | 4 | 58,918 | - | 58,922 | |||||||||||||||||||||
Securities Awarded to Employees | - | - | - | - | 58,220 | - | 58,220 | |||||||||||||||||||||
Net Loss | - | - | - | - | - | (1,218,013 | ) | (1,218,013 | ) | |||||||||||||||||||
Balances, September 30, 2020 | 583 | $ | 1 | 5,833,245 | $ | 5,833 | $ | 37,614,357 | $ | (31,551,301 | ) | $ | 6,068,890 |
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, June 30, 2022 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,876,218 | $ | (45,076,185 | ) | $ | 8,810,533 | |||||||||||||||
Net Loss | - | - | - | - | - | (2,292,308 | ) | (2,292,308 | ) | |||||||||||||||||||
Preferred Stock Dividends | - | - | - | - | 14,220 | (14,220 | ) | - | ||||||||||||||||||||
Stock Options Issued for Third Party Services | - | - | - | - | 973 | - | 973 | |||||||||||||||||||||
Stock Options Awarded to Directors for Services | - | - | - | - | 27,152 | - | 27,152 | |||||||||||||||||||||
Stock Options Awarded to Employees | - | - | - | - | 275,418 | - | 275,418 | |||||||||||||||||||||
Balances, September 30, 2022 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 54,193,981 | $ | (47,382,713 | ) | $ | 6,821,768 |
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, June 30, 2021 | 465 | $ | 1 | 10,493,598 | $ | 10,494 | $ | 52,058,003 | $ | (35,676,342 | ) | $ | 16,392,156 | |||||||||||||||
Preferred Stock Dividends | - | - | - | - | 14,220 | (14,220 | ) | - | ||||||||||||||||||||
Shares Securities Issued to Directors for Services | - | - | - | - | 282,306 | - | 282,306 | |||||||||||||||||||||
Securities Issued for Third Party Services | - | - | - | - | 72,872 | - | 72,872 | |||||||||||||||||||||
Stock Awarded to Employees | - | - | 5,204 | 5 | 659,507 | - | 659,512 | |||||||||||||||||||||
Net Loss | - | - | - | - | - | (2,490,978 | ) | (2,490,978 | ) | |||||||||||||||||||
Balances, September 30, 2021 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,086,908 | $ | (38,181,540 | ) | $ | 14,915,868 |
See accompanying notes to condensed financial statements.
5 |
For the Nine Months Ended September 30, 20212022 and September 30, 20202021
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2020 | 715 | $ | 1 | 5,995,320 | $ | 5,995 | $ | 38,262,744 | $ | (33,105,008 | ) | $ | 5,163,732 | |||||||||||||||
Beginning balance | 715 | $ | 1 | 5,995,320 | $ | 5,995 | $ | 38,262,744 | $ | (33,105,008 | ) | $ | 5,163,732 | |||||||||||||||
Common Shares Sold in Public Offering | - | - | 3,901,783 | 3,902 | 14,865,997 | - | 14,869,899 | |||||||||||||||||||||
Extinguishment of Derivative Liability | - | - | - | - | (1,092,441 | ) | - | (1,092,441 | ) | |||||||||||||||||||
Preferred Stock Dividends | - | - | 19,000 | 19 | 89,328 | (89,347 | ) | - | ||||||||||||||||||||
Common Shares issued for Conversion of Preferred Shares | (250 | ) | - | 100,000 | 100 | (100 | ) | - | - | |||||||||||||||||||
Common Shares issued for Exercise of Common Warrants | - | - | 475,995 | 476 | 1,135,534 | - | 1,136,010 | |||||||||||||||||||||
Stock Options Awarded to Directors | - | - | - | - | 404,580 | - | 404,580 | |||||||||||||||||||||
Securities Issued for Third Party Services | - | - | 1,500 | 2 | 128,807 | - | 128,809 | |||||||||||||||||||||
Securities Awarded to Employees | - | - | 5,204 | 5 | 893,426 | - | 893,431 | |||||||||||||||||||||
Offering Costs | - | - | - | - | (1,600,967 | ) | - | (1,600,967 | ) | |||||||||||||||||||
Net Loss | - | - | - | - | - | (4,987,185 | ) | (4,987,185 | ) | |||||||||||||||||||
Balances, September 30, 2021 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,086,908 | $ | (38,181,540 | ) | $ | 14,915,868 | |||||||||||||||
Ending balance | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,086,908 | $ | (38,181,540 | ) | $ | 14,915,868 |
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2021 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,442,431 | $ | (40,593,180 | ) | $ | 12,859,751 | |||||||||||||||
Net Loss | - | - | - | - | - | (6,746,873 | ) | (6,746,873 | ) | |||||||||||||||||||
Preferred Stock Dividends | - | - | - | - | 42,660 | (42,660 | ) | - | ||||||||||||||||||||
Stock Options Issued for Third Party Services | - | - | - | - | 24,463 | - | 24,463 | |||||||||||||||||||||
Stock Options Awarded to Directors for Services | - | - | - | - | 70,594 | - | 70,594 | |||||||||||||||||||||
Stock Options Awarded to Employees | - | - | - | - | 613,833 | - | 613,833 | |||||||||||||||||||||
Balances, September 30, 2022 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 54,193,981 | $ | (47,382,713 | ) | $ | 6,821,768 |
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2019 | - | $ | - | 1,403,759 | $ | 1,404 | $ | 26,746,439 | $ | (26,095,594 | ) | $ | 652,249 | |||||||||||||||
Common Shares Sold in Public Offering | - | - | 493,027 | 493 | 1,499,507 | - | 1,500,000 | |||||||||||||||||||||
Preferred Shares Sold in Private Offering | 1,973 | 3 | - | - | 2,099,997 | - | 2,100,000 | |||||||||||||||||||||
Preferred Stock Dividends | - | - | 749,924 | 750 | 1,743,721 | (1,744,471 | ) | - | ||||||||||||||||||||
Common Shares issued for Conversion of Preferred Shares | (7,154 | ) | (7 | ) | 3,157,427 | 3,157 | (3,150 | ) | - | - | ||||||||||||||||||
Preferred Shares issued for Exercise of Preferred Warrants | 5,764 | 5 | - | - | 5,619,895 | - | 5,619,900 | |||||||||||||||||||||
Securities Issued to Directors for Services | - | - | 8,334 | 8 | 131,142 | - | 131,150 | |||||||||||||||||||||
Securities Issued for Third Party Services | - | - | 6,000 | 6 | 113,837 | - | 113,843 | |||||||||||||||||||||
Securities Awarded to Employees | - | - | 11,517 | 12 | 483,196 | - | 483,208 | |||||||||||||||||||||
Offering Costs | - | - | - | (820,224 | ) | - | (820,224 | ) | ||||||||||||||||||||
Issuance of Fractional Shares from Reverse Split | - | - | 3,257 | 3 | (3 | ) | - | - | ||||||||||||||||||||
Net Loss | - | - | - | - | - | (3,711,236 | ) | (3,711,236 | ) | |||||||||||||||||||
Balances, September 30, 2020 | 583 | $ | 1 | 5,833,245 | $ | 5,833 | $ | 37,614,357 | $ | (31,551,301 | ) | $ | 6,068,890 |
Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||
Shares Outstanding | Preferred Stock | Shares Outstanding | Common Stock | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2020 | 715 | $ | 1 | 5,995,320 | $ | 5,995 | $ | 38,262,744 | $ | (33,105,008 | ) | $ | 5,163,732 | |||||||||||||||
Common Shares Sold in Public Offerings | - | - | 3,901,783 | 3,902 | 14,865,997 | - | 14,869,899 | |||||||||||||||||||||
Extinguishment of Derivative Liability | - | - | - | - | (1,092,441 | ) | - | (1,092,441 | ) | |||||||||||||||||||
Preferred Stock Dividends | - | - | 19,000 | 19 | 89,328 | (89,347 | ) | - | ||||||||||||||||||||
Common Shares Issued Upon Conversion of Preferred Shares | (250 | ) | - | 100,000 | 100 | (100 | ) | - | - | |||||||||||||||||||
Common Shares issued for Exercise of Common Warrants | - | - | 475,995 | 476 | 1,135,534 | - | 1,136,010 | |||||||||||||||||||||
Stock Options Awarded to Directors | - | - | - | - | 404,580 | - | 404,580 | |||||||||||||||||||||
Securities Issued for Third Party Services | - | - | 1,500 | 2 | 128,807 | - | 128,809 | |||||||||||||||||||||
Stock Options Awarded to Employees | - | - | 5,204 | 5 | 893,426 | - | 893,431 | |||||||||||||||||||||
Offering Costs | - | - | - | - | (1,600,967 | ) | - | (1,600,967 | ) | |||||||||||||||||||
Net Loss | - | - | - | - | - | (4,987,185 | ) | (4,987,185 | ) | |||||||||||||||||||
Balances, September 30, 2021 | 465 | $ | 1 | 10,498,802 | $ | 10,499 | $ | 53,086,908 | $ | (38,181,540 | ) | $ | 14,915,868 |
See accompanying notes to condensed financial statements.
6 |
Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.)
Condensed Statements of Cash Flows
(Unaudited)
September 30, 2022 | September 30, 2021 | |||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2022 | September 30, 2021 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net Loss | $ | (4,987,185 | ) | $ | (3,711,236 | ) | $ | (6,746,873 | ) | $ | (4,987,185 | ) | ||||
Adjustments to reconcile Net Loss to Net Cash used in operating activities: | ||||||||||||||||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||||||||||
Noncash Expenses: | ||||||||||||||||
Depreciation and Amortization | 76,502 | 86,150 | 88,302 | 76,502 | ||||||||||||
Gain on Derivative Liability | (1,092,441 | ) | - | - | (1,092,441 | ) | ||||||||||
Stock Based Compensation - Employees | 893,431 | 483,208 | ||||||||||||||
Stock Based Compensation – Third Party Services | 128,809 | 113,843 | ||||||||||||||
Stock Based Compensation - Directors | 404,580 | 131,150 | ||||||||||||||
Change in assets and liabilities: | ||||||||||||||||
Stock-Based Compensation - Employees | 613,833 | 893,431 | ||||||||||||||
Stock-Based Compensation - Third Party Services | 24,463 | 128,809 | ||||||||||||||
Stock-Based Compensation - Directors | 70,594 | 404,580 | ||||||||||||||
Change in Assets and Liabilities: | ||||||||||||||||
Accounts Receivable | (335,178 | ) | (429,527 | ) | 44,422 | (335,178 | ) | |||||||||
Inventory | (196,896 | ) | 24,178 | (257,352 | ) | (196,896 | ) | |||||||||
Prepaid Assets | (13,940 | ) | 55,669 | (63,446 | ) | (13,940 | ) | |||||||||
Accounts Payable | 94,220 | (544,991 | ) | 197,105 | 94,220 | |||||||||||
Deferred Revenue | 7,523 | (46,606 | ) | (19,166 | ) | 7,523 | ||||||||||
Accrued Expenses | 233,985 | 108,022 | (338,297 | ) | 233,985 | |||||||||||
Deferral of Payroll Taxes under the CARES Act | - | 53,545 | ||||||||||||||
NET CASH USED IN OPERATING ACTIVITIES | (4,786,590 | ) | (3,676,595 | ) | (6,386,415 | ) | (4,786,590 | ) | ||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Purchase of Property and Equipment | (116,631 | ) | (88,074 | ) | (83,848 | ) | (116,631 | ) | ||||||||
Purchase of Intangible Assets | (138,141 | ) | (161,878 | ) | (176,104 | ) | (138,141 | ) | ||||||||
Dissolution of Joint Venture | - | 500 | ||||||||||||||
NET CASH USED IN INVESTING ACTIVITIES | (254,772 | ) | (249,452 | ) | (259,952 | ) | (254,772 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Gross Proceeds from Public and Private Issuances of Securities | 14,869,899 | 3,600,000 | - | 14,869,899 | ||||||||||||
Less Offering Costs | (1,600,967 | ) | (820,224 | ) | - | (1,600,967 | ) | |||||||||
Payment of Note Payable | - | (50,000 | ) | |||||||||||||
Proceeds from Exercise of Warrants | 1,136,010 | 5,619,900 | - | 1,136,010 | ||||||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 14,404,942 | 8,349,676 | - | 14,404,942 | ||||||||||||
NET CHANGE IN CASH FOR PERIOD | 9,363,580 | 4,423,629 | (6,646,367 | ) | 9,363,580 | |||||||||||
CASH AT BEGINNING OF PERIOD | 3,700,814 | 86,919 | 11,447,047 | 3,700,814 | ||||||||||||
CASH AT END OF PERIOD | $ | 13,064,394 | $ | 4,510,548 | $ | 4,800,680 | $ | 13,064,394 | ||||||||
Supplemental Disclosures: | ||||||||||||||||
Noncash investing and financing activities disclosure: | ||||||||||||||||
Noncash Investing and Financing Activities Disclosure: | ||||||||||||||||
Issuance of Common Shares for Preferred Dividends | $ | 89,347 | $ | 1,744,471 | $ | - | $ | 89,347 | ||||||||
Issuance of Securities for Services | $ | 533,387 | $ | 244,993 | ||||||||||||
Disclosure of cash paid for: | ||||||||||||||||
Other Noncash Operating Activities Disclosure: | ||||||||||||||||
Issuance of Securities for services | $ | 95,057 | $ | 533,387 | ||||||||||||
Disclosure of Cash Paid for: | ||||||||||||||||
Interest | $ | 5,434 | $ | 12,741 | $ | 5,367 | $ | 5,434 | ||||||||
Income Taxes | $ | - | $ | - | $ | - | $ | - |
See accompanying notes to condensed financial statements.
7 |
SIGMA ADDITIVE SOLUTIONS, INC. (FORMERLY SIGMA LABS, INC.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 20212022
(Unaudited)
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business --Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc., formerly named Framewaves, Inc.), a Nevada corporation (“Company,” “Sigma,” “we,” “us” and “our”), 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 clientelecustomers 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. 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, 20212022 and 20202021 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 principlesGAAP have been condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 20202021 audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The results of operations for the periodsperiod ended September 30, 2021 and 20202022 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. These reclassifications have no impact on the previously reported results.
Fair Value of Financial Instruments - The Company applies ASC 820, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables, accounts payable, and accrued liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
The Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes. On March 26, 2021, the Company closed an offering in which it issued warrants to purchase an aggregate of 2,190,000 shares of common stock in a private placement concurrently with a registered direct offering (“Registered Offering”) of our common stock The warrants became exercisable on May 24, 2021, the date the Company obtained stockholder approval to increase its authorized common shares from to (“the Initial Exercise Date”), and will expire two years after the Initial Exercise Date.on May 24, 2023.
Pursuant to ASC 815-40-25-10,815.40.25.10, such warrants were accounted for as a derivative liability because the Company did not have sufficient authorized and unissued shares of common stock available to settle the warrants at the issue date, such warrants were accounted for as a derivative liability.date. On May 24, 2021, upon receiving shareholderstockholder approval to increase its authorized common shares, the Company reclassified the warrant liability to equity pursuant to ASC 815.40.35.8.
For the nine months ended September 30, 2021, the Company recorded a gain of $1,092,441
Thedue to the change in the fair value of the warrantderivative liability as measured on a recurring basis is as follows:basis.
Schedule of Warrant Liability Measured on Recurring Basis
September 30, 2021 | Date of Issuance March 26, 2021 | |||||||||||||
Fair Value | Input Level | Fair Value | Input Level | |||||||||||
Derivative Liability - Warrants | $ | - | - | $ | 5,708,212 | Level 3 |
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3):
Schedule of Derivative Liability Measured on a Recurring Basis Using Significant Unobservable Input (Level 3)
Warrants | ||||
Fair Value on Issuance Date | $ | 5,708,212 | ||
Change in Fair Value | (1,092,441 | ) | ||
Fair Value on May 24, 2021 | 4,615,771 | |||
Extinguishment of Derivative Liability | (4,615,771 | ) | ||
Fair Value on September 30, 2021 | $ | - |
September 30, | ||||||||
2021 | 2020 | |||||||
Warrants | 3,987,931 | 1,845,722 | ||||||
Preferred Stock Warrants | - | 260,089 | ||||||
Stock Options | 1,400,407 | 610,229 | ||||||
Preferred Stock | 124,483 | 227,695 | ||||||
Total Underlying Common Shares | 5,512,821 | 2,943,735 |
September 30, | ||||||||
2022 | 2021 | |||||||
Warrants | 3,825,781 | 3,987,931 | ||||||
Stock Options | 1,784,942 | 1,400,407 | ||||||
Preferred Stock | 148,918 | 124,483 | ||||||
Total Underlying Common Shares | 5,759,641 | 5,512,821 |
Schedule of EarningsComputing Loss Per Share Basic and Diluted
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net Loss per Common Share - Basic and Diluted | $ | (0.24 | ) | $ | (0.42 | ) | $ | (0.53 | ) | $ | (1.74 | ) | ||||
Loss from continuing | ||||||||||||||||
Operations available to Common stockholders (numerator) | $ | (2,505,198 | ) | $ | (1,955,357 | ) | $ | (5,076,532 | ) | $ | (5,455,707 | ) | ||||
Loss from continuing Operations available to Common stockholders (numerator) | $ | (2,505,198 | ) | $ | (1,955,357 | ) | $ | (5,076,532 | ) | $ | (5,455,707 | ) | ||||
Weighted average number of common shares Outstanding used in loss per share during the Period (denominator) | 10,494,560 | 4,675,749 | 9,602,666 | 3,137,459 |
Recently Enacted Accounting Standards - The FASB established the 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 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.
2022 | 2021 | 2022 | 2021 | |||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net Loss per Common Share - Basic and Diluted | $ | (0.22 | ) | $ | (0.24 | ) | $ | (0.65 | ) | $ | (0.53 | ) | ||||
Loss Applicable to Common Stockholders (numerator) | $ | (2,306,528 | ) | $ | (2,505,198 | ) | $ | (6,789,533 | ) | $ | (5,076,532 | ) | ||||
Weighted Average Number of Common Shares Outstanding Used in Loss Per Share During the Period (denominator) | 10,498,802 | 10,494,560 | 10,498,802 | 9,602,666 |
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United StatesGAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.
Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite under perpetual licenses and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
In January 2022, the Company began offering a subscription option to its customers, pursuant to which it leases its PrintRite3D platform for terms between 12 and 36 months and provide technical support and maintenance for the term of the arrangement, as well as installation and training. The Company has determined these are leases because they relate to discrete pieces of equipment to which customers have the right to substantially all the economic benefit from and exclusive right to use during the term of the arrangement. These leases are classified as operating leases and the Company retains title to the underlying equipment.
The leases may be renewed for successive one-year terms unless notice is given by either party of its intent not to renew at least 30 days before the end of the lease term. For leases with 36-month terms, the lessee may terminate the agreement after the first 18 months with 30-days written notice. Some, but not all, of the leases permit lessees to purchase the equipment at any time at an amount that approximates fair value and are not reasonably certain to be exercised at the inception of the lease. There are no anticipated variable lease payments at the inception of the lease.
There are two non-lease components in the arrangement that consist of technical support and maintenance, and installation and training. The Company has elected the single component practical expedient to combine the technical support and maintenance with the lease as they have the same pattern of transfer. The installation and training component does not have the same pattern of transfer; therefore, this component is not eligible for the single component practical expedient. The consideration has been allocated on a relative fair value basis of the underlying lease and non-lease components. The Company has estimated the residual value of the leased equipment based on its useful life, and the ability to refurbish and sell the equipment, as well as the Company’s ability to componentize the hardware and utilize subassemblies in other products.
Revenue from these operating leases for the three and nine months ended September 30, 2022 was $2,834 and $17,006, respectively.
9 |
Minimum Lease Payments Receivable
Minimum lease payments receivable for each of the succeeding years ending December 31 are as follows:
Schedule of Minimum Lease Payments Receivable
Year ending December 31, | Amount | |||
2022 (remaining) | $ | 8,503 | ||
2023 | $ | 8,503 | ||
2024 | - | |||
2025 and thereafter | - | |||
Total | $ | 17,006 |
Equipment Underlying Operating Leases:
Equipment under operating leases as of September 30, 2022 were comprised of the following:
Schedule of Assets underlying Operating Leases
September 30, 2022 | ||||
PrintRite 3D Hardware | $ | 38,949 | ||
Accumulated Depreciation | 4,173 | |||
Net Book Value | $ | 34,776 |
The Company is depreciating the underlying equipment over its useful life of 7 years, but certain subassemblies and components may have a longer economic life.
NOTE 2 – Inventory
At September 30, 20212022 and December 31, 2020,2021, the Company’s inventory was comprised of:of the following:
Schedule of Inventory
September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||
Raw Materials | $ | 312,181 | $ | 309,305 | $ | 264,558 | $ | 202,015 | ||||||||
Work in Process | 260,380 | 175,884 | 420,420 | 224,079 | ||||||||||||
Finished Goods | 283,986 | 174,462 | 282,454 | 283,986 | ||||||||||||
Total Inventory | $ | 856,547 | $ | 659,651 | $ | 967,432 | $ | 710,080 |
NOTE 3 – CARES Act Deferred Payroll Tax LiabilityIntangible Assets
The Company’s intangible assets consist of patents and patent applications.
Provisional patent applications are not amortized until a patent has been granted. Once a patent is granted, the Company will amortize the related costs over the estimated useful life of the patent. If a patent application is denied, then the costs will be expensed at that time.
During 2022, $126,231 of costs related to patents issued to us during 2022 were reclassified from provisional patent application to patents and began to be amortized as of the date of issue.
The following is a summary of definite-life intangible assets less accumulated amortization as of September 30, 2022 and December 31, 2021, respectively:
Summary of Definite-life Intangible Assets and Accumulated Amortization
September 30, 2022 | December 31, 2021 | |||||||
Provisional Patent Applications | $ | 725,164 | $ | 675,291 | ||||
Patents | 426,601 | 300,370 | ||||||
Less: Accumulated Amortization | (67,560 | ) | (50,550 | ) | ||||
Net Intangible Assets | $ | 1,084,205 | $ | 925,111 |
Amortization expense on intangible assets was $17,010 and $22,998 for the nine months ended September 30, 2022 and 2021, respectively.
10 |
The estimated aggregate amortization expense for each of the following years ending December 31 is as follows:
Schedule of Aggregate Amortization Expense
2022 (Remaining) | $ | 6,153 | ||
2023 | 24,610 | |||
2024 | 24,610 | |||
2025 | 24,610 | |||
Thereafter | 279,058 | |||
Intangible asset and amortization expense | $ | 359,041 |
NOTE 4 – Deferral of Social Security Tax Payments
Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral period”.period.” The payroll tax deferral period began on March 27, 2020 and ended on December 31, 2020. At September 30, 20212022, the total remaining amount of suchthe deferral was $75,45537,728. Per the terms of the deferral program, 50% of the deferredsuch amount is due on December 31, 2021, and the remainingby 50% is due on December 31, 2022 at 0%, without interest.
NOTE 4 - Derivative Liability
On March 26, 2021 (the “Issuance Date”), the Company issued warrants to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement concurrently with a registered direct offering of shares of its common stock. The warrants entitle the holders to purchase one share of our common stock at an exercise price equal to $ per share commencing on and will expire two years from such date. The Company has determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the registered direct offering. Management also determined that on the Issuance Date, the Company did not have sufficient authorized and unissued shares to settle the warrants, and as such required classification as a liability pursuant to ASC 815 “Derivative Instruments and Hedging”. In accordance with the accounting guidance, the outstanding warrants were recognized as a warrant liability on the balance sheet and were measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.
At a Special Stockholders Meeting held on May 24, 2021, the Company received approval to increase its authorized common shares from to . Pursuant to ASC 815-40-35-8, the Company reclassified the warrant liability to equity as of such date.
The fair value of the derivative liability presented below was measured using the Black Scholes valuation model. Significant inputs into the model for the nine months ended September 30, 2021 are as follows:
Schedule of Fair Value of Derivative Liability Using Black Scholes Valuation Model
The warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Schedule of Fair Value of Warrant Liability
Warrant Liability | Warrants Outstanding | Fair Value Per Share | Fair Value | |||||||||
Fair Value at initial measurement date of March 26, 2021 | 2,190,000 | $ | 2.61 | $ | 5,708,212 | |||||||
(Gain) on change in Fair Value of Warrant Liability | - | $ | - | (1,092,441 | ) | |||||||
Fair Value as of May 24, 2021 | 2,190,000 | $ | 2.11 | 4,615,771 | ||||||||
Extinguishment of Derivative Liability | (2,190,000 | ) | $ | 2.11 | (4,615,771 | ) | ||||||
Fair Value as of September 30, 2021 | - | $ | - | - |
The Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s assumptions. Level 3 measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity and may be more sensitive to fluctuations in stock prices, volatility rates and U.S. Treasury Bond rates and could have a material impact on future fair value measurements.
The Company uses the Black Scholes model, based on the adjusted historical volatility rates for fair value measurements through the date of stockholder approval (i.e., May 24, 2021). Management has determined the Black Scholes model to be the most reliable and least volatile determinate of the current fair value of the warrants. It is the Company’s expectation to maximize on all observable market inputs for the warrants and calibrate the model to incorporate relevant observable market data into the fair value measurement at each future measurement date, if applicable.
During the nine months ended September 30, 2021, the Company recognized a gain of $1,092,441 on the change in fair value of the warrants.
NOTE 5 - Stockholders’ Equity
Common Stock
On May 24, 2021, at a Special Stockholders Meeting, our stockholders approved an increase in the authorized shares of common stock were increased from to .
In January 2021, the Company closed a public offering of its securities in which it issued 4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter orand its designeedesignees warrants to purchase 136,943 shares of common stock. Such warrants have a term of five years and an exercise price of $3.75 per share. shares of common stock at a price of $ per share, resulting in net proceeds of approximately $
In February 2021, the Company issued shares of common stock pursuant to the exercise of warrants issued in our January 2020 private placement.
11 |
In March 2021, the Company issued Companycompany issued shares of common stock pursuant to the exercise of warrants issued in our April 2020 offering, and shares of common stock issued pursuant to the cashless exercise of placement agent warrants. shares of common stock in exchange for the conversion of shares of Series D Convertible Preferred Stock, including shares of common stock as in-kind payment of preferred stock dividends. Also in March 2021, the
In March 2021, the Company closed a public offering of its securities in which it issued shares of common stock at a price of $per share, resulting in net proceeds to the Company of approximately $8,736,487after deducting placement agent commissions and other offering costs payable by the Company. Pursuant to the Purchase Agreement, the purchasers severally agreed to vote the shares of common stock purchased under the Purchase Agreement in favor of any resolution presented to the stockholders of the Company for the purpose of obtaining approval of an increase in the authorized shares of the Company’s Common Stock from 2,190,000 to shares (“Stockholder Approval”). In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants (“Warrants”) to purchase an aggregate of shares of Common Stock at an exercise price of $4.32per share. Each Warrant became exercisable oncommencing May 24, 2021, the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common StockStockholder Approval, and will expire two years from such after the initial exercise date. The Company also issued to designees of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock (the “Placement Agent Warrants”) constituting 8% of the aggregate number of shares of Common Stock sold in the Registered Offering.public offering. The Placement Agent Warrants have substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to % of the offering price per share (or $5.55625 per share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to purchase 8.08% of the number of shares of our Common Stock issued upon the cash exercise of the Warrants.such exercise.
In March 2021, Company issued CorProminence, an investor relations firm previously engaged by the Company as partial compensation for services previously rendered. shares of common stock valued at $ per share to
In September 2021, the Company granted shares of common stock to non-executive employees pursuant to the 2013 Equity Incentive Plan.
On April 6, 2020, the Company closed a public offering of equity securities in which it issued shares of common stock and pre-funded warrants to purchase up to 22,438 shares of the Company’s common stock. The Company also issued Series A Warrants to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement. In connection with this offering, the Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate of 41,237 shares of the Company’s Common Stock (which amount is based on the number of Common Shares and shares underlying the Pre-Funded Warrants) at an exercise price of $3.64 per share. Net proceeds to the Company after deducting offering expenses were approximately $1,230,000.
In the nine months ended September 30, 2020, the Company issued shares of common stock in exchange for the conversion of shares of Series D Convertible Preferred stock, and shares of common stock as in-kind payment of preferred stock dividends.
In the nine months ended September 30, 2020, the Company issued shares of common stock for services.
Preferred Stock
The Company is authorized to issue shares of preferred stock, $par value.value, of which and shares of preferred stock were issued and outstanding at September 30, 20212022 and 2020, respectively.December 31, 2021.
In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Institutional Private Placement”). Pursuant, pursuant to the SPA,which the Company issued and sold shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has at an initial stated value of $ per share (the “Stated Value”).share. Dividends accrue at a dividend rate of 99%% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and on aare payable monthly basis, shall be payable in kind by the increase of the Stated Valuestated value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares will have the right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50 (subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection)protection in the event the Company issues or sells, or is deemed to have issued or sold, shares of Common Stock for a consideration per share less than a price equal to the conversion price then in effect). In addition,Alternatively, a holder may at any time alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative conversion price which equalsequal to the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85% of the average volume weighted average price (“VWAP”) of the Common Stock for a five (5) tradingfive-trading day period prior to such conversion. Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium to the underlying value of the Series D Preferred SharesStock being redeemed.
At September 30, 20212022, there were shares of Series D Convertible Preferred stockStock outstanding, which if converted at the Conversion Price of $2.50as of September 30, 2021,2022, including the make-whole dividends, would have resultedresult in the issuance of shares of common stock.
Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) withpursuant to which the Company issued and sold to certain of its directors and the Company’s previouslythen largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and soldstockholder shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”). at an initial stated value of $ per share. Dividends accrue at a dividend rate of 99%% per annum and on aare payable monthly basis, shall be payable in kind by the increase of the Stated Valuestated value of the Series E Preferred SharesStock by said amount. The Series E Preferred Stock is initially convertible into shares of Common Stock.common stock (subject to adjustment for stock splits, dividends, recapitalizations and similar events).
