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” 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 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, and on August 9, 2022 changed our name to Sigma Additive Solutions, Inc. 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 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 the United States (“GAAP”) 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 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 May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, 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 January 2022, the Company began offering a subscription option to its 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 $100,000 to approximately $3,000-$5,000 per month. The combination of subscription pricing 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 September 30, 2022 and September 30, 2021 During the three months ended September 30, 2022, we recognized revenue of $188,245, as compared to $700,237 in the same period in 2021, a decrease of $511,992, or 72.7%. The decrease was primarily due to lower PrintRite3D® unit sales of $511,870, the shift to subscription-based sales, and a decrease in contract additive manufacturing revenue of $11,190, partially offset by an increase in annual maintenance contract renewals in the third quarter of 2022 of $11,068, as compared to the third quarter of 2021. Our cost of revenue for the three months ended September 30, 2022 was $79,713, as compared to $164,766 for the same period in 2021, a decrease of $85,053, or 51.6%. The decrease was primarily attributable to lower unit sales in the quarter. 18 Our total operating expenses for the three months ended September 30, 2022 were $2,392,596, as compared to $3,026,888 for the same period in 2021, an decrease of $633,932, or 20.9%. The decrease was primarily attributable to a decrease in stock-based compensation expense of $384,093, a decrease in investor, public relations and marketing expense of $72,790, and a decrease in organization costs of $201,590 primarily attributable to a timing difference in stock option grants as further explained below. Salary and benefits costs were $1,227,805 for the three months ended September 30, 2022, as compared to $1,222,760 for the same period in 2021, an increase of $5,045, or 0.4%. The increase was comprised of: (a) $100,125 of salary increases for existing employees and two new hires; (b) an increase in severance costs of $88,379; and (d) increased taxes and benefits of $18,737. Offsetting these increases was a decrease in SAR expense of $196,766 resulting from the September 30, 2022 revaluation due to the decrease in our stock price, and a decrease in employee commissions and bonuses of $5,429. Stock-based compensation was $275,418 for the three months ended September 30, 2022, as compared to $659,512 for the same period in 2021, a decrease of $384,094, or 58.2%. This decrease was primarily a result of the expense related 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 $152,245 during the three months ended September 30, 2022, as compared to $131,772 in the same period of 2021, an increase of $20,473, or 15.5%. The increase was primarily due to an increase in research and development expenses of $27,430, partially offset by a decrease in operations costs of $6,614. The increase in research and development expenses was attributable to an increase in consulting expenses of $14,930 in connection with ongoing PrintRite3D software development and research on the laser application of PrintRite3D for a new OEM of $20,000, partially offset by costs of $7,500 incurred in the third quarter of 2021 related to a 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 $46,832 during the three months ended September 30, 2022, as compared to $119,622 during the same period in 2021. The decrease of $72,790, or 60.9%, was primarily due to a decrease in tradeshow expenses of $38,136 as a result of a timing difference 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 $33,207 due to decreased consulting fees and revaluation of outstanding SARs held by consultants. We incurred organization costs of $140,522 during the three months ended September 30, 2022, as compared to $342,112 during the same period in 2021. The decrease of $201,590, or 58.9% was primarily attributable to a decrease in non-employee director compensation of $234,154 as compared to stock options 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 $33,909 resulting from expense recognized in the second quarter 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 September 30, 2022 were $252,886, as compared to $261,075 incurred during the same period in 2021, a decrease of $8,189, or 3.1%. This decrease was a result of a decrease in accounting expenses of $18,118, and a decrease in consulting expenses of $46,147 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 $17,444 for new hires, an increase in legal expenses of $39,487 as a result of a timing difference in the 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 September 30, 2022 were $183,608 as compared to $172,238 for the same period in 2021, an increase of $11,370, or 6.6%. The increase resulted primarily from: (a) an increase in travel and entertainment expenses of $17,825 as compared to the same period in 2021 as a result of COVID-19 related travel restrictions; (b) an increase in payroll service fees of $4,486 related to annual price increases; and (c) dues & subscriptions of $6,514 for new customer relationship management, product lifecycle management, and project management software. Partially offsetting these increases was: (a) a decrease in postage and shipping of $8,093; (b) a decrease in office supplies of $2,645; and (c) and a decrease in training and education expense of $5,368. Depreciation and amortization expense for the three months ended September 30, 2022 totaled $26,857, as compared to $27,689 for the same period in 2021, an increase of $832, or 7.2%. The increase was primarily the result of depreciation expense associated with PrintRite3D units sold under our subscription-based pricing program. Other operating expenses were $86,783 for the three months ended September 30, 2022, as compared to $90,108 for the same period in 2021. The $3,326 decrease was primarily due to credit card transaction fees in September 2021, as compared to none in the third quarter of 2022, partially offset by an increase in insurance premiums. 19 In the three months ended September 30, 2022, we realized net other expenses of $7,884, as compared to net other income of $439 in 2021. The increase in net other expenses of $8,323, was primarily due to a foreign currency exchange loss 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 September 30, 2022 was $2,306,528, as compared to $2,505,198 for the same period of 2021, a decrease of $198,670, or 7.9%. The decrease was primarily due to the decrease in the loss from operations of $206,993, partially offset by an increase in net other expense of $8,323. Nine Months Ended September 30, 2022 and September 30, 2021 During the nine months ended September 30, 2022, we recognized revenue of $476,749, as compared to $1,302,525 in the same period in 2021, a decrease of $825,776, or 63.4%. The decrease was primarily due to a decrease in sales of our PrintRite3D® units of $919,355, decreased revenues from our legacy Rapid Test and Evaluation (“RTE”) program of $4,100, and decreased contract additive manufacturing revenue of $11,189 in 2022. Partially offsetting these decreases was an increase in revenues of $17,006 from our subscription-based pricing program, on-site installation and support revenue of $49,068, an increase in consulting service revenue of $4,500, and an increase in annual maintenance contract revenue of $38,295. Our cost of revenue for the nine months ended September 30, 2022 was $312,879, as compared to $409,493 for the same period in 2021, a decrease of $96,614, or 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 September 30, 2022 were $6,968,079, as compared to $6,976,944 for the same period in 2021, an decrease of $8,865. The decrease was primarily attributable to a decrease in stock-based 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 $3,704,633 for the nine months ended September 30, 2022, as compared to $3,055,279 for the same period in 2021, an increase of $649,354, or 21.3%. The increase was comprised of: (a) $617,977 in employee salary increases and average full-time employee headcount increasing by five; (b) a $115,768 increase in severance due to the termination of employment of six employees; and (c) increased taxes and benefits of $206,257. Partially offsetting these increases was a decrease in commissions of $38,682 due to fewer unit sales and a decrease in SARs of $251,965 due to revaluations resulting from a decrease in our stock price. Stock-based compensation was $613,833 for the nine months ended September 30, 2022, as compared to $893,431 for the same period in 2021, a decrease of $279,597 or 31.3%. This decrease was primarily due to the expense related to 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 $442,548 during the nine months ended September 30, 2022, as compared to $608,812 in the same period of 2021, a decrease of $166,266, or 27.3%. The decrease was primarily due to a decrease in operations costs of $133,827 and a decrease in research and development costs of $32,439. The decrease in operations expense was due to: (a) charges we incurred in 2021 of $41,964 for inventory obsolescence, including $14,471 for metal powder write-offs; (b) equipment upgrades in 2021 in both our manufacturing facility and our 3D metal printer totaling $12,277; (c) a decrease in parts and material purchases of $77,374 in the first nine months of 2022; and (d) a decrease in purchase of lab supplies of $2,212. The decrease in research and development costs was due to expenses associated with a simulation project in 2021 of $95,461, partially offset by an increase in consulting costs of $43,022 in connection with ongoing PrintRite3D software development and $20,000 for research on laser application of PrintRite3D for a new OEM. We incurred investor, public relations, and marketing expenses of $293,458 during the nine months ended September 30, 2022, as compared to $342,725 during the same period in 2021. The decrease of $49,267, or 14.4%, was primarily due to a decrease in investor relations consulting costs of $62,741 resulting from a revaluation of SARs at June 30 and September 30, 2022, and lower advertising expenses of $9,524. Partially offsetting this decrease was an increase in tradeshow expenses of $22,998 as compared to 2021, when COVID-19 travel restrictions precluded attendance at such events. We incurred organization costs of $260,088 during the nine months ended September 30, 2022, as compared to $578,256 during the same period in 2021. The decrease of $318,268, or 55%, was primarily attributable to decreases in: (a) non-employee director fees of $274,865, mostly as a result of a decrease in stock options issued; and (b) stockholder services of $43,304, primarily due to expenses incurred in 2021 in connection with a special stockholders meeting. 20 Legal and professional fees incurred in the nine months ended September 30, 2022 were $608,830, as compared to $681,941 during the same period in 2021, a decrease of $73,111, or 10.7%. This decrease was primarily a result of a decrease in legal expenses of $21,403 due to one less stockholder meeting and fewer regulatory filings, a decrease in recruiting expenses of $73,223 related to new hires in 2021, and a decrease in accounting fees of $9,817 due to fulltime hire of temporary accounting support. These decreases were partially offset by an increase in consulting expenses of $30,530 attributable to the 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 September 30, 2022 were $692,640, as compared to $472,335 for the same period in 2021, an increase of $220,305, or 46.6%. The increase resulted primarily from: (a) travel and entertainment of $113,616 related to increased travel as compared to 2021 as a result of COVID-19 related travel restrictions; (b) expenses of $109,435 related to a Company-wide, global conference held in May of 2022; (c) an increase in payroll service fees of $12,867 related to new hires; (d) dues & subscriptions of $21,715 for new customer relationship management, product lifecycle management, and project management software; and (e) an increase in utilities expenses of $1,755. Partially offsetting these increases was a decrease in postage and shipping of $28,783 and a decrease in office supply expense of $9,262. Depreciation and amortization expense for the nine months ended September 30, 2022 totaled $88,302 as compared to $76,502 for the same period in 2021, an increase of $11,800, or 15.4%. The increase was primarily due to depreciation expense on PrintRite3D units leased under our subscription-based program. Other operating expenses were $263,747 for the nine months ended September 30, 2022, as compared to $267,663 for the same period in 2021, a decrease of $3,916. The decrease was due to: (a) a decrease in SEC filing fees of $6,102; (b) a decrease in licensing fees of $2,166; and (c) a decrease in bank fees, primarily credit card transaction fees of $7,413. These decreases were partially offset by an increase in insurance policy premiums for 2022 of $11,765. In the nine months ended September 30, 2022, we realized net other income of $57,336, as compared to net other income of $1,096,727 in 2021. The decrease of $1,039,391, or 94.8%, was primarily due to a gain of $1,092,441 from the 2021 revaluation of the derivative liability related to our private placement of warrants in the second quarter of 2021, a foreign currency exchange loss of $16,950 in 2022 due to the strengthening of the US dollar against the Euro, and a decrease in interest income of $7,028. Partially offsetting these decreases was an increase of $76,628 in New Mexico state incentives in the first quarter of 2022. Our net loss applicable to common stockholders for the nine months ended September 30, 2022 was $6,789,533, as compared to $5,076,532 for the same period of 2021, a $1,713,001 increase. The increase was due to an increased loss from operations of $720,297 and a decrease in other income of $1,039,391, partially offset by a decrease in preferred dividends of $46,687. Liquidity and Capital Resources As of September 30, 2022, we had $4,800,680 in cash and working capital of $5,492,725, 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 of 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, 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 of 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 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 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 Net cash used in operating activities during the nine months ended September 30, 2022 was $6,386,415 as compared to $4,786,590 during the same period in 2021, an increase of $1,599,825, or 33%. Contributing to this increase was an increase in net loss, adjusted for non-cash expenses, of $1,373,377, and a decrease in accounts payable and accrued expenses of $469,397, an increase in inventory purchases of $60,456, an increase in prepaid expenses of $49,506, and an increase in deferred revenue of $26,689. Partially offsetting these increases was a decrease in accounts receivable of $379,600. Net Cash Used in Investing Activities Net cash used in investing activities during the nine months ended September 30, 2022 was $259,952, which compares to $254,772 of cash used in investing activities during the same period of 2021, an increase of $5,180, or 2%. The increase resulted from an increase in patent costs of $37,963, partially offset by a decrease in purchases of property, plant and equipment of $32,783 during 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 September 30, 2022. Cash provided by financing activities during the nine months ended September 30, 2021 totaled $14,404,942 due to the receipt of the net proceeds of $13,268,932 from our January and March 2021 public and private offerings and the exercise of outstanding warrants which provided an additional $1,136,010 in cash proceeds. 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 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. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.