10-K 1 form10-k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020

or

[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______

Commission file number: 001-38015

SIGMA LABS, INC.

(Exact name of registrant as specified in its charter)

Nevada |  | 27-1865814
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification Number)

3900 Paseo del Sol

Santa Fe, New Mexico 87507

(Address of principal executive offices)

(505) 438-2576

(Registrant’s telephone number, including area code):

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.001 per share |  | SGLB |  | The NASDAQ Stock Market LLC
Warrants to Purchase Common Stock, par value $0.001 per share |  | SGLBW |  | The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X].

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X].

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X].No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] | Accelerated filer [ ]
Non-accelerated filer [X] | Smaller reporting company [X]
| Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes [ ] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] . No [X].

Based on the closing price of the registrant’s common stock as reported on The NASDAQ Capital Market, the aggregate market value of the Registrant’s common stock held by non-affiliates on June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $10,385,980. Shares of common stock held by directors and executive officers and any ten percent or greater stockholders and their respective affiliates have been excluded from this calculation, because such stockholders may be deemed to be “affiliates” of the registrant. This is not necessarily determinative of affiliate status for other purposes. The number of outstanding shares of the registrant’s common stock as of March 23, 2021 was 8,302,098 after giving effect to the 1-for-10 reverse stock split of the outstanding shares of the registrant’s common stock effected on February 27, 2020.

Documents incorporated by reference: None

SIGMA LABS, INC.

FORM 10-K — FISCAL YEAR ENDED DECEMBER 31, 2020

INDEX

PART I |
|  | ITEM 1. |  | BUSINESS | 4
|  | ITEM 1A. |  | RISK FACTORS | 9
|  | ITEM 1B. |  | UNRESOLVED STAFF COMMENTS | 18
|  | ITEM 2. |  | PROPERTIES | 18
|  | ITEM 3. |  | LEGAL PROCEEDINGS | 18
|  | ITEM 4. |  | MINE SAFETY DISCLOSURES | 18
PART II
|  | ITEM 5. |  | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES | 18
|  | ITEM 6. |  | SELECTED FINANCIAL DATA | 19
|  | ITEM 7. |  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19
|  | ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 22
|  | ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 22
|  | ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 22
|  | ITEM 9A. |  | CONTROLS AND PROCEDURES | 22
|  | ITEM 9B. |  | OTHER INFORMATION | 23
PART III
|  | ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 23
|  | ITEM 11. |  | EXECUTIVE COMPENSATION | 31
|  | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 44
|  | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 45
|  | ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES | 46
PART IV
|  | ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 46
|  | ITEM 16. |  | FORM 10-K SUMMARY | 49
SIGNATURES |  |  | 50

| 2 |

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Report, including any documents which may be incorporated by reference into this Report, contains “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “Forward-Looking Statements” for purposes of these provisions, including, but not limited to, statements regarding our expectations about development and commercialization of our technology, any projections of revenues or statements regarding our anticipated revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All Forward-Looking Statements included in this document are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any Forward-Looking Statement. In some cases, Forward-Looking Statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the Forward-Looking Statements contained herein are reasonable, there can be no assurance that such expectations or any of the Forward-Looking Statements will prove to be correct, and actual results could differ materially from those projected or assumed in the Forward-Looking Statements. Future financial condition and results of operations, as well as any Forward-Looking Statements are subject to inherent risks and uncertainties, including any other factors referred to in our press releases and reports filed with the Securities and Exchange Commission (“SEC”). All subsequent Forward-Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are described under “Risk Factors” and elsewhere in this report.

Introductory Comment

Throughout this Annual Report on Form 10-K, unless otherwise indicated or the context otherwise requires, references to the “Company,” “Sigma,” “Sigma Labs,” “we,” “us” and “our” refer to Sigma Labs, Inc. On February 27, 2020, we effected a one-for-ten reverse stock split of the outstanding shares of our common stock. All common stock and per share information (other than par value) contained in this Annual Report on Form 10-K have been adjusted to reflect the foregoing reverse stock split.

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PART I

ITEM 1. BUSINESS.

The Company:

Sigma is an 11-year-old software company that was founded by scientist-engineers composed of physicists and metallurgists then working at Los Alamos National Labs for the entrepreneurial purpose of developing sophisticated metallurgical products. Since 2016, the Company’s focus has been on solving the complex and challenging problem of how to best assure the high quality of metal parts manufactured in laser powder bed additive manufacturing machines. Sigma and many others believe that until this problem was solved, 3D manufacturing of metal parts would not be scalable enough to grow past prototyping and mature into a major industry enjoying high quality yields and cost-efficient production runs. The solution that Sigma developed to solve this problem is In-Process-Quality-Assurance (“IPQA®”) software known as PrintRite3D®.

In 2018, the Sigma team enhanced and added user features to its PrintRite3D® technology. In 2019, the Company began to productize and test PrintRite3D® on various 3D metal printers at customers’ sites through the Company’s Rapid Test and Evaluation (“RTE”) program. Upon receiving favorable responses from the various RTEs, in 2020 the Company began to aggressively market PrintRite3D®. However, 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 revenue. Despite the pandemic, the Company moved forward with its plan to market PrintRite3D® to the following industry segments: (1) global manufacturing companies with Additive Manufacturing (“AM”) initiatives; (2) 3D printer Original Equipment Manufacturers (“OEMs”) for purchases of licenses and generating fees and royalties thereafter; (3) additive manufacturing software venders for alliances and licenses for co-sales; and (4) research foundations, standards organizations and universities, all in service of Sigma’s potential for setting the industry standard of measurement by providing data and analytics as a metrics-based quality standard of metal quality for all 3D laser powder bed manufactured parts, notwithstanding the design, metal, or brand of equipment upon which parts are manufactured.

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Additive Metal Manufacturing and the role and need for Sigma’s technology:

Additive Manufacturing, or 3D printing, has been among the most heavily explored manufacturing innovations in the history of modern manufacturing. The use of 3D printing technology dates back to the 1980s for polymer applications, but the ability to print functional parts from metal alloys has spurred significant interest and investment into AM over recent years. AM is now reshaping the product design process, entire supply chains, and the vast landscape of manufacturing. Engineers are embracing new design freedoms to realize valuable product performance improvements and cost efficiencies with lighter weight, better thermal management capability, better fluid mixing, customization, and/or the ability to make different structures and textures that yield better part integration.

Several significant hurdles still prevent the wider adoption of additive technologies. The lack of quality, consistency and standards are most often cited. The Company believes that the lack of technology such as PrintRite3D®, could be the last sizable barrier to the widespread industrialization of 3D metal printing. Additionally, many believe that the disruption to complex and rigid supply chains caused by COVID-19 exposed the country’s vulnerability to shortages in times of crisis. It appears that many manufacturers are devising strategies to be able to be more agile, increase their ability to manufacture mission critical parts on demand, with more customization, and closer to where the end part will be needed.

We anticipate that the enterprise adoption of the technology will accelerate in 2021, evolving over time as follows:

| ● | Stage 1 – International research & development organizations and universities will establish centers of excellence for Advanced Manufacturing and be a major resource for enterprises seeking to adopt best practices for AM.
| ● | Stage 2 - Enterprises will start with their own R&D initiatives and select a 3D printer vendor, or vendors, that meets their requirements. During this time, they will focus on experimenting with different metal powder alloys, part structures, design guidelines, and in-process quality metrics.
| ● | Stage 3 – Once R&D is complete, enterprises will select one part to test and move into production, improving the process from design to production and confirming the economics and quality of the process.
| ● | Stage 4 – International standards will be established by organizations such as NIST, ISO, ATSM, etc., ensuring the consistency of components and processes. These standards will become increasingly important as the industry moves to full industrialization.
| ● | Stage 5 – As the adoption of AM accelerates, enterprises will utilize multiple 3D printers from multiple manufacturers due to printer innovations and advancements, varying production requirements, divisional preferences, etc.
| ● | Stage 6 – Independent standards-based, IPQA systems, such as PrintRite3D®, will be required to assure consistent quality in heterogeneous factories.

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PrintRite3D® Technology and Product Family

PrintRite3D® is an interactive in-process quality assurance system that combines inspection, feedback, data collection and critical analysis. It is a platform-independent solution that can be installed as a retrofit to an existing 3D printer or requested as a factory option from select 3D printer OEMs. PrintRite3D® provides a high-fidelity, accurate system that can confidently scale to multi-laser 3D metal printers. The PrintRite3D® system discovers potential anomalies and incorporates machine learning in conjunction with developed metrics to map those metrics to the post-process data. This provides the ability to reduce post-production testing and costs, while creating a certification framework that serves the needs of end-users, printer manufacturers, and standards organizations.

The Company currently offers three versions of PrintRite3D® for Laser Bed Fusion Systems: (1) PrintRite3D® Lite which has a smaller footprint and is geared towards single-laser machines for Research and Development, or small production lots. (2) PrintRite3D® Pro, for single, dual and quad laser machines and is suited well for environments with less than 10 machines, and (3) PrintRite3D® Enterprise for plant-wide networks. PrintRite3D® Lite expands the Company’s addressable market to mid-range 3D printer manufacturers for potential OEM opportunities.

The Company announced in late 2020 PrintRite3D® for Direct Energy Deposition (“DED”), opening up another segment of the market for Sigma to sell and distribute its technology. DED is based on a laser process in which a laser beam generates a melt pool on a substrate. An additional metallic powder material is transported to the melt pool, where it becomes molten. Due to a feed movement, the molten material cools down and welding tracks are formed. By placing weld tracks side-by-side and on top of one another, a build-up is obtained. Three-dimensional structures can then be generated by depositing one layer or track at the top of another previously welded layer or track.

Distribution Methods

Sigma Labs employs a multi-channel distribution model for its IPQA products including a direct sales force, value added resellers (VARs) and 3D printer Original Equipment Manufacturers (OEMs). In 2020, the majority of the Company’s revenue was generated by direct sales in North America and Europe. VARs are currently used in Japan and India. The Company plans to extend its VAR channel outside of North America and Europe. In 2020 the Company moved aggressively to establish and extend relationships with 3D printer OEMs and expects that the percentage of the Company’s revenue coming from OEMs will increase in 2021 and beyond.

The Company markets its products through webinars, email and social media campaigns, and participation, both in person and virtually, in industry events and tradeshows. In addition, the Company collaborates with international standards organizations in the establishment of standards for AM.

Sources and Availability of Parts and Materials

We have important relationships with several suppliers for critical components of our PrintRite3D® systems, in particular optics and data acquisition components, and development of our user interface. To-date, we have not experienced shortages of components, however, in some cases COVID-19 has resulted in increased lead times for certain parts. We manage the risk of component shortages by sourcing backup suppliers, and in the case of our user interface, hiring engineers in-house to support the ongoing development and maintenance.

Agreements with Original Equipment Manufacturers (“OEMs”)

The Company entered into distribution agreements with two international 3D printer OEMs. The Company supports the OEMs with joint marketing programs and field sales and technical support personnel to assist in the sale of its technology. It is the Company’s intent to continue to build the OEM channel through distribution relationships with other 3D printer OEMs in the future.

Competition and Sigma’s Intellectual Property Safeguards

PrintRite3D® is a third-party, agnostic In-Process Quality Assurance system designed to provide a consistent, standards-based measurement and prediction of quality across a heterogeneous collection of 3D printers. Competition is primarily from the printer OEMs who offer their own monitoring system, usually as a separately priced option to its printers. Sigma believes that the future of AM will consist of factories with various generations of printers from various manufacturers. The primary reasons that global manufacturers will have machines from various vendors is that certain machines and technologies are better suited for different applications than others. Additionally, as the industry progresses, innovation will accelerate, and new leaders will emerge. Finally, many believe that there will be a consolidation of 3D metal manufacturers and the number of vendors will decrease from approximately 50 to a much small number over the next decade. Although standards for monitoring are slowly being set by various international standards organizations, it is highly unlikely that printer OEMs will modify their monitoring systems to work with other OEMs machines. Therefore, we believe that the only way to produce parts with a consistent level of quality is with a third-party, agnostic, standards based IPQA system, such as PrintRite3D®. To the Company’s knowledge, there is no competitor currently offering an IPQA system with similar functionality which has been validated to operate across as many 3D metal printers as PrintRite3D®.

Sigma began its investigation and research into optical and thermal data collection and measurement for quality assurance and intervention approximately 7 years ago and began to develop its intellectual property protection at that time. The international IP law firm, Kilpatrick Townsend, has advised the Company on building a patent portfolio, trade secrets, trademarks, etc. and filed and prosecuted patents as the Company has grown its body of intellectual property.

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Sigma Labs, Inc. Patent Portfolio
Jurisdiction |  | Granted |  | In Process |  | Total
US |  | 13 |  | 14 |  | 27
PCT |  | - |  | 1 |  | 1
EP |  | - |  | 4 |  | 4
Germany |  | - |  | 6 |  | 6
China |  | 1 |  | 3 |  | 4
Japan |  | - |  | 1 |  | 1
Korea |  | - |  | 1 |  | 1
Total |  | 14 |  | 30 |  | 44

Based upon the evidence of competitors’ claims received by Sigma to-date, it appears to us that Sigma’s solution to the quality problems of 3D metal printing is a significantly different technological approach than that of our principal known competition. It continues to appear to the Company that the intellectual property protection of PrintRite3D®’s acuity, meaningful metrics of thermal data correlated to part quality, and usability of its software accord Sigma freedom to operate with its technology and will be a significant barrier to entry to competitors attempts to pursue the technology path traveled by Sigma.

Intellectual Property

We regard our patents, trademarks, domain names, trade secrets, know-how, and other intellectual property as critical to our success. We rely on a combination of patent, trademark, trade secret, other intellectual property law, confidentiality procedures, and contractual provisions with employees, partners, and others to protect the technology and other proprietary rights, information and know-how that comprise the core of our business. The chart below summarizes our issued patents. We are currently prosecuting thirty foreign and U.S. patent applications related to our IPQA® technology and rapid qualification of additive manufacturing for metal parts. There is no guarantee that the patent applications we have submitted will issue or that if issued, they will offer adequate protection under applicable law.

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Title |  | Type |  | Patent No. or Application No. |  |  | Expiration Date
Controlled Weld Pool Volume Control of Welding Processes |  | US Utility |  |  | 8,354,608 |  |  | 3/16/31
Structurally Sound Reactive Materials |  | US Utility |  |  | 8,372,224 |  |  | 10/15/30
Composite Projectile |  | US Utility |  |  | 8,359,979 |  |  | 3/21/27
Methods and Systems for Monitoring Additive Manufacturing Processes |  | US Utility |  |  | 9,999,924 |  |  | 5/11/36
Systems and Methods for Additive Manufacturing Operations |  | US Utility |  |  | 10,207,489 |  |  | 6/20/37
Material Qualification System and Methodology |  | US Utility |  |  | 10,226,817 |  |  | 4/26/37
Material Qualification System and Methodology |  | China Utility |  |  | ZL201680010333.X |  |  | 1/13/26
Optical Manufacturing Process Sensing and Status Indication System |  | US Utility |  |  | 10,317,294 |  |  | 5/2/35
Systems and Methods for Measuring Radiated Thermal Energy During an Additive Manufacturing Operation |  | US Utility |  |  | 10,479,020 |  |  | 8/1/38
Optical Manufacturing Process Sensing and Status Indication System |  | US Utility |  |  | 10,520,372 |  |  | 3/25/35
Systems and Methods for Additive Manufacturing Operations |  | US Utility |  |  | 10,717,264 |  |  | 12/28/38
Systems and Methods for Measuring Radiated Thermal Energy During an Additive Manufacturing Operation |  | US Utility |  |  | 10,639,745 |  |  | 2/21/39
Photodetector Array for Additive Manufacturing Operations |  | US Utility |  |  | 10,786,850 |  |  | 2/21/39
Multi-Sensor Quality Inference and Control for Additive Manufacturing Processes |  | US Utility |  |  | 10,786,948 |  |  | 4/24/37

Government Regulation

Any contracts that we enter into with governmental agencies will be subject to a variety of federal, state and local laws and regulations. These regulations are aimed at preventing the inadvertent disclosure of munitions related data or the export of technical knowledge to foreign countries. The work we do with governmental units may also be subject to laws respecting the confidentiality of any classified or national security information we receive during the course of our activities under any government contract.

Additionally, with respect to our work with government agencies, our sales are driven by pricing based on costs incurred to produce products or perform services under contracts with the U.S. government. U.S. government contracts generally are subject to Federal Acquisition Regulations (“FAR”), agency-specific regulations that implement or supplement FAR, such as the DoD’s Defense Federal Acquisition Regulations and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, contract termination and adjustment, and audit requirements. A contractor’s failure to comply with these regulations and requirements could result in reductions of the value of contracts, contract modifications or termination, and the assessment of penalties and fines and could lead to suspension or debarment from government contracting or subcontracting for a period of time. In addition, government contractors are also subject to routine audits and investigations by U.S. government agencies such as the Defense Contract Audit Agency (“DCAA”). These agencies review a contractor’s performance, cost structure, and compliance with applicable laws, regulations, and standards. The DCAA also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation, and information systems.

As of March 24, 2021, we do not have any active contracts with government agencies. During fiscal year 2020, we did not enter into any contracts with government agencies, nor do we seek to do so in the future.

Employees and Human Capital Resources

As of December 31, 2020, we had 20 full-time employees. We continue to search for additional, qualified personnel, to support our expanding operations in the area of IPQA® for AM. We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees, as well as highly qualified management and technical personnel. Employee engagement is important to us and we focus on continuously enhancing our corporate culture.

Properties

We lease approximately 3,700 square feet of space at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, including 1,772 square feet of office space at units, C-14, C-15, C-16, C-17, C-20, C-21 and D-34 for a total monthly rent expense of approximately $3,840 under the lease, and 1,928 square feet of warehouse / production space at units E-38, E-40 and E-42, for a total monthly rent expense of approximately $2,275 under the lease, which expire on July 31, 2021.

We believe that our facilities are suitable for our current needs. We currently intend to renew such leases, but we are evaluating the need for a larger space as we grow.

Corporate Information

Our principal executive offices are located at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, and our current telephone number at that address is (505) 438-2576. Our website address is www.sigmalabsinc.com. The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the SEC. The Company’s website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Annual Report on Form 10-K.

Recent Developments

On March 15, 2021, we announced that we were awarded a contract for an initial system of our PrintRite3D in-process quality assurance solution by Lockheed Martin Space Additive Design & Manufacturing Center based in Sunnyvale, California. The Additive Design & Manufacturing Center supports the entire Space portfolio and integrates key materials research and manufacturing processes to streamline the affordable delivery of satellite components. As a part of this initial contract, the Lockheed Martin team will assess the viability and performance of PrintRite3D technology for the Space division in support of a variety of defense and civil space programs.

On January 12, 2021, the Company closed a public offering of equity securities in which it issued 1,711,783 shares of common stock (including the exercise in full of the underwriters’ over-allotment option of 223,276 shares). Net proceeds to the Company after deducting offering expenses were approximately $4,532,444.

On December 18, 2020, we announced that we were selected by DMG MORI as the preferred melt pool monitoring system for their LASERTEC SLM machines. Engineering teams from both companies worked extensively to test the integrated solution to ensure that it meets the demanding needs of industrial manufacturers utilizing DMG MORI’s family of metal 3D printers. DMG MORI will be providing an interface with its printers to accommodate our optics, ensuring that the systems are PrintRite3D® ready.

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We incorporated as Messidor Limited in Nevada on December 23, 1985 and changed our name to Framewaves Inc. in 2001. On September 27, 2010, we changed our name from Framewaves Inc. to Sigma Labs, Inc.

ITEM 1A. RISK FACTORS.

Investing in our securities involves a high degree of risk. Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in statements made by us or on our behalf in filings with the SEC, press releases or communications with investors and others. Any or all of our statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The factors mentioned in the discussion below will be important in determining future results. Consequently, actual future results may vary materially from those anticipated in this annual report or our other public statements. You should carefully consider the risks described below, as well as the other information in this annual report, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of any of the events or developments described below could harm our financial condition, results of operations, business and prospects. In such an event, the market price of our securities could decline, and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may have similar adverse effects on us.

Risks Related to Our Business

We are not currently profitable and may never become profitable.

We have incurred losses in every reporting period since we commenced business operations in 2010 and expect to continue to incur significant losses for the foreseeable future. Our net loss applicable to common stockholders for the years ended December 31, 2020 and 2019 were $7,009,414, and $6,320,849, respectively. As of December 31, 2020, our accumulated deficit was $33,105,008. There is no assurance that any revenues we generate will be sufficient for us to become profitable or to maintain profitability. Our revenues for the years ended December 31, 2020 and December 31, 2019 were $807,488 and $402,446, respectively, and our operating expenses for those periods were $5,914,299 and $6,211,830, respectively. Our current revenues are not sufficient to fund our operations. We cannot predict when, if ever, we might achieve profitability and we are not certain that we will be able to sustain profitability, if achieved. If we fail to achieve or maintain profitability, the market price of our securities is likely to be adversely affected.

We will require additional financing to continue our operations, and there is no assurance that we will be able to obtain such financing on acceptable terms, or at all.

In January 2021, we completed a public offering of shares of our Common Stock resulting in net cash proceeds to us of approximately $4,532,444. We will need to raise additional amounts to fund our operations, maintain compliance with the NASDAQ listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous 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 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.

Our operating history makes evaluation of our business difficult.

We are continuing to develop our technologies and to implement our business plan. Our ability to implement a successful business plan remains unproven, and there is no assurance that we will ever generate sufficient revenues to sustain our business. Our operating history, together with the other risks discussed in this “Risk Factors” section, may make it difficult for you to evaluate our business in connection with making a decision about whether to invest in our securities.

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We face the risks normally associated with a new business.

We face all of the risks inherent in a new business, including the expenses, difficulties, complications and delays frequently encountered in connection with conducting new operations and efforts to develop and commercialize technologies. These uncertainties include developing our technologies and our brand name, raising capital to meet our working capital requirements and developing a customer base, among others. If we are not effective in addressing these risks, we will not be able to operate profitably in the future, and we may not have adequate working capital to meet our obligations as they become due.

Our business may be adversely affected by a global economic downturn.

Any economic downturn generally could cause a drop in government spending and business investment, which could have a material adverse effect on our business. Further, as a result of the current global economic situation, there may be a disruption or delay in performance by our third-party contractors and suppliers. If such third parties are unable to adequately satisfy their contractual commitments to us in a timely manner, our business could be adversely affected.

We could incur significant damages if we are unable to adequately discharge our contractual obligations.

Our failure to comply with contract requirements or to meet our clients’ performance expectations on a contract could materially and adversely affect our financial performance and our reputation. This, in turn, would impact our ability to compete for new clients and contracts. Our failure to meet contractual obligations could also result in substantial actual and consequential damages under the terms of such contracts. In addition, some of our contracts require us to indemnify clients for our failure to meet performance standards and/or contain liquidated damages provisions and financial penalties related to performance failures. Although we do have liability insurance, the policy limits may not be adequate to provide protection against all such potential liabilities.

Some of our clients may terminate our contracts prior to completion, which could result in revenue shortfalls and reduce profitability or cause losses on contracts.

Our small number of our contracts with clients contain initial or base periods of one or more years, as well as option periods typically covering more than one-half of the contract’s initial duration. However, such clients are under no obligation to exercise the option to extend the contract term. The profitability of some of our contracts could be adversely impacted if such options are not exercised and the contract term is not extended accordingly. Additionally, our contracts contain provisions permitting a client to terminate the contract on short notice, with or without cause. The unexpected termination of significant contracts could result in significant revenue shortfalls. If revenue shortfalls occur and are not offset by corresponding reductions in expenses, our business could be adversely affected. We cannot anticipate if, when or to what extent a client might terminate its contracts with us.

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We may not be able to effectively control and manage our growth, which would negatively impact our operations.

We have operated our current line of business for approximately ten years, and we expect to grow in the near future as our business develops and becomes further established. If our business grows as we anticipate, it will be necessary for us to manage our expansion in an orderly fashion. Any significant growth in our activities or in the market for our services will require extension of our managerial, operational, marketing and other resources. Future growth will also impose significant additional responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees. Our failure to manage growth effectively may lead to operational inefficiencies that will have a negative effect on our profitability. Additionally, if our growth comes at the expense of providing quality service and generating reasonable profits, our ability to successfully bid for contracts and our profitability will be adversely affected. We cannot assure investors that we will be able to effectively manage any future growth we may experience.

Failure to obtain adequate insurance coverage could put us at risk for uninsured losses.

Some or all of our customers may require insurance as a requirement to conduct business with us. Although we currently have liability insurance, we may be unable to obtain or maintain adequate liability insurance on acceptable terms, if at all, and there is a risk that our insurance will not provide adequate coverage against our potential losses. Additionally, there are certain types of losses that may not be insurable at a cost that we can afford, and insurance may not be available at any cost with respect to certain losses. Claims or losses in excess of any insurance coverage we may obtain, or the lack of insurance coverage, could put us at risk of loss for any uninsured loss, which would have a material adverse effect on our business and financial condition.

We are dependent on our President and Chief Executive Officer and other key personnel, and the loss of any of these individuals could harm our business.

We depend on Mark Ruport, our President and Chief Executive Officer, as well as key scientific and other personnel. The loss of any of these individuals could harm our business and significantly delay or prevent the achievement of our business objectives. In addition, our delivery of services will be labor-intensive: when we are awarded a contract, we may need to quickly hire project leaders and project management personnel. The additional staff may also create a concurrent demand for increased administrative personnel. The success of our business will require that we attract, develop, motivate and retain:

| ● | experienced and innovative executive officers;
| ● | senior managers who have successfully managed or designed programs in the public sector; and
| ● | information technology professionals who have designed or implemented complex information technology projects.

Innovative, experienced and technically proficient individuals are in great demand and are likely to remain a limited resource. We may be unable to continue to attract and retain desirable executive officers, senior managers, and technology professionals. Our inability to hire sufficient personnel on a timely basis or the loss of significant numbers of executive officers and senior managers could adversely affect our business.

We may be dependent on cash flow and payments from customers in order to meet our expense obligations.

A number of factors may cause our revenues, cash flow and operating results to vary from quarter to quarter, including the following:

| ● | the progression of contracts;

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| ● | the commencement, completion or termination of contracts during any particular quarter;
| ● | the schedules of government agencies and large multinational corporations for awarding contracts;
| ● | the failure of our customers to fulfill their obligations under contracts with us; and
| ● | the term of awarded contracts and potential acquisitions.

Changes in the volume of activity and the number of contracts commenced, completed or terminated during any quarter may cause significant variations in our cash flow from operations because a significant portion of our expenses are fixed. Fixed expenses include, rent, payroll, insurance, employee benefits, taxes and other administrative costs and overhead. Moreover, we expect to incur significant operating expenses during the start-up and early stages of large contracts and typically do not receive corresponding payments in that same quarter.

We may make acquisitions in the future that we are unable to effectively manage given our limited resources.

We may choose to grow our business by acquiring other entities. We may be unable to manage businesses that we have acquired or to integrate them successfully without incurring substantial expenses, delays or other problems that could negatively impact our results of operations. Moreover, business combinations involve additional risks, including:

| ● | diversion of management’s attention;
| ● | loss of key personnel;
| ● | our becoming significantly leveraged as a result of the incurrence of debt to finance an acquisition;
| ● | assumption of unanticipated legal or financial liabilities;
| ● | unanticipated operating, accounting or management difficulties in connection with the acquired entities;
| ● | amortization of acquired intangible assets, including goodwill; and
| ● | dilution to existing stockholders and our earnings per share.

