What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-30 compared with 2022-03-24 · 351 added, 248 removed, 110 unchanged (84% of the section changed)

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Sigma specializes

in the development and commercialization of real-time monitoring solutions known as PrintRite3D® for 3D metal advanced manufacturing

technologies.

PrintRite3D detects and classifies defects and anomalies real-time during the manufacturing process, enabling significant

cost-savings and production efficiencies.

We are dedicated to setting the quality standard for Additive Manufacturing and accelerating

the worldwide adoption of 3D metal printing.

We work closely with international standards organizations, renowned universities, research

organizations, advanced manufacturers, and leading design and simulation software companies.

PrintRite3D is printer agnostic and works

with most of the leading 3D metal printers.

Long-Term Strategic Direction

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, the Company announced that it will

be offering its current PrintRite3D integrated hardware and software solution on a subscription basis.

The impact of the change will

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

In addition, 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 recently 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.

In 2019, Sigma entered

the market with a productized integrated hardware/software solution to address the retrofit market, i.e., end users that had

purchased a printer, and wanted a 3rd party quality and analytics solution.

Subsequently, the Company was successful in creating

initial partnerships with OEMs such as Additive Industries and DMG Mori to offer PrintRite3D as an integrated hardware/software edge

computing solution.

We are 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.

in the development and commercialization of real-time monitoring solutions known as PrintRite3D® for 3D metal and polymer

advanced manufacturing technologies.

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

process, enabling significant cost-savings and production efficiencies.

We work closely with international standards organizations,

renowned universities, research organizations, advanced manufacturers, OEMs, and leading software companies.

PrintRite3D is printer agnostic and works with most of the leading 3D metal printers, as well as a growing base of polymer printers.

was a year of significant change for our Company, from our symbolic name change to the execution of a new approach to the market.

have a mission to accelerate the adoption of additive manufacturing by setting the industry standard for quality, and we have charted

our path to deliver the first holistic digital quality experience for the additive industry with the following objectives:

the quality experience from up to twelve disparate software licenses and multiple manual spreadsheets, to a single user experience

that is holistic and integrated with production workflow.

strategic partnerships, expanding our partner ecosystem, and best ensuring success of existing customers as they move into production.

products that are easier to use and less expensive, both for initial purchases and as expansion opportunities.

a strategic corporate investment partner with clear product, customer, and financial synergies.

holistic digital quality experience connects in-process data upstream to CAD/CAM through the downstream inspection and material data.

This digital quality journey begins by creating a new qualification framework for in-process data.

The path to qualified parts and continued

production relies on more than just melt pool monitoring;

it also covers machine health, process health, and part health.

Our customers

require specific data for qualification and certification of parts and need a holistic approach to production quality, and further, require

a way to simplify quality from 8-12 disparate software licenses and several manual spreadsheets to one user experience that is integrated

into their production workflow.

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 third party quality and analytics solution with consistent quality metrics across

printers, processes and materials;

and (3) OEMs building open application programming interfaces, or APIs, to integrate components of

Sigma’s proprietary technology with their current offerings.

We are 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.

To further augment this initiative, we have also begun integrating with industry wide hardware providers, such as our recently announced

relationship with a laser scanner provider.

began offering our current PrintRite3D integrated hardware and software solution on a subscription basis in 2022.

Among other things,

the change reduced the initial upfront cost to a new user from over $100,000 to approximately $3,000-$5,000 per month.

combination of subscription pricing and the new software-only products that can be embedded into OEM and software partner offerings are

intended to make our technology more affordable to acquire and easier to bundle, distribute and support in an effort to become the industry

shift in our business model adversely affected our revenues and near-term revenue growth as we increased our focus on building strategic

partnerships, expanding our partner ecosystem, and ensuring the success of our existing customers as they move into production.

In 2022, we relied primarily on retrofit work while the software only products were still under development .

We expect that the percentage of the Company’s revenue coming from OEMs will increase in 2023 and beyond, especially with the availability

of a software-only product as we work to integrate into existing hardware, such as laser scanner technology and OEM’s upstream designs

for next generation systems.

to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our traditional

PrintRite3D® technology, along with our new software-only offerings that start to link industry quality together.

