ITEM
1. FINANCIAL STATEMENTS.
Sigma
Additive Solutions, Inc.
Condensed
Balance Sheets
See
accompanying notes to condensed financial statements.
Sigma
Additive Solutions, Inc.
Condensed
Statements of Operations
(Unaudited)
See
accompanying notes to condensed financial statements.
Sigma
Additive Solutions, Inc.
Statement
of Stockholders’ Equity
(Unaudited)
For
the Three Months Ended March 31, 2023, and March 31, 2022
| | |
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 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,207,395 | ) | |
| (2,207,395 | ) |
| Preferred Stock Dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| 14,220 | | |
| (14,220 | ) | |
| - | |
| Stock Options Issued to Directors for Services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 21,721 | | |
| - | | |
| 21,721 | |
| Stock Options Issued for Third Party Services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,713 | | |
| - | | |
| 11,713 | |
| Stock Options Issued to Employees | |
| - | | |
| - | | |
| - | | |
| - | | |
| 170,976 | | |
| - | | |
| 170,976 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balances, March 31, 2022 | |
| 465 | | |
| 1 | | |
| 10,498,802 | | |
| 10,499 | | |
| 53,661,061 | | |
| (42,814,795 | ) | |
| 10,856,766 | |
See
accompanying notes to condensed financial statements.
Sigma
Additive Solutions, Inc.
Condensed
Statements of Cash Flows
(Unaudited)
See
accompanying notes to condensed financial statements.
SIGMA
ADDITIVE SOLUTIONS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
March
31, 2023
NOTE
1 - Summary of Significant Accounting Policies
Nature
of Business - Sigma Additive Solutions, 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 customers 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.
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 March 31, 2023 and
2022 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted. The Company suggests these condensed financial statements be read in
conjunction with the December 31, 2022 audited financial statements and notes thereto included in the Company’s Annual Report on
Form 10-K. The results of operations for the period ended March 31, 2023 are not necessarily indicative of the operating results for
the full year.
Going
Concern – The Company has sustained losses and had negative cash flows from operating activities since its inception. Commencing
in 2017, the company committed itself to a focused initiative to transition its product and culture from research and development into
an enterprise with a commercial industrial product and a business-oriented operation culture.
The
Company currently has sufficient cash and working capital to fund operations through June 2023 and will require additional funding in
the public or private markets in the near-term to be able to continue operations. The Company currently has no understanding or agreement
to obtain such funding, and there is no assurance that we will be successful in obtaining additional funding. If we fail to obtain sufficient
funding when needed, we will be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.
As a result, there is substantial doubt about our ability to continue as a going concern.
Fair
Value of Financial Instruments - 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 market risk or for trading or speculative purposes.
Loss
Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period
in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options
and preferred stock were excluded due to the anti-dilutive effect they would have on the computation. At March 31, 2023 and 2022, the
Company had the following common shares underlying these instruments:
Schedule of Anti-dilutive Securities Excluded
from Computation of Earnings Per Share
| | |
2023 | | |
2022 | |
| | |
March 31, | |
| | |
2023 | | |
2022 | |
| Warrants | |
| 5,314,175 | | |
| 3,825,781 | |
| Stock Options | |
| 2,062,659 | | |
| 1,547,797 | |
| Preferred Stock | |
| 58,568 | | |
| 148,918 | |
| Total Underlying Common Shares | |
| 7,435,402 | | |
| 5,522,496 | |
The
following table shows the amounts used in computing loss per share and the effect on net loss and the weighted average number of shares
of dilutive potential common stock for the periods ended March 31, 2023 and 2022:
Schedule of Computing Loss Per Share
| | |
2023 | | |
2022 | |
| | |
Three Months Ended March 31 | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Net Loss per Common Share - Basic and Diluted | |
$ | (0.17 | ) | |
$ | (0.21 | ) |
| Loss Applicable to Common Stockholders (numerator) | |
$ | (1,763,447 | ) | |
$ | (2,221,615 | ) |
| | |
| | | |
| | |
| Weighted Average Number of Common Shares Outstanding Used in Loss Per Share During the Period (denominator) | |
| 10,690,677 | | |
| 10,498,802 | |
Accounting
Estimates - The preparation of financial statements in conformity with GAAP 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.
Leases
- The Company leases office space from third parties. The Company determines if a contract is a lease at inception. A contract contains
a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The lease term begins on the commencement date, which is the date the Company takes possession of the asset and may include options to
extend or terminate the lease when it is reasonably certain that the option will be exercised. Leases are classified as operating or
finance leases based on factors such as the lease term, lease payments, and the economic life, fair value and estimated residual value
of the asset. Where leases include an option to purchase the leased asset at the end of the lease term, this is assessed as a part of
the Company’s lease classification determination. The Company has short-term leases only, cancelable upon 45 days’ notice,
and with remaining lease terms of less than one year. Therefore, the Company has elected the short-term lease recognition exemption for
all leases, whereby leases are not recorded on the Company’s balance sheet and lease payments are recognized as lease expense on
a straight-line basis over the lease term.
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 periodically 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 and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying
value or estimated net realizable value. No patents were written off in the first quarter of 2023 or in fiscal 2022. Utility patents
are amortized over a 17-year period. Patents which are pending are not amortized.
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 of 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 upon at least
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,
respectively. The Company has elected single component practical expedient accounting 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 single component practical expedient accounting. 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 months ended March 31, 2023 was $17,006.
Minimum
Lease Payments Receivable
Minimum
lease payments receivable for the succeeding years ending December 31 are as follows:
Schedule of Minimum
Lease Payments Receivable
| Year ending December 31, | |
Amount | |
| 2023 (remaining) | |
$ | 28,343 | |
| 2024 | |
| 8,503 | |
| 2025 | |
| - | |
| 2026 | |
| - | |
| Thereafter | |
| - | |
| Total | |
$ | 36,846 | |
Equipment
Underlying Operating Leases:
Equipment
under operating leases as of March 31, 2023 was comprised of the following:
Schedule of Assets underlying Operating Leases
| | |
March 31, 2023 | |
| PrintRite 3D Hardware | |
$ | 77,208 | |
| Accumulated Depreciation | |
| (9,688 | ) |
| Net Book Value | |
$ | 67,520 | |
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
March 31, 2023 and December 31, 2022, the Company’s inventory was comprised of the following:
Schedule of Inventory
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Raw Materials | |
$ | 303,219 | | |
$ | 294,194 | |
| Work in Process | |
| 212,649 | | |
| 140,723 | |
| Finished Goods | |
| 428,534 | | |
| 516,026 | |
| Total Inventory | |
$ | 944,402 | | |
$ | 950,943 | |
NOTE
3 – Intangible Assets
The
Company’s intangible assets consist of patents and patent applications.
The
Company capitalizes costs incurred in connection with acquiring its patents. These costs include registration, documentation, and legal
fees associated with the application. Costs incurred with patents that have been previously granted are expensed as incurred.
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
the three months ended March 31, 2023, $5,130 of costs related to patents issued to us during 2023 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 March 31, 2023 and December 31, 2022, respectively:
Summary of Definite-life Intangible Assets and Accumulated Amortization
| | |
March 31,
2023 | | |
December 31,
2022 | |
| Provisional Patent Applications | |
$ | 717,812 | | |
$ | 675,251 | |
| Patents | |
| 529,880 | | |
| 524,750 | |
| Less: Accumulated Amortization | |
| (82,134 | ) | |
| (74,716 | ) |
| | |
| | | |
| | |
| Net Intangible Assets | |
$ | 1,165,558 | | |
$ | 1,125,285 | |
Amortization
expense on intangible assets was $7,418 and $4,978 for the three months ended March 31, 2023 and 2022, respectively.
The
estimated aggregate amortization expense for years ending December 31 is as follows:
Schedule of Aggregate Amortization Expense
| | |
| | |
| 2023 (Remaining) | |
$ | 22,404 | |
| 2024 | |
| 29,872 | |
| 2025 | |
| 29,872 | |
| 2026 | |
| 29,872 | |
| Thereafter | |
| 335,726 | |
| | |
| | |
| Intangible asset and
amortization expense | |
$ | 447,746 | |
NOTE
4 - Stockholders’ Equity
Common
Stock
In
the first quarter of 2023, the Company issued 227,587
shares of common stock in exchange for the conversion of 132
shares of Series D Convertible Preferred Stock, and 43,241
shares of common stock as in-kind payment of dividends thereon.
Also
in the first quarter of 2023, the Company issued 2,428
shares of common stock in exchange for the conversion of 17
shares of Series E Convertible Preferred Stock, and 655
shares of common stock as in-kind payment of dividends thereon.
Preferred
Stock
The
Company is authorized to issue 10,000,000
shares of preferred stock, $0.001
par value per share, of which 316
and 465
shares were issued and outstanding at March 31, 2023 and December 31, 2022.
In
January 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Institutional
Private Placement”), pursuant to which the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible
Preferred Stock (the “Series D Preferred Stock”) at an initial stated value of $1,000 per share. Dividends accrue at a rate
of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein)
and are payable monthly in kind by the increase of the stated value of the Series D Preferred Shares by said amount. The holders of the
Series D Preferred Shares 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 $0.58 (subject to adjustment for stock splits, dividends,
recapitalizations and similar events and full ratchet price 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).
On
January 27, 2023, the holder of the remaining 132 outstanding shares of Series D Preferred Stock elected to convert such shares in their
entirety, which resulted in the issuance of 270,828 shares of common stock.
At
March 31, 2023, there were no shares of Series D Preferred Stock outstanding.
Concurrent
with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued
and sold to certain of its directors and the Company’s then largest stockholder 333 shares of the Company’s newly created
Series E Convertible Preferred Stock (the “Series E Preferred Stock”) at an initial stated value of $1,000 per share. Dividends
accrue at a dividend rate of 9% per annum and are payable monthly in kind by the increase of the stated value of the Series E Preferred
Stock by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of common stock (subject to adjustment
for stock splits, dividends, recapitalizations and similar events).
On
January 23, 2023, the holder of 17 shares of Series E Preferred Stock elected to convert such shares in their entirety, which resulted
in the issuance of 3,083 shares of common stock.
At
March 31, 2023, 316 shares of Series E Preferred Stock were outstanding, which if converted as of March 31, 2023, including the make-whole
dividends, would result in the issuance of 58,568 shares of common stock.
Stock
Options
The
Company’s 2013 Equity Incentive Plan expired on March 15, 2023. As such, there were no shares of common stock reserved for future
issuance thereunder as of March 31, 2023.
On
January 26, 2023, the Company granted options to its non-employee directors to purchase up to an aggregate of 52,380
shares of common stock at an exercise price of $0.58.
As of March 31, 2023, 25%
of such grants were fully vested and exercisable, and the remaining 75%
will vest in equal quarterly installments over the remaining three quarters of 2023, subject to the directors remaining in our
service through such dates.
On
January 26, 2023, the Company granted 19 employees options to purchase up to an aggregate of 381,285
shares of common stock in connection with their employment. The options have an exercise price of $0.58
and vested as to 50%
on the date of the grant, and will vest as to the remaining 50%
in equal monthly installments over the subsequent 23 months, provided that the employees remain employed by the Company through such
dates.
The
Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the
Company’s common stock on the grant date, but not less than 100% of the fair market value. Stock options are typically granted throughout the year and generally vest over a period from
one to three years of service and expire five years from the grant date, unless otherwise specified. The Company recognizes
compensation expense for the fair value of the stock options over the vesting period for each stock option
award.
Total
stock-based compensation expense included in the statements of operations for the three months ended March 31, 2023 and 2022 was $224,850
and $170,976 respectively, all of which is related to stock options.
The
fair value of stock-based awards was estimated using the Black-Scholes model with the following weighted average assumptions for the
three months ended March 31, 2023 and 2022:
Schedule of Share Based Payments Award Stock
Options Valuation Assumptions
| | |
2023 | | |
2022 | |
| Dividend yield | |
| 0.0 | % | |
| 0.00 | % |
| Risk-free interest rate | |
| 4.05 | % | |
| 0.95-1.65 | % |
| Expected volatility | |
| 100.2 | % | |
| 106.4-110.0 | % |
| Expected life (in years) | |
| 5 | | |
| 5 | |
Option
activity for the three months ended March 31, 2023 and the year ended December 31, 2022 was as follows:
Schedule
of Share Based Compensation Stock Option Activity
| | |
Options | | |
Weighted
Average
Exercise
Price ($) | | |
Weighted
Average
Remaining
Contractual
Life (Yrs.) | | |
Aggregate
Intrinsic
Value ($) | |
| | |
| | |
| | |
| | |
| |
| Options outstanding at December 31, 2021 | |
| 1,395,882 | | |
| 4.24 | | |
| 3.89 | | |
| - | |
| Granted | |
| 487,473 | | |
| 2.50 | | |
| 4.43 | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| (84,302 | ) | |
| 4.39 | | |
| - | | |
| - | |
| Options outstanding at December 31, 2022 | |
| 1,799,053 | | |
| 3.76 | | |
| 3.30 | | |
| - | |
| Granted | |
| 433,665 | | |
| 0.58 | | |
| 4.83 | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| (170,059 | ) | |
| 3.04 | | |
| - | | |
| - | |
| Options outstanding March 31, 2023 | |
| 2,062,659 | | |
| 3.15 | | |
| 3.41 | | |
| - | |
| Options expected to vest in the future as of March 31, 2023 | |
| 555,378 | | |
| 1.99 | | |
| 4.16 | | |
| - | |
| Options exercisable at March 31, 2023 | |
| 1,507,281 | | |
| 3.58 | | |
| 3.14 | | |
| - | |
| Options vested, exercisable, and options expected to vest at March 31, 2023 | |
| 2,062,659 | | |
| 3.15 | | |
| 3.41 | | |
| - | |
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of
our common stock for those awards that have an exercise price below the market price of our common stock. At March 31, 2023, no option
had an exercise price below the $0.44 closing price of our common stock as reported on The Nasdaq Capital Market.
At
March 31, 2023, there was $581,865 of unrecognized stock-based compensation expense related to unvested stock options with a weighted
average remaining recognition period of 1.59 years.
Stock
Appreciation Rights
On
June 23, 2020, the board of directors (the “Board”) of the Company adopted the 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-range success; (ii) provide incentives that align the
interests of Service Providers with those of the stockholders of the Company; and (iii) promote the success of the Company’s business.
The Plan provides for incentive awards only in the form of stock appreciation rights payable in cash (“SARs”) and no shares
of common stock are reserved or 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 share of common stock 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 vesting provisions, and to specify the provisions of
the SAR Agreement relating to such grant.
The
Company did not grant any SAR’s during the three months ended March 31, 2023.
The
Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the vesting period
for each SAR award. The SARs are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation,”
and any changes in fair value are reflected in the Statement of Operations as of the applicable reporting date.
The
fair value of SAR awards was estimated using the Black-Scholes model with the following weighted average assumptions for the three
months ended March 31, 2023 and March 31, 2022:
Schedule
of Share Based Payments Award Stock Options Valuation Assumptions
| | |
2023 | | |
2022 | |
| Dividend yield | |
| - | | |
| 0.00 | % |
| Risk-free interest rate | |
| - | | |
| 0.82-1.65 | % |
| Expected volatility | |
| - | | |
| 108.4-119.0 | % |
| Expected life (in years) | |
| - | | |
| 5 | |
SARs
activity for the three months ended March 31, 2023 and the year ended December 31, 2022 was as follows:
Schedule
of Stock Option Activity
| | |
Options | | |
Weighted
Average
Exercise
Price ($) | | |
Weighted
Average
Remaining
Contractual
Life (Yrs.) | | |
Aggregate
Intrinsic
Value ($) | |
| | |
| | |
| | |
| | |
| |
| SARs outstanding at December 31, 2021 | |
| 370,624 | | |
| 3.15 | | |
| 4.24 | | |
| - | |
| Granted | |
| 814,862 | | |
| 1.81 | | |
| 4.48 | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| (27,699 | ) | |
| 2.91 | | |
| - | | |
| - | |
| SARs outstanding at December 31, 2022 | |
| 1,157,787 | | |
| 2.21 | | |
| 4.11 | | |
| - | |
| Granted | |
| - | | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| (166,156 | ) | |
| 20.9 | | |
| - | | |
| - | |
| SARs outstanding March 31, 2023 | |
| 991,631 | | |
| 2.23 | | |
| 3.86 | | |
| - | |
| SARs expected to vest in the future as of March 31, 2023 | |
| 688,864 | | |
| 2.01 | | |
| 4.02 | | |
| - | |
| SARs exercisable at March 31, 2023 | |
| 302,767 | | |
| 2.75 | | |
| 3.49 | | |
| - | |
| SARs vested, exercisable, and SARs expected to vest at March 31, 2023 | |
| 991,631 | | |
| 2.23 | | |
| 3.86 | | |
| - | |
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of
our common stock for those awards that have an exercise price below the market price of our common stock. At March 31, 2023, no SAR had
an exercise price below the $0.44 closing price of our common stock as reported on The Nasdaq Capital Market.
At
March 31, 2023, there was $665,799 of unrecognized stock-based compensation expense related to unvested SARs with a weighted average
remaining recognition period of 1.95 years.
Warrants
Warrant
activity for the three months ended March 31, 2023 and the year ended December 31, 2022 was as follows:
Schedule
of Warranty Activity
| | |
Warrants | | |
Weighted
Average
Exercise
Price ($) | | |
Weighted
Average
Remaining
Contractual
Life (Yrs.) | |
| Warrants outstanding at December 31, 2021 | |
| 3,987,931 | | |
| 6.10 | | |
| 2.10 | |
| Granted | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| (164,652 | ) | |
| - | | |
| - | |
| Warrants outstanding at December 31, 2022 | |
| 3,823,279 | | |
| 4.66 | | |
| 1.19 | |
| Granted | |
| 1,490,896 | | |
| 0.58 | | |
| 2.87 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited or cancelled | |
| - | | |
| - | | |
| - | |
| Warrants outstanding at March 31, 2023 | |
| 5,314,175 | | |
| 3.19 | | |
| 1.48 | |
NOTE
5 - Subsequent Events
On
April 13, 2023, The Nasdaq Stock Market (“Nasdaq”) notified us that although the Company’s common stock had not regained
compliance with the minimum $1.00 bid price per share requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing
Rule 5550(a)(2), the Nasdaq Staff has granted us an additional 180 calendar days, or until October 9, 2023, to regain compliance
based on our meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements
for initial listing on The Nasdaq Capital Market, with the exception of the bid price requirement, and our intention
to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. According to Nasdaq’s
notice, if at any time during this additional time period the closing bid price of our common stock is at least $1 per share for a minimum
of 10 consecutive business days, the Staff will provide written confirmation of compliance and this matter will be closed. If
we choose to implement a reverse stock split, it must be completed no later than ten business days prior to October 9, 2023 to regain
compliance. If it appears to Nasdaq that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will
notify us that our common stock will be subject to delisting.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-looking
statements
This
Quarterly Report contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking
Statements” 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, 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 Quarterly 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 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, 2022 and elsewhere in this 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 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.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 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.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)
requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying
financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing
the use of estimates about the effect of matters that are inherently uncertain. By their nature, changes in these assumptions and estimates
could significantly affect our financial position or results of operations. Significant accounting estimates that may materially change
in the near future are revenue recognition, impairment of long-lived assets, 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 Financial Statements included in this Quarterly 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.
The
critical accounting policies and estimates addressed below reflect our most significant judgements and estimates used in the preparation
of our financial statements.
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 upon at least
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 single component practical expedient accounting 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 single component practical expedient accounting. 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 estimated allowance 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 periodically 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 vesting period of the stock-based compensation. 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, or SARs. Compensation cost is measured
on the date of grant at its fair value.
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 vest. 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
Historically,
we have generated revenues through sales, and more recently, subscription-based licensing of our PrintRite3D® technology to customers
that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. However,
2022 began a period 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 relationships with
laser scanner providers.
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. In 2022, we relied primarily on retrofit work while the software only products were still under development. Our cash and working capital permitting, we expect
that the percentage of the Company’s revenue coming from OEMs will increase in 2023, especially with the
availability of a software-only product as we work to integrate into existing hardware, such as laser scanner technology and
OEM’s upstream designs for next generation systems. Our ability to generate revenues in the future will depend on our ability
to raise capital needed and further commercialize and increase market presence of our traditional PrintRite3D® technology, 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 additive manufacturing prototyping to production, which our products are intended to
accelerate.
Over
the past twelve years, Sigma has invested its resources to solve the problem of in-process AM quality: melt pool analytics for the “part”,
which originated as a retrofit lab solution. 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.
As
part of our vision to build the future of connected digital quality and enhance shareholder value, we have undertaken an initiative to
evaluate a range of strategic alternatives, including possible strategic investment, acquisition, merger, business combination, or similar
transaction 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 initiative is focused on synergies and potential product integration to accelerate market
visibility and customer adoption. To execute Sigma’s vision and realize our potential, we will need to raise additional capital,
or execute a strategic transaction, which may include a possible strategic investment, acquisition, merger, business combination, or
similar transaction. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all
or a portion of our commercialization efforts and operations.
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 investor or acquirer 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.
To
facilitate our ability to execute our strategic initiatives on the product, pricing, and partner fronts, we have taken several steps
to conserve our cash by reducing our operating expenses. Compensation and benefits are our single largest expense, comprising approximately
50% of our total operating expenses for the three months ended March 31, 2023. We reduced our total full-time headcount by a net of eight
employees in 2022 and experienced a further reduction of six employees in the first quarter of 2023 as a result of furloughs and departures
from the Company. As of March 31, 2023, our full-time employee headcount was 19. In addition to headcount reductions, we have reduced
our spend on advertising, marketing and investor relations, consultants, and employee travel. We continue to evaluate our expenses and
will consider further reductions as appropriate. Lastly, Sigma has developed a deep patent portfolio which we believe is widely applicable
to the 3D printing industry. We have recently begun exploring an intellectual property licensing program, which we believe may facilitate
a strategic transaction.
Results
of Operations
Three
Months Ended March 31, 2023 and March 31, 2022
During
the three months ended March 31, 2023, we recognized revenue of $130,159, as compared to $51,844 in the same period in 2022, an increase
of $78,315, or 151%. The increase was primarily due to increased PrintRite3D sales of $61,499, increased subscription-based revenue of
$26,906, and increased annual maintenance contract revenue of $1,910, as compared to the first quarter of 2022. Partially offsetting
the increases was a decrease in on-site development and support revenue of $12,000.
Our
cost of revenue for the three months ended March 31, 2023 was $63,664, as compared to $40,091 for the same period in 2022, an increase
of $$23,573, or 59%. The increase was primarily attributable to higher unit sales in the first quarter of 2023 as compared to the first
quarter of 2022.
Our
total operating expenses for the three months ended March 31, 2023 were $1,848,144, as compared to $2,295,698 for the same period in
2022, a decrease of $447,554, or 20%. The decrease was primarily attributable to a decrease in salaries and benefits of $360,427, a
decrease in investor, public relations, and marketing expense of $39,382, and a decrease in office expense of $50,933 primarily attributable
to reduced headcount and travel as further described below.
Salary
and benefits costs were $931,583 for the three months ended March 31, 2023, as compared to $1,292,010 for the same period in 2022, a
decrease of $360,427, or 28%. The decrease was comprised of: (a) decreased salaries of $312,687 due to four furloughed employees and
two terminated employees; (b) a decrease in stock appreciation rights of $62,703 due to the revaluation as of March 31, 2023; and
(c) decreased taxes and benefits of $50,488. Offsetting these decreases were increases in commission and bonus expense of $17,706
and severance costs of $47,745.
Stock-based
compensation was $244,850 for the three months ended March 31, 2023, as compared to $170,976 for the same period in 2022, an increase
of $53,874, or 32%. This increase was primarily a result of option grants in the first quarter of 2023.
We
incurred operations and research and development costs of $126,712 during the three months ended March 31, 2023, as compared to
$143,418 in the same period in 2022, a decrease of $16,706, or 12%. The decrease was primarily due to a decrease in operations costs
of $42,085, partially offset by an increase in research and development costs of $25,379. The decrease in operations costs related
to fewer parts and material purchases in the first quarter of 2023. The increase in research and development costs was primarily due
to an increase in consulting costs for our work with a third-party software vendor in connection with the development of our
software-only product suite.
We
incurred investor, public relations, and marketing costs of $54,944 during the three months ended March 31, 2023, as compared to
$94,326 during the same period in 2022. The decrease of $39,382, or 42%, was primarily due to a decrease in investor relations
consulting costs of $35,000, a decrease in attendance at tradeshows and conferences of $2,885 due to fewer employees, and a decrease
in marketing costs of $1,497.
We
incurred organization costs of $51,198 during the three months ended March 31, 2023, as compared to $58,749 during the same period in
2022. The decrease of $7,551, or 13% was primarily attributable to a decrease in non-employee director compensation of $14,388 primarily
due to fewer stock options granted in 2023. Offsetting this decrease was an increase in shareholder services of $6,837 due to transfer
agent fees for conversion of preferred stock to common stock in January of 2023, and an increase in costs related to the filing of our
annual Form 10-K.
Legal
and professional fees incurred in the three months ended March 31, 2023 were $184,251, as compared to $211,416 incurred during the same
period in 2022, a decrease of $27,165, or 13%. This decrease was a result of a decrease in consulting expenses from 2022 of $125,504
which were related to a manufacturing consultant, technical accounting support, HR consultant, and advisor to the Board of Directors,
as well as a decrease in IT service fees of $2,729 related to new employee setup fees in 2022. Partially offsetting these decreases was an
increase in legal fees of $91,464 due to employment related matters, a potential financing and warrant restructuring, and executive
compensation agreements, and an increase in accounting expenses of $9,604 due to increased rates for our annual audit.
Office
expenses for the three months ended March 31, 2023, were $154,499 as compared to $205,432 for the same period in 2022, a decrease of
$50,933, or 25%. The decrease resulted primarily from: (a) decreased travel and entertainment expenses of $24,612; (b) decreased office
supply expenses of $15,654; (c) decreased dues & subscriptions of $3,690; (d) decreased postage and shipping of $2,868; (e) decreased
rent and utilities of $2,073; and (f) decreased training and education expense of $5,006, all due to a reduction in the number of employees.
Partially offsetting these decreases was an increase in payroll services expense of $3,120 due to the early termination of the contract
with our UK payroll company.
Depreciation
and amortization expense for the three months ended March 31, 2023 was $28,127, as compared to $31,584 for the same period in 2022,
a decrease of $3,457, or 11%. The decrease was primarily the result of the increased life expectancy of our leased and consigned PrintRite3D
systems.
Other
operating expenses were $91,980 for the three months ended March 31, 2023, as compared to $ 87,787
for the same period in 2022. The $4,193 increase was primarily due to a FINRA filing fee in 2023.
In the three months ended March 31, 2023, we realized net other income
of $29,950, as compared to net other income of $ 76,550 in the same period in 2022. The decrease
in net other income of $46,600, was primarily due to the New Mexico High Wage Tax credit of $76,628 received in 2022, partially offset
by a write-off of accounts payable due to an unclaimed customer deposit in the first quarter of 2023.
Preferred
dividends for the three months ended March 31, 2023 were 11,748, as compared to $14,220 for the same period in 2022. The decrease
was due to the conversion of 149 shares preferred stock to common stock in the first quarter of 2023.
Our
net loss applicable to common stockholders for the three months ended March 31, 2023, was $1,763,447, as compared to $ 2,221,615
for the same period in 2022, a decrease of $458,168, or 21%. The decrease was primarily due to the decrease in the loss from operations
of $502,296 and a decrease in preferred dividends of $2,472, partially offset by a decrease in total other income of $46,600.
Liquidity
and Capital Resources
Due
to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt about
our ability to continue as a going concern for 12 months from the date of the filing of this Quarterly Report,
As
of March 31, 2023, we had $1,488,704 in cash and working capital of $2,105,349, as compared with $2,845,931
in cash and working capital of $3,644,522 as of December 31, 2022.
Our
major sources of funding have been proceeds from public and private offerings of our equity securities and from warrant exercises. We
will need to raise additional amounts to fund our operations, maintain compliance with the Nasdaq listing requirements and implement
our business plan. We currently have no arrangement to obtain any additional financing, and there is no assurance as to the amount and
availability of any required future financing or the terms thereof. Any such financing, if in the form of equity, may be highly dilutive
to 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 and operations. To the extent that
funds are not available to us, we may be required to delay, limit, or terminate our business and operations and lose our Nasdaq listing.
We
have taken several steps to conserve our cash, including furloughing non-essential employees, reducing or eliminating certain marketing
and advertising programs, limiting employee travel, and reducing investor relations expenses and certain consulting expenses. Our existing
cash on hand and anticipated revenues are sufficient to fund our remaining anticipated operating costs
only through June 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources
sooner than we expect, or extend such resources longer than we expect.
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:
| |
● |
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; |
| |
● |
The
effect of competing technological and market developments; |
| |
● |
The
revenue from the sales of our existing and future products; and |
| |
● |
The
cost of operating as a public company. |
The
effects of a US or global recession, while difficult to predict, could result in some customers delaying orders or not proceeding with
planned orders for our PrintRite3D systems.
Net
Cash Used in Operating Activities
Net
cash used in operating activities during the three months ended March 31, 2023 was $1,309,537 as compared to $ 2,027,019
during the same period in 2022, a decrease of $717,482, or 35.4%.
During
the three months ended March 31, 2023, the net cash used in operating activities was the result of a net loss of $1,751,699 before preferred
dividends, partially offset by changes in working capital of $181,946, and non-cash expenses of $260,216 related to depreciation and
amortization of $28,127 and stock-based compensation of $232,089. Changes in working capital were driven by a decrease in accounts receivable
of $161,171, a decrease in inventory of $6,541, an increase in accounts payable and accrued expenses of $110,641, and an increase in
deferred revenue of $33,370, partially offset by an increase in prepaid expenses of $129,777. The decrease in accounts receivable was
a result of cash collections from 2022 sales, and the increase in prepaid expenses was due to deposits paid for a third-party software
developer, legal and accounting advisors, and a tradeshow.
During
the three months ended March 31, 2022, the net cash used in operating activities was the result of a net loss of $2,207,395 before preferred
dividends and the use of cash for working capital of $55,618, partially offset non-cash expenses of $235,994 related to depreciation
and amortization of $31,584 and stock-based compensation of $204,410. Changes in working capital were driven by a decrease in accounts
payable and accrued expenses of $95,194, and increases in inventory and prepaid expenses of $72,019 and $50,996 respectively, partially
offset by a decrease in accounts receivable of $151,170 and an increase in deferred revenue of $11,421. The decrease in accounts payable
and accrued expenses was largely driven by the payment of incentive bonuses, and the increases in inventory and prepaid expenses resulted
from the stocking of long lead-time parts for planned production and payment of our annual Nasdaq listing fee, respectively.
Net
Cash Used in Investing Activities
Net
cash used in investing activities during the three months ended March 31, 2023 was $47,690, which compares to $142,099 of cash used in
investing activities during the same period of 2022, a decrease of $94,409, or 66.4%. The decrease resulted from a decrease in patent
costs of $11,161 and a decrease in purchases of property, plant and equipment of $83,248 during the first three months of 2023.
Net
Cash Provided by Financing Activities
The
Company did not raise any capital nor were there any warrant exercises during the three months ended March 31, 2023 or March 31, 2022.
Our
ability to continue to fund our working capital needs will be dependent upon the success of our efforts to generate revenues from existing
and future PrintRite3D contracts, follow-on contracts resulting from successful engagements, possible strategic partnerships, and by
obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans. If we issue
additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining
additional funding. The Company is unable to predict the effect a global recession or geopolitical events, including the on-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, scale back or eliminate all or a portion of our commercialization efforts and operations.
We
have no lines of credit or other financing arrangements.
Inflation,
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.