What changed in this filing

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Item 1. Financial Statements

2020-10-22 compared with 2020-07-23 · 491 added, 455 removed, 402 unchanged (70% of the section changed)

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Balance Sheets

Current Assets:

Accounts Receivable,

September 30, 2020

Current Assets:

Accounts Receivable, net

Prepaid Assets

Total Current Assets

Other Assets:

Property and Equipment,

Intangible Assets,

Investment in Joint

Prepaid Asset

LIABILITIES AND

STOCKHOLDERS’

Property and Equipment, net

Intangible Assets, net

Investment in Joint Venture

Long-Term Prepaid Asset

Total Other Assets

LIABILITIES AND STOCKHOLDERS’

Current Liabilities:

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Deferred Revenue

Current Liabilities

Accrued Expenses

Total Current Liabilities

Long-Term Liabilities:

Deferred Payroll Tax Liability

Total Long-Term

CARES Act Deferred Payroll Tax Liability

Total Long-Term Liabilities

TOTAL LIABILITIES

Stockholders’

Preferred Stock,

Preferred Stock, $0.001 par;

10,000,000 shares authorized;

583 and 0 issued and outstanding, respectively

Common Stock,

Common Stock, $0.001 par;

12,000,000 shares authorized;

5,833,245 and 1,403,759 issued and outstanding, respectively

Additional Paid-In

Additional Paid-In Capital

Accumulated Deficit

(31,551,301 )

(26,095,594 )

Stockholders’

LIABILITIES AND STOCKHOLDERS’

Total Stockholders’

TOTAL LIABILITIES AND STOCKHOLDERS’

accompanying notes to condensed financial statements.

Statements of Operations

Three Months Ended

September 30,

Nine Months Ended

September 30,

COST OF REVENUE

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Stock-Based Compensation

Operating R&D

Investor & Public

Legal & Professional

Operating R&D Costs

Investor & Public Relations

Legal & Professional Service Fees

Office Expenses

Depreciation &

Operating Expenses

Depreciation & Amortization

Other Operating Expenses

Total Operating Expenses

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State Incentives

Exchange Rate Gain

Exchange Rate Gain (Loss)

Interest Expense

Loss on Dissolution

of Joint Venture

Other Income (Expense)

LOSS BEFORE PROVISION

FOR INCOME TAXES

for income Taxes

Loss on Dissolution of Joint Venture

Total Other Income (Expense)

LOSS BEFORE PROVISION FOR INCOME TAXES

Provision for income Taxes

$ (1,218,013 )

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$ (3,711,236 )

$ (4,678,397 )

Preferred Dividends

Net Loss Applicable

to Common Stockholders

Net Loss Applicable to Common Stockholders

$ (1,955,357 )

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$ (4,678,397 )

Net Loss per Common

Share –

Net Loss per Common Share –

Basic and Diluted

Weighted Average

Number of Shares Outstanding –

Weighted Average Number of Shares Outstanding –

Basic and Diluted

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Statements of Cash Flows

Nine Months Ended

September 30, 2020

September 30, 2019

OPERATING ACTIVITIES

$ (3,711,236 )

$ (4,678,397 )

Adjustments to reconcile

Net Loss to Net Cash used in operating activities:

Adjustments to reconcile Net Loss to Net Cash used in operating activities:

Noncash Expenses:

Depreciation and

Stock Based Compensation

Securities Issued

for Third Party Services

Change in assets

and liabilities:

Depreciation and Amortization

Securities Issued for Services

Change in assets and liabilities:

Accounts Receivable

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Deferred Revenue

CASH USED IN OPERATING ACTIVITIES

Accrued Expenses

Deferral of Payroll Taxes under the CARES Act

NET CASH USED IN OPERATING ACTIVITIES

INVESTING ACTIVITIES

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Payment Received from Notes Receivable

of Joint Venture

CASH USED IN INVESTING ACTIVITIES

Dissolution of Joint Venture

NET CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES

Gross Proceeds from Public and Private

Issuances of Securities

Gross Proceeds from Public and Private Issuances of Securities

Less Offering Costs

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Proceeds from Exercise of Warrants

Payroll Taxes under the CARES Act

CASH PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH

CASH AT BEGINNING

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH FOR PERIOD

CASH AT BEGINNING OF PERIOD

CASH AT END OF PERIOD

Supplemental Disclosures:

Noncash investing

and financing activities disclosure:

of Common Shares for Conversion of Preferred Shares and Preferred Dividends

Issuance of Securities

Disclosure of cash

Noncash investing and financing activities disclosure:

Issuance of Common Shares for Preferred Dividends

Disclosure of cash received for:

Issuance of Preferred Stock for Exercise of Preferred Warrants

Disclosure of cash paid for:

accompanying notes to condensed financial statements.

of Stockholders’

the Three and Six Months Ended June 30, 2020 and 2019

the Three Months Ended June 30, 2020 and June 30, 2019

Balances, March 31, 2020

$ (27,994,426 )

Common Shares Sold in Public Offering

Preferred Stock Dividends

Common Shares issued for Conversion

of Preferred Shares

Preferred Shares issued for Exercise

of Preferred Warrants

Securities Issued for Third Party

Stock Options Awarded to Employees

Common Shares Awarded to Employees

Offering Costs

the Three and Nine Months Ended September 30, 2020 and 2019

the Three Months Ended September 30, 2020 and September 30, 2019

Preferred Stock

Shares Outstanding

Preferred Stock

Shares Outstanding

Paid-in Capital

Accumulated Deficit

Balances, June 30, 2020

$ (29,595,944 )

Balances, March 31, 2019

Preferred Stock Dividends

Common Shares issued for Conversion of Preferred Shares

Preferred Shares issued for Exercise of Preferred Warrants

Securities Issued to Directors for Services

Securities Issued for Third Party Services

Securities Awarded to Employees

Balances, September 30, 2020

$ (31,551,301 )

Shares Sold in Private Placement

Shares Issued for Services

Stock Options

Awarded to Employees

Preferred Stock

Shares Outstanding

Preferred Stock

Shares Outstanding

Paid-in Capital

Accumulated Deficit

Balances, June 30, 2019

$ (22,852,348 )

the Six Months Ended June 30, 2020 and June 30, 2019

Shares Sold in Public Offering

Shares Issued to Directors for Services

Shares Issued for Third Party Services

Securities Awarded to Employees

Balances, September 30, 2019

$ (24,453,142 )

the Nine Months Ended September 30, 2020 and September 30, 2019

Preferred Stock

Shares Outstanding

Preferred Stock

Shares Outstanding

Paid-in Capital

Accumulated Deficit

Balances, December 31, 2019

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Common Shares Sold in Public Offering

Preferred Shares Sold in Private

Preferred Shares Sold in Private Offering

Preferred Stock Dividends

Common Shares issued for Conversion

of Preferred Shares

Preferred Shares issued for Exercise

of Preferred Warrants

Securities Issued for Third Party

Stock Options Awarded to Employees

Common Shares Awarded to Employees

Common Shares issued for Conversion of Preferred Shares

Preferred Shares issued for Exercise of Preferred Warrants

Securities Issued to Directors for Services

Securities Issued for Third Party Services

Securities Awarded to Employees

Offering Costs

Fractional Shares from Reverse Split

Balances, June 30, 2020

Issuance of Fractional Shares from Reverse Split

Balances, September 30, 2020

$ (31,551,301 )

Preferred Stock

Shares Outstanding

Preferred Stock

Shares Outstanding

Paid-in Capital

Accumulated Deficit

Balances, December 31, 2018

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Shares Sold in Public Offering

Shares Sold in Private Placement

Shares issued for Exercise of Warrants

Shares Issued for Cashless Exchange

of UPO’s

Shares Issued for Services

Stock Options

Awarded to Employees

Balances, June 30, 2019

Shares Issued for Cashless Exchange of Unit Purchase Options

Shares Sold in Private Placement

Shares Issued to Directors for Services

Shares Issued for Third Party Services

Securities Awarded to Employees

Balances, September 30, 2019

$ (24,453,142 )

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include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash

flows at June 30, 2020 and 2019 and for the periods then ended have been made.