Also, client dissatisfaction or performance problems with an acquired firm could materially and adversely affect our reputation as a whole. Further, the acquired businesses may not achieve the revenues and earnings that we anticipated.

We may be unable to develop or commercialize new and rapidly evolving technologies.

Many of our activities involve developing products or processes that are based upon new, rapidly evolving technologies. The ability to commercialize or further develop these technologies could fail for a variety of reasons, both within and outside of our control.

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We may be unable to protect our intellectual property rights.

Our success in part depends on the ability to protect our intellectual property and proprietary technology. To do so, we will be required to prosecute patent applications and maintain patents, obtain new patents and pursue trade secret and other intellectual property protection. We filed forty-four foreign and U.S. patent applications pertaining to our IPQA® technology and rapid qualification of additive manufacturing for metal parts. We have been awarded thirteen U.S. patents and one foreign patent. However, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. There can be no assurance that our program for protection of intellectual property and proprietary technology will be sufficient to protect our intellectual property and proprietary technology from competitors. Our business is also subject to the risk that our issued patents will not provide us with significant competitive advantages if, for example, a competitor was to independently develop or obtain similar or superior technologies. In addition, our issued patents may be challenged or infringed upon by third parties. The enforcement of intellectual property rights is subject to considerable uncertainty and can be expensive and time-consuming. Patent reform laws and court decisions interpreting such laws, may create additional uncertainty around our ability to obtain and enforce patent protection. Any significant impairment of our intellectual property rights could harm our business and our ability to compete. The unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. Proprietary trade secrets and unpatented know-how are also very important to our business; however, trade secrets are difficult to protect. Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential or proprietary information.

We may be sued by third parties who claim that we have infringed their intellectual property rights.

We may be exposed to future litigation by third parties based on claims that our research, development and commercialization activities infringe the intellectual property rights of third parties to which we do not hold licenses or other rights, or that we have misappropriated the trade secrets of others. Any litigation or claims against us, whether or not valid, could result in substantial costs, and could place a significant strain on our financial and human resources. In addition, if successful, such claims could cause us to pay substantial damages. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Our bylaws contain provisions indemnifying our officers and directors against all costs, charges, and expenses incurred by them.

Our bylaws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses actually and reasonably incurred by an officer or director paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been one of our directors or officers. To the extent that our directors’ and officers’ insurance policy does not provide reimbursement for such costs, charges, expenses and other amounts, we may incur substantial expenses in satisfying our indemnification obligations.

Our operating costs could be significantly higher than we expect, and this could reduce our future profitability.

In addition to general economic conditions, market fluctuations and international risks, significant increases in operating, development and implementation costs could adversely affect us due to numerous factors, many of which are beyond our control.

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A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.

Businesses have become increasingly dependent on digital technologies to conduct day-to-day operations. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. A cyber-attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption or result in denial of service on websites. We depend on digital technology, including information systems and related infrastructure, to process and record financial and operating data, and communicate with our employees and business partners. Our technologies, systems, networks, and those of our business partners may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of our business operations. Although to-date we have not experienced any losses relating to cyber-attacks, there is no assurance that we will not suffer such losses in the future. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Our results of operations may be negatively impacted by the coronavirus outbreak.

The outbreak of the novel coronavirus (COVID-19) has evolved into a global pandemic. The extent to which the coronavirus impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the coronavirus and the actions that contain the coronavirus or treat its impact, among others.

The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put in place by businesses and governments, may have a material economic effect on our business. To-date, the outbreak has not had a material adverse impact on our operations, though we have experienced delays in certain customer purchase orders. While the Company believes that such purchase orders will ultimately be realized, it is impossible to predict the timing. Further, the future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a material adverse impact on the future results of the Company. Additionally, the coronavirus has already caused, and is likely to result in further, significant disruption of global financial markets, which may reduce our ability to access capital either at all or on favorable terms.

Risks Related to Our Securities

The price of our securities could be subject to volatility related or unrelated to our operations, which could result in substantial losses for our stockholders.

Between January 1, 2020 and December 31, 2020, the trading price of our common stock has ranged from a low of $2.02 to a high of $10.30 and could be subject to wide fluctuations in the future in response to various factors, some of which are beyond our control. The trading price of the warrants that we issued in our 2017 public offering could be subject to similar fluctuations as a result of such factors. These factors include those discussed previously in this “Risk Factors” section and others, such as:

| ● | delays or failures in the commercialization of our current or future products and services;
| ● | quarterly variations in our results of operations or those of our competitors;
| ● | changes in our earnings estimates or recommendations by securities analysts or adverse publicity about us or our products or services;
| ● | announcements by us or our competitors of new products and services, significant contracts, commercial relationships, acquisitions or capital commitments;
| ● | adverse developments with respect to our intellectual property rights;
| ● | commencement of litigation involving us or our competitors;
| ● | any major changes in our board of directors or management;
| ● | market conditions in our industry; and
| ● | general economic conditions in the United States and abroad.

In addition, the stock market, in general, may experience broad market fluctuations, which may adversely affect the market price or liquidity of our securities.

We could be subject to securities class action litigation.

Any sudden decline in the market price of our securities could trigger securities class action lawsuits against us. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject to damages claims if we are found to be at fault in connection with a decline in our market price of our securities.

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Historically, there has been a limited trading market in our common stock, and you may therefore have difficulty selling your securities at a price that you determine is satisfactory.

Our common stock is listed on The Nasdaq Capital Market. Historically, there has been a limited trading market for our common stock. There is no assurance that our common stock will actively trade in the public market at or above a price that you consider acceptable. If an active market for our common stock is not maintained, it may be difficult for you to sell your shares of common stock when you wish to sell them or at a price that you consider satisfactory. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling securities and may impair our ability to acquire other companies or technologies by using our securities as consideration.

There is no assurance that we will satisfy the continued listing requirements of The NASDAQ Capital Market.

We cannot assure you that we will be able to continue to satisfy the continued listing requirements of The Nasdaq Capital Market. For example, there is no assurance that we will be able to satisfy all of the quantitative continued listing requirements, including the minimum stockholders’ equity requirement of at least $2,500,000 for continued listing on The Nasdaq Capital Market, which we have previously failed to satisfy. If we fail to satisfy a Nasdaq requirement for continued listing, Nasdaq could provide notice that our common stock will become subject to delisting. In such event, Nasdaq rules would permit us to appeal the decision to reject our proposed compliance plan or any delisting determination to a Nasdaq Hearings Panel. If our securities are de-listed from The Nasdaq Capital Market, our stockholders could incur material adverse consequences such as reduced liquidity for their securities and reduced market prices for their securities. Following such de-listing, we could encounter increased difficulty in issuing additional securities at an attractive price, or at all, in order to fund our operations.

You may experience additional dilution as a result of future equity offerings.

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be lower than the price per share that you paid for our common stock.

We have broad discretion in the use of the net proceeds of our recent public offering and may not use them effectively.

We intend to use our cash for the development of our products and services. Our management has broad discretion in the use of cash and will have the right to use our cash in ways that differ substantially from our current plans. Management may spend our cash in ways that do not improve our results of operations or enhance the value of our securities. The failure by management to apply funds effectively could result in financial losses that could have a material and adverse effect on our business and cause the market price of our securities to decline.

We do not intend to pay dividends on our common stock, and your ability to achieve a return on your investment will depend on appreciation in the market price of our securities.

We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market price of our securities. There is no assurance that our securities will appreciate in price.

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If securities or industry analysts do not publish research or reports about us, or if they issue adverse or misleading opinions regarding us or our securities, the market price of our securities and their trading volume could decline.

If we do not obtain and maintain research coverage by securities and industry analysts, the market price for our securities may be adversely affected. The market price of our securities also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our performance. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the market price of our securities and their trading volume to decline and possibly adversely affect our ability to engage in future financings.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December 31, 2020, we had 5,995,320 outstanding shares of common stock. On January 12, 2021, we closed a public offering in which we issued an additional 1,711,783 shares of our common stock. Sales of a large number of the shares such as described in the preceding sentence or upon exercise of our outstanding warrants and stock options, or the perception that a large number of shares may be sold, could have a material adverse effect on the trading price of our common stock.

We will incur significant costs to ensure compliance with U.S. and Nasdaq reporting and corporate governance requirements.

We incur significant costs associated with our public company reporting requirements and with applicable U.S. and Nasdaq corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC and Nasdaq. These applicable rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.

If we fail to maintain effective internal control over financial reporting, the market price of our securities may be adversely affected.

As a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure to establish such internal control, or any failure of such internal control once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting (including those weaknesses identified in our periodic reports), or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our securities.

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Provisions in our articles of incorporation and bylaws could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our articles of incorporation and bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the following:

| ● | a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
| ● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
| ● | the ability of our board of directors to authorize the issuance of additional shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could adversely affect the rights of our common stockholders or be used to deter a possible acquisition of our company;
| ● | the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
| ● | the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our articles of incorporation and bylaws regarding the election and removal of directors;
| ● | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
| ● | the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president (in the absence of a chief executive officer) or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
| ● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
| ● | the ability of our directors to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which would dilute the interest of or impair the voting power of our common stockholders.

These provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.

We could issue one or more additional series of shares of preferred stock with the effect of diluting existing stockholders and impairing their voting and other rights.

Our Board of Directors is authorized to issue up to 10,000,000 shares of preferred stock and may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion, and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. As of December 31, 2020, 715 shares of our preferred stock are outstanding, consisting of 382 shares of Series D Preferred Stock and 333 shares of Series E Preferred Stock. In addition to the possible negative effect on the market price of our common shares resulting from the public sale or perceived sale of common shares issuable upon conversion or exercise of these securities, the Certificate of Designations for the Series D Preferred Stock provides that upon occurrence of certain triggering events described in the Certificate, including but not limited to, payment defaults, breaches of the transaction documents pertaining to the Series D Preferred Stock and failure to maintain listing on the NASDAQ Capital Market, the Series D Preferred Shares would become subject to redemption, at the option of the holder, at a 125% premium to the underlying value of the Series D Shares being redeemed.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

We lease approximately 3,700 square feet of space at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, including 1,772 square feet of office space at units, C-14, C-15, C-16, C-17, C-20, C-21 and D-34 for a total monthly rent expense of approximately $3,840 under the lease, and 1,928 square feet of warehouse / production space at units E-38, E-40 and E-42, for a total monthly rent expense of approximately $2,275 under the lease. The leases expire on July 31, 2021. We believe that our facilities are suitable for our current needs, but we are evaluating the need for a larger space as we grow.

ITEM 3. LEGAL PROCEEDINGS.

We are not currently a party to any legal proceedings. However, we may occasionally become subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of pending disputes, and we cannot predict whether any liability arising from pending claims and litigation will be material in relation to our financial position or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock trades on The NASDAQ Capital Market under the symbol “SGLB.”

Shareholders

As of March 23, 2021, there were approximately 554 holders of record of our common stock based on information provided by our transfer agent.

Dividends

We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that the board of directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. However, we have paid dividends on our preferred stock pursuant to an agreement with investors and may do so in the future pursuant to future financing agreements, if any. Pursuant to the Series D Preferred Stock Certificate of Designations, the Company may not declare or pay any cash dividend or distribution on any of its capital stock, other than as required by the Certificate of Designations.

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Recent Sales of Unregistered Securities

Not applicable.

Repurchase of Shares

We did not repurchase any of our securities during the fiscal year ended December 31, 2020.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Sigma is a leading provider of in-process quality assurance (IPQA®) software to the additive manufacturing industry. 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.

Covid-19 Business Update

As stated earlier, 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 revenue. Further, the future impact of the outbreak, including variations of the virus, is highly uncertain and cannot be predicted 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 global financial markets, which may reduce our ability to access capital, either at all, or on favorable terms.

Reverse Stock Split

Effective February 27, 2020, we effected a reverse split of our common stock on a 1-for-10 basis. Accordingly, all common shares, stock options, warrants, and per share amounts contained in this Annual Report have been retroactively adjusted to reflect the reverse split for all periods presented.

Critical Accounting Policies

The 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 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. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 to the Financial Statements included in this Annual 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.

Results of Operations

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019.

We generate revenues through PrintRite3D® hardware and CAI software licensing of our PrintRite3D® technology to customers that seek to improve their manufacturing production processes, and through ongoing annual software upgrades and maintenance fees. Additionally, we generate revenues from our contract manufacturing activities in metal 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.

During the fiscal year ended December 31, 2020 (“fiscal 2020”), we generated an aggregate of $807,488 in revenues, as compared to an aggregate of $402,446 in revenues generated by us in the fiscal year ended December 31, 2019 (“fiscal 2019”). The contributors to the $405,042 increase were increases in new PrintRite3D® 6.0 system sales of $394,959, increased revenues from our Rapid Test and Evaluation (“RTE”) program of $37,064, increased annual maintenance revenues of $11,240, and increased revenue from contract AM jobs of $8,651, partially offset by decreases in on-site engineering and installation revenues of $47,872. Our cost of revenue for fiscal 2020 was $591,957 compared to $574,301 during the same period in 2019, an increase of $17,656. The increase is primarily due to increased PrintRite3D® 6.0 system sales, and parts and materials upgrades for certain customers.

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Sigma’s total operating expenses for fiscal 2020 were $5,914,299 as compared to $6,211,830 for fiscal 2019, a $297.531 decrease.

In fiscal 2020, salaries and benefits costs were $2,622,162 as compared to $2,354,329 for the same period in 2019. The $267,833 increase resulted primarily from salary increases and related employer payroll taxes of $148,270, employee bonuses of $127,250, and increased sales commissions of $8,800, partially offset by lower benefits costs of $23,578.

Stock-based compensation for fiscal 2020 was $596,842 compared to $497,240 for the same period in 2019. This $99,602 increase resulted primarily from stock grants made to employees of $23,610 and additional stock options granted to employees of $75,992.

During fiscal 2020, Sigma incurred research and development expenditures of $351,404 compared to $647,994 in the same period of 2019. The $296,590 decrease is primarily the result of completed product development, as well as the reduced use of consultants during the year.

Sigma’s investor and public relation fees incurred in fiscal 2020 were $434,852, compared to $417,750 in fiscal 2019. The increase in the comparative expenditures results primarily from an additional investor relations consultant of $90,369, increased investor conferences and virtual shareholder meetings of approximately $20,000, partially offset by decreased advertising and trade show expenses of $100,000.

Organization costs for fiscal 2020 were 425,847, compared to $530,958 for the same period in 2020. The decrease of $105,111 is primarily attributable to lower directors’ compensation in 2020 of $135,944 and investment bank consulting fees of $31,500, partially offset by increased shareholder services costs of $49,149 as a result of a special shareholders meeting held in March 2020 and costs incurred for the conversion of Series D Preferred Stock throughout 2020.

Legal and professional service fees in fiscal 2020 were $676,142 compared to $664,403 paid in fiscal 2019. The increase of $11,739 is primarily attributable to an increase in legal fees of $128,010 related to a special shareholders meeting, Nasdaq compliance related matters, and our 2020 financings, and an increase in IT services fees of $17,101, partially offset by reduced utilization of recruiting firms of $49,851 and consultants of $86,574.

During fiscal 2020, Sigma’s office expenses were $416,580 compared to $747,881 in the same period of 2019. The $331,301 decrease in these expenditures resulted primarily from reduced travel costs of $309,451 as a result of COVID-19 restrictions, and lower office supplies expense of $56,371 due to employees working remotely for most of the year, partially offset by an increase in postage and shipping costs of $18,446 related to PrintRite 3D returns from expired RTE programs.

Depreciation and amortization expense in 2020 was $105,175, as compared to $192,569 in 2019. The decrease of $87,394 is primarily the result of our fully depreciated 3D printer in 2020, partially offset by an increase in patent amortization expense during the year.

Other operating expenses for fiscal 2020 totaled $285,295, compared to $158,706 for fiscal 2019. The increase of $126,589 is primarily due to an increase in insurance premiums, in particular our Director’s & Officer’s policy premium which increased by $115,396.

In fiscal 2020, our net other income & expense was net income of $498,629 compared to net income of $62,836 in 2019. The increase of $435,793 is primarily due to increased incentives from the State of New Mexico of $99,780 and income from the Company’s Payroll Protection Plan loan of $361,700, partially offset by a decrease in interest income of $17,702 and an increase in interest expense of $5,223.

Sigma’s net loss before preferred dividends for fiscal 2020 decreased $1,120,710 overall and totaled $5,200,139, as compared to a net loss before preferred dividends of $6,320,849 for fiscal 2019. Net loss applicable to common stockholders for fiscal 2020 was $7,009,414, as compared to $6,320,849 for fiscal 2019. The 2020 net operating loss component of the overall loss being $684,917 lower than in 2019 and the other income component being a $435,793 higher. Preferred stock dividends were $1,809,275 in 2020 and $0 in 2019.

Liquidity and Capital Resources

As of December 31, 2020, we had $3,700,814 in cash and working capital of $4,332,053, as compared to $86,919 in cash and a working capital deficit of $98,315 as of December 31, 2019. On January 12, 2021, the Company closed a public offering of common stock resulting in net proceeds of approximately $4,532,444 after deducting commissions and other offering expenses payable by the Company. In February and March of 2021, the Company received net cash proceeds of $1,136,010 from the exercise of outstanding warrants.

We believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2021. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with the research, development, and commercialization of our products, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:

| ● | 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; and
| ● | The other factors listed under Item 1A “Risk Factors.”

Our 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. On March 15, 2019, the Company closed a public offering of equity securities resulting in net proceeds of approximately $1,679,230 after deducting commissions and other offering expenses payable by the Company. In May 2019, the Company closed a private placement of equity securities resulting in net proceeds of approximately $515,000, after deducting placement agent commissions and other offering expenses payable by the Company. In August 2019, the Company closed a public offering of equity securities resulting in net proceeds of approximately $1,971,000, after deducting placement agent commissions and other offering expenses payable by the Company. In September 2019, Aegis Capital Corp. partially exercised its over-allotment option granted by the Company in the foregoing August 2019 public offering, resulting in net proceeds of $148,800 after deducting placement agent commissions. In January 2020, we completed two private placements consisting of shares of our newly created Series D and Series E Preferred Stock, warrants to purchase additional shares of Series D Preferred Stock and warrants to purchase shares of our Common Stock resulting in net cash proceeds to us of approximately $1,711,124. During 2020, institutional holders of the Series D Preferred Warrants exercised 6,146 of 6,156 such warrants resulting in net proceeds to the Company of $5,820,998. As of March 23, 2021, if all of the remaining common warrants to purchase our common stock are exercised by the holders thereof, the potential net proceeds to us will be $1,291,000. On April 6, 2020, we closed an offering of equity securities in which the Company sold and issued to certain institutional investors (a) shares of the Company’s common stock and pre-funded warrants, and (b) Series A Warrants (the “Private Warrants”) to purchase shares of the Company’s common stock pursuant to a private placement resulting in net proceeds of approximately $1,230,000. As of March 23, 2021, if all of the Series A Warrants are exercised by the holders thereof for cash, the potential gross cash proceeds to us will be $956,015. On January 12, 2021, the Company closed a public offering of equity securities resulting in net proceeds of approximately $4,532,444 after deducting commissions and other offering expenses payable by the Company.

We will need to raise additional amounts to fund our operations, maintain compliance with the NASDAQ listing requirements and implement our business plan. There is no assurance as to the amount and availability of any required future financing or the terms thereof. Such financing, if in the form of equity, may be highly dilutive to our existing stockholders and may otherwise include onerous 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 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.

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During 2021, 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 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) and through the use of proceeds from sales of our securities.

Net Cash Used in Operating Activities

Net cash used in operating activities in 2020 decreased to $4,809,868 from $5,514,805 in 2019, which is a decrease in cash used of $704,937. This decrease is primarily attributable to: (1) a decrease in our net loss before preferred dividends of $1,120,710; (2) higher equity-based compensation expenses of $150,644 due to: (a) increased options and common share grants awarded to employees of $99,602; (b) increased stock options granted to consultants in lieu of cash of $70,096, partially offset by (c) lower equity based compensation for directors of $60,117; (3) an increase in accounts receivable of $259,282 due to increased sales; (4) a decrease in inventory growth in 2020 from 2019 of $297,700; (5) a decrease in current and long-term prepaid expenses of $319,463 primarily due to the release of collateral for a letter of credit and amortization of our three-year membership in the UK’s National Centre for Additive Manufacturing (“NCAM”); (6) a decrease in accounts payable and accrued expenses of $732,471 due to payments in 2020 related to 2019 payables as well as lower accounts payable in 2020 resulting from our improved cash position; (7) a decrease in deferred revenue of $149,439; (8) long-term Stock Appreciation Rights granted to employees and consultants of $48,341; (9) long-term deferral of Payroll Taxes under the CARES Act of $37,728; and (10) a decrease in depreciation expense of $87,394.

Net Cash Used by Investing Activities

Net cash used by investing activities during fiscal 2020 was $298,359, which compares to cash used by investing activities during the same period of 2019 totaling $85,798. The increase is primarily due to increased purchases of fixed assets of $54,587, additional costs incurred for patents of $36,561 and the receipt of cash from loan repayments of $121,913 in 2019.

Net Cash Provided by Financing Activities

Cash provided by financing activities during fiscal 2020 increased to $8,722,122 from $4,407,740 during the same period in 2019, an increase of $4,314,382 primarily as a result of the exercise of Series D Preferred warrants from our January 2020 private offering, which resulted in net proceeds to the Company of $5,820,998, partially offset by lower net proceeds from our 2020 private and public offerings over 2019.

We have no credit lines as of March 24, 2021, nor have we ever had a credit line since our inception.

Our ability to continue to fund our liquidity and working capital needs will be dependent upon the success of our efforts to generate revenues from existing and future PrintRite3D®-proof-of-concept contracts, follow-on contracts resulting from successful proof-of-concept engagements, possible strategic partnerships, and by obtaining additional capital from the sale of securities or by borrowing funds from lenders to fulfill our business plans. If we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. There is no assurance that we will be successful in obtaining additional funding. The Company is unable to predict the effect, if any, that the novel coronavirus outbreak may have on its access to the financing markets. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to a “smaller reporting company.”

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial Statements are referred to in Item 15, listed in the Index to Financial Statements and filed and included elsewhere herein as a part of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Rule 13a-15(e) under the Exchange Act defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with the participation of our Chief Executive Officer, and Chief Financial Officer (Principal Financial and Accounting Officer), as of the end of the period covered by this annual report, our management concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. The foregoing conclusion is based, in part, on the fact that we are a small public company in the early stage of our business, with limited revenues and employees.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Exchange Act. Our management, with the participation of our Chief Executive Officer, and Chief Financial Officer, conducted an evaluation of the effectiveness of our control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

We continuously seek to improve and strengthen our control processes to ensure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weakness we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock.

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This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to SEC rules applicable to smaller reporting companies that permit us to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

MANAGEMENT

Executive Officers

The following table sets forth the name, age and position of each of our executive officers as of March 24, 2021:

Name |  | Age |  | Position
Mark K. Ruport |  | 68 |  | President and Chief Executive Officer
Frank Orzechowski |  | 61 |  | Chief Financial Officer, Treasurer and Corporate Secretary
Ronald Fisher |  | 51 |  | Vice President of Business Development
Darren Beckett |  | 47 |  | Chief Technology Officer

Mark Ruport served as Executive Chairman from December 3, 2019 until April 30, 2020 and became our President and Chief Executive Officer on April 30, 2020. Additional information regarding Mr. Ruport is set forth below under “Board of Directors and Corporate Governance.”

Frank Orzechowski has served as our Chief Financial Officer, Treasurer, principal accounting officer, principal financial officer, and Corporate Secretary since July 1, 2019. Prior to joining the Company, Mr. Orzechowski served as the Chief Financial Officer of StormHarbour Partners LP, an independent global markets and financial advisory firm since September 2013. From May 2013 to August 2013, Mr. Orzechowski served as a contract CFO for Etouches Inc., a cloud-based event management software company, to assist with financial matters in connection with that company’s planned equity financing. Prior to that, he served as President and Owner/Operator of Four-O Technologies Inc. from August 2009 to December 2012, where he successfully launched and guided operations for two Cartridge World franchise units in Connecticut. From February 2006 to July 2009, Mr. Orzechowski served as President and Chief Financial Officer of Nikko Americas Holding Company Inc., where he was responsible for managing all of the support and infrastructure for that company’s U.S. business, as well as investment manager selection and due diligence functions for its World Series Platform. Mr. Orzechowski began his career at Coopers & Lybrand in 1982, received his CPA certification in 1984 and received his Bachelor of Science in Business Administration with a major in Accounting from Georgetown University in 1982.

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Darren Beckett served as our Engineering Manager beginning on September 25, 2017, was appointed as our Vice President of Engineering on June 29, 2018, and had his title changed to Chief Technology Officer of the Company on October 18, 2018. Mr. Beckett has over 20 years of experience in the semiconductor industry, including since 1997 with Intel Corporation at which he held various technical and managerial positions, including process engineer of ion implant charged particle systems, chemical vapor deposition systems, and, since 2008, engineering manager of multiple engineering groups such as rapid thermal anneal, defect metrology equipment and fab environment micro contamination. Mr. Beckett’s expertise is in process engineering for advanced manufacturing technology, including statistical process control for fabrication of semiconductor devices. Mr. Beckett serves as an independent director and board member of M&T Foundation, San Diego, California. Mr. Beckett earned a B. Eng. in Mechanical Engineering from University of Limerick, Ireland.

Ronald Fisher was appointed as Vice President of Business Development of Sigma on August 10, 2015 and leads the PrintRite3D® Operating Division. Mr. Fisher is a Mechanical Engineer with hands-on experience in quality, manufacturing, and product development. He has an MBA and has distinguished himself as a lead sales and marketing officer as well as a Chief Operating Officer. He was a Program Manager at Swagelok from 1988-2004, and Vice President and General Manager, Aftermarket and Geometry Systems, at Micropoise Measurement Systems from 2004 until 2013, and a Partner and COO of Laszeray Technology, LLC from 2013 until 2014. Mr. Fisher holds a bachelor’s degree in Mechanical Engineering Technology from the University of Akron as well as an MBA from Kent State University.

BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

The following table sets forth the names, ages as of March 24, 2021, and certain other information regarding our directors:

Directors |  | Class |  | Age |  | Position |  | Director Since |  | Current Term Expires
John Rice |  | I |  | 74 |  | Chairman of the Board and Director |  | 2017 |  | 2021
Mark K. Ruport |  | I |  | 68 |  | President and Chief Executive Officer |  | 2019 |  | 2021
Salvatore Battinelli(1)(2)(3) |  | II |  | 79 |  | Director |  | 2017 |  | 2022
Dennis Duitch(1)(2)(3) |  | III |  | 76 |  | Director |  | 2017 |  | 2023
Kent Summers(1)(2)(3) |  | III |  | 62 |  | Director |  | 2018 |  | 2023

(1) Member of our Audit Committee

(2) Member of our Compensation Committee

(3) Member of our Nominating and Corporate Governance Committee

Directors

John Rice was appointed to our Board of Directors on February 15, 2017, was appointed as Chairman of our Board on April 19, 2017, was appointed as our interim Chief Executive Officer on July 24, 2017, became our Chief Executive Officer on July 14, 2017 and was appointed as our President on October 10, 2018. Effective April 30, 2020, Mr. Rice resigned from his position as President and Chief Executive Officer. Mr. Rice remains a director on the Board of Directors and continues to serve as Chairman of the Board. Mr. Rice has extensive experience in business operations. In 1990, Mr. Rice founded ASiQ, LLC, a firm specializing in operations management services ranging from launching successful startups and executing business turnarounds to financings, crisis management and the repositioning of enterprises for sale at optimum market prices. Mr. Rice presently serves as ASiQ’s CEO and President. He also served as CEO of Coca-Cola Bottling Company of Santa Fe, a client of ASiQ’s, from 2009 to 2015. From 2010 to 2012, Mr. Rice served as Director and Contracts Officer of Detector Networks International. Mr. Rice frequently lectures on breakout growth strategies, crisis management, corporate turnarounds, venture capital, and financial structuring and strategies. He has also served on a number of boards. Since 2005, Mr. Rice has served as Director of New Mexico Angels, Inc., a New Mexico based group of accredited individual angel investors. Since 2016, Mr. Rice has served as Director of Akal Security, Inc. He was also a Director of Detector Networks International from 2010-2012, where he successfully negotiated the principal component of a business turnaround for the company. Mr. Rice is an honors graduate of Harvard College.

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Our Board of Directors believes that Mr. Rice is qualified to serve as a member of the board because of his broad and deep experience in improving business operations, engineering financial structures that support ongoing needs of operating companies, and building investor and shareholder values.

Salvatore Battinelli was appointed to our Board of Directors on August 16, 2017. Mr. Battinelli is currently the President and Chief Executive Officer of Bello e Preciso Co., a manufacturer and wholesaler of Italian-made fashion watches and has served in those roles since early 2017. Prior to joining Bello e Preciso Co., from 2011 to 2013, Mr. Battinelli served as Vice-President of Development and Long-Term Strategy of North American Management Corporation, a wealth management firm based in Boston, Massachusetts with over $2 billion in assets under management. From 1987 to 2011, Mr. Battinelli served as Executive Vice-President and acting Chief Executive Officer and Chief Operating Officer of Faneuil Hall Associates, Inc., a concierge boutique family office devoted to five interrelated ultra-high net-worth families. Mr. Battinelli’s primary responsibilities while at Faneuil Hall Associates included providing planning and investment advice, the management of approximately 30 asset portfolios and more than 65 individual business entities; and assisting the families in their various business ventures worldwide while working closely with law, accounting and banking functions. During his tenure at Faneuil Hall Associates, Mr. Battinelli served as an executive officer or director for certain of the family-owned entities and successfully managed several portfolio company IPOs, as well as serving as CEO and COO for Designhouse International, a Scandinavian furniture company operating out of Atlanta, Georgia, which was previously listed on NASDAQ in 1983.

From 1970 to 1974, Mr. Battinelli served as Audit Manager for Deloitte & Touche (formally Touche Ross), where he specialized in management information systems. From 2002 to 2011, Mr. Battinelli also served as the Chairman of the Board of Directors of HealthLink Europe, BV, a logistics and services company that serves the healthcare industry. Mr. Battinelli is a Certified Public Accountant and received a BS in accounting and an MBA with an emphasis in international economics and accounting, both from Babson College.

Our board of directors believes that Mr. Battinelli is qualified to serve as a member of the board on the basis of his deep understanding of business acquisitions and sales, as well as his background and extensive company management and integration experience.

Mark K. Ruport was appointed as Executive Chairman and as a director on December 3, 2019. Effective April 30, 2020, Mr. Ruport became our President and Chief Executive Officer. Mr. Ruport remains a director on the Board of Directors but no longer serves as Executive Chairman. Mr. Ruport brings more than 30 years of public and private company experience in the software sector to his position at Sigma Labs. Prior to joining Sigma Labs, Mr. Ruport served since 2010 as the President of Step Function Consulting, LLC, a consulting firm that provides strategic consulting services to early and mid-stage portfolio software companies. Mr. Ruport also served from 2014 to 2017 as the Executive Chairman of the Board of Directors of Content Analyst Company, a leading developer of advanced analytics software for searching and analyzing unstructured text, and before that served as its Vice Chairman from 2012 to 2013. From 2005 to 2009, Mr. Ruport served as the President and Chief Executive Officer of Configuresoft, Inc., a venture-backed Enterprise Systems Management company, where he orchestrated an OEM agreement which later led to its acquisition by EMC Corp. Prior to Configuresoft, Mr. Ruport served from 2004 to 2005 as the Executive Vice President of Worldwide Operations at Stellent, Inc., which was subsequently acquired by Oracle, Inc., and from 1995 to 2005 as the President, Chief Executive Officer and Chairman of the Board of Directors of Optika, Inc., a venture-backed Enterprise Content Management Company that he led through its initial public offering and merger with Stellent, Inc. From 1990 to 1994, Mr. Ruport served as the President and Chief Executive Officer of Interleaf, Inc., a public software company. He also held various senior executive positions from 1985 to 1989 at Informix, Inc., a relational database management system company later acquired by IBM, and from 1985 to 1989 at Cullinet, Inc., a mainframe database management system and enterprise resource planning company later acquired by Computer Associates, Inc. Mr. Ruport received his Bachelor of Science degree and MBA from Bowling Green State University.Mr. Ruport received a Bachelor of Science in Business and an MBA from Bowling Green State University.

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Our Board of Directors believes that Mr. Ruport is qualified to serve as a member of the board because of his extensive experience in management and leadership in the technology industry.

Dennis Duitch was appointed to our Board of Directors on August 8, 2017. Mr. Duitch has served as Managing Director of Duitch Consulting Group, a private consulting company, since 2003. Prior to that time, he practiced public accounting, business management, mediation and consultancy nationally, with expertise in strategic and operations management, finance, accounting, strategic planning and business operations for a wide spectrum of companies, including technology, manufacturing and distribution, marketing, real estate, entertainment, and professional practices. He has served in executive officer roles and as a director of public and private companies, not-for-profit organizations, including as Vice-Chairman for Accountants Global Network, and as a top-level advisor for public companies, closely held businesses, families and high-wealth individuals for over thirty years.

Mr. Duitch began his career with the international CPA firm Grant Thornton in its Chicago, San Francisco and Beverly Hills offices before founding Duitch & Franklin LLP, which evolved to become one of Southern California’s largest independent CPA/Business Management/Consultancy practices, and which was acquired by a public company in 1998. He subsequently served as President for a consumer products company with direct responsibility for marketing, retail, and fulfillment operations, until forming Duitch Consulting Group in 2003 to serve clients in advisory, C-level, and board of director roles.

Mr. Duitch is a Certified Family Business and Estate Advisor, and mediator for matters including partner/shareholder agreements and disputes, business and marital property dissolution, and dysfunctional executive teams and boards of directors. He has lectured extensively in management, financial and accounting areas for the California CPA Foundation, business and professional groups, has instructed at several colleges and universities, and has authored technical articles in management and taxation for regional and national publications.

Mr. Duitch earned a B.B.A degree in Accounting from the University of Iowa and a Master of Business Administration in Finance from Northwestern University.

Our Board of Directors believes that Mr. Duitch is qualified to serve as a member of the board because of his extensive public accounting experience, which will assist the Board and the Audit Committee in addressing the numerous accounting-related issues, regulations and SEC reporting requirements to which we are subject, as well as his expertise in business management, finance and strategic planning.

Kent Summers was appointed to our Board of Directors on January 18, 2018. Mr. Summers was also appointed to serve as a member of the Company’s Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee.

Mr. Summers currently divides his time among a number of independent activities which focus on early-stage technology company formation and development strategies, and sales planning and execution needs for emerging- and mid-market technology companies located primarily in the Boston metropolitan area, including: management consultant to private and family-owned businesses; volunteer Mentor and Instructor with the Massachusetts Institute of Technology Venture Mentoring Services program; regular lectures on enterprise, business-to-business sales to company founders and students enrolled at the Massachusetts Institute of Technology Sloan School of Management, the Harvard MBA Program, the Wharton School at the University of Pennsylvania, and a number of domestic and international entrepreneurship support organizations; and consultant to Fellows enrolled in the Harvard Advanced Leadership Initiative. Mr. Summers has served in those roles at various times from 2003 to the present. From 2009 to the present, Mr. Summers has served as the non-executive Chairman of CADNexus, Inc., and from 2017 to the present, director and Chairman of the Compensation Committee with iQ3 Connect, Inc. Mr. Summers also currently serves as Chairman, Board of Managers, Massachusetts Materials Technologies LLC.

From 2005 to 2017, Mr. Summers served as Managing Partner at Practical Computer Applications, Inc., a Boston-based database consulting and engineering services firm, where he was responsible for sales planning and execution activities. Prior to Practical Computer Applications, from 2001 to 2005, Mr. Summers provided independent merger & acquisition advisory services to support the sale of privately-owned companies. Over a prior 14-year period, Mr. Summers served in leadership roles at several software and internet start-ups, including: Chairman and CEO of Collego Corporation (acquired by MRO Software), founder and CEO of MyHelpDesk, Inc. (acquired by Support.com), founder of PCMovingVan.com (acquired by a PE firm), and Vice President of Marketing at Electronic Book Technologies, Inc. (acquired by INSO Corporation, formerly listed on Nasdaq).

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Prior to the software industry, Mr. Summers served as Technology Analyst at Electronic Joint Venture Partners LLC and Associate Program Trader on the Options Trading Desk at Bear Stearns & Co. In 1986, Mr. Summers received a BA in English from the University of Houston.

Our Board of Directors believes that Mr. Summers is qualified to serve as a member of our Board on the basis of his deep understanding of early-stage business growth strategies, enterprise sales, business acquisitions, as well as his background and extensive company management and leadership experience.

Director Independence

Our Board of Directors currently consists of five members. As a result of his previous role as Chief Executive Officer, Mr. Rice is not considered an independent director. As a result of his April 30, 2020 appointment as Chief Executive Officer, Mr. Ruport is also not considered an independent director. Our Board of Directors has determined that our other directors, Salvatore Battinelli, Dennis Duitch and Kent Summers, constituting a majority of our directors, are “independent” as that term is defined under Rule 5605(a)(2) of the NASDAQ marketplace rules. Pursuant to NASDAQ rules, our board must consist of a majority of independent directors.

The NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, as required by NASDAQ rules, our Board of Directors has made a subjective determination as to Messrs. Battinelli, Duitch and Summers, our independent directors, that no relationships exists, which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.

Classified Board of Directors

In accordance with our amended and restated bylaws, our Board of Directors is divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors are classified as follows:

| ● | the Class I directors are John Rice and Mark Ruport, with terms expiring at our 2021 annual meeting of stockholders;
| ● | the Class II director is Salvatore Battinelli, with a term expiring at our 2022 annual meeting of stockholders; and
| ● | the Class III directors are Dennis Duitch and Kent Summers, with terms expiring at our 2023 annual meeting of stockholders.

Our amended and restated bylaws provide that the authorized number of directors may be changed by resolution of the Board of Directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company.

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Leadership Structure of the Board

Our directors may be removed with or without cause at any meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors. Our amended and restated bylaws provide our Board of Directors with flexibility in its discretion to combine or separate the positions of Chairman of the Board and Chief Executive Officer, if we elect to appoint a Chairman of the Board. Our Board of Directors believes it is important to select the Company’s Chairman and Chief Executive Officer in the manner it considers in the best interests of the Company at any given time. Our Board of Directors believes that the Chairman and Chief Executive Officer positions may be filled by one individual or by two different individuals, as determined by our Board of Directors based on circumstances then in existence.

On August 19, 2017, our Board of Directors appointed Mr. Rice as Chairman of the Board. The Chairman of the Board presides at all meetings of our Board of Directors and exercises and performs such other powers and duties as may be assigned to him from time to time by the Board or prescribed by our amended and restated bylaws. The Chairman of the Board is appointed by our Board of Directors on an annual basis.

Our Board of Directors has no established policy on whether it should be led by a Chairman who is also the Chief Executive Officer, and has in the past combined the roles of Chairman and Chief Executive Officer. Our Board currently is committed to the separated roles given the circumstances of our Company. However, our Board of Directors continually evaluates our leadership structure and could, in the future, decide to combine the Chairman and Chief Executive Officer positions if it believes that doing so would serve the best interests of our Company and our stockholders.

Board Meetings and Committees

During our fiscal year ended December 31, 2020, the Board of Directors held five meetings, and each director attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors held during the period for which he has been a director and (ii) the total number of meetings held by all committees of our Board of Directors on which he served during the periods that he served.

Although we do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of stockholders, we encourage, but do not require, our directors to attend. Each of our then current directors attended our 2020 Annual Meeting of Stockholders.

Our board has established three standing committees-audit, compensation, and nominating and corporate governance-each of which operates under a written charter that has been approved by our board. Until February 15, 2017, when our common stock became listed on The Nasdaq Capital Market, we were not required to establish or maintain an audit, nominating or compensation committee. Each committee charter has been posted on the Investors section of our website at www.sigmalabsinc.com. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report.

Audit Committee

The Audit Committee’s responsibilities include:

| ● | appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;
| ● | overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;
| ● | reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures;
| ● | monitoring our internal control over financial reporting, disclosure controls and procedures;

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| ● | establishing procedures for the receipt, retention and treatment of accounting related complaints and concerns;
| ● | meeting independently with our registered public accounting firm and management;
| ● | reviewing and approving or ratifying any related person transactions; and
| ● | preparing the Audit Committee report required by SEC rules.

The members of our Audit Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the chairperson of the committee. Our Board of Directors has determined that each of Messrs. Duitch, Battinelli and Summers is an independent director under the applicable Nasdaq rules and under SEC Rule 10A-3. All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our Board of Directors has determined that each member of our Audit Committee is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. The Audit Committee met four times during 2020.

