SIGMA ADDITIVE SOLUTIONS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K) – Marketscreener.com

Overview
Sigma is a leading provider of in-process quality assurance (IPQA®) software to the additive manufacturing industry. Sigma specializes in the development and commercialization of real-time monitoring solutions known as PrintRite3D® for 3D metal and polymer advanced manufacturing technologies. PrintRite3D detects and classifies defects and anomalies real-time during the manufacturing process, enabling significant cost-savings and production efficiencies. We work closely with international standards organizations, renowned universities, research organizations, advanced manufacturers, OEMs, and leading software companies. PrintRite3D is printer agnostic and works with most of the leading 3D metal printers, as well as a growing base of polymer printers.
2022 was a year of significant change for our Company, 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, 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 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. In 2022, we relied primarily on retrofit work while the software only products were still under development. We expect that the percentage of the Company’s revenue coming from OEMs will increase in 2023 and beyond, especially with the availability of a software-only product as we work to integrate into existing hardware, such as laser scanner technology and OEM’s upstream designs for next generation systems. 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.
Over the past twelve years, Sigma has invested its resources to solve the problem of in-process AM quality: melt pool analytics for the “part”, which originated as a retrofit lab solution. 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.
As part of our vision to build the future of connected digital quality and enhance shareholder value, we have undertaken an initiative to evaluate a range of strategic alternatives, including possible strategic investment, acquisition, merger, business combination, or similar transaction 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 initiative is focused on synergies and potential product integration to accelerate market visibility and customer adoption. To execute Sigma’s vision and realize our potential, we will need to raise additional capital, or execute a strategic transaction, which may include, a possible strategic investment, acquisition, merger, business combination, or similar transaction.
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 investor or acquirer 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.
To facilitate our ability to execute our strategic initiatives on the product, pricing, and partner fronts, we have taken several steps to conserve our cash by reducing our operating expenses. Compensation and benefits are our single largest expense, comprising approximately 53% of our total operating expenses for 2022. We reduced our total full-time headcount by a net of eight employees in 2022 and experienced a further reduction of six employees in 2023 as a result of furloughs and departures from the Company. As of March 29, 2023, our full-time employee headcount was 19. In addition to headcount reductions, we have reduced our spend on advertising, marketing and investor relations, consultants, and employee travel. We continue to evaluate our expenses and will consider further reductions as appropriate. Lastly, Sigma has developed a deep patent portfolio which we believe is widely applicable to the 3D printing industry. We have recently begun exploring an intellectual property licensing program, which we believe may facilitate a strategic transaction.
The worldwide COVID-19 pandemic caused a reduction, and in some cases a freeze, in capital spending within the Company’s targeted industries, which negatively affected our revenue in 2021. Additionally, this slowed the development of our technology based on prolonged budget reductions and delays at development partner sites. With slowed customer interaction, Sigma experienced some slowing of planned integrations and qualification into 2022. With the relaxing of COVID-19 restrictions in the U.S. and Europe in 2022, business activity began to return to near pre-pandemic levels, and we have resumed qualification and integration of our technology with partners and customers who experienced such prior delays. Regarding our supply chain, however, the Company continues to experience increased lead times for certain hardware components of PrintRite3D. The future impact of the outbreak, including variations of the virus, is highly uncertain so that no assurance can be given that the outbreak will not have a material adverse impact on the future results of the Company. It is also uncertain as to any further disruption of the financial markets, which may reduce our ability to access capital, either at all, or on favorable terms.
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 to the Financial Statements included in this Annual 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.
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 we lease our 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.
Inflation – While we do not believe that inflation had a material effect on our business, financial condition or results of operations during the year ended December 31, 2022, we experienced increases in wages and other compensation costs, and costs for certain components of our PrintRite3D product. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could materially adversely affect our business, financial condition and results of operations.
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 specific identification of inventory items resulting from regular, on ongoing reviews of our build of materials.
Leases – The Company primarily leases office space from third parties. The Company determines if a contract is a lease at inception. A contract contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The lease term begins on the commencement date, which is the date the Company takes possession of the asset and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Leases are classified as operating or finance leases based on factors such as the lease term, lease payments, and the economic life, fair value and estimated residual value of the asset. Where leases include an option to purchase the leased asset at the end of the lease term, this is assessed as a part of the Company’s lease classification determination. The Company only has short-term leases, with remaining lease terms of less than one year. The leases are cancelable at any time upon 45 days written notice. Therefore, the Company has elected the short-term lease recognition exemption for all leases, whereby leases are not recorded on the Company’s balance sheet and lease payments are recognized as lease expense on a straight-line basis over the lease term.
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 and 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, share appreciation rights and employee share purchase plans. Stock-based compensation 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 compensation 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.
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
We generate revenues through hardware and software licensing of our PrintRite3D® technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. Additionally, we generate revenues from development work utilizing our metal AM equipment and engineering team. 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.
At December 31, 2022, our full time employee headcount was 25, as compared to 33 at December 31, 2021. The decrease of 8 employees was primarily related to the shift in our business model as we move away from selling expensive perpetual licenses for PrintRite3D, in which most of the cost comes from physical hardware, to setting up for our future software-only subscription model.
The labor market is extremely competitive, and our highly trained, skilled, and talented employees are heavily recruited by others. To that end, we have made additional investments in our employees designed to ensure we remain competitive in the marketplace. This also aligns well with, and reinforces, our “employee first” culture. In addition to salaries, we improved our benefits by offering a premium health care plan option and increasing the Company’s contribution to premiums. We have also added a Company paid short-term disability insurance plan and optional long-term disability insurance plan. And finally, we have increased equity related compensation to everyone in our Company, from non-employee directors to executive management to employees and consultants. We believe that this is an important component of aligning shareholder, company, and employee interests and vests everyone in the growth and success of Sigma.
In addition to the investments made to improve our manufacturing processes and engineering designs, in fiscal 2021 we added new software applications to assist us in achieving the leverage we need in our operations, both now and for the future. In particular, we added software subscriptions for a customer relationship management system (CRM”), a product lifecycle management system (“PLM”), and a project tracking and management system, all of which we believe will help us improve controls, efficiency and communication throughout the Company.
Revenue and Cost of Revenue
During the fiscal year ended December 31, 2022 (“fiscal 2022”), we generated $630,428 in revenues, as compared to $1,651,765 in the fiscal year ended December 31, 2021 (“fiscal 2021”). The decrease was due to a decrease in perpetual license sales of our PrintRite3D® units of $1,141,323 and decreased contract additive manufacturing revenue of $11,189. Partially offsetting these decreases were an increase in revenues of $31,177 from our subscription-based pricing program, increased revenues from our legacy Rapid Test and Evaluation (“RTE”) program of $33,000, increased on-site installation and support revenue of $35,035, an increase in consulting service revenue of $4,500, and an increase in annual maintenance contract revenue of $27,463. Our cost of revenue for fiscal 2022 was $349,930, as compared to $559,965 for fiscal 2021, a decrease of $210,035, or 37.5%. The decrease was primarily attributable to fewer unit sales in 2022, partially offset by increased travel costs incurred related to installations from 2021 sales.
In fiscal year 2022, our gross margin decreased to 44% from 66% in 2021 due primarily to an increase in the price of certain PrintRite3D system components as a result of configuration changes, discounted sales to universities and research institutions as members of our AcGovDustrial Network, and the aforementioned increase in travel costs incurred related to system installations.
Sigma’s operating expenses for fiscal 2022 were $9,029,502 as compared to $9,571,185 for fiscal 2021, a decrease of $541,683, or 5.7%. The decrease was primarily attributable to a decrease in stock-based compensation, a decrease in operating and research and development 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 business travel in 2022 as further described below.
Salary and benefits costs were $4,740,437 for fiscal 2022, as compared to $4,286,368 for fiscal 2021, an increase of $454,069, or 10.5%. The increase was comprised of: (a) $534,963 in employee salary increases and average full-time employee headcount increasing by two; (b) a $79,289 increase in severance due to the termination of employment of six employees; and (c) increased taxes and benefits of $174,616. Partially offsetting these increases were: (1) a decrease in commissions of $24,815; (2) a decrease in incentive bonuses of 215,490; and (3) a decrease in stock appreciation rights expense of $94,494 due to the revaluation of the compensation liability as a result of the decrease in our stock price in fiscal 2022.
Stock-based compensation was $793,251 for fiscal 2022, as compared to $1,066,455 for fiscal 2021, a decrease of $273,204, or 25.6%. This decrease was primarily due to fewer stock options granted in fiscal 2022.
We incurred operations and research and development costs of $653,194 during fiscal 2022, as compared to $890,553 in fiscal 2021, a decrease of $237,359, or 26.7%. The decrease was primarily due to a decrease in operations costs of $224,335 and a decrease in research and development costs of $13,024. The decrease in operations expense was due to: (a) a decrease in charges for inventory obsolescence of $81,544; (b) equipment upgrades in 2021 in both our manufacturing facility and our 3D metal printer totaling $14,777; (c) a decrease in parts and material purchases of $107,936; and (d) a decrease in purchase of lab supplies of $20,078. The decrease in research and development costs was due to expenses associated with a simulation project in 2021 of $97,188, partially offset by an increase in consulting costs of $64,164 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 $422,645 during fiscal 2022, as compared to $503,823 during the same period in 2021. The decrease of $81,178, or 16.1%, was due to a decrease in investor relations consulting costs of $84,832 resulting from a revaluation of SARs at December 31, 2022 and lower advertising expenses of $11,301. Partially offsetting these decreases was an increase in tradeshow expenses of $14,955 as compared to 2021, when COVID-19 travel restrictions precluded attendance at such events.
Organizational costs for fiscal 2022 were $311,606, compared to $726,147 for fiscal 2021. The decrease of $414,541, or 57%, was primarily attributable to: (a) a decrease in non-employee director fees of $369,830, mostly as a result of a decrease in stock options issued; and (b) a decrease in stockholder services of $43,832, primarily due to expenses incurred in 2021 in connection with a special stockholders meeting.
Legal and professional fees in fiscal 2022 were $725,285, as compared to $915,530 during fiscal 2021, a decrease of $190,245, or 20.8%. This decrease was a result of a decrease in legal expenses of $25,757 due to one less stockholder meeting and fewer regulatory filings in fiscal 2022, a decrease in recruiting expenses of $109,061 related to new hires in 2021, a decrease in consulting expenses of $38,915 and a decrease in accounting fees of $16,089 due to the fulltime hire of former outside accounting personnel.
Office expenses for fiscal 2022 were $914,802, as compared to $734,386 for fiscal 2021, an increase of $180,416, or 24.6%. The increase resulted from: (a) an increase in travel and entertainment of $82,241 related to increased travel as compared to fiscal 2021 as a result of the easing of COVID-19 related travel restrictions; (b) an increase in expenses of $109,435 related to a Company-wide, global conference held in May of 2022; (c) an increase in payroll service fees of $10,735 related to new hires; (d) an increase in dues and subscriptions of $38,847 for new customer relationship management, product lifecycle management, and project management software; and (e) an increase in utilities expenses of $2,459. Partially offsetting these increases were decreases in postage and shipping of $47,580, and decreases in office supplies of $11,998 and education expenses of $3,723.
Other operating expenses were $352,115 for fiscal 2022, as compared to $353,818 for fiscal 2021, a decrease of $1,703. 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 $9,325. These decreases were partially offset by an increase in insurance policy premiums for fiscal 2022 of $15,890.
In fiscal 2022, we realized net other income of $56,580, as compared to $1,094,780 in fiscal 2021. The decrease of $1,038,200, or 94.8%, was due to a gain in fiscal 2021 of $1,092,441 from the revaluation of the derivative liability related to our private placement of warrants, a foreign currency exchange loss of $15,927 in fiscal 2022 due to the strengthening of the US dollar against the Euro, and a decrease in interest income of $6,460. Partially offsetting these decreases was an increase of $76,628 in New Mexico state incentives in fiscal 2022.
