What changed in this filing

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Item 1. Financial Statements

2021-04-22 compared with 2020-10-22 · 492 added, 627 removed, 266 unchanged (81% of the section changed)

1 unchanged sentence

Balance Sheets

September 30, 2020

March 31, 2021

December 31, 2020

Current Assets:

5 unchanged sentences

Intangible Assets, net

Investment in Joint Venture

Long-Term Prepaid Asset

3 unchanged sentences

Accounts Payable

Notes Payable

Deferred Revenue

Accrued Expenses

Derivative Liability

Total Current Liabilities

Long-Term Liabilities

CARES Act Deferred Payroll Tax Liability

Stock Appreciation Rights

CARES Act Deferred Payroll Taxes

Total Long-Term Liabilities

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Three Months Ended

September 30,

Nine Months Ended

September 30,

March 31, 2021

March 31, 2020

COST OF REVENUE

GROSS PROFIT (LOSS)

OPERATING EXPENSES:

3 unchanged sentences

Investor & Public Relations

Organization Costs

Legal & Professional Service Fees

6 unchanged sentences

Interest Income

State Incentives

Exchange Rate Gain (Loss)

Gain on Derivative Liability

Exchange Rate Loss

Interest Expense

Loss on Dissolution of Joint Venture

Total Other Income (Expense)

2 unchanged sentences

$ (1,583,585 )

$ (1,600,794 )

$ (3,711,236 )

$ (4,678,397 )

Preferred Dividends

1 unchanged sentence

$ (1,898,832 )

Net Loss per Common Share - Basic and Diluted

Weighted Average Number of Shares Outstanding - Basic and Diluted

accompanying notes to condensed financial statements.

of Stockholders’

The Quarters Ended March 31, 2021 and March 31, 2020

December 31, 2020

$ (33,105,008 )

Common Shares Sold in Public Offerings

Derivative Liability Value on Issuance date

Common Shares issued for Exercise of Warrants

Preferred Stock Dividends

Common Shares Issued for Conversion of Preferred Shares

Common Shares Issued for Third Party Services

Stock Options Issued to Directors for Services

Stock Options Awarded to Employees

Offering Costs

Balances, March 31, 2021

$ (33,816,575 )

Balances, December 31, 2019

$ (26,095,594 )

Net Loss per Common Share –

Basic and Diluted

Weighted Average Number of Shares Outstanding –

Basic and Diluted

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 Services

Stock Options Awarded to Employees

Offering Costs

Issuance of Fractional Shares from Reverse Split

Balances, March 31, 2020

$ (27,994,426 )

accompanying notes to condensed financial statements.

Statements of Cash Flows

Nine Months Ended

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

OPERATING ACTIVITIES

$ (1,583,585 )

$ (4,678,397 )

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

1 unchanged sentence

Depreciation and Amortization

Securities Issued for Services

Gain on Derivative Liability

Stock Based Compensation Employees

Stock Based Compensation –

Third Party Services

Stock Based Compensation - Directors

Change in assets and liabilities:

Accounts Receivable

Interest Receivable

Prepaid Assets

2 unchanged sentences

Accrued Expenses

Deferral of Payroll Taxes under the CARES Act

Long-term portion of Stock Appreciation Rights

NET CASH USED IN OPERATING ACTIVITIES

2 unchanged sentences

Purchase of Intangible Assets

Payment Received from Notes Receivable

Dissolution of Joint Venture

NET CASH USED IN INVESTING ACTIVITIES

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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

of Common Shares for Preferred Dividends

Other noncash operating activities disclosure:

of Securities for Services

Disclosure of cash paid for:

accompanying notes to condensed financial statements.

of Stockholders’

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 )

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 )

Preferred Stock

Shares Outstanding

Preferred Stock

Shares Outstanding

Paid-in Capital

Accumulated Deficit

Balances, June 30, 2019

$ (22,852,348 )

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

$ (26,095,594 )

Common Shares Sold in Public Offering

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 to Directors for Services

Securities Issued for Third Party Services

Securities Awarded to Employees

Offering Costs

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

$ (19,774,745 )

Shares Sold in Public Offering

Shares issued for Exercise of Warrants

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 )

accompanying notes to condensed financial statements.

TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

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.

flows at March 31, 2021 and 2020 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, 2020 audited

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

The results of operations for the periods ended

March 31, 2021 and 2020 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

in accordance with ASC Topic No.

Value of Financial Instruments - The Company applies ASC 820, “Fair Value Measurements .

This guidance

defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure

requirements for fair value measures.

The three levels are defined as follows:

1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs

that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial

3 - inputs to valuation methodology are unobservable and significant to the fair measurement.

carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables, accounts payable, and accrued

liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time

between the origination of such instruments and their expected realization and their current market rate of interest.

Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes.

The derivative

warrant liability at March 31, 2021 results from the issuance of warrants to purchase an aggregate of 2,190,000 shares of common

stock issued in a private placement which closed concurrently with a registered direct offering of our common stock on March 26,

The warrants will be exercisable commencing on the date the Company obtains 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 after the initial

exercise date.

to ASC 815-40-25-10, because the Company does not currently have sufficient authorized and unissued shares of common stock available

to settle the warrants, such warrants are accounted for as a derivative liability until such time as the Company receives the

foregoing stockholder approval to increase its authorized shares.

The Company has called a Special Stockholders’

(“the Special Meeting”) to be held on May 24, 2021 where it will seek such approval.

Upon receiving approval,

the Company will reclassify the warrant liability to equity pursuant to ASC 815.40.35.8.

However, there can be no guarantee that

such approval will be received, and in the event that stockholder approval is not received, the Company will continue to

account for the outstanding warrants as a liability.

In addition, the Company 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.

fair value of the warrant liability measured on a recurring basis is as follows:

March 31, 2021

Date of Issuance March 26, 2021

Derivative liability - Warrants

following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant

unobservable input (Level 3):

Fair Value on Issuance Date

Change in fair value

Fair value on March 31, 2021

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.”

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

At September 30,

At March 31, 2021

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

September 30,

Three Months Ended March 31,

Preferred Stock Warrants

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Preferred Stock

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 September 30, 2020 and 2019:

Three Months Ended September 30

Nine Months Ended

shares of dilutive potential common stock for the periods ended March 31, 2021 and 2020:

Three Months Ended March 31

Net Loss per Common Share - Basic and Diluted

Loss from continuing

Operations available to Common stockholders (numerator)

$ (1,955,357 )

$ (1,600,794 )

$ (5,455,707 )

Operations available to

Common stockholders (numerator)

$ (1,898,832 )

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

by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP.

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.

Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United

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

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

September 30, 2020

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

March 31, 2021

December 31, 2020

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Total Inventory

3 - Notes Payable

January 31, 2020, the Company paid off its Secured Convertible Promissory Note in full in the amount of $56,458, including accrued

interest of $1,458 and a late fee penalty of $5,000.

Paycheck Protection Plan Loan

April 14, 2020, the Company was granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate amount of $361,700, pursuant

to the Paycheck Protection Program (the “

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

and Economic Security Act (the “

CARES Act ”

), which was enacted March 27, 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.

to the extent that any amount is deemed unforgivable, such amount is payable over two to five years at an interest rate of 1%,

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.

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.

4 - Derivative Liability

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.

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.

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:

March 31, 2021

Dividend yield

Risk-free interest rate

Expected volatility

121.2 % - 121.7 %

Expected life (in years)

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

Warrant Liability

Fair Value at initial measurement date of March 26, 2021

(Gain) on change in Fair Value of warrant liability

Fair Value as of March 31, 2021

Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s

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.

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.

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

5 - Stockholders’

February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of

our common stock on a 1-for-10 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”).

The effects of the stock split have been

retroactively reflected to all periods presented.

March 27, 2020, at a special shareholders’

meeting, our authorized shares of common stock were increased from 2,250,000

to 8,000,000.

At our annual shareholders’

meeting held on June 15, 2020, our authorized shares of common stock were increased

from 8,000,000 to 12,000,000.

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.

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.

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

to purchase a total of 22,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement

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.

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 other 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 common stock.

Such warrants have a term of five years and an exercise price of $3.75 per

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

private placement.

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.

March 2021, the Company closed a public offering of its 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.

The Company also issued to designees of the Placement Agent

warrants to purchase up to 175,200 shares of Common Stock (the “Placement Agent Warrants”) constituting 8% of the

aggregate number of shares of Common Stock sold 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 issued upon the cash exercise of the Warrants.

March 2021, Company issued 1,500 shares of common stock valued at $4.99 per share to CorProminence, an investor relations

firm previously engaged by the Company as partial compensation for services previously rendered.

the first quarter of 2020, the Company issued 408,318 shares of common stock in exchange for the conversion of 1,107 shares of

Series D Convertible Preferred stock, including 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.

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 September 30, 2020 and 2019, respectively.

465 and 1,378 shares of preferred stock

were issued and outstanding at March 31, 2021 and 2020, respectively.

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

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Value of the Series D Preferred Shares by said amount.

The holders of the Series D Preferred Shares will 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

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.

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

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.

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,

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 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

Plan”).

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 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

the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by

650,000 shares of our common stock to a total of 890,000 shares.

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

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.

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.

of March 31, 2021, an aggregate of 9,681 shares of common stock were reserved for future issuance under the 2013

January 2021, the Company granted options to purchase 96,000

shares of common stock to its directors and 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 20,500 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.

