UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2021

OR

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38015

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [No[  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 10, 2017,April 20, 2021, the issuer had 4,718,65110,493,598 shares of common stock outstanding.

SIGMA LABS, INC.

For the quarter ended September 30, 2017FORM 10-Q

FORM 10-Q

TABLE OF CONTENTS

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PART II. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Loss Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Companies outstanding warrants, options and preferred shares were excluded due to the anti-dilutive effect they would have on the computation. At March 31, 2021 and 2020, the Company had the following common shares underlying these instruments:

The following data shows the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the periods ended March 31, 2021 and 2020:

Recently Enacted Accounting Standards – The FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.

Recent Accounting Standards Updates (“ASU”) through ASU No. 2015-01 contain technical corrections to existing guidance or affects guidance to specialized industries or situations. The Company has evaluated recently issued technical pronouncements and has determined that these updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are 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.

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NOTE 2 – Inventory

At March 31, 2021 and December 31, 2020, the Company’s inventory was comprised of:

NOTE 3 – Deferral of Social Security Tax Payments

Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral period”. The payroll tax deferral period began on March 27, 2020 and ends December 31, 2020. At March 31, 2021, the total amount of such deferral was $75,455. Per the terms of the deferral program, 50% of the deferred amount is due on December 31, 2021, and the remaining 50% is due on December 31, 2022 at 0% interest.

NOTE 4 - Derivative Liability

On March 26, 2021, the Company issued warrants to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement concurrently with a registered direct offering of 2,190,000 shares of its common stock. 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 the date the Company receives stockholder approval to increase its authorized common shares from 12,000,000 to 24,000,000 (the “Initial Exercise Date”) and will expire two years from the Initial Exercise Date. The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the registered direct offering. Management also determined that the Company currently does not have sufficient authorized and unissued shares to settle the warrants, and as such required classification as a liability pursuant to ASC 815 “Derivative Instruments and Hedging”. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.

The Company has called a Special Stockholders’ Meeting (the “Special Meeting”) for May 24, 2021, where it will seek stockholder approval to increase its authorized shares. Upon such approval, the Company will reclassify the warrant liability to equity pursuant to ASC 815-40-35-8. However, in the event that the Company does not receive stockholder approval to increase its authorized shares, the Company will continue to account for the outstanding warrants as a derivative liability and will be required to call a meeting of stockholders every 75 days after the Special Meeting to seek approval of the increase in authorized shares to not be in breach of the Securities Purchase Agreement.

The fair value of the derivative liability presented below was measured using the Black Scholes valuation model. Significant inputs into the model for the three months ended March 31, 2021 are as follows:

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:

The Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s assumptions. Level 3 measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity and may be more sensitive to fluctuations in stock prices, volatility rates and U.S. Treasury Bond rates and could have a material impact on future fair value measurements.

The Company uses the Black Scholes model, based on the adjusted historical volatility rates for fair value measurements through the date of Shareholder Approval. Management has determined the Black Scholes model to be the most reliable and least volatile determinate of the current fair value of the warrants. It is the Company’s expectation to maximize on all observable market inputs for the warrants and calibrate the model to incorporate relevant observable market data into the fair value measurement at each future measurement date, if applicable.

During the three months ended March 31, 2021, the company recognized a gain of $802,285 on the change in fair value of warrants.

NOTE 2 –5 - Stockholders’ Equity

Common Stock

Effective March 17, 2016, our AmendedIn January 2021, the Company closed a public offering of its securities in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting underwriting commissions and Restated Articlesother offering expenses payable by the Company. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter or its designee warrants to purchase 136,943 shares of Incorporation were amendedcommon stock. Such warrants have a term of five years and an exercise price of $3.75 per share.

In February 2021, the Company issued 263,200 shares of common stock pursuant to the exercise of warrants issued in our January 2020 private placement.

In March 2021, the Company issued 119,000 shares of common stock in exchange for the conversion of 250 shares of Series D Convertible Preferred Stock, including 19,000 shares of common stock as in-kind payment of preferred stock dividends. Also in March 2021, the company issued 191,204 shares of common stock pursuant to the exercise of warrants issued in our April 2020 offering, and 21,591 shares of common stock issued pursuant to the cashless exercise of placement agent warrants.

In March 2021, the Company closed a Certificatepublic offering of Changeits securities in which it issued 2,190,000 shares of common stock at $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. Pursuant to Nevada Revised Statutes 78.209 (the “Certificatethe Purchase Agreement, the purchasers severally agreed to vote the shares of Change”) filed withcommon stock purchased under the Nevada SecretaryPurchase Agreement in favor of State. The Certificate of Change provided for both a reverse stock splitany resolution presented to the stockholders of the outstandingCompany for the purpose of obtaining approval of an increase in the authorized shares of our common stockthe Company’s Common Stock from 12,000,000 to 24,000,000 shares (“Stockholder Approval”). In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants to purchase an aggregate of 2,190,000 shares of Common Stock at an exercise price of $4.32 per share. Each Warrant will be exercisable commencing on a 1-for-100 basisthe date the Company obtains Stockholder Approval and will expire two years after the initial exercise date. The Company also issued to designees of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock (the “Reverse“Placement Agent Warrants”) constituting 8% of the aggregate number of shares of Common Stock Split”), and a corresponding decreasesold in the Registered Offering, The Placement Agent Warrants have substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price per share (or $5.55625 per share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to purchase 8.0% of the number of shares of our common stock that we are authorized to issue (the “Share Decrease”).Common Stock issued upon the cash exercise of the Warrants.

As a result of the Reverse Stock Split, the number ofIn March 2021, Company issued and outstanding shares of our common stock on March 17, 2016 decreased from 622,969,835 pre-Reverse Stock Split shares to 6,229,710 post-Reverse Stock Split shares (after adjustment for any fractional shares). Pursuant to the Share Decrease, the number of authorized shares of our common stock decreased from 750,000,000 to 7,500,000 shares of common stock. All amounts shown for common stock included in these financial statements are presented post-Reverse Stock Split.

On April 28, 2016, the Company’s Amended and Restated Articles of Incorporation were amended to increase the number of authorized shares of the Company’s common stock from 7,500,000 to 15,000,000 shares of common stock.

Effective February 15, 2017, our Amended and Restated Articles of Incorporation were amended pursuant to a Certificate of Change Pursuant to Nevada Revised Statutes 78.209 (the “Certificate of Change”) filed with the Nevada Secretary of State. The Certificate of Change provided for both a reverse stock split of the outstanding shares of our common stock on a 1-for-2 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”).

As a result of the Reverse Stock Split, the number of issued and outstanding shares of our common stock on February 15, 2017 decreased from 6,307,577 pre-Reverse Stock Split shares to 3,153,801 post-Reverse Stock Split shares (after adjustment for any fractional shares). Pursuant to the Share Decrease, the number of authorized shares of our common stock decreased from 15,000,000 to 7,500,0001,500 shares of common stock $0.001 par valuevalued at $4.99 per share. As of March 31, 2017,share to CorProminence, an investor relations firm previously engaged by the Company had 7,500,000 shares of authorized common stock, $0.001 par value per share.as partial compensation for services previously rendered.