Certain information and footnote disclosures normally

included in financial statements prepared in accordance with U.S.

generally accepted accounting principles have been condensed

The Company suggests these condensed financial statements be read in conjunction with the December 31, 2019 audited

financial statements and notes thereto included in the Company’s Form 10-K.

The results of operations for the periods ended

June 30, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

flows at September 30, 2020 and 2019 and for the periods then ended have been made.

Certain information and footnote disclosures

normally included in financial statements prepared in accordance with U.S.

generally accepted accounting principles have been

condensed or omitted.

The Company suggests these condensed financial statements be read in conjunction with the December 31, 2019

audited financial statements and notes thereto included in the Company’s Form 10-K.

The results of operations for the periods

ended September 30, 2020 and 2019 are not necessarily indicative of the operating results for the full year.

Reclassification

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in the current-period financial statements.

These reclassifications have no impact on the previously reported results.

Per Share - The computation of loss per share is based on the weighted average number of shares outstanding during the period

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options and preferred shares were excluded due to the anti-dilutive effect they would have on the computation.

At June 30, 2020

At September 30,

2020 and 2019, the Company had the following common shares underlying these instruments:

Months Ended June 30,

September 30,

Preferred Stock Warrants

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Preferred Stock

Convertible Note

Total Underlying

Common Shares

Convertible Note Payable

Total Underlying Common Shares

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 June 30, 2020 and 2019:

Months Ended June 30

Net Loss per Common Share

- Basic and Diluted

shares of dilutive potential common stock for the periods ended September 30, 2020 and 2019:

Three Months Ended September 30

Nine Months Ended

Net Loss per Common Share - Basic and Diluted

Loss from continuing

Operations available

to Common stockholders (numerator)

Operations available to Common stockholders (numerator)

$ (1,955,357 )

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$ (5,455,707 )

Weighted average

number of common shares Outstanding used in loss per share during the Period (denominator)

$ (4,678,397 )

Weighted average number of common shares Outstanding used in loss per share during the Period (denominator)

Enacted Accounting Standards - The FASB established the ASC as the source of authoritative accounting principles recognized

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and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.

June 30, 2020 and December 31, 2019, the Company’s inventory was comprised of:

September 30, 2020 and December 31, 2019, the Company’s inventory was comprised of:

September 30, 2020

December 31, 2019

Raw Materials

Work in Process

Finished Goods

Total Inventory

3 - Notes Payable

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to the Paycheck Protection Program (the “

) under Division A, Title I of the Coronavirus

Aid, Relief and Economic Security Act (the “

) under Division A, Title I of the Coronavirus Aid, Relief

and Economic Security Act (the “

CARES Act ”

), which was enacted March 27, 2020.

the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan

proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

of June 30, 2020, the Company has used

the entire loan proceeds to fund its payroll expenses.

As a result, the Company believes that it has met the PPP eligibility criteria

for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to be forgiven.

As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”, the

Company has recognized the entire loan amount as Other Income at June 30, 2020.

Under the terms of the

PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for

eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness

will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

of September 30, 2020, the Company has used the entire loan proceeds to fund its payroll expenses.

As a result, the Company believes

that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government

grant that is expected to be forgiven.

As such, the Company has recognized the entire loan amount as Other Income at September

Company does not anticipate taking any action that would cause any portion of the loan to be ineligible for forgiveness.

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with a deferral of payments for the first six months.

Deferral of Social Security Tax Payments

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

At September 30, 2020 the total amount of such deferral was $53,545.

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.

6 - Stockholders’

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of our common stock that we are authorized to issue (the “Share Decrease”).

effects of the stock split have been retroactively reflected to all periods presented.

The effects of the stock split have been

retroactively reflected to all periods presented.

March 27, 2020, at a special shareholders’

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were approximately $1,230,000.

the second quarter of 2020, the Company issued 1,280,360 shares of common stock in exchange for the conversion of 1,684 shares

of Series D Convertible Preferred stock, and 323,624 shares of common stock as in-kind payment of preferred stock dividends.

April 2020, the Company granted 11,517 shares of common stock to employees under the 2013 Equity Incentive Plan.

Such shares will

vest on December 31, 2020 as long as the grantee is employed by the Company on that date.

the first quarter of 2020, the Company issued 321,517 shares of common stock in exchange for the conversion of 1,107 shares of

Series D Convertible Preferred stock, and 86,801 shares of common stock as in-kind payment of preferred stock dividends.

February 2020, the Company issued 2,500 shares of common stock valued at $8.70 per share to MHZCI, LLC, an investor relations

firm engaged by the Company, as partial compensation for services to be rendered.

January 2019, the Company issued a total of 200,000 shares of common stock to directors valued at $1.50 per share, or $300,000,

with such shares to vest ratably over four quarterly instalments, subject in each case to such director’s continuing

service as a director.

in January 2019, the Company issued 88,431 shares of common stock upon the cashless exercise of Unit Purchase Options issued in

our June 2018 public offering.

the nine months ended September 30, 2020, the Company issued 3,157,427 shares of common stock in exchange for the conversion of

6,109 shares of Series D Convertible Preferred stock, and 749,924 shares of common stock as in-kind payment of preferred stock

the nine months ended September 30, 2020, the Company issued 25,851 shares of common stock for services.

January 2019, the Company issued 8,843 shares of common stock upon the cashless exercise of Unit Purchase Options issued in our

June 2018 public offering.

January and February 2019, the Company issued a total of 7,023 shares of common stock upon the exercise of 7,023 warrants having

an exercise price of $10.80 resulting in gross cash proceeds of $75,848.

March 2019, the Company issued 1,500 shares of common stock to the Company’s Vice President of Business Development in connection

with his achievement of performance milestones, with such shares vesting immediately.

in March 2019, the Company closed a public offering of equity securities in which it issued 1,400,800 shares of common stock and

warrants to purchase a total of 420,240 shares of common stock resulting in net proceeds of approximately $1,679,230, after deducting

placement agent commissions and other offering expenses payable by the Company.

the nine months ended September 30, 2019, the Company closed a public offerings of equity securities in which it issued 447,580

shares of common stock and warrants to purchase a total of 42,024 shares of common stock resulting in net proceeds of approximately

$3,810,267 after deducting placement agent commissions and other offering expenses payable by the Company.

May 2019, the Company closed a private placement of equity securities in which it issued 40,000 shares of common stock and warrants

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agent commissions and other offering expenses payable by the Company.

the nine months ended September 30, 2019, we issued 22,650 shares of our common stock for services.

Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value.

583 and 0 shares of preferred stock were

issued and outstanding at June 30, 2020 and 2019, respectively.

issued and outstanding at September 30, 2020 and 2019, respectively.

January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors

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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.

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,

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Shares being redeemed

June 30, 2020 there were 0 shares of Series D Convertible Preferred stock outstanding.

September 30, 2020 there were 250 shares of Series D Convertible Preferred stock outstanding, which if converted as of September

30, 2020, including the make-whole dividends, would have resulted in the issuance of 166,044 shares of common stock.

with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with

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is initially convertible into 48,544 shares of Common Stock.

June 30, 2020, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of June 30,

September 30, 2020, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of September

30, 2020, including the make-whole dividends, would have resulted in the issuance of 61,651 shares of common stock.

previous years and in the six months ended June 30, 2020, the Company issued to various employees, directors, and contractors

previous years and in the nine months ended September 30, 2020, the Company issued to various employees, directors, and contractors

shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013

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Such shares are valued at the fair value at the date of issue.

The fair value is expensed as compensation

over the vesting period and recorded as an increase to stockholders’

During the six months ended June 30, 2020 and

June 30, 2019, $7,870 and $153,000, respectively, of the unvested compensation cost related to these issues was recognized.

June 30, 2020, there was $15,740 of unrecognized deferred compensation expense to be recognized over the remainder of the

The fair value is expensed as compensation over the

vesting period and recorded as an increase to stockholders’

During the nine months ended September 30, 2020 and

September 30, 2019, $15,740 and $228,000, respectively, of the unvested compensation cost related to these issues was recognized.

September 30, 2020, there was $7,870 of unrecognized deferred compensation expense to be recognized over the remainder of the

June 15, 2020, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to

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August 2019, the Company terminated its 2011 Equity Incentive Plan.

of June 30, 2020, an aggregate of 436,720 shares of common stock were reserved for issuance under the 2013 Plan.

the six months ended June 30, 2020, the Company granted options to purchase a total of 335,183 shares of common stock to

19 employees and 4 consultants with vesting periods ranging from immediately upon issuance to 3 years beginning

June 15, 2020.

the six months ended June 30, 2019, the Company granted options to purchase a total of 286,925 shares of common stock to 18

employees and 1 consultant with vesting periods ranging from immediately upon issuance to 4 years beginning January

of September 30, 2020, an aggregate of 255,534 shares of common stock were reserved for issuance under the 2013 Plan.

the nine months ended September 30, 2020, the Company granted options to purchase a total of 472,183 shares of common stock to

20 employees, 5 directors and 5 consultants with vesting periods ranging from immediately upon issuance to 3 years beginning July

the nine months ended September 30, 2019, the Company granted options to purchase a total of 440,263 shares of common stock to

21 employees and 2 consultants with vesting periods ranging from immediately upon issuance to 4 years beginning January 2019.

Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s

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the fair value of the stock options over the requisite service period for each stock option award.

share-based compensation expense included in the statements of operations for the six months ended June 30, 2020 and 2019 is $424,989

and $474,566 of which $417,119 and $321,149 is related to stock options, respectively.

share-based compensation expense included in the statements of operations for the nine months ended September 30, 2020 and 2019

is $483,208 and $403,768 of which $467,468 and $400,768 is related to stock options, respectively.

fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for

the six months ended June 30, 2020 and 2019:

the nine months ended September 30, 2020 and 2019:

Dividend yield

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Expected life (in years)

activity for the six months ended June 30, 2020 and the year ended December 31, 2019 was as follows:

activity for the nine months ended September 30, 2020 and the year ended December 31, 2019 was as follows:

Weighted Average

Options outstanding at December 31, 2018

Forfeited or cancelled

Options outstanding at December 31, 2019

Options outstanding June 30, 2020

Options expected to vest in the future

as of June 30, 2020

Options exercisable at June 30,

Options vested,

exercisable, and options expected to vest at June 30, 2020

Forfeited or cancelled

Options outstanding September 30, 2020

Options expected to vest in the future as of September 30, 2020

Options exercisable at September 30, 2020

Options vested, exercisable, and options expected to vest at September 30, 2020

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 $2.67 closing price of our common

stock on June 30, 2020.

324,833 of the 2020 option grants have an exercise price currently below $2.67.

June 30, 2020, there was $1,088,934 of unrecognized share-based compensation expense related to unvested share options

with a weighted average remaining recognition period of 3.13 years.

of our common stock for those awards that have an exercise price currently below the $2.24 closing price of our common stock on

September 30, 2020.

None of the 2020 option grants have an exercise price currently below $2.24.

September 30, 2020, there was $1,074,095 of unrecognized share-based compensation expense related to unvested share options with

a weighted average remaining recognition period of 2.88 years.

Appreciation Rights

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Compensation”, and any changes in fair value are reflected in income as of the applicable reporting date.

fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the six

months ended June 30, 2020:

fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the nine

months ended September 30, 2020:

Dividend yield

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Expected life (in years)

activity for the six months ended June 30, 2020 was as follows:

outstanding at December 31, 2019

SARs outstanding

June 30, 2020

SARs expected to

vest in the future as of June 30, 2020

SARs exercisable

at June 30, 2020

vested, exercisable, and options expected to vest at June 30, 2020

activity for the nine months ended September 30, 2020 was as follows:

Weighted Average

SARs outstanding at December 31, 2019

Forfeited or cancelled

SARs outstanding September 30, 2020

SARs expected to vest in the future as of September 30, 2020

SARs exercisable at September 30, 2020

SARs vested, exercisable, and options expected to vest at September 30, 2020

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 $2.24 closing price of our common stock on

June 30, 2020.

All of the 2020 SARs grants have an exercise price currently below $2.67.

June 30, 2020, there was $236,419 of unrecognized share-based compensation expense related to unvested SARs with a weighted average

remaining recognition period of 2.98 years.

activity for the six months ended June 30, 2020 and 2019 was as follows:

outstanding at December 31, 2018

outstanding at June 30, 2019

outstanding at December 31, 2019

outstanding at June 30, 2020

September 30, 2020.

None of the 2020 SARs grants have an exercise price currently below $2.24.

September 30, 2020, there was $216,149 of unrecognized share-based compensation expense related to unvested SARs with a weighted

average remaining recognition period of 2.73 years.

activity for the nine months ended September 30, 2020 and 2019 was as follows:

Weighted Average

Warrants outstanding at December 31, 2018

Forfeited or cancelled

Warrants outstanding at September 30, 2019

Warrants outstanding at December 31, 2019

Forfeited or cancelled

Warrants outstanding at September 30, 2020

connection with its January 2020 private placement, the Company issued 6,156 warrants to purchase its Series D Preferred Stock

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Pursuant to the terms of the Securities Purchase Agreement, the Company forced the exercise of 512 warrants on March 27,

During the second quarter, an additional 1,684 warrants were exercised, resulting in the issuance of 1,603,984

shares of common stock.

As of June 30, 2020, there were 3,960 Preferred Warrants outstanding, which if exercised would result

in the issuance of 3,960 shares of Series D Convertible Preferred Stock.

The Series D Convertible Preferred stock, including make-whole

dividends, was convertible into 2,147,277 shares of common stock on June 30, 2020.

