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Item 2. Management’s Discussion and Analysis

2022-04-26 compared with 2021-10-21 · 266 added, 267 removed, 31 unchanged (95% of the section changed)

1 unchanged sentence

Forward-looking

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

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

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

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

Quarterly Report contains “Forward-Looking Statements.” All statements other than statements of historical fact are “Forward-Looking

Statements” for purposes of these provisions, including but not limited to, statements regarding our expectations about development

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

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

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

any statements of assumptions underlying any of the foregoing.

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

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

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

the foregoing.

All Forward-Looking Statements included in this document are made as of the date hereof and are based on information available

to us as of such date.

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

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

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

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

Although we believe that

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

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

assumed in the Forward-Looking Statements.

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

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

the Securities and Exchange Commission (“SEC”).

All subsequent Forward-Looking Statements attributable to the Company or

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

Additional factors that may have

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

for the year ended December 31, 2020 and elsewhere in this report.

In some cases, Forward-Looking Statements can

be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,”

“intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative

thereof or other comparable terminology.

Although we believe that the expectations reflected in the Forward-Looking Statements contained

herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct,

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

Future financial condition

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

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

All subsequent

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

cautionary statements.

Additional factors that may have a direct bearing on our operating results are described under the caption “Risk

Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and elsewhere in this Quarterly Report.

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

On September 27,

2010, we changed our name from Framewaves Inc.

to Sigma Labs, Inc.

2010, we changed our name to Sigma Labs, Inc.

We commenced our current business operations in 2010.

6 unchanged sentences

The Company’s website and the information contained therein,

or connected thereto, are not and are not intended to be incorporated into this Quarterly Report on Form 10-Q.

Accounting Policies

or connected thereto, are not and are not intended to be incorporated into this Quarterly Report.

Accounting Policies and Estimates

preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management

to make estimates and assumptions that affect the reported amounts in the accompanying consolidated financial statements and related

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

Actual results could differ

materially from those estimates.

Critical accounting policies are those that require the most subjective and complex judgments, often

employing the use of estimates about the effect of matters that are inherently uncertain.

Our significant accounting policies are disclosed

in Note 1 to the Financial Statements included in this Quarterly Report on Form 10-Q.

However, we do not believe that there are any alternative

methods of accounting for our operations that would have a material effect on our financial statements.

to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements.

Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about

the effect of matters that are inherently uncertain.

By their nature, changes in these assumptions and estimates could significantly

affect our financial position or results of operations.

Significant accounting estimates that may materially change in the near future

are revenue recognition, 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.

Such critical accounting policies, including the assumptions and judgments

underlying them, are disclosed in Note 1 of the Notes to Financial Statements included in this Quarterly Report.

However, we do not believe

that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements.

critical accounting policies and estimates addressed below reflect our most significant judgements and estimates used in the preparation

of our financial statements

Recognition - The Company’s revenue is derived primarily from sales of our software and related hardware suite and from providing

engineering services under contracts.

Generally, revenue is recognized 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.

estimates and judgements for determining revenue recognition include:

(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.

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.

Valuation - 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)

Charges for obsolete inventory are based on specific identification of inventory items resulting from regular, on ongoing reviews

of our build of materials.

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.

Utility patents are amortized over a 17-year period.

Patents which are pending are not amortized.

Based Compensation – We 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.

based compensation arrangements may include stock options, grants of shares of common stock with and without restrictions, performance-based

awards, stock appreciation rights and employee stock purchase plans.

Compensation cost is measured on the date of grant at its fair value.

instruments issued to non-employees are recorded on the basis of the grant date fair value of the instruments.

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.

grant date fair value of stock based and other equity instruments is calculated using the Black Scholes valuation model, and requires

estimates of several inputs to the model, including risk-free interest rates, dividends, and expected volatility of our stock price.

of Operations

Months Ended September 30, 2021 and September 30, 2020

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

software upgrades and maintenance fees.

Our ability to generate revenues in the future will depend on our ability to further

commercialize and increase market presence of our PrintRite3D® technologies, and it will depend on whether key prospective

customers continue to move from AM metal prototyping to production.

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

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

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

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

Department of Energy contractor,

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

National Laboratory.

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

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

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

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

Our gross profit for the

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

period in 2020.

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

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

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

generate revenues through hardware and software licensing of our PrintRite3D® technology to customers that seek to improve their

manufacturing production processes, and through ongoing annual software upgrades and maintenance fees.

Additionally, we generate revenues

from our contract manufacturing activities in metal additive manufacturing, or AM.

Our ability to generate revenues in the future will

depend on our ability to further commercialize and increase market presence of our PrintRite3D® technologies, and it will depend

on whether key prospective customers continue to move from AM metal prototyping to production.

In January 2022, we announced

the foundational elements of a three-year plan that we believe will increase the Company’s ability to achieve its mission of setting

the quality standard for additive manufacturing.

The combined strategies are geared at making our technology more consumable in terms

of ease of use and cost by end users, both for initial purchases and expansion opportunities, making it easier for original equipment

manufacturers (“OEMs”) to embed our technology and generate attractive revenue streams for the OEM, and finally increasing

the Company’s gross margins by moving towards a software-only solution.

To lower the barrier for

initial users and for expansion opportunities within end users with a large number of printers, we began offering our current

PrintRite3D integrated hardware and software solution on a subscription basis.

The impact of the change will currently reduce the

initial upfront cost to a new user from over $100,000 to approximately $3,000-$4,000 per month.

In addition, we believe the

subscription model will smooth out the Company’s revenue and cash receipts while making them more predictable.

In order to expand the number

of OEMs distributing our technology, we launched a three-tiered OEM program directed to:

(1) new OEMs without their own quality assurance

or monitoring solution;

(2) established OEMs with a quality monitoring offering, but who have customers with multiple printers from multiple

OEMs and want a single 3rd party quality and analytics solution with consistent quality metrics across printers, processes and materials;

and (3) OEMs building open APIs to integrate components of Sigma’s proprietary technology with their current offerings.

now working with OEMs on their next generation printers to offer a software-only solution that will utilize the printer’s computing

infrastructure and dramatically reduce the overall cost of its technology, enabling the opportunity to move towards a software only embedded

solution on every printer sold by partner OEMs.

The combination of subscription

pricing and the software-only embedded OEM offerings are intended to make our technology more affordable to acquire and easier for OEM’s

to bundle, distribute and support in an effort to become the industry standard.

The shift in our business model has had an impact

on our near-term revenue growth as we increase our focus on building strategic partnerships, expanding our partner ecosystem, and ensuring

the success of our existing customers as they move into production.

However, we believe these changes will contribute to faster adoption

of our product by end users and will result in more predictable and profitable revenues over the longer term.

the three months ended March 31, 2022, we recognized revenue of $51,844, as compared to $458,140 in revenue recognized during the same

period in 2021, a decrease of $406,296, or 89%.

The decrease is primarily due to decreased PrintRite3D® unit sales of $416,500 in

the first quarter of 2022, partially offset by an increase in revenues of $13,425 from our subscription based pricing program.

cost of revenue for the three months ended March 31, 2022 was $40,091, as compared to $128,331 for the same period in 2021, a decrease

of $88,240, or 69%.

The decrease was primarily attributable to fewer unit sales in 2022.

total operating expenses for the three months ended March 31, 2022 were $2,295,698, as compared to $1,781,404 for the same period in

2021, an increase of $514,294, or 29%.

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

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

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

Stock-based compensation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

same period in 2020.

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

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

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

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

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

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

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

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

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

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

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

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

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

system from finished goods to fixed assets.

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

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

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

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

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

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

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

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

Months Ended September 30, 2021 and 2020

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

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

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

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

Department of Energy contractor,

and a single unit sale to a U.S.

National Laboratory.

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

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

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

Our gross profit for the

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

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

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

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

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

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

appreciation rights granted to executive management in August, 2021.

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

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

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

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

same period of 2020.

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

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

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

Partially offsetting

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

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

The increase was primarily attributable to an increase in salary and benefit costs, as described

below, related to the hiring of additional employees in an effort to expand the commercialization of our products.

and benefits costs were $1,292,010 for the three months ended March 31, 2022, as compared to $847,171 for the same period in 2021, an

increase of $444,839, or 53%.

The increase was comprised of:

(a) $266,711 related to the hire of additional employees;

(b) $84,677 related

to salary increases for existing employees;

and (d) increased taxes and benefits

Partially offsetting these increases was a decrease in commissions of $42,654 due to fewer unit sales.

compensation was $170,976 for the three months ended March 31, 2022, as compared to $117,477 for the same period in 2021, an increase

of $53,499, or 46%.

This increase is primarily a result of stock options granted to new employees of $3,267 and increased stock option

grants to existing employees and executive management of $12,748 and $37,484, respectively, in the three months ended March 31,

and research & development expenses of $143,418 were incurred during the three months ended March 31, 2022, as compared to $196,340

in the same period of 2021, a decrease of $52,922, or 30%.

The decrease was primarily due to a decrease in operations costs of $59,192

as we incurred charges in the first quarter of 2021 of $52,987 for inventory obsolescence, including $14,471 for metal powder write-offs,

field service expenses of $5,220, as well as equipment upgrades in both our manufacturing facility and our 3D metal printers totaling

Partially offsetting these decreases was an increase in purchases of lab supplies of $11,565, and increased research & development

costs of $6,268 due to an increase in consulting costs of $21,043 in connection with ongoing PrintRite3D software development, partially

offset by a decrease in expenses associated with a first quarter 2021 simulation project of $14,775.

public relations, and marketing expenses of $94,326 were incurred during the three months ended March 31, 2022, as compared to $108,341

during the same period in 2021.

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

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

relations firm.

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

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

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

increase of $249,540.

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

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

Non-employee directors received their option grants at

the end of July, 2020.

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

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

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

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

Legal fees decreased by $81,822 due to expenses incurred during the first quarter of

2020 in connection with our January 2020 private offering, Nasdaq related matters, and our February 27, 2020 reverse stock split.

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

Partially offsetting these decreases was an increase in

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

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

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

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

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

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

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

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

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

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

system from finished goods inventory to fixed assets.

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

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

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

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

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

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

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

forgiveness of our PPP loan.

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

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

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

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

financed our operations during the three and nine months ended September 30, 2021 and 2020 primarily from revenue generated from PrintRite3D®

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

preferred stock.

We expect that our revenue will increase in future periods as we seek to further commercialize and expand our market

presence for our PrintRite3D®-related technologies.

The decrease of $14,015, or 13%, was primarily due to a decrease in investor relations consulting costs

of $23,473 due to issuance of fewer stock appreciation rights and options issued in 2022 and lower advertising expenses of $3,984, partially

offset by an increase in tradeshow expenses of $13,442 as a result of increased attendance due to reduced COVID travel restrictions in

costs incurred in the three months ended March 31, 2022 were $58,749, as compared to $77,616 during the same period in 2021.

of $18,867, or 24% was primarily due to a decrease in non-employee director stock-based compensation of $39,750, partially offset by

an increase in such directors’ cash compensation of $20,695.

& professional fees incurred in the three months ended March 31, 2022 were $211,416, as compared to $176,847 incurred during the

same period in 2021, an increase of $34,569, or 20%.

This increase was primarily a result of an increase in consulting expenses

of $82,175 due to the engagement of technical consulting support of $28,590 in connection with our new subscription-based pricing model,

$3,500 in external human resources consulting, $17,800 for manufacturing support, and $32,285 related to consulting services for corporate

matters, and an increase in audit fees of $9,936.

These increases were partially offset by a decrease in legal expenses of $28,590 and

a decrease in recruiting expenses of $26,667 related to new hires in 2021.

expenses for the three months ended March 31, 2022 were $205,432, as compared to $148,225 for the same period in 2021, an increase of

$57,207, or 39%.

The increases resulted primarily from:

(a) travel and entertainment of $53,542 as compared to virtually no travel during

the same period in 2021 as a result of COVID 19 travel restrictions;

(b) an increase in payroll service fees of $2,247 related to new

and (c) dues & subscriptions of $12,910 for new customer relationship management, product lifecycle management, and project

management software.

Partially offsetting these increases was a decrease in postage and shipping of $6,388, and a decrease in office

supply expense of $7,377.

and amortization expense for the three months ended March 31, 2022 totaled 31,584 as compared to $23,031 for the same period in 2021,

an increase of $8,553, or 37%.

The increase is primarily the result of two PrintRite3D units on out new leasing program.

operating expenses were $87,787 for the three months ended March 31, 2022, as compared to $86,356 for the same period in 2021.

was primarily due to an increase in our insurance policy premiums for 2022 of $1,701, partially offset by lower bank service fees during

the three months ended March 31, 2022, we realized net other income of $76,550, as compared to net other income of $800,936 in 2021.

The decrease of $724,386, or 90% was primarily due to an unrealized gain of $802,285 from the March 31, 2021 revaluation of the derivative

liability resulting from our private placement of warrants to purchase 2,190,000 shares of common stock in the first quarter of 2021,

partially offset by $76,628 received in New Mexico state incentives in the first quarter of 2022.

net loss applicable to common stockholders for the three months ended March 31, 2022 was $2,221,615, as compared to $711,567 for the

same period of 2021, a $1,510,048 increase.

The increase was primarily due to the increased loss from operations of $832,350 and the

decrease in other income of $724,386.

These increases were partially offset by a decrease in preferred dividends of $46,688.

and Capital Resources

of September 30, 2021, we had $13,064,394 in cash and working capital of $13,977,104, as compared with $3,700,814 in cash

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

of March 31, 2022, we had $9,277,929 in cash and working capital of $9,588,858, as compared with $11,447,047 in cash and working capital

of $11,702,358 as of December 31, 2021.

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

stock), and from warrant exercises.

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

March 26, 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at a price

of $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions

and other offering costs payable by the Company.

Pursuant to the Purchase Agreement, the purchasers severally agreed to vote the shares

of common stock purchased under the Purchase Agreement in favor of any resolution presented to the stockholders of the Company for the

purpose of obtaining approval of an increase in the authorized shares of the Company’s Common Stock from 12,000,000 to 24,000,000

shares (“Stockholder Approval”).

In a concurrent private placement under the Purchase Agreement, the Company issued to the

purchasers warrants to purchase an aggregate of 2,190,000 shares of common stock at an exercise price of $4.32 per share.

became exercisable on May 24, 2021, which was the date the Company obtained Stockholder Approval, and will expire two years after the

initial exercise date.

January 12, 2021, the Company closed a public offering of common stock in which it issued 1,711,783 shares of common stock at a price

of $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting commissions and other offering expenses payable

by the Company.

March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per

share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering

costs payable by the Company.

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

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

The warrants entitle the holders to purchase one share of our

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

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

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

to the Company of $1,136,010.

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

believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements

through 2022.

We have based this estimate on assumptions that may prove to be wrong, such as our current expectations of revenue generation

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

through at least the first quarter of 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust

our capital resources sooner than we expect.

of the numerous risks and uncertainties associated with the research, development, and commercialization of our products, we are unable

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Our future capital requirements will depend on many factors, including:

The cost of expending,

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

claims and other intellectual property rights;

The effect of competing

technological and market developments;

The revenue from the

sales of our existing and future products;

The cost of operating

as a public company;

The increasing cost of engineering talent.

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

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

We expect that continued enhancements of our

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

commercialize this technology into the AM metal market in 2021.

To support the commercialization of our PrintRite3D® technology,

we plan to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and

supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our

areas of expertise (materials and manufacturing quality assurance and process control technologies).

As the third quarter of 2021

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

however, the Company continued to be adversely

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

Two key industries with which

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

As a result of the decrease in the demand for our products from customers and potential customers in these and other industries, the

Company expects that revenue from these sectors will remain under pressure.