At September 30, 2021, all2022, shares of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of September 30, 2021,2022, including the make-whole dividends, would have resultedresult in the issuance of shares of common stock.
Deferred Compensation
In previous years and in the nine months ended September 30, 2021, 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 are valued at the fair value at the date of issue. The fair value is expensed as compensation over the vesting period and recorded as an increase to stockholders’ equity. During the nine months ended September 30, 2021 and September 30, 2020, $ and $, respectively, of the unvested compensation cost related to these issues was recognized.
At September 30, 2021, there was 0 unrecognized deferred compensation expense to be recognized over the remainder of the year.
Stock Options
On July 15, 2021, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Equity Incentive Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by shares of our common stock to a total of shares.
As of September 30, 2021,2022, an aggregate of shares of common stock remained availablewere reserved for future issuance under the Company’s 2013 Equity Incentive Plan.
In March 2022, the Company granted options to its non-employee directors to purchase up to an aggregate of 2.50. As of September 30, 2022, of such grants were fully vested and exercisable, and the remaining will vest on December 31, 2022 subject to the directors remaining in our service through such date. shares of common stock at a strike price of $
During the nine months ended September 30, 2021,
DuringAlso, during the nine months ended September 30, 2020, are fully vested.
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 datesgrant date, The exercise prices will not be less than 100% of grant.the fair market value of a share on the date of grant of the option. Stock options are typically granted throughout the year and generally vest over foura period from one to three years of service and expire five years from the grant 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-basedstock-based compensation expense included in the statements of operations for the nine months ended September 30, 2022 and 2021 was $ and 2020 is $ and $respectively, all of which $ and $is related to stock options, respectively.options.
The fair value of share-basedstock-based awards was estimated using the Black-Scholes model with the following weighted-averageweighted average assumptions for the nine months ended September 30, 20212022 and 2020:2021:
Assumptions:
Schedule of Share-based PaymentShare Based Payments Award Stock Options Valuation Assumptions
2021 | 2020 | |||||||
Dividend yield | % | % | ||||||
Risk-free interest rate | – | % | - | % | ||||
Expected volatility | - | % | - | % | ||||
Expected life (in years) |
2022 | 2021 | |||||||
Dividend yield | % | % | ||||||
Risk-free interest rate | - | % | - | % | ||||
Expected volatility | - | % | - | % | ||||
Expected life (in years) |
Schedule of Stock Option Activity
Weighted Average | Weighted Average | Options | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | Aggregate Intrinsic Value ($) | |||||||||||||||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||||||||||||||||||
Price | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
Options | ($) | Life (Yrs.) | Value ($) | |||||||||||||||||||||||||||||
Options outstanding at December 31, 2019 | 180,912 | 18.11 | 25,988 | |||||||||||||||||||||||||||||
Granted | 579,998 | 2.55 | - | |||||||||||||||||||||||||||||
Exercised | - | - | - | |||||||||||||||||||||||||||||
Forfeited or cancelled | (47,900 | ) | 22.62 | - | ||||||||||||||||||||||||||||
Options outstanding at December 31, 2020 | 713,010 | 5.15 | 477,802 | 713,010 | 5.15 | 477,802 | ||||||||||||||||||||||||||
Granted | 697,831 | 3.29 | 46,800 | 698,831 | 3.29 | 46,800 | ||||||||||||||||||||||||||
Exercised | (5,204 | ) | 2.50 | - | (5,204 | ) | 2.50 | - | - | |||||||||||||||||||||||
Forfeited or cancelled | (5,230 | ) | 4.41 | - | (10,755 | ) | 3.49 | - | - | |||||||||||||||||||||||
Options outstanding September 30, 2021 | 1,400,407 | 4.24 | 267,577 | |||||||||||||||||||||||||||||
Options expected to vest in the future as of September 30, 2021 | 574,146 | 3.59 | 110,275 | |||||||||||||||||||||||||||||
Options exercisable at September 30, 2021 | 826,261 | 4.68 | 157,302 | |||||||||||||||||||||||||||||
Options vested, exercisable, and options expected to vest at September 30, 2021 | 1,400,407 | 4.24 | 267,577 | |||||||||||||||||||||||||||||
Options outstanding at December 31, 2021 | 1,395,882 | 4.24 | - | |||||||||||||||||||||||||||||
Granted | 433,973 | 2.50 | - | |||||||||||||||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||||||||||||||
Forfeited or cancelled | (44,913 | ) | 4.21 | - | - | |||||||||||||||||||||||||||
Options outstanding September 30, 2022 | 1,784,942 | 3.82 | - | |||||||||||||||||||||||||||||
Options expected to vest in the future as of September 30, 2022 | 534,242 | 2.91 | - | |||||||||||||||||||||||||||||
Options exercisable at September 30, 2022 | 1,250,700 | 4.21 | - | |||||||||||||||||||||||||||||
Options vested, exercisable, and options expected to vest at September 30, 2022 | 1,784,942 | 3.82 | - |
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The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quotedmarket price of our common stock for those awards that have an exercise price currentlybelow the market price of our common stock. At September 30, 2022, no option had an exercise price below the $ closing price of our common stock as reported on September 30, 2021. None of the 2021 option grants have an exercise price currently below $.The Nasdaq Capital Market.
At September 30, 2021,2022, there was $ of unrecognized share-basedstock-based compensation expense related to unvested sharestock options with a weighted average remaining recognition period of years.
Stock Appreciation Rights
On June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long rangelong-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholdersstockholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No and no shares of common stock wereare reserved in connection with the adoption of the Plan since no sharesor will be issued pursuant to the Plan.
SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Shareshare on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.
During the nine months ended September 30, 2022, the Company granted a total of SARs to fifteen employees at exercise prices ranging from $ to $ with vesting periods ranging from immediately upon issuance to three years, beginning January 3, 2022, provided that the employees remain employed by the Company on such dates. The SARs expire on the fifth anniversary of the grant date.
On August 11, 2021,Also, during the nine months ended September 30, 2022, the Company granted pursuant to the Plan, (i) SARs to itsour President and Chief Executive Officer (ii) at exercise prices ranging from $ to $ . Of the SARs, to its Vice will vest equally over 36 months beginning March 2022, will vest over 36 months beginning July 1, 2022, and will vest on March 15, 2025, in each case provided that the President and Chief Executive Officer remains an employee of Business Development, (iii) the Company on such dates. The SARs to its Chief Technology Officer, and (iv) SARs to its Chief Financial Officer. The exercise pricewill expire on the fifth anniversary of each such SAR is $, which was the closing price of the Company’s common stock on the date of grant.grant dates.
On June 23, 2020,March 31, 2022, the Company granted pursuant to the Plan, (i) SARs to its President and Chief Executive Officer, (ii) SARsa consultant as partial compensation for services pursuant to its Vice President of Business Development, (iii) SARs to its Chief Technology Officer, and (iv) SARs to its Chief Financial Officer. Thea consulting agreement at an exercise price of each such SAR is $, which was the closing price of the Company’s common stock on the date of grant.
. The SARs expire on the fifth anniversary of the grant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as possible) installments on each of the first, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediatelyare fully vested and exercisable as long as the applicable holder is in the Company’s employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement.exercisable.
The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period for each SAR award. The SAR’sSARs are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in incomethe Statement of Operations as of the applicable reporting date.
Schedule of Share-based PaymentShare Based Payments Award Stock Options Valuation Assumptions
Assumptions:
2021 | 2020 | 2022 | 2021 | |||||||||||||
Dividend yield | % | % | % | % | ||||||||||||
Risk-free interest rate | % | % | - | % | - | % | ||||||||||
Expected volatility | % | % | - | % | % | |||||||||||
Expected life (in years) |
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Schedule of Stock Option Activity
Weighted Average | Weighted Average | |||||||||||||||||||||||||||||||
Exercise | Remaining | Aggregate | ||||||||||||||||||||||||||||||
Price | Contractual | Intrinsic | ||||||||||||||||||||||||||||||
SARs | ($) | Life (Yrs.) | Value ($) | Options | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | Aggregate Intrinsic Value ($) | |||||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||
SARs outstanding at December 31, 2020 | 127,679 | 2.61 | 97,919 | 127,679 | 2.61 | 97,919 | ||||||||||||||||||||||||||
Granted | 242,945 | 3.43 | - | 242,945 | 3.43 | - | ||||||||||||||||||||||||||
Exercised | - | - | - | - | - | - | - | |||||||||||||||||||||||||
Forfeited or cancelled | - | - | - | - | - | - | ||||||||||||||||||||||||||
SARs outstanding September 30, 2021 | 370,624 | 3.15 | 51,955 | |||||||||||||||||||||||||||||
SARs expected to vest in the future as of September 30, 2021 | 250,975 | 3.19 | 29,687 | |||||||||||||||||||||||||||||
SARs exercisable at September 30, 2021 | 119,649 | 3.08 | 22,268 | |||||||||||||||||||||||||||||
SARs vested, exercisable, and options expected to vest at September 30, 2021 | 370,624 | 3.15 | 51,955 | |||||||||||||||||||||||||||||
SARs outstanding at December 31, 2021 | 370,624 | 3.15 | - | |||||||||||||||||||||||||||||
Granted | 814,862 | 1.81 | - | |||||||||||||||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||||||||||||||
Forfeited or cancelled | - | - | - | - | ||||||||||||||||||||||||||||
SARs outstanding September 30, 2022 | 1,185,486 | 2.23 | - | |||||||||||||||||||||||||||||
SARs expected to vest in the future as of September 30, 2022 | 897,970 | 2.05 | - | |||||||||||||||||||||||||||||
SARs exercisable at September 30, 2022 | 287,516 | 2.80 | - | |||||||||||||||||||||||||||||
SARs vested, exercisable, and SARs expected to vest at September 30, 2022 | 1,185,486 | 2.23 | - |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quotedmarket price of our common stock for those awards that have an exercise price currentlybelow the market price of our common stock. At September 30, 2022, no SAR had an exercise price below the $ 0.815 closing price of our common stock as reported on September 30, 2021. None of the 2021 SARs grants have an exercise price currently below $ .
At September 30, 2021,2022, there was $ of unrecognized share-basedstock-based compensation expense related to unvested SARs with a weighted average remaining recognition period of years.
Warrants
Warrant activity for the nine months ended September 30, 20212022 and 2020the year ended December 31, 2021 was as follows:
SummarySchedule of WarrantWarranty Activity
Weighted Average | Weighted Average | |||||||||||
Exercise | Remaining | |||||||||||
Price | Contractual | |||||||||||
Warrants | ($) | Life (Yrs.) | ||||||||||
Warrants outstanding at December 31, 2019 | 363,727 | 25.60 | ||||||||||
Granted | 1,481,995 | 3.22 | ||||||||||
Exercised | - | - | ||||||||||
Forfeited or cancelled | - | - | ||||||||||
Warrants outstanding at September 30, 2020 | 1,845,722 | 7.64 | ||||||||||
Warrants outstanding at December 31, 2020 | 1,881,429 | 7.57 | ||||||||||
Granted | 2,602,143 | 4.36 | ||||||||||
Exercised | (495,641 | ) | 2.59 | |||||||||
Forfeited or cancelled | - | - | ||||||||||
Warrants outstanding at September 30, 2021 | 3,987,931 | 6.10 |
In connection with its March 2021 private placement, the Company issued warrants to purchase 2,190,000 shares of its common stock at an exercise price of $4.32 per share. Each Warrant became exercisable on May 24, 2021, the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common Stock and will expire two years from such date. The Company also issued to designees of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock (the “Placement Agent Warrants”) constituting 8% of the aggregate number of shares of Common Stock sold in the Registered Offering. The Placement Agent Warrants have substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to % of the offering price per share (or $5.55625 per share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to purchase % of the number of shares of our Common Stock issued upon the cash exercise of the Warrants.
In connection with its January 2021 public offering, the Company issued to the Underwriter or its designee warrants to purchase of shares of common stock. Such warrants have a term of five years from the commencement of sales in the Offering and an exercise price of $3.75 per share.
On January 8, 2021, the Company obtained a waiver (“Waiver”) from certain investors (“Investors”) with respect to certain anti-dilution adjustment provisions of a January 2020 warrant and an April 2020 warrant issued to the Investors. As consideration for the Waiver, the Company issued an additional warrant (“Warrant”) to the Investors to purchase an aggregate of shares of common stock, each exercisable after six months for a five-year period with an exercise price equal to 115% of the closing price of the Company’s stock on the date of the waiver.
Warrants | Weighted Average Exercise Price ($) | Weighted Average Remaining Contractual Life (Yrs.) | ||||||||||
Warrants outstanding at December 31, 2020 | 1,881,429 | 7.57 | ||||||||||
Granted | 2,602,143 | 4.36 | ||||||||||
Exercised | (495,641 | ) | 2.59 | - | ||||||||
Forfeited or cancelled | - | - | - | |||||||||
Warrants outstanding at December 31, 2021 | 3,987,931 | 6.10 | ||||||||||
Granted | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Forfeited or cancelled | (162,150 | ) | 40.00 | - | ||||||||
Warrants outstanding at September 30, 2022 | 3,825,781 | 4.66 |
NOTE 6 - Subsequent Events
On October 14, 2022, the Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for our common stock had been below $performedmay also be eligible for an evaluation of subsequent events through the date of filing of these condensed financial statementsadditional 180 calendar days to regain compliance. per share for 30 consecutive business days, and that the Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notice indicates that the Company has 180 calendar days, or until April 12, 2023, to regain compliance with this requirement. The Company
The Company believes that it will regain compliance with the SEC. There were no material subsequent events which affected, or could affect, the amounts or disclosures in the condensed financial statements.$minimum bid price requirement.
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 but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, or the impact of COVID-19 on our business, 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 documentQuarterly Report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including 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, 20202021 and elsewhere in this report.Quarterly Report.
Corporation Information
We were 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. We commenced our current business operations in 2010. On May 17, 2022, we began doing business as Sigma Additive Solutions, and on August 9, 2022 changed our name to Sigma Additive Solutions, Inc.
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.comwww.sigmaadditive.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.our website. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.Report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amountsassets, liabilities, sales and expenses 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 significantBy their nature, changes in these assumptions and estimates could significantly affect our financial position or results of operations. Significant accounting estimates that may materially change in the near future are revenue recognition, impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 of the Notes to the Financial Statements included in this Quarterly Report on Form 10-Q.Report. However, we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements.
ResultsThe critical accounting policies and estimates addressed below reflect our most significant judgements and estimates used in the preparation of Operationsour financial statements
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Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite under perpetual licenses and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
In January 2022, the Company began offering a subscription option to its customers, pursuant to which it leases its PrintRite3D platform for terms between 12 and 36 months and provide technical support and maintenance for the term of the arrangement, as well as installation and training. The Company has determined these are leases because they relate to discrete pieces of equipment to which customers have the right to substantially all the economic benefit and exclusive right to use during the term of the arrangement. These leases are classified as operating leases and the Company retains title to the underlying equipment.
The leases may be renewed for successive one-year terms unless notice is given by either party of its intent not to renew at least 30 days before the end of the lease term. For leases with 36-month terms, the lessee may terminate the agreement after the first 18 months with 30-days written notice. Some, but not all, of the leases permit lessees to purchase the asset at any time at an amount that approximates fair value and are not reasonably certain to be exercised at the inception of the lease. There are no anticipated variable lease payments at the inception of the lease.
There are two non-lease components in the arrangement that consist of technical support and maintenance, and installation and training. The Company has elected the single component practical expedient to combine the technical support and maintenance with the lease as they have the same pattern of transfer. The installation and training component does not have the same pattern of transfer; therefore, this component is not eligible for the single component practical expedient. The lease consideration is allocated on a relative fair value basis of the underlying lease and non-lease components. The Company has estimated the residual value of the leased equipment based on its useful life, and the ability to refurbish and sell the equipment, as well as the Company’s ability to componentize the hardware and utilize subassemblies in other products.
The Company is depreciating assets over their useful life of 7 years, but certain subassemblies and components may have a longer economic life.
Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received.
Inventory Valuation - Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components which will be sold to customers. Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method. Charges for obsolete inventory are based on identification of specific items resulting from regular, on ongoing reviews of our inventory.
Long-Lived and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal or external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Utility patents are amortized over a 17-year period. Patents which are pending are not amortized.
Stock-Based Compensation – We measure the compensation costs of stock-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which recipients are required to provide services. Stock-based compensation arrangements may include stock options, grants of shares of common stock with and without restrictions, performance-based awards, and stock appreciation rights. Compensation cost is measured on the date of grant at its fair value.
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Equity instruments issued to non-employees are recorded on the basis of the grant date fair value of the instruments. In general, the measurement date is either (a) when a performance commitment, as defined, is reached or (b) the earlier of the date that (i) the non-employee performance requirement is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant.
The fair value of common stock grants is based upon the closing price of our common stock as reported on The Nasdaq Capital Market on the date of the grant. The grant date fair value of stock options and SARs is calculated using the Black Scholes valuation model, and requires estimates of several inputs to the model, including risk-free interest rates, dividends, and expected volatility of our stock price.
Business Overview
Three Months Ended September 30, 2021 and September 30, 2020
We generateHistorically, we have generated revenues through sales, and more recently, subscription-based licensing of our PrintRite3D® hardware and software edge computing platformtechnology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. However, 2022 has been a year of significant change for our business, from our symbolic name change to the execution of a new approach to the market. We have a mission to accelerate the adoption of additive manufacturing by setting the industry standard for quality, and we have charted our path to deliver the first holistic digital quality experience for the additive industry with the following objectives:
● | Simplifying the quality experience from up to twelve disparate software licenses and multiple manual spreadsheets, to a single user experience that is holistic and integrated with production workflow. | |
● | Building strategic partnerships, expanding our partner ecosystem, and best ensuring success of existing customers as they move into production. | |
● | Offering products that are easier to use and less expensive, both for initial purchases and as expansion opportunities. | |
● | Attracting a strategic corporate investment partner with clear product, customer, and financial synergies. |
A holistic digital quality experience connects in-process data upstream to CAD/CAM through the downstream inspection and material data. This digital quality journey begins by creating a new qualification framework for in-process data. The path to qualified parts and continued production relies on more than just melt pool monitoring; it also covers machine health, process health, and part health. Our customers require specific data for qualification and certification of parts and need a holistic approach to production quality, and further, require a way to simplify quality from 8-12 disparate software licenses and several manual spreadsheets, to one user experience that is integrated into their production workflow.
In order to expand the number of OEMs distributing our technology, we launched a three-tiered OEM program directed to: (1) new OEMs without their own quality assurance or monitoring solution; (2) established OEMs with a quality monitoring offering, but who have customers with multiple printers from multiple OEMs and want a single third party quality and analytics solution with consistent quality metrics across printers, processes and materials; and (3) OEMs building open application programming interfaces, or APIs, to integrate components of Sigma’s proprietary technology with their current offerings. We are now working with OEMs on their next generation printers to offer a software-only solution that will utilize the printer’s computing infrastructure and dramatically reduce the overall cost of its technology, enabling the opportunity to move towards a software only embedded solution on every printer sold by partner OEMs. To further augment this initiative, we have also begun integrating with industry wide hardware providers, such as our recently announced relationship with a laser scanner provider.
We began offering our current PrintRite3D integrated hardware and software solution on a subscription basis in 2022. Among other things, at present the change reduced the initial upfront cost to a new user from over $100,000 to approximately $3,000-$5,000 per month. The combination of subscription pricing and the new software-only products that can be embedded into OEM and software partner offerings are intended to make our technology more affordable to acquire and easier to bundle, distribute and support in an effort to become the industry standard.
The shift in our business model has adversely affected our revenues and near-term revenue growth as we increased our focus on building strategic partnerships, expanding our partner ecosystem, and ensuring the success of our existing customers as they move into production. Our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our traditional PrintRite3D® technologies, andtechnology, along with our new software-only offerings that start to link industry quality together. Additionally, it will depend on whether key prospective customers continue to move from AM metaladditive manufacturing prototyping to production.production, which our products are intended to accelerate. However, we believe these changes to our business model will contribute to faster adoption of our product by end users and will result in more predictable and profitable revenues over the longer term.
In connection with this shift, we reduced our headcount in the third quarter by a net of five employees. With a further reduction of two employees in October, our full-time headcount now stands at twenty-five, a net reduction of ten employees from our peak of thirty-five in April of this year. Though we plan to hire one or two new employees to fill open positions in the near-term, we expect our headcount will be stable for the next twelve to eighteen months.
As part of our vision to build the future of connected digital quality, we have undertaken an initiative to attract a strategic corporate investment partner with clear product, customer, and financial synergies to Sigma. This work is focused on identified companies that connect to our long-term quality vision. This strategic investment initiative is focused on synergies and potential product integration to accelerate market visibility and customer adoption.
Over the past ten years, Sigma has invested its resources to solve the problem of in-process AM quality: melt pool analytics for the “part”. This remained a retrofit lab solution until the last eight months. Our prior product offering met the needs of materials scientists, but overlooked the production needs of shop floor technicians, process engineers, and operations teams. The addition of our “machine” and “process” software products for additive manufacturing will provide a holistic in-process quality base for us to connect to the broader digital quality ecosystem.
We believe the industry is evolving. Application Programming Interfaces, or APIs, are opening up, as some of our relationships with OEMs have become public. There is also a trend toward consolidation in additive manufacturing as companies align for profitability. Sigma has made demonstrable progress in 2022 connecting to other products in the AM digital quality stream, and a connection to a strategic partner paired with near term execution can augment our ability to scale, support the market, and create value. Further, alignment with a strategic partner allows for common growth, vision, and funding of the Company to achieve its mission, but also provides an opportunity for other strategic relationships, including potential acquisitions that can further accelerate the execution of our digital quality vision.
Results of Operations
Three Months Ended September 30, 2022 and September 30, 2021
During the three months ended September 30, 2021,2022, we recognized revenue of $700,237,$188,245, as compared to $248,526$700,237 in revenue recognized during the same period in 2020, an increase2021, a decrease of $451,711.$511,992, or 72.7%. The increase isdecrease was primarily due to increasedlower PrintRite3D® unit sales includingof $511,870, the Company’s first multi-unit sale, which wasshift to subscription-based sales, and a U.S. Departmentdecrease in contract additive manufacturing revenue of Energy contractor, as well as a single unit sale to a U.S. National Laboratory. Third quarter 2021 revenues were$11,190, partially offset by a return from a firstan increase in annual maintenance contract renewals in the third quarter sale of $72,000.2022 of $11,068, as compared to the third quarter of 2021.
Our cost of revenue for the three months ended September 30, 2021 and 20202022 was $164,766 and $97,785, respectively, an increase of $66,981. The increase is primarily attributable to additional PrintRite3D unit sales, partially offset by a decrease in certain material costs, and lower costs associated with the Company’s Rapid Test and Evaluation (“RTE”) program.
Our gross profit for the three months ended September 30, 2021 was $535,471, or 76.5% of revenues,$79,713, as compared to $150,741, or 60.7% of revenues$164,766 for the same period in 2020.2021, a decrease of $85,053, or 51.6%. The decrease was primarily attributable to lower unit sales in the quarter.
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Sigma’sOur total operating expenses for the three months ended September 30, 20212022 were $3,026,888$2,392,596, as compared to $1,362,513$3,026,888 for the same period in 2020,2021, an increasedecrease of $1,664,375.$633,932, or 20.9%. The decrease was primarily attributable to a decrease in stock-based compensation expense of $384,093, a decrease in investor, public relations and marketing expense of $72,790, and a decrease in organization costs of $201,590 primarily attributable to a timing difference in stock option grants as further explained below.
Salary and benefits costs were $1,222,760$1,227,805 for the three months ended September 30, 2021,2022, as compared to $657,889$1,222,760 for the same period in 2020,2021, an increase of $564,871$5,045, or 86%0.4%. EmployeeThe increase was comprised of: (a) $100,125 of salary increases together with 13 additionalfor existing employees contributed $289,356, while associatedand two new hires; (b) an increase in severance costs of $88,379; and (d) increased taxes and benefits contributed $75,511, and increasedof $18,737. Offsetting these increases was a decrease in SAR expense associated withof $196,766 resulting from the stock appreciation rights granted to executive management in August 2021 contributed $200,004September 30, 2022 revaluation due to the increase.decrease in our stock price, and a decrease in employee commissions and bonuses of $5,429.
Stock-based compensation was $659,512$275,418 for the three months ended September 30, 2021,2022, as compared to $58,219$659,512 for the same period in 2020,2021, a $601,293, increase.decrease of $384,094, or 58.2%. This increase is partially duedecrease was primarily a result of the expense related to a timing difference as stock options were awarded to new employees and annual option grants awarded to other employees in the second quarter of 2020 versus the third quarter of 2021, as well as an overall increase in stock options granted to employees, including our thirteen new employees in August 2021, and fully vested stock options granted to the Company’s newly hired Senior Vice President.2021.
ResearchWe incurred operations and research and development expenditurescosts of $131,772 were incurred$152,245 during the three months ended September 30, 20212022, as compared to $79,673$131,772 in the same period of 2020, a $52,0992021, an increase of $20,473, or 65% increase.15.5%. The increase iswas primarily due to an increase in research and development expenses of $27,430, partially offset by a decrease in operations costs of $6,614. The increase in research and development expenses was attributable to $27,500an increase in CT scansconsulting expenses of $14,930 in connection with ongoing PrintRite3D software development and research on the laser application of PrintRite3D for a new OEM of $20,000, partially offset by costs of $7,500 incurred in the third quarter of 2021 related to new development work, $5,019a simulation project. The decrease in operations costs related to optics redesign,charges in the third quarter of 2021 for inventory obsolescence and $19,580 in purchasepurchases of lab supplies and partparts and materials.
Investor,We incurred investor, public relations, and marketing expensescosts of $119,622 were incurred$46,832 during the three months ended September 30, 2021,2022, as compared to $66,794 incurred$119,622 during the same period in 2020.2021. The increasedecrease of $52,828$72,790, or 79% is60.9%, was primarily due to an increasea decrease in tradeshow expenses of $38,699,$38,136 as a result of a timing difference of a rescheduled trade show from the second to the third quarter in 2021 due to COVID. , and the reclassification of proxy management expenses from Investor Relations to Organization Costs of $26,135a decrease in 2020, partially offset by decreased advertisinginvestor relations consulting costs of $8,252 in 2021.$33,207 due to decreased consulting fees and revaluation of outstanding SARs held by consultants.
OrganizationWe incurred organization costs of $342,112 were incurred$140,522 during the three months ended September 30, 2021,2022, as compared to $173,041$342,112 during the same period in 2021. The decrease of $201,590, or 58.9% was primarily attributable to a decrease in non-employee director compensation of $234,154 as compared to stock options grants in the same period in 2020. The2021, partially offset by an increase of $169,071 or 98% is primarilyin directors cash compensation. Offsetting this decrease was an increase due to additional $6,465a timing difference of $33,909 resulting from expense recognized in Shareholder Services, $11,450the second quarter of 2021 as our annual stockholders meeting was held earlier in Organization Costs, and $151,1562021 than in Stock Options expense from grants made to non-employee directors in August 2021.2022.
Legal &and professional fees incurred in the three months ended September 30, 20212022 were $261,075$252,886, as compared to $133,273$261,075 incurred during the same period in 2020. The increase2021, a decrease of $127,802 is$8,189, or 3.1%. This decrease was a result of a decrease in accounting expenses of $18,118, and a decrease in consulting expenses of $46,147 primarily attributeddue to increased legal fees of $20,415, increased accounting fees of $7,244 related to certain regulatory filings, increased recruiting fees of $56,805 related to new hires, increased consulting fees of $51,966,stock option grant and increased information technology expense of $1,517, partially offset by a $10,145the reclassification of other professional servicesa consulting expense to research and development.development in 2021. Partially offsetting these decreases was an increase in recruiting expenses of $17,444 for new hires, an increase in legal expenses of $39,487 as a result of a timing difference in the move of our annual stockholders meeting from the second quarter in 2021 to the third quarter in 2022.
Office expenses incurred duringfor the three months ended September 30, 20212022 were $172,238$183,608 as compared to $84,357 incurred during$172,238 for the same period in 2020,2021, an increase of $87,881,$11,370, or 104%6.6%. The increase isresulted primarily duefrom: (a) an increase in travel and entertainment expenses of $17,825 as compared to increased travel costs of $54,864the same period in 2021 as a result of easing of COVIDCOVID-19 related travel restrictions,restrictions; (b) an increase in payroll service fees of $12,659 in dues and subscriptions, primarily$4,486 related to annual price increases; and (c) dues & subscriptions of $6,514 for new software applications including customer relationship management, product lifecycle management, and compliance, an increase of $9,312project management software. Partially offsetting these increases was: (a) a decrease in postage and shipping increasedof $8,093; (b) a decrease in office supplies of $2,645; and (c) and a decrease in training and education expense of $6,082 and an increase in supplies and miscellaneous expenses of $4,964.$5,368.
Depreciation and amortization expense for the three months ended September 30, 2021 was $27,689,2022 totaled $26,857, as compared to $50,167$27,689 for the same period in 2020, a decrease2021, an increase of $22,478,$832, or 45%7.2%. The primary reason forincrease was primarily the decrease is an adjustment in 2020 for the reclassificationresult of a protypedepreciation expense associated with PrintRite3D system from finished goods to fixed assets.units sold under our subscription-based pricing program.
Other operating expenses were $90,108$86,783 for the three months ended September 30, 2021,2022, as compared to $59,100 incurred during$90,108 for the same period in 2020.2021. The increase is$3,326 decrease was primarily due to higher insurance premiumscredit card transaction fees in September 2021, andas compared to none in the third quarter of 2022, partially offset by an increase in bank fees from a credit card transaction.insurance premiums.