Compensation Committee

The Compensation Committee’s responsibilities include:

| ● | annually reviewing and approving corporate goals and objectives applicable to CEO compensation;
| ● | determining our CEO’s compensation;
| ● | reviewing and approving, or making recommendations to our board with respect to, the compensation of our other executive officers;
| ● | overseeing an evaluation of our senior executives;
| ● | overseeing and administering our equity incentive plans;
| ● | reviewing and making recommendations to our board with respect to director compensation; and
| ● | reviewing and discussing annually with management our “Compensation Discussion and Analysis” when it is required by SEC rules to be included in our Proxy Statements.

The members of our Compensation Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Battinelli serves as the chairperson of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable Nasdaq rules and regulations and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Compensation Committee was established effective February 15, 2017 (i.e., when our common stock became listed on The Nasdaq Capital Market).

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee’s responsibilities include:

| ● | identifying individuals qualified to become board members;
| ● | recommending to our board the persons to be nominated for election as directors and to each of the board’s committees; and
| ● | overseeing an annual evaluation of the board.

The members of our Nominating and Corporate Governance Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the interim chairperson of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable NASDAQ rules and regulations. The Nominating and Corporate Governance Committee was established effective February 15, 2017 (i.e., when our common stock became listed on The NASDAQ Capital Market).

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Code of Ethics and Business Conduct

The Company has a code of ethics that applies to all employees, including the Company’s principal executive officer, principal financial officer, and principal accounting officer, as well as to the members of the Board of Directors. The code is available at www.sigmalabsinc.com. The Company intends to disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or Nasdaq. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report.

Considerations in Evaluating Director Nominees

Our Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. In its evaluation of director candidates, our Nominating and Corporate Governance Committee will consider the current size and composition of our Board of Directors and the needs of our Board of Directors and the respective committees of our Board of Directors. Some of the qualifications that our Nominating and Corporate Governance Committee considers include, without limitation, issues of character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest and other commitments. Nominees must also have the ability to offer advice and guidance to our Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are affiliated. Director candidates must have sufficient time available in the judgment of our Nominating and Corporate Governance Committee to perform all board of director and committee responsibilities. Members of our Board of Directors are expected to prepare for, attend, and participate in all board of director and applicable committee meetings. Other than the foregoing, there are no stated minimum criteria for director nominees, although our Nominating and Corporate Governance Committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best interests.

Although our Board of Directors does not maintain a specific policy with respect to board diversity, our Board of Directors believes that our Board of Directors should be a diverse body, and our Nominating and Corporate Governance Committee considers a broad range of backgrounds and experiences. In making determinations regarding nominations of directors, our Nominating and Corporate Governance Committee may take into account the benefits of diverse viewpoints. Our Nominating and Corporate Governance Committee also will consider these and other factors as it oversees the annual board of director and committee evaluations. After completing its review and evaluation of director candidates, our Nominating and Corporate Governance Committee recommends to our full Board of Directors the director nominees for selection.

Stockholder Recommendations for Nominations to the Board of Directors

Our Nominating and Corporate Governance Committee will consider candidates for director recommended by stockholders so long as such recommending stockholder was a stockholder of record both at the time of giving notice and at the time of the annual meeting, and such recommendations comply with our amended and restated articles of incorporation and amended and restated bylaws and applicable laws, rules and regulations, including those promulgated by the SEC. The Nominating and Corporate Governance Committee will evaluate such recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our Board of Directors includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact the Secretary in writing. Our Nominating and Corporate Governance Committee has discretion to decide which individuals to recommend for nomination as directors.

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Role of Board in Risk Oversight Process

Risk assessment and oversight are an integral part of our governance and management processes. Our Board of Directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks we face. Throughout the year, senior management reviews these risks with the Board of Directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks. Our Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through the Board of Directors as a whole, as well as through standing committees of the Board of Directors that will address risks inherent in their respective areas of oversight. In particular, our Audit Committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The Audit Committee also monitors compliance with legal and regulatory requirements and considers and approves or disapproves any related-person transactions. Our Nominating and Governance Committee monitors the effectiveness of our corporate governance guidelines that we may adopt or amend from time to time. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking by our management.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

The Company believes that during its most recent fiscal year ended December 31, 2020, its executive officers, directors and greater than 10% stockholders complied with the filing requirements under Section 16(a), except that each of Salvatore Battinelli and Mark Ruport filed a Form 4 late in connection with their respective purchase of shares of the Company’s Series E Preferred Stock and warrants to purchase shares of common stock.

ITEM 11. EXECUTIVE COMPENSATION

Processes and Procedures for Compensation Decisions

Our Compensation Committee is responsible for the executive compensation programs for our executive officers and reports to our board of directors on its discussions, decisions and other actions. Typically, our Chief Executive Officer makes recommendations to our Compensation Committee and is involved in the determination of compensation for the respective executive officers that report to him. Our Chief Executive Officer does not determine his own compensation. Our Chief Executive Officer makes recommendations to our Compensation Committee regarding short- and long-term compensation for all executive officers based on our results, an individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our Compensation Committee then reviews the recommendations and other data and makes decisions (or makes recommendations to the Board) as to total compensation for each executive officer as well as each individual compensation component.

The following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served as the Company’s Chief Executive Officer at any time during the past fiscal year, and (ii) for our two most highly compensated executive officers, other than our Chief Executive Officer, who were employed with the Company on December 31, 2020 (the foregoing executives are herein collectively referred to as the “named executive officers”).

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Summary Compensation Table

Name and Principal Position |  | Year |  | Salary ($) (3) |  |  | Bonus ($) (3) |  |  | Stock Awards ($) (5) |  |  | Option Awards ($) (6) |  |  | All Other Compensation ($) |  |  | Total ($) |
John Rice - Former President & Chief |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Executive Officer(1) and Director |  | 2020 |  |  | 51,667 |  |  |  | - |  |  |  | - |  |  |  | 29,583 | (7) |  |  | 10,052 |  |  |  | 91,302 |
(Chairman of the Board) |  | 2019 |  |  | 155,000 |  |  |  | - |  |  |  | - |  |  |  | 210,347 | (8) |  |  | - |  |  |  | 365,347 |
Mark Ruport - President & Chief |  | 2020 |  |  | 155,000 |  |  |  | 50,000 | (4) |  |  | 1,986 |  |  |  | 618,980 | (9) |  |  | 802 |  |  |  | 826,768 |
Executive Officer and Director(2) |  | 2019 |  |  | 12,917 |  |  |  | - |  |  |  | - |  |  |  | 451,823 | (10) |  |  | - |  |  |  | 464,740 |
Ronald Fisher - Vice President |  | 2020 |  |  | 180,000 |  |  |  | - |  |  |  | 2,306 |  |  |  | 76,493 | (11) |  |  | 21,835 |  |  |  | 280,634 |
of Business Development |  | 2019 |  |  | 180,000 |  |  |  | - |  |  |  | - |  |  |  | 23,870 | (12) |  |  | - |  |  |  | 203,870 |
Darren Beckett - Chief Technology Officer |  | 2020 |  |  | 180,000 |  |  |  | 18,000 | (4) |  |  | 2,306 |  |  |  | 152,984 | (13) |  |  | 928 |  |  |  | 354,218 |
|  | 2019 |  |  | 180,000 |  |  |  | - |  |  |  | - |  |  |  | 36,100 | (14) |  |  | - |  |  |  | 216,100 |

(1) | Mr. Rice served as President and Chief Executive Officer from January 1, 2020 through April 30, 2020.
(2) | Mr. Ruport has served as President and Chief Executive Officer since April 30, 2020.
(3) | Actual amounts paid or accrued.
(4) | On February 25, 2021, the Compensation Committee granted Mr. Ruport a $50,000 performance bonus for the fiscal year ended December 31, 2020. In October 2020, we granted Mr. Beckett a performance bonus of $10,000, and in December 2020, Mr. Beckett was granted an additional performance bonus of $8,000.
(5) | On April 10, 2020 Messrs. Ruport, Fisher, and Beckett were granted 969, 1,125, and 1,125 shares of our common stock, respectively, at the closing price of $2.05 on the date of the grant. The shares fully vested on December 31, 2020.
(6) | Includes option awards and stock appreciation rights awards. On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. The Fair Value of option and SARs awards are calculated in accordance with FASB ASC Topic 718. The amount recognized for all awards is calculated using the Black Scholes pricing model.
(7) | On May 1, 2020, we granted Mr. Rice an option to purchase up to 16,044 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.28, is fully vested, and had an aggregate grant date fair value of $29,583.
(8) | On each of the first day of each month commencing January 1, 2019 and ending on August 1, 2019, we granted Mr. Rice an option to purchase up to 2,292 shares of our common stock, under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options are fully vested and have the following exercise prices: $15.00, $19.30, $20.40, $14.70, $15.00, $12.00, $14.00, and $7.40. The options had an aggregate grant date fair value of $26,630, $34,254, $36,418, $26,161, $26,642, $21,291, $25,405, and $13,546, respectively
(9) | On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 25%, or 29,164 shares vested and became exercisable on June 15, 2020, and the remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, 43,744 shares were vested and exercisable. The option had an aggregate grant date fair value of $254,474. On November 24, 2020, we granted Mr. Ruport and option to purchase 114,915 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2020, 3,192 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $236,519. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $127,987.
(10) | On December 3, 2019, we granted Mr. Ruport (i) an option to purchase up to 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3, 2020; and (ii) an option to purchase up to 40,000 shares of our common stock with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the grant date. As of December 31, 2020, 14,053 shares were fully vested and exercisable. The options had aggregate grant date fair values of $90,366 and $361,457, respectively.
(11) | On May 28, 2020, we granted Mr. Fisher an option to purchase 23,331 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 25%, or 5,833 shares vested and became exercisable on June 15, 2020, and the remaining 17,498 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, 8,749 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $50,895. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Fisher 12,019 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $25,598.
(12) | On January 10, 2019, we granted Mr. Fisher an option to purchase 1,184 shares of our common stock. The option has an exercise price equal to $20.20 per share and is fully vested. On November 1, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common stock. The option has an exercise price equal to $5.20 per share and is fully vested. On November 26, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common stock. The option has an exercise price equal to $8.20 per share and is fully vested. On December 3, 2019, we granted Mr. Fisher an option to purchase 500 shares of our common stock. The option has an exercise price equal to $11.20 per share and is fully vested. The options had aggregate grant date fair value of $18,271, $420, $661, and $4,518, respectively.
(13) | On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price equal to $2.50 per share and vests as follows: 25%, or 11,665 shares vested and became exercisable on June 15, 2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, 17,497 shares were fully vested and exercisable. The option had an aggregate grant date fair value of $101,788. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 24,038 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $51,196.
(14) | On January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00. The option vests as follows: 94 shares vested and became exercisable on January 1, 2020; the remaining 281 shares will vest and become exercisable in equal installments on the second through the fourth anniversaries of the date of grant. As of December 31, 2020, 94 shares were fully vested and exercisable. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through the fourth anniversaries of the date of grant. As of December 31, 2020, 125 shares were fully vested and exercisable. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $6.70. The option is fully vested and exercisable. The options had aggregate grant date fair values of $4,358, $4,885, and $26,857, respectively.

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Named Executive Officer Employment Agreements

John Rice

Prior to April 30, 2020, Mr. Rice served as President, Chief Executive Officer, and principal executive officer of the Company at an annual base salary of $155,000. On April 30, 2020, he resigned from such positions. Mr. Rice has remained a director on the Board of Directors and has continued to serve as Chairman of the Board. Mr. Rice was compensated as a non-employee director (on a pro-rata basis for 2020 based on the partial year during which Mr. Rice served as a non-employee director) under the Company’s director compensation program, as may be adjusted from to time for all non-employee directors. On May 1, 2020, we entered into a consulting agreement with Mr. Rice, pursuant to which Mr. Rice was engaged to provide, among other services to be determined by the Company, advice regarding the structure of certain financial and other strategic transactions involving the Company, on an as-needed basis. The consulting agreement expired on December 31, 2020.

Mark K Ruport

On December 3, 2019, we entered into an “at-will’ employment letter agreement with Mark Ruport, effective as of December 3, 2019 (the “effective date”), pursuant to which Mr. Ruport agreed to serve as our Executive Chairman on an “at-will” basis. Additionally, Mr. Ruport was appointed to serve as a member of our Board of Directors, effective as of December 3, 2019, with a term expiring at the 2021 annual meeting of stockholders. As of April 30, 2020, Mr. Ruport was appointed as President, Chief Executive Officer, and principal executive officer of the Company, and no longer serves as Executive Chairman.

Under the employment letter agreement, Mr. Ruport is entitled to (i) an annual base salary of $155,000 (such base salary is not subject to decrease, but may be increased in the discretion of the Company’s Compensation Committee of the Board of Directors based on annual or special case assessments of Mr. Ruport’s performance and other factors), and (ii) all benefits that we elect in our sole discretion to provide from time to time to our other executive officers, and received a grant of (1) a five-year stock option to purchase up to 10,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and vested and became exercisable in full on the first month’s anniversary of the effective date, and (2) a five-year stock option to purchase up to 40,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and will vest and become exercisable in equal (as closely as possible) monthly installments over three years from the effective date, provided, in each case, that Mr. Ruport remains an employee of the Company through such vesting date.

Such options are on such other terms and provisions as are contained in the Company’s standard form nonqualified stock option agreement; provided, however, that (x) upon the occurrence of a Change of Control (as defined in the employment letter agreement), any unvested portion of the options as of the date of such Change of Control will immediately and automatically vest; provided, however, that, the options may be assumed or, in the discretion of the Board of Directors, an equivalent option may be substituted by an applicable successor corporation or any subsidiary of the successor corporation in connection with a Change of Control), and (y) in the event that the Board of Directors determines that Mr. Ruport is unable to perform his duties due to an accident, illness or other event or condition which physically or mentally incapacitates him for a period of 45 consecutive days (“Disability”), if he ceases to be employed by the Company as a result of a Disability, the options will continue to vest and remain exercisable for the 5-year term of the options in accordance with the terms of the option agreements.