In January, 2017,the first quarter of 2020, the Company issued 20,000408,318 shares of common stock to two directors in equal amountsexchange for the conversion of 10,0001,107 shares each, valued at $1.72 per share, or $34,404.of Series D Convertible Preferred stock, including 86,801 shares of common stock as in-kind payment of preferred stock dividends.

In February 2017,2020, the Company issued 5,2322,500 shares of common stock to a director valued at $3.25$8.70 per share or $17,004.

On February 14, 2017, The NASDAQ Stock Marketto MHZCI, LLC, informedan investor relations firm engaged by the Company, that it had approved the listing of the Company’s common stock on The NASDAQ Capital Market, effective as of February 15, 2017. The Company’s common stock ceased trading on the OTCQB on February 15, 2017, and on such date the common stock commenced trading on The NASDAQ Capital Market under the ticker symbol “SGLB”.partial compensation for services to be rendered.

On August 8, 2017, the Company issued 7,489 shares of common stock to a director valued at $2.27 per share, or $17,000.

On August 16, 2017, the Company issued 8,213 shares of common stock to a director valued at $2.07 per share, or $17,000.

As of September 30, 2017 and December 31, 2016, there were 4,577,651 and 3,133,789 shares of common stock issued and outstanding, respectively.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. No465 and 1,378 shares of preferred stock were issued and outstanding at September 30, 2017March 31, 2021 and 2016.

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Stock Options2020, respectively.

On September 28, 2017, the Company granted to an officer (i) a five-year stock option to purchase up to 2,500 shares of common stock, at an exercise price equal to $1.91 per share, which was the closing market price of our common stock on September 28, 2017 (i.e., the date of grant), which option vested and became exercisable in full on the date of grant, and (ii) a five-year stock option to purchase up to 47,500 shares of common stock, at an exercise price equal to $1.91 per share (the closing market price of our common stock on the date of grant), which option is subject to vesting.

The weighted average period over which total the compensation cost of the options of $90,723 ($11,937 in 2017) will be recognized is 4 years. The weighted average exercise price of all outstanding options as of September 30, 2017 is $3.58 and the weighted average fair value of the options on the grant dates was $2.88. The estimated fair value of the options was determined using the Black-Scholes pricing model using the following assumptions:

Warrants

As of September 30, 2017, the Company had outstanding warrants to purchase a total of 80,000 shares of common stock at an exercise price of $2.00 per share. Each warrant, prior to its amendment described below in Note 4, had an exercise price equal to $4.13. If not exercised, the warrants to purchase the 80,000 shares will expire on October 17, 2019. In addition, as of September 30, 2017, the Company had outstanding warrants to purchase a total of 1,621,500 shares of common stock at an exercise price of $4.00 per share. If not exercised, the warrants to purchase the 1,621,500 shares will expire on February 21, 2022. The 1,621,500 warrants trade on The NASDAQ Capital Market under the ticker symbol “SGLBW”.

Unit Purchase Option

On February 15, 2017, Sigma Labs, Inc. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James Securities, Inc., as underwriter (the “Underwriter”) in connection with a public offering (the “Offering”) of the Company’s securities.   Pursuant to the Underwriting Agreement, the Company has granted the Underwriter the right to purchase from the Company 70,500 Units at an exercise price equal to 125% of the public offering price of the Units in the Offering, or $5.1625 per Unit. The Unit Purchase Option has a term of five years and is not redeemable by us. A “Unit” is defined as of one share of the Company’s common stock, par value $0.001 per share and one warrant to purchase one share of the Company’s common stock, par value $0.001 per share, at an exercise price of $4.00 per share.

NOTE 3 – Note Receivable

On May 1, 2017, the Company completed funding a loan in the principal amount of $250,000 to Jaguar Precision Machine, LLC, a New Mexico limited liability company, pursuant to a Secured Convertible Promissory Note dated May 1, 2017 delivered by Jaguar to the Company. The loan bears interest at the rate of 7% per annum, is due and payable in full on May 1, 2018, is secured by certain assets of Jaguar, and is convertible at the Company’s option into 10% of the outstanding shares of the common stock of Jaguar unless Jaguar exercises its right under specified circumstances to repay all principal and accrued interest on the loan. The purpose of the loan is to provide working capital to Jaguar to, among other things, stand up a metallurgical laboratory and become ASM9100 certified for contracts related to AM of high-precision aerospace and defense components, in furtherance of our strategic alliance. Sigma will receive from Jaguar priority for use of certain machines and services of Jaguar.

On March 27, 2017, the Company completed funding a loan in the principal amount of $500,000 to Morf3D, Inc., an Illinois corporation, pursuant to a Secured Convertible Promissory Note dated March 27, 2017 delivered by Morf3D to the Company. The loan bears interest at the rate of 7% per annum, is due and payable in full on March 27, 2018, is secured by certain assets of Morf3D, and is convertible at the Company’s option into 10% of the outstanding shares of the common stock of Morf3D unless Morf3D exercises its right under specified circumstances to repay all principal and accrued interest on the loan. The purpose of the loan is to provide working capital to Morf3D to, among other things, lease an EOS M 400 system for Morf3D for Morf3D to expand production for contracts related to AM of high-precision aerospace and defense components, in furtherance of our strategic alliance and in contemplation of a possible acquisition of or merger with Morf3D (although discussions regarding a possible acquisition of or merger with Morf3D are not currently ongoing).

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NOTE 4– Notes Payable

Effective October 17, 2016,January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with two accreditedcertain institutional investors (the “Investors”“Institutional Private Placement”). Pursuant to the SPA, the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the Certificate of Designations for the private placementSeries D Preferred Stock, the Series D Preferred Stock has an initial stated value of $1,000 per share (the “Stated Value”). Dividends accrue at a dividend rate of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and, on a monthly basis, shall be payable in kind by the Companyincrease of Secured Convertible Notesthe Stated Value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares have the right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50 (subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection). In addition, a holder may at any time, alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative conversion price, which equals the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85% of the average volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to such conversion. Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium to the underlying value of the Series D Preferred Shares being redeemed.

At March 31, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted at the Conversion Price of $2.50 as of March 31, 2021, including the make-whole dividends, would result in the issuance of 62,832 shares of common stock.

Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors and the Company’s largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and sold 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”). Dividends accrue at a dividend rate of 9% per annum and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock,

At March 31, 2021, all of the issued Series E Convertible Preferred Stock was outstanding, which if converted as of March 31, 2021, including the make-whole dividends, would result in the issuance of 61,651 shares of common stock.

Stock Options

As of March 31, 2021, an aggregate principal amount of $1,000,000 (the “Notes”)9,681 shares of common stock were reserved for future issuance under the 2013 Plan.

In January 2021, the Company granted options to purchase 96,000 shares of common stock to its directors and warrants (the “Warrants”)an option to purchase 24,000 shares of common stock to a consultant as partial compensation for services to be rendered. The options have a strike price of $3.13 and vest equally over twelve months beginning January 2021.

During the three months ended March 31, 2021, the Company granted five employees options to purchase up to 80,00020,500 shares of common stock in connection with their employment. The options have strike prices equal to the closing price of our common stock on each of the grant dates, and will vest in equal installments on the first through third anniversaries of the grant dates, provided that the employees remain employed by the Company on such dates.

In January 2021, the Company granted a consultant an option to purchase 1,000 shares of common stock for services to be rendered. The option has a strike price of $3.52 and will vest on June 30, 2021, provided that the consultant remains a service provider to the Company as of such date,

In February 2021, the Company granted a consultant an option to purchase 1,572 shares of common stock for services rendered. The option has a strike price of $3.66 and is fully vested.

During the three months ended March 31, 2020, the Company granted options to purchase 8,100 shares of common stock to Iron Dome Ventures, LLC as partial compensation for investor relations services to be rendered. The option vests equally over nine months beginning February 2020.

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

Total share-based compensation expense included in the statements of operations for the three months ended March 31, 2021 and 2020 is $117,477 and $154,170, all of which is related to stock options.

The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three months ended March 31, 2021 and the year ended December 31, 2020:

Assumptions:

Option activity for the three months ended March 31, 2021 and the year ended December 31, 2020 was as follows:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $3.72 closing price of our Common Stock on March 31, 2021. At March 31, 2021, 718,070 option grants have an exercise price currently below $3.72.

At March 31, 2021, there was $1,198,573 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.84 years.

Stock Appreciation Rights

On June 23, 2020, the board of directors (the “Warrant Shares”“Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Common Stock”Share”) (subject to adjustment in certain circumstances), for aggregate gross proceeds, before expenses, toupon the Company of $900,000 (the “Financing Transaction”). The Notes carry a one-time upfront interest charge of a total of $100,000, which is being expensed to interest expense monthly over the 1-year term of the Notes and correspondingly increases in the Notes Payable balance each period.

The Notes carry an interest rate of 10% per annum, calculated on the basis of a 360-day year, based on the $1 million Notes Payable effective balance. Such interest is payable every three months in cash, or, at the holder’s option, in unrestricted shares of Common Stock, if a registration statement is then in effect for such shares of common stock.

In connection with the Financing Transaction, the Company entered into a Registration Rights Agreement, dated October 17, 2016, with the Investors, pursuant to which the Company filed a registration statement related to the Financing Transaction with the Securities and Exchange Commission (“SEC”) covering the resale of (i) the shares of Common Stock that will be issued to the Investors upon conversion of the Notes, and (ii) the Warrant Shares that will be issued to the Investors upon exercise of the Warrants.SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.

The Notes are secured by the assets ofOn June 23, 2020, the Company granted, pursuant to a Security Agreement, dated October 17, 2016, between the CompanyPlan, (i) 60,094 SARs to its President and the “collateral agent” (as defined in the Notes) for the benefitChief Executive Officer, (ii) 12,019 SARs to its Vice President of itselfBusiness Development, (iii) 24,038 SARs to its Chief Technology Officer, and each of the Investors.

(iv) 18,028 SARs to its Chief Financial Officer. The Notes , prior to their amendment described below, provided that they were convertible into shares of Common Stock at a conversion price equal to the lesser of (i) the final unitexercise price of the Company’s proposed public offering initially filed with the SEC on July 28, 2016, and (ii) 150% ofeach such SAR is $2.63, which was the closing price of the Common Stock as reported by the OTC Markets Group, Inc.Company’s common stock on the date of issuancegrant. Such SARs expire on the fifth anniversary of the Notes (subject to adjustmentgrant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as provided therein). As such, the conversion pricepossible) installments on each of the Notes was $4.13, which is the final unit pricefirst, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested and exercisable as long as the applicable holder is in the Company’s public offering.employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement. On November 19, 2020, we granted 13,500 SARs to a consultant as partial compensation for services pursuant to the consulting agreement.

Each Warrant , prior to its amendment described below, had an exercise price equal toThe Company recognizes compensation expense and a corresponding liability for the lesser of (i) the final unit pricefair value of the Company’s proposed public offering initially filedSARs over the requisite service period for each SAR award. The SAR’s are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in income as of the applicable reporting date.

The fair value of SAR awards was estimated using the Black-Scholes model with the SEC on February 17, 2017,following weighted-average assumptions for the three months ended March 31, 2021 and (ii) 150% of the closing price ofyear ended December 31, 2020:

Assumptions:

SARs activity for the Common Stockthree months ended March 31, 2021 and the year ended December 31, 2020 was as reported byfollows:

The aggregate intrinsic value is calculated as the OTC Markets Group, Inc. on the date of issuance of the Warrants (subject to adjustment as provided therein), which Warrants may be exercised on a cashless basis as provided in the Warrants. As such,difference between the exercise price of the Warrants was $4.13, which isunderlying awards and the final unitquoted price of our common stock for those awards that have an exercise price currently below the Company’s public offering.$3.72 closing price of our common stock on March 31, 2021. All of the SARs grants have an exercise price currently below $3.72.

On September 29, 2017, the Company entered into amendments (the “Amendments”)At March 31, 2021, there was $180,108 of unrecognized share-based compensation expense related to the Notes and Warrants pursuant to which, among other things set forth in the Amendments, (1) the exercise priceunvested SARs with a weighted average remaining recognition period of the Warrants was reduced from $4.13 per share to $2.00 per share, and (2) the conversion price of the Notes was reduced from $4.13 per share to $2.00 per share. Under the Amendments, Sigma paid the Investors an aggregate amount equal to $500,000 (representing 50% of the outstanding principal balance of the Notes) plus all accrued interest on the Notes on October 2, 2017. In consideration of the foregoing, the Investors agreed to, among other things, extend the payment date of the remaining 50% of the outstanding principal balance of the Notes from October 17, 2017 to the earlier of May 18, 2018 or the closing of the Company’s next underwritten public offering of securities in which the Company raises gross proceeds of at least $3,000,000 (should the Company elect to commence and close such an offering of securities).2.23 years.

As of September 30, 2017, the Notes Payable balance is $994,909 which balance was reduced to $500,000 on October 2, 2017.Warrants

Warrant activity for the three months ended March 31, 2021 the year ended December 31, 2020 was as follows:

NOTE 56 - Continuing OperationsSubsequent Events

The Company has sustained losses and has negative cash flows from operating activities since its inception. However, the Company has raised significant equity capital and is currently developing new product lines to increase future revenues. On February 21, 2017, the Company closedperformed an underwritten public offeringevaluation of equity securities resulting in net proceeds of approximately $5.25 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. As such, the Company believes it has adequate working capital and cash to fund operationssubsequent events through 2017. 

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NOTE 6 – Loss Per Share

The following data show the amounts used in computing loss per share and the weighted average number of shares of dilutive potential common stock for the periods ended September 30, 2017 and 2016:

Dilutive loss per share was not presented as the Company had no common equivalent shares for all periods presented that would affect the computation of diluted loss per share or its effect is anti-dilutive.

NOTE 7– Subsequent Events

On October 6, 2017,pursuant to an advisory agreement with the Underwriter, the Company issued to the Underwriter a total of 141,000 shares of the Company’s common stock in exchange for the surrender by the Underwriter of its Unit Purchase Option to acquire up to 70,500 Units.

On October 13, 2017, the Company granted two employees five-year options to purchase an aggregate of 20,000 shares of common stock, with each option having an exercise price of $1.92 per share, and vesting over the four-year period following the date of grant.filing of these condensed financial statements with the SEC. There were no material subsequent events which affected, or could affect, the amounts or disclosures in the condensed financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-looking statements

This Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenuerevenues 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 document 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 any other 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, 20162020 and elsewhere in this report.

Overview

Sigma Labs, Inc. (the “Company,” “we,” “us,” or “Sigma”) is a software company that has developed In-Process-Quality-Assurance (“IPQA”) software known as PrintRite3D®. This technology is also sometimes referred to as Real-Time-Computer-Aided Inspection (“CAI”).  Sigma believes that its PrintRite3D® solves the major problem that has prevented large-scale metal part production using 3D printers.

3D metal manufacturing is a technology that uses lasers to form or create parts out of welding powdered metals into a 3-dimensional (3D) object. The quality of these parts can vary from any given part to another on a single production run. Therefore, traditional after the fact quality inspection methods do not assure quality of 3D printed parts. Sigma believes that the best, indeed, only way to attain high yields for both manufacturing quality and cost efficiency is an IPQA® approach that looks at each part in real time as it is being manufactured and determines in real time whether it meets quality specifications.

GE Aviation has stated that it plans to commit $3.5 billion by 2020 to, among other things, build a metal 3D production facility for its Leap engine and other engines to produce Leap engine 3D printed metal parts. Since September 2016, GE has spent over $1 billion buying controlling interests in AM equipment manufacturers, Concept Laser and Arcam AB, and invested over $300 million creating AM manufacturing capability in both the United States and India. However, unless companies that utilize a 3D production facility like GE Aviation are able to effectively check each part for conforming attributes of shape, density, strength and consistency in real-time during the manufacturing process, we believe that such companies will be at risk of letting some substandard parts through and, also, be unable to improve the workflow and high-quality yields of 3D printing functional metal parts. We believe that our software, which can be positioned “inside” the 3D metal printer, solves these problems by assuring each part is being made to the quality specifications of the computer file as such part is being made. In essence, our software enables 3D prototyping to become 3D manufacturing. Instead of performing quality assurance (“QA”) post production or after the fact, our PrintRite3D® software has been designed to fundamentally redefine traditional QA by embedding quality assurance and process control into the manufacturing process in real time.Corporation Information

We have filed patent applicationswere incorporated as Messidor Limited in Nevada on December 23, 1985 and changed our In-Process Quality Assurance™ (“IPQA®”) process and procedure for advanced manufacturing. In addition,name to Framewaves Inc. in 2001. On September 27, 2010, we anticipate thatchanged our core PrintRite3D® software will enablename from Framewaves Inc. to Sigma Labs, Inc. We commenced our customers to combine their digital manufacturing technologies with our 3D manufacturing QA to achieve both cost savings and more reliable parts. Vertical markets that we believe would benefit from our technology and software include aerospace, defense, bio-medical, power generation, and oil & gas industries. We provide our software products to customerscurrent business operations in the form of Software as a Service (“SaaS”). 

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About 3D Printing2010.

3D printing (“3DP”) or additive manufacturing (“AM”) is changing the world by going directly from computer graphics to actual parts. 3D printing has been applied to the manufacture of plastic parts for decades. 3D manufacturing of metal parts involves directing a laser or other energy source at a layer of powdered metal and melting it. These layers become melted together from the bottom up. Worldwide revenues attributable to 3D manufacturing for metal products were $88.1 million in 2015 (Wohlers Report 2016, 3D Printing and Additive Manufacturing State of the Industry – Annual Worldwide Progress Report).

The application of 3D printing to high-tolerance, precision manufactured metal parts has only recently emerged. 3D printing of metal parts today represents only a minor percentage of all 3D manufacturing. However, we believe the greatest future growth for 3D printing appears to be in metal parts, given the interest and investment being made by Fortune 100 companies, Federal government laboratories and agencies as well as university-based institutions. Emphasis from these high-end manufacturers and technology leaders is strongly focused on helping the transformation of analog manufacturing of precision, high-tolerance parts in the U.S. today to a digital enterprise of tomorrow complete with automation, robotics and closed-loop process control. We believe that the on-going success of 3D printing for metal parts will be highly dependent upon the evolution of digital quality assurance procedures used, such as our PrintRite3D® process control.

About Quality Assurance in 3D Printing

Current methods for providing quality in 3DP are generally either inaccurate due to use of procedures that do not recognize and measure the primary quality issues of 3D metal manufacturing or are cost prohibitive due to the expense of equipment required to examine the interior of complex dense parts such as 3D can create, and further, may be inaccurate due to misuse of statistically based assessments.  After 3D-manufacture, costs are normally incurred by using non-destructive technologies such as ultrasound and non-traditional x-ray scanning technology on these parts, and old-fashioned visual inspection. Destructive testing of 3D parts is a mis-applied carryover from current Subtractive Manufacturing quality assurance practice in which the great consistency of CNC machines  permits quality inspectors to infer the quality of a production run by cutting up and analyzing a statistically relevant number of parts. The test result of the parts that are destroyed and analyzed have been, at great time and expense, statistically demonstrated to be representative of the rest of the parts in the production lot. The underlying premise of quality assurance for Subtractive Manufactured parts is that if a machine is set up properly, then all parts it produces will be the same. This simple, effective and accurate quality system does not apply to Additive Manufacturing, in which each part is built in an average production lot of 5-20, and in which quality variance may occur from part to part and within any part notwithstanding that the AM machine settings are the same. Therefore, unable to rely on a traditional statistically based quality system, 3D Manufacturing’s optimum quality assurance system would evaluate the quality of each individual part.  PrintRite3D®’s in-process quality inspection approach of each part individually allows a manufacturer to use AM to form a single part, such as a hip replacement or one spare aircraft part needed on an aircraft carrier, or several lots of the same part, in large quality – each approved or rejected in real time and based upon 100% inspection during fabrication. We offer our customers’ the ability to use real-time sensors to track individual scans of each layer, and our software continuously analyzes the part health so that when it is finished we can determine if it meets the production quality standard set by the customer. We believe our PrintRite3D® software could reduce inspection costs by a factor of 10 and development time for new parts by 50% or more. Most importantly is the ability of our software to reduce risk associated with the qualification and certification of printed parts.

By using PrintRite3D® software, a high-precision manufacturer would have the ability to offer its customers product warranties and assurances that its printed parts were produced in compliance with stringent quality requirements. Orders for our software have been received from Honeywell Aerospace, Aerojet Rocketdyne, Woodward, Siemens Turbomachinery, Pratt and Whitney, and Solar Turbines.

We believe there is potential for our PrintRite3D® software to be incorporated into a majority of 3D metal printing devices made by companies like Electro-Optical Systems (“EOS”), Additive Industries, Concept Lasers, Trumpf Lasers, Renishaw, Sentrol, Farsoon, Desktop Metal and others.

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Sigma’s Cloud-Based IIoT Solutions

The process of making a 3D printed part could start with our customers loading a computer aided design (“CAD”) model of the part into the Cloud as shown in “A” in Figure 1. Next, computer aided engineering (“CAE”) and/or computer aided manufacturing (“CAM”) instructions are sent to the 3D printer (see “B”, as shown in Figure 1). Metal powder in the machine is then deposited onto the build platform where a laser beam, or other energy source, focused onto the build platform melts each successive layer of powder in 20-60 micron increments. Our PrintRite3D SENSORPAK® (see “C” in Figure 1) detects, records, analyzes and compares the part as it is being made layer-by-layer against the CAD/CAM specifications and physical reference points for quality assurance during manufacturing. Our PrintRite3D INSPECT®, Version 3.0 software determines compliance of each part for its metallurgical quality. Our alpha version of PrintRite3D CONTOUR® software determines the shape and conformity of a part in real-time manufacture with its geometric design specification.

OurPrintRite3D® CAI web-based software suite (see “D” in Figure 1) resides in situ and/or in the Cloud (see “A” in Figure 1) of the Industrial Internet of Things (“IIoT”). We enable manufacturing engineers to assure the part quality layer-by-layer, provide for manufacturing statistical process control and harvest, aggregate, and analyze Big Data from the manufacturing real-time data collected from our PrintRite3D SENSORPAK® (see “C” in Figure 1), as well as post-process manufacturing data collected by our customers (see “E” in Figure 1).

Our specialized sensor suite (see “C” in Figure 1), known as PrintRite3D SENSORPAK®, is an edge computing device. It contains the modular hardware and software necessary to connect to “cyber-physical” objects (see “B” in Figure 1) living on the manufacturing floor. It allows for bi-directional information flow between the manufacturing floor and the Cloud (see “A” in Figure 1). It starts a million-fold data reduction that finishes with our PrintRite3D® Digital Quality Record (“DQR”) and report, which provides customers with product guarantees and assurances that parts were produced in compliance with stringent quality standards. It can collect, analyze, aggregate, filter, and then further communicate data from the manufacturing floor to the Cloud (see “A” in Figure 1) and enable links to other areas (see “F” in Figure 1) of the IIoT.

Figure 1. Sigma’s Industrial IoT /PrintRite3D® Cloud Architecture

Business Activities and Industry Applications

Our principal business activities include the continued development and commercialization of our PrintRite3D® suite of software applications, with our main focus currently on the 3DP and the AM industry, as well as further developing our contract additive manufacturing business for metal 3DP to be a customer prototype center available for cutting edge 3D challenges and a concurrent means of demonstrating and proving the merit of PrintRite3D® for customers’ parts or application. Our strategy is to continue to leverage our advanced manufacturing knowledge, experience and capabilities through the following means:

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Identify, develop and commercialize our quality assurance software Apps for advanced manufacturing technologies designed to assure part quality in real time as the part is being made and improve process control practices for a variety of industries; 

Provide materials and process engineering consulting services in respect of our PrintRite3D® CAI quality assurance software Apps for advanced manufacturing to customers that have needs in developing next-generation technologies for digital manufacturing technologies; and 

Build and run a prototype and small lot contract manufacturing and demonstration division for metal 3DP beginning with our EOS M290 state-of-the-art metal printer.  

We are presently engaged in the following industry sectors:

Aerospace and defense manufacturing; and 

Energy and power generation. 

We also seek to be engaged in the following industry sectors and have begun to develop relationships with leading manufacturers in each such sector:

Bio-medical manufacturing; 

Automotive manufacturing; and 

Other markets such as firearms and recreational equipment. 

We generate revenues through PrintRite3D® hardware and CAI 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 our contract manufacturing activities in metal AM. By running a contract AM services operation, we are able to understand the current needs of our customers and where they are going with their next-generation product development efforts. Contract AM further allows us a means for continuing/self-funding our IPQA®-enabled R&D and product development activities for CAI software. We provide our AM contract manufacturing services to customers in the form of Quality as a Service (“QaaS”). Starting with our PrintRite3D® cloud-based SaaS model, customers will contract with us for CAE, CAM and CAI services to generate and establish a DQR for AM built parts. Each DQR is cloud-based and allows for archiving and storage of quality data, access to our big data ANALYTICS™ software App for continuous quality monitoring and improvement, and automatic industry benchmarking while maintaining firewalls between company-specific data.

In late 2015, we launched two programs − an Early Adopter Program (“EAP”) and an Original Equipment Manufacturer (“OEM”) Partner Program − designed to broaden our market presence and speed adoption of our PrintRite3D® technology. The EAP was designed to attract end user customers who have an existing, installed base of 3D metal printers and to offer them incentivized pricing in return for feedback on engineering and beta releases of our PrintRite3D® software Apps. Our OEM Partner Program was specifically designed for AM machine manufacturers seeking to embed our PrintRite3D® quality assurance software Apps directly into their machines for customers purchasing a turnkey solution for their new AM machine purchases.

We possess the resident expertise to provide manufacturing materials and process (“M&P”) engineering services and support to companies using our PrintRite3D® software Apps for metal AM. Accordingly, in addition to our primary business focus, we intend to generate revenues by providing such engineering services and support to businesses licensing our PrintRite3D® software Apps.

Our President and Chief Technology Officer has worked at or with the Edison Welding Institute, the United States Department of Energy (“DOE”) national laboratories (including the Knolls Atomic Power Laboratory, Bettis Atomic Power Laboratory, Los Alamos National Laboratory and Sandia National Laboratory) over the past 34 years. Due to his work with the DOE, our President and Chief Technology Officer has developed extensive relationships with the DOE and its network of national laboratories. Accordingly, we expect to leverage these relationships in connection with licensing and developing technologies created at such national laboratories for commercialization in the private sector.

Corporate Information

Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our current telephone number at that address is (505) 438-2576. Our website address is www.sigmalabsinc.com.www.sigmalabsinc.com. The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to sectionSection 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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We 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 from Framewaves Inc. to Sigma Labs, Inc.

Recent Developments (in reverse chronological order)

On November 9, 2017, we announced that the Company and 3DSIM have partnered to bring their customers closer to the reality of full process control over the metal additive manufacturing (AM) process which has been a challenge for AM part designers and manufacturers. 3DSIM, an AM simulation leader, has jointly developed with the Company, a new capability for 3DSIM’s FLEX^TM software that simulates the thermal sensors’ response to the metal AM process. FLEX^TM is the newest software from 3DSIM, the full commercial version of which is scheduled to be released in early 2018.

On October 16, 2017, we announced that we will unveil our PrintRite3D® INSPECT™ V3.0 quality assurance software at the international Formnext 2017 to be held from November 14-17, 2017, which will showcase current and future cutting-edge applications of additive technologies.

On October 12, 2017, we announced that John Rice, our interim Chief Executive Officer, was to be a featured presenter at the 3rd Annual Dawson James Small Cap Growth Conference on October 19, 2017 in Jupiter, Florida, and on September 29, 2017, we announced that Mr. Rice was to present at The MicroCap Conference in New York City on October 5, 2017.

On September 5, 2017, we announced that our cloud-based PrintRite3D® INSPECT® software Version 2.0 was recently installed at the advanced additive manufacturing facility operated by Siemens Industrial Turbomachinery AB in Sweden.

On August 25, 2017, we announced that the Company received an invitation to speak at the Third Joint FAA – USAF Workshop on Qualification and Certification of Additively Manufactured Parts, at which Mark Cola, our President and CTO, presented, “In-situ Monitoring for Additive Manufacturing:  Implications for the Digital Manufacturing Age,” on August 31, 2017 at the University of Dayton River Campus.

On August 22, 2017, we announced that we entered into an agreement with Digital-CAN Tech Co., LTD to serve as our non-exclusive sales agent in Taiwan. Digital-CAN has experience in a variety of industries such as aerospace, medical, tooling, industrial manufacturing 4.0 applications, architecture, product design, automotive design, and lifestyle applications. We agreed to pay Digital-CAN a commission tied to revenue generated by us as a result of customers identified by Digital-CAN. As of the date of this Quarterly Report on Form 10-Q, Digital-CAN has not earned any commissions.

On August 10, 2017, we announced that our cloud-based PrintRite3D® INSPECT® software Version 2.0 was installed at Woodward Inc. Aircraft Turbine Systems group at its Zeeland, MI location. Our PrintRite3D® software is part of Woodward’s additive manufacturing strategies to ensure that their aerospace and industrial customers receive quality product.

On August 3, 2017, we announced signing Jeta Enterprises as a new manufacturer’s representative for sales of Sigma contract printing and AM services in the Northwest region of the U.S., including Oregon and Washington states. Jeta’s strong customer base in Aerospace and Medical Devices coupled with its expertise in custom-engineered components positions it to serve a growing base of demand for advanced component manufacturing with Sigma’s suite of products and services. As of the date of this Quarterly Report on Form 10-Q, Jeta has not earned any commissions.

On July 27, 2017, we announced changes in senior management. Mr. Cola, who serves as President, was appointed as Sigma’s Chief Technology Officer, responsible for building and implementing the Sigma technological strategy and guiding key technical advancements towards digitalization in the context of the Industrial Internet of Things (IIoT). Together with our executive team members, Mr. Cola will seek to expand and grow the Company through next-generation products and key customer development in a broad range of industries. John Rice, who has served as Chairman of the Board of the Company since his appointment in April 2017, replaced Mr. Cola as Chief Executive Officer effective as of July 24, 2017. As Chairman of the Board and interim Chief Executive Officer, Mr. Rice oversees our implementation of internal and external growth, with an emphasis on internal focus technology, sales, and efficiency, and externally, reaching into the marketplace to expand the Company’s digital technical bandwidth with respect to our IPQA® technology and additive manufacturing. Mr. Rice brings substantial operating and investment experience to these tasks, including with respect to operations of startup and emerging companies, corporate finance, and mergers and acquisitions.

On July 20, 2017, we announced the June 30, 2016 publication of our U.S. Patent Application No. US 2016/0185048; Multi-Sensor Quality Inference and Control For Additive Manufacturing Processes. This patent application is related to real-time quality analysis during AM processes and the characterization of material properties using acoustic signals emitted during AM which can be used in addition to optical signals to simplify the qualification of printed parts.

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On July 6, 2017, we announced that the Company has signed a Technology Development Agreement (“TDA”) with OXYS Corporation, a technology company in Cambridge, MA working in the Industrie 4.0 space. The first project to be executed under the TDA will be a new architecture platform for the Company’s PrintRite3D® INSPECT. The Company expects that the completed project will allow for miniaturization of the sensor/hardware PrintRite3D® product, enhancements to the level of hardware/software integration moving it towards board-level integration, as well as broaden the market reach of the Company’s PrintRite3D® technology to the Smart Factory and the larger Digital Enterprise, including polymer-based 3D printing.

Critical Accounting Policies

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 amounts in the accompanying consolidated financial statements and related notes. These estimates and assumptions have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. 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. Our significant accounting policies are disclosed in Note 1 to the Financial Statements included in this Quarterly Report on Form 10-Q. 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.

Results of Operations

We expectgenerate revenues through PrintRite3D® hardware and CAI software licensing of our PrintRite3D® technology to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businessescustomers that seek to improve their manufacturing production processes, and/or manipulate and improve the most functional characteristics of the materialsthrough ongoing annual software upgrades and other input components used in their business operations. We also expect tomaintenance fees. Additionally, we generate revenues thoughfrom our contract AM manufacturing using our in-houseactivities in metal 3D printing capability. However, we presently make limited sales of these technologies and services, which include limited sales of non-exclusive licenses to use our PrintRite3D® technologies, including under our Early Adopter Program and OEM Partner Program, as described above.additive manufacturing (AM). Our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our PrintRite3D® technologies.technologies, and it will depend on whether key prospective customers continue to move from AM metal prototyping to production.

During the three and nine months ended September 30, 2017,March 31, 2021, we recognized revenue of $78,046 and $518,802, respectively,$458,140, as compared to $189,952 and $642,230$221,730 in revenue recognized during the same periodsperiod in 2016.2020, an increase of $236,410. The decrease in revenue wasincrease is primarily due to reduced programmatic sales, the revenue from which was only partially replaced by new EAP and OEM Partner Program sales due to the incentivized pricing associated with those two programs. We financed our operations during the three and nine months ended September 30, 2017 and 2016 primarily fromincreased PrintRite3D® system sales, DARPA and Aerojet programs, engineering consulting services we provided to third parties during these periods and throughunit sales of $277,300 in the first quarter of 2021, partially offset by lower revenues of $52,200 from our common stockRapid Test and debt securities. We anticipate that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our PrintRite3D®-related technologies, and obtain new contract manufacturing orders in connection with our EOS M290 metal printer, as well as further perform on our engineering consulting contracts for the Aerojet Rocketdyne Booster Propulsion program and Honeywell Aerospace for the DARPA Phase III and Plus up efforts. Evaluation (“RTE”) program.

Our Cost of Revenue for the three and nine months ended September 30, 2017March 31, 2021 and 2020 was $81,214$128,331 and $267,160,$244,703, respectively, as compared to $69,259 and $207,744 for the same periods in 2016.a decrease of $116,372. The increases aredecreased cost is primarily attributable to the additionala credit of $43,952 related to a customer exchange of a PrintRite3D unit sold in December 2020, lower build costs associated with implementationas a result of the EAPengineering enhancements of our PrintRite3D units, and OEMlower costs of supporting legacy RTE programs.

Our General and Administrative Expenses for the three and nine months ended September 30, 2017, were $576,855 and $1,814,843, respectively, as compared to $437,870 and $1,314,055 for the same periods in 2016. Our payrollSigma’s total operating expenses for the three and nine months ended September 30, 2017March 31, 2021 were $295,890 and $973,172, respectively,$1,781,404 as compared to $259,011 and $727,494$1,559,641 for the same periodsperiod in 2016. Our expenses relating to stock-based compensation2020, an increase of $221,763.

Salary and Benefits costs were $847,171 for the three and nine months ended September 30, 2017March 31, 2021 compared to $652,197 for the same period in 2020, an increase of $194,974. This increase is due to an increase of nine full-time equivalent employees between the two periods.

Stock-based Compensation was $117,477 for the three months ended March 31, 2021 compared to $154,171 for the same period in 2020, a $36,694, or 24%, decrease. This decrease is primarily a result of stock options granted to our CEO vesting in the first quarter of 2020 with no such vesting in the first quarter of 2021, partially offset by stock option grants to four new employees during the three months ended March 31, 2021.

Operating and Research and Development expenditures of $196,340 were $199,225incurred during the three months ended March 31, 2021 compared to $53,689 in the same period of 2020, a $142,651 increase. The increase is due to development costs incurred in connection with PrintRite3D version 7.0 of $48,171, purchases of lab supplies of $36,474, of which metal powder purchases totaled $14,470, write-off of $36,111 in obsolete inventory, and $505,630, respectively,$20,000 incurred in connection with a simulation project.

Investor & Public Relations expenses of $108,341 were incurred during the three months ended March 31, 2021, as compared to $105,641 and $236,554, respectively, for$215,441 incurred during the same periodsperiod in 2016. Our research2020. The decrease of $107,100 is primarily due to a decrease in trade show expenses of $29,902, lower advertising expenses of $50,583, and development$22,165 in expenses incurred in the first quarter of 2020 in connection with a special meeting of shareholders.

Organization costs incurred in the three months ended March 31, 2021 were $77,616 compared to $49,444 incurred during the same period in 2020. The increase of $28,172 is due to an increase in non-employee director’s compensation of $44,958, partially offset by lower shareholder’s services expenses of $16,786.

Legal & Professional fees incurred in the three months ended March 31, 2021 were $176,847 compared to $184,891 incurred during the same period in 2020, a decrease of $8,044. This decrease is primarily a result of a decrease in legal expenses of $77,339 due to expenses incurred during the first quarter of 2020 in connection with our January 2020 private offering, Nasdaq related matters, and our February 27, 2020 reverse stock split. This decrease was partially offset by increased recruiting expenses of $26,667 related to new hires, an increase in consulting expenses of $33,310, and increases in accounting and IT support expenses of $3,031 and $3,500 respectively.

Office expenses for the three and nine months ended September 30, 2017 were $57,947 and $225,562, respectively,March 31, 2021 totaled $148,225 as compared to $37,526 and $88,504$147,747 for the same periods in 2016.

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General and Administrative Expenses principally include internal operating and sales expenses and outside service fees, the largest component of which consists of services in connection with our obligations as an SEC reporting company. The increase in General and Administrative Expenses for the three and nine months ended September 30, 2017 as compared to the same period in 20162020. Increases in payroll service fees of $7,317, postage & shipping of $11,109, office supplies of $20,888, dues & subscriptions of $7,586, and other miscellaneous expense increases of $3,805 were offset by a decrease in travel expenses of $49,398.

Other operating expenses were $86,356 for the three months ended March 31, 2021, as compared to $84,049 for the same period in 2020. The increase is principallyprimarily due to an increase in our insurance policy premiums for 2021 of $10,376, mostly offset by lower bank service fees and SEC filing fees during the resultperiod.

In the three months ended March 31, 2021, our net other income & expense was net income of fees relating$800,936 compared to andnet other expense of $971 in 2020. The 2021 net positive contribution is primarily due to an unrealized gain of $802,285 from the March 31, 2021 revaluation of the derivative liability resulting from our private placement of warrants to purchase 2,190,000 shares of common stock in the first quarter of 2021.

Sigma’s net loss applicable to common stockholders for the three months ended March 31, 2021 totaled $711,567 as compared to $1,898,832 for the same period of 2020, a consequence of our February 2017 public offering that resulted in$1,187,265 decrease. The first quarter 2021 net proceeds of approximately $5,225,650, fees incurred in connection with investing in strategic partners,operating loss contributed $131,019 to the loss decrease, the increase in interestother income contributed $801,907, and finance costs on the $1,000,000 note originated in October of 2016, along with the continued development of our IPQA®-enabled PrintRite3D® technologies and our related efforts to expand our services. The increase in payroll expenses for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 is principally the result of our hiring of additional software development staff to assist in acceleration of our IPQA®-enabled PrintRite3D® technologies and 2017 increases in administrative salaries. The increase in research and development expenses for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 is principally the result of increased contract consulting combined with software and hardware upgrades required for the continued development and improvement of our software and technology. The increase in stock-based compensation costs is due to the fact that the majority of stock options were granted after September 30, 2016, thus more stock option vesting occurred in each quarter of 2017 than in the same periods of 2016.

Our General and Administrative expenses are expected to continue to increase as we seek further commercialization of our IPQA®-enabled PrintRite3D® technologies through increased marketing and sales efforts. Similarly, we anticipate that our payroll and non-cash compensation expenses will continue to increase as we engage more employees and other service providers to support our efforts to grow our business.

Our net loss for the three and nine months ended September 30, 2017 increased over each of the prior year comparative periods and totaled $1,116,910 and $3,049,616, respectively, as compared to $719,320 and $1,931,833 for the same periods in 2016. This increase in net loss was attributable to a decrease in revenue and an increase in expenses as noted above.preferred dividends contributed $254,339.

Liquidity and Capital Resources

As of September 30, 2017,March 31, 2021, we had $2,691,487$16,843,201 in cash and had a working capital surplus of $2,482,056,$12,634,299, as compared with $398,391$3,700,814 in cash and a working capital surplus of $110,799$ 4,332,053 as of December 31, 2016.2020.

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.

On February 21, 2017,March 26, 2021, the Company closed an underwrittena public offering of equityits securities in which it issued 2,190,000 shares of common stock at $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. Pursuant to the Purchase Agreement, the purchasers severally agreed to vote the shares of common stock purchased under the Purchase Agreement in favor of any resolution presented to the stockholders of the Company for the purpose of obtaining approval of an increase in the authorized shares of the Company’s Common Stock from 12,000,000 to 24,000,000 shares (“Stockholder Approval”). In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants to purchase an aggregate of 2,190,000 shares of Common Stock at an exercise price of $4.32 per share. Each Warrant will be exercisable commencing on the date the Company obtains Stockholder Approval and will expire two years after the initial exercise date.

On January 12, 2021, the Company closed a public offering of common stock in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $5,225,650,$4,532,445 after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

During the first quarter of 2021, the Company received net cash proceeds of $1,136,010 from the exercise of outstanding warrants.

We believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner 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:

During 2021, we expect to generate revenue primarily by licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and/or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations. We also expect to generate revenues by providing contract AM services using our EOS M290 metal AM system. However, for the period from our inception through September 30, 2017, we generated revenue and financed our operations primarily from PrintRite3D®-enabled engineering consulting services as well as thru the programmatic work performed on both the DARPA Phase II and Aerojet programs we provided during this period and through sales of Sigma common stock and debt securities. We expect to further ramp upsustain our operations and our commercialization and marketing efforts which we anticipate will increase the amountwith our cash reserves and revenues generated from sales of cash we will use in our operations.

PrintRite3D® technology. We expect that our continued developmentenhancements of our IPQA®-enabled PrintRite3D® technology will enable us to further commercialize this technology forinto the AM metal market in 2021. To support the remainder of 2017. However, until commercialization of our full suite of PrintRite3D® technologies,technology, we plan to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and conducting 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 contract manufacturing for metal AM, and through the use of proceeds from sales of our securities..

The outbreak of the novel coronavirus (COVID-19) has evolved into a global pandemic. The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put in place by businesses and governments, may have a material economic effect on our business. To-date, the outbreak has not had a material adverse impact on our operations, though we have experienced delays in certain customer purchase orders. While the Company believes that such purchase orders will ultimately be realized, it is impossible to predict the timing. Further, the future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a material adverse impact on our business and the future results of the Company. 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 would be a positive trend for the Company.

Net Cash Used in Operating Activities

Net cash used in operating activities increased a net of $479,203 during the ninethree months ended September 30, 2017,March 31, 2021 decreased to $1,801,569$1,240,586 from $1,322,366$1,525,696 during the same period in 2016.  This increase was primarily due2020, a $285,110 decrease. Contributing to thethis decrease were decreases in net loss of $932,926, accounts receivable of $7,397, and deferred revenue of $43,790, and increases in generaldepreciation and administrative, payrollamortization of $5,019, total stock-based compensation of $16,140, accounts payable and researchaccrued expenses of $325,706 and development expenses noted above whichlong-term stock appreciation rights expense of $45,184. These decreases in cash usage were partially offset by the net effectunrealized gain on the derivative liability of changes$802,285 and increases in accounts receivable, notes payable,inventory and accruedprepaid expenses of $181,044 and $107,724 respectively.

Net Cash Used in Investing Activities

Net cash used by investing activities during the period. Cash used in investing activities increased during the ninethree months ended September 30, 2017March 31, 2021 was $21,969, which compares to $829,146, as compared to $79,741$50,529 of cash used by investing activities during the same period in 2016, due primarily toof 2020, a decrease of $28,560. The decrease results from lower purchases of fixed assets and lower patent costs during the $775,267 increase in notes receivables related to our loans to Morf3D and Jaguar Precision Machine in conjunction with our strategic alliances.first quarter of 2021.

Net Cash flowsProvided by Financing Activities

Cash provided by financing activities during the ninethree months ended September 30, 2017March 31, 2021 increased a net of $4,923,811to $14,404,942 from $0$2,120,324 during the same period in 2016. There were no2020 due to the receipt of $14,869,899 of proceeds less $1,600,967 of offering costs in connection with our January and March 2021 public and private offerings. The exercise of outstanding warrants during the three months ended March 31, 2021 provided an additional $1,136,010 in cash flows used orproceeds. Cash provided by financing activities during the same period in 2016.

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Some2020 resulted from the receipt of our engineering consulting contracts, including the contracts from Honeywell Aerospace, Bendix King, Siemens, EOS, Solar Turbines, Pratt & Whitney and Aerojet Rocketdyne, are fixed-price contracts, for which we will be entitled to receive a specified fee regardless$2,100,000 in proceeds less $428,876 of our cost to perform under such contract. Inoffering costs in connection with entering into these fixed-contract consulting arrangements, we are required to estimate our costs of performance. To actually earn a profit on these contracts, we must accurately estimate costs involved and assess the probability of meeting the specified objectives, realizing the expected units of work or completing individual transactions, within the contracted time period. Accordingly, if we under-estimate the cost to complete a contract, we remain obligated to complete the work based on our initial cost estimate, which would reduce the amount of profit actually earned under the contract.

We do not have any material commitments for capital expenditures during the next twelve months. Pursuant to the September 29, 2017 amendments to the Notes and Warrants discussed in Note 4 to our financial statements above, Sigma paid an aggregate amount equal to $500,000 plus all accrued interest on the Notes on October 2, 2017. In consideration of the foregoing, the Investors agreed to, among other things, extendJanuary 2020 private offering, partially offset by the payment date of the remaining 50% of the outstanding principal balance on our convertible note payable of the Notes from October 17, 2017 to the earlier of May 18, 2018 or the closing of the Company’s next underwritten public offering of securities in which the Company raises gross proceeds of at least $3,000,000 (should the Company elect to commence and close such an offering of securities).$50,000.

Based on the funds we have as of November 14, 2017, and the proceeds we expect to receive under our PrintRite3D®-enabled engineering consulting agreements, from selling or licensing our PrintRite3D® systems and software, and sales of contract AM manufacturing for metal AM parts, we believe that we will have sufficient funds to pay our administrative and other operating expenses through 2017. Until we are able to generate significant revenues and royalties from selling or licensing our PrintRite3D®-enabled technologies and our contact AM manufacturing services, ourOur ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future PrintRite3D®-enabled engineering consulting-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept engagements, possible strategic partnerships, contract manufacturing orders in connection with our EOS M290 metal printer, and proceeds received from sales of our securities. Revenue we generate from licensing our technologies is not expected to increase significantly during 2017 andwe also anticipate that there will be an increase in the amount of cash we will use during the remainder of 2017 in connection with our efforts to identify compatible businesses to possibly acquire that will be synergistic with our business (although there is no assurance than any acquisition will be consummated). Accordingly, we will have to obtainby obtaining additional capital from the sale of additional 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 financing. Suchfunding. The Company is unable to predict the effect that the COVID-19 outbreak may have on its access to the financing if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous terms. Such financing, if in the form of debt, may include debt covenants and repayment obligations that are onerous and that adversely affect our business operations. If adequate funds are not available to us, we may be required to delay, limit or terminate our business operationsmarkets. 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 credit lines as of April 22, 2021, nor have we ever had a credit line since our inception.

Inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years.

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.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures and changes in internal controls over financial reporting.

Rule 13a-15(e) under the Exchange Act defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our Chief Executive Officer, and our Principal Financial and Accounting Officer, as of the end of the period covered by this quarterly report, our management concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarterthree months ended September 30, 2017March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not applicable.

ITEM 1A. RISK FACTORS.

TheYou should consider the “Risk Factors” included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the SEC on March 31, 2017 should be considered. There have been no material changes to those Risk Factors.24, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable. None

ITEM 6. EXHIBITS.

* Indicates a management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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