ITEM
1. FINANCIAL STATEMENTS.
Sigma
Labs, Inc.
Condensed
Balance Sheets
(Unaudited)
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Operations
(Unaudited)
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Statement
of Stockholders’ Equity
For
the Three and Six Months Ended June 30, 2021 and 2020
(Unaudited)
For
the Three Months Ended June 30, 2021 and June 30, 2020
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
Preferred
Stock
|
|
|
Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balances,
March 31, 2020
|
|
|
1,378
|
|
|
$
|
2
|
|
|
|
1,817,834
|
|
|
$
|
1,818
|
|
|
$
|
29,425,382
|
|
|
$
|
(27,994,426
|
)
|
|
$
|
1,432,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(909,638
|
)
|
|
|
(909,638
|
)
|
Common
Shares Sold in Public Offering
|
|
|
-
|
|
|
|
-
|
|
|
|
493,027
|
|
|
|
493
|
|
|
|
1,499,507
|
|
|
|
-
|
|
|
|
1,500,000
|
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
323,624
|
|
|
|
323
|
|
|
|
691,557
|
|
|
|
(691,880
|
)
|
|
|
-
|
|
Common
Shares issued for Conversion of Preferred Shares
|
|
|
(2,729
|
)
|
|
|
(2
|
)
|
|
|
1,280,360
|
|
|
|
1,281
|
|
|
|
(1,279
|
)
|
|
|
-
|
|
|
|
-
|
|
Preferred
Shares issued for Exercise of Preferred Warrants
|
|
|
1,684
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,641,899
|
|
|
|
-
|
|
|
|
1,641,900
|
|
Securities
Issued for Third Party Services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,306
|
|
|
|
-
|
|
|
|
15,306
|
|
Stock
Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
262,950
|
|
|
|
-
|
|
|
|
262,950
|
|
Common
Shares Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
11,517
|
|
|
|
11
|
|
|
|
7,859
|
|
|
|
-
|
|
|
|
7,870
|
|
Offering
Costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(391,352
|
)
|
|
|
-
|
|
|
|
(391,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
June 30, 2020
|
|
|
333
|
|
|
$
|
1
|
|
|
|
3,926,362
|
|
|
$
|
3,926
|
|
|
$
|
33,151,829
|
|
|
$
|
(29,595,944
|
)
|
|
$
|
3,559,812
|
|
For
the Six Months Ended June 30, 2021 and June 30, 2020
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
Preferred
Stock
|
|
|
Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balances,
December 31, 2020
|
|
|
715
|
|
|
$
|
1
|
|
|
|
5,995,320
|
|
|
$
|
5,995
|
|
|
$
|
38,262,744
|
|
|
$
|
(33,105,008
|
)
|
|
$
|
5,163,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,496,207
|
)
|
|
|
(2,496,207
|
)
|
Common
Shares Sold in Public Offerings
|
|
|
-
|
|
|
|
-
|
|
|
|
3,901,783
|
|
|
|
3,902
|
|
|
|
14,865,997
|
|
|
|
-
|
|
|
|
14,869,899
|
|
Extinguishment
of Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,092,441
|
)
|
|
|
-
|
|
|
|
(1,092,441
|
)
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
19,000
|
|
|
|
19
|
|
|
|
75,108
|
|
|
|
(75,127
|
)
|
|
|
-
|
|
Common
Shares issued for Conversion of Preferred Shares
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
Common
Shares issued for Exercise of Common Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
475,995
|
|
|
|
476
|
|
|
|
1,135,534
|
|
|
|
-
|
|
|
|
1,136,010
|
|
Securities
Issued for Third Party Services
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
2
|
|
|
|
55,935
|
|
|
|
-
|
|
|
|
55,937
|
|
Stock
Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
233,919
|
|
|
|
-
|
|
|
|
233,919
|
|
Stock
Options Awarded to Directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122,274
|
|
|
|
-
|
|
|
|
122,274
|
|
Offering
Costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,600,967
|
)
|
|
|
-
|
|
|
|
(1,600,967
|
)
|
Balances,
June 30, 2021
|
|
|
465
|
|
|
$
|
1
|
|
|
|
10,493,598
|
|
|
$
|
10,494
|
|
|
$
|
52,058,003
|
|
|
$
|
(35,676,342
|
)
|
|
$
|
16,392,156
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
Preferred
Stock
|
|
|
Shares
Outstanding
|
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balances,
December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,403,759
|
|
|
$
|
1,404
|
|
|
$
|
26,746,439
|
|
|
$
|
(26,095,594
|
)
|
|
$
|
652,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,493,223
|
)
|
|
|
(2,493,223
|
)
|
Common
Shares Sold in Public Offering
|
|
|
-
|
|
|
|
-
|
|
|
|
493,027
|
|
|
|
493
|
|
|
|
1,499,507
|
|
|
|
-
|
|
|
|
1,500,000
|
|
Preferred
Shares Sold in Private Offering
|
|
|
1,973
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,099,997
|
|
|
|
|
|
|
|
2,100,000
|
|
Preferred
Stock Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
410,425
|
|
|
|
410
|
|
|
|
1,006,717
|
|
|
|
(1,007,127
|
)
|
|
|
-
|
|
Common
Shares issued for Conversion of Preferred Shares
|
|
|
(3,836
|
)
|
|
|
(4
|
)
|
|
|
1,601,877
|
|
|
|
1,602
|
|
|
|
(1,598
|
)
|
|
|
-
|
|
|
|
-
|
|
Preferred
Shares issued for Exercise of Preferred Warrants
|
|
|
2,196
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,141,098
|
|
|
|
-
|
|
|
|
2,141,100
|
|
Securities
Issued for Third Party Services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
3
|
|
|
|
54,921
|
|
|
|
-
|
|
|
|
54,924
|
|
Stock
Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
417,120
|
|
|
|
-
|
|
|
|
417,120
|
|
Common
Shares Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
11,517
|
|
|
|
11
|
|
|
|
7,859
|
|
|
|
-
|
|
|
|
7,870
|
|
Offering
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820,228
|
)
|
|
|
-
|
|
|
|
(820,228
|
)
|
Issuance
of Fractional Shares from Reverse Split
|
|
|
-
|
|
|
|
-
|
|
|
|
3,257
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
June 30, 2020
|
|
|
333
|
|
|
$
|
1
|
|
|
|
3,926,362
|
|
|
$
|
3,926
|
|
|
$
|
33,151,829
|
|
|
$
|
(29,595,944
|
)
|
|
$
|
3,559,812
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Cash Flows
(Unaudited)
See
accompanying notes to condensed financial statements.
SIGMA
LABS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
June
30, 2021
(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, 2021 and
2020 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, 2020 audited financial statements and notes thereto included
in the Company’s Form 10-K. The results of operations for the periods ended June 30, 2021 and 2020 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.
Fair
Value of Financial Instruments - The Company applies ASC 820, “Fair Value Measurements.” This guidance defines
fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements
for fair value measures. The three levels are defined as follows:
|
●
|
Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level
2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
●
|
Level
3 - inputs to valuation methodology are unobservable and significant to the fair measurement.
|
The
carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables, accounts payable, and accrued liabilities
each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination
of such instruments and their expected realization and their current market rate of interest.
The
Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes. On March 26, 2021, the
Company closed an offering in which it issued warrants to purchase an aggregate of 2,190,000 shares of common stock in a private placement
concurrently with a registered direct offering (“Registered Offering”) of our common stock The warrants became exercisable on May 24, 2021, the date the Company
obtained stockholder approval to increase its authorized common shares from 12,000,000 to 24,000,000 (“the Initial Exercise Date”)
and will expire two years after the Initial Exercise Date.
Pursuant
to ASC 815-40-25-10, because the Company did not have sufficient authorized and unissued shares of common stock available to settle the
warrants at the issue date, such warrants were accounted for as a derivative liability. On May 24, 2021, upon receiving shareholder approval
to increase its authorized common shares, the Company reclassified the warrant liability to equity pursuant to ASC 815.40.35.8.
The
fair value of the warrant liability measured on a recurring basis is as follows:
Schedule of Warrant Liability Measured on Recurring Basis
|
|
June
30, 2021
|
|
|
Date
of Issuance March 26, 2021
|
|
|
|
Fair
Value
|
|
|
Input
Level
|
|
|
Fair
Value
|
|
|
Input
Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability - Warrants
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
5,708,212
|
|
|
|
Level
3
|
|
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable
input (Level 3):
Schedule of Derivative Liability Measured on a Recurring Basis Using Significant Unobservable Input (Level 3)
|
|
Warrants
|
|
Fair
Value on Issuance Date
|
|
$
|
5,708,212
|
|
Change
in Fair Value
|
|
|
(1,092,441
|
)
|
Fair Value on May
24, 2021
|
|
|
4,615,771
|
|
Extinguishment
of Derivative Liability
|
|
|
(4,615,771
|
)
|
Fair
Value on June 30, 2021
|
|
$
|
-
|
|
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 Companies outstanding warrants, options and
preferred shares were excluded due to the anti-dilutive effect they would have on the computation. At June 30, 2021 and 2020, the Company
had the following common shares underlying these instruments:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
|
|
Six
Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants
|
|
|
3,987,931
|
|
|
|
1,845,722
|
|
Preferred
Stock Warrants
|
|
|
-
|
|
|
|
2,147,277
|
|
Stock
Options
|
|
|
853,936
|
|
|
|
486,720
|
|
Preferred
Stock
|
|
|
124,483
|
|
|
|
61,651
|
|
Total
Underlying Common Shares
|
|
|
4,966,350
|
|
|
|
4,541,370
|
|
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, 2021 and 2020:
Schedule of Earnings Per Share, Basic and Diluted
|
|
Three
Months Ended June 30
|
|
|
Six
Months Ended June 30
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share - Basic and Diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(1.48
|
)
|
Loss
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
available to Common stockholders (numerator)
|
|
$
|
(1,859,767
|
)
|
|
$
|
(1,601,518
|
)
|
|
$
|
(2,571,334
|
)
|
|
$
|
(3,500,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares Outstanding used in loss per share during the Period (denominator)
|
|
|
10,493,598
|
|
|
|
3,256,098
|
|
|
|
9,149,328
|
|
|
|
2,359,862
|
|
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.
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 – Inventory
At
June 30, 2021 and December 31, 2020, the Company’s inventory was comprised of:
Schedule of Inventory
|
|
June
30, 2021
|
|
|
December
31, 2020
|
|
Raw
Materials
|
|
$
|
290,003
|
|
|
$
|
309,305
|
|
Work
in Process
|
|
|
314,450
|
|
|
|
175,884
|
|
Finished
Goods
|
|
|
242,646
|
|
|
|
174,462
|
|
Total
Inventory
|
|
$
|
846,999
|
|
|
$
|
659,651
|
|
NOTE
3 – Deferral of Social Security Tax Payments
Pursuant
to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due
during the “payroll tax deferral period”. The payroll tax deferral period began on March 27, 2020 and ended on December 31,
2020. At June 30, 2021, the total amount of such deferral was $75,455. Per the terms of the deferral program, 50% of the deferred
amount is due on December 31, 2021, and the remaining 50% is due on December 31, 2022 at 0% interest.
NOTE
4 - Derivative Liability
On
March 26, 2021 (the “Issuance Date”), the Company issued warrants to purchase an aggregate of 2,190,000 shares of common
stock to holders in a private placement concurrently with a registered direct offering of 2,190,000 shares of its common stock. The warrants
entitle the holders to purchase one share of our common stock at an exercise price equal to $4.32 per share commencing on May 24, 2021
and will expire two years from such date. The Company has determined that these
warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included
in the registered direct offering. Management also determined that on the Issuance Date, the Company did not have sufficient authorized
and unissued shares to settle the warrants, and as such required classification as a liability pursuant to ASC 815 “Derivative
Instruments and Hedging”. In accordance with the accounting guidance, the outstanding warrants were recognized as a warrant
liability on the balance sheet and were measured at their inception date fair value and subsequently re-measured at each reporting period
with changes being recorded as a component of other income in the statement of operations.
At
a Special Stockholders Meeting held on May 24, 2021, the Company received approval to increase its authorized common shares from 12,000,000
to 24,000,000.
Pursuant to ASC 815-40-35-8, the Company reclassified the warrant liability
to equity as of such date.
The
fair value of the derivative liability presented below was measured using the Black Scholes valuation model. Significant inputs into
the model for the six months ended June 30, 2021 are as follows:
Schedule of Fair Value of Derivative Liability Using Black Scholes Valuation Model
|
|
June
30, 2021
|
|
Dividend
yield
|
|
|
0.00
|
%
|
Risk-free
interest rate
|
|
|
0.6%-0.7
|
%
|
Expected
volatility
|
|
|
121.2
% - 124.0
|
%
|
Expected
life (in years)
|
|
|
2
|
|
The
warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Schedule of Fair Value of Warrant Liability
Warrant
Liability
|
|
Warrants
Outstanding
|
|
|
Fair
Value Per Share
|
|
|
Fair
Value
|
|
Fair
Value at initial measurement date of March 26, 2021
|
|
|
2,190,000
|
|
|
$
|
2.61
|
|
|
$
|
5,708,212
|
|
(Gain)
on change in Fair Value of Warrant Liability
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(1,092,441
|
)
|
Fair Value as of
May 24, 2021
|
|
|
2,190,000
|
|
|
$
|
2.11
|
|
|
|
4,615,771
|
|
Extinguishment
of Derivative Liability
|
|
|
(2,190,000
|
)
|
|
$
|
2.11
|
|
|
|
(4,615,771
|
)
|
Fair
Value as of June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
The
Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s
assumptions. Level 3 measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity
and may be more sensitive to fluctuations in stock prices, volatility rates and U.S. Treasury Bond rates and could have a material impact
on future fair value measurements.
The
Company uses the Black Scholes model, based on the adjusted historical volatility rates for fair value measurements through the date
of stockholder approval (i.e., May 24, 2021). Management has determined the Black Scholes model to be the most reliable and least volatile determinate of
the current fair value of the warrants. It is the Company’s expectation to maximize on all observable market inputs for the warrants
and calibrate the model to incorporate relevant observable market data into the fair value measurement at each future measurement date,
if applicable.
During
the six months ended June 30, 2021, the Company recognized a gain of $1,092,441
on the change in fair value of the warrants.
NOTE
5 - Stockholders’ Equity
Common
Stock
On
May 24, 2021, at a Special Stockholders Meeting, our authorized shares of common stock were increased from 12,000,000 to 24,000,000.
In
January 2021, the Company closed a public offering of its securities in which it issued 1,711,783
shares of common stock at $3.00
per share, resulting in net proceeds of approximately
$4,532,445 after
deducting underwriting commissions and other offering expenses payable by the Company. Pursuant to the Underwriting Agreement, the Company
also issued to the Underwriter or its designee warrants to purchase 136,943 shares of common stock. Such warrants have a term of five
years and an exercise price of $3.75
per share.
In
February 2021, the Company issued 263,200 shares of common stock pursuant to the exercise of warrants issued in our January 2020 private
placement.
In
March 2021, the Company issued 119,000
shares of common stock in exchange for the conversion
of 250
shares of Series D Convertible Preferred Stock,
including 19,000
shares of common stock as in-kind payment of
preferred stock dividends. Also in March 2021, the Company issued 191,204
shares of common stock pursuant to the exercise
of warrants issued in our April 2020 offering, and 21,591
shares of common stock issued pursuant to the
cashless exercise of placement agent warrants.
In
March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per
share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering
costs payable by the Company. In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants to purchase
an aggregate of 2,190,000 shares of Common Stock at an exercise price of $4.32 per share. Each Warrant became exercisable on May 24,
2021, the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common Stock and will expire two years from such date. The Company also issued to designees
of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock (the “Placement Agent Warrants”) constituting
8% of the aggregate number of shares of Common Stock sold in the Registered Offering. The Placement Agent Warrants have substantially
the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price per
share (or $5.55625 per share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to
purchase 8.0% of the number of shares of our Common Stock issued upon the cash exercise of the Warrants.
In
March 2021, Company issued 1,500 shares of common stock valued at $4.99 per share to CorProminence, an investor relations firm previously
engaged by the Company as partial compensation for services previously rendered.
On
April 6, 2020, the Company closed a public offering of equity securities in which it issued 493,027 shares of common stock and pre-funded
warrants to purchase up to 22,438 shares of the Company’s common stock. The Company also issued Series A Warrants to purchase an
aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement. In connection with this offering, the
Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate of 41,237 shares of the Company’s
Common Stock (which amount is based on the number of Common Shares and shares underlying the Pre-Funded Warrants) at an exercise price
of $3.64 per share. Net proceeds to the Company after deducting offering expenses were approximately $1,230,000.
In
the second quarter of 2020, the Company issued 1,603,984 shares of common stock in exchange for the conversion of 1,684 shares of Series
D Convertible Preferred stock, including 323,624 shares of common stock as in-kind payment of preferred stock dividends.
In
April 2020, the Company granted 11,517 shares of common stock to employees under the 2013 Equity Incentive Plan. Such shares vested on December
31, 2020.
In
the first quarter of 2020, the Company issued 408,318 shares of common stock in exchange for the conversion of 1,107 shares of Series
D Convertible Preferred stock, including 86,801 shares of common stock as in-kind payment of preferred stock dividends.
In
February 2020, the Company issued 2,500 shares of common stock valued at $8.70 per share to MHZCI, LLC, an investor relations firm engaged
by the Company, as partial compensation for services to be rendered.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 465 and 333 shares of preferred stock were issued
and outstanding at June 30, 2021 and 2020, respectively.
In
January 2020, the Company entered into a Securities Purchase Agreement (the “Institutional SPA”) with certain
institutional investors (the “Institutional Private Placement”). Pursuant to the Institutional SPA, the Company issued
and sold 1,640
shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under
the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of $1,000
per share (the “Stated Value”). Dividends accrue at a dividend rate of 9%
per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and,
on a monthly basis, shall be payable 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 will have the right at any time to convert all or a portion of the Series D Preferred
Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the
closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50
(subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection). In
addition, a holder may at any time, alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative
conversion price, which equals the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85%
of the average volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to
such conversion. Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not
limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other
defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125%
premium to the underlying value of the Series D Preferred Shares being redeemed.
At
June 30, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted at the Conversion Price of
$2.50 as of June 30, 2021, including the make-whole dividends, would result in the issuance of 62,832 shares of common stock. Concurrent
with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “Other SPA”) with certain
of its directors and the Company’s previously largest shareholder (the “Other Private Placement”). Pursuant to the Other SPA, the Company
issued and sold 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”).
Dividends accrue at a dividend rate of 9% per annum and, on a monthly basis, shall be payable in kind by the increase of the Stated Value
of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock.
At
June 30, 2021, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of June 30, 2021, including
the make-whole dividends, would have resulted in the issuance of 61,651 shares of common stock.
Deferred
Compensation
In
previous years and in the six months ended June 30, 2021, the Company issued to various employees, directors, and contractors shares
of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013 Plan”).
Such shares are valued at the fair value at the date of issue. The fair value is expensed as compensation over the vesting period and
recorded as an increase to stockholders’ equity. During the six months ended June 30, 2021 and June 30, 2020, $0 and $7,870, respectively,
of the unvested compensation cost related to these issues was recognized.
At
June 30, 2021, there was $0 of unrecognized deferred compensation expense to be recognized over the remainder of the year.
Stock
Options
As
of June 30, 2021, an aggregate of 890,000 shares of common stock were reserved for issuance under the 2013 Plan.
During
the six months ended June 30, 2021, the Company granted options to purchase a total of 145,487 shares of common stock to 5 employees,
4 directors and 3 consultants with vesting periods ranging from immediately upon issuance to 3 years beginning January 4, 2021.
During
the six months ended June 30, 2020, the Company granted options to purchase a total of 335,183 shares of common stock to 19 employees
and 4 consultants with vesting periods ranging from immediately upon issuance to 3 years beginning June 15, 2020.
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 statements of operations for the six months ended June 30, 2021 and 2020 is $233,919
and $424,989 of which $233,919 and $417,119 is related to stock options, respectively.
The
fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the
six months ended June 30, 2021 and 2020:
Assumptions:
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions
|
|
2021
|
|
|
2020
|
|
Dividend
yield
|
|
|
0.00
|
|
|
|
0.00
|
|
Risk-free
interest rate
|
|
|
0.19-0.32
|
%
|
|
|
0.22-1.52
|
%
|
Expected
volatility
|
|
|
116.8-123.8
|
%
|
|
|
113.8-117.2
|
%
|
Expected
life (in years)
|
|
|
5
|
|
|
|
5
|
|
Option
activity for the six months ended June 30, 2021 and the year ended December 31, 2020 was as follows:
Schedule of Stock Option Activity
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
($)
|
|
|
Life
(Yrs.)
|
|
|
Value
($)
|
|
Options
outstanding at December 31, 2019
|
|
|
180,912
|
|
|
|
18.11
|
|
|
|
5.09
|
|
|
|
25,988
|
|
Granted
|
|
|
579,998
|
|
|
|
2.55
|
|
|
|
4.57
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
(47,900
|
)
|
|
|
22.62
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding at December 31, 2020
|
|
|
713,010
|
|
|
|
5.15
|
|
|
|
4.40
|
|
|
|
477,802
|
|
Granted
|
|
|
145,487
|
|
|
|
3.22
|
|
|
|
4.53
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
(4,561
|
)
|
|
|
4.25
|
|
|
|
-
|
|
|
|
(1,597
|
)
|
Options
outstanding June 30, 2021
|
|
|
853,936
|
|
|
|
4.82
|
|
|
|
4.01
|
|
|
|
874,803
|
|
Options
expected to vest in the future as of June 30, 2021
|
|
|
370,127
|
|
|
|
3.73
|
|
|
|
4.13
|
|
|
|
400,686
|
|
Options
exercisable at June 30, 2021
|
|
|
483,809
|
|
|
|
5.66
|
|
|
|
3.91
|
|
|
|
474,117
|
|
Options
vested, exercisable, and options expected to vest at June 30, 2021
|
|
|
853,936
|
|
|
|
|
|
|
|
|
|
|
|
874,803
|
|
The
aggregate intrinsic value at June 30, 2021 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 $3.90 closing price of our common stock
on June 30, 2021. All of the 2021 option grants have an exercise price currently below $3.90.
At
June 30, 2021, there was $987,899 of unrecognized share-based compensation expense related to unvested share options with a weighted
average remaining recognition period of 1.70 years.
Stock
Appreciation Rights
On
June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights
Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees,
consultants and directors (collectively, “Service Providers”) who will contribute to the Company’s long range success;
(ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote
the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation
rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since
no shares 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 on the date of grant of the SAR. The administrator
of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation,
the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such
grant.
On
June 23, 2020, the
Company granted, pursuant to the Plan, (i) 60,094 SARs to its President and Chief Executive Officer, (ii) 12,019 SARs to its Vice
President of Business Development, (iii) 24,038 SARs to its Chief Technology Officer, and (iv) 18,028 SARs to its Chief Financial
Officer. The exercise price of each such SAR is $2.63, which was the closing price of the Company’s common stock on the date
of grant. Such SARs expire on the fifth anniversary of the grant date and may be settled only in cash. Additionally, each such SAR
will vest and become exercisable in three equal (as closely as possible) installments on each of the first, second and third
anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company
on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested
and exercisable as long as the applicable holder is in the Company’s employ immediately prior to the Change in Control, and
will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement. On
November 19, 2020, we granted 13,500 SARs to a consultant as partial compensation for services pursuant to the consulting
agreement.
The
Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period
for each SAR award. The SAR’s are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”,
and any changes in fair value are reflected in income as of the applicable reporting date.
There
were no SAR awards issued during the first six months of 2021.
SARs
activity for the six months ended June 30, 2021 was as follows:
Schedule of Stock Option Activity
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
SARs
|
|
|
($)
|
|
|
Life
(Yrs.)
|
|
|
Value
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
outstanding at December 31, 2020
|
|
|
127,679
|
|
|
|
2.61
|
|
|
|
4.52
|
|
|
|
97,919
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
SARs
outstanding June 30, 2021
|
|
|
127,679
|
|
|
|
2.61
|
|
|
|
4.02
|
|
|
|
164,312
|
|
SARs
expected to vest in the future as of June 30, 2021
|
|
|
76,120
|
|
|
|
2.63
|
|
|
|
3.98
|
|
|
|
96,672
|
|
SARs
exercisable at June 30, 2021
|
|
|
51,559
|
|
|
|
2.59
|
|
|
|
4.09
|
|
|
|
67,640
|
|
SARs
vested, exercisable, and options expected to vest at June 30, 2021
|
|
|
127,679
|
|
|
|
2.61
|
|
|
|
4.02
|
|
|
|
164,312
|
|
The
aggregate intrinsic value at June 30, 2021 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 $3.90 closing price of our common stock
on June 30, 2021.
At
June 30, 2021, there was $155,361 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining
recognition period of 1.98 years.
Warrants
Warrant
activity for the six months ended June 30, 2021 and 2020 was as follows:
Summary of Warrant Activity
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
($)
|
|
|
Life
(Yrs.)
|
|
Warrants
outstanding at December 31, 2019
|
|
|
363,727
|
|
|
|
25.60
|
|
|
|
3.12
|
|
Granted
|
|
|
1,481,995
|
|
|
|
3.22
|
|
|
|
5.14
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
outstanding at June 30, 2020
|
|
|
1,845,722
|
|
|
|
7.64
|
|
|
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding
at December 31, 2020
|
|
|
1,881,429
|
|
|
|
7.57
|
|
|
|
4.16
|
|
Granted
|
|
|
2,602,143
|
|
|
|
4.36
|
|
|
|
2.14
|
|
Exercised
|
|
|
(495,641
|
)
|
|
|
2.59
|
|
|
|
4.13
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
outstanding at June 30, 2021
|
|
|
3,987,931
|
|
|
|
6.10
|
|
|
|
2.61
|
|
NOTE
6 - Subsequent Events
On
July 15, 2021, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013
Equity Incentive Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Equity Incentive Plan
by 875,000 shares of our common stock to a total of 1,765,000 shares.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-looking
statements
This Quarterly Report, including
any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.” All statements
other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including,
but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections
of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives
of management for future operations, any statements concerning proposed new products or services, 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, 2020 and elsewhere in this report.
Corporation
Information
We were incorporated as Messidor
Limited in Nevada on December 23, 1985 and changed our name to Framewaves Inc. in 2001. On September 27, 2010, we changed our name from
Framewaves Inc. to Sigma Labs, Inc. We commenced our current business operations in 2010.
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.
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, 2021 and June 30, 2020
We
generate revenues through PrintRite3D® hardware and computer-assisted instruction (CAI) software licensing of our PrintRite3D®
technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and
maintenance fees. Additionally, we generate revenues from our contract manufacturing activities in metal additive manufacturing (AM).
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, 2021, we recognized revenue of $144,148, as compared to $167,688 in revenue recognized during the same
period in 2020, a decrease of $23,540. The decrease is primarily due to no revenue from the Company’s Rapid Test and Evaluation
(“RTE”) program in the second quarter of 2021, versus $29,864 of such revenue in the second quarter of 2020.
Our
Cost of Revenue for the three months ended June 30, 2021 and 2020 was $116,397 and $57,684, respectively, an increase of $58,713. The
increase is primarily attributable to costs incurred in connection with the installation and support of previous PrintRite3D sales,
as well as support of current and legacy RTE’s, partially offset by a decrease in manufacturing costs of our PrintRite3D units
as a result of engineering enhancements.
Sigma’s total operating
expenses for the three months ended June 30, 2021 were $2,168,651 as compared to $1,526,554 for the same period in 2020, an increase
of $642,097 as further described below.
Salary and Benefits
costs were $985,348 for the three months ended June 30, 2021 compared to $605,295 for the same period in 2020, an increase of $380,053.
This 62.8% cost increase is primarily a result of employee salary increases and average full-time employee headcount
increasing by 10 over the second quarter of 2020. Salaries increased by $319,348, employee benefits increased by $16,626, employer payroll
taxes increased by $13,058, and SAR’s expense increased by $23,129.
Stock-based Compensation
was $116,441 for the three months ended June 30, 2021 compared to $270,818 for the same period in 2020, a $154,377, or 57.0%
decrease. This decrease is primarily due to stock options awarded to employees in June of 2020, whereas with the exception of stock option grants to new employees in 2021,
stock option awards were not made to employees during the three months
ended June 30, 2021.
Research and Development expenditures
of $280,700 were incurred during the three months ended June 30, 2021 compared to $111,647 in the same period of 2020, a $169,053
increase. The increase is primarily attributable to $73,638 for CT scans related to new development work, $21,332 related to
optics redesign, $33,310 for ongoing enhancements and bug fixes related to PrintRite3D v7.0, and purchases of lab supplies, and
parts and materials of $31,771.
Investor & Public Relations
expenses of $114,762 were incurred during the three months ended June 30, 2021, as compared to $97,702 incurred during the same period
in 2020. The increase of $17,060 is primarily due to an increase in expenses for trade shows and conferences of $26,267, partially
offset by a decrease in marketing and advertising costs of $13,655, as the Company discontinued its Network Newswire service.
Organization Costs for
the three months ended June 30, 2021 totaled $158,529, as compared to $80,096 for the same period in 2020. The increase of $78,433,
or 97.9% is due to an increase in shareholder services costs of $34,109 related to the special shareholders meeting held in
May of 2021, and $60,802 related to stock options expense for non-employee directors, whereas options were not granted to
non-employee directors until July 2020. Partially offsetting these increases was a decrease in non-employee directors’ cash
compensation of $17,173 in the second quarter of 2021 as compared to the same period in 2020.
Legal & Professional fees
incurred in the three months ended June 30, 2021 were $244,019 compared to $212,496 incurred during the same period in 2020. The increase
of $31,523 is primarily due to an increase in recruiting fees of $64,000 related to new hires during the period, an increase in consulting
fees of $9,112 and an increase in IT services of $2,738, partially offset by a decrease in legal fees of $24,626, and lower accounting
and audit fees of $19,700.
Office Expenses
incurred during the three months ended June 30, 2021 were $151,871 compared to $78,843 incurred during the same period in 2020, an
increase of $73,028, or 92.6%. The increase is primarily due to increased travel costs of $40,973 as a result of the easing
of COVID-19 restrictions, an increase of $15,540 in dues and subscriptions, primarily related to new software applications,
including customer relationship management, product lifecycle management, and compliance, an increase of $10,272 in postage
and shipping, and an increase in office supplies of $5,344.
Depreciation and Amortization
expense for the three months ended June 30, 2021 was $25,783, compared to $17,970 for the same period in 2020. The primary reason for
the increase is due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations.
Other Operating Expenses were
$91,198 for the three months ended June 30, 2021, compared to $51,687 incurred during the same period in 2020. The increase of $39,511
is primarily due to higher insurance premiums of $32,839 in 2021. In addition, increased SEC filing fees of $4,956 related
to various registration statements were incurred in June 2021.
In the three months ended
June 30, 2021, our net other income & expense was net income of $295,393 compared to net other income of $506,912 in 2020. The
2021 net positive contribution is primarily from a gain of $290,156 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering. In 2020, the
net positive contribution consisted primarily of $151,657 in New Mexico state job incentive credits, and $361,700 from
the recognition of our PPP loan as a government grant.
Sigma’s net loss applicable
to common stockholders for the three months ended June 30, 2021 totaled $1,859,767 as compared to $1,601,518 for the same period of 2020,
a $258,249 increase. The second quarter net operating loss contributed $724,350 to the loss increase, while the decrease in other
income contributed an additional loss of $211,559. Partially offsetting these losses was a decrease in preferred dividends of $677,660
for the quarter ended June 30, 2021.
Six Months Ended June
30, 2021 and 2020
During the six months ended
June 30, 2021, we recognized revenue of $602,288 compared to $389,418 during the same period of 2020. The primary contributors to the
$212,870 increase were an increase in PrintRite3D® unit sales contributing $276,242, partially offset by a decrease in a RTE
program revenue of $67,200.
Our cost of revenue for the
six months ended June 30, 2021 was $244,728 compared to $302,387 during the same period in 2020. The decrease of $57,659 is primarily
due to a credit in the first quarter related to a customer exchange of a PrintRite3D unit sold in December 2020, lower build costs
as a result of engineering enhancements of our PrintRite3D units, and lower costs of supporting legacy RTE programs.
Sigma’s total operating
expenses for the six months ended June 30, 2021 were $3,950,057 compared to $3,086,195 for the same period in 2020, a $863,862 increase
as further described below.
Payroll costs for the six months
ended June 30, 2021 were $1,832,520 compared to $1,257,492 for the same period in 2020, an increase of $575,028. The increase is primarily
due to employee salary increases and higher average employee headcount of 7 during the first half of 2021, resulting
in increased salaries of $421,207, plus $28,270 in employee benefits and $34,202 in employer payroll taxes. Also contributing to the
increase was $26,924 in sales commissions and bonuses, and $60,615 of expense related to the Company’s Stock Appreciation
Rights plan.
Stock-based compensation for
the six months ended June 30, 2021 was $233,919 compared to $424,989 for the same period in 2020, a $191,070 decrease, primarily due
to stock options granted to our CEO vesting in the first quarter of 2020 with no such vesting in the first quarter of 2021, and stock
options awarded to employees in June of 2020. With the exception of stock option grants to new employees, stock option awards were
not made to employees during the six months ended June 30, 2021.
During the six months
ended June 30, 2021, Sigma incurred research and development expenditures of $477,040 compared to $165,335 in the same period of
2020. The $311,705 increase in these expenditures during the first six months of 2021 is a result of development costs incurred
in connection with PrintRite3D version 7.0 of $81,477, increased purchases of lab supplies of $97,382, of which metal powder
purchases totaled $14,161, argon gas totaled $15,434, laboratory facility upgrades totaled $8,852, and cables and cable making
supplies totaled $19,075, CT scans conducted for new development work and a simulation project totaling of $93,638, increased
write-offs of $40,350 in obsolete inventory, and $21,332 related to optics redesign. Partially offsetting these increases was a
decrease in consulting expenses of $22,926 due to the full-time hire of a consultant in 2021.
Investor and Public Relations
expenses incurred in the six months ended June 30, 2021 were $223,103, compared to $287,009 during the same period in 2020. The $63,906
decrease in the six-month comparative expenditures results primarily from a decrease in advertising expenses as a result of discontinuing
Network Newswire services and use of a public relations firm.
Organization Costs for the
six months ended June 30, 2021 totaled $236,145, as compared to $155,675 for the same period in 2020. The increase of $80,470 is primarily
due to $122,273 of stock option expense for non-employee directors in the first half of 2021 verses $0 in the first half of 2020,
as such grants were not made to non-employee directors until the second half of 2020. Partially offsetting this increase was a decrease
in non-employee director cash compensation of $22,305, and a reduction in shareholder services expenses of $19,498.
Legal and Professional fees
incurred in the six months ended June 30, 2021 were $420,866, compared to $397,386 incurred during the same period in 2020, an increase
of $23,480, or 5.9%. Legal fees decreased by $101,966 due to expenses incurred during the first quarter of 2020 in connection
with our January 2020 private offering, Nasdaq related matters, and our February 27, 2020 reverse stock split. Also contributing to the
decrease were lower accounting related expenses of $16,670. Partially offsetting these decreases was an increase in recruiting fees of
$90,667 related to ten new hires during the first half of 2021, and increased consulting fees of $45,211 related to an external marketing
consultant, and corporate consulting services, and increased IT services of $6,238.
During the six months ended
June 30, 2021, Sigma’s office expenses were $300,096 compared to $226,590 in the same period of 2020. The $73,506 increase in these
expenditures primarily resulted from $21,381 in postage and shipping, $26,231 in computer hardware and software related to new hires,
payroll servicing fees of $10,009 due to new hires and a first-year fee discount that ended in 2020, and increased dues and subscriptions
of $23,127 related to subscriptions to new software applications, including customer relationship management, product lifecycle management,
and compliance. Partially offsetting these increases was a decrease in travel expenses of $8,425 in the first half of 2021.
Depreciation
and Amortization expense for the six months ended June 30, 2021 was $48,814, compared to $35,983 for the same period in 2020. The
increase is primarily due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations.
In the six months ended
June 30, 2021, our net other income & expense was net income of $1,096,290, as compared to net income of $505,941 during the
same period in 2020. The increase is primarily a result of a gain of $1,092,441 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering,
partially offset by 2020 New Mexico state job incentive credits of $151,657 plus $361,700 from the recognition of
our PPP loan as a government grant. The grant was recognized during the second quarter of 2020.
Sigma’s net loss applicable
to common shareholders for the six months ended June 30, 2021 totaled $2,571,334 as compared to $3,500,350 for the same period in 2020,
a $929,016 decrease. Contributing to this decrease was an increase in other income of $590,349 and a decrease in preferred stock dividends
of $932,000, partially offset by an increase in our net operating loss of $593,333.
We financed our operations during
the three and six months ended June 30, 2021 and 2020 primarily from revenue generated from PrintRite3D® system sales and engineering
consulting services we provided to third parties during these periods and through sales of our common and preferred stock. We expect
that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our PrintRite3D®-related
technologies.
Liquidity
and Capital Resources
As
of June 30, 2021, we had $14,731,115 in cash and working capital of $15,572,454, as compared with $3,700,814 in cash and working
capital of $4,332,053 as of December 31, 2020.
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 January 2021, the Company
closed a public offering of its securities in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds
of approximately $4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company.
In March 2021, the Company
closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per share, resulting in net
proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering costs payable by the
Company. Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate of 2,190,000 shares of
common stock to holders in a private placement. The warrants entitle the holders to purchase one share of our common stock at an exercise
price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date. If all of the warrants are exercised by the holders thereof, the potential gross proceeds to the Company will
be $9,460,800.
During the first quarter
of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net proceeds to the Company
of $1,136,010.
We
believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure
requirements through 2022. We have based this estimate on assumptions that may prove to be wrong, such as our current expectations
of revenue generation and burn rate, and we could exhaust our capital resources sooner than we expect.
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.
|
During
the remainder of 2021, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and
revenues generated from sales of our PrintRite3D® technology. We expect that continued enhancements of our IPQA®-enabled PrintRite3D®
technology, including the May 2021 release of version 7.0, will enable us to further commercialize this technology into the AM metal
market in 2021. To support the commercialization of our PrintRite3D® technology, we plan to continue funding our development activities
and operating expenses by licensing our PrintRite3D® systems and supporting field services, as applicable, and providing PrintRite3D®-enabled
engineering consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control
technologies).
As
the second quarter of 2021 progressed, the Company continued to be adversely affected by the COVID-19 global economic slowdown,
which has resulted in lower revenue than anticipated. Several customers have delayed purchase orders, and although they have not been
cancelled, the timing of when they might be received continues to be uncertain. Two key industries with which we do business,
aerospace and oil and gas, have experienced a reduction in the global demand for their products due to the pandemic. We have also experienced
delays in purchase orders from universities and research institutes. As a result of the decrease in the demand for our products from
customers and potential customers in these and other industries, the Company expects that revenue from these sectors will remain
under pressure. It is impossible to know at this time how long companies will limit capital expenditures and if the industries that
have been most negatively affected will resume normal purchasing. However, due to the need to have more flexibility in supply chains
with the ability to respond quickly to shortages in parts or products, we believe that the crisis will eventually
accelerate the adoption of 3D printing, which would be a positive trend for the Company.
Net
Cash Used in Operating Activities
Net cash used in operating
activities during the six months ended June 30, 2021 increased to $3,266,620 from $2,435,387 during the same period in 2020, a $831,233
increase. Contributing to this increase was the gain of $1,092,441 on the derivative liability, increased inventory of $200,426, an
increase in prepaid assets of $133,286, a decrease in stock-based compensation of $67,784 and increased net loss of $2,984.
Partially offsetting these increases was a decrease in accounts receivable of $172,977, a decrease in cash used to settle accounts
payable and accrued expenses of $479,880, and depreciation and amortization of $12,831.
Net
Cash Used/Provided by Investing Activities
Net
cash used by investing activities during the six months ended June 30, 2021 was $108,021, which compares to $98,710 of cash used by investing
activities during the same period of 2020, an increase of $9,311. This is primarily attributable to lower patent costs offset by and
increased purchases of furniture and equipment.
Net
Cash Used/Provided by Financing Activities
Cash provided by financing activities
during the six months ended June 30, 2021 increased to $14,404,942 from $4,892,944 during the same period in 2020 due to the receipt
of $14,869,899 of proceeds less $1,600,967 of offering costs, in connection with our January 2021 and March 2021 private
and public offerings and exercise of Preferred Warrants. Cash provided by financing activities during the same period in 2020
resulted from the receipt of $3,600,000 in proceeds less $820,228 of offering costs in connection with our January 2020
and April 2020 offerings, $2,141,100 in proceeds from the exercise of warrants, and 22,072 from the deferral
of payroll taxes pursuant to the CARES Act, partially offset by the payment of the remaining outstanding principal balance on a convertible
note payable in the amount of $50,000.
Our ability to continue to fund
our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future
PrintRite3D®-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept engagements, possible strategic
partnerships, and by obtaining additional capital from the issuance of securities or by borrowing funds from lenders to fulfill
our business plans. 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 operations. There is no assurance as to the amount and availability of any required
future financing or the terms thereof. The Company is unable to predict the effect that the ongoing COVID-19 pandemic may
have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay or
scale back a portion of our commercialization efforts and operations.
We
have no credit lines as of July 22, 2021, nor have we ever had a credit line since our inception.
Inflation
and changing prices have had no effect on our continuing operations over our two most recent fiscal years.
We
have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.