Additionally, it

will depend on whether key prospective customers continue to move from additive manufacturing prototyping to production, which our products

are intended to accelerate.

However, we believe these changes to our business model 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 past twelve years, Sigma has invested its resources to solve the problem of in-process AM quality:

melt pool analytics for the “part”, which originated as a retrofit lab solution.

Our prior product offering met the needs of materials scientists,

but overlooked the production needs of shop floor technicians, process engineers, and operations teams.

The addition of our “machine”

and “process” software products for additive manufacturing will provide a holistic in-process quality base for us to connect

to the broader digital quality ecosystem.

part of our vision to build the future of connected digital quality and enhance shareholder value, we have undertaken an initiative to

evaluate a range of strategic alternatives, including possible strategic investment, acquisition, merger, business combination, or similar

transaction with clear product, customer, and financial synergies to Sigma.

This work is focused on identified companies that connect

to our long-term quality vision.

This strategic initiative is focused on synergies and potential product integration to accelerate market

visibility and customer adoption.

To execute Sigma’s vision and realize our potential, we will need to raise additional capital, or

execute a strategic transaction, which may include, a possible strategic investment, acquisition, merger, business combination, or similar

believe the industry is evolving.

Application Programming Interfaces, or APIs, are opening up as some of our relationships with OEMs

have become public.

There is also a trend toward consolidation in additive manufacturing as companies align for profitability.

has made demonstrable progress in 2022 connecting to other products in the AM digital quality stream, and a connection to a strategic

partner paired with near term execution can augment our ability to scale, support the market, and create value.

Further, alignment with

a strategic investor or acquirer allows for common growth, vision, and funding of the Company to achieve its mission, but also provides an opportunity

for other strategic relationships, including potential acquisitions that can further accelerate the execution of our digital quality

facilitate our ability to execute our strategic initiatives on the product, pricing, and partner fronts, we have taken several steps

to conserve our cash by reducing our operating expenses.

Compensation and benefits are our single largest expense, comprising approximately

53% of our total operating expenses for 2022.

We reduced our total full-time headcount by a net of eight employees in 2022 and experienced

a further reduction of six employees in 2023 as a result of furloughs and departures from the Company.

As of March 29, 2023,

our full-time employee headcount was 19.

In addition to headcount reductions, we have reduced our spend on advertising, marketing and

investor relations, consultants, and employee travel.

We continue to evaluate our expenses and will consider further reductions as appropriate.

Lastly, Sigma has developed a deep patent portfolio which we believe is widely applicable to the 3D printing industry.

We have recently begun exploring an intellectual property licensing program, which we believe may facilitate a strategic transaction.

Business Update

The worldwide

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

and had what the Company believes to be a short-term negative impact on the Company’s expected timing of generating meaningful

Further, the future impact of the outbreak, including variations of the virus, is highly uncertain so

that no assurance can be given that the outbreak will not have a material adverse impact on the future results of the Company.

also uncertain as to any further disruption of the financial markets, which may reduce our ability to access capital, either at

all, or on favorable terms.

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

industries, which negatively affected our revenue in 2021.

Additionally, this slowed the development of our technology based on

prolonged budget reductions and delays at development partner sites.

With slowed customer interaction, Sigma experienced some

slowing of planned integrations and qualification into 2022.

With the relaxing of COVID-19 restrictions in the U.S.

and Europe in

2022, business activity began to return to near pre-pandemic levels, and we have resumed qualification and integration of our technology with

partners and customers who experienced such prior delays.

Regarding our supply chain, however, the Company continues to experience increased lead

times for certain hardware components of PrintRite3D.

The future impact of the outbreak, including variations of the virus, is

highly uncertain so that no assurance can be given that the outbreak will not have a material adverse impact on the future results

of the Company.

It is also uncertain as to any further disruption of the financial markets, which may reduce our ability to access

capital, either at all, or on favorable terms.

Accounting Policies and Estimates

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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.

Significant estimates and judgements for determining revenue recognition include:

(1) identifying the contract, or contracts, with our

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

licenses and from providing engineering services under contracts.

The Company recognizes revenue in accordance with ASC Topic No.

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 GAAP and replaced 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

(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.

(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.

January 2022, the Company began offering a subscription option to its customers pursuant to which we lease our PrintRite3D platform

for terms between 12 and 36 months and provide technical support and maintenance for the term of the arrangement, as well as installation

and training.

The Company has determined these are leases because they relate to discrete pieces of equipment to which customers have

the right to substantially all the economic benefit and exclusive right to use during the term of the arrangement.

These leases are classified

as operating leases and the Company retains title to the underlying equipment.

leases may be renewed for successive one-year terms unless notice is given by either party of its intent not to renew at least 30 days

before the end of the lease term.

For leases with 36-month terms, the lessee may terminate the agreement after the first 18 months with

30-days written notice.

Some, but not all, of the leases permit lessees to purchase the asset at any time at an amount that approximates

fair value and are not reasonably certain to be exercised at the inception of the lease.

There are no anticipated variable lease payments

at the inception of the lease.

are two non-lease components in the arrangement that consist of technical support and maintenance, and installation and training.

Company has elected the single component practical expedient to combine the technical support and maintenance with the lease as they

have the same pattern of transfer.

The installation and training component does not have the same pattern of transfer;

therefore, this

component is not eligible for the single component practical expedient.

The lease consideration is allocated on a relative fair value

basis of the underlying lease and non-lease components.

The Company has estimated the residual value of the leased equipment based on

its useful life, and the ability to refurbish and sell the equipment, as well as the Company’s ability to componentize the hardware

and utilize subassemblies in other products.

Company is depreciating assets over their useful life of 7 years, but certain subassemblies and components may have a longer economic

Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are carried at original invoice amount less an estimate

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Recoveries of trade accounts receivable previously written off are recorded as income when received.

- While we do not believe that inflation had a material effect on our business, financial condition or results of operations during

the year ended December 31, 2022, we experienced increases in wages and other compensation costs, and costs for certain components of

our PrintRite3D product.

If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher

costs through price increases.

Our inability or failure to do so could materially adversely affect our business, financial condition

and results of operations.

Valuation - Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components

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of our build of materials.

- The Company primarily leases office space from third parties.

The Company determines if a contract is a lease at inception.

contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The lease term begins on the commencement date, which is the date the Company takes possession of the asset and may include options to

extend or terminate the lease when it is reasonably certain that the option will be exercised.

Leases are classified as operating or

finance leases based on factors such as the lease term, lease payments, and the economic life, fair value and estimated residual value

of the asset.

Where leases include an option to purchase the leased asset at the end of the lease term, this is assessed as a part of

the Company’s lease classification determination.

The Company only has short-term leases, with remaining lease terms of less than

The leases are cancelable at any time upon 45 days written notice.

Therefore, the Company has elected the short-term lease

recognition exemption for all leases, whereby leases are not recorded on the Company’s balance sheet and lease payments are recognized

as lease expense on a straight-line basis over the lease term.

and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company

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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, share appreciation rights and employee share purchase plans.

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

Stock-Based Compensation – We measure the compensation costs of stock-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

Stock-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.

Stock-based compensation 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.

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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.

grant date fair value of stock-based compensation 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

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Additionally, we generate revenues

from our contract manufacturing activities in metal AM.

from development work utilizing our metal AM equipment and engineering team.

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

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customers continue to move from AM metal prototyping to production.

fiscal 2021, we made a significant investment in both our employees and our infrastructure, adding resources to be in a position to grow

our business.

and Headcount

added 13 full-time employees in 2021.

We increased our sales team from two at the beginning of the year to seven in an

effort to expand our business.

Specifically, we hired a senior director of sales in the US Western region, an area sales

manager for the European, Middle East and Africa (EMEA ) region, and three technical sales engineers, one of whom is in Europe, to support

our business development and sales efforts.

We also added a total of seven engineers including three software engineers and four applications

engineers, who will be furthering our machine learning and artificial intelligence (“AI”) initiatives, as well as increasing

our manufacturing capacity and ability to perform customer installations and field support.

Finally, in September 2021, we hired a Senior

VP of Product Management and Strategic Relationships.

December 31, 2022, our full time employee headcount was 25, as compared to 33 at December 31, 2021.

The decrease of 8 employees was primarily

related to the shift in our business model as we move away from selling expensive perpetual licenses for PrintRite3D, in which most of

the cost comes from physical hardware, to setting up for our future software-only subscription model.

labor market is extremely competitive, and our highly trained, skilled, and talented employees are heavily recruited by others.

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an important component of aligning shareholder, company, and employee interests and vests everyone in the growth and success of Sigma.

fiscal year 2021, we increased our gross margin to 66% from 27% in 2020.

The primary reasons for the 39% improvement are:

components from multiple vendors has enabled us to secure alternative supply sources as well as lower material costs;

(2) engineering

enhancements, particularly around optics redesigns and computing power and storage, have lowered costs while improving unit performance;

(3) we have become more efficient in our customer installations, through the use of virtual technology;

(4) changes to our Rapid Test

and Evaluation (“RTE”) program making them shorter in duration, with clearly defined objectives and more certain outcomes

in terms of ultimately leading to unit sales;

and (5) adopting lean manufacturing principles which has improved controls, lowered costs,

and improved efficiency.

Infrastructure

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and Cost of Revenue

the fiscal year ended December 31, 2021 (“fiscal 2021”), we generated an aggregate of $1,651,765 in revenues, as compared

to an aggregate of $807,488 in revenues generated by us in the fiscal year ended December 31, 2020 (“fiscal 2020”).

The contributors

to the $844,277 increase were:

(1) increased new PrintRite3D® system sales of $888,954;

(2) increased on-site engineering and installation

revenues of $26,200;

and (3) increased annual maintenance revenues of $12,402, partially offset by (1) a decrease in revenues from our

Rapid Test and Evaluation (“RTE”) program of $82,064;

and (2) decreased revenue from contract AM jobs of $1,215.

of revenue for fiscal 2021 was $559,965 compared to $591,957 during the same period in 2020, a decrease of $31,992.

The decrease is primarily

due to a decrease in RTE program expenses and a decrease in the cost of manufacturing PrintRite 3D units through the aforementioned combination

of lower component costs, engineering redesign and increased manufacturing efficiency, partially offset by increase in the cost of revenues

due to increased sales volume in 2021.

The Company sold 11 PrintRite3D units in 2021 as compared to 6 units in 2020.

Sigma’s operating expenses for fiscal 2021 were $9,571,185 as compared to $5,914,299 for fiscal 2020, a $3,656,886 increase.

fiscal 2021, salaries and benefits costs were $4,286,368 as compared to $2,622,162 for the same period in fiscal 2020.

The $1,664,206

increase is comprised of:

(a) $657,298 related to the hire of 13 additional employees;

(b) $486,168 related to salary increases for existing

(d) increased commissions of $57,580 as a result of increased sales in 2021;

(e) increased taxes and benefits of $244,977;

and (f) increased severance of $50,793.

Partially offsetting these increases was a decrease

in stock appreciation rights expense of $12,355 due to the year-end revaluation of the compensation liability.

compensation for fiscal 2021 was $1,066,455 compared to $596,842 for the same period in fiscal 2020.

This $469,613 increase resulted

primarily from options granted to our new Senior Vice President of Product Management and Strategic Relationships of $264,352, initial

options granted to 13 new employees totaling $56,123, and annual option grants to existing employees totaling $149,138.

fiscal 2021 and 2020, Sigma incurred operations and research and development expenditures of $890,553 and $351,404 respectively.

total expense in 2021, $417,744 related to research and development and $472,809 related to operations expenses.

Of the total expense

in 2020, $126,292 related to research and development and $225,112 related to operations expenses.

The increase of $291,452 in research

and development costs in 2021 is primarily related to:

(a) costs incurred in connection with PrintRite3D version 7.0 of $89,798 and $20,977

for PrintRite3D 8.0;

(b) an increase in CT scans conducted for new development work and a simulation project totaling $87,988;

consulting expense related to our optics redesign of $67,189;

and (d) $25,500 of expenses related to upgrading the date acquisition component

of the PrintRite3D unit (“DAQ”).

Operations expenses in fiscal year 2021 increased $247,698 from 2020, primarily due to:

(a) increased purchases of lab supplies and equipment of $129,617;

(b) write offs of three returned RTE systems with unusable parts of

and (c) write-off of metal powder and obsolete inventory of $111,158.

These increases were partially offset by a decrease in

consulting costs of $27,350 due to the full time hire of a consultant in 2021

investor and public relation fees incurred in fiscal 2021 were $503,823, compared to $408,717 in fiscal 2020.

The $95,106 increase in

the comparative expenditures results primarily from an increase in IR consulting costs of $48,847, and increased tradeshow and conference

expenses of $90,548 based on increased attendance due to reduced COVID restrictions, partially offset by decreased advertising expenses

of $44,316 due to discontinuation of our public relations firm and Network Newswire services.

the fiscal year ended December 31, 2022 (“fiscal 2022”), we generated $630,428 in revenues, as compared to $1,651,765 in the fiscal year ended December 31, 2021 (“fiscal 2021”).

The decrease was due to a decrease in perpetual

license sales of our PrintRite3D® units of $1,141,323 and decreased contract additive manufacturing revenue of $11,189.

Partially offsetting these decreases were an increase in revenues of $31,177 from our subscription-based pricing program, increased

revenues from our legacy Rapid Test and Evaluation (“RTE”) program of $33,000, increased on-site installation and

support revenue of $35,035, an increase in consulting service revenue of $4,500, and an increase in annual maintenance contract

revenue of $27,463.

Our cost of revenue for fiscal 2022 was $349,930, as compared to $559,965 for fiscal 2021, a

decrease of $210,035, or 37.5%.

The decrease was primarily attributable to fewer unit sales in 2022, partially offset by increased

travel costs incurred related to installations from 2021 sales.

fiscal year 2022, our gross margin decreased to 44% from 66% in 2021 due primarily to an increase in the price of certain

PrintRite3D system components as a result of configuration changes, discounted sales to universities and research institutions as members of our AcGovDustrial Network, and

the aforementioned increase in travel costs incurred related to system installations.

operating expenses for fiscal 2022 were $9,029,502 as compared to $9,571,185 for fiscal 2021, a decrease of $541,683, or 5.7%.

decrease was primarily attributable to a decrease in stock-based compensation, a decrease in operating and research and development

costs, partially offset by increases in salary and benefits, office expenses due to a company-wide global conference held in May of

2022, and increased business travel in 2022 as further described below.

and benefits costs were $4,740,437 for fiscal 2022, as compared to $4,286,368 for fiscal 2021, an increase of $454,069, or 10.5%.

increase was comprised of:

(a) $534,963 in employee salary increases and average full-time employee headcount increasing by two;

a $79,289 increase in severance due to the termination of employment of six employees;

and (c) increased taxes and benefits of $174,616.

Partially offsetting these increases were:

(1) a decrease in commissions of $24,815;

(2) a decrease in incentive

bonuses of 215,490;

and (3) a decrease in stock appreciation rights expense of $94,494 due to the revaluation of the compensation liability

as a result of the decrease in our stock price in fiscal 2022.

compensation was $793,251 for fiscal 2022, as compared to $1,066,455 for fiscal 2021, a decrease of $273,204, or 25.6%.

This decrease

was primarily due to fewer stock options granted in fiscal 2022.

incurred operations and research and development costs of $653,194 during fiscal 2022, as compared to $890,553 in fiscal 2021, a decrease

of $237,359, or 26.7%.

The decrease was primarily due to a decrease in operations costs of $224,335 and a decrease in research and development

costs of $13,024.

The decrease in operations expense was due to:

(a) a decrease in charges for inventory obsolescence of $81,544;

equipment upgrades in 2021 in both our manufacturing facility and our 3D metal printer totaling $14,777;

material purchases of $107,936;

and (d) a decrease in purchase of lab supplies of $20,078.

The decrease in research and development costs

was due to expenses associated with a simulation project in 2021 of $97,188, partially offset by an increase in consulting costs of $64,164

in connection with ongoing PrintRite3D software development and $20,000 for research on laser application of PrintRite3D for a new OEM.

incurred investor, public relations, and marketing expenses of $422,645 during fiscal 2022, as compared

to $503,823 during the same period in 2021.

The decrease of $81,178, or 16.1%, was due to a decrease in investor relations

consulting costs of $84,832 resulting from a revaluation of SARs at December 31, 2022 and lower advertising

expenses of $11,301.

Partially offsetting these decreases was an increase in tradeshow expenses of $14,955 as compared to 2021, when COVID-19

travel restrictions precluded attendance at such events.

Organizational

costs for fiscal 2021 were $726,147, compared to

$451,982 for the same period in fiscal 2020.

The increase of $274,165 is primarily attributable to increased directors compensation,

consisting of stock options expense of $298,706 partially offset by lower cash compensation of $22,717.

and professional service fees in fiscal 2021 were $915,530 compared to $676,142 in fiscal 2020.

The increase of $239,388 is primarily

attributable to an increase in recruiting fees of $169,978 related to 9 of our 13 new hires, an increase in IT services fees of $10,814,

and an increase in consulting fees of $64,494 due to the engagement of external HR, accounting, and manufacturing consultants as well

as increased compensation for a consultant to our CEO of $72,000.

These amounts were partially offset by reduced legal fees of $83,669

due to non-recurring expenses incurred in 2020, including expenses related to Nasdaq compliance, our reverse stock split, and an abandoned

fiscal 2021, Sigma’s office expenses were $734,386 compared to $416,580 in the same period of fiscal 2020.

increase in these expenditures resulted primarily from:

(a) increased payroll service fees of $18,314 due to 4 months of free service

(b) increased postage of $45,644 due to RTE returns, shipping PrintRite3D units to trade shows, and expedited shipping of parts

and materials due to increased lead times;

computers for new hires, promotional items, and cleaning, sanitary and safety supplies related to COVID pandemic;

(d) an increase in

dues and subscriptions expense of $50,330 for new customer relationship management, product lifecycle management, and project management

(e) increased travel expenses of $148,507 due to virtually no travel in 2020 as a result of COVID 19 restrictions;

an increase in training and education expense of $15,059 for cable manufacturing certification and employee team building exercises.

operating expenses for fiscal 2021 totaled $353,818, compared to $285,295 for fiscal 2020.

The increase of $68,523 is primarily due to

an increase in insurance premiums, in particular our director’s & officer’s policy premium.

fiscal 2021, our net other income & expense was net income of $1,094,780, compared to net income of $498,629 in fiscal 2020.

The increase of $596,151 was primarily due to a gain on the derivative liability of $1,092,441, as compared to the 2020 State

of New Mexico’s high wage tax credit incentive program of $151,656, as well as the Payroll Protection Plan loan forgiveness of

net loss before preferred dividends for fiscal 2021 increased by $2,184,466 and totaled $7,384,605, as compared to a net

loss before preferred dividends of $5,200,139 for fiscal 2020.

Net loss applicable to common stockholders for fiscal 2021 was $7,488,172,

as compared to $7,009,414 for fiscal 2020.

The 2021 net operating loss component of the overall loss being $2,768,405 higher than in

2020 and the other income component being a $596,151 higher.

costs for fiscal 2022 were $311,606, compared to $726,147 for fiscal 2021.

The decrease of $414,541, or 57%, was primarily

attributable to:

(a) a decrease in non-employee director fees of $369,830, mostly as a result of a decrease in stock options issued;

and (b) a decrease in stockholder services of $43,832, primarily due to expenses incurred in 2021 in connection with a special

stockholders meeting.

and professional fees in fiscal 2022 were $725,285, as compared to $915,530 during fiscal 2021, a decrease of $190,245, or 20.8%.

This decrease was a result of a decrease in legal expenses of $25,757 due to one less stockholder meeting and fewer regulatory

filings in fiscal 2022, a decrease in recruiting expenses of $109,061 related to new hires in 2021, a decrease in consulting

expenses of $38,915 and a decrease in accounting fees of $16,089 due to the fulltime hire of former outside accounting

expenses for fiscal 2022 were $914,802, as compared to $734,386 for fiscal 2021, an increase of $180,416, or 24.6%.

The increase resulted

(a) an increase in travel and entertainment of $82,241 related to increased travel as compared to fiscal 2021 as a result of the

easing of COVID-19 related travel restrictions;

(b) an increase in expenses of $109,435 related to a Company-wide, global conference

held in May of 2022;

(d) an increase in dues and subscriptions

of $38,847 for new customer relationship management, product lifecycle management, and project management software;

and (e) an increase

in utilities expenses of $2,459.

Partially offsetting these increases were decreases in postage and shipping of $47,580, and decreases

in office supplies of $11,998 and education expenses of $3,723.

operating expenses were $352,115 for fiscal 2022, as compared to $353,818 for fiscal 2021, a decrease of $1,703.

The decrease was

(a) a decrease in SEC filing fees of $6,102;

(b) a decrease in licensing fees of $2,166;

and (c) a decrease in bank fees,

primarily credit card transaction fees of $9,325.

These decreases were partially offset by an increase in insurance policy premiums

for fiscal 2022 of $15,890.

In fiscal 2022, we

realized net other income of $56,580, as compared to $1,094,780 in fiscal 2021.

The decrease of $1,038,200, or 94.8%, was due to a

gain in fiscal 2021 of $1,092,441 from the revaluation of the derivative liability related to our private placement of warrants, a

foreign currency exchange loss of $15,927 in fiscal 2022 due to the strengthening of the US dollar against the Euro, and a decrease

in interest income of $6,460.

Partially offsetting these decreases was an increase of $76,628 in New Mexico state incentives in fiscal 2022.

net loss before preferred dividends for fiscal 2022 increased by $1,307,819 and totaled $8,692,424, as compared to a net loss before

preferred dividends of $7,384,605 for fiscal 2021.

Net loss applicable to common stockholders for fiscal 2022 was $8,749,304, as

compared to $7,488,172 for fiscal 2021.

The fiscal 2022 net operating loss component of the overall loss was $269,619 higher than in

fiscal 2021 and the other income component was $1,038,200 lower.

Preferred stock dividends were $56,880 in fiscal 2022 and $103,567

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and Capital Resources

to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt

about our ability to continue as a going concern for 12 months from the date of the filing of this Annual Report, and the report of

our registered independent public accounting firm on our financial statements as of and for the year ended December 31, 2022

included in Item 15 of this Annual Report contains a going concern qualification.

of December 31, 2022, we had $2,845,931 in cash and working capital of $3,644,522, as compared to $11,447,047 in cash and working capital

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

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

through 2022.

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

than we expect.

currently have no arrangement to obtain any additional financing.

We have taken several steps to conserve our cash, including

furloughing non-essential employees, reducing or eliminating certain marketing and advertising programs, limiting employee travel,

and reducing investor relations expenses and certain consulting expenses.

Our existing cash on hand and anticipated revenues are sufficient to fund our

remaining anticipated operating costs and capital expenditure requirements only through May 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, or extend such resources longer than we expect.

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

9 unchanged sentences

stock), and from warrant exercises.

In 2022, we did not raise any funds.

In January 2021, the Company closed a public offering of 1,711,783

1 unchanged sentence

and commissions and other offering expenses payable by the Company.

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

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.

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 March 2021, the Company closed a public offering of 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.

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.

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

1 unchanged sentence

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

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

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

affect our business operations.

There is also significant uncertainty from the affect that the novel coronavirus may have on the availability

and type of financing.

To the extent that funds are not available to us, we may be required to delay, limit, or terminate our business

operations and lose our NASDAQ listing.

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

from sales of our PrintRite 3D® 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) and through the use of proceeds from sales

of our securities and potential exercises of our outstanding warrants.

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

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

that could adversely affect our business and operations.

To the extent that funds are not available to us, we may be required to

delay, limit, or terminate our business and operations and lose our NASDAQ listing.

we expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology, together with transitioning to a

subscription-based, software-only product offering will enable us to further commercialize this technology into the AM metal market

in 2023, we will be unable to do so without additional funding.

Should we be able to secure such funding, we plan to seek to

continue funding our development activities and operating expenses by licensing our PrintRite3D® systems and supporting field

services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning our areas of expertise

(materials and manufacturing quality assurance and process control technologies) and through the use of proceeds from sales of our

securities and potential exercises of our outstanding warrants.

Cash Used in Operating Activities

Net cash used in operating activities

in fiscal 2021 increased to $6,298,959 from $4,809,868 in fiscal 2020.

This increase was primarily attributable

(1) an increase in our net loss before preferred dividends of $2,184,466;

(2) the gain on the derivative liability of $1,092,441;

(3) a decrease in depreciation expense of $11,070;

(4) a decrease in current and long-term prepaid assets of 132,534;

and (5) a decrease

in deferred payroll taxes under the CARES Act of $37,728 due to repayment of 50% of the total deferral in December 2021.

Partially offsetting

these increases were:

(1) higher equity-based compensation expenses of $828,623 due to:

(a) increased options and common share grants

awarded to employees of $469,613;

(b) increased stock options granted to consultants in lieu of cash of $60,308, and (c) increased equity

based compensation for directors of $298,702;

(2) a decrease in accounts receivable of $195,392 due to increased cash collections from

higher sales volume;

(3) a decrease in inventory in 2021 from 2020 of $10,503;

(4) an increase in accounts payable and other accrued

expenses of $802,242 primarily due to (a) $196,071 of increased year end compensation accruals;

(b) an increase in SAR’s liability

(d) additional professional services fee accruals of $35,000;

(e) approximately

$400,000 of payments made in fiscal 2020 related to fiscal 2019 payables following closing of our January and April 2020

and (5) an increase in deferred revenue of $132,388

fiscal 2022, net cash used in operating activities was $8,212,154, which was the result of a net loss of $8,692,424 before preferred

dividends and the use of cash for working capital of $543,280, partially offset by non-cash expenses of $1,023,550 related to

depreciation and amortization of $116,167, and stock-based compensation of $907,383.

Changes in working capital were driven by an increase in inventory of $240,863, a decrease in deferred revenue of $28,782, and a decrease in accounts payable and

accrued expenses of $323,259, partially offset by a decrease in accounts receivable of $40,572.

The increase in inventory was

primarily due to stocking of certain components of our PrintRite3D systems with long order lead times, and an increase in contract

assets resulting from PrintRite3D systems on our lease program.

The decrease in accounts payable and accrued expenses was primarily

due to a decrease in accrued bonuses in 2022.

fiscal 2021, net cash used in operating activities was $6,298,959, driven by a net loss of $7,384,605 before preferred dividends,

partially offset by non-cash expenses of $769,787 and cash generated from working capital of $315,859.

Non-cash expenses were

comprised of:

(1) depreciation and amortization of $94,105;

and (2) stock-based compensation of $1,768,123;

partially offset by a gain on derivative liability of $1,092,441.

Cash generated from working capital was driven by an increase in accounts payable and

accrued expenses of $373,563 primarily as a result of increased accrued bonuses in 2021, and an increase in deferred revenue of

$70,898, partially offset by increases in accounts receivable of $80,630 and inventory of $50,429.

The increase in accounts

receivable was due to increased sales, and the increase in inventory was primarily due to stocking of certain components of our

PrintRite3D systems with long order lead times.

Cash Used by Investing Activities

cash used by investing activities during fiscal 2021 was $359,750, which compares to cash used by investing activities during 2020 totaling

The increase was primarily due to increased purchases of fixed assets of $94,448, the most significant of which

was the purchase of a new laser for our 3D metal printer of $63,000, partially offset by lower costs incurred for patents of $33,557.

cash used by investing activities in fiscal 2022 was $388,962, as compared to $359,750 in fiscal 2021.

The increase was due to

increased patent costs of $47,112, partially offset by a decrease in purchases of property, plant and equipment of

Cash Provided by Financing Activities

provided by financing activities during fiscal 2021 increased to $14,404,942 from $8,722,122 during the same period in 2020, an increase

of $5,682,820 primarily as a result of higher net proceeds from our 2021 financings as compared to 2020 of $10,489,160, partially offset

by lower proceeds from exercise of warrants in 2021 of $4,856,340.

cash was provided by financing activities in fiscal 2022.

In fiscal 2021, cash provided by financing activities was $14,404,942,

consisting of net proceeds of $13,268,932 from financings and $1,136,010 in proceeds from the exercise of warrants.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

applicable to a “smaller reporting company.”

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial

statements included in Item 15 are incorporated herein by reference.

financial statements included in Item 15 are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis