ITEM
1. FINANCIAL STATEMENTS.
Sigma
Labs, Inc.
Condensed
Balance Sheets
(Unaudited)
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
696,390
|
|
|
$
|
1,279,782
|
|
Accounts Receivable, net
|
|
|
37,982
|
|
|
|
38,800
|
|
Note Receivable
|
|
|
79,875
|
|
|
|
121,913
|
|
Inventory
|
|
|
570,426
|
|
|
|
240,086
|
|
Prepaid Assets
|
|
|
68,718
|
|
|
|
67,255
|
|
Total Current Assets
|
|
|
1,453,391
|
|
|
|
1,747,836
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
205,538
|
|
|
|
277,944
|
|
Intangible Assets, net
|
|
|
510,718
|
|
|
|
404,978
|
|
Investment in Joint Venture
|
|
|
500
|
|
|
|
500
|
|
Total Other Assets
|
|
|
716,756
|
|
|
|
683,422
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,170,147
|
|
|
$
|
2,431,258
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
368,055
|
|
|
$
|
217,488
|
|
Notes Payable
|
|
|
50,000
|
|
|
|
50,000
|
|
Deferred Revenue
|
|
|
78,773
|
|
|
|
51,498
|
|
Accrued Expenses
|
|
|
271,154
|
|
|
|
376,833
|
|
Total Current Liabilities
|
|
|
767,982
|
|
|
|
695,819
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
767,982
|
|
|
|
695,819
|
|
|
|
|
|
|
|
|
|
|
Commitments & Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par; 10,000,000 shares authorized; None issued and outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.001 par; 22,500,000 shares authorized; 10,937,590, and 8,776,629 issued and outstanding, respectively
|
|
|
10,938
|
|
|
|
8,777
|
|
Additional Paid-In Capital
|
|
|
24,243,575
|
|
|
|
21,501,407
|
|
Accumulated Deficit
|
|
|
(22,852,348
|
)
|
|
|
(19,774,745
|
)
|
Total Stockholders’ Equity
|
|
|
1,402,165
|
|
|
|
1,735,439
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,170,147
|
|
|
$
|
2,431,258
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Operations
(Unaudited)
|
|
Three Months Ended
June 3
0,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
33,582
|
|
|
$
|
98,663
|
|
|
$
|
98,032
|
|
|
$
|
202,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
60,625
|
|
|
|
68,568
|
|
|
|
157,180
|
|
|
|
142,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
(27,043
|
)
|
|
|
30,095
|
|
|
|
(59,148
|
)
|
|
|
59,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & Benefits
|
|
|
581,356
|
|
|
|
426,049
|
|
|
|
1,093,916
|
|
|
|
824,706
|
|
Stock-Based Compensation
|
|
|
220,360
|
|
|
|
423,067
|
|
|
|
474,566
|
|
|
|
584,589
|
|
Operating R&D Costs
|
|
|
118,845
|
|
|
|
95,045
|
|
|
|
264,117
|
|
|
|
217,022
|
|
Investor & Public Relations
|
|
|
157,318
|
|
|
|
103,197
|
|
|
|
315,107
|
|
|
|
283,596
|
|
Legal & Professional Service Fees
|
|
|
218,919
|
|
|
|
177,929
|
|
|
|
403,489
|
|
|
|
316,352
|
|
Office Expenses
|
|
|
184,068
|
|
|
|
110,936
|
|
|
|
350,178
|
|
|
|
206,042
|
|
Depreciation & Amortization
|
|
|
49,203
|
|
|
|
48,253
|
|
|
|
97,586
|
|
|
|
95,574
|
|
Other Operating Expenses
|
|
|
38,994
|
|
|
|
38,035
|
|
|
|
77,203
|
|
|
|
71,760
|
|
Total Operating Expenses
|
|
|
1,569,064
|
|
|
|
1,422,511
|
|
|
|
3,076,162
|
|
|
|
2,599,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,596,107
|
)
|
|
|
(1,392,416
|
)
|
|
|
(3,135,310
|
)
|
|
|
(2,539,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
7,016
|
|
|
|
3,719
|
|
|
|
12,798
|
|
|
|
17,086
|
|
State Incentives
|
|
|
-
|
|
|
|
-
|
|
|
|
51,877
|
|
|
|
-
|
|
Exchange Rate Gain (Loss)
|
|
|
(2,264
|
)
|
|
|
1,304
|
|
|
|
(2,710
|
)
|
|
|
1,304
|
|
Interest Expense
|
|
|
(2,136
|
)
|
|
|
(1,411
|
)
|
|
|
(4,258
|
)
|
|
|
(1,411
|
)
|
Loss on Disposal of Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,733
|
)
|
Total Other Income (Expense)
|
|
|
2,616
|
|
|
|
3,612
|
|
|
|
57,707
|
|
|
|
(19,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,593,491
|
)
|
|
|
(1,388,804
|
)
|
|
|
(3,077,603
|
)
|
|
|
(2,559,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,593,491
|
)
|
|
$
|
(1,388,804
|
)
|
|
$
|
(3,077,603
|
)
|
|
$
|
(2,559,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share – Basic and Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding – Basic and Diluted
|
|
|
10,777,590
|
|
|
|
5,572,015
|
|
|
|
10,063,806
|
|
|
|
5,286,362
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,077,603
|
)
|
|
$
|
(2,559,680
|
)
|
Adjustments to reconcile Net Loss to Net Cash used in operating activities:
|
|
|
|
|
|
|
|
|
Noncash Expenses:
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
97,586
|
|
|
|
95,574
|
|
Stock Based Compensation
|
|
|
474,150
|
|
|
|
594,915
|
|
Loss on Write-off of Asset
|
|
|
-
|
|
|
|
36,733
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
818
|
|
|
|
41,028
|
|
Interest Receivable
|
|
|
27,038
|
|
|
|
38,139
|
|
Inventory
|
|
|
(330,340
|
)
|
|
|
47,100
|
|
Prepaid Assets
|
|
|
(1,463
|
)
|
|
|
(9,613
|
)
|
Accounts Payable
|
|
|
150,567
|
|
|
|
187,495
|
|
Deferred Revenue
|
|
|
27,275
|
|
|
|
34,026
|
|
Accrued Expenses
|
|
|
(105,678
|
)
|
|
|
21,764
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,737,650
|
)
|
|
|
(1,472,519
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of Property and Equipment
|
|
|
(23,796
|
)
|
|
|
(41,968
|
)
|
Purchase of Intangible Assets
|
|
|
(107,124
|
)
|
|
|
(60,147
|
)
|
Payment Received from Notes Receivable
|
|
|
15,000
|
|
|
|
632,197
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(115,920
|
)
|
|
|
530,082
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series B Preferred & Warrants
|
|
|
-
|
|
|
|
1,000,000
|
|
Proceeds from issuance of Series C Preferred & Warrants
|
|
|
-
|
|
|
|
350,000
|
|
Gross Proceeds from issuance of Common Stock and Warrants
|
|
|
2,521,220
|
|
|
|
2,040,100
|
|
Less Offering Costs
|
|
|
(326,890
|
)
|
|
|
(443,700
|
)
|
Proceeds from exercise of Warrants
|
|
|
75,848
|
|
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,270,178
|
|
|
|
2,946,400
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH FOR PERIOD
|
|
|
(583,392
|
)
|
|
|
2,003,963
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
1,279,782
|
|
|
|
1,515,674
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
696,390
|
|
|
$
|
3,519,637
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities disclosure:
|
|
|
|
|
|
|
|
|
Conversion of Convertible Debt for Stock
|
|
$
|
-
|
|
|
|
(50,000
|
)
|
Other noncash operating activities disclosure:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock for services
|
|
$
|
153,000
|
|
|
$
|
256,264
|
|
Disclosure of cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,514
|
|
|
$
|
8,761
|
|
Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Statement
of Stockholders’ Equity
For
the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
|
Common
Stock
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Accumulated
Deficit
|
|
|
|
Total
|
|
Balances, January 1, 2019
|
|
|
8,776,629
|
|
|
$
|
8,777
|
|
|
$
|
21,501,407
|
|
|
$
|
(19,774,745
|
)
|
|
$
|
1,735,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,484,112
|
)
|
|
|
(1,484,112
|
)
|
Shares sold in Public Offering
|
|
|
1,400,800
|
|
|
|
1,401
|
|
|
|
1,677,930
|
|
|
|
-
|
|
|
|
1,679,330
|
|
Shares issued for Exercise of Warrants
|
|
|
70,230
|
|
|
|
70
|
|
|
|
75,778
|
|
|
|
-
|
|
|
|
75,848
|
|
Shares Issued for Cashless Exchange of Unit Purchase Options
|
|
|
88,431
|
|
|
|
88
|
|
|
|
(88
|
)
|
|
|
-
|
|
|
|
-
|
|
Shares Issued for Services
|
|
|
201,500
|
|
|
|
202
|
|
|
|
77,798
|
|
|
|
-
|
|
|
|
78,000
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
176,206
|
|
|
|
-
|
|
|
|
176,206
|
|
Balances, March 31, 2019
|
|
|
10,537,590
|
|
|
$
|
10,538
|
|
|
$
|
23,509,031
|
|
|
$
|
(21,258,857
|
)
|
|
$
|
2,260,711
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,593,491
|
)
|
|
|
(1,593,491
|
)
|
Shares sold in Private Placement
|
|
|
400,000
|
|
|
|
400
|
|
|
|
514,600
|
|
|
|
-
|
|
|
|
515,000
|
|
Shares Issued for Services
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
75,000
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
144,944
|
|
|
|
-
|
|
|
|
144,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2019
|
|
|
10,937,590
|
|
|
|
10,938
|
|
|
|
24,243,575
|
|
|
|
(22,852,348
|
)
|
|
|
1,402,165
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
Balances, January 1, 2018
|
|
|
4,978,929
|
|
|
$
|
4,979
|
|
|
$
|
17,192,394
|
|
|
$
|
(14,185,457
|
)
|
|
$
|
3,011,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,170,876
|
)
|
|
|
(1,170,876
|
)
|
Shares Issued for Services
|
|
|
23,256
|
|
|
|
23
|
|
|
|
39,977
|
|
|
|
-
|
|
|
|
40,000
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
140,305
|
|
|
|
-
|
|
|
|
140,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2018
|
|
|
5,002,185
|
|
|
$
|
5,002
|
|
|
$
|
17,372,676
|
|
|
$
|
(15,356,333
|
)
|
|
$
|
2,021,345
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,388,804
|
)
|
|
|
(1,388,804
|
)
|
Shares Issued for Services
|
|
|
176,744
|
|
|
|
177
|
|
|
|
216,087
|
|
|
|
|
|
|
|
216,264
|
|
Convertible Preferred Shares Issued in Private Placement
|
|
|
-
|
|
|
|
-
|
|
|
|
877,499
|
|
|
|
-
|
|
|
|
877,499
|
|
Shares Issued for Conversion of Series B Preferred
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Preferred Dividends Due Upon Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,125
|
)
|
|
|
(15,125
|
)
|
Shares Issued for Notes Payable Conversions
|
|
|
25,000
|
|
|
|
25
|
|
|
|
49,975
|
|
|
|
-
|
|
|
|
50,000
|
|
Shares Issued for Cashless Exchange of Warrants
|
|
|
4,800
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Sold in Public Offering
|
|
|
2,040,000
|
|
|
|
2,040
|
|
|
|
1,720,360
|
|
|
|
-
|
|
|
|
1,722,400
|
|
Series C Convertible Preferred Shares Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
346,500
|
|
|
|
-
|
|
|
|
346,500
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
297,735
|
|
|
|
-
|
|
|
|
297,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2018
|
|
|
8,248,729
|
|
|
|
8,249
|
|
|
|
20,879,827
|
|
|
|
(16,760,262
|
)
|
|
|
4,127,814
|
|
See
accompanying notes to condensed financial statements.
SIGMA
LABS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
June
30, 2019
(Unaudited)
NOTE
1 - Summary of Significant Accounting Policies
Nature
of Business
-Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists,
engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma believes
that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding
them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process
control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality
assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries including
aerospace, defense, oil and gas, bio-medical, and power generation. The terms the “Company,” “Sigma,”
“we,” “us” and “our” refer to Sigma Labs, Inc.
Basis
of Presentation
- The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted
Accounting Principles (“GAAP”) in the United States of America. 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 June 30, 2019 and 2018 and for the periods then ended have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed
or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 2018 audited
financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended
June 30, 2019 and 2018 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.
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 Accounting Standards Codification (“ASC”) Topic No. 260, “Earnings Per Share.”
Shares underlying the Company’s outstanding warrants, options or note conversion features were excluded due to the anti-dilutive
effect they would have on the computation. At June 30, 2019 the Company had 3,620,610 warrants, 1,108,192 stock options and a
$50,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,753,802.
At June 30, 2018 the Company had 350 convertible preferred stock shares, 3,228,500 warrants, 664,707 stock options and a $50,000
Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,268,207.
The
following data shows the amounts used in computing loss per share and the effect on income and the weighted average number of
shares of dilutive potential common stock for the periods ended June 30, 2019 and 2018:
|
|
Three Months Ended June 30
|
|
|
Six Months Ended June 30
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share - Basic and Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.25
|
)
|
|
|
(0.31
|
)
|
|
$
|
(0.48
|
)
|
Loss from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations available to Common stockholders (numerator)
|
|
$
|
(1,593,491
|
)
|
|
$
|
(1,388,804
|
)
|
|
|
(3,077,603
|
)
|
|
$
|
(2,559,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares Outstanding used in loss per share during the Period (denominator)
|
|
|
10,777,590
|
|
|
|
5,572,015
|
|
|
|
10,063,806
|
|
|
|
5,286,362
|
|
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.
In
February 2016, the FASB issued ASU 2016-02, “Leases” which was issued to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company has evaluated this standard and determined that it will not currently require any
adjustment to Sigma’s financial reporting.
Accounting
Estimates
- The preparation of financial statements in conformity with generally accepted accounting principles in the United
States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting
estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards
and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.
NOTE
2 - Notes Receivable
On
May 1, 2017, the Company made a loan in the principal amount of $250,000 to Jaguar Precision Machine, LLC, a New Mexico limited
liability company (“Jaguar”), pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered
by Jaguar to the Company. The loan bears interest at the rate of 7% per annum, was originally due and payable in full on August
1, 2018, is secured by certain assets of Jaguar, and is convertible at the Company’s option into 10% of the outstanding
shares of the common stock of Jaguar unless Jaguar exercises its right under specified circumstances to repay all principal and
accrued interest on the loan. On June 15, 2018, the Company received a $150,000 payment from Jaguar, $17,803 of which was applied
to accumulated interest through that date and $132,197, the balance, of which, was applied to the principal balance of the note.
In the first six months of 2019 payments totaling $45,000 were received. The payments were applied first to the accumulated interest
balance on the note and then to the remaining principal balance. The holder of the promissory note has committed to paying the
remaining principal balance along with accumulated interest on or before September 30, 2019. The June 30, 2019 principal
balance of the note was $79,875 and the accumulated interest balance due was $166.
NOTE
3 – Inventory
At
June 30, 2019 and December 31, 2018, the Company’s inventory was comprised of:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Raw Materials
|
|
$
|
279,835
|
|
|
$
|
168,623
|
|
Work in Process
|
|
|
265,816
|
|
|
|
46,688
|
|
Finished Goods
|
|
|
24,775
|
|
|
|
24,775
|
|
Total Inventory
|
|
$
|
570,426
|
|
|
$
|
240,086
|
|
NOTE
4 - Notes Payable
At
June 30, 2019 the Company had a $50,000 convertible note outstanding due on October 18, 2019. At June 30, 2019 the accumulated
interest balance on the note was $1,028.
NOTE
5 - Stockholders’ Equity
Common
Stock
In
January 2018, the Company issued 23,256 shares of common stock to directors valued at $1.72 per share, or $40,000.
In
April 2018, the Company issued 176,744 shares of common stock to directors valued at $1.22 per share, or $216,264.
Between
May 29, 2018 and June 1, 2018, we issued an aggregate of 1,000,000 shares of common stock upon conversion of the 1,000 shares
of Series B Preferred Stock issued on April 6, 2018 (as described below under “Preferred Stock”).
In
May 2018 the holder of our Note Payable converted $50,000 of the principal balance of the Note into 25,000 shares of common stock
and exercised its warrant on a cashless basis resulting in the issuance of 4,800 shares of common stock.
On
June 26, 2018, as part of its public offering of equity securities, the Company issued 2,040,000 shares of common stock and warrants
to purchase a total of 717,000 shares of common stock (including the warrants described under “Preferred Stock” below
that were issued on June 26, 2018). Each warrant has an initial exercise price of $1.08 per share. The net proceeds to the Company
were approximately $2,068,900 after commissions and other offering expenses. The Company also issued Dawson James Securities,
Inc., its placement agent in the public offering, a Unit Purchase Option to acquire up to 191,200 Units, at an exercise price
of $1.25 per Unit, consisting of 191,200 shares of common stock and warrants to purchase up to 57,360 shares of common stock as
compensation.
In
January 2019, the Company issued a total of 200,000 shares of common stock to directors valued at $1.50 per share, or $300,000,
with such shares to vest ratably over four quarterly installments, subject in each case to such director’s continuing service
as a director.
Also
in January 2019, the Company issued 88,431 shares of common stock upon the cashless exercise of Unit Purchase Options issued in
our June 2018 public offering.
In
January and February 2019, the Company issued a total of 70,230 shares of common stock upon the exercise of 70,230 warrants having
an exercise price of $1.08 resulting in gross cash proceeds of $75,848.
In
March 2019, the Company issued 1,500 shares of common stock to the Company’s Vice President of Business Development in connection
with his achievement of performance milestones, with such shares vesting immediately.
Also
in March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and
warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,230, after deducting
placement agent commissions and other offering expenses payable by the Company.
In
May 2019, the Company closed a private placement of equity securities in which it issued 400,000 shares of common stock and warrants
to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement
agent commissions and other offering expenses payable by the Company.
Deferred
Compensation
In
previous years and in the six months ended June 30, 2019, the Company issued to various employees, directors, and contractors
shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013
Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over
the vesting period and recorded as an increase to stockholders’ equity. During the six months ended June 30, 2019 and June
30, 2018, $153,000 and $156,875, respectively, of the unvested compensation cost related to these issues was recognized.
At
June 30, 2019, there was $150,000 of unrecognized deferred compensation expense to be recognized over the remainder of the year.
Stock
Options
In
October 2018, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to
the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by
900,000 shares of our common stock to a total of 1,650,000 shares. As of June 30, 2019, an aggregate of 750 shares and 25,460
shares of common stock were reserved for issuance under the 2011 Plan and the 2013 Plan, respectively.
During
the six months ended June 30, 2019, the Company granted options to purchase a total of 286,925 shares of common stock to 18 employees
and 1 consultant with vesting periods ranging from immediately upon issuance to 4 years beginning January 2019.
During
the six months ended June 30, 2018, the Company granted options to purchase a total of 374,769 shares of common stock to 15 employees
and 1 consultant with vesting periods ranging from immediately upon issuance to 4 years beginning March 2018.
The
Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s
stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service
and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for
the fair value of the stock options over the requisite service period for each stock option award.
Total
share-based compensation expense included in the consolidated statements of operations for the six months ended June
30, 2019 and 2018 is $474,566 and $584,589 of which $321,149 and $438,039 is related to stock options,
respectively.
The
fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for
the six months ended June 30, 2019 and 2018:
Assumptions:
|
|
2019
|
|
|
2018
|
|
Dividend yield
|
|
|
0.00
|
|
|
|
0.00
|
|
Risk-free interest rate
|
|
|
1.90-2.54
|
%
|
|
|
2.68-2.97
|
%
|
Expected volatility
|
|
|
105.2-106.1
|
%
|
|
|
116.3-137.33
|
%
|
Expected life (in years)
|
|
|
5
|
|
|
|
5-10
|
|
Option
activity for the six months ended June 30, 2019 and the year ended December 31, 2018 was as follows:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
($)
|
|
|
Life (Yrs.)
|
|
|
Value ($)
|
|
Options outstanding at December 31, 2017
|
|
|
299,938
|
|
|
|
4.40
|
|
|
|
7.33
|
|
|
|
|
|
Granted
|
|
|
534,329
|
|
|
|
1.45
|
|
|
|
6.58
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(8,000
|
)
|
|
|
4.59
|
|
|
|
-
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
|
|
826,267
|
|
|
|
2.49
|
|
|
|
6.47
|
|
|
|
|
|
Granted
|
|
|
286,925
|
|
|
|
1.55
|
|
|
|
4.63
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(5,000
|
)
|
|
|
1.15
|
|
|
|
-
|
|
|
|
|
|
Options outstanding June 30, 2019
|
|
|
1,108,192
|
|
|
|
2.25
|
|
|
|
5.61
|
|
|
|
45,830
|
|
Options expected to vest in the future as of June 30, 2019
|
|
|
388,858
|
|
|
|
2.22
|
|
|
|
5.48
|
|
|
|
28,309
|
|
Options exercisable at June 30, 2019
|
|
|
719,334
|
|
|
|
2.28
|
|
|
|
5.69
|
|
|
|
17,521
|
|
Options vested, exercisable, and options expected to vest at June 30, 2019
|
|
|
1,108,192
|
|
|
|
2.25
|
|
|
|
5.61
|
|
|
|
45,830
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price
of our common stock for those awards that have an exercise price currently below the $1.40 closing price of our common stock on
June 30, 2019. 22,916 of the 2019 option grants have an exercise price currently below $1.40.
At
June 30, 2019, there was $348,220 of unrecognized share-based compensation expense related to unvested share options with a weighted
average remaining recognition period of 3.02 years.
Warrants
Warrant
activity for the six months ended June 30, 2019 and 2018 was as follows:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
($)
|
|
|
Life (Yrs.)
|
|
Warrants outstanding at December 31, 2017
|
|
|
1,645,500
|
|
|
|
3.97
|
|
|
|
4.11
|
|
Granted
|
|
|
1,607,000
|
|
|
|
1.30
|
|
|
|
4.64
|
|
Exercised
|
|
|
(24,000
|
)
|
|
|
2.00
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at June 30, 2018
|
|
|
3,228,500
|
|
|
|
2.65
|
|
|
|
4.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
|
|
3,050,600
|
|
|
|
2.75
|
|
|
|
3.86
|
|
Granted
|
|
|
640,240
|
|
|
|
1.60
|
|
|
|
4.94
|
|
Exercised
|
|
|
(70,230
|
)
|
|
|
1.08
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at June 30, 2019
|
|
|
3,620,610
|
|
|
|
2.58
|
|
|
|
3.63
|
|
NOTE
6 - Subsequent Events
In
July and August of 2019, the Company granted our CEO and President two options to purchase up to 22,916 and 22,922 shares of our
common stock, respectively under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options have
an exercise price per share equal to $1.40 and $0.74, respectively, and each is fully vested.
In
July of 2019, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to
the 2013 Equity Incentive Plan to increase the number of shares of the Company’s common stock reserved for issuance
under the 2013 Plan by 750,000 shares of our common stock to a total of 2,400,000 shares.
In
July of 2019, the Company granted options to purchase a total of 97,500 shares of common stock to 7 employees and 1 consultant
with vesting periods ranging from immediately upon issuance to 4 years beginning July 2020.
In
August of 2019, the Company closed a public offering of equity securities in which it issued 2,875,000 shares of common stock
resulting in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses
payable by the Company.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-looking
statements
This
Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking
Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes
of these provisions, including any projections of revenue or other financial items, any statements of the plans and objectives
of management for future operations, any statements concerning proposed new products or services, any statements regarding future
economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements
included in this document are made as of the date hereof and are based on information available to us as of such date. We assume
no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use
of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“intends,” “believes,” “estimates,” “potential,” or “continue,” or
the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements
will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements.
Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks
and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange
Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing
on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2018 and elsewhere in this report.
Corporation
Information
Our
principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (505) 438-2576.
Our website address is
www.sigmalabsinc.com
. The Company’s annual reports, quarterly reports, current reports on
Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website
as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and
the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report
on Form 10-Q.
2019
Developments
In
2019, we reported several events, including the following (in reverse chronological order):
On
August 13, 2019, we announced that we have been selected by a major international OEM machine manufacturer to install our proprietary
PrintRite3D® products. As part of the agreement, the OEM will complete our Rapid Test and Evaluation program and will install
the PrintRite3D® in two different countries for analysis and proof-of-performance purposes.
On
August 2, 2019, we closed a public offering of equity securities in which we issued 2,875,000 shares of common stock resulting
in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by
us.
On
July 30, 2019, we announced that we will work with Airbus to complete a Test and Evaluation Program of our new PrintRite3D®
version 5.0 hardware and software followed by a validation phase on a powderbed fusion printer.
On
June 18, 2019, we announced that we signed a non-binding Memorandum of Understanding with Materialise NV to cooperate in the integration
of their MCP Controller with our PrintRite3D
®
technology. Combining the sophisticated control technology with in-situ
process monitoring for metal additive manufacturing will give customers maximal control on the production process, allowing them
to become even more productive.
On
May 14, 2019, we announced that we will launch Version 5.0 of our PrintRite3D
®
platform at the RAPID+TCT 2019 Additive
Manufacturing Conference in Detroit on May 21-23, 2019.
On
April 30, 2019, we announced that the Company’s PrintRite3D
®
software has been shown to ensure process consistency
and product quality in metal additive manufacturing, according to a research study sponsored by the Defense Advanced Research
Project Agency (DARPA) Open Manufacturing Program and conducted in tandem with Honeywell Aerospace at Honeywell’s Advanced
Manufacturing Engineering Center. The paper, titled “LPBF [Laser Powder Bed Fusion] Right the First Time-the Right Mix Between
Modeling and Experiments,” discusses the validation involved in manufacturing a challenging metal component.
On
March 26, 2019, we announced the appointment of the Company’s new Business Development Manager, Americas, who will be responsible
for developing key accounts through the Company’s Rapid Test and Evaluation Program and for bringing PrintRite3D INSPECT
®
into deployment across serial production operations in North and South America.
On
March 15, 2019, we closed a public offering of equity securities resulting in net proceeds of approximately $1,679,230, after
deducting placement agent commissions and other offering expenses payable by us.
On
February 26, 2019, we announced that we were named a member of the Manufacturing Technology Centre (“MTC”) located
at Ansty Park, Coventry, UK. Being a member of the MTC enables us to share and provide expertise and solutions for a number of
MTC’s projects and also network with MTC’s existing members, including some of the UK’s leading aerospace companies.
On
February 12, 2019, we announced that we were named a member of the Additive Alliance of Fraunhofer IAPT, a leading network for
additive manufacturing (“AM”). As the first US company to be granted a membership in the Alliance, Sigma became part
of the global research consortium to advance the development and implementation of AM. The membership enables us to demonstrate
our PrintRite3D
®
technology to key players in the market of metal AM.
On
February 5, 2019, we announced that the U.S. Patent and Trademark Office has issued a Notice of Allowance for U.S. Patent Application
No. 15/276,452, “Optical Manufacturing Process Sensing and Status Indication System.” The patent application covers
a system of sensors configured to measure optical emissions generated by a scanning heat source during an additive manufacturing
(AM) process and to analyze the data collected.
On
January 17, 2019, we announced we were awarded a Test and Evaluation Program contract with a leading global materials and
service provider in AM. The program is designed to demonstrate the value of Sigma’s PrintRite3D
®
product
capabilities and performance and to validate and quantify the repeatability and variability of AM production processes. So
far we have had delays, diversions, and logistical alterations typical of many newly launched programs, yet importantly, there have been no negative performance issues in the RTE test results. The prototype RTE installation was with
Materialise in 2018 and culminated in the project announced in June 2019 to integrate Sigma’s technology with
Materialise’s MCP control system. As of the date of this Quarterly Report, of our two most advanced RTEs in process, one states an expectation to add a second PrintRite3D® installation, and the other
expects to enter the phase two evaluation (multiple machines of differing OEM brands) over the next 60-120
days.
The size and quality of the demanding high technology ‘brand name’ companies currently
participating in, along with those teed-up to enter the RTE program, appears to confirm that the program is Sigma’s
most auspicious highway to success and material revenue driving into 2020 and beyond. The Airbus RTE announcement on July 30,
2019 followed by our OEM double-RTE announcement on August 13, 2019 demonstrates that the market’s uptake of this
program initiative is accelerating.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts in the accompanying consolidated financial statements
and related notes. These estimates and assumptions have a significant impact on our consolidated financial statements. Actual
results could differ materially from those estimates. Critical accounting policies are those that require the most subjective
and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our significant
accounting policies are disclosed in Note 1 to the Financial Statements included in this Quarterly Report on Form 10-Q. However,
we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on
our financial statements.
Results
of Operations
Three
Months Ended June 30, 2019 and June 30, 2018
We
expect to generate revenue primarily by selling and licensing our IPQA technologies, selling technical support services, contract
manufacturing and selling specialty parts and studies to businesses that seek to improve their manufacturing production processes
and production-run quality yields. Our ability to generate revenues in the future will depend on our ability to further commercialize
and increase market presence of our PrintRite3D® technologies, and it will depend on whether key prospective customers continue
to move from AM metal prototyping to production.
During
the three months ended June 30, 2019, we recognized revenue of $33,582, as compared to $98,663 in revenue recognized during the
same period in 2018, a reduction of $65,081. $10,000 of the reduction is directly attributable to the absence of any government
program work in 2019, while the remaining 55,000 of it is attributable to the 100% dedication of our printer to Internal R&D
in the second quarter of 2019 as we accelerated development of the Inspect product, as well as an overall decline in AM revenue.
Our
Cost of Revenue for the three months ended June 30, 2019 and 2018 was $60,625 and $68,568, respectively, a reduction of $7,943.
The decrease in our gross margin is primarily attributable to the additional travel and labor costs associated with the on-site
and remote collaboration involved in initiation of the Company’s Rapid Test and Evaluation programs.
Sigma’s
total operating expenses for the three months ended June 30, 2019 were $1,569,064 as compared to $1,422,511 for the same period
in 2018, an increase of $146,553.
Salary
and benefits costs were $581,356 for the three months ended June 30, 2019 compared to $426,049 for the same period in 2018, an
increase of $155,307. This 36% cost increase correlates to a net increase of five full-time equivalent employees between the two
periods which is a 31% increase in employee count.
Stock-based
compensation was $220,360 for the three months ended June 30, 2019 compared to $423,067 for the same period in 2018, a $202,707,
or 48%, decrease, primarily due to 2018 second quarter vesting of options granted to our former CEO in connection with his amended
employment agreement.
Research
and development expenditures of $118,845 were incurred during the three months ended June 30, 2019 compared to $95,049 in the
same period of 2018, a 25% increase. The increase primarily results from the purchase of upgraded PrintRite3D
®
components and various pieces of specialized equipment as part of our continued acceleration of technology development.
Outside
services fees incurred in the three months ended June 30, 2019 were $218,919 compared to $177,929 incurred during the same period
in 2018, a 23% increase. The increase is primarily attributable to recruiting fees for senior employees.
Office
expenses incurred during the three months ended June 30, 2019 were $184,068 compared to $110,936 incurred during the same period
in 2018, an increase of $73,132, or 66%. The increase is primarily due to increased travel costs of $59,936, and other miscellaneous
office expenses of $13,196.
Sigma’s
net loss for the three months ended June 30, 2019 totaled $1,593,491 as compared to $1,388,804 for the same period of 2018, a
$204,687 increase. The reduction in gross profit contributed $57,138 to the increased loss, while increased operating expenses
contributed $146,553 to the increased loss.
Six
Months Ended June 30, 2019 and 2018
During
the six months ended June 30, 2019, we recognized revenue of $98,032 compared to $202,078 during the same
period of 2018. The primary contributors to the $104,046 reduction were revenue decreases of $32,300 from the absence of any government
work, $63,000 is attributable to the 100% dedication of our printer to Internal R&D in 2019, and the balance from an overall
decline in AM revenue.
Our
cost of revenue for the six months ended June 30, 2019 was $157,180 compared to $142,363 during the same period in 2018. The increase
of $14,817 is primarily due to the additional travel and labor costs associated with the on-site and remote collaboration
involved in initiation of the Company’s Rapid Test and Evaluation programs.
Sigma’s
total operating expenses for the six months ended June 30, 2019 were $3,076,162 compared to $2,599,641 for the same period
in 2018, a $476,521 increase.
Payroll
costs for the six months ended June 30, 2019 were $1,093,916 compared to $824,706 for the same period in 2018. The $269,210 increases
result primarily from the earlier mentioned addition of five employees since the end of the second quarter of 2018. Stock-based
compensation for the six months ended June 30, 2019 was $474,566 compared to $584,589 for the same period in 2018, a $110,023
decrease, primarily due to the vesting of options granted to our former CEO in connection with his amended employment agreement
in 2018.
During
the six months ended June 30, 2019, Sigma incurred research and development expenditures of $264,177 compared to $217,022 in the
same period of 2018. The $47,155 increase in these expenditures during the first six months of 2019 resulted primarily
from the purchase of upgraded servers and various pieces of specialized equipment as part of our continued acceleration of technology
development, as well as $35,333 of consulting fees paid in connection with the development of Version 5.0 of our PrintRite3D
®
platform.
Sigma’s
public company and investor relation fees incurred in the six months ended June 30, 2019 were $315,107, compared to $283,596 during
the same period in 2018. The $31,511 increase in the six-month comparative expenditures results primarily from an increase in
advertising expenses of $64,600, partially offset by a decrease in shareholder services expenses of $37,100.
Outside
services fees incurred in the six months ended June 30, 2019 were $403,489, compared to $316,352 incurred during the same period
in 2018, a 28% increase. Consulting fees increased by $67,552 due to the addition of an application engineer consultant, and recruiting
fees increased by $19,428.
During
the six months ended June 30, 2019, Sigma’s office expenses were $350,178 compared to $206,042 in the same period of 2018.
The $144,136 increase in these expenditures primarily resulted from additional travel expense related to both a more aggressive
outreach to prospective OEM, service bureau and end user customers and our expansion into the European market.
In
the six months ended June 30, 2019, our net other income & expense was net income of $57,707, as compared to net expense of
$19,754 during the same period in 2018. The six-month 2019 net other income is primarily comprised of $52,000 in New Mexico state
job incentive credits received. The net other expense for the same period in 2018 is primarily due to a $36,733 write-off of accounting
software, partially offset by interest income of $17,086 on the then outstanding notes receivable.
Sigma’s
net loss for the six months ended June 30, 2019 totaled $3,077,603 as compared to $2,559,680 for the same period in 2018, a $517,923
increase. Contributing to this increase was an increase in our operating loss of $595,384, consisting of a decrease in
gross profit of $118,863, together with an increase in operating expenses of $476,521. This was partially offset by an
increase in other income and expense of $77,461.
We
financed our operations during the three and six months ended June 30, 2019 and 2018 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 and obtain new contract manufacturing orders in connection with
our EOS M290.
Liquidity
and Capital Resources
As
of June 30, 2019, we had $696,390 in cash and working capital of $685,409, as compared with $1,279,782 in cash and working capital
of $1,052,017 as of December 31, 2018.
Our
major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and
preferred stock), and from warrant exercises.
In
March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and
warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,330, after
deducting placement agent commissions and other offering expenses payable by the Company.
In
May 2019, the Company closed a private placement of equity securities in which it issued 400,000 shares of common stock and warrants
to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement
agent commissions and other offering expenses payable by the Company.
In
August 2019, the Company closed a public offering of equity securities in which it issued 2,875,000 shares of common stock resulting
in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by
the Company.
During
the remainder of 2019, we expect to sustain our operations and our commercialization and marketing efforts without a material
increase in our cash burn rate. We expect that enhancements of our IPQA®-enabled PrintRite3D® technology that were developed
substantially in fiscal 2018 and 2019 and brought to market will enable us to further commercialize this technology for the AM
metal market in 2019 and beyond. However, until commercialization of our full suite of PrintRite3D® technologies, we plan
to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and supporting
field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of
expertise (materials and manufacturing quality assurance and process control technologies) and contract manufacturing for metal
AM, and through the use of proceeds from sales of our securities.
Net
Cash Used in Operating Activities
Net
cash used in operating activities during the six months ended June 30, 2019 increased to $2,737,650 from $1,472,519 during the
same period in 2018, a $1,265,131 increase. Increased net loss contributed $517,923 toward this use of cash, increased inventory
purchases contributed $377,440 as a result of our finished goods ramp program, and a net decrease of accounts payable and accrued
expenses contributed $164,370.
Net
Cash Used/Provided by Investing Activities
Net
cash used by investing activities during the six months ended June 30, 2019 was $115,920, which compares to $530,082 of cash provided
by investing activities during the same period of 2018, a decrease of $646,002. This is primarily attributable to the March 2018
receipt of payment in full of a then outstanding $500,000 loan receivable.
Net
Cash Used/Provided by Financing Activities
Cash
provided by financing activities during the six months ended June 30, 2019 decreased to $2,270,178 from $2,946,400 during the
same period in 2018 due to lower proceeds from our public and private securities offerings in 2019.
The
Company anticipates continued losses in 2019, with any expected increased revenues offset by increased salaries and related expenses
in connection with additional employees.
We
have no credit lines as of August 14, 2019, nor have we ever had a credit line since our inception.
Based
on the funds we have as of August 14, 2019, and the proceeds we expect to receive from rapid test and evaluation engagements for
our updated PrintRite3D® hardware and software technology, sales of contract AM manufacturing for metal AM parts, possible
sales of our securities and from the repayment of loans made by Sigma, we believe that we will have sufficient funds to pay our
administrative and other operating expenses through 2019. Our ability to continue to fund our liquidity and working capital needs
will be dependent upon the success of and revenues from existing and future PrintRite3D®-proof of concept contracts, follow-on
contracts resulting from successful proof of concept engagements, possible strategic partnerships, contract manufacturing orders
in connection with our EOS M290, and possibly by obtaining additional capital from the sale of securities or by borrowing funds
from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common
stock. There is no assurance that we will be successful in obtaining additional funding. If we require and fail to obtain sufficient
funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and
operations.
We
have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.