NextTrip, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Rule 13a-15(e) under the Exchange Act defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our Chief Executive Officer, and Chief Financial Officer (Principal Financial and Accounting Officer), as of the end of the period covered by this annual report, our management concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. The foregoing conclusion is based, in part, on the fact that we are a small public company with limited revenues and employees. Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Exchange Act. Our management, with the participation of our Chief Executive Officer, and Chief Financial Officer, conducted an evaluation of the effectiveness of our control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2021. We continuously seek to improve and strengthen our control processes to ensure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weakness we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock. 25 This report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to SEC rules applicable to smaller reporting companies. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. MANAGEMENT Executive Officers The following table sets forth the name, age and position of each of our executive officers as of March 23, 2022: Name Age Position Mark K. Ruport 69 Chief Executive Officer Frank Orzechowski 62 Chief Financial Officer, Treasurer and Corporate Secretary Ronald Fisher 52 Vice President of Business Development Darren Beckett 48 Chief Technology Officer Jacob Brunsberg 35 President and Chief Operating Officer Mark Ruport served as Executive Chairman from December 3, 2019 until April 30, 2020 and became our President and Chief Executive Officer on April 30, 2020. On February 16, 2022, Mr. Ruport resigned as President but continues to be our Chief Executive Officer. Additional information regarding Mr. Ruport is set forth below under “Board of Directors and Corporate Governance.” Frank Orzechowski has served as our Chief Financial Officer, Treasurer, principal accounting officer, principal financial officer, and Corporate Secretary since July 1, 2019. Prior to joining the Company, Mr. Orzechowski served as the Chief Financial Officer of StormHarbour Partners LP, an independent global markets and financial advisory firm since September 2013. From May 2013 to August 2013, Mr. Orzechowski served as a contract CFO for Etouches Inc., a cloud-based event management software company, to assist with financial matters in connection with that company’s planned equity financing. Prior to that, he served as President and Owner/Operator of Four-O Technologies Inc. from August 2009 to December 2012, where he successfully launched and guided operations for two Cartridge World franchise units in Connecticut. From February 2006 to July 2009, Mr. Orzechowski served as President and Chief Financial Officer of Nikko Americas Holding Company Inc., where he was responsible for managing all of the support and infrastructure for that company’s U.S. business, as well as investment manager selection and due diligence functions for its World Series Platform. Mr. Orzechowski began his career at Coopers & Lybrand in 1982, received his CPA certification in 1984 and received his Bachelor of Science in Business Administration with a major in Accounting from Georgetown University in 1982. 26 Darren Beckett served as our Engineering Manager beginning on September 25, 2017, was appointed as our Vice President of Engineering on June 29, 2018, and had his title changed to Chief Technology Officer of the Company on October 18, 2018. Mr. Beckett has over 20 years of experience in the semiconductor industry, including since 1997 with Intel Corporation at which he held various technical and managerial positions, including process engineer of ion implant charged particle systems, chemical vapor deposition systems, and, since 2008, engineering manager of multiple engineering groups such as rapid thermal anneal, defect metrology equipment and fab environment micro contamination. Mr. Beckett’s expertise is in process engineering for advanced manufacturing technology, including statistical process control for fabrication of semiconductor devices. Mr. Beckett serves as an independent director and board member of M&T Foundation, San Diego, California. Mr. Beckett earned a B. Eng. in Mechanical Engineering from University of Limerick, Ireland. Ronald Fisher was appointed as Vice President of Business Development of Sigma on August 10, 2015 and leads the PrintRite3D® Operating Division. Mr. Fisher is a Mechanical Engineer with hands-on experience in quality, manufacturing, and product development. He has an MBA and has distinguished himself as a lead sales and marketing officer as well as a Chief Operating Officer. He was a Program Manager at Swagelok from 1988-2004, and Vice President and General Manager, Aftermarket and Geometry Systems, at Micropoise Measurement Systems from 2004 until 2013, and a Partner and COO of Laszeray Technology, LLC from 2013 until 2014. Mr. Fisher holds a bachelor’s degree in Mechanical Engineering Technology from the University of Akron as well as an MBA from Kent State University. Jacob Brunsberg was appointed Senior Vice-President of Product Management and Strategic Relationships on September 20, 2021, and on February 16, 2022, he was named President and Chief Operating Officer. Prior to joining the Company, Mr. Brunsberg was a P&L leader for General Electric’s Binder Jet Technology unit, with management responsibility for strategy, development, commercialization, and overall business performance. From 2017 to 2019 he served as Sr. Managing Director of the Central Region, tasked with helping establish the US sales infrastructure for post-acquisition integration of several additive manufacturing technology companies including Concept Laser, Arcam and GEonX into the newly formed GE Additive business entity. Prior to GE, Mr. Brunsberg worked for the American Roller Company in sales leadership and product marketing positions, responsible for the development and oversight of growth strategies, focused on advanced welding, cladding, thermal spray, and powder metallurgy technologies across a number of industrial markets. Mr. Brunsberg holds a Bachelor of Science degree in Material Science and Engineering from the University of Wisconsin-Madison. BOARD OF DIRECTORS AND CORPORATE GOVERNANCE The following table sets forth the names, ages as of March 23, 2022, and certain other information regarding our directors: Directors Class Age Position Director Since Current Term Expires John Rice I 75 Chairman of the Board and Director 2017 2024 Mark K. Ruport I 69 Chief Executive Officer 2019 2024 Salvatore Battinelli(1) II 80 Director 2017 2022 Dennis Duitch(1) III 77 Director 2017 2023 Kent Summers(1) III 63 Director 2018 2023 (1) Member of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Directors John Rice was appointed to our Board of Directors on February 15, 2017, was appointed as Chairman of our Board on April 19, 2017, was appointed as our interim Chief Executive Officer on July 24, 2017, became our Chief Executive Officer on July 14, 2017 and was appointed as our President on October 10, 2018. Effective April 30, 2020, Mr. Rice resigned from his position as President and Chief Executive Officer. Mr. Rice has extensive experience in business operations. In 1990, Mr. Rice founded ASiQ, LLC, a firm specializing in operations management services ranging from launching successful startups and executing business turnarounds to financings, crisis management and the repositioning of enterprises for sale at optimum market prices. Mr. Rice presently serves as ASiQ’s CEO and President. He also served as CEO of Coca-Cola Bottling Company of Santa Fe, a client of ASiQ’s, from 2009 to 2015. From 2010 to 2012, Mr. Rice served as Director and Contracts Officer of Detector Networks International. Mr. Rice frequently lectures on breakout growth strategies, crisis management, corporate turnarounds, venture capital, and financial structuring and strategies. He has also served on a number of boards. Since 2005, Mr. Rice has served as Director of New Mexico Angels, Inc., a New Mexico based group of accredited individual angel investors. Since 2016, Mr. Rice has served as Director of Akal Security, Inc. He was also a Director of Detector Networks International from 2010-2012, where he successfully negotiated the principal component of a business turnaround for the company. Mr. Rice is an honors graduate of Harvard College. 27 Our Board of Directors believes that Mr. Rice is qualified to serve as a member of the board because of his broad and deep experience in improving business operations, engineering financial structures that support ongoing needs of operating companies, and building investor and shareholder values. Salvatore Battinelli was appointed to our Board of Directors on August 16, 2017. Mr. Battinelli is currently the President and Chief Executive Officer of Bello e Preciso Co., a manufacturer and wholesaler of Italian-made fashion watches and has served in those roles since early 2017. Prior to joining Bello e Preciso Co., from 2011 to 2013, Mr. Battinelli served as Vice-President of Development and Long-Term Strategy of North American Management Corporation, a wealth management firm based in Boston, Massachusetts with over $2 billion in assets under management. From 1987 to 2011, Mr. Battinelli served as Executive Vice-President and acting Chief Executive Officer and Chief Operating Officer of Faneuil Hall Associates, Inc., a concierge boutique family office devoted to five interrelated ultra-high net-worth families. Mr. Battinelli’s primary responsibilities while at Faneuil Hall Associates included providing planning and investment advice, the management of approximately 30 asset portfolios and more than 65 individual business entities; and assisting the families in their various business ventures worldwide while working closely with law, accounting and banking functions. During his tenure at Faneuil Hall Associates, Mr. Battinelli served as an executive officer or director for certain of the family-owned entities and successfully managed several portfolio company IPOs, as well as serving as CEO and COO for Designhouse International, a Scandinavian furniture company operating out of Atlanta, Georgia, which was previously listed on NASDAQ in 1983. From 1970 to 1974, Mr. Battinelli served as Audit Manager for Deloitte & Touche (formally Touche Ross), where he specialized in management information systems. From 2002 to 2011, Mr. Battinelli also served as the Chairman of the Board of Directors of HealthLink Europe, BV, a logistics and services company that serves the healthcare industry. Mr. Battinelli is a Certified Public Accountant and received a BS in accounting and an MBA with an emphasis in international economics and accounting, both from Babson College. Our board of directors believes that Mr. Battinelli is qualified to serve as a member of the board on the basis of his deep understanding of business acquisitions and sales, as well as his background and extensive company management and integration experience. Mark K. Ruport was appointed as Executive Chairman and as a director on December 3, 2019. Effective April 30, 2020, Mr. Ruport became our President and Chief Executive Officer and, as of February 16, 2022, no longer serves as President. Mr. Ruport remains a director on the Board of Directors but no longer serves as Executive Chairman. Mr. Ruport brings more than 30 years of public and private company experience in the software sector to his position at Sigma Labs. Prior to joining Sigma Labs, Mr. Ruport served since 2010 as the President of Step Function Consulting, LLC, a consulting firm that provides strategic consulting services to early and mid-stage portfolio software companies. Mr. Ruport also served from 2014 to 2017 as the Executive Chairman of the Board of Directors of Content Analyst Company, a leading developer of advanced analytics software for searching and analyzing unstructured text, and before that served as its Vice Chairman from 2012 to 2013. From 2005 to 2009, Mr. Ruport served as the President and Chief Executive Officer of Configuresoft, Inc., a venture-backed Enterprise Systems Management company, where he orchestrated an OEM agreement which later led to its acquisition by EMC Corp. Prior to Configuresoft, Mr. Ruport served from 2004 to 2005 as the Executive Vice President of Worldwide Operations at Stellent, Inc., which was subsequently acquired by Oracle, Inc., and from 1995 to 2005 as the President, Chief Executive Officer and Chairman of the Board of Directors of Optika, Inc., a venture-backed Enterprise Content Management Company that he led through its initial public offering and merger with Stellent, Inc. From 1990 to 1994, Mr. Ruport served as the President and Chief Executive Officer of Interleaf, Inc., a public software company. He also held various senior executive positions from 1985 to 1989 at Informix, Inc., a relational database management system company later acquired by IBM, and from 1985 to 1989 at Cullinet, Inc., a mainframe database management system and enterprise resource planning company later acquired by Computer Associates, Inc. Mr. Ruport received his Bachelor of Science degree and MBA from Bowling Green State University.Mr. Ruport received a Bachelor of Science in Business and an MBA from Bowling Green State University. 28 Our Board of Directors believes that Mr. Ruport is qualified to serve as a member of the board because of his extensive experience in management and leadership in the technology industry. Dennis Duitch was appointed to our Board of Directors on August 8, 2017. Mr. Duitch has served as Managing Director of Duitch Consulting Group, a private consulting company, since 2003. Prior to that time, he practiced public accounting, business management, mediation and consultancy nationally, with expertise in strategic and operations management, finance, accounting, strategic planning and business operations for a wide spectrum of companies, including technology, manufacturing and distribution, marketing, real estate, entertainment, and professional practices. He has served in executive officer roles and as a director of public and private companies, not-for-profit organizations, including as Vice-Chairman for Accountants Global Network, and as a top-level advisor for public companies, closely held businesses, families and high-wealth individuals for over thirty years. Mr. Duitch began his career with the international CPA firm Grant Thornton in its Chicago, San Francisco and Beverly Hills offices before founding Duitch & Franklin LLP, which evolved to become one of Southern California’s largest independent CPA/Business Management/Consultancy practices, and which was acquired by a public company in 1998. He subsequently served as President for a consumer products company with direct responsibility for marketing, retail, and fulfillment operations, until forming Duitch Consulting Group in 2003 to serve clients in advisory, C-level, and board of director roles. Mr. Duitch is a Certified Family Business and Estate Advisor, and mediator for matters including partner/shareholder agreements and disputes, business and marital property dissolution, and dysfunctional executive teams and boards of directors. He has lectured extensively in management, financial and accounting areas for the California CPA Foundation, business and professional groups, has instructed at several colleges and universities, and has authored technical articles in management and taxation for regional and national publications. Mr. Duitch earned a B.B.A degree in Accounting from the University of Iowa and a Master of Business Administration in Finance from Northwestern University. Our Board of Directors believes that Mr. Duitch is qualified to serve as a member of the board because of his extensive public accounting experience, which will assist the Board and the Audit Committee in addressing the numerous accounting-related issues, regulations and SEC reporting requirements to which we are subject, as well as his expertise in business management, finance and strategic planning. Kent Summers was appointed to our Board of Directors on January 18, 2018. Mr. Summers was also appointed to serve as a member of the Company’s Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Mr. Summers currently divides his time among a number of independent activities which focus on early-stage technology company formation and development strategies, and sales planning and execution needs for emerging- and mid-market technology companies located primarily in the Boston metropolitan area, including: management consultant to private and family-owned businesses; volunteer Mentor and Instructor with the Massachusetts Institute of Technology Venture Mentoring Services program; regular lectures on enterprise, business-to-business sales to company founders and students enrolled at the Massachusetts Institute of Technology Sloan School of Management, the Harvard MBA Program, the Wharton School at the University of Pennsylvania, and a number of domestic and international entrepreneurship support organizations; and consultant to Fellows enrolled in the Harvard Advanced Leadership Initiative. Mr. Summers has served in those roles at various times from 2003 to the present. From 2009 to the present, Mr. Summers has served as the non-executive Chairman of CADNexus, Inc., and from 2017 to the present, as a director and Chairman of the Compensation Committee with iQ3 Connect, Inc. Mr. Summers also currently serves as Chairman, Board of Managers, Massachusetts Materials Technologies LLC. From 2005 to 2017, Mr. Summers served as Managing Partner at Practical Computer Applications, Inc., a Boston-based database consulting and engineering services firm, where he was responsible for sales planning and execution activities. Prior to Practical Computer Applications, from 2001 to 2005, Mr. Summers provided independent merger & acquisition advisory services to support the sale of privately-owned companies. Over a prior 14-year period, Mr. Summers served in leadership roles at several software and internet start-ups, including: Chairman and CEO of Collego Corporation (acquired by MRO Software), founder and CEO of MyHelpDesk, Inc. (acquired by Support.com), founder of PCMovingVan.com (acquired by a PE firm), and Vice President of Marketing at Electronic Book Technologies, Inc. (acquired by INSO Corporation, formerly listed on Nasdaq). 29 Prior to the software industry, Mr. Summers served as Technology Analyst at Electronic Joint Venture Partners LLC and Associate Program Trader on the Options Trading Desk at Bear Stearns & Co. In 1986, Mr. Summers received a BA in English from the University of Houston. Our Board of Directors believes that Mr. Summers is qualified to serve as a member of our Board on the basis of his deep understanding of early-stage business growth strategies, enterprise sales, business acquisitions, as well as his background and extensive company management and leadership experience. Director Independence Our Board of Directors currently consists of five members. As a result of his previous role as Chief Executive Officer, Mr. Rice is not considered an independent director. As a result of his April 30, 2020 appointment as Chief Executive Officer, Mr. Ruport is also not considered an independent director. Our Board of Directors has determined that our other directors, Salvatore Battinelli, Dennis Duitch and Kent Summers, constituting a majority of our directors, are “independent” as that term is defined under Rule 5605(a)(2) of the NASDAQ marketplace rules. Pursuant to NASDAQ rules, our board must consist of a majority of independent directors. The NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, as required by NASDAQ rules, our Board of Directors has made a subjective determination as to Messrs. Battinelli, Duitch and Summers, our independent directors, that no relationships exist, which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers. Classified Board of Directors In accordance with our amended and restated bylaws, our Board of Directors is divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors are classified as follows: ● the Class I directors are John Rice and Mark Ruport, with terms expiring at our 2024 annual meeting of stockholders; ● the Class II director is Salvatore Battinelli, with a term expiring at our 2022 annual meeting of stockholders; and ● the Class III directors are Dennis Duitch and Kent Summers, with terms expiring at our 2023 annual meeting of stockholders. Our amended and restated bylaws provide that the authorized number of directors may be changed by resolution of the Board of Directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. 30 Leadership Structure of the Board Our directors may be removed with or without cause at any meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors. Our amended and restated bylaws provide our Board of Directors with flexibility in its discretion to combine or separate the positions of Chairman of the Board and Chief Executive Officer, if we elect to appoint a Chairman of the Board. Our Board of Directors believes it is important to select the Company’s Chairman and Chief Executive Officer in the manner it considers in the best interests of the Company at any given time. Our Board of Directors believes that the Chairman and Chief Executive Officer positions may be filled by one individual or by two different individuals, as determined by our Board of Directors based on circumstances then in existence. On August 19, 2017, our Board of Directors appointed Mr. Rice as Chairman of the Board. The Chairman of the Board presides at all meetings of our Board of Directors and exercises and performs such other powers and duties as may be assigned to him from time to time by the Board or prescribed by our amended and restated bylaws. The Chairman of the Board is appointed by our Board of Directors on an annual basis. Our Board of Directors has no established policy on whether it should be led by a Chairman who is also the Chief Executive Officer, and has in the past combined the roles of Chairman and Chief Executive Officer. Our Board currently is committed to the separated roles given the circumstances of our Company. However, our Board of Directors continually evaluates our leadership structure and could, in the future, decide to combine the Chairman and Chief Executive Officer positions if it believes that doing so would serve the best interests of our Company and our stockholders. Board Meetings and Committees During our fiscal year ended December 31, 2021, the Board of Directors held eight meetings, and each director attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors held during the period for which he has been a director and (ii) the total number of meetings held by all committees of our Board of Directors on which he served during the periods that he served. Although we do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of stockholders, we encourage, but do not require, our directors to attend. Each of our then current directors attended our 2021 Annual Meeting of Stockholders. Our Board has established three standing committees-audit, compensation, and nominating and corporate governance-each of which operates under a written charter that has been approved by our board. Until February 15, 2017, when our common stock became listed on The Nasdaq Capital Market, we were not required to establish or maintain an audit, nominating or compensation committee. Each committee charter has been posted on the Investors section of our website at www.sigmalabsinc.com. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report. Audit Committee The Audit Committee’s responsibilities include: ● appointing, approving the compensation of, and assessing the independence of our registered public accounting firm; ● overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; ● reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures; ● monitoring our internal control over financial reporting, disclosure controls and procedures; 31 ● establishing procedures for the receipt, retention and treatment of accounting related complaints and concerns; ● meeting independently with our registered public accounting firm and management; ● reviewing and approving or ratifying any related person transactions; and ● preparing the Audit Committee report required by SEC rules. The members of our Audit Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the chairperson of the committee. Our Board of Directors has determined that each of Messrs. Duitch, Battinelli and Summers is an independent director under the applicable Nasdaq rules and under SEC Rule 10A-3. All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our Board of Directors has determined that each member of our Audit Committee is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. The Audit Committee met four times during 2021. Compensation Committee The Compensation Committee’s responsibilities include: ● annually reviewing and approving corporate goals and objectives applicable to CEO compensation; ● determining our CEO’s compensation; ● reviewing and approving, or making recommendations to our board with respect to, the compensation of our other executive officers; ● overseeing an evaluation of our senior executives; ● overseeing and administering our equity incentive plans; ● reviewing and making recommendations to our board with respect to director compensation; and ● reviewing and discussing annually with management our “Compensation Discussion and Analysis” when it is required by SEC rules to be included in our Proxy Statements. The members of our Compensation Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Battinelli serves as the chairperson of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable Nasdaq rules and regulations and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee’s responsibilities include: ● identifying individuals qualified to become board members; ● recommending to our board the persons to be nominated for election as directors and to each of the board’s committees; and ● overseeing an annual evaluation of the board. The members of our Nominating and Corporate Governance Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the chairperson of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable NASDAQ rules and regulations. 32 Code of Ethics and Business Conduct The Company has a code of ethics that applies to all employees, including the Company’s principal executive officer, principal financial officer, and principal accounting officer, as well as to the members of the Board of Directors. The code is available at www.sigmalabsinc.com. The Company intends to disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or Nasdaq. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this report. Considerations in Evaluating Director Nominees Our Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation of director candidates, our Nominating and Corporate Governance Committee will consider the current size and composition of our Board of Directors and the needs of our Board of Directors and the respective committees of our Board of Directors. Some of the qualifications that our Nominating and Corporate Governance Committee considers include, without limitation, issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest and other commitments. Nominees must also have the ability to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Director candidates must have sufficient time available in the judgment of our Nominating and Corporate Governance Committee to perform all board of director and committee responsibilities. Members of our Board of Directors are expected to prepare for, attend, and participate in all board of director and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although our Nominating and Corporate Governance Committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests. Although our Board of Directors does not maintain a specific policy with respect to board diversity, our Board of Directors believes that our Board of Directors should be a diverse body, and our Nominating and Corporate Governance Committee considers a broad range of backgrounds and experiences. In making determinations regarding nominations of directors, our Nominating and Corporate Governance Committee may take into account the benefits of diverse viewpoints. Our Nominating and Corporate Governance Committee also will consider these and other factors as it oversees the annual board of director and committee evaluations. After completing its review and evaluation of director candidates, our Nominating and Corporate Governance Committee recommends to our full Board of Directors the director nominees for selection. Stockholder Recommendations for Nominations to the Board of Directors Our Nominating and Corporate Governance Committee will consider candidates for director recommended by stockholders so long as such recommending stockholder was a stockholder of record both at the time of giving notice and at the time of the annual meeting, and such recommendations comply with our amended and restated articles of incorporation and amended and restated bylaws and applicable laws, rules and regulations, including those promulgated by the SEC. The Nominating and Corporate Governance Committee will evaluate such recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our Board of Directors includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact the Secretary in writing. Our Nominating and Corporate Governance Committee has discretion to decide which individuals to recommend for nomination as directors. 33 Role of Board in Risk Oversight Process Risk assessment and oversight are an integral part of our governance and management processes. Our Board of Directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks we face. Throughout the year, senior management reviews these risks with the Board of Directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks. Our Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through the Board of Directors as a whole, as well as through standing committees of the Board of Directors that will address risks inherent in their respective areas of oversight. In particular, our Audit Committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The Audit Committee also monitors compliance with legal and regulatory requirements and considers and approves or disapproves any related-person transactions. Our Nominating and Governance Committee monitors the effectiveness of our corporate governance guidelines that we may adopt or amend from time to time. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking by our management. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. The Company believes that during the fiscal year ended December 31, 2021, its executive officers, directors and greater than 10% stockholders complied with the filing requirements under Section 16(a). ITEM 11. EXECUTIVE COMPENSATION Processes and Procedures for Compensation Decisions Our Compensation Committee is responsible for the executive compensation programs for our executive officers and reports to our board of directors on its discussions, decisions and other actions. Typically, our Chief Executive Officer makes recommendations to our Compensation Committee and is involved in the determination of compensation for the respective executive officers that report to him. Our Chief Executive Officer does not determine his own compensation. Our Chief Executive Officer makes recommendations to our Compensation Committee regarding short- and long-term compensation for all executive officers based on our results, an individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our Compensation Committee then reviews the recommendations and other data and makes decisions (or makes recommendations to the Board) as to total compensation for each executive officer as well as each individual compensation component. 34 The following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served as the Company’s Chief Executive Officer at any time during the past fiscal year, and (ii) for our two most highly compensated executive officers, other than our Chief Executive Officer, who were employed with the Company on December 31, 2021 (the foregoing executives are herein collectively referred to as the “named executive officers”). Summary Compensation Table Name and Principal Position Year Salary ($) (1) Bonus ($) (1) Stock Awards ($) (5) Option Awards ($) (6) All Other Compensation ($) Total ($) Mark Ruport - Chief 2021 250,000 208,333 (2) - 368,660 (7) - 826,993 Executive Officer and Director 2020 155,000 50,000 (3) 1,986 618,980 (8) 802 826,768 Darren Beckett - Chief Technology Officer 2021 185,000 25,800 (2) - 361,812 (9) - 572,612 2020 180,000 18,000 (3) 2,306 152,984 (10) 928 354,218 Frank Orzechowski - Chief Financial Officer 2021 185,000 26,500 (2) - 276,424 (11 - 487,924 2020 151,667 15,500 (3) 1,986 114,738 (12) 802 284,693 (1) Actual amounts paid or accrued. (2) On January 24, 2022, the Compensation Committee granted Messrs. Ruport, Beckett, and Orzechowski performance bonuses of $208,333, $25,800, and $26,500 respectively, for the fiscal year ended December 31, 2021 in accordance with the provisions of their incentive compensation plans. (3) On February 25, 2021, the Compensation Committee granted Mr. Ruport a $50,000 performance bonus for the fiscal year ended December 31, 2020. In October 2020, the Compensation Committee granted Mr. Beckett a performance bonus of $10,000. In December 2020, Mr. Beckett was granted an additional performance bonus of $8,000, and Mr. Orzechowski was granted a performance bonus of $15,500. (5) On April 10, 2020 Messrs. Ruport, Beckett and Orzechowski were granted 969, 1,125, and 969 shares of our common stock, respectively, valued at the closing price of $2.05 on the date of the grant. The shares fully vested on December 31, 2020. (6) Includes option awards and stock appreciation rights awards. On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. The Fair Value of option and SARs awards are calculated in accordance with FASB ASC Topic 718. The amount recognized for all awards is calculated using the Black Scholes pricing model. (7) On August 11, 2021, we granted Mr. Ruport an option to purchase 51,832 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,958 shares vested and became exercisable on August 11, 2021, and the remaining 38,874 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 17,278 shares were vested and exercisable. The option had a grant date fair value of $147,464. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 77,748 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $221,196. 35 (8) On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 25%, or 29,164 shares vested and became exercisable on June 15, 2020, and the remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 72,904 shares were vested and exercisable. The option had an aggregate grant date fair value of $254,474. On November 24, 2020, we granted Mr. Ruport and option to purchase 114,915 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2021, 41,496 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $236,519. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 20,031 SARs were vested and exercisable. The SAR’s had an aggregate grant date fair value of $127,987. (9) On August 11, 2021, we granted Mr. Beckett an option to purchase 50,869 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,718 shares vested and became exercisable on August 11, 2021, and the remaining 38,151 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 16,957 shares were vested and exercisable. The option had a grant date fair value of $144,724. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 76,304 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $217,088. (10) On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price equal to $2.50 per share and vests as follows: 25%, or 11,665 shares vested and became exercisable on June 15, 2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 29,161 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $101,788. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 24,038 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 8,013 SARs were vested and exercisable. The SAR’s had an aggregate grant date fair value of $51,196. (11) On August 11, 2021, we granted Mr. Orzechowski an option to purchase 48,580 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,145 shares vested and became exercisable on August 11, 2021, and the remaining 36,435 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 16,193 shares were vested and exercisable. The option had a grant date fair value of $138,212. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 48,580 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $138,212. (12) On May 28, 2020, we granted Mr. Orzechowski an option to purchase 34,996 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price equal to $2.50 per share and vests as follows: 25%, or 8,749 shares vested and became exercisable on June 15, 2020, and the remaining 26,247 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 21,871 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $76,342. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 18,028 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 6,009 SARs were vested and exercisable. The SAR’s had an aggregate grant date fair value of $38,396. 36 Named Executive Officer Employment Agreements Mark K Ruport On December 3, 2019, we entered into an “at-will’ employment letter agreement with Mark Ruport, effective as of December 3, 2019 (the “effective date”), pursuant to which Mr. Ruport agreed to serve as our Executive Chairman on an “at-will” basis. Additionally, Mr. Ruport was appointed to serve as a member of our Board of Directors, effective as of December 3, 2019, with a term expiring at the 2021 annual meeting of stockholders. As of April 30, 2020, Mr. Ruport was appointed as President, Chief Executive Officer, and principal executive officer of the Company, and no longer serves as Executive Chairman. On February 16, 2022, Mr. Ruport resigned as President, and continues to serve as Chief Executive Officer and as a member of the Board of Directors. Under the employment letter agreement, Mr. Ruport is entitled to (i) an annual base salary of $155,000, which was increased to $250,000 effective January 1, 2021, and in connection with his resignation as President was decreased to $200,000 effective February 16, 2022 (such base salary is not subject to decrease, but may be increased in the discretion of the Company’s Compensation Committee of the Board of Directors based on annual or special case assessments of Mr. Ruport’s performance and other factors), and (ii) all benefits that we elect in our sole discretion to provide from time to time to our other executive officers, and received a grant of (1) a five-year stock option to purchase up to 10,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and vested and became exercisable in full on the first month’s anniversary of the effective date, and (2) a five-year stock option to purchase up to 40,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and will vest and become exercisable in equal (as closely as possible) monthly installments over three years from the effective date, provided, in each case, that Mr. Ruport remains an employee of the Company through such vesting date. Such options are on such other terms and provisions as are contained in the Company’s standard form nonqualified stock option agreement; provided, however, that (x) upon the occurrence of a Change of Control (as defined in the employment letter agreement), any unvested portion of the options as of the date of such Change of Control will immediately and automatically vest; provided, however, that, the options may be assumed or, in the discretion of the Board of Directors, an equivalent option may be substituted by an applicable successor corporation or any subsidiary of the successor corporation in connection with a Change of Control), and (y) in the event that the Board of Directors determines that Mr. Ruport is unable to perform his duties due to an accident, illness or other event or condition which physically or mentally incapacitates him for a period of 45 consecutive days (“Disability”), if he ceases to be employed by the Company as a result of a Disability, the options will continue to vest and remain exercisable for the 5-year term of the options in accordance with the terms of the option agreements. 37 Additionally, during the term of his employment, Mr. Ruport is eligible to receive one or more bonuses relating to each fiscal year in recognition of his achievement of individual and Company goals established by the Board of Directors from time to time. However, the decision to provide any such bonuses and the amount and terms of any such bonuses is in the sole discretion of the Board of Directors. On January 24, 2022, Mr. Ruport was awarded a performance bonus of $208,333 for 2021. Darren P. Beckett Mr. Beckett has served as an employee of the Company since September 25, 2017, pursuant to an “at will” employment agreement with the Company, under which he was engaged to serve as our Engineering Manager. On October 18, 2018, his title was changed from Vice President of Engineering to Chief Technology Officer of the Company. On October 18, 2018, the Company also increased the annual base salary of Mr. Beckett from $135,000 to $180,000, effective retroactive to September 16, 2018, and granted Mr. Beckett an option to purchase 2,000 shares of common stock under the 2013 Plan at an exercise price of $12.10 per share. The option has a term of five years and vests in equal annual installments over four years from the date of grant subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable vesting date. Under the agreement, Mr. Beckett is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. On October 13, 2017, in connection with his employment, Mr. Beckett was granted an option to purchase up to 1,500 shares of our common stock with an exercise price equal to $19.20 per share. Such option is fully vested and exercisable at December 31, 2021. Frank D. Orzechowski On July 1, 2019, we entered into an “at will” employment agreement, with Frank Orzechowski under which he was engaged to serve as our Chief Financial Officer, Treasurer, Principal Accounting Officer and Corporate Secretary of the Company. Under Mr. Orzechowski’s employment agreement, he was entitled to receive an annual base salary of $135,000, which was increased to $155,000 effective March 1, 2020, which was increased to $180,000 on January 1, 2021, and which was increased to $200,000 on October 1, 2021. Pursuant to the employment agreement, Mr. Orzechowski was granted (1) a stock option to purchase up to 250 shares of common stock of the Company, at an exercise price equal to $14.00 per share, which was the closing market price of the Company’s common stock on July 1, 2019 (i.e., the Effective Date), and (2) to purchase up to 6,000 shares of common stock of the Company, with an exercise price of $14.00, and will vest and become exercisable as follows: 387 shares vested and became exercisable on the one-year anniversary of the Effective Date, 900 shares vested and became exercisable on the second-year anniversary of the Effective Date, 1,413 shares will vest and become exercisable on the third-year anniversary of the Effective Date, and 3,300 shares will vest and become exercisable on the fourth-year anniversary of the Effective Date, provided, in each case, that Mr. Orzechowski remains an employee of the Company through such vesting dates. Further, Mr. Orzechowski is eligible to participate in the Company’s 2013 Equity Incentive Plan, and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. 38 Outstanding Equity Awards at 2021 Fiscal Year-End The following table sets forth outstanding equity awards issued under or outside of our 2013 Equity Incentive Plan and 2020 Stock Appreciation Rights Plan as of December 31, 2021 that are held by our named executive officers. Option Awards (1) Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Option exercise price ($) Option expiration date Mark K. Ruport (2) 10,000 - 11.20 12/3/24 27,025 12,975 11.20 12/3/24 72,904 43,750 2.50 6/14/25 20,031 40,063 2.63 6/22/25 41,496 73,419 2.55 11/24/25 17,278 34,554 3.42 8/11/26 - 77,748 3.42 8/11/26 Darren Beckett (3) 1,500 - 19.20 10/13/22 900 1,100 12.10 10/18/23 188 187 15.00 1/1/24 250 250 12.40 7/18/24 5,000 - 6.70 10/11/24 29,161 17,500 2.50 6/14/25 8,013 16,025 2.63 6/22/25 16,957 33,912 3.42 8/11/26 - 76,304 3.42 8/11/26 675 825 15.60 2/26/28 Frank Orzechowski (4) 250 - 14.00 7/1/24 1,287 4,713 14.00 7/1/24 21,871 13,125 2.50 6/14/25 6,009 12,019 2.63 6/22/25 16,193 32,387 3.42 8/11/26 - 48,580 3.42 8/11/26 (1) On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. Awards issued under the Plan are included in the table. 39 (2) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3,2020; and (ii) an option to purchase up to 40,000 shares of our common stock, with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the date of grant. As of December 31, 2021, a total of 27,025 shares were vested and exercisable. On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 29,164 shares vested and became exercisable on June 15, 2020, and the remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 72,904 shares were vested and exercisable. On November 24, 2020, we granted Mr. Ruport an option to purchase up to 114,915 shares of our common stock. The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2021, 41,496 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 20,031 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Ruport an option to purchase 51,832 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 12,958 shares vested and became exercisable on August 11, 2021, and the remaining 38,874 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 17,278 shares were vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 77,748 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. (3) On February 26, 2018 we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.60 and is vested as to 675 shares. The remaining 825 shares will vest and become exercisable on February 26, 2022. On October 18, 2018, we granted Mr. Beckett an option to purchase up to 2,000 shares of our common stock. The option has an exercise price per share equal to $12.10 and is vested as to 900 shares. The 1,100 remaining shares will vest and become exercisable on September 16, 2022. On October 13, 2017, we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $19.20. The option is fully vested and exercisable. On January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00, and vests in equal installments on the first through the fourth anniversaries of the grant. As of December 31, 2021, 188 shares are vested and exercisable. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through the fourth anniversaries of the date of grant. As of December 31, 2021, the option was vested as to 250 shares. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $6.70 and is fully vested and exercisable. On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock. The option has an exercise price per share equal to $2.50 and vests as follows: 11,665 shares vested and became exercisable on June 15, 2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 29,161 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 24,038 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 8,013 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Beckett an option to purchase 50,869 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 12,718 shares vested and became exercisable on August 11, 2021, and the remaining 38,151 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 16,957 shares were vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 76,304 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. (4) On July 1, 2019, in conjunction with the hiring of Frank Orzechowski, the Financial Officer, the Company granted to Mr. Orzechowski (i) an option to purchase 250 shares of our common stock with an exercise price of $14.00, which fully vested and became exercisable on July 1, 2019; and (ii) an option to purchase up to 6,000 shares of our common stock, with an exercise price of $14.00, which will vest and become exercisable as follows: 387 shares became vested and exercisable on July 1, 2020; 900 shares became vested and exercisable on July 1, 2021; 1,413 shares will vest and become exercisable on July 1, 2022, and the remaining 3,300 shares will vest and become exercisable on July 1, 2023. As of December 31, 2021, a total of 1,287 shares were vested and exercisable. On May 28, 2020, we granted Mr. Orzechowski an option to purchase 34,996 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 8,749 shares vested and became exercisable on June 15, 2020, and the remaining 26,247 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 21,871 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 18,028 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 6,009 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Orzechowski an option to purchase 48,580 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 12,145 shares vested and became exercisable on August 11, 2021, and the remaining 36,435 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 16,193 shares were vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 48,580 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. Equity Awards We offer stock options, stock appreciation rights, and stock awards to certain of our employees, including our executive officers, as the long-term incentive component of our compensation program. We generally grant equity awards to new hires upon their commencing employment with us. Our stock options allow employees to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and may or may not be intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow employees to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. We sometimes also offer stock options, stock appreciation rights and stock awards to our consultants in lieu of cash. Our stock options allow consultants to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and are not intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow consultants to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. Stock options, stock appreciation rights, and stock awards granted to our executive officers may be subject to accelerated vesting in certain circumstances. Retirement Plans We maintain a qualified 401(k) plan, in which all eligible employees may participate. We make safe harbor contributions to match 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed. Safe harbor contributions are 100% vested. We may also elect, on an annual basis, to make a discretionary contribution to the plan, but have not done so to date. Our elective matches and elective contributions vest to participant accounts as follows: 20% after two years of service, and 20% per year thereafter until the participant reaches 6 years of service, at which time, employer contributions vest 100%. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan. No Tax Gross-Ups We do not make gross-up payments to cover our executive officers’ personal income taxes that may pertain to any of the compensation paid or provided by our company. 40 2013 Equity Incentive Plan Plan Purpose Our Board of Directors adopted the 2013 Plan to (1) encourage selected employees, officers, directors, consultants and advisers to improve our operations and increase our profitability, (2) encourage selected employees, officers, directors, consultants and advisers to accept or continue employment or association with us, and (3) increase the interest of selected employees, officers, directors, consultants and advisers in our welfare through participation in the growth in value of our common stock. All of our current employees, directors and consultants are eligible to participate in the 2013 Plan. Administration The 2013 Plan is to be administered by the Board or by a committee to which administration of the Plan, or of part of thereof, is delegated by the Board. The 2013 Plan is currently administered by our Compensation Committee, which we refer to below as the “Administrator.” The Administrator is responsible for selecting the officers, employees, directors, consultants and advisers who will receive Options, Stock Appreciation Rights and Stock Awards. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Option and Stock Appreciation Right award, including the number of shares subject to the Option, the exercise price, expiration date and vesting period of the Option and whether the option is an Incentive Option or a Non-Qualified Option. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Stock Award, including the number of shares granted, the purchase price (if any), and the vesting, transfer and other restrictions imposed on the stock. The Administrator has the power, authority and discretion to make all other determinations deemed necessary or advisable for the administration of the 2013 Plan or of any award under the 2013 Plan. Neither the Board nor any committee of the Board to which administration of the 2013 Plan is delegated will provide advice to participants about whether or not to accept or exercise their awards. Each participant must make his or her own decision about whether or not to accept or exercise an award. The 2013 Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not a qualified pension, profit sharing or bonus plan under Section 401(a) of the Internal Revenue Code Stock Subject to the 2013 Plan As of March 23, 2022, there were 1,473,297 shares previously issued or subject to outstanding awards under the 2013 Plan and 262,262 shares were available for future issuance under the 2013 Plan. If awards granted under the 2013 Plan expire or otherwise terminate or are cancelled without being exercised in full, the shares of common stock not acquired pursuant to such awards will again become available for issuance under the 2013 Plan. If shares of common stock issued pursuant to awards under the 2013 Plan are forfeited to or repurchased by us, the forfeited or repurchased stock will again become available for issuance under the 2013 Plan. If shares of common stock subject to an award are not delivered to a participant because such shares are withheld for payment of taxes incurred in connection with the exercise of an Option, or the issuance of shares under a Stock Award, or the award is exercised through a reduction of shares subject to the award (“net exercised”), then the number of shares that are not delivered will not again be available for issuance under the 2013 Plan. In addition, if the exercise price of any award is satisfied by the tender of shares of common stock to us (whether by actual delivery or attestation), the shares tendered will not again be available for issuance under the 2013 Plan. 41 Eligibility All directors, employees, consultants and advisors of the Company and its subsidiaries are eligible to receive awards under the 2013 Plan. Incentive Options may only be granted under the 2013 Plan to a person who is a full-time officer or employee of the Company or a subsidiary. The Administrator will determine from time-to-time which directors, employees, consultants and advisers will be granted awards under the 2013 Plan. Terms of Awards Written Agreement Each award under the 2013 Plan will be evidenced by an agreement in a form approved by the Administrator. Exercise Price; Base Value The exercise price for a Non-Qualified Option or an Incentive Option may not be less than 100% of the fair market value of the Common Stock on the date of the grant of the Non-Qualified Option or Incentive Option. With respect to an Option holder who owns stock possessing more than 10% of the total voting power of all classes of our stock, the exercise price for an Incentive Option may not be less than 110% of the fair market value of the Common Stock on the date of the grant of the Incentive Option. The base value of a Stock Appreciation Right shall also be no less than 100% of the Common Stock on the date of the grant of the Stock Appreciation Right. The 2013 Plan does not specify a minimum exercise price for Stock Awards. Vesting Each Option, Stock Appreciation Right or Stock Award will become exercisable or non-forfeitable (that is, “vest”) under conditions specified by the Administrator at the time of grant. Vesting typically is based upon continued service as a director or employee but may be based upon any performance criteria and other contingencies that are determined by the Administrator. Shares subject to Stock Awards may be subject to specified restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Administrator. Expiration Date Each Option or Stock Appreciation Right must be exercised by a date specified in the award agreement, which may not be more than ten years after the grant date. Except as otherwise provided in the relevant agreement, an Option or Stock Appreciation Right ceases to be exercisable ninety days after the termination of the holder’s employment with us. Transfers of Options Unless otherwise determined by the Administrator, Options are not transferable except by will or the laws of descent and distribution. 42 Purchase Price Payment Unless otherwise determined by the Administrator, the purchase price of common stock acquired under the 2013 Plan is payable by cash or check at the time of an Option exercise or acquisition of a Stock Award. The Company does not charge participants any fees or commissions in connection with their acquisition of common stock under the 2013 Plan. The Administrator also has discretion to accept the following types of payment from participants: ● A secured or unsecured promissory note, provided that this method of payment is not available to a participant who is a director or an executive officer; ● Shares of our Common Stock already owned by the Option or Stock Award holder as long as the surrendered shares have a fair market value that is equal to the acquired stock and have been owned by the participant for at least six months; ● The surrender of shares of Common Stock then issuable upon exercise of an Option; and ● A “cashless” option exercise in accordance with applicable regulations of the SEC and the Federal Reserve Board. Withholding Taxes At the time of his or her exercise of an Option or Stock Appreciation Right, an employee is responsible for paying all applicable federal and state withholding taxes. A holder of Stock Awards is responsible for paying all applicable federal and state withholding taxes once the shares covered by the award cease to be forfeitable or at any other time required by applicable law. Securities Law Compliance Shares of common stock will not be issued pursuant to the exercise of an Option or the receipt of a Stock Award unless the Administrator determines that the exercise of the Option or receipt of the Stock Award and the issuance and delivery of such shares will comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933 (the “Securities Act”), applicable state and foreign securities laws and the requirements of any stock exchange on which our Common Stock is traded. Effects of Certain Corporate Transactions Except as otherwise determined by the Administrator, in the event of a “corporate transaction,” all previously unexercised Options and Stock Appreciation Rights will terminate immediately prior to the consummation of the corporate transaction and all unvested Restricted Stock awards will be forfeited immediately prior to the consummation of the corporate transaction. The Administrator, in its discretion, may permit exercise of any Options or Stock Appreciation Rights prior to their termination, even if those awards would not otherwise have been exercisable, or provide that outstanding awards will be assumed or an equivalent Option or Stock Appreciation Right substituted by a successor corporation. The Administrator, in its discretion, may remove any restrictions as to any Restricted Stock awards or provide that all outstanding Restricted Stock awards will participate in the corporate transaction with an equivalent stock substituted by the successor corporation subject to the restrictions. In general, a “corporate transaction” means: ● Our liquidation or dissolution; ● Our merger or consolidation with or into another corporation as a result of which we are not the surviving corporation; ● A sale of all or substantially all of our assets; or ● A purchase or other acquisition of more than 50% of our outstanding stock by one person, or by more than one person acting in concert. Other Adjustment Provisions If the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, appropriate adjustments shall be made by the Administrator, in its discretion, in (1) the number and class of shares of stock subject to the 2013 Plan and each Option and grant of Stock Awards outstanding under the 2013 Plan, and (2) the purchase price of each outstanding Option and (if applicable) Stock Award. 43 Amendment or Termination of the Plan The Board of Directors may at any time amend, discontinue or terminate the 2013 Plan. With specified exceptions, no amendment, suspension or termination of the Plan may adversely affect outstanding Options or Stock Appreciation Rights or the terms that are applicable to outstanding Stock Awards. No amendment, suspension or termination of the Plan requires stockholder approval unless such approval is required under applicable law or under the rules of any stock exchange on which our Common Stock is traded. Unless terminated earlier by the Board of Directors, the 2013 Plan will terminate automatically on March 15, 2023, which is the tenth anniversary of the date of the 2013 Plan’s adoption by the Board. 2020 Stock Appreciation Rights Plan On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. Governance of the Plan The Plan will be administered by the Compensation Committee of the Board or, in the Board’s sole discretion, by the Board. The Compensation Committee will have the authority to, among other things, (i) construe and interpret the Plan and apply its provisions; (ii) promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (iii) delegate its authority to one or more persons who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder with respect to SARs that do not involve “insiders” within the meaning of Section 16 of the Exchange Act; (iv) determine when SARs are to be granted under the Plan and the applicable grant date; (v) prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant; (vi) amend any outstanding SARs, subject, in certain cases, to the participant’s consent; and (vii) make all other determinations which may be necessary or advisable for the administration of the Plan. Eligible Participants SARS may be granted only to persons who are Service Providers, and those persons whom the Committee determines are reasonably expected to become Service Providers following the grant date. The Committee may from time to time designate those Service Providers, if any, to be granted SARs under the Plan, the number of SARs which will be granted to each such person, and any other terms or conditions relating to SARs as it may deem appropriate to the extent consistent with the provisions of the Plan. A participant who has been granted a SAR may, if otherwise eligible, be granted additional incentive awards at any time. Grant . The Committee may grant SARs to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. 44 General Provisions . The terms and conditions of each SAR will be evidenced by a SAR agreement. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The term of the SAR will be determined by the Committee but may not be greater than ten years from the date of grant. Exercise . SARs are exercisable subject to such terms and conditions as the Committee may specify in the SAR agreement for the SAR. A SAR may be exercised by the delivery of a signed written notice of exercise to the Company, which must be received and accepted by the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice must set forth the number of SARs being exercised, together with any additional documents the Company may require. Settlement . Upon exercise of a SAR, the Grantee will receive an amount equal to the Spread. The Spread, less applicable withholdings, will be payable only in cash. In no event may any SAR be settled in any manner other than by delivery of a cash payment from the Company. Form of SAR Agreement Each participant to whom a SAR is granted will be required to enter into a SAR agreement with the Company, in such a form as is provided by the Committee. The SAR agreement will contain specific terms as determined by the Committee, in its discretion, with respect to the participant’s particular SAR. Such terms need not be uniform among all participants or any similarly situated participants. The SAR agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular participant’s SAR, as well as, for example, provisions to the effect that the participant must abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee. A SAR will include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any participant. The Committee may specify in a SAR agreement that the participant’s rights, payments, and benefits with respect to a SAR will be subject to forfeiture upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the incentive award. Such events may include, but are not limited to, termination with cause or other conduct by the participant that is detrimental to the business or reputation of the Company. Termination of Employment Unless otherwise expressly provided in the participant’s SAR agreement, if the participant’s employment is terminated for any reason other than due to cause, death or disability, any non-vested portion of any outstanding SAR at the time of such termination will automatically expire and terminate and no further vesting will occur after the termination date. In such event, except as otherwise expressly provided in the SAR agreement, the participant will be entitled to exercise such participant’s rights only with respect to the portion of the SAR that was vested as of the termination date for a period that will end on the earlier of (i) the expiration date set forth in the SAR agreement or (ii) ninety days after the date of termination. Termination for Cause Unless otherwise expressly provided in the participant’s SAR agreement, in the event of the termination of a participant’s employment for cause, all vested and non-vested SARs granted to such participant will immediately expire, and will not be exercisable to any extent. Disability or Death Unless otherwise expressly provided in the participant’s SAR agreement, upon termination of employment as a result of the participant’s disability or death, (i) any non-vested portion of any outstanding SAR will immediately terminate upon termination and no further vesting will occur, and (ii) any vested SAR will expire on the earlier of either (A) the expiration date set forth in the SAR agreement or (B) 12 months following the participant’s termination of employment. 45 Continuation Subject to the conditions and limitations of the Plan and applicable law, in the event that a participant ceases to be an employee, outside director or consultant, as applicable, for whatever reason, the Committee and participant may mutually agree with respect to any outstanding SAR then held by the participant (i) for an acceleration or other adjustment in any vesting schedule applicable to the SAR award; (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such SAR; or (iii) to any other change in the terms and conditions of the SAR. In the event of any such change to an outstanding SAR, a written amendment to the participant’s SAR agreement will be required. No amendment to a participant’s SAR will be made to the extent compensation payable pursuant thereto as a result of such amendment would be considered deferred compensation that is not excepted from taxation or penalties under Code Section 409A, unless otherwise determined by the Committee. SARs granted under the Plan are not transferable other than to a designated beneficiary upon the Participant’s death or by will or the laws of descent and distribution. Change in Control Unless otherwise provided in a SAR Agreement, notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined in the Plan), all outstanding SARs will become 100% vested and immediately and fully exercisable. Amendment The Board at any time, and from time to time, may amend or terminate the Plan. The Committee at any time, and from time to time, may amend the terms of any one or more SAR agreements, except that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any SAR unless the participant consents in writing. As of March 23, 2022, there were 412,657 SARs outstanding under the 2020 Plan. Director Compensation We believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve on our Board of Directors. Our cash compensation policies are designed to encourage frequent and active interaction between directors and our executives both during and between formal meetings as well as compensate our directors for their time and effort. Further, we believe it is important to align the long-term interests of our non-employee directors (i.e., directors who are not employed by us as officers or employees) with those of the Company and its stockholders, and that awarding equity compensation to, and thereby increasing ownership of our common stock by, our non-employee directors is an appropriate means to achieve this alignment. Directors who are also employees of our company do not receive compensation for their service on our Board of Directors. Under our director compensation program for 2021, each non-employee director received annual compensation of $10,000, and an option to purchase 50,000 shares of our common stock, which is fully vested. All cash fees are paid quarterly. Also, each non-employee director may be reimbursed for his reasonable expenses incurred in the performance of his duties as a director as our Board of Directors determines from time to time. Our Compensation Committee intends to evaluate our director compensation program and determine whether any changes should be recommended to the Board. The following table sets forth certain information concerning the compensation paid to non-employee directors in 2021 for their services as directors of the Company. The compensation of Mr. Ruport, who serves as a director and serves as our Chief Executive Officer, is described in the Summary Compensation Table of Executive Officers. Our non-employee directors do not receive fringe or other benefits. Name Fees Earned or Paid in Cash ($) Option Awards ($) (5) Total ($) John Rice (1) 10,000 134,647 144,647 Salvatore Battinelli (2) 10,000 134,647 144,647 Dennis Duitch (3) 10,000 134,647 144,647 Kent Summers (4) 10,000 134,647 144,647 (1) The fees shown were paid to Mr. Rice for services as a director. On January 4, 2021, the Company granted Mr. Rice an option to purchase up to 50,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair value of $134,647. (2) The fees shown were paid to Mr. Battinelli for services as a director. On January 4, 2021, the Company granted Mr. Battinelli an option to purchase up to 50,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair value of $134,647. (3) The fees shown were paid to Mr. Duitch for services as a director. On January 4, 2021, the Company granted Mr. Duitch an option to purchase up to 50,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair value of $134,647. (4) The fees shown were paid to Mr. Summers for services as a director. On July 31, 2020, the Company granted Mr. Summers an option to purchase up to 50,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair value of $134,647. (5) These columns represent the aggregate grant date fair value of stock awards and stock options computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be recognized by the named directors from these awards. 46 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding beneficial ownership of our common stock as of March 23, 2022 (a) by each person known by us to own beneficially 5% or more of any class of our common stock, (b) by our named executive officers and each of our directors (and director nominees) and (c) by all executive officers and directors of the Company as a group. The number of shares beneficially owned by each stockholder is determined in accordance with SEC rules. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power. Percentage ownership is based on 10,498,802 shares of our common stock outstanding on March 23, 2022. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stock options, warrants or other rights held by such person that are currently convertible or exercisable or will become convertible or exercisable within 60 days of March 23, 2022 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable. Name of Beneficial Owner Number of Shares Beneficially Owned Percentage of Shares Beneficially Owned Named Executive Officers and Directors: John Rice (1) 133,905 1.26 % Mark K Ruport (2) 231,416 2.16 % Frank Orzechowski (3) 49,275 * Darren Beckett (4) 66,835 * Salvatore Battinelli (5) 93,832 * Dennis Duitch (6) 88,249 * Kent J. Summers (7) 87,500 * All executive officers and directors as a group (9 persons) (8) 896,080 7.91 % 5% Beneficial Holders: AWM Investment Company, Inc. (9) 1,087,792 9.99 % *Less than 1%. (1) Includes 132,548 shares issuable upon the exercise of stock options. (2) Includes (a) 204,426 shares issuable upon the exercise of stock options; (b) 6,166 shares issuable upon the conversion of the shares of the Company’s Series E Preferred Stock; and (c) 4,855 shares issuable upon exercise of Class A Warrants. (3) Includes 48,306 shares issuable upon the exercise of stock options. (4) Includes 65,710 shares issuable upon the exercise of stock options. (5) Includes (a) 75,000 shares issuable upon the exercise of stock options, (b) 3,082 shares issuable upon the conversion of shares of the Company’s Series E Preferred Stock, and (c) 2,428 shares issuable upon exercise of Class A Warrants. (6) Includes 75,000 shares issuable upon the exercise of stock options. (7) Includes 75,000 shares issuable upon the exercise of stock options. (8) Includes (a) 819,733 shares issuable upon the exercise of stock options, (b) and 9,248 shares issuable upon the conversion of the shares of the Company’s Series E Preferred Stock, and (c) 7,283 shares issuable upon exercise of Class A Warrants. (9) AWM Investment Company, Inc. is the investment advisor to Special Situations Technology Fund. L.P. (“Tech”) and Special Situations Technology Fund II (“Tech II”) and holds sole voting and investment power over 105,089 shares and 90,029 warrants to purchase shares held by Tech, and 592,696 shares and 507,757 warrants to purchase shares held by Tech II. Such warrants may only be exercised to the extent that the total number of shares then beneficially owned does not exceed 9.9% of the outstanding shares. AWM Investment Company, Inc.’s address is c/o Special Situations Funds, 527 Madison Avenue, Suite 2600, New York, NY 10022. 47 Equity Compensation Plan Information The following table provides certain information with respect to our equity compensation plans as of December 31, 2021. (a) (b) (c) Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted- average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) 2013 Equity Incentive Plan (1) 1,345,882 $ 3.98 339,677 Equity compensation plans not approved by security holders (2) - $ 3.15 - Chief Executive Officer Inducement Options (3) 50,000 $ 11.20 - (1) On March 15, 2013, the Company’s board of directors approved the Company’s 2013 Equity Incentive Plan. The 2013 Equity Incentive Plan was approved by our stockholders on October 10, 2013. On July 15, 2021, an amendment to our 2013 Equity Incentive Plan was approved by our stockholders to increase the number of shares of our common stock subject to the 2013 Equity Incentive Plan to 1,765,000. (2) On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. As of December 31, 2021, the Company has awarded 370,624 SARs pursuant to the Plan. (3) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3,2020; and (ii) an option to purchase up to 40,000 shares of our common stock, with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the date of grant. As of December 31, 2021, a total of 27,025 shares were vested and exercisable. In accordance with Nasdaq Listing Rule 5635(c)(4), such options were granted to Mr. Ruport as an inducement award outside of the 2013 Equity Incentive Plan. Other Equity Compensation 48 On January 8, 2021, we entered into an underwriting agreement with H.C. Wainwright & Co., for which compensation has been paid with equity securities that have been previously disclosed in our filings with the SEC, including warrants issued in January 2021 to purchase up to 136,943 shares of common stock at an exercise price of $3.75 per share. On March 22, 2021, we entered into an amendment to the underwriting agreement with H.C. Wainwright & Co., for which compensation has been paid with equity securities that have been previously disclosed in our filings with the SEC, including warrants issued in March 2021 to purchase up to 175,200 shares of common stock at an exercise price of $5.55625 per share. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The following summarizes transactions by us since the beginning of the Company’s last fiscal year, and any proposed transactions in which any of our directors, director nominees, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive Compensation” and “Director Compensation” above. 49 Transactions with Directors and Officers We have entered into an “at will” employment agreement, effective as of September 20, 2021, with Jacob Brunsberg under which he was engaged to serve as our Senior Vice President of Product Management and Strategic Relationships. On February 16, 2022, Mr. Brunsberg’s employment agreement was amended in connection with his appointment as President and Chief Operating Officer of the Company to increase his annual base salary from $200,000 to $250,000. In addition, on February 16, 2022, Mr. Brunsberg was granted a stock option to purchase up to 70,000 shares of common stock of the Company, at an exercise price equal to $2.50 per share under the 2013 Equity Incentive Plan, and 30,000 stock appreciation rights (“SARs”) under the 2020 Stock Appreciation Rights Plan, at an exercise price of $2.50 each. Both the option and the SARs vest in equal (as closely as possible) monthly installments over thirty-six months from the grant date, have five year-terms and are on such other terms and conditions as set forth in the Company’s respective forms of standard agreement. Pursuant to the employment agreement, Mr. Brunsberg was previously granted a stock option to purchase up to 100,000 shares of common stock of the Company, at an exercise price equal to $3.18 per share, which was the closing market price of the Company’s common stock on September 20, 2021 (i.e., the date of grant), under the 2013 Equity Incentive Plan. Such option is fully vested and exercisable. The option has a five - year term and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement, Further, Mr. Brunsberg is eligible to participate in the Company’s 2013 Equity Incentive Plan and 2020 Stock Appreciation Rights Plan and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to parti cipate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. We have entered into an “at will” employment agreement, effective as of August 10, 2015, with Ronald Fisher under which he was engaged to serve as our Vice President of Business Development. Mr. Fisher is entitled to receive an annual base salary of $180,000. Pursuant to the employment agreement, Mr. Fisher also was granted, as a signing bonus, (i) a stock option to purchase up to 2,375 shares of common stock of the Company, at an exercise price equal to $118.00 per share, which was the closing market price of the Company’s common stock on August 10, 2015 (i.e., the date of grant), under the 2013 Equity Incentive Plan. Such option is fully vested and exercisable. The option has a ten - year term and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement, and (ii) 125 shares of common stock of the Company with a value equal to the closing price of our common stock on the date of grant and is on such other terms and provisions as are contained in Sigma Labs’ standard form of restricted stock letter agreement under the Plan. Such shares are fully vested. Additionally, the Company granted Mr. Fisher under the 2013 Plan, effective as of August 11, 2016, a stock option to purchase up to 500 shares of common stock of the Company. Such option has an exercise price equal to the closing price of our common stock on the date of grant and is fully vested and exercisable. Further, Mr. Fisher is eligible to participate in the Company’s 2013 Equity Incentive Plan and Stock Appreciation Rights Plan and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. On September 18, 2017, we and Mr. Fisher entered into Amendment No. 1 to Mr. Fisher’s employment agreement, effective August 10, 2015, pursuant to which, effective as of February 11, 2017, item 2, entitled “Performance Bonuses,” of Exhibit A of Mr. Fisher’s employment agreement was deleted in its entirety and replaced with the new item 2 that was set forth in the amendment to employment agreement. Such amendment provided that Mr. Fisher would become entitled to receive performance-based stock and cash bonuses if certain milestones were satisfied by February 11, 2018, so long as Mr. Fisher remained an employee of the Company as of the date the applicable milestone was satisfied. On February 21, 2018, the Company and Mr. Fisher entered into Amendment No. 2 to Mr. Fisher’s employment agreement, pursuant to which the foregoing February 11, 2018 date was extended to December 31, 2018. On January 10, 2019, the Company granted Mr. Fisher an option to purchase up to 1,184 shares of common stock in exchange for the cancellation of his accrued but unpaid vacation balance at December 31, 2018. On March 7, 2019, the Company issued 150 shares of common stock under the 2013 Plan to Mr. Fisher connected with the satisfaction of a performance milestone. On January 27, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Mark K. Ruport, Salvatore Battinelli and Frank Garofalo, a former director, and Carl Schwartz, who was the Company’s largest shareholder. Pursuant to the SPA, the Company issued and sold 333.33 shares of the Company’s Series E Convertible Preferred Stock (the “Series E Preferred Stock”), and 5½ year Class A Warrants to purchase 48,544 shares of the Company’s common stock (the “Class A Warrants”) for a total gross purchase price of $500,000. Upon any liquidation, dissolution or winding-up of the Company, the holders of Series E Preferred Stock will be entitled to receive out of the assets of the Company an amount equal to the stated value of the Series E Preferred Stock, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the Certificate of Designation, for each share of Series E Preferred Stock before any distribution or payment may be made to the holders of any junior securities, but after distribution or payment to holders of the Series D Preferred Stock and any other senior securities; and if the assets of the Company are insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of Series E Preferred Stock are to be ratably distributed among such holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The Series E Preferred Stock is initially convertible into 48,544 shares of common stock (61,651 shares of common stock including the “make-whole dividend), and the Class A Warrants have an initial exercise price of $11.30 per share. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer to the fullest extent permitted by Nevada law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in the right of us, arising out of the person’s services as a director or executive officer. Policies and Procedures for Related Person Transactions Our Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons (other than compensation-related matters, which should be reviewed by our Compensation Committee), in accordance with its Charter and the Nasdaq marketplace rules. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Audit Fees The following is a summary of the fees billed to the Company by Haynie & Company for professional services rendered with respect to the years ended December 31, 2021 and 2020: 2021 2020 Audit Fees $ 76,500 $ 73,500 Audit Related Fees 14,800 23,300 Tax Fees 4,000 2,500 $ 95,300 $ 99,300 In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees that we paid for professional services for the audit of our financial statements included in our Form 10-K and review of the interim financial statements included in quarterly reports, and for services that are normally provided by the registered public accounting firm in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements; and “tax fees” are fees for tax compliance, tax advice and tax planning. The Audit Committee’s pre-approval policies and procedures and other protocols are discussed in its written charter which can be found at www.sigmalabsinc.com under the tab “Investors.” Before our independent registered public accounting firm is engaged by the Company to render audit or non-audit services, the Audit Committee must pre-approve the engagement. Audit Committee pre-approval of audit and non-audit services are not required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding the Company’s engagement of the independent registered public accounting firm, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to the Company’s management. The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals. If the Audit Committee elects to establish pre-approval policies and procedures regarding non-audit services, the Audit Committee must be informed of each non-audit service provided by the independent registered public accounting firm. Audit Committee pre-approval of non-audit services (other than review and attestation services) also will not be required if such services fall within available exceptions established by the SEC. The Audit Committee may not engage the independent registered public accounting firm to perform non-audit services prohibited by law or regulation. On an annual basis, our management reports to the Audit Committee all audit services performed during the previous 12 months and all fees billed by our independent registered public accounting firm for such services. Auditor Independence In our fiscal year ended December 31, 2021, Haynie & Company provided no professional services other than those described above, that would require our Audit Committee to consider their compatibility with maintaining the independence of Haynie & Company. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Our financial statements and related notes thereto are listed and included in this Annual Report beginning on page F-1. The following documents are furnished as exhibits to this Form 10-K. 50 Exhibit Number Description 1.1 Underwriting Agreement, dated January 8, 2021, by and among Sigma Labs, Inc. and H.C. Wainwright & Co., LLC, as the representative for the underwriters named therein (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference). 3.1 Amended and Restated Articles of Incorporation of the Company, as amended.** 3.2 Amended and Restated Bylaws of the Company, as amended. (previously filed by the Company as Exhibit 3.12 to the Company’s Form 10-K, filed on March 24, 2021, and incorporated herein by reference). 4.1 Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 6, 2018, and incorporated herein by reference). 4.2 Form of Placement Agent Warrants (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed April 6, 2018, and incorporated herein by reference). 4.3 Form of Common Stock Purchase Warrant.(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 26, 2018, and incorporated herein by reference). 4.4 Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 14, 2019, and incorporated herein by reference). 4.5 Form of Unit Purchase Option (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 14, 2019, and incorporated herein by reference). 4.6 Form of Common Stock Purchase Warrant.(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference). 4.7 Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference). 4.8 Form of Institutional Common Warrant (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed January 30, 2020, and incorporated herein by reference). 4.9 Form of Class A Warrant(filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed January 30, 2020, and incorporated herein by reference). 4.10 Form of Common Stock Purchase Warrants (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed April 3, 2020, and incorporated herein by reference). 4.11 Form of Underwriter Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference). 4.12 Form of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference). 4.13 Form of Warrant to Purchase Common Stock (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein by reference). 4.14 Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein by reference). 4.15 Description of Securities. ** 10.1 Asset Purchase Agreement dated April 17, 2010 between B6 Sigma, Inc. and Technology Management Company, Inc. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed November 12, 2010, and incorporated herein by reference). 51 10.2 Form of Nonqualified Stock Option Agreement for the Plan (previously filed by the Company as Exhibit 10.4 to the Company’s Form 10-K, filed on April 1, 2019, and incorporated herein by reference)* 10.3 Form of Incentive Stock Option Agreement for the 2013 Equity Incentive Plan (filed as Exhibit 4.3 to the Company’s Form S-8 Registration Statement, filed on July 24, 2014, and incorporated herein by reference).* 10.4 Form of Restricted Stock Agreement for the Plan (previously filed by the Company as Exhibit 10.6 to the Company’s Form 10-K, filed on April 1, 2019, and incorporated herein by reference). 10.5 Employment Offer Letter Agreement, effective August 10, 2015, between Sigma Labs, Inc. and Ronald Fisher (Filed as Exhibit 10.12 to the Company’s Form 10-K, filed on March 16, 2016, for the fiscal year ended December 31, 2015, and incorporated herein by reference).* 10.6 Form of Indemnification Agreement for directors and officers of Sigma Labs, Inc. (filed as Exhibit 10.12 to the Company’s Registration Statement on Form S-1, filed on July 28, 2016, and incorporated herein by reference).* 10.7 Amendment No. 1, dated September 18, 2017, to Employment Offer Letter Agreement, effective August 10, 2015, between Sigma Labs, Inc. and Ronald Fisher (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2017 and incorporated herein by reference).* 10.8 Amendment No. 2, dated February 21, 2018, to Employment Offer Letter Agreement between the Company and Ronald Fisher (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 27, 2018 and incorporated herein by reference).* 10.9 Securities Purchase Agreement, dated as of April 6, 2018, between Sigma Labs, Inc. and the Purchasers thereunder (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 6, 2018 and incorporated herein by reference). 10.10 Employment Agreement, effective as of September 25, 2017, between Darren Beckett and Sigma Labs, Inc. (filed as Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2018, for the period ended September 30, 2018, and incorporated herein by reference).* 10.11 Securities Purchase Agreement, dated as of May 7, 2019, between the Company and the Purchaser (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference). 10.12 Employment letter agreement, effective as of July 1, 2019, between the Company and Frank D. Orzechowski. (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2019, and incorporated herein by reference) * 10.13 Securities Purchase Agreement (Institutional Investors) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference). 10.14 Registration Rights Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference). 10.15 Securities Purchase Agreement (Other Investors) (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference). 10.16 Private Placement Agreement (filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference). 10.17 Securities Purchase Agreement, dated as of April 2, 2020, between the Company and Purchasers (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 3, 2020, and incorporated herein by reference). 10.18 Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).* 10.19 Form of Stock Appreciation Rights Agreement (Employees; 2020 Stock Appreciation Rights Plan) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).* 10.20 Form of Stock Appreciation Rights Agreement (Non-employee Directors; 2020 Stock Appreciation Rights Plan) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference). 10.21 Form of Waiver (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference). 10.22 Form of Securities Purchase Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein by reference). 10.23 Amended and Restated Employment Agreement, dated June 10, 2021, between Sigma Labs, Inc. and Mark K. Ruport (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 15, 2021 and incorporated herein by reference).* 10.24 2021 and 2022 Corporate Goals – Cash and Equity Incentive Plan, dated June 10, 2021 (filed as an exhibit to the Company’s Current Report on Form 8-K filed June 15, 2021, and incorporated herein by reference).* 10.25 Sigma Labs, Inc. 2013 Equity Incentive Plan, as Amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2021 and incorporated herein by reference).* 10.26 Sigma Labs, Inc. 2021 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 16, 2021 and incorporated herein by reference).* 10.27 Employment letter agreement, effective as of September 20, 2021, between Sigma Labs, Inc. and Jacob Brunsberg (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed October 21, 2021, and incorporated herein by reference).* 10.28 Amendment, dated February 16, 2022, to Employment letter agreement, effective as of September 20, 2021, between Sigma Labs, Inc. and Jacob Brunsberg.* ** 10.29 Amendment, dated February 16, 2022, to Amended and Restated Employment Agreement, dated June 10, 2021, between Sigma Labs, Inc. and Mark K. Ruport.* ** 52 23.1 Consent of Haynie & Company.** 31.1 Certificate of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 31.2 Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** 32.1 Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*** 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Indicates a management contract or compensatory plan or arrangement. ** Filed herewith. *** Furnished herewith. ITEM 16. FORM 10-K SUMMARY. We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information. 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGMA LABS, INC. March 24, 2022 By: /s/ Mark K. Ruport Mark K. Ruport Chief Executive Officer (Principal Executive Officer) March 24, 2022 By: /s/ Frank Orzechowski Frank Orzechowski Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Mark K. Ruport Chief Executive Officer (Principal Executive Officer and Director) March 24, 2022 Mark K. Ruport /s/ Frank Orzechowski Chief Financial Officer March 24, 2022 Frank Orzechowski (Principal Financial and Accounting Officer) /s/ John Rice Chairman, Director March 24, 2022 John Rice /s/ Salvatore Battinelli Director March 24, 2022 Salvatore Battinelli /s/ Dennis Duitch Director March 24, 2022 Dennis Duitch /s/ Kent Summers Director March 24, 2022 Kent Summers 54 Index to Financial Statements Financial Statements: Report of Independent Registered Public Accounting Firm PCAOB ID No. 00 457 F-2 Balance Sheets F-3 Statements of Operations F-4 Statement of Stockholders’ Equity F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Sigma Labs, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Sigma Labs, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Multiple Deliverables in Revenue Contracts Description of the Matter : As discussed in Note 1 to the financial statements, Sigma Labs, Inc.’s revenue is derived primarily from the sale of software, the related hardware suite, and engineering services. The Company’s contracts with customers typically include the promise to transfer multiple goods and/or services to the customer. Management must assess whether each promised good or service is distinct for the purpose of identifying the performance obligations within the contract and must then determine and allocate the transaction price to the performance obligations. This assessment can be subjective and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable and distinct from the other aspects of the contractual relationship. Auditing management’s assessment and recognition of revenue can be complex, involves judgment, and is based on a thorough understanding of the Company’s offerings. How we Addressed the Matter in Our Audit : We obtained a thorough understanding of the controls the Company has in place to perform this assessment including walk-throughs of the key controls and analysis of the design and operating effectiveness of these controls. To evaluate Sigma Labs Inc.’s assessment of performance obligations and allocation of price, our audit procedures included, among others, reading and evaluating management’s assumptions used to determine the distinct performance obligations and price allocations. We compared the stand-alone price for each performance obligation to the allocated prices to ensure the allocation was reasonable. We also obtained confirmations from customers verifying the terms of the contracts. /s/ Haynie & Company Haynie & Company Salt Lake City, Utah March 24, 2022 We have served as the Company’s auditor since 2018. F- 2 Sigma Labs, Inc. Balance Sheets December 31, 2021 December 31, 2020 ASSETS Current Assets: Cash $ 11,447,047 $ 3,700,814 Accounts Receivable, net 412,192 331,562 Inventory 710,080 659,651 Prepaid Assets 114,278 90,735 Total Current Assets 12,683,597 4,782,762 Other Assets: Property and Equipment, net 232,282 138,626 Intangible Assets, net 925,111 753,122 Long-Term Prepaid Asset - 26,000 Total Other Assets 1,157,393 917,748 TOTAL ASSETS $ 13,840,990 $ 5,700,510 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable $ 206,442 $ 128,937 Deferred Revenue 148,855 77,957 Accrued Expenses 625,942 243,815 Total Current Liabilities 981,239 450,709 Long-Term Liabilities Stock Appreciation Rights - 48,341 CARES Act Deferred Payroll Taxes - 37,728 Total Long-Term Liabilities - 86,069 TOTAL LIABILITIES 981,239 536,778 Stockholders’ Equity Preferred Stock, $ 0.001 par; 10,000,000 shares authorized; 465 and 715 shares issued and outstanding, respectively 1 1 Common Stock, $ 0.001 par; 24,000,000 authorized; 10,498,802 and 5,995,320 shares issued and outstanding, respectively 10,499 5,995 Additional Paid-In Capital 53,442,431 38,262,744 Accumulated Deficit ( 40,593,180 ) ( 33,105,008 ) Total Stockholders’ Equity 12,859,751 5,163,732 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 13,840,990 $ 5,700,510 See accompanying notes to financial statements F- 3 Sigma Labs, Inc. Statements of Operations Year Ended December 31, 2021 December 31, 2020 REVENUES $ 1,651,765 $ 807,488 COST OF REVENUE 559,965 591,957 GROSS PROFIT (LOSS) 1,091,800 215,531 EXPENSES: Salaries & Benefits 4,286,368 2,622,162 Stock-Based Compensation 1,066,455 596,842 Operations and R&D Costs 890,553 351,404 Investor, Public Relations and Marketing 503,823 408,717 Organizational Costs 726,147 451,982 Legal & Professional Service Fees 915,530 676,142 Office Expenses 734,386 416,580 Depreciation & Amortization 94,105 105,175 Other Operating Expenses 353,818 285,295 Total Operating Expenses 9,571,185 5,914,299 LOSS FROM OPERATIONS ( 8,479,385 ) ( 5,698,768 ) OTHER INCOME (EXPENSE) Interest Income 13,866 1,058 State Incentives - 151,657 Exchange Rate Gain (Loss) ( 263 ) ( 1,677 ) Other Income 1,092,441 361,700 Interest Expense ( 11,264 ) ( 13,908 ) Loss on Dissolution of Joint Venture - ( 201 ) Total Other Income (Expense) 1,094,780 498,629 LOSS BEFORE PROVISION FOR INCOME TAXES ( 7,384,605 ) ( 5,200,139 ) Provision for Income Taxes - - Net Loss $ ( 7,384,605 ) $ ( 5,200,139 ) Preferred Dividends 103,567 1,809,275 Net Loss applicable to Common Stockholders $ ( 7,488,172 ) $ ( 7,009,414 ) Net Loss per Common Share - Basic and Diluted $ ( 0.76 ) $ ( 1.83 ) Weighted Average Number of Shares Outstanding - Basic and Diluted 9,828,541 3,829,716 See accompanying notes to financial statements F- 4 Sigma Labs, Inc. Statement of Stockholders’ Equity For The Years Ended December 31, 2021 and 2020 Preferred Shares Outstanding Preferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Accumulated Deficit Total Balances, December 31, 2019 - $ - 1,403,759 $ 1,404 $ 26,746,439 $ ( 26,095,594 ) $ 652,249 Common Shares Sold in Public Offering - - 493,027 493 1,499,507 - 1,500,000 Gain on Derivative Liability Preferred Shares Sold in Public Offering 1,973 2 - - 2,099,998 - 2,100,000 Preferred Stock Dividends - - 774,940 775 1,808,500 ( 1,809,275 ) - Common Shares Issued for Conversion of Preferred Shares ( 7,404 ) ( 7 ) 3,272,048 3,272 ( 3,265 ) - - Common Shares Issued for Conversion of Series D Prefunded Warrants - - 22,438 22 ( 22 ) - - Preferred Shares issued for Exercise of Preferred Warrants 6,146 6 - - 5,992,344 - 5,992,350 Common Shares Issued for Exercise of Common Warrants Common Shares Issued for Exercise of Common Warrants , shares Securities Issued to Directors for Services - - 8,334 8 239,875 - 239,883 Securities Issued for Third Party Services - - 6,000 6 102,769 - 102,775 Securities Awarded to Employees - - 11,517 12 596,830 - 596,842 Offering Costs - - - - ( 820,228 ) - ( 820,228 ) Issuance of Fractional Shares from Reverse Split - - 3,257 3 ( 3 ) - - Net Loss - - - - - ( 5,200,139 ) ( 5,200,139 ) Balances, December 31, 2020 715 $ 1 5,995,320 $ 5,995 $ 38,262,744 $ ( 33,105,008 ) $ 5,163,732 Common Shares Sold in Public Offerings - - 3,901,783 3,902 14,865,997 - 14,869,899 Gain on Derivative Liability - - - - ( 1,092,441 ) - ( 1,092,441 ) Preferred Stock Dividends - - 19,000 19 103,548 ( 103,567 ) - Common Shares Issued for Conversion of Preferred Shares ( 250 ) - 100,000 100 ( 100 ) - - Common Shares Issued for Exercise of Common Warrants - - 475,995 476 1,135,534 - 1,136,010 Securities Issued to Directors for Services - - - - 538,585 - 538,585 Securities Issued for Third Party Services - - 1,500 2 163,081 - 163,083 Securities Awarded to Employees - - 5,204 5 1,066,450 - 1,066,455 Offering Costs - - - - ( 1,600,967 ) - ( 1,600,967 ) Net Loss - - - - - ( 7,384,605 ) ( 7,384,605 ) Balances, December 31, 2021 465 $ 1 10,498,802 $ 10,499 $ 53,442,431 $ ( 40,593,180 ) $ 12,859,751 See accompanying notes to financial statements F- 5 Sigma Labs, Inc. and Subsidiaries Statements of Cash Flows Year Ended December 31, 2021 December 31, 2020 OPERATING ACTIVITIES Net Loss $ ( 7,384,605 ) $ ( 5,200,139 ) Adjustments to reconcile Net Loss to Net Cash used in operating activities: Noncash Expenses: Depreciation and Amortization 94,105 105,175 Gain on Derivative Liability ( 1,092,441 ) - Stock Based Compensation - Employees 1,066,455 596,842 Stock Based Compensation - Third Party Services 163,083 102,775 Stock Based Compensation - Directors 538,585 239,883 Change in assets and liabilities: Accounts Receivable ( 80,630 ) ( 276,022 ) Inventory ( 50,429 ) ( 60,932 ) Prepaid Assets 2,457 134,991 Accounts Payable 77,505 ( 598,177 ) Deferred Revenue 70,898 ( 61,490 ) Accrued Expenses 382,127 121,157 Long-term portion of Stock Appreciation Rights ( 48,341 ) 48,341 Long Term portion of Deferred Payroll Taxes under the CARES Act ( 37,728 ) 37,728 NET CASH USED IN OPERATING ACTIVITIES ( 6,298,959 ) ( 4,809,868 ) INVESTING ACTIVITIES Purchase of Property and Equipment ( 182,522 ) ( 88,074 ) Purchase of Intangible Assets ( 177,228 ) ( 210,785 ) Dissolution of Joint Venture - 500 NET CASH USED IN INVESTING ACTIVITIES ( 359,750 ) ( 298,359 ) FINANCING ACTIVITIES Gross Proceeds from Public and Private Issuances of Securities 14,869,899 3,600,000 Less Offering Costs ( 1,600,967 ) ( 820,228 ) Payment of Note Payable - ( 50,000 ) Proceeds from Exercise of Warrants 1,136,010 5,992,350 NET CASH PROVIDED BY FINANCING ACTIVITIES 14,404,942 8,722,122 NET CHANGE IN CASH FOR PERIOD 7,746,233 3,613,895 CASH AT BEGINNING OF PERIOD 3,700,814 86,919 CASH AT END OF PERIOD $ 11,447,047 $ 3,700,814 Supplemental Disclosures: Noncash investing and financing activities disclosure: Issuance of Common Shares for Preferred Dividends $ 103,567 $ 1,809,275 Disclosure of Cash Received for: Issuance of Preferred Stock for Exercise of Preferred Warrants $ - $ 5,992,350 Other noncash operating activities disclosure: Issuance of Securities for services $ 701,668 $ 342,658 Disclosure of cash paid for: Interest $ 11,264 $ 13,908 Income Taxes $ - $ - See accompanying notes to financial statements F- 6 SIGMA LABS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 1 – Summary of Significant Accounting Policies Nature of Business –Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma believes that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries including aerospace, defense, oil and gas, bio-medical, and power generation. The terms the “Company,” “Sigma,” “we,” “us” and “our” refer to Sigma Labs, Inc. Reverse Stock Split - Effective 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. Basis of Presentation – The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 2021 and 2020 and for the periods then ended have been made. Reclassification - Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation in the current-period financial statements. These reclassifications have no impact on the previously reported results Continuing Operations – The Company has sustained losses and had negative cash flows from operating activities since its inception. Commencing in 2017, the company committed itself to a focused initiative to transition its product and its company culture from research and development into an enterprise with a commercial industrial product and a business-oriented operation culture. In 2021 and 2020, the Company relied on both public and private offerings to finance its operations. In January 2021, the Company closed a public offering of our common stock in which it issued 1,711,783 shares of common stock at $ 3.00 per share, resulting in net proceeds of approximately $ 4,532,444 after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In March 2021, the Company closed a public offering of 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 $ 8,736,488 after deducting placement agent commissions and other offering costs payable by the Company. 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 . In 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 of $ 460,000 . On 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 . On 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 “ PPP ” ) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the “ CARES Act ” ), which was enacted March 27, 2020. The Company used the entire loan proceeds to fund payroll expenses, and as such, the loan was forgiven in full on January 13, 2021. F- 7 The continuing operations of the Company are no longer solely dependent upon financing the cost of product development in the absence of revenues, but rather upon our abilities to finance our efforts to successfully ramp up commercialization, thus earning the product validation of both customer licensing and purchases and creating a dynamic in which public and private offerings facilitate the growth of revenues. As a result, the Company currently has sufficient cash and working capital to fund operations through the end of 2022 and is anticipating that contracts may be closed during fiscal 2022 generating additional cash flow in the near-term. In addition, the Company has access to public and private markets from which to derive additional financing to sustain operations beyond that term, if required; however, the Company is unable to predict the extent to which the novel coronavirus or global economic and geopolitical developments may affect the financial markets and the Company’s access to such markets. There is no assurance that we will be successful in obtaining additional funding. 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. Loss Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options or note conversion features were excluded due to the anti-dilutive effect they would have on the computation. At December 31, 2021 and 2020, the Company had the following common shares underlying these instruments: Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share Year Ended December 31, 2021 2020 Warrants 3,987,931 1,881,429 Preferred Stock Warrants - 4,748 Stock Options 1,395,882 713,010 Preferred Stock 148,918 243,024 Total Underlying Common Shares 5,532,731 2,842,211 Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated life has been determined to be five years unless a unique circumstance exists, which is then fully documented as an exception to the policy. In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. Income Taxes – The Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.” The Company has no tax positions at December 31, 2021 and 2020 for which the ultimate deductibility is highly uncertain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2021 and 2020, the Company recognized no interest and penalties. All tax years starting with 2018 are open for examination. Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. There was no allowance for doubtful accounts at December 31, 2021 or 2020. F- 8 Long-Lived and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Three patents were written off totaling $ 10,510 in December of 2021, and no patents were written off in 2020. Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less at date of purchase to be cash equivalents. Fair 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: ● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. ● Level 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 instrument. ● Level 3 - inputs to valuation methodology are unobservable and significant to the fair measurement. The 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. The Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes. On March 26, 2021, the Company closed an offering in which it issued warrants to purchase an aggregate of 2,190,000 shares of common stock in a private placement concurrently with a registered direct offering (“Registered Offering”) of our common stock The warrants became exercisable on May 24, 2021 , the date the Company obtained 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. Pursuant to ASC 815-40-25-10, because the Company did not have sufficient authorized and unissued shares of common stock available to settle the warrants at the issue date, such warrants were accounted for as a derivative liability. On May 24, 2021, upon receiving shareholder approval to increase its authorized common shares, the Company reclassified the warrant liability to equity pursuant to ASC 815.40.35.8. The fair value of the warrant liability measured on a recurring basis is as follows: Schedule of Warrant Liability Measured on Recurring Basis December 31, 2021 Date of Issuance March 26, 2021 Fair Value Input Level Fair Value Input Level Derivative Liability - Warrants $ - - $ 5,708,212 Level 3 The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3): Schedule of Derivative Liability Measured on a Recurring Basis Using Significant Unobservable Input (Level 3) Warrants Fair Value on Issuance Date $ 5,708,212 Change in Fair Value ( 1,092,441 ) Fair Value on May 24, 2021 4,615,771 Extinguishment of Derivative Liability ( 4,615,771 ) Fair Value on December 31, 2021 $ - F- 9 Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Stock Based Compensation – The Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.” Under ASC Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements may include stock options, grants of shares of common stock with and without restrictions, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option or stock grants. Equity instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments to Non-Employees.” In general, the measurement date is either (a) when a performance commitment, as defined, is reached or (b) the earlier of the date that (i) the non-employee performance requirement is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification. Amortization - Utility patents are amortized over a 17 -year period. Patents which are pending are not amortized. Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence. Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers . ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. Deferred Stock Offering Costs – Costs related to stock offerings (if any) are deferred and will be offset against the proceeds of the offering in additional paid-in capital. In the event a stock offering is unsuccessful, the costs relating to the offering will be written-off directly to expense. Inventory – Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components which will be sold to customers. Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method. Research and Development – Research and development costs are expensed as they are incurred. Research and development costs for the years ended December 31, 2021 and 2020 were $ 417,744 and $ 126,292 , respectively. NOTE 2 - Inventory At December 31, 2021 and December 31, 2020, the Company’s inventory was comprised of: Schedule of Inventory December 31 2021 December 31, 2020 Raw Materials $ 202,015 $ 309,305 Work in Process 224,079 175,884 Finished Goods 283,986 174,462 Total Inventory $ 710,080 $ 659,651 F- 10 NOTE 3 – Property and Equipment The following is a summary of property and equipment, less accumulated depreciation, as of December 31, 2021 and 2020: Schedule of Property and Equipment 2021 2020 Year Ended December 31, 2021 2020 Property and Equipment $ 1,378,972 $ 1,196,450 Less: Accumulated Depreciation ( 1,146,690 ) ( 1,057,824 ) Net Property and Equipment $ 232,282 $ 138,626 Depreciation expense on property and equipment was $ 88,866 and $ 78,172 for the years ended December 31, 2021 and 2020, respectively. NOTE 4 – Intangible Assets The Company’s intangible assets consist of Patents and Patent Pending Applications. Provisional patent applications are not amortized until a patent has been granted. Once a patent is granted, the Company will amortize the related costs over the estimated useful life of the patent. If a patent application is denied, then the costs will be expensed at that time. During 2021, $ 91,260 of costs related to patents issued to us during 2021 were reclassified from provisional patent application to patent status and began to be amortized as of the date of issue. The following is a summary of definite-life intangible assets less accumulated amortization as of December 31, 2021 and 2020, respectively: Summary of Definite-life Intangible Assets and Accumulated Amortization 2021 2020 Year Ended December 31, 2021 2020 Provisional Patent Applications $ 675,291 $ 585,152 Patents 300,370 209,110 Less: Accumulated Amortization ( 50,550 ) ( 41,140 ) Net Intangible Assets $ 925,111 $ 753,122 Amortization expense on intangible assets was $ 5,239 and $ 27,003 for the years ended December 31, 2021 and 2020, respectively. The estimated aggregate amortization expense for each of the succeeding years ending December 31 is as follows: Schedule of Aggregate Amortization Expense 2021 2022 $ 17,446 2023 17,446 2024 17,446 2025 17,446 Thereafter 198,305 Intangible asset and amortization expense $ 268,089 NOTE 5 – Paycheck Protection Plan Loan On 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 “ PPP ” ) 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. As of December 31, 2020, the Company had used the entire loan proceeds to fund its payroll expenses. As a result, the Company concluded that it met the PPP eligibility criteria for forgiveness and recognized the entire loan amount as Other Income. In January 2021, the Company received notice from the lender that the entire amount of the loan had been forgiven. NOTE 6 – Deferral of Social Security Tax Payments Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral period”. The payroll tax deferral period began on March 27, 2020 and ended on December 31, 2020. At December 31, 2021 the total remaining amount of the deferral was $ 37,728 . Per the terms of the deferral program, such amount is due on December 31, 2022 at 0 % interest. F- 11 NOTE 7 - Derivative Liability On March 26, 2021 (the “Issuance Date”), 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 May 24, 2021 and will expire two years from such date. The Company has 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 on the Issuance Date, the Company did 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 were recognized as a warrant liability on the balance sheet and were 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. At a Special Stockholders Meeting held on May 24, 2021, the Company received approval to increase its authorized common shares from 12,000,000 to 24,000,000 . Pursuant to ASC 815-40-35-8, the Company reclassified the warrant liability to equity as of such date. The fair value of the derivative liability presented below was measured using the Black Scholes valuation model. Significant inputs into the model for the year ended December 31, 2021 are as follows: Schedule of Fair Value of Derivative Liability Using Black Scholes Valuation Model December 31, 2021 Dividend yield 0.00 % Risk-free interest rate 0.6 % - 0.7 % Expected volatility 121.2 % - 124.0 % Expected life (in years) 2 The warrants outstanding and fair values at each of the respective valuation dates are summarized below: Schedule of Fair Value of Warrant Liability Warrant Liability Warrants Outstanding Fair Value Per Share Fair Value Fair Value at initial measurement date of March 26, 2021 2,190,000 $ 2.61 $ 5,708,212 (Gain) on change in Fair Value of Warrant Liability - $ - ( 1,092,441 ) Fair Value as of May 24, 2021 2,190,000 $ 2.11 4,615,771 Extinguishment of Derivative Liability ( 2,190,000 ) $ 2.11 ( 4,615,771 ) Fair Value as of December 31, 2021 - $ - - The Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s assumptions. Level 3 measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity and may be more sensitive to fluctuations in stock prices, volatility rates and U.S. Treasury Bond rates and could have a material impact on future fair value measurements. The Company uses the Black Scholes model, based on the adjusted historical volatility rates for fair value measurements through the date of stockholder approval (i.e., May 24, 2021). Management has determined the Black Scholes model to be the most reliable and least volatile determinate of the current fair value of the warrants. It is the Company’s expectation to maximize on all observable market inputs for the warrants and calibrate the model to incorporate relevant observable market data into the fair value measurement at each future measurement date, if applicable. During the twelve months ended December 31, 2021, the Company recognized a gain of $ 1,092,441 on the change in fair value of the warrants. NOTE 8 – Stockholders’ Equity Common Stock Effective 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. F- 12 On May 24, 2021, at a special shareholders’ meeting, our authorized shares of common stock were increased from 12,000,000 to 24,000,000 . 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 . On March 27, 2020, at a special shareholders’ meeting, our authorized shares of common stock were increased from 2,250,000 to 8,000,000 . 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. 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 share. In February 2021, the Company issued 263,200 shares of common stock pursuant to the exercise of warrants issued in our January 2020 private placement. In March 2021, the Company issued 119,000 shares of common stock in exchange for the conversion of 250 shares of Series D Convertible Preferred Stock, including 19,000 shares of common stock as in-kind payment of preferred stock dividends. Also in March 2021, the Company issued 191,204 shares of common stock pursuant to the exercise of warrants issued in our April 2020 offering, and 21,591 shares of common stock issued pursuant to the cashless exercise of placement agent warrants. In March 2021, the Company closed a 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 $ 8,736,488 after deducting placement agent commissions and other offering costs payable by the Company. 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 became exercisable on May 24, 2021 , the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common Stock and will expire two years from such 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. In March 2021, Company issued 1,500 shares of common stock valued at $ 4.99 per share to an investor relations firm as partial compensation for services previously rendered. In September 2021, the Company granted 5,204 shares of common stock to non-executive employees pursuant to the 2013 Equity Incentive Plan. On 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 . On December 4, 2020, the Company issued 22,438 shares of common stock for the exercise of the pre-funded warrants. In the twelve months ended December 31, 2020, the Company issued 3,272,048 shares of common stock in exchange for the conversion of 7,404 shares of Series D Convertible Preferred stock, and 774,940 shares of common stock as in-kind payment of preferred stock dividends. In the twelve months ended December 31, 2020, the Company issued 25,851 shares of common stock for services. F- 13 Deferred Compensation In 2021 and 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 were valued at the fair value at the date of issue. The fair value was expensed as compensation over the vesting period and recorded as a reduction of stockholders’ equity. During 2021 and 2020, $ 19,255 and $ 77,187 , respectively, of the unvested compensation cost related to these issues was recognized. Preferred Stock The Company is authorized to issue 10,000,000 shares of preferred stock, $ 0.001 par value. 465 and 715 shares of preferred stock were issued and outstanding at December 31, 2021 and 2020, respectively. In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Institutional Private Placement”). Pursuant to the SPA, the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of $ 1,000 per share (the “Stated Value”). Dividends accrue at a dividend rate of 9 % per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and, on a monthly basis, shall be payable in kind by the increase of the Stated 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. At December 31, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted as of December 31, 2021, including the make-whole dividends, would have resulted in the issuance of 87,267 shares of common stock. Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors and the Company’s formerly largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and sold 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”). Dividends accrue at a dividend rate of 9 % per annum and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock. At December 31, 2021, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of December 31, 2021, including the make-whole dividends, would have resulted in the issuance of 61,651 shares of common stock. F- 14 Stock Options On July 15, 2021, 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 875,000 shares of our common stock to a total of 1,765,000 shares. As of December 31, 2021, there were 339,677 shares available for issuance under the 2013 Plan. During 2021, the Company granted a total of 698,831 options to 35 employees, 4 directors, and 4 consultants with vesting periods ranging from immediately upon issue to three years beginning January 4, 2021 . In 2021, 598,789 options vested and $ 1,741,366 of compensation cost was recognized during the year. As of December 31, 2021, there were options to purchase 1,395,882 , shares issued and outstanding, 1,345,882 of which have been issued under the 2013 Plan. At December 31, 2021, there are vested options exercisable for 941,934 shares of common stock. Options to purchase 5,204 shares of common stock were exercised during the year ended December 31, 2021. During 2020, the Company granted a total of 579,998 options to 19 employees, 4 directors, and 5 consultants with vesting periods ranging from immediately upon issue to three years beginning May 1, 2020 . In 2020, 294,373 options vested and $ 854,217 of compensation cost was recognized during the year. As of December 31, 2020, there were options to purchase 713,010 shares issued and outstanding, 663,010 of which have been issued under the 2013 Plan. At December 31, 2020, there were vested options exercisable for 349,642 shares of common stock. No options were exercised during the year ended December 31, 2020. The Company generally grants stock options to employees, consultants and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over three years of service and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award. Total employee share-based compensation expense included in the statements of operations for the year ended December 31, 2021 is $ 1,066,455 of which $ 1,047,200 is related to stock options. Total employee share-based compensation for 2020 totaled $ 596,842 , of which $ 573,232 is related to stock options. There was no capitalized share-based compensation cost as of December 31, 2021 and 2020, and there were no recognized tax benefits during the years ended December 31, 2021 and 2020. To estimate the value of an award, the Company uses the Black-Scholes option-pricing model. This model requires inputs such as expected life, expected volatility and risk-free interest rate. The forfeiture rate also impacts the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards. The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2021 and 2020: F- 15 Schedule of Share Based Payment Award Stock Option Valuations Assumptions Assumptions: 2021 2020 Dividend yield 0.00 % 0.00 % Risk-free interest rate 0.19 - 0.67 % 0.19 - 0.50 % Expected volatility 117.0 – 124.0 % 116.0 – 117.0 % Expected life (in years) 5 5 Option activity for the year ended December 31, 2021 and 2020 was as follows: Schedule of Share Based Compensation Stock Option Activity Weighted Average Weighted Average Exercise Remaining Aggregate Price Contractual Intrinsic Options ($) Life (Yrs.) Value ($) Options outstanding at December 31, 2019 180,912 1.81 5.09 25,988 Granted 579,998 2.55 4.57 477,802 Exercised - - - - Forfeited or cancelled ( 47,900 ) 22.62 - - Options outstanding at December 31, 2020 713,010 5.15 4.40 477,802 Options expected to vest in the future as of December 31, 2020 363,368 3.92 4.53 - Options exercisable at December 31, 2020 349,642 6.43 4.27 - Options vested, exercisable, and options expected to vest at December 31, 2020 713,010 5.15 4.40 477,802 Options outstanding at December 31, 2020 713,010 5.15 4.40 477,802 Granted 698,831 3.29 4.39 46,800 Exercised ( 5,204 ) 2.50 - - Forfeited or cancelled ( 10,755 ) 3.49 - - Options outstanding at December 31, 2021 1,395,882 4.24 3.89 - Options expected to vest in the future as of December 31, 2021 453,948 3.64 4.07 - Options exercisable at December 31, 2021 941,934 4.53 3.81 - Options vested, exercisable, and options expected to vest at December 31, 2021 1,395,882 4.24 3.89 - The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $ 1.84 closing price of our Common Stock on December 31, 2021. All of the 2021 option grants have an exercise price currently above $ 1.84 . At December 31, 2021, there was $ 1,164,723 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.10 years. Stock Appreciation Rights On June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant. On August 11, 2021, the Company granted, pursuant to the Plan, (i) 77,748 SARs to its Chief Executive Officer, (ii) 30,313 SARs to its Vice President of Business Development, (iii) 76,304 SARs to its Chief Technology Officer, and (iv) 48,580 SARs to its Chief Financial Officer. The exercise price of each such SAR is $ 3.42 , which was the closing price of the Company’s common stock on the date of grant. On June 23, 2020, the Company granted, pursuant to the Plan, (i) 60,094 SARs to its Chief Executive Officer, (ii) 12,019 SARs to its Vice President of Business Development, (iii) 24,038 SARs to its Chief Technology Officer, and (iv) 18,028 SARs to its Chief Financial Officer. The exercise price of each such SAR is $ 2.63 , which was the closing price of the Company’s common stock on the date of grant. Such SARs expire on the fifth anniversary of the grant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as possible) installments on each of the first, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested and exercisable as long as the applicable holder is in the Company’s employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement. On July 29, 2021, we granted 10,000 SARs to a consultant as partial compensation for services pursuant to his consulting agreement, and on November 19, 2020, we granted 13,500 SARs to such consultant as partial compensation for services pursuant to his consulting agreement. As of December 31, 2021, all such SARs were full vested and exercisable. F- 16 The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period for each SAR award. The SAR’s are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in income as of the applicable reporting date. The fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the twelve months ended December 31, 2021: Schedule of Share Based Payments Award Stock Options Valuation Assumptions Assumptions: 2021 2020 Dividend yield 0.00 % 0.00 % Risk-free interest rate 0.39 - 0.40 % 0.19 - 0.22 % Expected volatility 123.0 % 116.8 % Expected life (in years) 5 5 SARs activity for the twelve months ended December 31, 2021 was as follows: Schedule of Stock Option Activity Weighted Average Weighted Average Exercise Remaining Aggregate Price Contractual Intrinsic SARs ($) Life (Yrs.) Value ($) SARs outstanding at December 31, 2019 - - - - Granted 127,679 2.61 4.52 97,919 Exercised - - - - Forfeited or cancelled - - - - SARs outstanding at December 31, 2020 127,679 2.61 4.52 97,919 Granted 242,945 3.43 4.61 - Exercised - - - - Forfeited or cancelled - - - - SARs outstanding December 31, 2021 370,624 3.15 4.24 - SARs expected to vest in the future as of December 31, 2021 309,065 3.23 4.33 - SARs exercisable at December 31, 2021 61,559 2.78 3.75 - SARs vested, exercisable, and options expected to vest at December 31, 2021 370,624 3.15 4.24 - The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $ 1.84 closing price of our common stock on December 31, 2021. All of the SARs grants have an exercise price currently above $ 1.84 . At December 31, 2021, there was $ 685,503 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 2.37 years. Warrants At December 31, 2021, the Company had outstanding warrants to purchase a total of 3,987,931 shares of common stock. The warrants have exercise prices that range from $ 0.10 to $ 40.00 , which if not exercised, will expire between February 22, 2022 and January 6, 2026 . Warrant activity for the year ended December 31, 2021 and 2020 was as follows: Schedule of Warranty Activity Weighted Average Weighted Average Exercise Remaining Price Contractual Warrants ($) Life (Yrs.) Warrants outstanding at December 31, 2019 363,728 25.60 3.12 Granted 1,540,139 3.19 4.64 Exercised ( 22,438 ) - - Forfeited or cancelled - - - Warrants outstanding at December 31, 2020 1,881,429 7.57 4.16 Granted 2,602,143 4.36 1.63 Exercised ( 495,641 ) - - Forfeited or cancelled - - - Warrants outstanding at December 31, 2021 3,987,931 6.10 2.10 F- 17 NOTE 9 – Income Taxes The Company accounts for income taxes in accordance with ASC Topic No. 740. This standard requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. Income tax returns open for examination by the Internal Revenue Service consist of tax years ended December 31, 2018 through 2020. The Company has available at December 31, 2021, unused operating loss carryforwards of approximately $ 26,342,855 which may be applied against future taxable income and which expire in various years through 2040 . However, if certain substantial changes in the Company’s ownership should occur, there could be an annual limitation on the amount of net operating loss carryforward which can be utilized. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards and other temporary differences of approximately $ 6,771,000 and $ 4,170,100 at December 31, 2021 and 2020, respectively, and, therefore, no deferred tax asset has been recognized for the loss carryforwards. Deferred tax assets are comprised of the following: Schedule of Deferred Tax Assets 2021 2020 Deferred tax assets: NOL carryover $ 6,729,300 $ 4,184,400 Depreciation 41,700 ( 14,300 ) Valuation allowance ( 6,771,000 ) ( 4,170,100 ) Net deferred tax asset $ - $ - The reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate ( 21 %) to the Company’s effective tax rate for the years ended December 31, 2021 and 2020 is as follows: Schedule of Reconciliation of the Provision for Income Taxes 2020 2019 Book Loss $ ( 1,572,500 ) $ ( 1,472,000 ) Depreciation ( 25,700 ) 13,500 Meals & Entertainment 500 200 Stock Compensation 340,521 177,333 Change in valuation allowance 1,257,179 1,280,967 Provision for Income Taxes $ - $ - F- 18 NOTE 10 – Loss Per Share The following data show 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 December 31, 2021 and 2020: Schedule of Earnings Per Share, Basic and Diluted 2021 2020 Year Ended December 31 2021 2020 Loss from continuing Operations available to Common stockholders (numerator) $ ( 7,488,172 ) $ ( 7,009,414 ) Weighted average number of common shares Outstanding used in loss per share during the Period (denominator) 9,828,541 3,829,716 Dilutive loss per share was not presented as the Company’s outstanding common and preferred warrants, stock options and preferred stock common equivalent shares for the periods presented would have had an anti-dilutive effect. At December 31, 2021, the Company had outstanding 3,987,931 common warrants which could be converted to 3,987,931 shares of common stock, and 1,395,882 stock options exercisable for 1,395,882 shares of common stock, 132 shares of Series D Preferred Stock, which is convertible into 87,267 shares of common stock, and 333 shares of Series E Preferred Stock, which could be converted into 61,651 shares of common stock, resulting in a potential total additional 5,532,731 shares of common stock outstanding in the future. At December 31, 2020, the Company had outstanding 1,881,429 common warrants which could be converted to 1,881,429 shares of common stock, and 713,010 stock options exercisable for 713,010 shares of common stock, 10 Series D Preferred Warrants exercisable for 10 shares of Series D Preferred Stock, which in turn, are convertible into 4,748 shares of common stock, and 715 shares of preferred stock, which could be converted into 243,024 shares of common stock, resulting in a potential total additional 2,842,211 common stock shares outstanding in the future. NOTE 11 – Commitments and Contingencies Operating Leases – The Company leases office and laboratory space under operating leases. Expense relating to these operating leases was $ 101,004 and $ 103,242 for the years ended December 31, 2021 and 2020, respectively. The future minimum lease payments required under non-cancellable operating leases at December 31, 2021 were $7,230. The future minimum lease payments are due during the year 2022 , with $ 1,115 due in January 2023. NOTE 12 – Concentrations Revenues – During the years ended December 31, 2021 and 2020, the Company had the following significant customers who accounted for more than 10 % each of the Company’s revenue in at least one of the periods presented. The change in the composition of customers between the two years resulted primarily from the change of focus from sales to R&D customers to customers preparing to initiate commercial production. Schedule of Concentration of Risks Customer 2021 2020 A 27.81 % - B 17.23 % - C - 22.31 % D - 16.78 % E - 16.72 % F - 15.26 % G - 10.53 % Accounts Receivable – The Company had the following significant customers who accounted for more than 10 % each of the Company’s accounts receivable balance at December 31, 2021 and 2020, respectively. Customer 2021 2020 A 51.25 % - B 46.34 % 45.88 % C - 25.94 % D - 22.62 % NOTE 13 - Joint Venture In July 2015, we entered into a joint venture agreement with Arete Innovative Solutions LLC (“Arete”). The Joint Venture was not consolidated, but rather was accounted for on the equity method of recording investments. The Company and Arete terminated the Joint Venture in 2020 and distributed the remaining cash to the former partners. NOTE 14 - Defined Contribution Plan In 2014, the Company adopted a qualified 401(K) plan (“the Plan”), in which all employees over the age of 21 may participate. The Company makes a Safe Harbor contribution match of 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed . The costs of matching contributions were $ 86,554 in 2021 and $ 55,321 in 2020. NOTE 15 – Related Party Transactions As of December 31, 2021, there are no related party transactions. NOTE 16 – Subsequent Events On February 16, 2022, Jacob Brunsberg was appointed as President and Chief Operating Officer. In connection with this appointment, Mr. Brunsberg’s employment agreement was amended to increase his salary to $ 250,000 from $ 200,000 per annum. In addition, Mr. Brunsberg was granted a stock option to purchase up to 70,000 shares of our common stock under our 2013 Equity Incentive Plan at an exercise price of $ 2.50 , and 30,000 stock appreciation rights (“SARs”) under our 2020 Stock Appreciation Rights Plan at an exercise price of $ 2.50 each. Both the option and the SARs have a five-year term and are on such other terms and conditions as contained in the Company’s forms of standard agreement. Concurrently, Mark K. Ruport resigned as President but remains as Chief Executive Officer and continues to serve as a director on the Board of Directors. Mr. Ruport’s employment agreement was amended to decrease his salary from $ 250,000 to $ 200,000 per annum. F- 19