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Additionally, during the term of his employment, Mr. Ruport is eligible to receive one or more bonuses relating to each fiscal year in recognition of his achievement of individual and Company goals established by the Board of Directors from time to time. However, the decision to provide any such bonuses and the amount and terms of any such bonuses is in the sole discretion of the Board of Directors. On February 25, 2021, Mr. Ruport received a performance bonus of $50,000 for 2020.

Darren P. Beckett

Mr. Beckett has served as an employee of the Company since September 25, 2017, pursuant to an “at will” employment agreement with the Company, under which he was engaged to serve as our Engineering Manager. On October 18, 2018, his title was changed from Vice President of Engineering to Chief Technology Officer of the Company. On October 18, 2018, the Company also increased the annual base salary of Mr. Beckett from $135,000 to $180,000, effective retroactive to September 16, 2018, and granted Mr. Beckett an option to purchase 2,000 shares of common stock under the 2013 Plan at an exercise price of $12.10 per share. The option has a term of five years and vests in equal annual installments over four years from the date of grant subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable vesting date. Under the agreement, Mr. Beckett is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. On October 13, 2017, in connection with his employment, Mr. Beckett was granted an option to purchase up to 1,500 shares of our common stock with an exercise price equal to $19.20 per share. Such option is vested and exercisable as to 675 shares at December 31, 2020, and the remaining 825 shares will vest on October 23, 2021 provided Mr. Beckett is an employee of the Company on that date.

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Ronald Fisher

We have entered into an “at will” employment agreement, effective as of August 10, 2015, with Mr. Fisher under which he was engaged to serve as our Vice President of Business Development. Mr. Fisher is entitled to receive an annual base salary of $180,000. Pursuant to the employment agreement, Mr. Fisher also was granted, as a signing bonus, (i) a stock option to purchase up to 2,375 shares of common stock of the Company, at an exercise price equal to $118.00 per share, which was the closing market price of the Company’s common stock on August 10, 2015 (i.e., the date of grant), under the 2013 Equity Incentive Plan. Such option is fully vested and exercisable. The option has a ten-year term and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement, and (ii) 125 shares of common stock of the Company with a value equal to the closing price of our common stock on the date of grant and is on such other terms and provisions as are contained in Sigma Labs’ standard form of restricted stock letter agreement under the Plan. Such shares are fully vested. Additionally, the Company granted Mr. Fisher under the 2013 Plan, effective as of August 11, 2016, a stock option to purchase up to 500 shares of common stock of the Company. Such option has an exercise price equal to the closing price of our common stock on the date of grant and is fully vested and exercisable. Further, Mr. Fisher is eligible to participate in the Company’s 2013 Equity Incentive Plan and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan.

On September 18, 2017, we and Mr. Fisher entered into Amendment No. 1 to Mr. Fisher’s employment agreement, effective August 10, 2015, pursuant to which, effective as of February 11, 2017, item 2, entitled “Performance Bonuses,” of Exhibit A of Mr. Fisher’s employment agreement was deleted in its entirety and replaced with the new item 2 that was set forth in the amendment to employment agreement. Such amendment provided that Mr. Fisher would become entitled to receive performance-based stock and cash bonuses if certain milestones were satisfied by February 11, 2018, so long as Mr. Fisher remained an employee of the Company as of the date the applicable milestone was satisfied. On February 21, 2018, the Company and Mr. Fisher entered into Amendment No. 2 to Mr. Fisher’s employment agreement, pursuant to which the foregoing February 11, 2018 date was extended to December 31, 2018. On January 10, 2019, the Company granted Mr. Fisher an option to purchase up to 1,184 shares of common stock in exchange for the cancellation of his accrued but unpaid vacation balance at December 31, 2018. On March 7, 2019, the Company issued 150 shares of common stock under the 2013 Plan to Mr. Fisher connected with the satisfaction of a performance milestone.

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Outstanding Equity Awards at 2020 Fiscal Year-End

The following tables set forth outstanding equity awards issued under our 2013 Equity Incentive Plan and 2020 Stock Appreciation Rights Plan as of December 31, 2020 that are held by our named executive officers.

|  | Option Awards
Name |  | Number of securities underlying unexercised options (#) exercisable |  |  | Number of securities underlying unexercised options (#) unexercisable |  |  | Option exercise price ($) |  |  | Option expiration date
John Rice(2) |  |  | 2,000 |  |  |  | — |  |  |  | 18.80 |  |  | 4/18/23
|  |  | 2,000 |  |  |  | — |  |  |  | 15.40 |  |  | 4/18/23
|  |  | 2,000 |  |  |  | — |  |  |  | 14.80 |  |  | 4/18/23
|  |  | 2,000 |  |  |  | — |  |  |  | 11.00 |  |  | 4/29/23
|  |  | 2,000 |  |  |  | — |  |  |  | 14.70 |  |  | 5/30/23
|  |  | 2,000 |  |  |  | — |  |  |  | 11.90 |  |  | 6/29/23
|  |  | 2,000 |  |  |  | — |  |  |  | 8.70 |  |  | 7/30/23
|  |  | 6,875 |  |  |  | — |  |  |  | 17.90 |  |  | 12/31/23
|  |  | 2,292 |  |  |  | — |  |  |  | 15.70 |  |  | 11/30/23
|  |  | 2,292 |  |  |  | — |  |  |  | 15.00 |  |  | 1/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 19.30 |  |  | 2/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 20.40 |  |  | 3/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 14.70 |  |  | 4/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 15.00 |  |  | 5/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 12.00 |  |  | 6/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 14.00 |  |  | 7/1/24
|  |  | 2,292 |  |  |  | — |  |  |  | 7.40 |  |  | 8/1/24
|  |  | 16,044 |  |  |  | — |  |  |  | 2.28 |  |  | 5/1/25
Mark K. Ruport(3) |  |  | 10,000 |  |  |  | — |  |  |  | 11.20 |  |  | 12/3/24
|  |  | 14,053 |  |  |  | 25,947 |  |  |  | 11.20 |  |  | 12/3/24
|  |  | 43,744 |  |  |  | 72,910 |  |  |  | 2.50 |  |  | 6/14/25
|  |  | — |  |  |  | 60,094 |  |  |  | 2.63 |  |  | 6/22/25
|  |  | 3,192 |  |  |  | 111,723 |  |  |  | 2.55 |  |  | 11/24/25
Ronald Fisher(4) |  |  | 691 |  |  |  | 2,184 |  |  |  | 12.20 |  |  | 4/18/23
|  |  | 1,183 |  |  |  | — |  |  |  | 20.20 |  |  | 1/10/24
|  |  | 100 |  |  |  | — |  |  |  | 5.20 |  |  | 11/1/24
|  |  | 100 |  |  |  | — |  |  |  | 8.20 |  |  | 11/26/24
|  |  | 500 |  |  |  | — |  |  |  | 11.20 |  |  | 12/3/24
|  |  | 8,749 |  |  |  | 14,582 |  |  |  | 2.50 |  |  | 6/14/25
|  |  | — |  |  |  | 12,019 |  |  |  | 2.63 |  |  | 6/22/25
|  |  | 2,375 |  |  |  | — |  |  |  | 118.00 |  |  | 8/10/25
|  |  | 500 |  |  |  | — |  |  |  | 105.60 |  |  | 8/11/26
Darren Beckett(5) |  |  | 675 |  |  |  | 825 |  |  |  | 19.20 |  |  | 10/12/22
|  |  | 400 |  |  |  | 1,600 |  |  |  | 12.10 |  |  | 10/18/23
|  |  | 94 |  |  |  | 281 |  |  |  | 15.00 |  |  | 1/1/24
|  |  | 125 |  |  |  | 375 |  |  |  | 12.40 |  |  | 7/18/24
|  |  | 5,000 |  |  |  | — |  |  |  | 6.70 |  |  | 10/11/24
|  |  | 17,497 |  |  |  | 29,164 |  |  |  | 2.50 |  |  | 6/14/25
|  |  | — |  |  |  | 24,038 |  |  |  | 2.63 |  |  | 6/22/25
|  |  | 300 |  |  |  | 1,200 |  |  |  | 15.60 |  |  | 2/26/28

(1) On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

(2) On April 19, 2018, we granted Mr. Rice three options (the “Options”) to purchase up to 2,000 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The Options have an exercise price per share equal to $18.80, $15.40 and $14.80, respectively, and each is fully vested. The Company also granted Mr. Rice an option to purchase up to 2,000 shares on each of April 30, 2018, May 31, 2018, June 30, 2018 and July 31, 2018. Such options have an exercise price per share equal to $11.00 $14.70, $11.90 and $8.70, respectively, and each is fully vested. On November 1, 2018 the Company granted Mr. Rice a fully vested option to purchase up to 6,875 shares at an exercise price of $17.90. On December 1, 2018 the Company granted Mr. Rice a fully vested option to purchase up to 2,292 shares at an exercise price of $15.70. On each of the first day of each month commencing January 1, 2019 and ending on August 1, 2019, we granted Mr. Rice an option to purchase up to 2,292 shares of our common stock, under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options are fully vested and have the following exercise prices: $15.00, $19.30, $20.40, $14.70, $15.00, $12.00, $14.00, and $7.40. On May 1, 2020, we granted Mr. Rice an option to purchase up to 16,044 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.28 and is fully vested and exercisable.

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(3) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s President and Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3,2020; and (ii) an option to purchase up to 40,000 shares of our common stock, with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the date of grant. On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 29,164 shares vested and became exercisable on June 15, 2020, and the remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, a total of 43,744 shares were vested and exercisable. On November 24, 2020, we granted Mr. Ruport an option to purchase up to 114,915 shares of our common stock. The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2020, 3,192 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date.

(4) In August 2015, in conjunction with the hiring of Ronald Fisher, the Company’s Vice President of Business Development, the Company granted to Mr. Fisher a stock option (the “Option”) to purchase up to 2,375 shares of common stock of the Company, at an exercise price equal to $118.00 per share, which was the closing market price of the Company’s common stock on August 10, 2015 (i.e., the date of grant), under the 2013 Plan. The Option is fully vested. The Option has a ten-year term and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement. The Company granted Mr. Fisher under the 2013 Equity Incentive Plan, effective as of August 11, 2016, a stock option to purchase up to 500 shares of common stock of the Company. Such option has an exercise price equal to the closing price of our common stock on the date of grant and is fully vested and exercisable. On April 19, 2018, we granted to Mr. Fisher an option to purchase 2,875 shares of our common stock. Such option has a five-year term with an exercise price equal to the closing price of our common stock on the date of the grant. The option is vested as to 691 shares and the remaining shares vest as follows: 683 shares will vest on April 19, 2021, and the remaining 1,501 shares will vest on April 19, 2022. On January 10, 2019, we granted Mr. Fisher an option to purchase 1,183 shares of our common stock. The option has an exercise price per share equal to $20.20 and is fully vested. On November 1, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common stock. The option has an exercise price per share equal to $5.20 and is fully vested. On November 26, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common stock. The option has an exercise price per share equal to $8.20 and is fully vested. On December 3, 2019, we granted Mr. Fisher an option to purchase 500 shares of our common stock. The option has an exercise price per share equal to $11.20 and is fully vested. On May 28, 2020, we granted Mr. Fisher an option to purchase 23,331 shares of our common stock. The option has an exercise price per share equal to $2.50 and vests as follows: 5,833 shares vested and became exercisable on June 15, 2020, and the remaining 17,498 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, a total of 8,749 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Fisher 12,019 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date.

(5) On February 26, 2018 we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.60 and is vested as to 300 shares. The remaining shares will vest as follows: 375 shares will vest and become exercisable on February 26, 2021; and 825 shares will vest and become exercisable on February 26, 2022. On October 18, 2018, we granted Mr. Beckett an option to purchase up to 2,000 shares of our common stock. The option has an exercise price per share equal to $12.10 and is vested as to 400 shares. The remaining shares vest as follows: 500 shares will vest and become exercisable on September 16, 2021, and 1,100 shares will vest and become exercisable on September 16, 2022. On October 13, 2017, we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $19.20. The option is vested as to 675 shares and the remaining 825 shares will vest and become exercisable on October 13, 2021. On January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00. The option vests as follows: 94 shares vested and became exercisable on January 1, 2020; the remaining 281 shares will vest and become exercisable in equal installments on the second through the fourth anniversaries of the date of grant. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through the fourth anniversaries of the date of grant. As of December 31, 2020, the option was vested as to 125 shares. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $6.70 and is fully vested and exercisable. On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock. The option has an exercise price per share equal to $2.50 and vests as follows: 11,665 shares vested and became exercisable on June 15, 2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three years. As of December 31, 2020, a total of 17,497 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 24,038 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date.

Equity Awards

We offer stock options, stock appreciation rights, and stock awards to certain of our employees, including our executive officers, as the long-term incentive component of our compensation program. We generally grant equity awards to new hires upon their commencing employment with us. Our stock options allow employees to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and may or may not be intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow employees to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. We sometimes also offer stock options, stock appreciation rights and stock awards to our consultants in lieu of cash. Our stock options allow consultants to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and are not intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow consultants to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. Stock options, stock appreciation rights, and stock awards granted to our executive officers may be subject to accelerated vesting in certain circumstances.

Retirement Plans

We maintain a qualified 401(k) plan, in which all eligible employees may participate. We make safe harbor contributions to match 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed. Safe harbor contributions are 100% vested. We may also elect, on an annual basis, to make a discretionary contribution to the plan, but have not done so to date. Our elective matches and elective contributions vest to participant accounts as follows: 20% after two years of service, and 20% per year thereafter until the participant reaches 6 years of service, at which time, employer contributions vest 100%. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan.