During the second quarter, 1,684 warrants were exercised, resulting in the issuance of 1,603,984 shares of common stock.

During the third quarter, 3,568 warrants were exercised, resulting in the issuance of 1,895,049 shares of common stock.

September 30, 2020, there were 392 Preferred Warrants outstanding, which if exercised would result in the issuance of 392 shares

of Series D Convertible Preferred Stock.

The Series D Convertible Preferred stock, including make-whole dividends, was convertible

into 260,089 shares of common stock on September 30, 2020.

7 - Subsequent Events

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year ended December 31, 2019 and elsewhere in this report.

is a leading provider of quality assurance software to the commercial 3D metal printing industry under the PrintRite3D®

We specialize in the development and commercialization of real-time monitoring solutions known as PrintRite3D®

3D metal advanced manufacturing technologies.

PrintRite3D detects and classifies defects and anomalies real-time during the manufacturing

process and informs the production manager of quality issues.

principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our telephone number is (505) 438-2576.

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2020, we reported several events, including the following (in reverse chronological order):

October 21, 2020, we announced the newly formed partnership for the development and expansion of our industry leading PrintRite3D

In-Process Quality Assurance technology for an application to powder-blow Directed Energy Deposition (DED) additive processes.

We have developed the hardware and software and will validate the technology in partnership with Northwestern University, who

acquired the first PrintRite3D DED system.

The beta system will be installed onto the customized open-architecture DED system,

named Additive Rapid Prototyping Instrument (ARPI) system located at Northwestern’s Advanced Manufacturing Processes Laboratory

DED has been successfully applied in various industries, including aerospace, oil & gas, defense, marine and architecture.

Aerospace manufacturers are increasingly using the technology to produce structural parts for satellites and military aircraft.

This initiative expands our market opportunity and is the first step in our strategy to apply our technology across a broad array

of Additive Manufacturing processes.

October 14, 2020, we announced that we entered into a strategic alliance with IN4.OS, a leader in advanced manufacturing, to build

Smart Factories of the Future to meet the demands of high technology sectors including defense, space, aerospace and life sciences.

Smart Factory of the Future, an IN4.OS US LLC concept, is a cyber-physical system, location agnostic factory that has the ability

to deliver flexible and scalable manufacturing capabilities.

Sigma Labs' PrintRite3D®

technology will be used to ensure the

highest level of quality for mission critical metal parts manufactured with 3D printers.

Additive manufacturing ("AM"),

which we believe to be a critical core component of the "Fourth Industrial Revolution,"

provides flexibility in the

manufacturing process to build custom mission critical parts on demand, with unprecedented complexity in times of shortages.

will be utilizing DMG MORI's LASERTEC line of 3D metal printers, which have been designated as PrintRite3D®

PrintRite3D®

Ready is a Sigma Labs program for manufacturers of 3D metal printers by which the manufacturer and Sigma certify that their printers

can accommodate a PrintRite3D®

system and peripherals, such as optics and cables, and that the systems have been tested and

perform as documented.

This ensures end users that their in-process quality assurance (“IPQA”) processes will be consistent

across a heterogeneous environment of 3D metal printers.

October 6, 2020, we announced the launch of our newest product, the PrintRite3D Lite In-Process Quality Assurance system for which

we were awarded our first contract from Coherent, Inc.

(NASDAQ:COHR), one of the world's leading providers of lasers

and laser-based technology for scientific, commercial, and industrial customers.

The PrintRite3D®

Lite IPQA®

designed and developed specifically to fulfill the need for melt pool quality monitoring for the small, compact, entry level machines

being used in academia, R&D, dental, and industrial small lot production.

The latest addition to the PrintRite3D suite of

products, PrintRite3D Lite features our patented and proven TED (Thermal Energy Density) metric only for use in applications that

do not require the full feature PrintRite3D solution.

The less complex, smaller footprint, lower price point product provides

users of entry level machines the ability to monitor and validate melt pool thermal conditions gaining valuable insights to part

design and manufacturing.

September 29, 2020, we announced that we were awarded a contract for an initial system by Baker Hughes, a leading global energy

technology provider, to begin production deployment of PrintRite3D®

in-process quality assurance software, following a successful

Rapid Test and Evaluation (RTE) program.

The extensive evaluation process involved running PrintRite3D®

on an EOS single laser

machine and a SLM dual laser machine.

September 10, 2020, we announced that we have extended our current relationship with Additive Industries, a 3D metal printing

equipment manufacturer to OEM its PrintRite3D®

Quality Assurance and Monitoring system, and that and the two companies have

completed the certification process designating that MetalFAB1 printers are PrintRite3D®

The benefits to end users

include reduced post-processing costs, less material waste, and faster part qualification.

The companies will begin selling PrintRite3D®

to new and existing users of MetalFAB1 3D printers.

August 25, 2020, we announced that we were awarded a contract by Mitsubishi Heavy Industries, a global leader in engineering

and manufacturing, to implement PrintRite3D®

in-process quality assurance (IPQA®) software.

The PrintRite3D system has

been installed on a laser powder bed fusion system for the development and qualification of MHI additive manufacturing production

August 13, 2020, we announced the appointment of industry veteran Steve Immel to the position of Senior Director Business Development,

North America.

Immel is responsible for engaging with 3D printer OEMS, additive manufacturers, academic institutions and research

organizations to propel Sigma Labs PrintRite3D®

in-process quality assurance solutions into production applications.

July 15, 2020, we signed a global agreement with a major printer manufacturer headquartered in Europe who will designate their

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as their preferred monitoring solution.

May 4, 2020, we announced that effective April 30, 2020, we appointed Mark K.

Ruport as President and Chief Executive Officer.

Ruport will continue to serve as a member of the Board of Directors.

As part of the transition, John Rice stepped aside from

his position as President and Chief Executive Officer and will continue in his role as the non-executive Chairman of the Board

of Directors of Sigma Labs.

This completed the management transition process that started in December 2019 when Mr.

Ruport joined

the Company to bring his extensive experience in developing and employing a multi-layered distribution model to selling enterprise

software on a global scale.

April 6, 2020, the Company closed a public offering of equity securities in which it issued 493,027 shares of common stock and

pre-funded warrants to purchase up to 22,438 shares of the Company’s common stock.

The Company also issued Series A Warrants

to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement.

In connection

with this offering, the Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate

of 41,237 shares of the Company’s Common Stock (which amount is based on the number of Common Shares and shares underlying

the Pre-Funded Warrants) at an exercise price of $3.64 per share.

Net proceeds to the Company after deducting offering expenses

were approximately $1,230,000.

March 24, 2020, we announced that we were awarded two U.S.

patents for our industry-leading technology, PrintRite3D ®

These two patents, (1) Systems and Methods for Additive Manufacturing Operations;

Systems and Methods for Measuring Radiated Thermal Energy During an Additive Manufacturing Operation further advanced the ability

of our software to detect defects and anomalies during the manufacturing process, saving time, money and waste and accelerating

the transition of AM to serial production.

March 5, 2020, we announced that we have agreed with Materialise NV, a leading provider

of additive manufacturing software and of sophisticated 3D printing services, to evolve our previously announced memorandum of

understanding (MOU) to cooperate on the integration of the Materialise MCP Controller with Sigma Labs’

PrintRite3D®

technology and have further agreed to enter into a binding joint sales agreement to begin beta customer commercialization of the

integrated PrintRite3D®

and Materialise Control Platform (MCP) product.

The MCP is an embedded hardware and software solution

that addresses the growing need for broader and more straightforward control over the additive manufacturing process by giving

full control to the end-user.

The companies are near completion of the integration and are now positioned to offer a unique

product solution for retrofit of existing machines, OEM machine integration and closed loop control.

March 3, 2020, we announced that we were awarded a contract to implement our PrintRite3D Real-Time Melt Pool Analytics technology

at Northwestern University.

In collaboration with two university research centers at Northwestern

University, Northwestern Initiative on Manufacturing Science and Innovation (NIMSI) and Center for Hierarchical Materials Design

(CHiMaD), Sigma Labs will integrate the PrintRite3D system to a DMG Mori LASERTEC12 Selective Laser Melting machine.

at NIMSI have developed computer-integrated systems for innovative manufacturing processes, including subtractive, deformation-based

and additive processes.

Labs and Northwestern will collaborate to further validate the performance and capabilities Sigma’s technology to identify

real-time defect formations during the printing process.

The DMG MORI LASERTEC 12 SLM machine, is yet another new platform for

Sigma Labs, further proving out PrintRite3D’s position as the agnostic in process quality system that can be deployed on

all major laser powderbed brands and is setting the standard for third party independent quality assurance monitoring of metal

additive manufacturing systems.

February 26, 2020, we announced that we were awarded a contract with the Mississippi State University Center for Advanced Vehicular

Systems (CAVS), a world-class interdisciplinary research center that uses state-of-the-art technology to address engineering challenges

mobility industries The Mississippi State University Center for Advanced Vehicular Systems will install PrinteRite3D

on a Renishaw AM400 machine, a new OEM platform for Sigma Labs, further proving out PrintRite3D’s platform interoperability

potential to an increasingly large machine base.

Per the terms of the agreement, in addition to any research or commercial applications

of PrintRite3D®, CAVS has agreed to serve as a real-world test bed for new product improvements that Sigma will roll out over

January 28, 2020, pursuant to a securities purchase agreement with certain

institutional investors, the investors purchased shares of a newly created series of the Company’s preferred

stock, warrants to purchase the Company’s common stock and warrants to purchase such preferred stock for total gross cash

proceeds to the Company of $1.6 million.

Additionally, on January 28, 2020, pursuant to a securities purchase agreement,

the Company’s largest shareholder and certain of its directors purchased shares of another new series of the Company’s

preferred stock and warrants to purchase the Company’s common stock for total gross cash proceeds to the Company of $500,000.

Accounting Policies

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of Operations

Months Ended June 30, 2020 and June 30, 2019

expect to generate revenue primarily by selling and licensing our IPQA technologies, selling technical support services, contract

manufacturing and selling specialty parts and studies to businesses that seek to improve their manufacturing production processes

and production-run quality yields.

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.

the three months ended June 30, 2020, we recognized revenue of $167,688, as compared to $33,582 in revenue recognized during

Months Ended September 30, 2020 and September 30, 2019

expect to generate revenue primarily by selling and licensing our In-Process-Quality-Assurance ("IPQA") technologies,

known as PrintRite3D ®

, selling technical support services, contract manufacturing and selling specialty parts and

studies to businesses that seek to improve their manufacturing production processes and production-run quality yields.

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.

the three months ended September 30, 2020, we recognized revenue of $248,526, as compared to $171,003 in revenue recognized during

the same period in 2019, an increase of $77,523.

The increase is primarily due to a PrintRite3D®

as well as revenue recognized under the legacy Rapid Test and Evaluation (“RTE”) program and an in-house RTE during

Cost of Revenue for the three months ended June 30, 2020 and 2019 was $57,684 and $60,625, respectively, a decrease

The decrease is primarily attributable to the reclassification of $43,510 of costs to inventory,

partially offset by the cost of the PrintRite3D®

unit sale during the quarter, as well as the ongoing support of legacy

RTE programs, including equipment upgrades and additional labor costs.

The increase is primarily due to increased PrintRite3D®

unit sales, including

the first sale of a PrintRite3D Lite ®

unit during the quarter.

cost of revenue for the three months ended September 30, 2020 and 2019 was $97,785 and $178,760, respectively, a decrease of $80,975.

The decrease is primarily attributable to a decrease in certain material costs, a switch to remote installations resulting in

lower travel costs, and the reclassification of low-cost inventory parts to supplies.

Sigma’s

total operating expenses for the three months ended June 30, 2020 were $1,526,554 as compared to $1,569,064 for the same

total operating expenses for the three months ended September 30, 2020 were $1,362,513 as compared to $1,600,914 for the same

period in 2019, a decrease of $238,401.

and benefits costs were $605,295 for the three months ended June 30, 2020 compared to $581,356 for the same period in 2019,

an increase of $23,939.

This 4.1% cost increase correlates to an increase in executive management salary

during a now completed transition period, employee salary increases that were effective in the second half of 2019, and an employee

who was a consultant during the same period in 2019, partially offset by a decrease in average employee headcount of three between

the two periods.

compensation was $270,818 for the three months ended June 30, 2020 compared to $220,360 for the same period in 2019, a

$50,458, or 22.9% increase, primarily due to additional options granted to employees during the quarter, as well

as stock grants to employees related to the 15% salary deferral in place between May 1, 2020 and September 30, 2020.

and development expenditures of $111,647 were incurred during the three months ended June 30, 2020 compared to $118,845

in the same period of 2019, a $7,198 decrease.

The decrease is due to substantially completed product development compared

to the same period in 2019, as well as reduced spending to conserve cash, partially offset by a write-off of $20,600 in obsolete

inventory and $18,101 in parts and materials used in testing.

& Public Relations expenses of $171,287 were incurred during the three months ended June 30, 2020, as compared to $157,318

and benefits costs were $657,889 for the three months ended September 30, 2020 compared to $644,800 for the same period in 2019,

an increase of $13,089 or 2%.

This increase is due to expense associated with the Stock Appreciation Rights granted to executive

management in June 2020.

compensation was $58,219 for the three months ended September 30, 2020 compared to $79,202 for the same period in 2019, a $20,983,

or 26% decrease, primarily due to the forfeiture of employee stock options during the quarter.

and development expenditures of $79,673 were incurred during the three months ended September 30, 2020 compared to $212,230 in

the same period of 2019, a $132,557 decrease.

The decrease is due to substantially completed product development compared to the

same period in 2019, as well as reduced spending to conserve cash.

& public relations expenses of $272,964 were incurred during the three months ended September 30, 2020, as compared to $269,130

incurred during the same period in 2019.

The increase of $13,969 is primarily due to $33,306 in expenses incurred

in connection with an Investor Relations consultant, and $6,700 due to the SOLVE, advertising campaign, partially offset

by a reduction in trade show expenses.

& Professional fees incurred in the three months ended June 30, 2020 were $219,007 compared to $218,919 incurred

during the same period in 2019.

Expenses incurred during the quarter include costs incurred in connection with the Paycheck

Protection Plan loan, Nasdaq compliance, our April financing and our Annual Shareholders Meeting, offset by lower recruiting expenses

of $63,154 as there were no new employee hires during the quarter.

expenses incurred during the three months ended June 30, 2020 were $78,843 compared to $184,068 incurred during the same

The increase of $3,834 is primarily due to expenses incurred in connection with an investor

relations consultant, offset by a decrease in advertising costs of $18,287, a decrease in organization costs of $17,204 and a

reduction in trade show expenses of $12,682.