Sigma’s net loss before preferred dividends for fiscal 2022 increased by $1,307,819 and totaled $8,692,424, as compared to a net loss before preferred dividends of $7,384,605 for fiscal 2021. Net loss applicable to common stockholders for fiscal 2022 was $8,749,304, as compared to $7,488,172 for fiscal 2021. The fiscal 2022 net operating loss component of the overall loss was $269,619 higher than in fiscal 2021 and the other income component was $1,038,200 lower. Preferred stock dividends were $56,880 in fiscal 2022 and $103,567 in fiscal 2021.
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 Annual Report, and the report of our registered independent public accounting firm on our financial statements as of and for the year ended December 31, 2022 included in Item 15 of this Annual Report contains a going concern qualification.
As of December 31, 2022, we had $2,845,931 in cash and working capital of $3,644,522, as compared to $11,447,047 in cash and working capital of $ 11,702,358 as of December 31, 2021.
We currently have no arrangement to obtain any additional financing. We have taken several steps to conserve our cash, including furloughing non-essential employees, reducing or eliminating certain marketing and advertising programs, limiting employee travel, and reducing investor relations expenses and certain consulting expenses. Our existing cash on hand and anticipated revenues are sufficient to fund our remaining anticipated operating costs and capital expenditure requirements only through May 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect, or extend such resources longer than we expect.
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:
Our major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and preferred stock), and from warrant exercises. In 2022, we did not raise any funds. In January 2021, the Company closed a public offering of 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $4,532,444 after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In March 2021, the Company closed a public offering of 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,488 after deducting placement agent commissions and other offering costs payable by the Company. Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement. The warrants entitle the holders to purchase one share of our common stock at an exercise price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date.
We will need to raise additional amounts to fund our operations, maintain compliance with the NASDAQ listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and that could adversely affect our business and operations. To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business and operations and lose our NASDAQ listing.
While we expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology, together with transitioning to a subscription-based, software-only product offering will enable us to further commercialize this technology into the AM metal market in 2023, we will be unable to do so without additional funding. Should we be able to secure such funding, we plan to seek to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control technologies) and through the use of proceeds from sales of our securities and potential exercises of our outstanding warrants.Net Cash Used in Operating Activities
During fiscal 2022, net cash used in operating activities was $8,212,154, which was the result of a net loss of $8,692,424 before preferred dividends and the use of cash for working capital of $543,280, partially offset by non-cash expenses of $1,023,550 related to depreciation and amortization of $116,167, and stock-based compensation of $907,383. Changes in working capital were driven by an increase in inventory of $240,863, a decrease in deferred revenue of $28,782, and a decrease in accounts payable and accrued expenses of $323,259, partially offset by a decrease in accounts receivable of $40,572. The increase in inventory was primarily due to stocking of certain components of our PrintRite3D systems with long order lead times, and an increase in contract assets resulting from PrintRite3D systems on our lease program. The decrease in accounts payable and accrued expenses was primarily due to a decrease in accrued bonuses in 2022.
During fiscal 2021, net cash used in operating activities was $6,298,959, driven by a net loss of $7,384,605 before preferred dividends, partially offset by non-cash expenses of $769,787 and cash generated from working capital of $315,859. Non-cash expenses were comprised of: (1) depreciation and amortization of $94,105; and (2) stock-based compensation of $1,768,123; partially offset by a gain on derivative liability of $1,092,441. Cash generated from working capital was driven by an increase in accounts payable and accrued expenses of $373,563 primarily as a result of increased accrued bonuses in 2021, and an increase in deferred revenue of $70,898, partially offset by increases in accounts receivable of $80,630 and inventory of $50,429. The increase in accounts receivable was due to increased sales, and the increase in inventory was primarily due to stocking of certain components of our PrintRite3D systems with long order lead times.Net Cash Used by Investing Activities
Net cash used by investing activities in fiscal 2022 was $388,962, as compared to $359,750 in fiscal 2021. The increase was due to increased patent costs of $47,112, partially offset by a decrease in purchases of property, plant and equipment of $17,900.
Net Cash Provided by Financing Activities
No cash was provided by financing activities in fiscal 2022. In fiscal 2021, cash provided by financing activities was $14,404,942, consisting of net proceeds of $13,268,932 from financings and $1,136,010 in proceeds from the exercise of warrants.
We have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.
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