NextTrip, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-looking statements This Quarterly Report contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this 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 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, 2021 and elsewhere in our Form 10-Q for the quarterly period ended March 31, 2022 and in this Quarterly 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 to Sigma Labs, Inc. We commenced our current business operations in 2010. On May 17, 2022, we began doing business as Sigma Additive Solutions. 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.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 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. Critical Accounting Policies and Estimates 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 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 15 Revenue Recognition - The Company’s revenue is derived primarily from sales of our software and related hardware suite and from providing engineering services under contracts. Generally, revenue is recognized 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. Significant estimates and judgements for determining revenue recognition include: (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 January 2022, the Company began offering a subscription option to its customers, pursuant to which it enters into agreements to lease 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 that customers have the right to substantially all the economic benefit from 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 agreements 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 arrangements provide for a lessee to purchase the asset at a stated amount that approximates fair value and are not reasonably certain to be exercised at the inception of the arrangement. There are no anticipated variable lease payments at the inception of the arrangement. 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 do not have the same pattern of transfer; therefore, this component is not eligible for the single component practical expedient. The consideration has been 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 assets based on the life of the underlying assets, the ability to refurbish and sell the assets, 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 employees 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. 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 grant date fair value of stock based and other equity instruments 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. Results of Operations Three Months Ended June 30, 2022 and June 30, 2021 We generate revenues through perpetual and 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. 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. In January 2022, we announced the foundational elements of a three-year plan that we believe will increase the Company’s ability to achieve its mission of setting the quality standard for AM. The combined strategies are geared at making our technology more consumable in terms of ease of use and cost by end users, both for initial purchases and expansion opportunities, making it easier for original equipment manufacturers (“OEMs”) to embed our technology and generate attractive revenue streams for the OEM, and finally increasing the Company’s gross margins by moving towards a software-only solution. 16 To lower the barrier for initial users and for expansion opportunities within end users with a large number of printers, we began offering our current PrintRite3D integrated hardware and software solution on a subscription basis. The impact of the change will currently reduce the initial upfront cost to a new user from over $100,000 to approximately $3,000-$4,000 per month. 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 3rd 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. The combination of subscription pricing and the software-only embedded OEM offerings are intended to make our technology more affordable to acquire and easier for OEMs to bundle, distribute and support in an effort to become the industry standard. The shift in our business model has adversely affected our near-term revenue growth as we increase our focus on building strategic partnerships, expanding our partner ecosystem, and ensuring the success of our existing customers as they move into production. However, we believe these changes will contribute to faster adoption of our product by end users and will result in more predictable and profitable revenues over the longer term. During the three months ended June 30, 2022, we recognized revenue of $236,660, as compared to $144,148 in the same period in 2021, an increase of $92,512, or 64.2%. The increase was primarily due to increased PrintRite3D® unit sales, revenue recognized from installations related to previous year sales, and an increase in annual maintenance contract renewals in the second quarter of 2022, as compared to the second quarter of 2021. Our cost of revenue for the three months ended June 30, 2022 was $193,075, as compared to $116,397 for the same period in 2021, an increase of $76,678, or 65.9%. The increase was primarily attributable to increased unit sales in 2022, and increased travel, installation, and support costs related to the previous year sales. Our total operating expenses for the three months ended June 30, 2022 were $2,279,425, as compared to $2,168,651 for the same period in 2021, an increase of $110,774, or 5.1%. The increase was primarily attributable to an increase in salary and benefit costs, as described below, related to the hiring of additional employees in an effort to expand the commercialization of our products, and an increase in office expense due to a company-wide global conference held in the second quarter. Salary and benefits costs were $1,184,818 for the three months ended June 30, 2022, as compared to $985,348 for the same period in 2021, an increase of $199,470, or 20.2%. The increase was comprised of: (a) $166,469 of salary increases for existing employees and two new hires; (b) an increase in commissions of $9,402 due to increased sales; (c) an increase in severance costs of $27,390; and (d) increased taxes and benefits of $88,906. Partially offsetting these increases was a decrease in stock appreciation rights of $92,697 resulting from the June 30, 2022 revaluation. Stock-based compensation was $167,439 for the three months ended June 30, 2022, as compared to $116,441 for the same period in 2021, an increase of $50,998, or 43.8%. This increase was primarily a result of the expense related to options awarded to new employees and the expense for annual option grants awarded to employees in the third quarter of 2021. Operations and research and development expenses of $146,885 were incurred during the three months ended June 30, 2022, as compared to $280,700 in the same period of 2021, a decrease of $133,815, or 47.7%. The decrease was primarily due to a decrease in operations costs of $61,148 and a decrease in research and development expenses of $72,667. The decrease in operations costs related to charges in the second quarter of 2021 for inventory obsolescence and purchases of lab supplies. The decrease in research and development expenses was attributable to second quarter 2021 simulation project expenses of $73,188, and expenses of $11,750 related to the ongoing research and development efforts for parts upgrades with no such projects in 2022. Partially offsetting these costs was an increase in consulting expenses of $12,271 in the second quarter of 2022 in connection with ongoing PrintRite3D software development. 17 Investor, public relations, and marketing expenses of $152,300 were incurred during the three months ended June 30, 2022, as compared to $114,762 during the same period in 2021. The increase of $37,538, or 32.7%, was primarily due to an increase in tradeshow expenses of $47,691 as a result of increased attendance following the lifting of COVID-19 related travel restrictions in 2022. Partially offsetting these increases were a decrease in investor relations consulting costs of $6,060 due to revaluation of stock appreciation rights held by consultants and lower advertising expenses of $4,093. Organization costs incurred in the three months ended June 30, 2022 were $60,817, as compared to $158,529 during the same period in 2021. The decrease of $97,712, or 61.6% was primarily attributable to a decrease in shareholder services of $77,400 due to $58,780 of expenses incurred in connection with a special shareholders meeting held in May of 2021, a decrease due to a timing difference of $18,620 resulting from expense recognized in the second quarter of 2021 as our annual shareholders meeting was held earlier in 2021 versus 2022, a decrease in processing of regulatory filings of $1,231, and a decrease in non-employee director compensation of $19,081. Legal and professional fees incurred in the three months ended June 30, 2022 were $144,528, as compared to $244,019 incurred during the same period in 2021, a decrease of $99,491, or 40.8%. This decrease was primarily a result of a decrease in recruiting expenses of $64,000 due to fewer new hires in 2022 as compared to 2021, a decrease in legal expenses of $32,300 as a result of one less shareholders meeting in 2022 and fewer regulatory filings, a decrease in consulting expenses of $2,682, and a decrease in accounting fees of $1,635. Partially offsetting these decreases was an increase in IT expenses of $1,126. Office expenses for the three months ended June 30, 2022 were $303,600 as compared to $151,871 for the same period in 2021, an increase of $151,729, or 99.9%. The increase resulted primarily from: (a) an increase in travel and entertainment expenses of $48,496 as compared to the same period in 2021 as a result of COVID-19 related travel restrictions; (b) expenses of $106,413 related to a Company-wide, global conference held in May of 2022; (c) an increase in payroll service fees of $6,133 related to two new hires and annual price increases; (d) dues & subscriptions of $2,189 for new customer relationship management, product lifecycle management, and project management software; and (e) an increase in rent and utilities expense of $2,041. Partially offsetting these increases was a decrease in postage and shipping of $14,301. Depreciation and amortization expense for the three months ended June 30, 2022 totaled $29,861 as compared to $25,783 for the same period in 2021, an increase of $4,078, or 15.8%. The increase was primarily the result of PrintRite3D units sold under our subscription-based pricing program. Other operating expenses were $89,177 for the three months ended June 30, 2022, as compared to $91,198 for the same period in 2021. The decrease was primarily due to SEC filing fees related to various registration statements filed in June 2021, as compared to none in the second quarter of 2022. In the three months ended June 30, 2022, we realized net other expenses of $11,330, as compared to net other income of $295,353 in 2021. The decrease of $306,683, or 103.8% was primarily due to an unrealized gain of $290,150 from the 2021 revaluation of the derivative liability resulting from our private placement of warrants to purchase 2,190,000 shares of common stock in the second quarter of 2021,a decrease in interest income in 2022, and a foreign currency exchange loss of $10,436 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 June 30, 2022 was $2,261,390, as compared to $1,859,767 for the same period of 2021, a $401,623 increase. The increase was primarily due to the decrease in other income of $306,683 and increased loss from operations of $94,940. Six Months Ended June 30, 2022 and June 30, 2021 During the six months ended June 30, 2022, we recognized revenue of $288,504, as compared to $602,288 in the same period in 2021, a decrease of $313,784, or 52.1%. The decrease was primarily due to a decrease in perpetual license sales of our PrintRite3D® units of $401,750, and decreased revenues from our legacy Rapid Test and Evaluation (“RTE”) program of $20,000 in 2022. Partially offsetting these decreases was an increase in revenues of $14,171 from our subscription-based pricing program, on-site installation and support revenue of $62,068, an increase in consulting service revenue of $4,500, and an increase in annual maintenance contract revenue of $27,227. Our cost of revenue for the six months ended June 30, 2022 was $233,166, as compared to $244,728 for the same period in 2021, a decrease of $11,562, or 4.7%. The decrease was primarily attributable to fewer unit sales in 2022 partially offset by increased travel costs incurred related to installations from 2021 sales. 18 Our operating expenses for the six months ended June 30, 2022 were $4,575,123, as compared to $3,950,057 for the same period in 2021, an increase of $625,066, or 15.8%. The increase was primarily attributable to an increase in salary and benefit costs, as described below, related to the hiring of additional employees in an effort to expand the commercialization of our products. Salary and benefits costs were $2,476,828 for the six months ended June 30, 2022, as compared to $1,832,519 for the same period in 2021, an increase of $644,309, or 35.2%. The increase was comprised of: (a) $517,852 in employee salary increases and average full-time employee headcount increasing by two; (b) a $27,390 increase in severance; and (c) increased taxes and benefits of $187,529. Partially offsetting these increases was a decrease in commissions of $33,263 due to fewer unit sales and a decrease in stock appreciation rights of $55,199 due to the June 30, 2022 revaluation. Stock-based compensation was $338,415 for the six months ended June 30, 2022, as compared to $233,919 for the same period in 2021, an increase of $104,496, or 44.7%. This increase was primarily due to the expense related to options granted to new employees, the expense of annual option grants awarded to employees in the third quarter of 2021, and the expense related to the vesting of options granted to our Chief Executive Officer in February, 2022. Operations and research & development expenses of $290,303 were incurred during the six months ended June 30, 2022, as compared to $477,040 in the same period of 2021, a decrease of $186,737, or 39.1%. The decrease was primarily due to a decrease in operations costs of $126,868 and a decrease in research and development costs of $59,869. The decrease in operations expense was due to: (1) charges we incurred in 2021 of $45,996 for inventory obsolescence, including $14,471 for metal powder write-offs; (2) equipment upgrades in both our manufacturing facility and our 3D metal printers totaling $12,277; and (3) a decrease in parts and material purchases of $62,063. Partially offsetting these decreases was an increase in purchases of lab supplies of $7,939. The decrease in research and development costs is due to expenses associated with a simulation project in 2021 of $87,964, partially offset by an increase in consulting costs of $28,095 in connection with ongoing PrintRite3D software development. Investor, public relations, and marketing expenses of $246,626 were incurred during the six months ended June 30, 2022, as compared to $223,103 during the same period in 2021. The increase of $23,523, or 10.5%, was primarily due to an increase in tradeshow expenses of $61,134 as compared to 2021, when COVID-19 travel restrictions precluded attendance at such events. Partially offsetting this increase was a decrease in investor relations consulting costs of $29,534 due to a revaluation of stock appreciation rights at June 30, 2022, and lower advertising expenses of $8,077. Organization costs incurred in the six months ended June 30, 2022 were $119,566, as compared to $236,145 during the same period in 2021. The decrease of $116,579, or 49.4%, was primarily attributable to a decrease in shareholder services of $77,748 due to expenses of $58,780 incurred in connection with a special shareholders’ meeting held in 2021, a timing difference of $18,620 in expenses related to our regular annual shareholders’ meeting and a decrease in non-employee director compensation of $38,831. Legal and professional fees incurred in the six months ended June 30, 2022 were $355,944, as compared to $420,866 incurred during the same period in 2021, a decrease of $64,922, or 15.4%. This decrease was primarily a result of a decrease in legal expenses of $60,890 due to one less shareholders meeting and fewer regulatory filings, and a decrease in recruiting expenses of $90,667 related to new hires in 2021. These decreases were partially offset by an increase in consulting expenses of $34,625 attributable to the engagement of technical consulting support in connection with our new subscription-based pricing model, $3,500 in external human resources consulting, and $40,209 related to consulting services for corporate matters, and an increase in audit fees of $8,301. Office expenses for the six months ended June 30, 2022 were $509,032, as compared to $300,096 for the same period in 2021, an increase of $208,936, or 69.6%. The increase resulted primarily from: (a) travel and entertainment of $102,957 as compared to significantly less travel in 2021 as a result of COVID-19 related travel restrictions; (b) expenses of $106,413 related to a Company-wide, global conference held in May of 2022; (c) an increase in payroll service fees of $8,381 related to new hires; (d) dues & subscriptions of $15,098 for new customer relationship management, product lifecycle management, and project management software; and (e) an increase in utilities expenses of $3,244. Partially offsetting these increases was a decrease in postage and shipping of $20,690, and a decrease in office supply expense of $6,618. 19 Depreciation and amortization expense for the six months ended June 30, 2022 totaled $61,445 as compared to $48,814 for the same period in 2021, an increase of $12,631, or 25.9%. The increase was primarily the result sales of PrintRite3D units under our new subscription-based pricing program. Other operating expenses were $176,964 for the six months ended June 30, 2022, as compared to $177,554 for the same period in 2021. The decrease was primarily due to decrease in SEC filing fees of $5,850 and a decrease in licensing fees of $2,166, partially offset by an increase in our insurance policy premiums for 2022 of $7,639. In the six months ended June 30, 2022, we realized net other income of $65,220, as compared to net other income of $1,096,290 in 2021. The decrease of $1,031,070, or 94.1%, was primarily due to a gain of $1,092,441 from the 2021 revaluation of the derivative liability resulting from our private placement of warrants to purchase 2,190,000 shares of common stock in the second quarter of 2021, a foreign currency exchange loss of $10,436 in 2022 due to the strengthening of the US dollar against the Euro, and a decrease in interest income of $4,326, partially offset by $76,628 in New Mexico state incentives in the first quarter of 2022. Our net loss applicable to common stockholders for the six months ended June 30, 2022 was $4,483,005, as compared to $2,571,334 for the same period of 2021, a $1,911,671 increase. The increase was primarily due to the increased loss from operations of $927,288 and the decrease in other income of $1,031,070. These increases were partially offset by a decrease in preferred dividends of $46,687. Liquidity and Capital Resources As of June 30, 2022, we had $6,933,499 in cash and working capital of $7,515,540, as compared with $11,447,047 in cash and working capital of $11,702,358 as of December 31, 2021. Our major sources of funding have been proceeds from public and private offerings of our equity securities and from warrant exercises. On March 26, 2021, the Company closed a public offering in which it issued 2,190,000 shares of common stock at a price of $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering costs payable by the Company. In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants to purchase an aggregate of 2,190,000 shares of common stock at an exercise price of $4.32 per share. Each warrant became exercisable on May 24, 2021, and will expire two years after the initial exercise date. On January 12, 2021, the Company closed a public offering in which it issued 1,711,783 shares of common stock at a price of $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting commissions and other offering expenses payable by the Company. During the first quarter of 2021, the Company received net cash proceeds of $1,136,010 from warrant exercises. 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 12 months from the filing of this Quarterly Report. We have based this estimate on assumptions that may prove to be wrong, and we may need to raise additional financing to fund our operations. 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. 20 During 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. We expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology will enable us to further commercialize this technology into the AM metal market in 2022. 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 worldwide COVID-19 pandemic caused a reduction, and in some cases a freeze, in capital spending within the Company’s targeted industries. The future impact of the ongoing epidemic, including the emergence of variations of the virus, 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 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 U.S. 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 Net cash used in operating activities during the six months ended June 30, 2022 increased to $4,314,503 from $ 3,266,620 during the same period in 2021, a $1,047,883, or 32.1% increase. Contributing to this increase was an increase in net loss, adjusted for non-cash expenses of $860,068, and decreases in accounts payable and accrued expenses of $510,530, and an increase in deferred revenue of $3,763. Partially offsetting these increases in cash usage were, a decrease in accounts receivable of $178,322, a decrease in inventory purchases of $113,762, and a decrease in prepaid expenses of $34,394. Net Cash Used in Investing Activities Net cash used by investing activities during the six months ended June 30, 2022 was $199,045, which compares to $ 108,021 of cash used by investing activities during the same period of 2021, an increase of $91,024, or 84.3%. The increase resulted from leased PrintRite3D units reclassified as property, plant and equipment, and increased patent costs during the first six months of 2022. Net Cash Provided by Financing Activities The Company did not raise any capital nor were there any warrant exercises during the six months ended June 30, 2022. Cash provided by financing activities during the six months ended June 30, 2021 totaled $14,404,942 due to the receipt of the net proceeds of our January and March 2021 public and private offerings. The exercise of outstanding warrants during the six months ended June 30, 2021 provided an additional $1,136,010 in cash proceeds. Our ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future PrintRite3D 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 that the COVID-19 outbreak or geopolitical events, including the conflict in Ukraine, 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. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.