& professional fees incurred in the three months ended September 30, 2020 were $100,144 compared to $116,221 incurred during

the same period in 2019.

Expenses incurred during the quarter include $24,495 in legal costs associated with various agreements,

the Stock Appreciation Rights Plan, and the Annual Shareholders Meeting, offset by lower consulting expenses for the quarter of

expenses incurred during the three months ended September 30, 2020 were $84,357 compared to $186,430 incurred during the same

period in 2019, a decrease of $102,073, or 55%.

The decrease is primarily due to decreased travel costs of $118,084

as a result of the COVID-19 pandemic, partially offset by $12,900 of amortization expense related to our membership in the United

Kingdom’s National Centre for Additive Manufacturing.

and Amortization expense for the three months ended June 30, 2020 was $17,970, compared to $49,203 for the same period in 2019.

The primary reason for the decrease is that our 3D metal printer was fully depreciated in November of 2019.

Operating Expenses were $51,687 for the three months ended June 30, 2020, compared to $36,994 incurred during the same period

The increase is primarily due to higher insurance premiums in 2020, in particular, our Director’s & Officers

insurance policy.

the three months ended June 30, 2020, our net other income & expense was net income of $506,912 compared to net other

The decrease is primarily due to decreased travel costs of $70,568 as a result

of the COVID-19 pandemic, lower computer hardware and software purchases of $21,909, and lower dues and subscription costs of

and amortization expense for the three months ended September 30, 2020 was $50,167, compared to $52,636 for the same period in

2019, a decrease of $2,469, or 4.7%.

The primary reason for the decrease is that our 3D metal printer was fully depreciated in

November of 2019, partially offset by increases in depreciation for PrintRite 3D units on consignment and amortization of patents.

operating expenses were $59,100 for the three months ended September 30, 2020, compared to $40,265 incurred during the same period

The increase is primarily due to higher insurance premiums in 2020, in particular, our Directors & Officers insurance

the three months ended September 30, 2020, our net other income & expense was net expense of $6,241 compared to net other

income of $7,877 in 2019.

The 2020 net positive contribution is primarily from $151,657 in New Mexico state job

incentive credits, and $361,700 from the recognition of our PPP loan as a government grant.

The grant was recognized during

the quarter as the related payroll costs were incurred, and the Company has complied with all conditions attached to the grant.

The decrease is primarily due to higher bank interest income in 2019 plus a gain on the settlement of

an insurance claim.

Sigma’s

net loss applicable to common stockholders for the three months ended June 30, 2020 totaled $1,601,518 as compared to $1,593,491

net loss applicable to common stockholders for the three months ended September 30, 2020 totaled $1,955,357 as compared to $1,600,794

for the same period of 2019, a $354,563 increase.

The second quarter 2020 preferred dividends contributed $691,880

to the loss increase, offset by a decrease in the net operating loss for the quarter of $179,557, and an increase in other

income of $504,294.

Months Ended June 30, 2020 and 2019

the six months ended June 30, 2020, we recognized revenue of $389,418 compared to $98,032 during the same period of 2019.

The third quarter 2020 preferred dividends contributed $737,344 to the loss

increase while the decrease in other income contributed $14,1178.

These amounts were partially offset by a decrease in the net

operating loss for the quarter of $396,899.

Months Ended September 30, 2020 and 2019

the nine months ended September 30, 2020, we recognized revenue of $637,944 compared to $269,035 during the same period of 2019.

The primary contributors to the $368,909 increase were an increase in PrintRite3D®

unit sales contributing $181,387,

and RTE revenue of $102,064.

cost of revenue for the six months ended June 30, 2020 was $302,387 compared to $157,180 during the same period in 2019.

unit sales contributing $347,779, and revenue

from our Rapid Test and Evaluation Program (RTE) of $62,064.

cost of revenue for the nine months ended September 30, 2020 was $400,172 compared to $335,939 during the same period in 2019.

The increase of $64,233 is primarily due to the cost associated with our increase in PrintRite3D®

unit sales, as

well as the ongoing support of legacy RTE programs, including equipment upgrades and additional labor costs.

unit sales, as well as the

ongoing support of legacy RTE programs, including equipment upgrades and additional labor costs.

Sigma’s

total operating expenses for the six months ended June 30, 2020 were $3,086,195 compared to $3,076,162 for the same period

in 2019, a $10,033 increase.

costs for the six months ended June 30, 2019 were $1,257,492 compared to $1,093,916 for the same period in 2019, an

increase of $163,576.

The increase is primarily due to higher average employee headcount during the first quarter of 2020, plus

additional executive management salaries of $51,667 during the now completed transition, an employee who was a consultant during

the same period in 2019, employee salary increases became effective in the second half of 2019, and $6,907 of expense related

to the Stock Appreciation Rights plan.

compensation for the six months ended June 30, 2020 was $424,989 compared to $474,566 for the same period in 2019, a $49,577

decrease, primarily due to zero stock-based compensation issued to our directors to-date in 2020.

the six months ended June 30, 2020, Sigma incurred research and development expenditures of $165,335 compared to $264,117

total operating expenses for the nine months ended September 30, 2020 were $4,448,708 compared to $4,677,077 for the same period

in 2019, a $228,369, or 4.9% decrease.

costs for the nine months ended September 30, 2020 were $1,915,381 compared to $1,738,716 for the same period in 2019, an increase

The increase is primarily due to higher average employee headcount during the first quarter of 2020, plus additional

executive management salaries of $51,667 during the now completed transition, an employee who was a consultant during the same

period in 2019, employee salary increases which became effective in the second half of 2019, and $22,330 of expense related to

the Stock Appreciation Rights plan.

compensation for the nine months ended September 30, 2020 was $483,208 compared to $403,768 for the same period in 2019, a $79,440

increase, primarily due to increased stock-options and common share grants issued to employees in 2020.

the nine months ended September 30, 2020, Sigma incurred research and development expenditures of $245,008 compared to $476,346

in the same period of 2019.

The $98,782 decrease in these expenditures during the first six months of 2020 is a

result of the substantially completed product development compared to the same period in 2019, as well as reduced spending to

conserve cash.

and Public Relations expenses incurred in the six months ended June 30, 2020 were $409,555, compared to $315,107 during the same

period in 2019.

The $94,448 increase in the six-month comparative expenditures results primarily from expenses incurred in connection

with the March 27, 2020 Special Meeting of Shareholders, as well as $33,306 in expenses incurred in connection with an Investor

Relations consultant, and $6,700 due to the SOLVE advertising campaign.

and Professional fees incurred in the six months ended June 30, 2020 were $430,515, compared to $403,489 incurred during the same

period in 2019, an increase of $27,026, or 6.7%.

Legal fees increased by $117,276 due to our January financing and April financings,

the February 2020 reverse stock split, the March 2020 Special Shareholders Meeting, and various Nasdaq-related compliance issues,

partially offset by reduced recruiting expenses of $63,185 and lower consulting and IT support expenses of $30,352.

the six months ended June 30, 2020, Sigma’s office expenses were $226,590 compared to $350,178 in the same period of 2019.