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,

2021, the Company granted a consultant an option to purchase 1,572 shares of common stock for services rendered.

has a strike price of $3.66 and is fully vested.

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.

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

4 unchanged sentences

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 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.

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.

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

the nine months ended September 30, 2020 and 2019:

the three months ended March 31, 2021 and the year ended December 31, 2020:

Dividend yield

4 unchanged sentences

Expected life (in years)

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

Weighted Average

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

Weighted Average Exercise Price ($)

Weighted Average Remaining Contractual Life (Yrs.)

Aggregate Intrinsic Value ($)

Options outstanding at December 31, 2019

2 unchanged sentences

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

Options outstanding March 31, 2021

Options expected to vest in the future as of March 31, 2021

Options exercisable at March 31, 2021

Options vested, exercisable, and options expected to vest at March 31, 2021

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

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.

March 31, 2021.

At March 31, 2021, 718,070 option grants have an exercise price currently below $3.72.

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.

Appreciation Rights

35 unchanged sentences

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.

Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service

2 unchanged sentences

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 nine

months ended September 30, 2020:

Dividend yield

Risk-free interest rate

Expected volatility

Expected life (in years)

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

fair value of SAR 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:

interest rate

life (in years)

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

Average Exercise Price ($)

Average Remaining Contractual Life (Yrs.)

Intrinsic Value ($)

outstanding at December 31, 2019

outstanding at December 31, 2020

outstanding March 31, 2021

expected to vest in the future as of March 31, 2021

exercisable at March 31, 2021

vested, exercisable, and SARs expected to vest at March 31, 2021

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

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

March 31, 2021.

All of the SARs grants have an exercise price currently below $3.72.

March 31, 2021, there was $180,108 of unrecognized share-based compensation expense related to unvested SARs with a weighted average

remaining recognition period of 2.23 years.

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

Weighted Average Exercise Price ($)

Weighted Average Remaining Contractual Life (Yrs.)

Warrants outstanding at December 31, 2019

Forfeited or cancelled

Warrants outstanding at September 30, 2019

Warrants outstanding at December 31, 2020

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

(the Preferred Warrants”).

The Preferred Warrants have an exercise price of $975 per warrant and expire on February 15,

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

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.

Warrants outstanding at March 31, 2021

6 - Subsequent Events

6 unchanged sentences

All statements other than statements of historical fact are “Forward-Looking Statements”

of these provisions, including any projections of revenue 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.

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,”

of these provisions, including but not limited to, statements regarding our expectations about development and commercialization

of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial

items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new

products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying

any of the foregoing.

All Forward-Looking Statements included in this 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,”

6 unchanged sentences

“potential,”

or “continue,”

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, 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.

“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, 2020 and elsewhere in this report.

were incorporated as Messidor Limited in Nevada on December 23, 1985 and changed our name to Framewaves Inc.

On September 27,

2010, we changed our name from Framewaves Inc.

to Sigma Labs, Inc.

We commenced our current business operations in 2010.

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

Our website address is www.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 Section 13(a) or 15(d) of the Securities Exchange Act of

1934 (the “Exchange Act”), and other information related to the Company, are available, free of charge, on 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.

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

printers as PrintRite3D Ready, allowing us to leverage their sales force of over 800 people who will actively promote our technology

as their preferred monitoring solution.

The Company’s annual reports, quarterly reports, current reports on Form 8-K

and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange

Act”), and other information related to the Company, are available, free of charge, on 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.

Accounting Policies

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.

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

These estimates and assumptions have a significant impact on our consolidated financial statements.

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.

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.

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.

of Operations

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.

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 additive manufacturing (AM).

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.

During the three months

ended March 31, 2021, we recognized revenue of $458,140, as compared to $221,730 in revenue recognized during the

same period in 2020, an increase of $236,410.

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.

of $277,300 in the first quarter of 2021, partially offset by lower revenues of $52,200 from our Rapid Test and Evaluation

(“RTE”) program.

Our Cost of Revenue for

the three months ended March 31, 2021 and 2020 was $128,331 and $244,703, respectively, a decrease of $116,372.

The decreased cost is primarily attributable to a credit of $43,952 related to a customer exchange of a PrintRite3D

unit sold in December 2020, lower build costs as a result of engineering enhancements of our PrintRite3D units, and lower costs

of supporting legacy RTE programs.

Sigma’s

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 $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

total operating expenses for the three months ended March 31, 2021 were $1,781,404 as compared to $1,559,641 for

the same period in 2020, an increase of $221,763.

and Benefits costs were $847,171 for the three months ended March 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 incurred 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 $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 $215,441

incurred during the same period in 2020.

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 $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 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 September 30, 2020 totaled $1,955,357 as compared to $1,600,794

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

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 $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.

Sigma’s

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 $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,

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.

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.

The increase is primarily a result of increased New Mexico state job incentive credits

of $99,780 plus $361,700 from the recognition of our PPP loan as a government 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 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 $1,744,471, 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

sales of our common and preferred stock.

We expect 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.

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 $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.

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 months ended March 31, 2021 totaled $148,225 as compared to $147,747 for the same period in 2020.

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.

increase is primarily 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 period.

In the three months

ended March 31, 2021, our net other income & expense was net income of $800,936 compared to net 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 $1,187,265 decrease.

The first quarter 2021 net operating loss contributed $131,019

to the loss decrease, the increase in other income contributed $801,907, and a decrease in preferred

dividends contributed $254,339.

and Capital Resources

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

preferred stock), and from warrant exercises.

April 14, 2020 we were granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate amount of $361,700, pursuant to the

Paycheck Protection Program (the “

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

Economic Security Act (the “

CARES Act ”

), which was enacted March 27, 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 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

investors (a) 493,027 shares of the Company’s common stock (the “Common Shares”) and pre-funded warrants (the

“Pre-funded Warrants”) to purchase up to 22,438 shares of the Company’s common stock, and (b) Series A Warrants

(the “Private Warrants”) to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to

a private placement resulting in net proceeds of approximately $1,230,000.

If all of the Private Warrants are exercised by the

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,

warrants to purchase additional shares of Series D Preferred Stock and warrants to purchase shares of our Common Stock resulting

in net cash proceeds to us of approximately $1,711,124.

On March 27, 2020, pursuant to the terms of the Agreement, we forced the

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

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 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,

we may need to raise additional amounts to fund our operations, maintain compliance with the NASDAQ listing requirements and implement

our business plan.

There is no assurance as to the amount and availability of any required future financing or the terms thereof.

Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous

If in the form of debt, such financing may include covenants and repayment obligations which may be difficult to meet and

that could adversely affect our business operations.

There is also significant uncertainty from the affect that the novel coronavirus

(“COVID-19”) may have on the availability and type of financing.

To the extent that funds are not available to us,

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

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

and oil and gas, have experienced a reduction in the global demand for their products due to the pandemic.

We have also experienced

delays in purchase orders from universities and research institutes.

As a result of the decrease in the demand for our products

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.

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.

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

increase in our cash burn rate.

As of March 31, 2021,

we had $16,843,201 in cash and working capital of $12,634,299, as compared with $3,700,814 in cash and working capital

of $ 4,332,053 as of December 31, 2020.

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.

March 26, 2021, the Company closed a public offering of its 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.

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 $4,532,445 after deducting 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.

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.

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:

cost of expending, maintaining, and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing

our patent claims and other intellectual property rights;

effect of competing technological and market developments;

revenue from the sales of our existing and future products;

cost of operating as a public company.

2021, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues

generated from sales of our PrintRite3D®

We expect that continued enhancements of our IPQA®-enabled PrintRite3D®

technology, including

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.

technology will enable us to further commercialize this technology into the AM metal market in 2021.

To support the commercialization

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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 outbreak of the novel coronavirus (COVID-19) has evolved into

a global pandemic.

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.

the Company believes that such purchase orders will ultimately be realized, it is impossible to predict the timing.

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.

Cash Used in Operating Activities

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 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.

Net cash used in operating

activities during the three months ended March 31, 2021 decreased to $1,240,586 from $1,525,696 during the same

period in 2020, a $285,110 decrease.

Contributing to this decrease were decreases in net loss of $932,926, accounts

receivable of $7,397, and deferred revenue of $43,790, and increases in depreciation and amortization of $5,019, total stock-based

compensation of $16,140, accounts payable and accrued expenses of $325,706 and long-term stock appreciation rights

expense of $45,184.

These decreases in cash usage were partially offset by the unrealized gain on the derivative

liability of $802,285 and increases in inventory and prepaid expenses of $181,044 and $107,724 respectively.

Cash Used in Investing Activities

Net cash used by investing

activities during the three months ended March 31, 2021 was $21,969, which compares to $50,529 of cash used by investing

activities during the same period of 2020, a decrease of $28,560.

The decrease results from lower purchases of fixed

assets and lower patent costs during the first quarter of 2021.

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 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.

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.

Cash provided by financing

activities during the three months ended March 31, 2021 increased to $14,404,942 from $2,120,324 during the same period

in 2020 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 proceeds.

Cash provided by financing activities during the same period

in 2020 resulted from the receipt of $2,100,000 in proceeds less $428,876 of offering costs in connection

with our January 2020 private offering, partially offset by the payment of the remaining outstanding principal balance

on our convertible note payable of $50,000.

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.

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 operations.

have no credit lines as of April 22, 2021, 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