ITEM
1. FINANCIAL STATEMENTS.
Sigma
Labs, Inc.
Condensed
Balance Sheets
(Unaudited)
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,907,362
|
|
|
$
|
1,279,782
|
|
Accounts
Receivable, net
|
|
|
71,950
|
|
|
|
38,800
|
|
Note
Receivable, net
|
|
|
108,474
|
|
|
|
121,913
|
|
Inventory
|
|
|
296,871
|
|
|
|
240,086
|
|
Prepaid
Assets
|
|
|
92,442
|
|
|
|
67,255
|
|
Total
Current Assets
|
|
|
2,477,099
|
|
|
|
1,747,836
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
231,522
|
|
|
|
277,944
|
|
Intangible
Assets, net
|
|
|
478,846
|
|
|
|
404,978
|
|
Investment
in Joint Venture
|
|
|
500
|
|
|
|
500
|
|
Prepaid
Stock Compensation
|
|
|
225,000
|
|
|
|
-
|
|
Total
Other Assets
|
|
|
935,868
|
|
|
|
683,422
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,412,967
|
|
|
$
|
2,431,258
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
505,883
|
|
|
$
|
217,488
|
|
Notes
Payable
|
|
|
50,000
|
|
|
|
50,000
|
|
Deferred
Revenue
|
|
|
81,323
|
|
|
|
51,498
|
|
Accrued
Expenses
|
|
|
290,049
|
|
|
|
376,833
|
|
Total
Current Liabilities
|
|
|
927,255
|
|
|
|
695,819
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
927,255
|
|
|
|
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; 10,537,590, and 8,776,629 issued and outstanding, respectively
|
|
|
10,538
|
|
|
|
8,777
|
|
Additional
Paid-In Capital
|
|
|
23,734,031
|
|
|
|
21,501,407
|
|
Accumulated
Deficit
|
|
|
(21,258,857
|
)
|
|
|
(19,774,745
|
)
|
Total
Stockholders’ Equity
|
|
|
2,485,712
|
|
|
|
1,735,439
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
3,412,967
|
|
|
$
|
2,431,258
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Operations
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
64,450
|
|
|
$
|
103,415
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUE
|
|
|
96,555
|
|
|
|
73,795
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
(32,105
|
)
|
|
|
29,620
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Salaries
& Benefits
|
|
|
512,560
|
|
|
|
398,657
|
|
Stock-Based
Compensation
|
|
|
254,206
|
|
|
|
161,522
|
|
Operating
R&D Costs
|
|
|
145,272
|
|
|
|
121,977
|
|
Investor
& Public Relations
|
|
|
157,789
|
|
|
|
180,399
|
|
Legal
& Professional Service Fees
|
|
|
184,570
|
|
|
|
138,423
|
|
Office
Expenses
|
|
|
166,110
|
|
|
|
95,106
|
|
Depreciation
& Amortization
|
|
|
48,383
|
|
|
|
47,321
|
|
Other
Operating Expenses
|
|
|
38,209
|
|
|
|
33,725
|
|
Total
Operating Expenses
|
|
|
1,507,098
|
|
|
|
1,177,130
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,539,203
|
)
|
|
|
(1,147,510
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
5,782
|
|
|
|
13,167
|
|
State
Incentives
|
|
|
51,877
|
|
|
|
-
|
|
Exchange
Rate Loss
|
|
|
(446
|
)
|
|
|
-
|
|
Interest
Expense
|
|
|
(2,122
|
)
|
|
|
200
|
|
Loss
on Disposal of Assets
|
|
|
-
|
|
|
|
(36,733
|
)
|
Total
Other Income (Expense)
|
|
|
55,091
|
|
|
|
(23,366
|
)
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,484,112
|
)
|
|
|
(1,170,876
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,484,112
|
)
|
|
$
|
(1,170,876
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share - Basic and Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding - Basic and Diluted
|
|
|
9,334,757
|
|
|
|
4,997,534
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Cash Flows
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,484,112
|
)
|
|
$
|
(1,170,876
|
)
|
Adjustments
to reconcile Net Loss to Net Cash used in operating activities:
|
|
|
|
|
|
|
|
|
Noncash
Expenses:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
48,383
|
|
|
|
47,320
|
|
Stock
Based Compensation
|
|
|
254,206
|
|
|
|
161,522
|
|
Loss
on Write-off of Asset
|
|
|
-
|
|
|
|
36,733
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(33,150
|
)
|
|
|
32,343
|
|
Interest
Receivable
|
|
|
(1,561
|
)
|
|
|
22,438
|
|
Inventory
|
|
|
(56,785
|
)
|
|
|
76,324
|
|
Prepaid
Assets
|
|
|
(25,187
|
)
|
|
|
(1,938
|
)
|
Accounts
Payable
|
|
|
288,395
|
|
|
|
164,930
|
|
Deferred
Revenue
|
|
|
29,825
|
|
|
|
24,351
|
|
Accrued
Expenses
|
|
|
(86,783
|
)
|
|
|
(5,396
|
)
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,066,769
|
)
|
|
|
(612,249
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase
of Property and Equipment
|
|
|
(1,269
|
)
|
|
|
(16,565
|
)
|
Purchase
of Intangible Assets
|
|
|
(74,560
|
)
|
|
|
(39,542
|
)
|
Payment
Received from Notes Receivable
|
|
|
15,000
|
|
|
|
500,000
|
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(60,829
|
)
|
|
|
443,894
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Gross
Proceeds from issuance of Common Stock and Warrants
|
|
|
1,961,220
|
|
|
|
-
|
|
Less
Offering Costs
|
|
|
(281,890
|
)
|
|
|
-
|
|
Proceeds
from exercise of Warrants
|
|
|
75,848
|
|
|
|
-
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,755,178
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH FOR PERIOD
|
|
|
627,580
|
|
|
|
(168,355
|
)
|
|
|
|
|
|
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
|
|
1,279,782
|
|
|
|
1,515,674
|
|
|
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
1,907,362
|
|
|
$
|
1,347,319
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures:
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities disclosure:
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Cashless Exchange of UPOs
|
|
|
88,431
|
|
|
|
-
|
|
Other
noncash operating activities disclosure:
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for services
|
|
$
|
303,000
|
|
|
$
|
40,000
|
|
Disclosure
of cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,028
|
|
|
$
|
-
|
|
Income
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Statement
of Stockholders' Equity
For The Three Months Ended March 31,
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
|
|
|
|
302,799
|
|
|
|
-
|
|
|
|
303,000
|
|
Stock
Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
176,206
|
|
|
|
-
|
|
|
|
176,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
March 31, 2019
|
|
|
10,537,590
|
|
|
$
|
10,538
|
|
|
$
|
23,734,031
|
|
|
$
|
(21,258,857
|
)
|
|
$
|
2,485,712
|
|
|
|
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
|
|
See
accompanying notes to condensed financial statements.
SIGMA
LABS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH
31, 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 March 31, 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 March 31, 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 ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Companies outstanding warrants,
options or note conversion features were excluded due to the anti-dilutive effect they would have on the computation. At March
31, 2019 the Company had 3,400,610 warrants, 1,036,223 stock options and a $50,000 Convertible Note Payable outstanding. The total
number of shares of common stock underlying these instruments is 4,461,833. At March 31, 2018 the Company had 1,645,500 warrants,
493,626 stock options and a $100,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying
these instruments is 2,139,126.
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 March 31, 2019 and 2018:
|
|
Three
Months Ended March 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share - Basic and Diluted
|
|
$
|
(.16
|
)
|
|
$
|
(.23
|
)
|
Loss
from continuing
|
|
|
|
|
|
|
|
|
Operations
available to
|
|
|
|
|
|
|
|
|
Common
stockholders (numerator)
|
|
$
|
(1,484,112
|
)
|
|
$
|
(1,170,876
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares Outstanding used in loss per share during the Period (denominator)
|
|
|
9,344,757
|
|
|
|
4,997,534
|
|
Recently
Enacted Accounting Standards
- The FASB established the Accounting Standards Codification (“Codification” or “ASC”)
as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation
of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).
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, 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, is 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. On February 14, 2019 a principal payment
of $15,000 was received. The holder of the promissory note has committed to paying the remaining principal balance along with
accumulated interest on or before July 31, 2019. The March 31, 2019 principal balance of the note was $102,803 and the
accumulated interest balance due was $5,671.
NOTE
3 - Notes Payable
At
March 31, 2019 the Company had a $50,000 convertible note outstanding due on April 18, 2019. On April 15, 2019 the Company entered
into an amendment to such note, extending the due date to October 18, 2019. At March 31, 2019 the accumulated interest
balance on the note was $1,250. The accrued interest amount was paid to the holder in April 2019.
NOTE
4 - Stockholders’ Equity
Common
Stock
In
the first quarter of 2018, the Company issued 23,256 shares of common stock for services valued at $40,000.
In
January 2019, the Company issued 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, 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.
Deferred
Compensation
In
previous years and in the three months ended March 31, 2019, the Company issued to various employees, directors, and contractors
shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013
Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over
the vesting period and recorded as a reduction of stockholders’ equity. During the three months ended March 31, 2019 and
March 31, 2018, $78,000 and $21,217, respectively, of the unvested compensation cost related to these issues was recognized.
As
of March 31, 2019 and December 31, 2018, the balance of unvested compensation to be recognized was $225,000 and $21,355, respectively,
and is recorded as prepaid stock compensation as of those dates.
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 March 31, 2019, an aggregate of 750 shares and 97,429
shares of common stock were reserved for issuance under the 2011 Plan and the 2013 Plan, respectively.
During
the three months ended March 31, 2019, the Company granted options to purchase a total of 209,956 shares of common stock
to 18 employees with vesting periods ranging from immediately upon issuance to 4 years beginning January 2019.
During
the three months ended March 31, 2018, the Company granted options to purchase a total of 193,688 shares of common stock
to 10 employees with vesting periods ranging from 22 days 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 ten 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 three months ended March 31, 2019
and 2018 is $254,206 and $161,522, of which $176,206 and $140,305 is related to stock options, respectively.
The
fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for
the three months ended March 31, 2019 and 2018:
Assumptions:
|
|
2019
|
|
|
2018
|
|
Dividend
yield
|
|
|
0.00
|
|
|
|
0.00
|
|
Risk-free
interest rate
|
|
|
2.19-2.54
|
%
|
|
|
2.86-2.94
|
%
|
Expected
volatility
|
|
|
105.2-106.1
|
%
|
|
|
137.2-137.3
|
%
|
Expected
life (in years)
|
|
|
5
|
|
|
|
10
|
|
Option
activity for the three months ended March 31, 2019 and the year ended December 31, 2018 was as follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
($)
|
|
|
Life
(Yrs.)
|
|
|
Value
($)
|
|
Options outstanding
at December 31, 2017
|
|
299,938
|
|
|
4.57
|
|
|
6.03
|
|
|
-
|
|
Granted
|
|
|
534,329
|
|
|
|
1.45
|
|
|
|
6.31
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
(8,000
|
)
|
|
|
4.59
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding at December 31, 2018
|
|
|
826,267
|
|
|
|
2.49
|
|
|
|
6.22
|
|
|
|
131,829
|
|
Granted
|
|
|
209,956
|
|
|
|
1.60
|
|
|
|
4.81
|
|
|
|
30,737
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding March 31, 2019
|
|
|
1,036,223
|
|
|
|
2.31
|
|
|
|
5.94
|
|
|
|
162,566
|
|
Options
expected to vest in the future as of March 31, 2019
|
|
|
425,893
|
|
|
|
2.18
|
|
|
|
5.94
|
|
|
|
78,339
|
|
Options
exercisable at March 31, 2019
|
|
|
610,330
|
|
|
|
2.40
|
|
|
|
5.94
|
|
|
|
84,227
|
|
Options
vested, exercisable, and options expected to vest at March 31, 2019
|
|
|
1,036,223
|
|
|
|
2.31
|
|
|
|
5.94
|
|
|
|
162,566
|
|
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 $1.68 closing price of our Common Stock on
March 29, 2019. 165,208 of the 2019 option grants have an exercise price currently below $1.68.
At
March 31, 2019, there was $414,562 of unrecognized share-based compensation expense related to unvested share options with a weighted
average remaining recognition period of 3.21 years.
Warrants
Warrant
activity for the three months ended March 31, 2019 and 2018 was as follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
($)
|
|
|
Life
(Yrs.)
|
|
Warrants
outstanding at December 31, 2017
|
|
|
1,645,500
|
|
|
|
3.97
|
|
|
|
3.84
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding at March 31, 2018
|
|
|
1,645,500
|
|
|
|
3.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2018
|
|
|
3,050,600
|
|
|
|
2.75
|
|
|
|
3.86
|
|
Granted
|
|
|
420,240
|
|
|
|
1.61
|
|
|
|
4.96
|
|
Exercised
|
|
|
(70,230
|
)
|
|
|
1.08
|
|
|
|
-
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding at March 31, 2019
|
|
|
3,400,610
|
|
|
|
2.64
|
|
|
|
3.63
|
|
NOTE
5 - Subsequent Events
In
April and May of 2019, the Company granted our CEO and President two options to purchase up to 22,916 shares of our common stock
under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options have an exercise price
per share equal to $1.47 and $1.50, respectively, and each is fully vested.
On
May 7, 2019, the Company closed a private placement offering of equity securities in which it issued 400,000 shares of common
stock and warrants to purchase a total of 200,000 shares of common stock resulting in net proceeds of approximately $515,000,
after deducting placement agent fees 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
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.
2019
Developments
In
2019, we reported several events, including the following (in reverse chronological order):
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 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.
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
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 March 31, 2019, we recognized revenue of $64,450, as compared to $103,415 in revenue
recognized during the same period in 2018, a reduction of $38,965. $25,715 of the reduction is directly attributable
to the absence of any government program work in 2019, while an additional $8,000 of it is attributable to the 100% dedication
of our printer to Internal R&D in the first three months of 2019 as we accelerated development of the Inspect product.
Our
Cost of Revenue for the three months ended March 31, 2019 and 2018 was $96,555 and $73,795, respectively, an increase of
$24,685. The increased cost despite decreased revenue 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 March 31, 2019 were $1,507,098 as compared to $1,177,130
for the same period in 2018, an increase of $391,692.
Salary
and benefits costs
were $512,560 for the three months
ended March 31, 2019 compared to $398,657 for the same period in 2018, an increase of $113,903. This 29% cost
increase correlates to an increase of 5.7 full-time equivalent employees between the two periods which is a 45% increase in employee
count.
Stock-based compensation
was $254,206 for the three months ended March 31, 2019 comparted to $161,522 for the same period in 2018, a $92,684, or 57%, increase.
Research
and development expenditures of $145,272 were incurred during the three months ended March 31, 2019 compared to $121,977 in the
same period of 2018, a 19% increase. The increase primarily results from $18,796 of consulting fees paid to a visualization subject
matter expert necessary for the development of Version 5.0 of our PrintRite3D
®
platform to be launched at the RAPID+TCT
2019 Additive Manufacturing Conference on May 21-23, 2019.
Outside services fees
incurred in the three months ended March 31, 2019 were $342,359 compared to $318,822 incurred during the
same period in 2018, a 7% increase.
Office
expense is the other classification of expenditures that increased materially, $71,004, or 75%, in the first three months of 2019
compared to the first three months of 2018, to $166,110 from $95,106. The primary increases are for travel costs, $38,176, and
hardware and software upgrades and additions, $20,009.
In
the three months ended March 31, 2019, our net other income & expense was a net income of $55,091 compared
to net other expense of $23,366 in 2018. The 2019 net positive contribution results primarily from the receipt of a $51,877
New Mexico state job incentive credit. The 2018 expense was comprised of a $36,733 write-off of patent and patent application
costs offset by interest income of $13,167 on the outstanding notes receivable.
Sigma’s
net loss for the three months ended March 31, 2019 totaled $1,484,112 as compared to $1,170,876 for the same
period of 2018, a $313,236 increase. The 2019 net operating loss contributed $391,693 to the loss
increase which was reduced by the $78,457 increase in other income and expenses.
Liquidity
and Capital Resources
As
of March 31, 2019, we had $1,907,362 in cash and working capital of $1,549,844, 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. On March 15, 2019, the Company closed a public offering of equity
securities resulting in net proceeds of approximately $1,679,330.
During the remainder
2019, we expect to sustain our operations and our commercialization and marketing efforts without 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 brought to market commencing largely in November 2018 will enable us to further commercialize this technology
for the AM metal market in 2019. 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 three months ended March 31, 2019 increased to $1,066,769 from $612,249
during the same period in 2018, a $454,520 increase. Increased net loss contributed $256,223 toward this use of
cash and increased inventory purchases contributed $133,109.
Net
Cash Used/Provided by Investing Activities
Net
cash used by investing activities during the three months ended March 31, 2019 was $60,829, which compares
to $443,894 of cash provided by investing activities during the same period of 2018, a decrease of $504,723. 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 three months ended March 31, 2019 increased to $1,755,178 from $0 during
the same period in 2018 due to the receipt of 1,961,220 of proceeds less $281,980 of offering costs, in
connection with our March 2019 public offering and $75,848 in proceeds from the exercise of warrants to purchase
common stock in January and February of 2019. There were no financing activities in the first quarter of 2018.
The
Company anticipates continued losses in 2019, due to expected increased revenues, offset by increased salaries and
related expenses in connection with additional employees and potential acquisitions (although there are no agreements with respect
to the acquisition by the Company of any third party, and there can be no assurance that any agreements will be entered into or,
if entered into, that any acquisition or other transaction will be consummated).
We
have no credit lines as of May 12, 2019, nor have we ever had a credit line since our inception.
Based on the funds
we have as of May 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.