The $231,338 decrease in these expenditures during the first nine months of 2020 is a result of the

substantially completed product development compared to the same period in 2019, as well as reduced spending to conserve cash.

and public relations expenses incurred in the nine months ended September 30, 2020 were $682,518 compared to $734,237 during the

same period in 2019.

The $51,719 decrease in the nine-month comparative expenditures results primarily from a $115,766 decrease

in director’s fees and the reclassification of our $55,000 annual Nasdaq membership fee to dues and subscriptions, partially

offset by increases in IR consulting fees of $58,354 and shareholder’s services of $53,793.

and professional fees incurred in the nine months ended September 30, 2020 were $530,660, compared to $519,710 incurred during

the same period in 2019, an increase of $10,950, or 2.1%.

Legal fees increased by $141,771 due to our January financing and April

financings, the February 2020 reverse stock split, the March 2020 Special Shareholders Meeting, and various Nasdaq-related compliance

issues, partially offset by reduced recruiting expenses of $64,872 and lower consulting expenses of $63,361.

the nine months ended September 30, 2020, Sigma’s office expenses were $310,947 compared to $536,608 in the same period

The $225,661 decrease in these expenditures primarily resulted from $232,899 in reduced travel to the COVID-19 pandemic,

in reduced office supplies and computer hardware expenses, partially offset by $26,000 of amortization expense related to our

membership in the United Kingdom’s National Centre for Additive Manufacturing, and amortization of our annual Nasdaq membership

fee of $28,248.

and Amortization expense for the six months ended June 30, 2020 was $35,983, compared to $97,586 for the same period in 2019.

and $55,293 in reduced office supplies and computer hardware expenses, partially offset by an increase of $49,235 in dues and

subscriptions related to the expense related to our membership in the United Kingdom’s National Centre for Additive Manufacturing,

and our annual Nasdaq membership fee.

and Amortization expense for the nine months ended September 30, 2020 was $86,150, compared to $150,222 for the same period in

The primary reason for the decrease is that our 3D metal printer was fully depreciated in November of 2019.

the six months ended June 30, 2020, our net other income & expense was net income of $505,941, as compared to net income

operating expenses for the nine months ended September 30, 2020 were $194,836, as compared to $117,470 during the same period

The increase of $77,366 is primarily due to increased premiums for our Directors and Officers insurance policy.

the nine months ended September 30, 2020, our net other income & expense was net income of $499,700, as compared to net income

of $65,584 during the same period in 2019.

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of $99,780 plus $361,700 from the recognition of our PPP loan as a government grant.

The grant was recognized during the quarter

as the related payroll costs were incurred, and the Company has complied with all conditions attached to the grant.

The grant was recognized as the related payroll

costs were incurred, and the Company has complied with all conditions attached to the grant.

Sigma’s

net loss applicable to common shareholders for the six months ended June 30, 2020 totaled $3,500,350 as compared to $3,077,603

net loss applicable to common shareholders for the nine months ended September 30, 2020 totaled $5,455,707 as compared to $4,678,397

for the same period in 2019, a $777,310 increase.

Contributing to this increase were preferred dividends of $1,007,127,

partially offset by a decrease in our net operating loss of $136,146 and an increase in other net income of $448,234.

financed our operations during the three and six months ended June 30, 2020 and 2019 primarily from revenue generated

from PrintRite3D®

Contributing to this increase were preferred dividends of $1,744,471, partially

offset by a decrease in our net operating loss of $533,045 and an increase in other net income of $434,116.

financed our operations during the three and nine months ended September 30, 2020 and 2019 primarily from revenue generated from

PrintRite3D®

system sales and engineering consulting services we provided to third parties during these periods and through

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and Capital Resources

of June 30, 2020, we had $2,445,766 in cash and working capital of $2,768,591, as compared with $86,919 in cash

and a working capital deficit of $98,315 as of December 31, 2019.

of September 30, 2020, we had $4,510,548 in cash and working capital of $5,208,568, as compared with $86,919 in cash and a working

capital deficit of $98,315 as of December 31, 2019.

major sources of funding have been proceeds from public and private offerings of our equity securities (both common stock and

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Paycheck Protection Program (the “

) under Division A, Title I of the Coronavirus

Aid, Relief and Economic Security Act (the “

) under Division A, Title I of the Coronavirus Aid, Relief and

Economic Security Act (the “

CARES Act ”

), which was enacted March 27, 2020.

the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four

weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities,

and maintains its payroll levels.

The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces

salaries during the eight-week period.

As of June 30, 2020, the Company has used the entirety of the loan proceeds

for purposes consistent with the PPP and has not taken any actions that it believes will reduce the amount eligible for forgiveness.

As such, the Company believes that the entire amount of the loan will be forgiven.

However, to the extent any portion of the loan

is determined to be ineligible for forgiveness, such unforgiven portion of the loan is

payable over 2-5 years at an interest rate of 1%, with a deferral of payments for the first six months.

Under the terms of the PPP,

PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible

purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness will

be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

As of September 30, 2020, the

Company has used the entirety of the loan proceeds for purposes consistent with the PPP and has not taken any actions that it

believes will reduce the amount eligible for forgiveness.

As such, the Company believes that the entire amount of the loan will

However, to the extent any portion of the loan is determined to be ineligible for forgiveness, such unforgiven portion

of the loan is payable over 2-5 years at an interest rate of 1%, with a deferral of payments for the first six months.

April 6, 2020, the Company closed an offering of equity securities in which the Company sold and issued to certain institutional

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If all of the Private Warrants are exercised by the

holders thereof, the potential gross cash proceeds to us will be $1,288,663.

holders thereof for cash, the potential gross cash proceeds to us will be $1,288,663.

January 2020, we completed two private placements consisting of shares of our newly created Series D and Series E Preferred Stock,

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exercise of a portion of the warrants to purchase our Series D Preferred Stock which resulted in net cash proceeds to the Company

Additionally, during the second quarter of 2020, 1,684 preferred warrants were exercised by institutional

During the second quarter of 2020, 1,684 preferred warrants were exercised by institutional investors, resulting

in net proceeds to the Company of $1,510,548.

During the third quarter of 2020, 3,568 preferred warrants were exercised by institutional

investors, resulting in net proceeds to the Company of $3,478,800.

If all of the remaining warrants to purchase

shares of Series D Preferred Stock and Common Stock are exercised by the holders thereof, the potential gross cash proceeds to

us will be $5,810,000.

If all of the remaining warrants to purchase shares of Series

D Preferred Stock and Common Stock are exercised by the holders thereof for cash, the potential gross cash proceeds to us will

be $2,331,200.

on the amount, if anything, we receive from such exercises and the timing thereof, and the amount of revenues we are able to generate,

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we may be required to delay, limit or terminate our business operations and lose our NASDAQ listing.

the second quarter of 2020 progressed, the Company continued to be adversely affected by the COVID-19 global economic slowdown,

which has resulted in lower revenue than anticipated.

Several customers have delayed purchase orders, and although they have not

been cancelled, the timing of when they might be received is uncertain.

Company continues to be adversely affected by the COVID-19 global economic slowdown, which has resulted in lower revenue than

Several customers have delayed purchase orders of approximately $500,000 in the aggregate, and although they have

not been cancelled, the timing of when they might be received is uncertain.

Two key industries with which we do business, aerospace

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from customers and potential customers in these and other industries, the Company expects to generate less revenue in the short-term.

It is impossible to know at this time how long companies will

limit capital expenditures and if the industries that have been most negatively affected will resume normal purchasing.

due to the need to have more flexibility in supply chains with the ability to respond quickly to shortages in parts or products,

many predict that the crisis will accelerate the adoption of 3D printing, which would be a positive trend for the Company.

It is impossible to know at this time how long companies will limit capital expenditures and if the industries that have been

most negatively affected will resume normal purchasing.

However, due to the need to have more flexibility in supply chains with

the ability to respond quickly to shortages in parts or products, many predict that the crisis will accelerate the adoption of

3D printing, which would be a positive trend for the Company.

offset the effects of decreased short-term revenue, the Company has taken several steps to reduce cash outflows.

Effective May

1, 2020, the Company implemented a firm-wide salary deferral program, whereby 15% of all employees’

salaries will be deferred

through September 30, 2020.

The Company currently expects to repay such deferrals in October 2020.

The Company has also deferred

directors’

cash compensation for the first six months of 2020 to the end of the year.

Our limited ability to travel to customers’

onsite locations to install or upgrade our products has not only lowered our travel expenditures, but has required us to start

using newer technologies to instruct users to do certain maintenance tasks, resulting in increasing our overall efficiency.

have also reduced our expenditures for conferences and trade shows and eliminated certain marketing expenses.

Our limited ability

to travel to customers’

onsite locations to install or upgrade our products has not only lowered our travel expenditures,

but has required us to start using newer technologies to instruct users to do certain maintenance tasks, resulting in increasing

our overall efficiency.

We have also reduced our expenditures for conferences and trade shows and eliminated certain marketing

the remainder of 2020, we therefore expect to sustain our operations and our commercialization and marketing efforts without material

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technology, including

the June 2020 release of version 6.0, will further enable us to commercialize this technology into the AM metal market in 2020.

To support the commercialization of our PrintRite3D®

technology, we plan to continue funding our development activities and

operating expenses by licensing our PrintRite3D®

systems and supporting field services, as applicable, and providing PrintRite3D®-enabled

engineering consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control

technologies) and through the use of proceeds from sales of our securities.

the June 2020 release of version 6.0, which included major user Interface (UI) efficiency and metric improvements with the

addition of machine learning elements and the expansion of AM machine scanning protocols to multi-laser systems.

will further enable us to commercialize this technology into the AM metal market in 2020 and beyond.

To support the commercialization

of our PrintRite3D®

technology, we plan to continue funding our development activities and operating expenses by licensing

our PrintRite3D®

systems and supporting field services, as applicable, and providing PrintRite3D®-enabled engineering

consulting services concerning our areas of expertise (materials and manufacturing quality assurance and process control technologies)

and through the use of proceeds from sales of our securities.

Cash Used in Operating Activities

cash used in operating activities during the six months ended June 30, 2020 decreased to $2,435,387 from $2,737,650 during the

same period in 2019, a $302,263 decrease.

Decreased net loss contributed $584,380 toward this reduced use of cash, and decreased

inventory purchases contributed $343,418.

Partially offsetting these decreases were decreases in accounts payable and accrued

expenses of $326,997, a decrease in deferred revenue of $67,135, and an increase in accounts receivable of $231,683.

cash used in operating activities during the nine months ended September 30, 2020 decreased to $3,676,595 from $4,498,579 during

the same period in 2019, a $821,984 decrease.

Decreased net loss contributed $967,161 toward this reduced use of cash, decreased

inventory purchases contributed $496,679, a decrease in prepaid assets contributed $234,860, the deferral of payroll taxes under

the CARES Act contributed $53,545 and increased securities-based compensation contributed an additional $82,323.

Partially offsetting

these amounts were decreases in accounts payable and accrued expenses of $465,046, a decrease in deferred revenue of $94,951,

an increase in accounts receivable of $387,124, and a decrease in depreciation and amortization of $64,072.

Cash Used/Provided by Investing Activities

cash used by investing activities during the six months ended June 30, 2020 was $98,710, which compares to $115,920 of

cash used by investing activities during the same period of 2019, a decrease of $17,210.

This is primarily attributable

to lower patent costs and reduced purchases of furniture and equipment.

Cash Used/Provided by Financing Activities

provided by financing activities during the six months ended June 30, 2020 increased to $4,892,944 from $2,270,178 during

the same period in 2019 due to the receipt of $5,741,100 of proceeds less $820,228 of offering costs, in connection

with our January 2020 and April 2020 private and public offerings and exercise of Preferred Warrants.

of payroll taxes pursuant to the CARES Act provided an additional $22,072 in funds.

Partially offsetting these cash receipts

was the payment of the remaining outstanding principal balance on our convertible note payable of $50,000.

Cash provided by financing

activities during the same period in 2019 resulted from the receipt of $2,521,220 in proceeds less $326,890 of offering

costs in connection with our March 2019 and May 2019 offerings, and $75,848 in proceeds from the exercise of warrants to

purchase common stock in January and February of 2019.

cash used by investing activities during the nine months ended September 30, 2020 was $249,452, which compares to $70,887 of cash

used by investing activities during the same period of 2019, an increase of $178,565.

This is primarily attributable to payment

received of $120,522 on a note receivable in 2019, and an increase in PrintRite 3D units on consignment of $54,587.

Cash Provided by Financing Activities

provided by financing activities during the nine months ended September 30, 2020 increased to $8,349,676 from $4,401,114 during

the same period in 2019 due to the receipt of $3,600,000 of proceeds less $820,224 of offering costs, in connection with our January

2020 and April 2020 private and public offerings and $5,619,900 from the exercise of Preferred Warrants.

The deferral of payroll

taxes pursuant to the CARES Act provided an additional $53,545 in funds.

Partially offsetting these cash receipts was the payment

of the remaining outstanding principal balance on our convertible note payable of $50,000.

Cash provided by financing activities

during the same period in 2019 resulted from the receipt of $4,981,220 in proceeds less $655,954 of offering costs in connection

with our 2019 offerings, and $75,848 in proceeds from the exercise of warrants to purchase common stock in January and February

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®-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept

engagements, possible strategic partnerships, and by obtaining additional capital from the sale of securities or by borrowing

funds from lenders to fulfill our business plans.

If we issue additional equity or debt securities, stockholders may experience

additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders

of our common stock.

revenues from existing and future prospects interested in our PrintRite3D®

technologies, and follow-on revenues for system

expansions, new and existing strategic and OEM partnerships, and by obtaining additional capital from the sale of securities or

by borrowing funds from lenders to fulfill our business plans.

If we issue additional equity or debt securities, stockholders

may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of

existing holders of our common stock.

There is no assurance that we will be successful in obtaining additional funding.

The Company is unable to

predict the effect that the COVID-19 outbreak may have on its access to the financing markets.

If we fail to obtain sufficient

funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and

have no credit lines as of July 23, 2020, nor have we ever had a credit line since our inception.

is unable to predict the effect that the COVID-19 outbreak may have on its access to the financing markets.

If we fail to obtain

sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts

and operations.

have no credit lines as of October 21, 2020, nor have we ever had a credit line since our inception.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements