What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-21 compared with 2021-07-22 · 258 added, 278 removed, 40 unchanged (93% of the section changed)

1 unchanged sentence

Forward-looking

This Quarterly Report, including

any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.” All statements

other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including,

but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections

of 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,” “expects,” “plans,” “anticipates,” “intends,”

“believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other

comparable terminology.

Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable,

there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results

could differ materially from those projected or assumed in the Forward-Looking Statements.

Future financial condition and results of

operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including any other factors referred

to in our press releases and reports filed with the Securities and Exchange Commission (“SEC”).

All subsequent Forward-Looking

Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary

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.

We 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.

Quarterly Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements.”

All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions,

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

any projections of 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, or the impact of COVID-19 on our business, any statements regarding future economic conditions or performance, and

any statements of assumptions underlying any of the foregoing.

All Forward-Looking Statements included in this document are made as of

the date hereof and are based on information available to us as of such date.

We assume no obligation to update any Forward-Looking Statement.

In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,”

“expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,”

“potential,” or “continue,” or the negative thereof or other comparable terminology.

Although we believe that

the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations

or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or

assumed in the Forward-Looking Statements.

Future financial condition and results of operations, as well as any Forward-Looking Statements

are subject to inherent risks and uncertainties, including any other factors referred to in our press releases and reports filed with

the Securities and Exchange Commission (“SEC”).

All subsequent Forward-Looking Statements attributable to the Company or

persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

Additional factors that may have

a direct bearing on our operating results are described under the caption “Risk Factors” in our Annual Report on Form 10-K

for the year ended December 31, 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.

21 unchanged sentences

of Operations

Months Ended June 30, 2021 and June 30, 2020

generate revenues through PrintRite3D® hardware and computer-assisted instruction (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).

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

Months Ended September 30, 2021 and September 30, 2020

generate revenues through licensing our PrintRite3D® hardware and software edge computing platform to customers that seek to improve their manufacturing production processes, and through ongoing annual

software upgrades and maintenance fees.

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, 2021, we recognized revenue of $144,148, as compared to $167,688 in revenue recognized during the same

period in 2020, a decrease of $23,540.

The decrease is primarily due to no revenue from the Company’s Rapid Test and Evaluation

(“RTE”) program in the second quarter of 2021, versus $29,864 of such revenue in the second quarter of 2020.

Cost of Revenue for the three months ended June 30, 2021 and 2020 was $116,397 and $57,684, respectively, an increase of $58,713.

increase is primarily attributable to costs incurred in connection with the installation and support of previous PrintRite3D sales,

as well as support of current and legacy RTE’s, partially offset by a decrease in manufacturing costs of our PrintRite3D units

as a result of engineering enhancements.

Sigma’s total operating

expenses for the three months ended June 30, 2021 were $2,168,651 as compared to $1,526,554 for the same period in 2020, an increase

of $642,097 as further described below.

Salary and Benefits

costs were $985,348 for the three months ended June 30, 2021 compared to $605,295 for the same period in 2020, an increase of $380,053.

This 62.8% cost increase is primarily a result of employee salary increases and average full-time employee headcount

increasing by 10 over the second quarter of 2020.

Salaries increased by $319,348, employee benefits increased by $16,626, employer payroll

taxes increased by $13,058, and SAR’s expense increased by $23,129.

the three months ended September 30, 2021, we recognized revenue of $700,237, as compared to $248,526 in revenue recognized during the

same period in 2020, an increase of $451,711.

The increase is primarily due to increased PrintRite3D® unit sales, including the

Company’s first multi-unit sale, which was to a U.S.

Department of Energy contractor,

as well as a single unit sale to a U.S.

National Laboratory.

Third quarter 2021 revenues were partially offset by a return from a first quarter sale of $72,000.

cost of revenue for the three months ended September 30, 2021 and 2020 was $164,766 and $97,785, respectively, an increase

The increase is primarily attributable to additional PrintRite3D unit sales, partially offset by

a decrease in certain material costs, and lower costs associated with the Company’s Rapid Test and Evaluation (“RTE”)

Our gross profit for the

three months ended September 30, 2021 was $535,471, or 76.5% of revenues, as compared to $150,741, or 60.7% of revenues for the same

period in 2020.

total operating expenses for the three months ended September 30, 2021 were $3,026,888 as compared to $1,362,513 for the same period

in 2020, an increase of $1,664,375.

and benefits costs were $1,222,760 for the three months ended September 30, 2021, as compared to $657,889 for the same period in 2020,

an increase of $564,871 or 86%.