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In the three months ended September 30, 2021, our2022, we realized net other expenses of $7,884, as compared to net other income & expense was net income of $439 compared to net expense of $6,241 in 2020.2021. The increase isin net other expenses of $8,323, was primarily due to a foreign currency exchange loss in 2022 due to the resultstrengthening of the interest paid to employees on salary reductions in 2020.US dollar against the Euro.
Sigma’sOur net loss applicable to common stockholders for the three months ended September 30, 2021 totaled $2,505,1982022 was $2,306,528, as compared to $1,955,357$2,505,198 for the same period of 2020,2021, a $549,841 decrease.decrease of $198,670, or 7.9%. The third quarter net operating loss contributed $1,279,646decrease was primarily due to the decrease in the loss increase,from operations of $206,993, partially offsetting these losses wasoffset by an increase in net other incomeexpense of $6,680, and preferred dividends of $723,124.$8,323.
Nine Months Ended September 30, 20212022 and 2020September 30, 2021
During the nine months ended September 30, 2021,2022, we recognized revenue of $1,302,525$476,749, as compared to $637,944 during$1,302,525 in the same period in 2021, a decrease of 2020.$825,776, or 63.4%. The primary contributorsdecrease was primarily due to the $664,581 increase were an increase in PrintRite3D® unit sales contributing $799,221, partially offset by a decrease in revenuesales of our PrintRite3D® units of $919,355, decreased revenues from our legacy Rapid Test and Evaluation Program (RTE)(“RTE”) program of $82,064$4,100, and a first quarter sale return for $72,000. Third quarter 2021decreased contract additive manufacturing revenue of $11,189 in 2022. Partially offsetting these decreases was an increase in revenues included the Company’s first multi-unit sale, which was to a U.S. Department of Energy contractor,$17,006 from our subscription-based pricing program, on-site installation and a single unit sale to a U.S. National Laboratory.support revenue of $49,068, an increase in consulting service revenue of $4,500, and an increase in annual maintenance contract revenue of $38,295.
Our cost of revenue for the nine months ended September 30, 20212022 was $409,493 compared to $400,172 during the same period in 2020. The increase of $9,321 is primarily due to the cost associated with our increase in PrintRite3D® unit sales, partially offset by a decrease in certain material parts, as well as a decrease in the ongoing support of legacy RTE programs, including equipment upgrades and additional labor costs.
Our gross profit for the nine months ended September 30, 2021 was $893,032, or 68.6% of revenues,$312,879, as compared to $237,772, or 37.3% of revenues$409,493 for the same period in 2020.2021, a decrease of $96,614, or 23.6%. The decrease was primarily attributable to fewer unit sales in 2022 partially offset by increased travel costs incurred related to installations from 2021 sales.
Sigma’s totalOur operating expenses for the nine months ended September 30, 20212022 were $6,976,944$6,968,079, as compared to $4,448,708$6,976,944 for the same period in 2020,2021, an decrease of $8,865. The decrease was primarily attributable to a $2,528,236, or 56.8% increase.decrease in stock-based compensation for employees, executives, and board members, a decrease in operating and R&D costs, partially offset by increases in salary and benefits, office expenses due to a company-wide global conference held in May of 2022, and increased travel in 2022 as described below.
PayrollSalary and benefits costs were $3,704,633 for the nine months ended September 30, 2021 were $3,055,2792022, as compared to $1,915,381$3,055,279 for the same period in 2020,2021, an increase of $1,139,898.$649,354, or 21.3%. The increase is primarilywas comprised of: (a) $617,977 in employee salary increases and average full-time employee headcount increasing by five; (b) a $115,768 increase in severance due to increased salariesthe termination of $741,303 reflecting raises granted in Januaryemployment of six employees; and 13 additional employees in 2021 as compared to 2020, an associated increase in(c) increased taxes and benefits of $137,976, and $260,619 of increased expense related to stock appreciation rights granted to executive management in August, 2021.
Stock-based compensation for the nine months ended September 30, 2021 was $893,431 compared to $483,208 for the same period in 2020, a $410,223 increase, primarily due annual option grants made to employees in August of 2021, including 13 additional employees as compared to 2020, and options granted to the Company’s newly hired Senior Vice President.
During the nine months ended September 30, 2021, Sigma incurred research and development expenditures of $608,812 compared to $245,008 in the same period of 2020. The $363,804 increase is a result of development costs incurred in connection with PrintRite3D version 7.0 of $89,800, increased purchase of lab supplies of $115,453, CT scans conducted for new development work and a simulation project totaling $101,138, increased write-offs of obsolete inventory and metal powder of $53,082, and $26,351 related to an optics redesign.$206,257. Partially offsetting these increases was a decrease in consulting costscommissions of $22,020$38,682 due to the full time hirefewer unit sales and a decrease in SARs of $251,965 due to revaluations resulting from a consultantdecrease in 2021.our stock price.
Investor, public relations and marketing expenses incurred inStock-based compensation was $613,833 for the nine months ended September 30, 2021 were $342,7252022, as compared to $353,802 during$893,431 for the same period in 2020. The $11,0772021, a decrease of $279,597 or 31.3%. This decrease was primarily due to the expense related to options granted to new employees and annual option grants awarded to other employees in the nine-month comparative expenditures results primarily from decrease in marketing and advertising expensesthird quarter of $72,490 as a result of discontinuing Network Newswire services and the use of a public relations firm. Partially offsetting these decreases were an increase in Tradeshow expense of $38,698, and the reclassification of proxy management expenses of $26,135 to organization costs in 2020.2021.
OrganizationWe incurred operations and research and development costs forof $442,548 during the nine months ended for September 30, 2021 were $578,2562022, as compared to $328,716 during$608,812 in the same period in 2020, an increase of $249,540.2021, a decrease of $166,266, or 27.3%. The increase isdecrease was primarily due to an increase of $273,429 related to stock option grants to non-employee directors in January and July of 2021 verses none in the first half of 2020. Non-employee directors received their option grants at the end of July, 2020. Partially offsetting this increase was a decrease in non-employee director cash compensationoperations costs of $20,931,$133,827 and lower transfer agent expensesa decrease in research and development costs of $2,958 resulting from fewer share transactions$32,439. The decrease in operations expense was due to: (a) charges we incurred in 2021 of $41,964 for inventory obsolescence, including $14,471 for metal powder write-offs; (b) equipment upgrades in 2021 in both our manufacturing facility and our 3D metal printer totaling $12,277; (c) a decrease in parts and material purchases of $77,374 in the first nine months of 2021.2022; and (d) a decrease in purchase of lab supplies of $2,212. The decrease in research and development costs was due to expenses associated with a simulation project in 2021 of $95,461, partially offset by an increase in consulting costs of $43,022 in connection with ongoing PrintRite3D software development and $20,000 for research on laser application of PrintRite3D for a new OEM.
We incurred investor, public relations, and marketing expenses of $293,458 during the nine months ended September 30, 2022, as compared to $342,725 during the same period in 2021. The decrease of $49,267, or 14.4%, was primarily due to a decrease in investor relations consulting costs of $62,741 resulting from a revaluation of SARs at June 30 and September 30, 2022, and lower advertising expenses of $9,524. Partially offsetting this decrease was an increase in tradeshow expenses of $22,998 as compared to 2021, when COVID-19 travel restrictions precluded attendance at such events.
We incurred organization costs of $260,088 during the nine months ended September 30, 2022, as compared to $578,256 during the same period in 2021. The decrease of $318,268, or 55%, was primarily attributable to decreases in: (a) non-employee director fees of $274,865, mostly as a result of a decrease in stock options issued; and (b) stockholder services of $43,304, primarily due to expenses incurred in 2021 in connection with a special stockholders meeting.
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Legal and professional fees incurred in the nine months ended September 30, 20212022 were $681,941,$608,830, as compared to $530,660 incurred$681,941 during the same period in 2020,2021, a decrease of $73,111, or 10.7%. This decrease was primarily a result of a decrease in legal expenses of $21,403 due to one less stockholder meeting and fewer regulatory filings, a decrease in recruiting expenses of $73,223 related to new hires in 2021, and a decrease in accounting fees of $9,817 due to fulltime hire of temporary accounting support. These decreases were partially offset by an increase in consulting expenses of $151,281, or 29%. Legal fees decreased by $81,822 due$30,530 attributable to expenses incurred during the first quarterengagement of 2020technical consulting support in connection with our January 2020 private offering, Nasdaq related matters,subscription-based pricing model, external human resources consulting, and our February 27, 2020 reverse stock split. Also contributing to the decrease were lower accounting related expenseshire of $9,426. Partially offsetting these decreases was an increase in recruiting fees of $147,473 related to 13 new hires in 2021, increased consulting fees of $87,301 related to an external marketing consultant and corporate consulting services, and increased IT services of $7,755.inventory management consultant.
DuringOffice expenses for the nine months ended September 30, 2021, Sigma’s office expenses2022 were $472,335$692,640, as compared to $310,947 in$472,335 for the same period in 2021, an increase of 2020.$220,305, or 46.6%. The $161,388increase resulted primarily from: (a) travel and entertainment of $113,616 related to increased travel as compared to 2021 as a result of COVID-19 related travel restrictions; (b) expenses of $109,435 related to a Company-wide, global conference held in May of 2022; (c) an increase in these expenditures primarily resulted from $30,693 in postage and shipping, $27,500 in new computer hardware and softwarepayroll service fees of $12,867 related to new hires, payroll servicing fees of $10,685 due to new hires and a first-year fee discount that ended in 2020, increasedhires; (d) dues and& subscriptions of $35,786 to$21,715 for new software applications, including customer relationship management, product lifecycle management, and compliance, increased travelproject management software; and (e) an increase in utilities expenses of $46,438 and increased training and education expense of $12,146, partially offset by$1,755. Partially offsetting these increases was a decrease in rentpostage and utilitiesshipping of $28,783 and a decrease in office supply expense of $1,861.$9,262.
Depreciation and Amortizationamortization expense for the nine months ended September 30, 2021 was $76,502,2022 totaled $88,302 as compared to $86,150$76,502 for the same period in 2020.2021, an increase of $11,800, or 15.4%. The primary reason for the decrease isincrease was primarily due to a nine month catch up adjustment in 2020 from the reclassification of a prototypedepreciation expense on PrintRite3D system from finished goods inventory to fixed assets.units leased under our subscription-based program.
Other operating expenses were $263,747 for the nine months ended September 30, 2021 were $267,663,2022, as compared to $194,836 during$267,663 for the same period in 2020.2021, a decrease of $3,916. The decrease was due to: (a) a decrease in SEC filing fees of $6,102; (b) a decrease in licensing fees of $2,166; and (c) a decrease in bank fees, primarily credit card transaction fees of $7,413. These decreases were partially offset by an increase in insurance policy premiums for 2022 of $72,827 is primarily due to increased insurance premiums.$11,765.
In the nine months ended September 30, 2021, our2022, we realized net other income & expense was net income of $1,096,727,$57,336, as compared to net other income of $499,700 during the same period$1,096,727 in 2020.2021. The increase isdecrease of $1,039,391, or 94.8%, was primarily a result ofdue to a gain of $1,092,441 onfrom the 2021 revaluation of the derivative liability incurred in connection with the issuancerelated to our private placement of warrants in the second quarter of 2021, a foreign currency exchange loss of $16,950 in 2022 due to purchase common stockthe strengthening of the US dollar against the Euro, and a decrease in our March 2021 offering, and $9,095 from a new interest-bearing sweep bank account, as compared to 2020interest income of $7,028. Partially offsetting these decreases was an increase of $76,628 in New Mexico state job incentive creditsincentives in the first quarter of $151,657 and $361,700 from the forgiveness of our PPP loan.2022.
Sigma’sOur net loss applicable to common shareholdersstockholders for the nine months ended September 30, 2021 totaled $5,076,5322022 was $6,789,533, as compared to $5,455,707$5,076,532 for the same period in 2020,of 2021, a $379,175 decrease. While the net operating$1,713,001 increase. The increase was due to an increased loss increased by $1,872,976, the increasefrom operations of $597,027$720,297 and a decrease in other income together withof $1,039,391, partially offset by a decrease in preferred dividend expensedividends of $1,655,124 accounted for the overall decrease.
We financed our operations during the three and nine months ended September 30, 2021 and 2020 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. 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.$46,687.
Liquidity and Capital Resources
As of September 30, 2021,2022, we had $13,064,394$4,800,680 in cash and working capital of $13,977,104,$5,492,725, as compared with $3,700,814$11,447,047 in cash and working capital of $4,332,053$11,702,358 as of December 31, 2020.2021.
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.
In JanuaryOn March 26, 2021, the Company closed a public offering of its securities in which it issued 1,711,7832,190,000 shares of common stock at $3.00 per share, resulting in net proceedsa price of approximately $4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company.
In March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering costs payable by the Company. Concurrent with the public offering,In a concurrent private placement, the Company issued warrants to investorsthe purchasers warrants to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement. The warrants entitle the holders to purchase one share of our common stock at an exercise price equal toof $4.32 per share commencingshare. Each warrant became exercisable on May 24, 2021, and will expire two years from suchafter the initial exercise date. If all
On January 12, 2021, the Company closed a public offering of the warrants are exercised1,711,783 shares of common stock at a price of $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting commissions and other offering expenses payable by the holders thereof, the potential gross proceeds to the Company will be $9,460,800.Company.
During the first quarter of 2021, the Company issued 454,404 sharesreceived cash proceeds of common stock pursuant to the exercise of warrants, resulting in net proceeds to the Company of $1,136,010.$1,136,010 from warrant exercises.
We believe that our existing cash on hand, together with expected revenue, will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2022. We have based this estimateat least the first quarter of 2023. The Company is currently engaged in identifying sources of financing either in the form of equity or debt or a combination thereof. No assurance can be given as to the availability of such financing, or, if available, that such financing would be on assumptions that may proveterms acceptable to be wrong, such as our current expectations of revenue generation and burn rate, and we could exhaust our capital resources sooner than we expect.the Company.
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Because of the numerous risks and uncertainties associated with the research, development, and commercialization of our products, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
● | Revenue from the sales of our existing and future products; | |
● | Costs associated with the expansion of our business and operations; | |
● | The cost of expending, maintaining, and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; and | |
● | The effect of competing technological and market | |
During the remainder of 2021 and throughout 2022, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues generated from sales of our PrintRite3D® technology. We expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology, including the May 2021 release of version 7.0, will enable us to further commercialize this technology into the AM metal market in 2021. To support the commercialization of our PrintRite3D® technology, 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).
AsThe ongoing impact of the third quarterCOVID-19 epidemic, in particular the shortage of 2021 progressed,certain components of our PrintRite3D systems, is highly uncertain and no assurance can be given that our business and results of operations will not be materially and adversely affected. It is also uncertain as to whether any further disruption of the effect of COVID-19 onfinancial markets, which may reduce our ability to generate revenue, seemed to lessen; however, the Company continued to be adversely affected by the COVID-19 global economic slowdown, which has resulted in lower revenue than anticipated. Two key industries with which we do business, aerospace and oil and gas, have experienced a reduction in the global demand for their products due to the pandemic. As a result of the decrease in the demand for our products from customers and potential customers in these and other industries, the Company expects that revenue from these sectors will remain under pressure. It is impossible to knowaccess capital on favorable terms or at this time how long companies will limit capital expenditures and if the industries that have been most negatively affected will resume normal purchasing. Additionally, access to customer and prospect installations due to country specific regulations regarding COVID-19 quarantining has consumed resources for longer periods of time than expected, resulting in overall lower productivity and increased expenses.all. However, due to the need to have more flexibility in supply chains with the ability to respond quickly to shortages in parts or products, we believe that the crisis will eventually accelerate the adoption of 3D printing, which would bemay benefit the Company.
The effects of a positive trendUS or global recession, while difficult to predict, could result in some customers delaying orders or not proceeding with planned orders for the Company.
our PrintRite3D systems.
Net Cash Used in Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2021 increased2022 was $6,386,415 as compared to $4,786,590 from $3,676,595 during the same period in 2020, a $1,109,995 increase. Primary drivers2021, an increase of the$1,599,825, or 33%. Contributing to this increase were increased net loss of $1,275,948, the gain on the derivative liability of $1,092,441, and increased inventory of $231,148. Partially offsetting these increases werewas an increase in net loss, adjusted for non-cash securities-based compensationexpenses, of $698,618, a decrease in accounts receivable of $94,349,$1,373,377, and a decrease in accounts payable and accrued expenses of $721,705.$469,397, an increase in inventory purchases of $60,456, an increase in prepaid expenses of $49,506, and an increase in deferred revenue of $26,689. Partially offsetting these increases was a decrease in accounts receivable of $379,600.
Net Cash Used/Provided byUsed in Investing Activities
Net cash used byin investing activities during the nine months ended September 30, 20212022 was $254,772,$259,952, which compares to $249,452$254,772 of cash used byin investing activities during the same period of 2020,2021, an increase of $5,320. This is primarily attributable to increased equipment purchases$5,180, or 2%. The increase resulted from an increase in patent costs of $28,557,$37,963, partially offset by lower patent costsa decrease in purchases of $23,737property, plant and equipment of $32,783 during the period.first nine months of 2022.
Net Cash Provided by Financing Activities
The Company did not raise any capital nor were there any warrant exercises during the nine months ended September 30, 2022. Cash provided by financing activities during the nine months ended September 30, 2021 increased tototaled $14,404,942 from $8,349,676 during the same period in 2020 due to the receipt of $14,869,899the net proceeds of proceeds less $1,600,967 of offering costs, in connection with$13,268,932 from our January 2021 and March 2021 privatepublic and publicprivate offerings and exercise of Preferred Warrants. Cash provided by financing activities during the same period in 2020 resulted from the receipt of $3,600,000 in proceeds less $820,224 of offering costs in connection with our January 2020 and April 2020 offerings, and $5,619,900 in proceeds from the exercise of outstanding warrants partially offset by the payment of the remaining outstanding principal balance on a convertible note payablewhich provided an additional $1,136,010 in the amount of $50,000.cash proceeds.
Our ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future PrintRite3D®-proof-of-conceptPrintRite3D contracts, follow-on contracts resulting from successful proof-of-concept engagements, possible strategic partnerships, and by obtaining additional capital from the issuancesale of securities or by borrowing funds from lenders to fulfill our business plans. Such financing, if inIf we issue additional equity or debt securities, stockholders may experience additional dilution or the formnew equity securities may have rights, preferences or privileges senior to those of equity, may be highly dilutive toexisting holders of our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business operations.common stock. There is no assurance as to the amount and availability of any required future financing or the terms thereof.that we will be successful in obtaining additional funding. The Company is unable to predict the effect thata global recession or geopolitical events, including the ongoing COVID-19 pandemicon-going conflict in Ukraine, may have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay, or scale back or eliminate all or a portion of our commercialization efforts and operations.
We have no lines of credit lines as of October 21, 2021, nor have we ever had a credit line since our inception.or other financing arrangements.
Inflation, and changing prices and rising interest rates have had no material effect on our continuing operations over our two most recent fiscal years. However, continued unfavorable trends may affect the prices we pay for materials and other goods and services necessary to our business, thus increasing our use of cash.
We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures and changes in internal controls over financial reporting.
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our President and Chief Executive Officer, and our 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. In addition, noNo change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the threenine months ended September 30, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 1A. RISK FACTORS.
You should consider the “Risk Factors” included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC on March 24, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.None
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ITEM 6. EXHIBITS.
101.INS | Inline XBRL Instance |
101.SCH | Inline XBRL Schema Document. |
101.CAL | Inline XBRL Calculation Linkbase Document. |
101.DEF | Inline XBRL Definition Linkbase Document. |
101.LAB | Inline XBRL Labels Linkbase Document. |
101.PRE | Inline XBRL Presentation Linkbase Document. |
104 | Cover Page Interactive Data File |
* Indicates a management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGMA | ||
By: | /s/ | |
President and Chief Executive Officer (Principal Executive Officer) | ||
By: | /s/ Frank Orzechowski | |
Frank Orzechowski | ||
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
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