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 a possible strategic transaction, dissolution and liquidation or bankruptcy of the Company. 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, 2022 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. 17 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 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 upon at least 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 single component practical expedient accounting 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 single component practical expedient accounting. 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 estimated allowance 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. As of June 30, 2023 and June 30, 2022, the Company has established an allowance for doubtful accounts of $115,600 and $0, respectively. 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. 18 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 periodically 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 vesting period of the stock-based compensation. 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, or SARs. 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 vest. 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 Sigma Additive Solutions, Inc. (“Sigma,” “we,” “us,” “our” and the “Company”) was founded by a group of scientists, engineers and businesspeople to develop and commercialize novel and unique manufacturing and materials technologies. The Company anticipated that its core technologies would allow its customers to combine advanced manufacturing quality assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries, including aerospace, defense, oil and gas, bio-medical, and power generation. Historically, we generated revenues through sales of our PrintRite3D® technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. In 2022, we began offering our current PrintRite3D integrated hardware and software solution on a subscription basis, which 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 was 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 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. On March 1, 2023, we announced that we had retained Lake Street Capital Markets as our financial advisor in connection with our consideration of a range of strategic alternatives, including a possible strategic investment, acquisition, merger, business combination, or similar transaction. In our Current Report on Form 8-K filed with the SEC on July 20, 2023, we reported that we had received four written, non-binding proposals to purchase assets or acquire the company in a merger or reverse merger and were in talks regarding the respective proposals, as well as possible alternative transactions with other parties that expressed interest in a possible transaction as we worked to formally close our strategic transaction process. We also reported that we had reduced our employee headcount via furloughs and layoffs to five employees, including our President and Chief Executive Officer and Chief Financial Officer and two key employees considered important to a possible sale of the company or all or a portion of its assets and support of current customers, and had discontinued our product development activities and ceased to pursue new customers. See “Liquidity and Capital Resources,” below. Since the filing of the Current Report, we have received additional written, non-binding proposals as well as revised previous proposals to purchase certain assets of the Company or acquire the Company in a merger or reverse merger. Although we have not yet entered into any definitive agreements, we are continuing to work towards such definitive agreements with interested parties. See “Risk Factors,” below for a discussion of certain risks and uncertainties regarding a possible transaction. 19 Results of Operations Three Months Ended June 30, 2023 and June 30, 2022 During the three months ended June 30, 2023, we recognized revenue of $97,043, as compared to $ 236,660 in the same period in 2022, a decrease of $139,617, or 59%. The decrease was due to decreased PrintRite3D sales of $111,200, decreased annual maintenance contract revenue of $7,739, decreased RTE revenue of $5,300 and decreased on-site development and support of 44,044 as compared to the second quarter of 2022. Partially offsetting the decreases were increases in PrintRite3D lease revenue of $3,166 and in PrintRite3D consulting services of $25,500. Our cost of revenue for the three months ended June 30, 2023 was $36,491, as compared to $193,075 for the same period in 2022, a decrease of $156,584, or 81%. The decrease e was primarily attributable to fewer unit sales and installations in the second quarter of 2023 as compared to the second quarter of 2022. Our total operating expenses for the three months ended June 30, 2023 were $1,364,571, as compared to $2,279,425 for the same period in 2022, a decrease of $914,854, or 40%. The decrease was primarily attributable to a decrease in salaries and benefits of $630,636, a decrease in investor, public relations, and marketing expense of $94,475, and a decrease in office expense of $209,410 primarily attributable to reduced headcount and travel as further described below. Salary and benefits costs were $554,182 for the three months ended June 30, 2023, as compared to $ 1,184,818 for the same period in 2022, a decrease of $630,636, or 53%. The decrease was comprised of: (a) decreased salaries of $499,473 attributable to furloughed and terminated employees; (b) a decrease commission and bonus expense of $93,664 due to the reversal of 2022 year-end bonuses; (c) decreased taxes and benefits of $75,835; and (d) decreased severance expense of $2,035. Offsetting these decreases was an increase in stock appreciation rights of $40,371. Stock-based compensation was $138,489 for the three months ended June 30, 2023, as compared to $167,439 for the same period in 2022, a decrease of $28,950, or 17%. This decrease was primarily a result of forfeiture of options from former employees. We incurred operations and research and development costs of $105,259 during the three months ended June 30, 2023, as compared to $146,885 in the same period in 2022, a decrease of $41,626, or 28%. The decrease was due to a decrease in operations costs of $14,755, and a decrease in research and development costs of $26,871. The decrease in operations costs related to fewer parts and material purchases in the second quarter of 2023. The decrease in research and development costs was primarily due to suspending consulting work with a third-party software vendor in connection with the development of our software-only product suite. We incurred investor, public relations, and marketing costs of $57,824 during the three months ended June 30, 2023, as compared to $152,300 during the same period in 2022. The decrease of $94,476, or 62%, was due to a decrease in investor relations consulting costs of $35,212, a decrease in attendance at tradeshows and conferences of $48,094 due to fewer employees, and a decrease in marketing costs of $11,170. We incurred organization costs of $38,240 during the three months ended June 30, 2023, as compared to $60,817 during the same period in 2022. The decrease of $22,577, or 37%, was primarily attributable to a decrease in non-employee director compensation of $15,926 primarily due to fewer stock options granted in 2023 and a decrease in shareholder services of $5,966. Legal and professional fees incurred in the three months ended June 30, 2023 were $152,025, as compared to $144,528 incurred during the same period in 2022, an increase of $7,497, or 5%. This increase was a result of legal fees of $64,410 due to employment related matters, and legal and financial advisors engaged to assist in Sigma’s evaluation of a corporate transaction. Partially offsetting the increase was a decrease in consulting expenses from 2022 of $48,929 which were related to a manufacturing consultant, technical accounting support, HR consultant, and advisor to the Board of Directors, a decrease in accounting expenses of $3,555 and a decrease in IT service fees of $4,429 related to new employee setup fees in 2022. 20 Office expenses for the three months ended June 30, 2023, were $94,190 as compared to $303,600 for the same period in 2022, a decrease of $209,410, or 69%. The decrease resulted from: (a) decreased travel and entertainment expenses of $151,630; (b) decreased office supply expenses of $4,503; (c) decreased dues & subscriptions of $8,990; (d) decreased payroll services expense of $7,223; (e) decreased rent and utilities of $11,534; and (f) decreased training and education expense of $27,705. These decreases were the result of a reduction in the number of employees and no company-wide conference being held in 2023. Partially offsetting these decreases was an increase in postage and shipping expenses of $2,175 due to shipment of a PrintRite3D system to one of our partners in Europe. Depreciation and amortization expense for the three months ended June 30, 2023 was $21,470, as compared to $29,861 for the same period in 2022, a decrease of $8,391, or 28%. The decrease was primarily the result of the increased life expectancy of our leased and consigned PrintRite3D systems. Other operating expenses were $202,892 for the three months ended June 30, 2023, as compared to $89,177 for the same period in 2022. The $113,715 increase was primarily due to bad debt expense of $115,600 related to a customer receivable for which collectability is in doubt. In the three months ended June 30, 2023, we realized net other expense of $4,075, as compared to net other expense of $11,330 in the same period in 2022. The decrease in net other expense of $7,255, was primarily due to lower foreign exchange rate losses in 2023. Preferred dividends for the three months ended June 30, 2023 were $10,668, as compared to $14,220 for the same period in 2022. The decrease was due to fewer outstanding shares of preferred stock as a result of conversions to common shares. Our net loss applicable to common stockholders for the three months ended June 30, 2023, was $1,318,782 as compared to $2,261,390 for the same period in 2022, a decrease of $942,608, or 42%. The decrease was primarily due to the decrease in the loss from operations of $931,821, a decrease in preferred dividends of $3,533, and a decrease in total other expenses of $7,255. Six Months Ended June 30, 2023 and June 30, 2022 During the six months ended June 30, 2023, we recognized revenue of $227,202, as compared to $ 288,504 in the same period in 2022, a decrease of $61,302, or 21%. The decrease was due to decreased PrintRite3D sales of $49,701, decreased annual maintenance contract revenue of $5,829, and decreased on-site development and support of $56,043 as compared to the second quarter of 2022. Partially offsetting the decreases were an increase in PrintRite3D lease revenue of $14,171, an increase in