Employee salary increases, together with 13 additional employees contributed $289,356, while associated

taxes and benefits contributed $75,511, and increased expense associated with the stock appreciation rights granted to executive management

in August 2021 contributed $200,004 to the increase.

Stock-based compensation

was $116,441 for the three months ended June 30, 2021 compared to $270,818 for the same period in 2020, a $154,377, or 57.0%

This decrease is primarily due to stock options awarded to employees in June of 2020, whereas with the exception of stock option grants to new employees in 2021,

stock option awards were not made to employees during the three months

ended June 30, 2021.

Research and Development expenditures

of $280,700 were incurred during the three months ended June 30, 2021 compared to $111,647 in the same period of 2020, a $169,053

The increase is primarily attributable to $73,638 for CT scans related to new development work, $21,332 related to

optics redesign, $33,310 for ongoing enhancements and bug fixes related to PrintRite3D v7.0, and purchases of lab supplies, and

parts and materials of $31,771.

Investor & Public Relations

expenses of $114,762 were incurred during the three months ended June 30, 2021, as compared to $97,702 incurred during the same period

The increase of $17,060 is primarily due to an increase in expenses for trade shows and conferences of $26,267, partially

offset by a decrease in marketing and advertising costs of $13,655, as the Company discontinued its Network Newswire service.

Organization Costs for

the three months ended June 30, 2021 totaled $158,529, as compared to $80,096 for the same period in 2020.

The increase of $78,433,

or 97.9% is due to an increase in shareholder services costs of $34,109 related to the special shareholders meeting held in

May of 2021, and $60,802 related to stock options expense for non-employee directors, whereas options were not granted to

non-employee directors until July 2020.

Partially offsetting these increases was a decrease in non-employee directors’ cash

compensation of $17,173 in the second quarter of 2021 as compared to the same period in 2020.

Legal & Professional fees

incurred in the three months ended June 30, 2021 were $244,019 compared to $212,496 incurred during the same period in 2020.

of $31,523 is primarily due to an increase in recruiting fees of $64,000 related to new hires during the period, an increase in consulting

fees of $9,112 and an increase in IT services of $2,738, partially offset by a decrease in legal fees of $24,626, and lower accounting

and audit fees of $19,700.

Office Expenses

incurred during the three months ended June 30, 2021 were $151,871 compared to $78,843 incurred during the same period in 2020, an

increase of $73,028, or 92.6%.

The increase is primarily due to increased travel costs of $40,973 as a result of the easing

of COVID-19 restrictions, an increase of $15,540 in dues and subscriptions, primarily related to new software applications,

including customer relationship management, product lifecycle management, and compliance, an increase of $10,272 in postage

and shipping, and an increase in office supplies of $5,344.

Depreciation and Amortization

expense for the three months ended June 30, 2021 was $25,783, compared to $17,970 for the same period in 2020.

The primary reason for

the increase is due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations.

Other Operating Expenses were

$91,198 for the three months ended June 30, 2021, compared to $51,687 incurred during the same period in 2020.

The increase of $39,511

is primarily due to higher insurance premiums of $32,839 in 2021.

In addition, increased SEC filing fees of $4,956 related

to various registration statements were incurred in June 2021.

In the three months ended

June 30, 2021, our net other income & expense was net income of $295,393 compared to net other income of $506,912 in 2020.

2021 net positive contribution is primarily from a gain of $290,156 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering.

net positive contribution consisted primarily of $151,657 in New Mexico state job incentive credits, and $361,700 from

the recognition of our PPP loan as a government grant.

Sigma’s net loss applicable

to common stockholders for the three months ended June 30, 2021 totaled $1,859,767 as compared to $1,601,518 for the same period of 2020,

a $258,249 increase.

The second quarter net operating loss contributed $724,350 to the loss increase, while the decrease in other

income contributed an additional loss of $211,559.

Partially offsetting these losses was a decrease in preferred dividends of $677,660

for the quarter ended June 30, 2021.

Six Months Ended June

30, 2021 and 2020

During the six months ended

June 30, 2021, we recognized revenue of $602,288 compared to $389,418 during the same period of 2020.

The primary contributors to the

$212,870 increase were an increase in PrintRite3D® unit sales contributing $276,242, partially offset by a decrease in a RTE

program revenue of $67,200.

Our cost of revenue for the

six months ended June 30, 2021 was $244,728 compared to $302,387 during the same period in 2020.

The decrease of $57,659 is primarily

due to a credit in the first quarter 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 six months ended June 30, 2021 were $3,950,057 compared to $3,086,195 for the same period in 2020, a $863,862 increase

as further described below.

Payroll costs for the six months

ended June 30, 2021 were $1,832,520 compared to $1,257,492 for the same period in 2020, an increase of $575,028.

The increase is primarily

due to employee salary increases and higher average employee headcount of 7 during the first half of 2021, resulting

in increased salaries of $421,207, plus $28,270 in employee benefits and $34,202 in employer payroll taxes.

Also contributing to the

increase was $26,924 in sales commissions and bonuses, and $60,615 of expense related to the Company’s Stock Appreciation

Stock-based compensation for

the six months ended June 30, 2021 was $233,919 compared to $424,989 for the same period in 2020, a $191,070 decrease, primarily due

to stock options granted to our CEO vesting in the first quarter of 2020 with no such vesting in the first quarter of 2021, and stock

options awarded to employees in June of 2020.

With the exception of stock option grants to new employees, stock option awards were

not made to employees during the six months ended June 30, 2021.

During the six months

ended June 30, 2021, Sigma incurred research and development expenditures of $477,040 compared to $165,335 in the same period of

The $311,705 increase in these expenditures during the first six months of 2021 is a result of development costs incurred

in connection with PrintRite3D version 7.0 of $81,477, increased purchases of lab supplies of $97,382, of which metal powder

purchases totaled $14,161, argon gas totaled $15,434, laboratory facility upgrades totaled $8,852, and cables and cable making

supplies totaled $19,075, CT scans conducted for new development work and a simulation project totaling of $93,638, increased

write-offs of $40,350 in obsolete inventory, and $21,332 related to optics redesign.

Partially offsetting these increases was a

decrease in consulting expenses of $22,926 due to the full-time hire of a consultant in 2021.

Investor and Public Relations

expenses incurred in the six months ended June 30, 2021 were $223,103, compared to $287,009 during the same period in 2020.

decrease in the six-month comparative expenditures results primarily from a decrease in advertising expenses as a result of discontinuing

Network Newswire services and use of a public relations firm.

Organization Costs for the

six months ended June 30, 2021 totaled $236,145, as compared to $155,675 for the same period in 2020.

The increase of $80,470 is primarily

due to $122,273 of stock option expense for non-employee directors in the first half of 2021 verses $0 in the first half of 2020,

as such grants were not made to non-employee directors until the second half of 2020.

Partially offsetting this increase was a decrease

in non-employee director cash compensation of $22,305, and a reduction in shareholder services expenses of $19,498.

Legal and Professional fees

incurred in the six months ended June 30, 2021 were $420,866, compared to $397,386 incurred during the same period in 2020, an increase

of $23,480, or 5.9%.

Legal fees decreased by $101,966 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.

Also contributing to the

decrease were lower accounting related expenses of $16,670.

Partially offsetting these decreases was an increase in recruiting fees of

$90,667 related to ten new hires during the first half of 2021, and increased consulting fees of $45,211 related to an external marketing

consultant, and corporate consulting services, and increased IT services of $6,238.

During the six months ended

June 30, 2021, Sigma’s office expenses were $300,096 compared to $226,590 in the same period of 2020.

The $73,506 increase in these

expenditures primarily resulted from $21,381 in postage and shipping, $26,231 in computer hardware and software related to new hires,

payroll servicing fees of $10,009 due to new hires and a first-year fee discount that ended in 2020, and increased dues and subscriptions

of $23,127 related to subscriptions to new software applications, including customer relationship management, product lifecycle management,

and compliance.

Partially offsetting these increases was a decrease in travel expenses of $8,425 in the first half of 2021.

and Amortization expense for the six months ended June 30, 2021 was $48,814, compared to $35,983 for the same period in 2020.

increase is primarily due to depreciation on lab equipment purchased for European engineers to facilitate testing and installations.

In the six months ended

June 30, 2021, our net other income & expense was net income of $1,096,290, as compared to net income of $505,941 during the

was $659,512 for the three months ended September 30, 2021, as compared to $58,219 for the same period in 2020, a $601,293, increase.

This increase is partially due to a timing difference as stock options were awarded to employees in the second quarter of 2020 versus

the third quarter of 2021, as well as an overall increase in stock options granted to employees, including our thirteen new employees

in August 2021, and fully vested stock options granted to the Company’s newly hired Senior Vice President.

and development expenditures of $131,772 were incurred during the three months ended September 30, 2021 compared to $79,673 in the same

period of 2020, a $52,099 or 65% increase.

The increase is primarily attributable to $27,500 in CT scans related to new development work,

$5,019 related to optics redesign, and $19,580 in purchase of lab supplies and part and materials.

public relations and marketing expenses of $119,622 were incurred during the three months ended September 30, 2021, as compared to

$66,794 incurred during the same period in 2020.

The increase of $52,828 or 79% is primarily due to an increase in tradeshow

expenses of $38,699, and the reclassification of proxy management expenses from Investor Relations to Organization Costs of $26,135

in 2020, partially offset by decreased advertising costs of $8,252 in 2021.

costs of $342,112 were incurred during the three months ended September 30, 2021, as compared to $173,041 in the same period in 2020.

The increase of $169,071 or 98% is primarily due to additional $6,465 in Shareholder Services, $11,450 in Organization Costs, and $151,156

in Stock Options expense from grants made to non-employee directors in August 2021.

& professional fees incurred in the three months ended September 30, 2021 were $261,075 compared to $133,273 incurred during the

same period in 2020.

The increase is primarily a result of a gain of $1,092,441 on the revaluation of the derivative liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering,

partially offset by 2020 New Mexico state job incentive credits of $151,657 plus $361,700 from the recognition of

our PPP loan as a government grant.

The grant was recognized during the second quarter of 2020.

Sigma’s net loss applicable

to common shareholders for the six months ended June 30, 2021 totaled $2,571,334 as compared to $3,500,350 for the same period in 2020,

a $929,016 decrease.

Contributing to this decrease was an increase in other income of $590,349 and a decrease in preferred stock dividends

of $932,000, partially offset by an increase in our net operating loss of $593,333.

We financed our operations during

the three and six months ended June 30, 2021 and 2020 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.

that our revenue will increase in future periods as we seek to further commercialize and expand our market presence for our PrintRite3D®-related

technologies.

The increase of $127,802 is primarily attributed to increased legal fees of $20,415, increased accounting fees of

$7,244 related to certain regulatory filings, increased recruiting fees of $56,805 related to new hires, increased consulting fees of

$51,966, and increased information technology expense of $1,517, partially offset by a

$10,145 reclassification of other professional services to research and development.

expenses incurred during the three months ended September 30, 2021 were $172,238 compared to $84,357 incurred during the same period

in 2020, an increase of $87,881, or 104%.

The increase is primarily due to increased travel costs of $54,864 as a result of easing of

COVID related travel restrictions, an increase of $12,659 in dues and subscriptions, primarily related to new software applications including

customer relationship management, product lifecycle management, and compliance, an increase of $9,312 in postage and shipping, increased

training and education expense of $6,082 and an increase in supplies and miscellaneous expenses of $4,964.

and amortization expense for the three months ended September 30, 2021 was $27,689, compared to $50,167 for the same period in 2020,

a decrease of $22,478, or 45%.

The primary reason for the decrease is an adjustment in 2020 for the reclassification of a protype PrintRite3D

system from finished goods to fixed assets.

operating expenses were $90,108 for the three months ended September 30, 2021, compared to $59,100 incurred during the same period in

The increase is primarily due to higher insurance premiums in 2021, and an increase in bank fees from a credit card transaction.

the three months ended September 30, 2021, our net other income & expense was net income of $439 compared to net expense of $6,241

The increase is primarily the result of the interest paid to employees on salary reductions in 2020.

net loss applicable to common stockholders for the three months ended September 30, 2021 totaled $2,505,198 as compared to $1,955,357

for the same period of 2020, a $549,841 decrease.

The third quarter net operating loss contributed $1,279,646 to the loss increase, partially

offsetting these losses was an increase in other income of $6,680, and preferred dividends of $723,124.

Months Ended September 30, 2021 and 2020

the nine months ended September 30, 2021, we recognized revenue of $1,302,525 compared to $637,944 during the same period of 2020.

primary contributors to the $664,581 increase were an increase in PrintRite3D® unit sales contributing $799,221, partially offset

by a decrease in revenue from our Rapid Test and Evaluation Program (RTE) of $82,064 and a first quarter sale return for $72,000.

quarter 2021 revenues included the Company’s first multi-unit sale, which was to a U.S.

Department of Energy contractor,

and a single unit sale to a U.S.

National Laboratory.

cost of revenue for the nine months ended September 30, 2021 was $409,493 compared to $400,172 during the same period in 2020.

of $9,321 is primarily due to the cost associated with our increase in PrintRite3D® unit sales, partially offset by a decrease in

certain material parts, as well as a decrease in the ongoing support of legacy RTE programs, including equipment upgrades and additional

Our gross profit for the

nine months ended September 30, 2021 was $893,032, or 68.6% of revenues, as compared to $237,772, or 37.3% of revenues for the same period

total operating expenses for the nine months ended September 30, 2021 were $6,976,944 compared to $4,448,708 for the same period in 2020,

a $2,528,236, or 56.8% increase.

costs for the nine months ended September 30, 2021 were $3,055,279 compared to $1,915,381 for the same period in 2020, an increase of

The increase is primarily due to increased salaries of $741,303 reflecting raises granted in January and 13 additional employees

in 2021 as compared to 2020, an associated increase in taxes and benefits of $137,976, and $260,619 of increased expense related to stock

appreciation rights granted to executive management in August, 2021.

compensation for the nine months ended September 30, 2021 was $893,431 compared to $483,208 for the same period in 2020, a $410,223 increase,

primarily due annual option grants made to employees in August of 2021, including 13 additional employees as compared to 2020, and options

granted to the Company’s newly hired Senior Vice President.

the nine months ended September 30, 2021, Sigma incurred research and development expenditures of $608,812 compared to $245,008 in the

same period of 2020.

The $363,804 increase is a result of development costs incurred in connection with PrintRite3D version 7.0 of $89,800,

increased purchase of lab supplies of $115,453, CT scans conducted for new development work and a simulation project totaling $101,138,

increased write-offs of obsolete inventory and metal powder of $53,082, and $26,351 related to an optics redesign.

Partially offsetting

these increases was a decrease in consulting costs of $22,020 due to the full time hire of a consultant in 2021.

public relations and marketing expenses incurred in the nine months ended September 30, 2021 were $342,725 compared to $353,802

during the same period in 2020.

The $11,077 decrease in the nine-month comparative expenditures results primarily from decrease in

marketing and advertising expenses of $72,490 as a result of discontinuing Network Newswire services and the use of a public

relations firm.

Partially offsetting these decreases were an increase in Tradeshow expense of $38,698, and the reclassification of

proxy management expenses of $26,135 to organization costs in 2020.

costs for the nine months ended for September 30, 2021 were $578,256 compared to $328,716 during the same period in 2020, an

increase of $249,540.

The increase is primarily due to an increase of $273,429 related to stock option grants to non-employee

directors in January and July of 2021 verses none in the first half of 2020.

Non-employee directors received their option grants at

the end of July, 2020.

Partially offsetting this increase was a decrease in non-employee director cash compensation of $20,931, and

lower transfer agent expenses of $2,958 resulting from fewer share transactions in the first nine months of 2021.

and professional fees incurred in the nine months ended September 30, 2021 were $681,941, compared to $530,660 incurred during the same

period in 2020, an increase of $151,281, or 29%.

Legal fees decreased by $81,822 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.

contributing to the decrease were lower accounting related expenses of $9,426.

Partially offsetting these decreases was an increase in

recruiting fees of $147,473 related to 13 new hires in 2021, increased consulting fees of $87,301 related to an external marketing consultant

and corporate consulting services, and increased IT services of $7,755.

the nine months ended September 30, 2021, Sigma’s office expenses were $472,335 compared to $310,947 in the same period of 2020.

The $161,388 increase in these expenditures primarily resulted from $30,693 in postage and shipping, $27,500 in new computer hardware

and software related to new hires, payroll servicing fees of $10,685 due to new hires and a first-year fee discount that ended in 2020,

increased dues and subscriptions of $35,786 to new software applications, including customer relationship management, product lifecycle

management, and compliance, increased travel expenses of $46,438 and increased training and education expense of $12,146, partially offset

by a decrease in rent and utilities expense of $1,861.

and Amortization expense for the nine months ended September 30, 2021 was $76,502, compared to $86,150 for the same period in 2020.

primary reason for the decrease is due to a nine month catch up adjustment in 2020 from the reclassification of a prototype PrintRite3D

system from finished goods inventory to fixed assets.

operating expenses for the nine months ended September 30, 2021 were $267,663, as compared to $194,836 during the same period in

The increase of $72,827 is primarily due to increased insurance premiums.

the nine months ended September 30, 2021, our net other income & expense was net income of $1,096,727, as compared to net income

of $499,700 during the same period in 2020.

The increase is primarily a result of a gain of $1,092,441 on the revaluation of the derivative

liability incurred in connection with the issuance of warrants to purchase common stock in our March 2021 offering, and $9,095 from a

new interest-bearing sweep bank account, as compared to 2020 New Mexico state job incentive credits of $151,657 and $361,700 from the

forgiveness of our PPP loan.

net loss applicable to common shareholders for the nine months ended September 30, 2021 totaled $5,076,532 as compared to $5,455,707

for the same period in 2020, a $379,175 decrease.

While the net operating loss increased by $1,872,976, the increase of $597,027 in other

income together with a decrease in preferred dividend expense of $1,655,124 accounted for the overall decrease.

financed our operations during the three and nine months ended September 30, 2021 and 2020 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 Capital Resources

of June 30, 2021, we had $14,731,115 in cash and working capital of $15,572,454, as compared with $3,700,814 in cash and working

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

of September 30, 2021, we had $13,064,394 in cash and working capital of $13,977,104, 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.

In 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.

In 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

Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate of 2,190,000 shares of

common stock to holders in a private placement.

The warrants entitle the holders to purchase one share of our common stock at an exercise

price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date.

If all of the warrants are exercised by the holders thereof, the potential gross proceeds to the Company will

be $9,460,800.

During the first quarter

of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net proceeds to the Company

of $1,136,010.

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, such as our current expectations

of revenue generation and burn rate, and we could exhaust our capital resources sooner than we expect.

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.

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.

Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate

of 2,190,000 shares of common stock to holders in a private placement.

The warrants entitle the holders to purchase one share of our

common stock at an exercise price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date.

of the warrants are exercised by the holders thereof, the potential gross proceeds to the Company will be $9,460,800.

the first quarter of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net proceeds

to the Company of $1,136,010.

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, such as our current expectations of revenue generation

and burn rate, 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

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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.

the remainder of 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® technology.

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

technology, including the May 2021 release of version 7.0, will enable us to further commercialize this technology into the AM metal

market in 2021.

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).

the second quarter of 2021 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 continues to be 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 that revenue from these sectors will remain

under pressure.

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, we believe that the crisis will eventually

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

The cost of expending,

maintaining, and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent

claims and other intellectual property rights;

The effect of competing

technological and market developments;

The revenue from the

sales of our existing and future products;

The cost of operating

as a public company;

The increasing cost of engineering talent.

the remainder of 2021 and throughout 2022, we expect to sustain our operations and our commercialization and marketing efforts with

our cash reserves and revenues generated from sales of our PrintRite3D® technology.

We expect that continued enhancements of our

IPQA®-enabled PrintRite3D® technology, including the May 2021 release of version 7.0, will enable us to further

commercialize this technology into the AM metal market in 2021.

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).

As the third quarter of 2021

progressed, the effect of COVID-19 on our ability to generate revenue, seemed to lessen;

however, the Company continued to be adversely

affected by the COVID-19 global economic slowdown, which has resulted in lower revenue than anticipated.

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.

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 that revenue from these sectors will remain under pressure.

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.

Additionally,

access to customer and prospect installations due to country specific regulations regarding COVID-19 quarantining has consumed resources

for longer periods of time than expected, resulting in overall lower productivity and increased expenses.

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

Net cash used in operating

activities during the six months ended June 30, 2021 increased to $3,266,620 from $2,435,387 during the same period in 2020, a $831,233

Contributing to this increase was the gain of $1,092,441 on the derivative liability, increased inventory of $200,426, an

increase in prepaid assets of $133,286, a decrease in stock-based compensation of $67,784 and increased net loss of $2,984.

Partially offsetting these increases was a decrease in accounts receivable of $172,977, a decrease in cash used to settle accounts

payable and accrued expenses of $479,880, and depreciation and amortization of $12,831.

cash used in operating activities during the nine months ended September 30, 2021 increased to $4,786,590 from $3,676,595

during the same period in 2020, a $1,109,995 increase.

Primary drivers of the increase were increased net loss of $1,275,948,

the gain on the derivative liability of $1,092,441, and increased inventory of $231,148.

Partially offsetting these increases were an

increase in non-cash securities-based compensation of $698,618, a decrease in accounts receivable of $94,349, and a decrease in accounts

payable and accrued expenses of $721,705.

Cash Used/Provided by Investing Activities

cash used by investing activities during the six months ended June 30, 2021 was $108,021, which compares to $98,710 of cash used by investing

activities during the same period of 2020, an increase of $9,311.

This is primarily attributable to lower patent costs offset by and

increased purchases of furniture and equipment.

Cash Used/Provided by Financing Activities

cash used by investing activities during the nine months ended September 30, 2021 was $254,772, which compares to $249,452 of

cash used by investing activities during the same period of 2020, an increase of $5,320.

This is primarily attributable to increased

equipment purchases of $28,557, partially offset by lower patent costs of $23,737 during the period.

Cash Provided by Financing Activities

during the six months ended June 30, 2021 increased to $14,404,942 from $4,892,944 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 2021 and March 2021 private

and public offerings and exercise of Preferred Warrants.

Cash provided by financing activities during the same period in 2020

resulted from the receipt of $3,600,000 in proceeds less $820,228 of offering costs in connection with our January 2020

and April 2020 offerings, $2,141,100 in proceeds from the exercise of warrants, and 22,072 from the deferral

of payroll taxes pursuant to the CARES Act, partially offset by the payment of the remaining outstanding principal balance on a convertible

note payable in the amount of $50,000.

Our 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 issuance of securities or by borrowing funds from lenders to fulfill

our business plans.

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

include onerous terms.

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

to meet and that could adversely affect our business operations.

There is no assurance as to the amount and availability of any required

future financing or the terms thereof.

The Company is unable to predict the effect that the ongoing COVID-19 pandemic may

have on its access to the financing markets.

If we fail to obtain sufficient funding when needed, we may be forced to delay or

scale back a portion of our commercialization efforts and operations.

have no credit lines as of July 22, 2021, nor have we ever had a credit line since our inception.

provided by financing activities during the nine months ended September 30, 2021 increased to $14,404,942 from $8,349,676 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 2021

and March 2021 private and public offerings and exercise of Preferred Warrants.

Cash provided by financing activities during the same

period in 2020 resulted from the receipt of $3,600,000 in proceeds less $820,224 of offering costs in connection with our January 2020

and April 2020 offerings, and $5,619,900 in proceeds from the exercise of warrants, partially offset by the payment of the remaining

outstanding principal balance on a convertible note payable in the amount 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 issuance of securities or by borrowing funds

from lenders to fulfill our business plans.

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

and may otherwise include onerous terms.

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

may be difficult to meet and that could adversely affect our business operations.

There is no assurance as to the amount and availability

of any required future financing or the terms thereof.

The Company is unable to predict the effect that the ongoing COVID-19 pandemic

may have on its access to the financing markets.

If we fail to obtain sufficient funding when needed, we may be forced to delay or scale

back a portion of our commercialization efforts and operations.

have no credit lines as of October 21, 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 2. Management’s Discussion and Analysis