It is impossible to know at this time how long companies

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

Additionally,

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

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

However, due to the need to

have more flexibility in supply chains with the ability to respond quickly to shortages in parts or products, we believe that the crisis

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

from the sales of our existing and future products;

associated with the expansion of our business and operations;

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

our patent claims and other intellectual property rights;

effect of competing technological and market developments.

2022, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues generated

from sales of our PrintRite3D® technology.

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

will enable us to further commercialize this technology into the AM metal market in 2022.

To support the commercialization of our PrintRite3D®

technology, we plan to continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and

supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas

of expertise (materials and manufacturing quality assurance and process control technologies).

worldwide COVID-19 pandemic caused a reduction, and in some cases a freeze, in capital spending within the Company’s targeted

The future impact of the ongoing epidemic, including the emergence of variations of the virus, is highly uncertain so

that no assurance can be given that our business and results of operations will not be materially and adversely affected.

uncertain as to any further disruption of the financial markets, which may reduce our ability to access capital on favorable terms

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

that the crisis will eventually accelerate the adoption of 3D printing, which may benefit the Company.

Cash Used in Operating Activities

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

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

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

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

Partially offsetting these increases were an

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

payable and accrued expenses of $721,705.

Cash Used/Provided by Investing Activities

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

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

This is primarily attributable to increased

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

cash used in operating activities during the three months ended March 31, 2022 increased to $2,027,019 from $1,240,586 during the same

period in 2021, a $786,433, or 63% increase.

Contributing to this increase was an increase in net loss of $1,566,736 and decreases in

accounts payable and accrued expenses of $265,467, prepaid assets of $6,278, and total stock-based compensation of $5,519.

offsetting these increases in cash usage were a decrease in the gain on derivative liability of $802,285, a decrease in accounts receivable

of $207,658, a decrease in inventory purchases of $16,110, and increases in deferred revenue and depreciation and amortization expense

of $12,961 and $8,553, respectively.

Cash Used in Investing Activities

cash used by investing activities during the three months ended March 31, 2022 was $142,099, which compares to $21,969 of cash used by

investing activities during the same period of 2021, an increase of $120,130.

The increase resulted from leased PrintRite3D units reclassified

as property, plant and equipment, and increased patent costs during the first quarter of 2022.

Cash Provided by Financing Activities

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

same period in 2020 due to the receipt of $14,869,899 of proceeds less $1,600,967 of offering costs, in connection with our January 2021

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

Cash provided by financing activities during the same

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

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

outstanding principal balance on a convertible note payable in the amount of $50,000.

Company did not raise any capital nor were there any warrant exercises during the three months ended March 31, 2022.

Cash provided by

financing activities during the three months ended March 31, 2021 totaled $14,404,942 due to the receipt of $14,869,899 of proceeds less

$1,600,967 of offering costs in connection with our January and March 2021 public and private offerings.

The exercise of outstanding

warrants during the three months ended March 31, 2021 provided an additional $1,136,010 in cash proceeds.

ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues

from existing and future PrintRite3D®-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept

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

from lenders to fulfill our business plans.

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

and may otherwise include onerous terms.

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

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

There is no assurance as to the amount and availability

of any required future financing or the terms thereof.

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

may have on its access to the financing markets.

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

back a portion of our commercialization efforts and operations.

have no credit lines as of October 21, 2021, nor have we ever had a credit line since our inception.

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

from existing and future PrintRite3D contracts, follow-on contracts resulting from successful engagements, possible strategic partnerships,

and by obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans.

we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have

rights, preferences or privileges senior to those of existing holders of our common stock.

There is no assurance that we will be successful

in obtaining additional funding.

The Company is unable to predict the effect that the COVID-19 outbreak or geopolitical events, including

the conflict in Ukraine, may have on its access to the financing markets.

If we fail to obtain sufficient funding when needed, we

may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.

have no lines of credit or other financing arrangements.

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

have no off-balance sheet arrangements as defined in Item 303(a) of Regulation S-K.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis