ITEM
1. FINANCIAL STATEMENTS.
Sigma
Labs, Inc.
Condensed
Balance Sheets
(Unaudited)
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,111,430
|
|
|
$
|
1,279,782
|
|
Accounts Receivable, net
|
|
|
81,203
|
|
|
|
38,800
|
|
Note Receivable
|
|
|
-
|
|
|
|
121,913
|
|
Inventory
|
|
|
712,587
|
|
|
|
240,086
|
|
Prepaid Assets
|
|
|
246,446
|
|
|
|
67,255
|
|
Total Current Assets
|
|
|
2,151,666
|
|
|
|
1,747,836
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
164,962
|
|
|
|
277,944
|
|
Intangible Assets, net
|
|
|
559,147
|
|
|
|
404,978
|
|
Investment in Joint Venture
|
|
|
500
|
|
|
|
500
|
|
Total Other Assets
|
|
|
724,609
|
|
|
|
683,422
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,876,275
|
|
|
$
|
2,431,258
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
423,059
|
|
|
$
|
217,488
|
|
Notes Payable
|
|
|
50,000
|
|
|
|
50,000
|
|
Deferred Revenue
|
|
|
99,843
|
|
|
|
51,498
|
|
Accrued Expenses
|
|
|
199,338
|
|
|
|
376,833
|
|
Total Current Liabilities
|
|
|
772,240
|
|
|
|
695,819
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
772,240
|
|
|
|
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; 14,037,590, and 8,776,629 issued and outstanding, respectively
|
|
|
14,038
|
|
|
|
8,777
|
|
Additional Paid-In Capital
|
|
|
26,543,139
|
|
|
|
21,501,407
|
|
Accumulated Deficit
|
|
|
(24,453,142
|
)
|
|
|
(19,774,745
|
)
|
Total Stockholders’ Equity
|
|
|
2,104,035
|
|
|
|
1,735,439
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,876,275
|
|
|
$
|
2,431,258
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Operations
(Unaudited)
|
|
Three
Months Ended
September
30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
171,003
|
|
|
$
|
128,593
|
|
|
$
|
269,035
|
|
|
$
|
330,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
|
178,760
|
|
|
|
56,309
|
|
|
|
335,939
|
|
|
|
198,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT (LOSS)
|
|
|
(7,757
|
)
|
|
|
72,284
|
|
|
|
(66,904
|
)
|
|
|
131,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & Benefits
|
|
|
644,800
|
|
|
|
524,508
|
|
|
|
1,738,716
|
|
|
|
1,349,214
|
|
Stock-Based Compensation
|
|
|
154,202
|
|
|
|
198,578
|
|
|
|
628,768
|
|
|
|
783,167
|
|
Operating R&D Costs
|
|
|
212,230
|
|
|
|
139,090
|
|
|
|
476,346
|
|
|
|
356,112
|
|
Investor & Public Relations
|
|
|
194,130
|
|
|
|
142,821
|
|
|
|
509,237
|
|
|
|
426,417
|
|
Legal & Professional Service Fees
|
|
|
116,221
|
|
|
|
185,676
|
|
|
|
519,710
|
|
|
|
502,028
|
|
Office Expenses
|
|
|
186,430
|
|
|
|
131,629
|
|
|
|
536,608
|
|
|
|
337,671
|
|
Depreciation & Amortization
|
|
|
52,636
|
|
|
|
48,013
|
|
|
|
150,222
|
|
|
|
143,587
|
|
Other Operating Expenses
|
|
|
40,265
|
|
|
|
30,772
|
|
|
|
117,470
|
|
|
|
102,532
|
|
Total Operating Expenses
|
|
|
1,600,914
|
|
|
|
1,401,087
|
|
|
|
4,677,077
|
|
|
|
4,000,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,608,671
|
)
|
|
|
(1,328,803
|
)
|
|
|
(4,743,981
|
)
|
|
|
(3,868,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
4,812
|
|
|
|
9,862
|
|
|
|
17,610
|
|
|
|
26,948
|
|
State Incentives
|
|
|
-
|
|
|
|
-
|
|
|
|
51,877
|
|
|
|
-
|
|
Exchange Rate Gain (Loss)
|
|
|
(549
|
)
|
|
|
(606
|
)
|
|
|
(3,259
|
)
|
|
|
697
|
|
Interest Expense
|
|
|
(2,149
|
)
|
|
|
(1,278
|
)
|
|
|
(6,407
|
)
|
|
|
(2,688
|
)
|
Other Income
|
|
|
5,763
|
|
|
|
-
|
|
|
|
5,763
|
|
|
|
-
|
|
Loss on Disposal of Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,733
|
)
|
Total Other Income (Expense)
|
|
|
7,877
|
|
|
|
7,978
|
|
|
|
65,584
|
|
|
|
(11,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,600,794
|
)
|
|
|
(1,320,825
|
)
|
|
|
(4,678,397
|
)
|
|
|
(3,880,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,600,794
|
)
|
|
$
|
(1,320,825
|
)
|
|
$
|
(4,678,397
|
)
|
|
$
|
(3,880,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share – Basic and Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding – Basic and Diluted
|
|
|
12,851,601
|
|
|
|
8,281,338
|
|
|
|
10,996,271
|
|
|
|
6,295,658
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Condensed
Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,678,397
|
)
|
|
$
|
(3,880,505
|
)
|
Adjustments to reconcile Net Loss to Net Cash used in operating activities:
|
|
|
|
|
|
|
|
|
Noncash Expenses:
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
150,222
|
|
|
|
143,587
|
|
Stock Based Compensation
|
|
|
628,768
|
|
|
|
793,492
|
|
Stock Issued for third Party Services
|
|
|
17,110
|
|
|
|
-
|
|
Loss on Write-off of Asset
|
|
|
-
|
|
|
|
36,733
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
(42,403
|
)
|
|
|
(7,501
|
)
|
Interest Receivable
|
|
|
1,391
|
|
|
|
36,154
|
|
Inventory
|
|
|
(472,501
|
)
|
|
|
(21,280
|
)
|
Prepaid Assets
|
|
|
(179,191
|
)
|
|
|
(25,486
|
)
|
Accounts Payable
|
|
|
205,571
|
|
|
|
169,520
|
|
Deferred Revenue
|
|
|
48,345
|
|
|
|
18,550
|
|
Accrued Expenses
|
|
|
(177,494
|
)
|
|
|
40,797
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(4,498,579
