Forward-looking statements
This Quarterly Report contains “Forward-Looking Statements.” All statements
other than statements of historical fact are “Forward-Looking Statements”
including but not limited to, statements regarding our expectations about
development and commercialization of our technology, any projections of revenues
or statements regarding our anticipated revenues or other financial items, any
statements of the plans and objectives of management for future operations, any
statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statements of
assumptions underlying any of the foregoing. All Forward-Looking Statements
included in this Quarterly Report are made as of the date hereof and are based
on information available to us as of such date. We assume no obligation to
update any Forward-Looking Statement. In some cases, Forward-Looking Statements
can be identified by the use of terminology such as “may,” “will,” “expects,”
“plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or
“continue,” or the negative thereof or other comparable terminology. Although we
believe that the expectations reflected in the Forward-Looking Statements
contained herein are reasonable, there can be no assurance that such
expectations or any of the Forward-Looking Statements will prove to be correct,
and actual results could differ materially from those projected or assumed in
the Forward-Looking Statements. Future financial condition and results of
operations, as well as any Forward-Looking Statements are subject to inherent
risks and uncertainties, including factors referred to in our press releases and
reports filed with the
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
Quarterly Report.
Corporation Information
We were incorporated as
changed our name to
our name to
2010. On
on
Our principal executive offices are located at 3900 Paseo
Mexico
www.sigmaadditive.com. The Company’s annual reports, quarterly reports, current
reports on Form 8-K and amendments to such reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”), and other information related to the Company, are available, free of
charge, on our website. The Company’s website and the information contained
therein, or connected thereto, are not and are not intended to be incorporated
into this Quarterly Report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in
estimates and assumptions that affect the reported assets, liabilities, sales
and expenses in the accompanying financial statements. Critical accounting
policies are those that require the most subjective and complex judgments, often
employing the use of estimates about the effect of matters that are inherently
uncertain. By their nature, changes in these assumptions and estimates could
significantly affect our financial position or results of operations.
Significant accounting estimates that may materially change in the near future
are revenue recognition, impairment of long-lived assets, values of stock
compensation awards and stock equivalents granted as offering costs, and
allowance for bad debts and inventory obsolescence. Such critical accounting
policies, including the assumptions and judgments underlying them, are disclosed
in Note 1 of the Notes to Financial Statements included in this Quarterly
Report. However, we do not believe that there are any alternative methods of
accounting for our operations that would have a material effect on our financial
statements.
The critical accounting policies and estimates addressed below reflect our most
significant judgements and estimates used in the preparation of our financial
statements
16
Revenue Recognition – The Company’s revenue is derived primarily from sales of
our software and related hardware suite under perpetual licenses and from
providing engineering services under contracts. The Company recognizes revenue
in accordance with ASC Topic No. 606. In
Standards Board
Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue
recognition standard that superseded nearly all existing revenue recognition
guidance under prior GAAP and replaced it with a principles-based approach for
determining revenue recognition. The core principle of the standard is the
recognition of revenue upon the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In general, we
determine revenue recognition by: (1) identifying the contract, or contracts,
with our customer; (2) identifying the performance obligations in the contract;
(3) determining the transaction price; (4) allocating the transaction price to
performance obligations in the contract; and (5) recognizing revenue when, or
as, we satisfy performance obligations by transferring the promised goods or
services.
In
customers, pursuant to which it leases its PrintRite3D platform for terms
between 12 and 36 months and provide technical support and maintenance for the
term of the arrangement, as well as installation and training. The Company has
determined these are leases because they relate to discrete pieces of equipment
to which customers have the right to substantially all the economic benefit and
exclusive right to use during the term of the arrangement. These leases are
classified as operating leases and the Company retains title to the underlying
equipment.
The leases may be renewed for successive one-year terms unless notice is given
by either party of its intent not to renew at least 30 days before the end of
the lease term. For leases with 36-month terms, the lessee may terminate the
agreement after the first 18 months with 30-days written notice. Some, but not
all, of the leases permit lessees to purchase the asset at any time at an amount
that approximates fair value and are not reasonably certain to be exercised at
the inception of the lease. There are no anticipated variable lease payments at
the inception of the lease.
There are two non-lease components in the arrangement that consist of technical
support and maintenance, and installation and training. The Company has elected
the single component practical expedient to combine the technical support and
maintenance with the lease as they have the same pattern of transfer. The
installation and training component does not have the same pattern of transfer;
therefore, this component is not eligible for the single component practical
expedient. The lease consideration is allocated on a relative fair value basis
of the underlying lease and non-lease components. The Company has estimated the
residual value of the leased equipment based on its useful life, and the ability
to refurbish and sell the equipment, as well as the Company’s ability to
componentize the hardware and utilize subassemblies in other products.
The Company is depreciating assets over their useful life of 7 years, but
certain subassemblies and components may have a longer economic life.
Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts
receivable are carried at original invoice amount less an estimate made for
doubtful accounts. We determine the allowance for doubtful accounts by
identifying potential troubled accounts and by using historical experience and
future expectations applied to an aging of accounts. Trade accounts receivable
are written off when deemed uncollectible. Recoveries of trade accounts
receivable previously written off are recorded as income when received.
Inventory Valuation – Inventories consist of raw materials used in the
production of customized parts, work-in-process and finished goods components
which will be sold to customers. Inventories are valued at the lower of cost or
net realizable value, using the first-in, first-out (FIFO) method. Charges for
obsolete inventory are based on identification of specific items resulting from
regular, on ongoing reviews of our inventory.
Long-Lived and Intangible Assets – Long-lived assets and certain identifiable
definite life intangibles to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company continuously
evaluates the recoverability of its long-lived assets based on estimated future
cash flows and the estimated liquidation value of such long-lived assets and
provides for impairment if such undiscounted cash flows are insufficient to
recover the carrying amount of the long-lived assets. If impairment exists, an
adjustment is made to write the asset down to its fair value, and a loss is
recorded as the difference between the carrying value and fair value. Fair
values are determined based on quoted market values, discounted cash flows or
internal or external appraisals, as applicable. Assets to be disposed of are
carried at the lower of carrying value or estimated net realizable value.
Utility patents are amortized over a 17-year period. Patents which are pending
are not amortized.
Stock-Based Compensation – We measure the compensation costs of stock-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which recipients are
required to provide services. Stock-based compensation arrangements may include
stock options, grants of shares of common stock with and without restrictions,
performance-based awards, and stock appreciation rights. Compensation cost is
measured on the date of grant at its fair value.
17
Equity instruments issued to non-employees are recorded on the basis of the
grant date fair value of the instruments. In general, the measurement date is
either (a) when a performance commitment, as defined, is reached or (b) the
earlier of the date that (i) the non-employee performance requirement is
complete or (ii) the instruments are vested. The measured value related to the
instruments is recognized over a period based on the facts and circumstances of
each particular grant.
The fair value of common stock grants is based upon the closing price of our
common stock as reported on The Nasdaq Capital Market on the date of the grant.
The grant date fair value of stock options and SARs is calculated using the
Black Scholes valuation model, and requires estimates of several inputs to the
model, including risk-free interest rates, dividends, and expected volatility of
our stock price.
Business Overview
Historically, we have generated revenues through sales, and more recently,
subscription-based licensing of our PrintRite3D® technology to customers that
seek to improve their manufacturing production processes, and through ongoing
annual software upgrades and maintenance fees. However, 2022 has been a year of
significant change for our business, from our symbolic name change to the
execution of a new approach to the market. We have a mission to accelerate the
adoption of additive manufacturing by setting the industry standard for quality,
and we have charted our path to deliver the first holistic digital quality
experience for the additive industry with the following objectives:
? Simplifying the quality experience from up to twelve disparate software
licenses and multiple manual spreadsheets, to a single user experience that is
holistic and integrated with production workflow.
? Building strategic partnerships, expanding our partner ecosystem, and best
ensuring success of existing customers as they move into production.
? Offering products that are easier to use and less expensive, both for initial
purchases and as expansion opportunities.
? Attracting a strategic corporate investment partner with clear product,
customer, and financial synergies.
A holistic digital quality experience connects in-process data upstream to
CAD/CAM through the downstream inspection and material data. This digital
quality journey begins by creating a new qualification framework for in-process
data. The path to qualified parts and continued production relies on more than
just melt pool monitoring; it also covers machine health, process health, and
part health. Our customers require specific data for qualification and
certification of parts and need a holistic approach to production quality, and
further, require a way to simplify quality from 8-12 disparate software licenses
and several manual spreadsheets, to one user experience that is integrated into
their production workflow.
In order to expand the number of OEMs distributing our technology, we launched a
three-tiered OEM program directed to: (1) new OEMs without their own quality
assurance or monitoring solution; (2) established OEMs with a quality monitoring
offering, but who have customers with multiple printers from multiple OEMs and
want a single third party quality and analytics solution with consistent quality
metrics across printers, processes and materials; and (3) OEMs building open
application programming interfaces, or APIs, to integrate components of Sigma’s
proprietary technology with their current offerings. We are now working with
OEMs on their next generation printers to offer a software-only solution that
will utilize the printer’s computing infrastructure and dramatically reduce the
overall cost of its technology, enabling the opportunity to move towards a
software only embedded solution on every printer sold by partner OEMs. To
further augment this initiative, we have also begun integrating with industry
wide hardware providers, such as our recently announced relationship with a
laser scanner provider.
We began offering our current PrintRite3D integrated hardware and software
solution on a subscription basis in 2022. Among other things, at present the
change reduced the initial upfront cost to a new user from over
approximately
and the new software-only products that can be embedded into OEM and software
partner offerings are intended to make our technology more affordable to acquire
and easier to bundle, distribute and support in an effort to become the industry
standard.
The shift in our business model has adversely affected our revenues and
near-term revenue growth as we increased our focus on building strategic
partnerships, expanding our partner ecosystem, and ensuring the success of our
existing customers as they move into production. Our ability to generate
revenues in the future will depend on our ability to further commercialize and
increase market presence of our traditional PrintRite3D® technology, along with
our new software-only offerings that start to link industry quality together.
Additionally, it will depend on whether key prospective customers continue to
move from additive manufacturing prototyping to production, which our products
are intended to accelerate. However, we believe these changes to our business
model will contribute to faster adoption of our product by end users and will
result in more predictable and profitable revenues over the longer term.
In connection with this shift, we reduced our headcount in the third quarter by
a net of five employees. With a further reduction of two employees in October,
our full-time headcount now stands at twenty-five, a net reduction of ten
employees from our peak of thirty-five in April of this year. Though we plan to
hire one or two new employees to fill open positions in the near-term, we expect
our headcount will be stable for the next twelve to eighteen months.
As part of our vision to build the future of connected digital quality, we have
undertaken an initiative to attract a strategic corporate investment partner
with clear product, customer, and financial synergies to Sigma. This work is
focused on identified companies that connect to our long-term quality vision.
This strategic investment initiative is focused on synergies and potential
product integration to accelerate market visibility and customer adoption.
Over the past ten years, Sigma has invested its resources to solve the problem
of in-process AM quality: melt pool analytics for the “part”. This remained a
retrofit lab solution until the last eight months. Our prior product offering
met the needs of materials scientists, but overlooked the production needs of
shop floor technicians, process engineers, and operations teams. The addition of
our “machine” and “process” software products for additive manufacturing will
provide a holistic in-process quality base for us to connect to the broader
digital quality ecosystem.
We believe the industry is evolving. Application Programming Interfaces, or
APIs, are opening up, as some of our relationships with OEMs have become public.
There is also a trend toward consolidation in additive manufacturing as
companies align for profitability. Sigma has made demonstrable progress in 2022
connecting to other products in the AM digital quality stream, and a connection
to a strategic partner paired with near term execution can augment our ability
to scale, support the market, and create value. Further, alignment with a
strategic partner allows for common growth, vision, and funding of the Company
to achieve its mission, but also provides an opportunity for other strategic
relationships, including potential acquisitions that can further accelerate the
execution of our digital quality vision.
Results of Operations
Three Months Ended
During the three months ended
sales of
contract additive manufacturing revenue of
increase in annual maintenance contract renewals in the third quarter of 2022 of
Our cost of revenue for the three months ended
as compared to
51.6%. The decrease was primarily attributable to lower unit sales in the
quarter.
18
Our total operating expenses for the three months ended
of
stock-based compensation expense of
relations and marketing expense of
of
as further explained below.
Salary and benefits costs were
30, 2022
for existing employees and two new hires; (b) an increase in severance costs of
increases was a decrease in SAR expense of
30, 2022
employee commissions and bonuses of
Stock-based compensation was
2022
to options awarded to new employees and annual option grants awarded to other
employees in the third quarter of 2021.
We incurred operations and research and development costs of
three months ended
period of 2021, an increase of
to an increase in research and development expenses of
by a decrease in operations costs of
development expenses was attributable to an increase in consulting expenses of
on the laser application of PrintRite3D for a new OEM of
offset by costs of
simulation project. The decrease in operations costs related to charges in the
third quarter of 2021 for inventory obsolescence and purchases of parts and
materials.
We incurred investor, public relations, and marketing costs of
the three months ended
same period in 2021. The decrease of
decrease in tradeshow expenses of
a rescheduled trade show from the second to the third quarter in 2021 due to
COVID. , and a decrease in investor relations consulting costs of
decreased consulting fees and revaluation of outstanding SARs held by
consultants.
We incurred organization costs of
decrease of
non-employee director compensation of
grants in the same period in 2021, partially offset by an increase in directors
cash compensation. Offsetting this decrease was an increase due to a timing
difference of
2021 as our annual stockholders meeting was held earlier in 2021 than in 2022.
Legal and professional fees incurred in the three months ended
2022
2021, a decrease of
accounting expenses of
primarily due to stock option grant and the reclassification of a consulting
expense to research and development in 2021. Partially offsetting these
decreases was an increase in recruiting expenses of
increase in legal expenses of
move of our annual stockholders meeting from the second quarter in 2021 to the
third quarter in 2022.
Office expenses for the three months ended
compared to
6.6%. The increase resulted primarily from: (a) an increase in travel and
entertainment expenses of
result of COVID-19 related travel restrictions; (b) an increase in payroll
service fees of
subscriptions of
lifecycle management, and project management software. Partially offsetting
these increases was: (a) a decrease in postage and shipping of
decrease in office supplies of
education expense of
Depreciation and amortization expense for the three months ended
2022
increase of
expense associated with PrintRite3D units sold under our subscription-based
pricing program.
Other operating expenses were
2022
was primarily due to credit card transaction fees in
to none in the third quarter of 2022, partially offset by an increase in
insurance premiums.
19
In the three months ended
other expenses of
in 2022 due to the strengthening of the US dollar against the Euro.
Our net loss applicable to common stockholders for the three months ended
of 2021, a decrease of
decrease in the loss from operations of
increase in net other expense of
Nine Months Ended
During the nine months ended
PrintRite3D® units of
and Evaluation (“RTE”) program of
manufacturing revenue of
was an increase in revenues of
program, on-site installation and support revenue of
consulting service revenue of
contract revenue of
Our cost of revenue for the nine months ended
as compared to
23.6%. The decrease was primarily attributable to fewer unit sales in 2022
partially offset by increased travel costs incurred related to installations
from 2021 sales.
Our operating expenses for the nine months ended
of
compensation for employees, executives, and board members, a decrease in
operating and R&D costs, partially offset by increases in salary and benefits,
office expenses due to a company-wide global conference held in May of 2022, and
increased travel in 2022 as described below.
Salary and benefits costs were
30, 2022
salary increases and average full-time employee headcount increasing by five;
(b) a
employees; and (c) increased taxes and benefits of
offsetting these increases was a decrease in commissions of
unit sales and a decrease in SARs of
a decrease in our stock price.
Stock-based compensation was
2022
options granted to new employees and annual option grants awarded to other
employees in the third quarter of 2021.
We incurred operations and research and development costs of
nine months ended
of 2021, a decrease of
decrease in operations costs of
development costs of
charges we incurred in 2021 of
manufacturing facility and our 3D metal printer totaling
in parts and material purchases of
(d) a decrease in purchase of lab supplies of
and development costs was due to expenses associated with a simulation project
in 2021 of
for research on laser application of PrintRite3D for a new OEM.
We incurred investor, public relations, and marketing expenses of
during the nine months ended
the same period in 2021. The decrease of
a decrease in investor relations consulting costs of
revaluation of SARs at
expenses of
tradeshow expenses of
restrictions precluded attendance at such events.
We incurred organization costs of
decrease of
non-employee director fees of
stock options issued; and (b) stockholder services of
expenses incurred in 2021 in connection with a special stockholders meeting.
20
Legal and professional fees incurred in the nine months ended
were
decrease of
decrease in legal expenses of
fewer regulatory filings, a decrease in recruiting expenses of
to new hires in 2021, and a decrease in accounting fees of
fulltime hire of temporary accounting support. These decreases were partially
offset by an increase in consulting expenses of
engagement of technical consulting support in connection with our
subscription-based pricing model, external human resources consulting, and hire
of an inventory management consultant.
Office expenses for the nine months ended
compared to
46.6%. The increase resulted primarily from: (a) travel and entertainment of
related travel restrictions; (b) expenses of
global conference held in May of 2022; (c) an increase in payroll service fees
of
customer relationship management, product lifecycle management, and project
management software; and (e) an increase in utilities expenses of
Partially offsetting these increases was a decrease in postage and shipping of
Depreciation and amortization expense for the nine months ended
2022
increase of
expense on PrintRite3D units leased under our subscription-based program.
Other operating expenses were
2022
The decrease was due to: (a) a decrease in
decrease in licensing fees of
credit card transaction fees of
an increase in insurance policy premiums for 2022 of
In the nine months ended
revaluation of the derivative liability related to our private placement of
warrants in the second quarter of 2021, a foreign currency exchange loss of
a decrease in interest income of
was an increase of
of 2022.
Our net loss applicable to common stockholders for the nine months ended
of 2021, a
operations of
offset by a decrease in preferred dividends of
Liquidity and Capital Resources
As of
Our major sources of funding have been proceeds from public and private
offerings of our equity securities and from warrant exercises.
On
common stock at a price of
Company of approximately
and other offering costs payable by the Company. In a concurrent private
placement, the Company issued to the purchasers warrants to purchase an
aggregate of 2,190,000 shares of common stock at an exercise price of
share. Each warrant became exercisable on
years after the initial exercise date.
On
common stock at a price of
approximately
payable by the Company.
During the first quarter of 2021, the Company received cash proceeds of
We believe that our existing cash on hand, together with expected revenue, will
be sufficient to fund our anticipated operating costs and capital expenditure
requirements through at least the first quarter of 2023. The Company is
currently engaged in identifying sources of financing either in the form of
equity or debt or a combination thereof. No assurance can be given as to the
availability of such financing, or, if available, that such financing would be
on terms acceptable to the Company.
21
Because of the numerous risks and uncertainties associated with the research,
development, and commercialization of our products, we are unable to estimate
the exact amount of our working capital requirements. Our future capital
requirements will depend on many factors, including:
? Revenue from the sales of our existing and future products;
? Costs associated with the expansion of our business and operations;
? The cost of expending, maintaining, and enforcing our intellectual property
portfolio, including filing, prosecuting, defending and enforcing our patent
claims and other intellectual property rights; and
? The effect of competing technological and market developments.
During the remainder of 2022, we expect to sustain our operations and our
commercialization and marketing efforts with our cash reserves and revenues
generated from sales of our PrintRite3D® technology. To support the
commercialization of our PrintRite3D® technology, we plan to continue funding
our development activities and operating expenses by licensing our PrintRite3D®
systems and supporting field services, as applicable, and providing
PrintRite3D®-enabled engineering consulting services concerning our areas of
expertise (materials and manufacturing quality assurance and process control
technologies).
The ongoing impact of the COVID-19 epidemic, in particular the shortage of
certain components of our PrintRite3D systems, is highly uncertain and no
assurance can be given that our business and results of operations will not be
materially and adversely affected. It is also uncertain as to whether any
further disruption of the financial markets, which may reduce our ability to
access capital on favorable terms or at all. However, due to the need to have
more flexibility in supply chains with the ability to respond quickly to
shortages in parts or products, we believe that the crisis will eventually
accelerate the adoption of 3D printing, which may benefit the Company.
The effects of a US or global recession, while difficult to predict, could
result in some customers delaying orders or not proceeding with planned orders
for our PrintRite3D systems.
Net cash used in operating activities during the nine months ended
2022
increase of
net loss, adjusted for non-cash expenses, of
accounts payable and accrued expenses of
purchases of
increase in deferred revenue of
was a decrease in accounts receivable of
Net cash used in investing activities during the nine months ended
2022
activities during the same period of 2021, an increase of
increase resulted from an increase in patent costs of
by a decrease in purchases of property, plant and equipment of
the first nine months of 2022.
Net Cash Provided by Financing Activities
The Company did not raise any capital nor were there any warrant exercises
during the nine months ended
activities during the nine months ended
due to the receipt of the net proceeds of
2021
provided an additional
Our ability to continue to fund our working capital needs will be dependent upon
the success of our efforts to generate revenues from existing and future
PrintRite3D contracts, follow-on contracts resulting from successful
engagements, possible strategic partnerships, and by obtaining additional
capital from the sale of securities or by borrowing funds from lenders to
fulfill our business plans. If we issue additional equity or debt securities,
stockholders may experience additional dilution or the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
our common stock. There is no assurance that we will be successful in obtaining
additional funding. The Company is unable to predict the effect a global
recession or geopolitical events, including the on-going conflict in
may have on its access to the financing markets. If we fail to obtain sufficient
funding when needed, we may be forced to delay, scale back or eliminate all or a
portion of our commercialization efforts and operations.
We have no lines of credit or other financing arrangements.
Inflation, changing prices and rising interest rates have had no material effect
on our continuing operations over our two most recent fiscal years. However,
continued unfavorable trends may affect the prices we pay for materials and
other goods and services necessary to our business, thus increasing our use of
cash.
We have no off-balance sheet arrangements as defined in Item 303(a) of
Regulation S-K.
22
© Edgar Online, source
link