PrintRite3D consulting services of $25,500, and an increase in RTE revenue of $10,600. Our cost of revenue for the six months ended June 30, 2023 was $100,155, as compared to $ 233,166 for the same period in 2022, a decrease of $133,011, or 57%. The decrease was primarily attributable to fewer unit sales and installations in the second quarter of 2023 as compared to the second quarter of 2022. Our total operating expenses for the six months ended June 30, 2023 were $3,212,715, as compared to $4,575,123 for the same period in 2022, a decrease of $1,362,408, or 30%. The decrease was primarily attributable to a decrease in salaries and benefits of $991,064, a decrease in investor, public relations, and marketing expense of $133,857, and a decrease in office expense of $260,343 primarily attributable to reduced headcount and travel as further described below. Salary and benefits costs were $1,485,764 for the six months ended June 30, 2023, as compared to $ 2,476,828 for the same period in 2022, a decrease of $991,064, or 40%. The decrease was comprised of: (a) decreased salaries of $812,160 attributable to furloughed and terminated employees; (b) a decrease commission and bonus expense of $75,958 due to the reversal of 2022 year-end bonuses; (c) decreased taxes and benefits of $126,325; (d) decreased stock appreciation rights expense of $22,331 due to quarterly revaluation at March and June 2023. Partially offsetting these decreases was an increase in severance expense of $45,710. 21 Stock-based compensation was $363,339 for the six months ended June 30, 2023, as compared to $338,415 for the same period in 2022, a decrease of $24,924, or 7%. This decrease was primarily a result of forfeiture of options from former employees. We incurred operations and research and development costs of $231,971 during the six months ended June 30, 2023, as compared to $290,303 in the same period in 2022, a decrease of $58,332, or 20%. The decrease was due to a decrease in operations costs of $56,840, and a decrease in research and development costs of $1,492. The decrease in operations costs related to fewer parts and material purchases in the second quarter of 2023. The decrease in research and development costs was primarily due to suspending consulting work with a third-party software vendor in connection with the development of our software-only product suite. We incurred investor, public relations, and marketing costs of $112,768 during the six months ended June 30, 2023, as compared to $246,626 during the same period in 2022. The decrease of $133,856, or 54%, was primarily due to a decrease in investor relations consulting costs of $70,212, a decrease in attendance at tradeshows and conferences of $50,978 due to fewer employees, and a decrease in marketing costs of $12,666. We incurred organization costs of $89,438 during the six months ended June 30, 2023, as compared to $119,566 during the same period in 2022. The decrease of $30,128, or 25% was attributable to a decrease in non-employee director compensation of $29,920 primarily due to fewer stock options granted in 2023 and a decrease in shareholder services of $872. Legal and professional fees incurred in the six months ended June 30, 2023 were $336,276, as compared to $355,944 incurred during the same period in 2022, a decrease of $19,668, or 6%. This decrease was a result of a decrease in consulting expenses from 2022 of $174,434 which were related to a manufacturing consultant, technical accounting support, HR consultant, and an advisor to the Board of Directors, and a decrease in IT service fees of $7,158 related to new employee setup fees in 2022. Partially offsetting these decreases were an increase in legal fees of $155,875 due to employment related matters and legal and financial advisors engaged to assist in Sigma’s evaluation of strategic corporate transactions, and an increase in accounting fees of $6,049. Office expenses for the six months ended June 30, 2023, were $248,689 as compared to $509,032 for the same period in 2022, a decrease of $260,343, or 51%. The decrease resulted primarily from:(a) decreased travel and entertainment expenses of $176,243; (b) decreased office supply expenses of $20,156; (c) decreased dues & subscriptions of $12,680; (d) decreased payroll services expense of $4,102; (e) decreased rent and utilities of $13,607; and (f) decreased training and education expense of $32,570. These decreases were all the result of a reduction in the number of employees and no company-wide conference being held in 2023. Depreciation and amortization expense for the six months ended June 30, 2023 was $49,597, as compared to $61,445 for the same period in 2022, a decrease of $11,848, or 19%. The decrease was primarily the result of the increased life expectancy of our leased and consigned PrintRite3D systems. Other operating expenses were $294,873 for the six months ended June 30, 2023, as compared to $176,964 for the same period in 2022. The $117,909 increase was primarily due to bad debt expense of $115,600 related to a customer receivable for which collectability is in doubt. In the six months ended June 30, 2023, we realized net other income of $25,874, as compared to net other income of $65,220 in the same period in 2022. The decrease in net other income of $39,346, was primarily due to the New Mexico High Wage Tax credit of $76,628 received in 2022, partially offset by a write-off of accounts payable due to an unclaimed customer deposit in the first quarter of 2023. Preferred dividends for the six months ended June 30, 2023 were $22,435, as compared to $28,440 for the same period in 2022. The decrease was due to fewer outstanding shares of preferred stock as a result of conversions to common shares. Our net loss applicable to common stockholders for the six months ended June 30, 2023, was $3,082,229 as compared to $4,483,005 for the same period in 2022, a decrease of $1,400,776, or 31%. The decrease was primarily due to the decrease in the loss from operations of $1,434,117, and a decrease in preferred dividends of $6,005, partially offset by a decrease in total other income of $39,346. 22 Liquidity and Capital Resources Due to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt about our ability to continue as a going concern for 12 months from the date of the filing of this Quarterly Report, As of June 30, 2023, we had $368,443 in cash and working capital of $948,091, as compared with $2,845,931 in cash and working capital of $3,644,522 as of December 31, 2022. As we reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2023, the Company estimates that it has sufficient cash and working capital to fund its scaled-back operations as described below through August 2023 only. Since June 30, 2023, the Company has reduced its employee headcount to five, discontinued all product development activities and ceased to pursue new customers. We continue to explore a possible reverse merger, sale of the Company or all or a portion of its assets, and other alternatives. There is no assurance, however, that we will be able to enter into a definitive agreement with respect to a possible transaction or sell the company or any of its assets or, if so, when or on what terms. If we fail to complete the sale of the Company or its assets or other strategic transaction in the immediate future, we will be forced to resort to the dissolution and liquidation or bankruptcy of the Company. For these reasons, there is substantial doubt about our ability to continue as a going concern. Net Cash Used in Operating Activities Net cash used in operating activities during the six months ended June 30, 2023 was $2,414,881 as compared to $4,314,503 during the same period in 2022, a decrease of $1,899,622, or 44.0%. During the six months ended June 30, 2023, the net cash used in operating activities was the result of a net loss of $3,059,794 before preferred dividends, partially offset by changes in working capital of $218,943, and non-cash expenses of $425,970 related to depreciation and amortization of $49,597 and stock-based compensation of $376,373. Changes in working capital were driven by a decrease in accounts receivable of $326,166, a decrease in inventory of $10,909, an increase in accounts payable of $23,070, and an increase in deferred revenue of $7,115, partially offset by an increase in prepaid expenses of $31,879 and a decrease in accrued expenses of 116,438, primarily as a result of the reversal of bonus expense accrued in 2022. The decrease in accounts receivable was a result of cash collections from 2022 sales and the establishment of an allowance for doubtful accounts of $115,600, and the increase in prepaid expenses was due to deposits paid for a third-party software developer, legal and accounting advisors, and a tradeshow. During the six months ended June 30, 2022, the net cash used in operating activities was the result of a net loss of $4,454,565 before preferred dividends and the use of cash for working capital of $327,730, partially offset non-cash expenses of $466,792 related to depreciation and amortization of $61,445 and stock-based compensation of $405,347. Changes in working capital were driven by an increase in inventory of $73,586, an increase in prepaid expenses of $17,197, a decrease in deferred revenue of $18,151, and a decrease in accrued expenses of $372,188 partially offset by a decrease in accounts receivable of $120,434 and an increase in accounts payable of $33,958. The decrease in accrued expenses was largely driven by the payment of incentive bonuses, and the decrease in accounts receivable was a result of cash collections from 2021 sales. Increases in inventory and prepaid expenses resulted from the stocking of long lead-time parts for planned production and payment of our annual Nasdaq listing fee, respectively. Net Cash Used in Investing Activities Net cash used in investing activities during the six months ended June 30, 2023 was $62,607, which compares to $199,045 of cash used in investing activities during the same period of 2022, a decrease of $136,438, or 68.6%. The decrease resulted from a decrease in patent costs of $10,074 and a decrease in purchases of property, plant and equipment of $126,364 during the first six months of 2023. 23 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, 2023 or June 30, 2022. Our ability to continue to fund our working capital needs will be dependent upon 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. On August 14, 2023, the Company entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with Lake Street Capital Markets, LLC, or Lake Street, pursuant to which the Company may issue and sell from time to time through Lake Street, as sales agent, shares of our common stock having an aggregate offering price of up to $1,500,000 (the “Offering”). There is no assurance that we will be successful in obtaining additional funding from this Sales Agreement. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.