|
)
|
|
|
(2,695,939
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of Property and Equipment
|
|
|
(33,487
|
)
|
|
|
(55,147
|
)
|
Purchase of Intangible Assets
|
|
|
(157,922
|
)
|
|
|
(107,152
|
)
|
Payment Received from Notes Receivable
|
|
|
120,522
|
|
|
|
632,197
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(70,887
|
)
|
|
|
469,898
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series B Preferred & Warrants
|
|
|
-
|
|
|
|
1,000,000
|
|
Proceeds from issuance of Series C Preferred & Warrants
|
|
|
-
|
|
|
|
350,000
|
|
Gross Proceeds from issuance of Common Stock and Warrants
|
|
|
4,981,220
|
|
|
|
2,040,100
|
|
Less Offering Costs
|
|
|
(655,954
|
)
|
|
|
(443,700
|
)
|
Dividend on Preferred
|
|
|
|
|
|
|
(7,486
|
)
|
Proceeds from exercise of Warrants
|
|
|
75,848
|
|
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
4,401,114
|
|
|
|
2,938,914
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH FOR PERIOD
|
|
|
(168,352
|
)
|
|
|
712,873
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
1,279,782
|
|
|
|
1,515,674
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
1,111,430
|
|
|
$
|
2,228,547
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities disclosure:
|
|
|
|
|
|
|
|
|
Conversion of Convertible Debt for Stock
|
|
$
|
-
|
|
|
|
(50,000
|
)
|
Common Stock issued for conversion of Series B Preferred
|
|
|
-
|
|
|
|
1,100
|
|
Common Stock issued for cashless exchange of Warrants
|
|
|
-
|
|
|
|
5
|
|
Other noncash operating activities disclosure:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock for services
|
|
|
245,111
|
|
|
|
223,774
|
|
Disclosure of cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,514
|
|
|
$
|
12,205
|
|
Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to condensed financial statements.
Sigma
Labs, Inc.
Statement
of Stockholders’ Equity
(Unaudited)
For
the Three Months Ended September 30, 2019 and 2018
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, July 1, 2019
|
|
|
10,937,590
|
|
|
$
|
10,938
|
|
|
$
|
24,243,575
|
|
|
$
|
(22,852,348
|
)
|
|
$
|
1,402,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Sold in Public Offering
|
|
|
3,075,000
|
|
|
|
3,075
|
|
|
|
2,127,861
|
|
|
|
|
|
|
|
2,130,936
|
|
Shares Issued for Services
|
|
|
25,000
|
|
|
|
25
|
|
|
|
92,085
|
|
|
|
|
|
|
|
92,110
|
|
Stock Options Awarded to Employees
|
|
|
|
|
|
|
|
|
|
|
79,618
|
|
|
|
|
|
|
|
79,618
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,600,794
|
)
|
|
|
(1,600,794
|
)
|
Balances, September 30, 2019
|
|
|
14,037,590
|
|
|
$
|
14,038
|
|
|
$
|
26,543,139
|
|
|
$
|
(24,453,142
|
)
|
|
$
|
2,104,035
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
Common Stock
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, July 1, 2018
|
|
|
8,248,729
|
|
|
$
|
8,249
|
|
|
$
|
20,879,827
|
|
|
$
|
(16,760,262
|
)
|
|
$
|
4,127,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Conversion of Series C Preferred
|
|
|
100,000
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
-
|
|
Stock Options Awarded to Employees
|
|
|
|
|
|
|
|
|
|
|
131,678
|
|
|
|
|
|
|
|
131,678
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,320,825
|
)
|
|
|
(1,320,825
|
)
|
Balances, September 30, 2018
|
|
|
8,348,729
|
|
|
$
|
8,349
|
|
|
$
|
21,011,406
|
|
|
$
|
(18,081,087
|
)
|
|
$
|
2,938,668
|
|
For
the Nine Months Ended September 30, 2019 and 2018
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
Common Stock
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2019
|
|
|
8,776,629
|
|
|
$
|
8,777
|
|
|
$
|
21,501,406
|
|
|
$
|
(19,774,745
|
)
|
|
$
|
1,735,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Sold in Public Offerings
|
|
|
4,475,800
|
|
|
|
4,476
|
|
|
|
3,805,791
|
|
|
|
-
|
|
|
|
3,810,267
|
|
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
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
400,768
|
|
|
|
-
|
|
|
|
400,768
|
|
Shares Sold in Private Placement
|
|
|
400,000
|
|
|
|
400
|
|
|
|
514,600
|
|
|
|
-
|
|
|
|
515,000
|
|
Shares Issued for Services
|
|
|
226,500
|
|
|
|
227
|
|
|
|
244,884
|
|
|
|
-
|
|
|
|
245,110
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,678,397
|
)
|
|
|
(4,678,397
|
)
|
Balances, September 30, 2019
|
|
|
14,037,590
|
|
|
$
|
14,038
|
|
|
$
|
26,543,139
|
|
|
$
|
(24,453,142
|
)
|
|
$
|
2,104,035
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Sold in Public Offerings
|
|
|
2,040,000
|
|
|
|
2,040
|
|
|
|
1,720,360
|
|
|
|
-
|
|
|
|
1,722,400
|
|
Shares Issued for Cashless Exchange of Warrants
|
|
|
4,800
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
Shares Issued for Conversion of Series B Preferred
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Shared Issued for Notes Payable Conversions
|
|
|
25,000
|
|
|
|
25
|
|
|
|
49,975
|
|
|
|
-
|
|
|
|
50,000
|
|
Convertible Preferred Shares Issued in Private Placement
|
|
|
-
|
|
|
|
-
|
|
|
|
877,499
|
|
|
|
-
|
|
|
|
877,499
|
|
Series C Convertible Preferred Shares Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
346,500
|
|
|
|
-
|
|
|
|
346,500
|
|
Shares Issued for Conversion of Series C Preferred
|
|
|
100,000
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock Options Awarded to Employees
|
|
|
-
|
|
|
|
-
|
|
|
|
569,718
|
|
|
|
-
|
|
|
|
569,718
|
|
Shares Issued for Services
|
|
|
200,000
|
|
|
|
200
|
|
|
|
256,064
|
|
|
|
-
|
|
|
|
256,264
|
|
Preferred Dividends Due Upon Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,125
|
)
|
|
|
(15,125
|
)
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,880,505
|
)
|
|
|
(3,880,505
|
)
|
Balances, September 30, 2018
|
|
|
8,348,729
|
|
|
$
|
8,349
|
|
|
$
|
21,011,406
|
|
|
$
|
(18,081,087
|
)
|
|
$
|
2,938,668
|
|
See
accompanying notes to condensed financial statements.
SIGMA
LABS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September
30, 2019
(Unaudited)
NOTE
1 - Summary of Significant Accounting Policies
Nature
of Business -Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists,
engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma believes
that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding
them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process
control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality
assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries including
aerospace, defense, oil and gas, bio-medical, and power generation. The terms the “Company,” “Sigma,”
“we,” “us” and “our” refer to Sigma Labs, Inc.
Basis
of Presentation - The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted
Accounting Principles (“GAAP”) in the United States of America. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash
flows at September 30, 2019 and 2018 and for the periods then ended have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been
condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 2018
audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods
ended September 30, 2019 and 2018 are not necessarily indicative of the operating results for the full year.
Reclassification
- Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation
in the current-period financial statements.
Loss
Per Share - The computation of loss per share is based on the weighted average number of shares outstanding during the period
in accordance with Accounting Standards Codification (“ASC”) Topic No. 260, “Earnings Per Share.” Shares
underlying the Company’s outstanding warrants, options or note conversion features were excluded due to the anti-dilutive
effect they would have on the computation. At September 30, 2019 the Company had 3,620,610 warrants, 1,251,030 stock options and
a $50,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,896,640.
At September 30, 2018 the Company had 250 convertible preferred stock shares, 3,228,500 warrants, 697,207 stock options and a
$50,000 Convertible Note Payable outstanding. The total number of shares of common stock underlying these instruments is 4,200,707.
Recently
Enacted Accounting Standards - The FASB established the ASC as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. Rules
and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities
laws are also sources of GAAP for SEC registrants.
In
February 2016, the FASB issued ASU 2016-02, “Leases” which was issued to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company has evaluated this standard and determined that it will not currently require any
adjustment to Sigma’s financial reporting.
Accounting
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United
States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting
estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards
and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.
NOTE
2 - Notes Receivable
On
May 1, 2017, the Company made a loan in the principal amount of $250,000 to Jaguar Precision Machine, LLC, a New Mexico limited
liability company (“Jaguar”), pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered by Jaguar
to the Company. The loan bears interest at the rate of 7% per annum, was originally due and payable in full on August 1, 2018,
is secured by certain assets of Jaguar, and is convertible at the Company’s option into 10% of the outstanding shares of
the common stock of Jaguar unless Jaguar exercises its right under specified circumstances to repay all principal and accrued
interest on the loan. On June 15, 2018, the Company received a $150,000 payment from Jaguar, $17,803 of which was applied to accumulated
interest through that date and $132,197 was applied to the principal balance of the note. In the first six months of 2019 payments
totaling $45,000 were received. The payments were applied first to the accumulated interest balance on the note and then to the
remaining principal balance. On September 5, 2019, Jaguar paid the promissory note in full, including accrued interest through
September 30, 2019.
NOTE
3 – Inventory
At
September 30, 2019 and December 31, 2018, the Company’s inventory was comprised of:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Raw Materials
|
|
$
|
335,882
|
|
|
$
|
168,623
|
|
Work in Process
|
|
|
219,800
|
|
|
|
46,688
|
|
Finished Goods
|
|
|
156,905
|
|
|
|
24,775
|
|
Total Inventory
|
|
$
|
712,587
|
|
|
$
|
240,086
|
|
NOTE
4 - Notes Payable
At
September 30, 2019 and December 31, 2018, the Company had a $50,000 convertible note outstanding due on October 18, 2019.
At September 30, 2019 the accumulated interest balance on the note was $2,306.
NOTE
5 - Stockholders’ Equity
Common
Stock
In
January 2018, the Company issued 23,256 shares of common stock to directors valued at $1.72 per share, or $40,000.
In
April 2018, the Company issued 176,744 shares of common stock to directors valued at $1.22 per share, or $216,264.
Between
May 29, 2018 and June 1, 2018, we issued an aggregate of 1,000,000 shares of common stock upon conversion of the 1,000 shares
of Series B Preferred Stock issued on April 6, 2018 (as described below under “Preferred Stock”).
In
May 2018 the holder of our Note Payable converted $50,000 of the principal balance of the Note into 25,000 shares of common stock
and exercised its warrant on a cashless basis resulting in the issuance of 4,800 shares of common stock.
On
June 26, 2018, as part of its public offering of equity securities, the Company issued 2,040,000 shares of common stock and warrants
to purchase a total of 717,000 shares of common stock (including the warrants described under “Preferred Stock” below
that were issued on June 26, 2018). Each warrant has an initial exercise price of $1.08 per share. The net proceeds to the Company
were approximately $2,068,900 after commissions and other offering expenses. The Company also issued Dawson James Securities,
Inc., its placement agent in the public offering, a Unit Purchase Option to acquire up to 191,200 Units, at an exercise price
of $1.25 per Unit, consisting of 191,200 shares of common stock and warrants to purchase up to 57,360 shares of common stock as
compensation.
In
January 2019, the Company issued a total of 200,000 shares of common stock to directors valued at $1.50 per share, or $300,000,
with such shares to vest ratably over four quarterly installments, subject in each case to such director’s continuing service
as a director.
Also
in January 2019, the Company issued 88,431 shares of common stock upon the cashless exercise of Unit Purchase Options issued in
our June 2018 public offering.
In
January and February 2019, the Company issued a total of 70,230 shares of common stock upon the exercise of 70,230 warrants having
an exercise price of $1.08 resulting in gross cash proceeds of $75,848.
In
March 2019, the Company issued 1,500 shares of common stock to the Company’s Vice President of Business Development in connection
with his achievement of performance milestones, with such shares vesting immediately.
Also
in March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and
warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,230, after deducting
placement agent commissions and other offering expenses payable by the Company.
In
May 2019, the Company closed a private placement of equity securities in which it issued 400,000 shares of common stock and warrants
to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement
agent commissions and other offering expenses payable by the Company.
On
August 2, 2019, the Company closed a public offering of equity securities in which it issued 2,875,000 shares of common stock
resulting in net proceeds of approximately $1,971,000, after deducting commissions and other offering expenses payable by the
Company.
On
August 15, 2019, the Company issued 25,000 shares of common stock to MHZCI, LLC, an investor relations firm engaged by the Company,
as partial compensation for services to be rendered.
On
September 13, 2019, Aegis Capital Corp. partially exercised its over-allotment option granted by the Company in the foregoing
August 2019 public offering by purchasing an additional 200,000 shares of common stock, resulting in net proceeds of $148,800
after deducting commissions.
Deferred
Compensation
In
previous years and in the nine months ended September 30, 2019, the Company issued to various employees, directors, and contractors
shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013
Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over
the vesting period and recorded as an increase to stockholders’ equity. During the nine months ended September 30, 2019
and September 30, 2018, $228,000 and $213,449 respectively, of the unvested compensation cost related to these issues was recognized.
At
September 30, 2019, there was $75,000 of unrecognized deferred compensation expense to be recognized over the remainder of the
year.
Stock
Options
In
October 2018, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to
the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by
900,000 shares of our common stock to a total of 1,650,000 shares.
In
July 2019, 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 750,000
shares of our common stock to a total of 2,400,000 shares.
In
August 2019, the Company terminated its 2011 Equity Incentive Plan.
As
of September 30, 2019, an aggregate of 640,122 shares of common stock were reserved for issuance under the 2013 Plan.
During
the nine months ended September 30, 2019, the Company granted options to purchase a total of 440,263 shares of common stock to
21 employees and 2 consultants with vesting periods ranging from immediately upon issuance to 4 years beginning January 2019.
During
the nine months ended September 30, 2018, the Company granted options to purchase a total of 404,769 shares of common stock to
17 employees and 1 consultant with vesting periods ranging from immediately upon issuance to 4 years beginning March 2018.
The
Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s
stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service
and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for
the fair value of the stock options over the requisite service period for each stock option award.
Total
share-based compensation expense included in the consolidated statements of operations for the nine months ended September 30,
2019 and 2018 is $628,768 and $783,167 of which $400,768 and $569,718 is related to stock options, respectively.
The
fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for
the nine months ended September 30, 2019 and 2018:
Assumptions:
|
|
2019
|
|
|
2018
|
|
Dividend yield
|
|
|
0.00
|
|
|
|
0.00
|
|
Risk-free interest rate
|
|
|
1.42-2.53
|
%
|
|
|
2.68-3.05
|
%
|
Expected volatility
|
|
|
105.2-106.1
|
%
|
|
|
111.4-137.3
|
%
|
Expected life (in years)
|
|
|
5
|
|
|
|
5-10
|
|
Option
activity for the nine months ended September 30, 2019 and the year ended December 31, 2018 was as follows:
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
($)
|
|
|
Life (Yrs.)
|
|
|
Value ($)
|
|
Options outstanding at December 31, 2017
|
|
|
299,938
|
|
|
|
4.57
|
|
|
|
7.33
|
|
|
|
|
|
Granted
|
|
|
534,329
|
|
|
|
1.45
|
|
|
|
6.58
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(8,000
|
)
|
|
|
4.59
|
|
|
|
-
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
|
|
826,267
|
|
|
|
2.49
|
|
|
|
6.47
|
|
|
|
|
|
Granted
|
|
|
440,263
|
|
|
|
1.46
|
|
|
|
4.89
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(15,500
|
)
|
|
|
1.76
|
|
|
|
-
|
|
|
|
|
|
Options outstanding September 30, 2019
|
|
|
1,251,030
|
|
|
|
2.14
|
|
|
|
5.41
|
|
|
|
-
|
|
Options expected to vest in the future as of September 30, 2019
|
|
|
446,582
|
|
|
|
1.66
|
|
|
|
5.07
|
|
|
|
-
|
|
Options exercisable at September 30, 2019
|
|
|
804,448
|
|
|
|
2.40
|
|
|
|
5.61
|
|
|
|
-
|
|
Options vested, exercisable, and options expected to vest at September 30, 2019
|
|
|
1,251,030
|
|
|
|
2.14
|
|
|
|
5.41
|
|
|
|
-
|
|
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 $0.70 closing price of our common stock on
September 30, 2019. None of the 2019 option grants have an exercise price currently below $0.70.
At
September 30, 2019, there was $399,258 of unrecognized share-based compensation expense related to unvested share options with
a weighted average remaining recognition period of 3.09 years.
Warrants
Warrant
activity for the nine months ended September 30, 2019 and 2018 was as follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
Price
|
|
|
Contractual
|
|
|
|
Warrants
|
|
|
($)
|
|
|
Life (Yrs.)
|
|
Warrants outstanding at December 31, 2017
|
|
|
1,645,500
|
|
|
|
3.97
|
|
|
|
4.11
|
|
Granted
|
|
|
1,607,000
|
|
|
|
1.30
|
|
|
|
4.64
|
|
Exercised
|
|
|
(24,000
|
)
|
|
|
2.00
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at September 30, 2018
|
|
|
3,228,500
|
|
|
|
2.65
|
|
|
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2018
|
|
|
3,050,600
|
|
|
|
2.75
|
|
|
|
3.86
|
|
Granted
|
|
|
640,240
|
|
|
|
1.60
|
|
|
|
4.68
|
|
Exercised
|
|
|
(70,230
|
)
|
|
|
1.08
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at September 30, 2019
|
|
|
3,620,610
|
|
|
|
2.58
|
|
|
|
3.37
|
|
NOTE
6 - Subsequent Events
On
October 11, 2019, the Company granted its Chief Technology Officer an option to purchase up to 50,000 shares of common stock under
the Company’s 2013 Equity Incentive Plan. The option has an exercise price per share equal to $0.67 and is fully vested.
On
October 18, 2019, the maturity date of the Company’s outstanding $50,000 convertible promissory note was extended to January
3, 2020.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-looking
statements
This
Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking
Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes
of these provisions, including any projections of revenue or other financial items, any statements of the plans and objectives
of management for future operations, any statements concerning proposed new products or services, any statements regarding future
economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements
included in this document are made as of the date hereof and are based on information available to us as of such date. We assume
no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use
of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”
“intends,” “believes,” “estimates,” “potential,” or “continue,” or
the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements
will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements.
Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks
and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange
Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing
on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2018 and elsewhere in this report.
Corporation
Information
Our
principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (505) 438-2576.
Our website address is www.sigmalabsinc.com. The Company’s annual reports, quarterly reports, current reports on
Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website
as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and
the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report
on Form 10-Q.
2019
RTE Developments
Sigma
entered 2019 six weeks after releasing the commercial industrial model of its technology, PrintRite3D® 4.0, wrapped in a
strategy called the Rapid Test and Evaluation Program (“RTE”) to take the product to market. The RTE is a ‘drive
before you buy’ approach that is aimed only at companies that meet four criteria: (1) the company must be a large recognized
brand; (2) the company must be either an end-user manufacturing or buying Additive Manufacturing (AM) metal parts requiring the
capacity of 20 or more AM metal machines, or the target company must be an Original Equipment Manufacturer (“OEM”)
with a well-recognized brand and a significant AM metal manufacturing growth initiative in process; (3) the company must have
substantial concern about the quality yields and risks of its AM metal production; and (4) the company must be willing to stipulate
what PrintRite3D® 4.0 would have to prove in order to meet the company’s quality improvement and sustainability goals.
Sigma Labs asserted that the way to measure RTEs in 2019 would be the number and quality of the companies that contracted with
Sigma in the program, rather than the immediate revenue from the program, because ‘drive before you buy’ causes revenue
to be back-end loaded.
In
the first quarter of 2019, Sigma determined what would become a norm in the RTE requirement for the target companies: they would
install PrintRite3D® on one of their laser powderbed AM machines and if the results were confirmed by a third party laboratory
to meet their written quality needs, they would then ask Sigma to install a Phase 2 on one or two additional machines of different
manufacturers than the first in order to determine if PrintRite3D® works equally effectively on multiple OEM brands, as well
as multiple machines of the same brand, and finally on multiple laser machines as well. This unexpected customer enhancement to
the scope of the RTE program raised the revenue potential that ultimately may be derived from the conversion of a single unit
test run into a permanent license sale from a single unit followed by 2 or 3 (simultaneously) in Phase 2. This potential expansion
of RTE scope commensurately increased the duration of some RTEs due to the serial nature of testing first on one machine, followed
by a Phase 2 validation on multiple machines. There is a perceptible customer learning curve factor on RTEs, and we expect Phase
2 testing to benefit from this Phase 1 learning curve and be much more rapid than Phase 1 tests.
Through the end of the
third quarter, the RTE results are favorable. A leading global energy technology company for whom on-site testing began
in April 2019, has ordered a Phase 2 and as stated in our November 13, 2019 press release, this is the final phase ahead
of a potentially broader global rollout of the technology to their additive manufacturing machine base. The major service
provider, with whom on-site testing began in March 2019, has also now begun its second RTE to start on a different OEM brand from
the first RTE tests. The major OEM whose purchase order for an RTE we announced in August 2019 has only its own brand and has
agreed to complete two simultaneous test units on different models and is thus on a fast track. Airbus is developing on schedule
and expects to require a Phase 2 if and after the current RTE meets their needs. Materialise, a diverse AM company and an OEM
for AM control systems and software, was a Sigma alpha test of the RTE program and with whom we announced in June 2019 that Sigma
had entered into a non-binding Memorandum of Understanding to integrate PrintRite3D® with Materialise’s new MPC AM equipment
control system. As noted below, we recently announced that Materialise has invited Sigma’s Chief Technology Officer
to deliver two lectures in November 2019 in Materialise’s booth at FormNext on “Integration of PrintRite3D Melt
Pool Monitoring Software with Materialise’s MPC Machine Control System for Advanced Process Control.”
Additionally,
commencing in June 2019, Sigma opened a third channel to market. With the release of PrintRite3D® 5.0, Sigma brought a user-friendly
version of its product to market that no longer requires substantial onsite customer support from Sigma. Therefore, the Company
commenced calling on research tanks, universities, and small users to open a ‘retail’ channel.
Other
Recent Developments
On
November 7, 2019, we announced that we will demonstrate the latest version of our proprietary PrintRite3D® Real-Time
Melt Pool Analytics software platform in conjunction with Materialise NV at the Formnext 2019 conference in Frankfurt, Germany,
on November 19-22, 2019. Materialise has invited our Chief Technology Officer to present on “Integration of PrintRite3D
Melt Pool Monitoring Software with Materialise’s Machine Control Platform (MCP) for Advanced Process Control” at Materialise’s
booth in Hall 12.1, Booth C131.
On
November 5, 2019, we announced that we have partnered with a Japanese high-end manufacturer of state-of-the-art machine tools,
electrical discharge machines (EDM) and 3D printing products, for a test and evaluation program of Sigma Labs’ PrintRite3D®
real time melt pool analytics.
On
October 23, 2019, we announced that we have been awarded a contract by VTT Technical Research Centre of Finland Ltd, an impartial,
state-owned non-profit research and technology organization with the mission to support economic competitiveness, societal development
and innovation in Finland, to install our proprietary PrintRite3D® Real-Time Melt Pool Analytics software platform at the
VTT 3D metal printing facility.
On
August 13, 2019, we announced that we have been selected by a major international OEM machine manufacturer to install our proprietary
PrintRite3D® products. As part of the agreement, the OEM will complete our Rapid Test and Evaluation program and will install
the PrintRite3D® in two different countries for analysis and proof-of-performance purposes.
On
August 2, 2019, we closed a public offering of equity securities in which we issued 2,875,000 shares of common stock resulting
in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by
us.
On
July 1, 2019, we appointed experienced financial executive and proven business leader Frank Orzechowski as our Chief Financial
Officer.
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.
Three
Months Ended September 30, 2019 and September 30, 2018
During
the three months ended September 30, 2019, we recognized revenue of $171,003 as compared to $128,593 in revenue recognized
during the same period in 2018, an increase of $42,410. The increase is attributable to the commercial sale of a PrintRite3D®
unit in the third quarter, partially offset by the absence of any government program work in 2019, as well as a decline
in AM revenue due to the dedication of our printer to internal R&D as we continued development of our PrintRite3D®
product.
Our
cost of revenue for the three months ended September 30, 2019 and 2018 was $178,760 and $56,309, respectively, an increase
of $122,451. The increase is primarily attributable to the sale of a PrintRite3D® unit, a write-off of obsolete
inventory of $9,360, expensing of small, low cost inventory items totaling $16,029, and the remainder due to the additional travel
and labor costs associated with the on-site and remote collaboration involved in the growth of the Company’s Rapid Test
and Evaluation program.
Sigma’s
total operating expenses for the three months ended September 30, 2019 were $1,600,914 as compared to $1,401,087 for the same
period in 2018, an increase of $199,827.
The
most significant of our operating costs are personnel costs, comprised of payroll, benefits, and stock-based compensation expense.
Together these costs totaled 50% of our operating expenses for the third quarter. Salary and benefits costs were $644,800 for
the three months ended September 30, 2019 compared to $524,508 for the same period in 2018, an increase of $120,292.
This 23% cost increase correlates to a net increase of five full-time equivalent employees between the two periods which is
a 31% increase in employee count.
Stock-based
compensation was $154,202 for the three months ended September 30, 2019 compared to $198,578 for the same period in 2018, a $44,376,
or 22%, decrease, primarily due to 2018 third quarter vesting of options granted to our former CEO in connection with his amended
employment agreement.
Research
and development expenditures of $212,230 were incurred during the three months ended September 30, 2019 compared to $139,090 in
the same period of 2018, a 53% increase. The increase primarily results from the purchase of upgraded PrintRite3D®
components and various pieces of specialized equipment as part of our continued acceleration of technology development.
Public
company costs and investor relation fees incurred in the third quarter of 2019 were $194,130, compared to $142,821 incurred during
the same period in 2018, primarily due to increased costs associated with our 2019 annual shareholders’ meeting of $14,080,
common shares issued as additional fees to our new investor relations firm totaling $17,110, and increased expenses related to
website enhancements of $12,024.
Outside
professional services fees incurred in the three months ended September 30, 2019 were $116,221 compared to $185,676 incurred during
the same period in 2018, a 37% decrease. The decrease is primarily attributable to lower utilization of outside legal counsel
and outside recruiters, and expenses incurred in 2018 for European CE certification for our PrintRite3D® units.
Office
expenses incurred during the three months ended September 30, 2019 were $186,430 compared to $131,629 incurred during the same
period in 2018, an increase of $54,801, or 42%. The increase is primarily due to amortization of costs related to our membership
in the UK’s National Center for Additive Manufacturing (“NCAM”) of $39,000 and other miscellaneous office expenses
of $14,740.
Sigma’s
net loss for the three months ended September 30, 2019 totaled $1,600,794 as compared to $1,320,825 for the same period
of 2018, a $279,969 increase. The reduction in gross profit contributed $80,041 to the increased loss, while increased
operating expenses contributed $199,827 to the increased loss.
Nine
Months Ended September 30, 2019 and 2018
During
the nine months ended September 30, 2019, we recognized revenue of $269,035 compared to $330,671 during the same period
of 2018. The primary contributors to the $61,636 reduction were revenue decreases from the absence of any government work,
a decline in AM revenue due to the dedication of our printer to internal R&D in 2019, and an overall decline in commercial
unit sales and annual maintenance programs,
Our
cost of revenue for the nine months ended September 30, 2019 was $335,939 compared to $198,672 during the same period in
2018. The increase of $137,267 is primarily due to the sale of a PrintRite3D® unit, a write-off of obsolete
inventory of $9,360, expensing of small, low cost inventory items totaling $16,029, and the remainder due to additional travel
and labor costs associated with the on-site and remote collaboration involved in initiation of the Company’s Rapid Test
and Evaluation program.
Sigma’s
total operating expenses for the nine months ended September 30, 2019 were $4,677,077 compared to $4,000,728 for the same period
in 2018, a $676,349 increase.
Payroll
costs for the nine months ended September 30, 2019 were $1,738,716 compared to $1,349,214 for the same period in 2018. The $389,502
increase results primarily from the earlier mentioned addition of five employees since the end of the second quarter of 2018.
Stock-based compensation for the nine months ended September 30, 2019 was $628,768 compared to $783,167 for the same period in
2018, a $154,399 decrease, primarily due to the vesting of options granted to our former CEO in connection with his amended employment
agreement in 2018.
During
the nine months ended September 30, 2019, Sigma incurred research and development expenditures of $476,346 compared to $356,112
in the same period of 2018. The $120,234 increase in these expenditures during the first nine months of 2019 resulted primarily
from the purchase of various pieces of specialized equipment as part of our continued acceleration of technology
development, as well as $35,333 of consulting fees paid in connection with the development of Version 5.0 of our PrintRite3D®
platform.
Sigma’s
public company and investor relation fees incurred in the nine months ended September 30, 2019 were $509,237, compared to $426,417
during the same period in 2018. The increase in the nine-month comparative expenditures results primarily from shares of common
stock issues to our new investor relations firm of $17,110 and an increase in advertising expenses of $74,939, due to enhancements
to marketing programs and materials, website redesign and upgrades, and advertisements in trade publications.
Outside
services fees incurred in the nine months ended September 30, 2019 were $519,710, compared to $502,028 incurred during the same
period in 2018, a 4% increase. Accounting and audit fees increased $22,366, consulting fees increased by $40,785 due to the addition
of an application engineer consultant, while legal fees decreased by $34,443.
During
the nine months ended September 30, 2019, Sigma’s office expenses were $536,608 compared to $337,671 in the same period
of 2018. The $198,937 increase in these expenditures primarily resulted from amortization of our prepaid three year membership
in the UK’s National Center for Additive Manufacturing (“NCAM”) of $39,000, rent & utilities of $15,164,
and additional travel expenses of $90,814 related to a more aggressive outreach to prospective OEM, service bureau and end user
customers, and our expansion into the European and Asian markets. Other miscellaneous office expenses, consisting of computer
hardware, software, and office supplies increased $36,254 over the same period in 2018.
In
the nine months ended September 30, 2019, our net other income & expense was net income of $65,584, as compared to net expense
of $11,776 during the same period in 2018. The nine-month 2019 net other income is primarily comprised of $17,610 of interest
income and $51,877 in New Mexico state job incentive credits received. The net other expense for the same period in 2018
is primarily due to a $36,733 write-off of accounting software, partially offset by interest income of $26,948 on the then outstanding
notes receivable.
Sigma’s
net loss for the nine months ended September 30, 2019 totaled $4,678,397 as compared to $3,880,505 for the same period
in 2018, a $797,892 increase. Contributing to this increase was a decrease in gross profit of $198,903 together
with an increase in operating expenses of $676,349. This was partially offset by an increase in other income and expense of $77,360.
We
financed our operations during the three and nine months ended September 30, 2019 and 2018 primarily from revenue generated from
PrintRite3D® system sales and engineering consulting services we provided to third parties during these periods and through
sales of our common and preferred stock. We expect that our revenue will increase in future periods as we seek to further commercialize
and expand our market presence for our PrintRite3D®-related technologies and obtain new contract manufacturing orders in connection
with our EOS M290.
Liquidity
and Capital Resources
As
of September 30, 2019, we had $1,111,430 in cash and working capital of $1,379,426 as compared with $1,279,782 in cash
and working capital of $1,052,017 as of December 31, 2018.
Our
major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and
preferred stock), and from warrant exercises.
In
March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and
warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,330, after deducting
placement agent commissions and other offering expenses payable by the Company.
In
May 2019, the Company closed a private placement of equity securities in which it issued 400,000 shares of common stock and warrants
to purchase a total of 220,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement
agent commissions and other offering expenses payable by the Company.
In
August 2019, the Company closed a public offering of equity securities in which it issued 2,875,000 shares of common stock resulting
in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by
the Company.
In
September 2019, Aegis Capital Corp. partially exercised its over-allotment option granted by the Company in the foregoing August
2019 public offering by purchasing an additional 200,000 shares of common stock, resulting in net proceeds of $148,800 after deducting
placement agent commissions.
During
the remainder of 2019, we expect to sustain our operations and our commercialization and marketing efforts without a material
increase in our cash burn rate. We expect that enhancements of our IPQA®-enabled PrintRite3D® technology that were developed
substantially in fiscal 2018 and 2019 and brought to market will enable us to further commercialize this technology for the AM
metal market in 2019 and beyond. However, until commercialization of our full suite of PrintRite3D® technologies, we plan
to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and supporting
field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of
expertise (materials and manufacturing quality assurance and process control technologies) and contract manufacturing for metal
AM, and through the use of proceeds from sales of our securities.
Net
Cash Used in Operating Activities
Net
cash used in operating activities during the nine months ended September 30, 2019 increased to $4,498,579 from $2,695,939 during
the same period in 2018, a $1,802,640 increase. Increased net loss contributed $797,892 toward this use of cash, increased
inventory purchases contributed $451,221 as a result of our finished goods ramp program, increased prepaid expenses
contributed $153,705, and a net decrease of accrued expenses contributed $218,291.
Net
Cash Used/Provided by Investing Activities
Net
cash used by investing activities during the nine months ended September 30, 2019 was $70,887, which compares to $469,898 of cash
provided by investing activities during the same period of 2018, a decrease of $540,785. 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 nine months ended September 30, 2019 increased to $4,401,114 from $2,938,914
during the same period in 2018 due to increased proceeds from our public and private securities offerings in 2019.
The
Company anticipates continued losses in 2019, with any expected increased revenues offset by increased salaries and related expenses
in connection with additional employees.
We
have no credit lines as of November 14, 2019, nor have we ever had a credit line since our inception.
Based
on the funds we have as of November 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, and
from possible sales of our securities, 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.