No Tax Gross-Ups

We do not make gross-up payments to cover our executive officers’ personal income taxes that may pertain to any of the compensation paid or provided by our company.

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2013 Equity Incentive Plan

Plan Purpose

Our Board of Directors adopted the 2013 Plan to (1) encourage selected employees, officers, directors, consultants and advisers to improve our operations and increase our profitability, (2) encourage selected employees, officers, directors, consultants and advisers to accept or continue employment or association with us, and (3) increase the interest of selected employees, officers, directors, consultants and advisers in our welfare through participation in the growth in value of our common stock. All of our current employees, directors and consultants are eligible to participate in the 2013 Plan.

Administration

The 2013 Plan is to be administered by the Board or by a committee to which administration of the Plan, or of part of thereof, is delegated by the Board. The 2013 Plan is currently administered by our Compensation Committee, which we refer to below as the “Administrator.” The Administrator is responsible for selecting the officers, employees, directors, consultants and advisers who will receive Options, Stock Appreciation Rights and Stock Awards. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Option and Stock Appreciation Right award, including the number of shares subject to the Option, the exercise price, expiration date and vesting period of the Option and whether the option is an Incentive Option or a Non-Qualified Option. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Stock Award, including the number of shares granted, the purchase price (if any), and the vesting, transfer and other restrictions imposed on the stock. The Administrator has the power, authority and discretion to make all other determinations deemed necessary or advisable for the administration of the 2013 Plan or of any award under the 2013 Plan.

Neither the Board nor any committee of the Board to which administration of the 2013 Plan is delegated will provide advice to participants about whether or not to accept or exercise their awards. Each participant must make his or her own decision about whether or not to accept or exercise an award.

The 2013 Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not a qualified pension, profit sharing or bonus plan under Section 401(a) of the Internal Revenue Code

Stock Subject to the 2013 Plan

Subject to the provisions of the 2013 Plan relating to adjustments upon changes in common stock, an aggregate of 890,000 shares of common stock are currently subject to outstanding awards under the 2013 Plan or future awards under the 2013 Plan.

If awards granted under the 2013 Plan expire or otherwise terminate or are cancelled without being exercised in full, the shares of common stock not acquired pursuant to such awards will again become available for issuance under the 2013 Plan. If shares of common stock issued pursuant to awards under the 2013 Plan are forfeited to or repurchased by us, the forfeited or repurchased stock will again become available for issuance under the 2013 Plan.

If shares of common stock subject to an award are not delivered to a participant because such shares are withheld for payment of taxes incurred in connection with the exercise of an Option, or the issuance of shares under a Stock Award, or the award is exercised through a reduction of shares subject to the award (“net exercised”), then the number of shares that are not delivered will not again be available for issuance under the 2013 Plan. In addition, if the exercise price of any award is satisfied by the tender of shares of common stock to us (whether by actual delivery or attestation), the shares tendered will not again be available for issuance under the 2013 Plan.

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Eligibility

All directors, employees, consultants and advisors of the Company and its subsidiaries are eligible to receive awards under the 2013 Plan. Incentive Options may only be granted under the 2013 Plan to a person who is a full-time officer or employee of the Company or a subsidiary. The Administrator will determine from time-to-time which directors, employees, consultants and advisers will be granted awards under the 2013 Plan.

Terms of Awards

Written Agreement

Each award under the 2013 Plan will be evidenced by an agreement in a form approved by the Administrator.

Exercise Price; Base Value

The exercise price for a Non-Qualified Option or an Incentive Option may not be less than 100% of the fair market value of the Common Stock on the date of the grant of the Non-Qualified Option or Incentive Option. With respect to an Option holder who owns stock possessing more than 10% of the total voting power of all classes of our stock, the exercise price for an Incentive Option may not be less than 110% of the fair market value of the Common Stock on the date of the grant of the Incentive Option. The base value of a Stock Appreciation Right shall also be no less than 100% of the Common Stock on the date of the grant of the Stock Appreciation Right. The 2013 Plan does not specify a minimum exercise price for Stock Awards.

Vesting

Each Option, Stock Appreciation Right or Stock Award will become exercisable or non-forfeitable (that is, “vest”) under conditions specified by the Administrator at the time of grant. Vesting typically is based upon continued service as a director or employee but may be based upon any performance criteria and other contingencies that are determined by the Administrator. Shares subject to Stock Awards may be subject to specified restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Administrator.

Expiration Date

Each Option or Stock Appreciation Right must be exercised by a date specified in the award agreement, which may not be more than ten years after the grant date. Except as otherwise provided in the relevant agreement, an Option or Stock Appreciation Right ceases to be exercisable ninety days after the termination of the holder’s employment with us.

Transfers of Options

Unless otherwise determined by the Administrator, Options are not transferable except by will or the laws of descent and distribution.

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Purchase Price Payment

Unless otherwise determined by the Administrator, the purchase price of Common Stock acquired under the 2013 Plan is payable by cash or check at the time of an Option exercise or acquisition of a Stock Award. The Company does not charge participants any fees or commissions in connection with their acquisition of Common Stock under the 2013 Plan. The Administrator also has discretion to accept the following types of payment from participants:

| ● | A secured or unsecured promissory note, provided that this method of payment is not available to a participant who is a director or an executive officer;
| ● | Shares of our Common Stock already owned by the Option or Stock Award holder as long as the surrendered shares have a fair market value that is equal to the acquired stock and have been owned by the participant for at least six months;
| ● | The surrender of shares of Common Stock then issuable upon exercise of an Option; and
| ● | A “cashless” option exercise in accordance with applicable regulations of the SEC and the Federal Reserve Board.

Withholding Taxes

At the time of his or her exercise of an Option or Stock Appreciation Right, an employee is responsible for paying all applicable federal and state withholding taxes. A holder of Stock Awards is responsible for paying all applicable federal and state withholding taxes once the shares covered by the award cease to be forfeitable or at any other time required by applicable law.

Securities Law Compliance

Shares of Common Stock will not be issued pursuant to the exercise of an Option or the receipt of a Stock Award unless the Administrator determines that the exercise of the Option or receipt of the Stock Award and the issuance and delivery of such shares will comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933 (the “Securities Act”), applicable state and foreign securities laws and the requirements of any stock exchange on which our Common Stock is traded.

Effects of Certain Corporate Transactions

Except as otherwise determined by the Administrator, in the event of a “corporate transaction,” all previously unexercised Options and Stock Appreciation Rights will terminate immediately prior to the consummation of the corporate transaction and all unvested Restricted Stock awards will be forfeited immediately prior to the consummation of the corporate transaction. The Administrator, in its discretion, may permit exercise of any Options or Stock Appreciation Rights prior to their termination, even if those awards would not otherwise have been exercisable, or provide that outstanding awards will be assumed or an equivalent Option or Stock Appreciation Right substituted by a successor corporation. The Administrator, in its discretion, may remove any restrictions as to any Restricted Stock awards or provide that all outstanding Restricted Stock awards will participate in the corporate transaction with an equivalent stock substituted by the successor corporation subject to the restrictions. In general, a “corporate transaction” means:

| ● | Our liquidation or dissolution;
| ● | Our merger or consolidation with or into another corporation as a result of which we are not the surviving corporation;
| ● | A sale of all or substantially all of our assets; or
| ● | A purchase or other acquisition of more than 50% of our outstanding stock by one person, or by more than one person acting in concert.

Other Adjustment Provisions

If the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, appropriate adjustments shall be made by the Administrator, in its discretion, in (1) the number and class of shares of stock subject to the 2013 Plan and each Option and grant of Stock Awards outstanding under the 2013 Plan, and (2) the purchase price of each outstanding Option and (if applicable) Stock Award. For example, if an Option is for 1,000 shares for $20.00 per share and there is a 2-for-1 stock split, the Option would be adjusted to be exercisable for 2,000 shares at $10.00 per share.

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Amendment or Termination of the Plan

The Board of Directors may at any time amend, discontinue or terminate the 2013 Plan. With specified exceptions, no amendment, suspension or termination of the Plan may adversely affect outstanding Options or Stock Appreciation Rights or the terms that are applicable to outstanding Stock Awards. No amendment, suspension or termination of the Plan requires stockholder approval unless such approval is required under applicable law or under the rules of any stock exchange on which our Common Stock is traded. Unless terminated earlier by the Board of Directors, the 2013 Plan will terminate automatically on March 15, 2023, which is the tenth anniversary of the date of the 2013 Plan’s adoption by the Board.

As of March 24, 2021, there were 880,319 shares previously issued or subject to outstanding awards under the 2013 Plan and 9,681 shares were available for future issuance under the 2013 Plan.

2020 Stock Appreciation Rights Plan

On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

Governance of the Plan

The Plan will be administered by the Compensation Committee of the Board or, in the Board’s sole discretion, by the Board. The Compensation Committee will have the authority to, among other things, (i) construe and interpret the Plan and apply its provisions; (ii) promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (iii) delegate its authority to one or more persons who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder with respect to SARs that do not involve “insiders” within the meaning of Section 16 of the Exchange Act; (iv) determine when SARs are to be granted under the Plan and the applicable grant date; (v) prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant; (vi) amend any outstanding SARs, subject, in certain cases, to the participant’s consent; and (vii) make all other determinations which may be necessary or advisable for the administration of the Plan.

Eligible Participants

SARS may be granted only to persons who are Service Providers, and those persons whom the Committee determines are reasonably expected to become Service Providers following the grant date. The Committee may from time to time designate those Service Providers, if any, to be granted SARs under the Plan, the number of SARs which will be granted to each such person, and any other terms or conditions relating to SARs as it may deem appropriate to the extent consistent with the provisions of the Plan. A participant who has been granted a SAR may, if otherwise eligible, be granted additional incentive awards at any time.

Grant. The Committee may grant SARs to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR.

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General Provisions. The terms and conditions of each SAR will be evidenced by a SAR agreement. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The term of the SAR will be determined by the Committee but may not be greater than ten years from the date of grant.

Exercise. SARs are exercisable subject to such terms and conditions as the Committee may specify in the SAR agreement for the SAR. A SAR may be exercised by the delivery of a signed written notice of exercise to the Company, which must be received and accepted by the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice must set forth the number of SARs being exercised, together with any additional documents the Company may require.

Settlement. Upon exercise of a SAR, the Grantee will receive an amount equal to the Spread. The Spread, less applicable withholdings, will be payable only in cash. In no event may any SAR be settled in any manner other than by delivery of a cash payment from the Company.

Form of SAR Agreement

Each participant to whom a SAR is granted will be required to enter into a SAR agreement with the Company, in such a form as is provided by the Committee. The SAR agreement will contain specific terms as determined by the Committee, in its discretion, with respect to the participant’s particular SAR. Such terms need not be uniform among all participants or any similarly situated participants. The SAR agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular participant’s SAR, as well as, for example, provisions to the effect that the participant must abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee. A SAR will include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any participant.

The Committee may specify in a SAR agreement that the participant’s rights, payments, and benefits with respect to a SAR will be subject to forfeiture upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the incentive award. Such events may include, but are not limited to, termination with cause or other conduct by the participant that is detrimental to the business or reputation of the Company.

Termination of Employment

Unless otherwise expressly provided in the participant’s SAR agreement, if the participant’s employment is terminated for any reason other than due to cause, death or disability, any non-vested portion of any outstanding SAR at the time of such termination will automatically expire and terminate and no further vesting will occur after the termination date. In such event, except as otherwise expressly provided in the SAR agreement, the participant will be entitled to exercise such participant’s rights only with respect to the portion of the SAR that was vested as of the termination date for a period that will end on the earlier of (i) the expiration date set forth in the SAR agreement or (ii) ninety days after the date of termination.

Termination for Cause

Unless otherwise expressly provided in the participant’s SAR agreement, in the event of the termination of a participant’s employment for cause, all vested and non-vested SARs granted to such participant will immediately expire, and will not be exercisable to any extent.

Disability or Death

Unless otherwise expressly provided in the participant’s SAR agreement, upon termination of employment as a result of the participant’s disability or death, (i) any non-vested portion of any outstanding SAR will immediately terminate upon termination and no further vesting will occur, and (ii) any vested SAR will expire on the earlier of either (A) the expiration date set forth in the SAR agreement or (B) 12 months following the participant’s termination of employment.

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Continuation

Subject to the conditions and limitations of the Plan and applicable law, in the event that a participant ceases to be an employee, outside director or consultant, as applicable, for whatever reason, the Committee and participant may mutually agree with respect to any outstanding SAR then held by the participant (i) for an acceleration or other adjustment in any vesting schedule applicable to the SAR award; (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such SAR; or (iii) to any other change in the terms and conditions of the SAR. In the event of any such change to an outstanding SAR, a written amendment to the participant’s SAR agreement will be required. No amendment to a participant’s SAR will be made to the extent compensation payable pursuant thereto as a result of such amendment would be considered deferred compensation that is not excepted from taxation or penalties under Code Section 409A, unless otherwise determined by the Committee.

SARs granted under the Plan are not transferable other than to a designated beneficiary upon the Participant’s death or by will or the laws of descent and distribution.

Change in Control

Unless otherwise provided in a SAR Agreement, notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined in the Plan), all outstanding SARs will become 100% vested and immediately and fully exercisable.

Amendment

The Board at any time, and from time to time, may amend or terminate the Plan. The Committee at any time, and from time to time, may amend the terms of any one or more SAR agreements, except that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any SAR unless the participant consents in writing.

As of March 24, 2021, there were 127,629 SARs previously issued under the 2020 Plan.

Director Compensation

We believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve on our Board of Directors. Our cash compensation policies are designed to encourage frequent and active interaction between directors and our executives both during and between formal meetings as well as compensate our directors for their time and effort. Further, we believe it is important to align the long-term interests of our non-employee directors (i.e., directors who are not employed by us as officers or employees) with those of the Company and its stockholders, and that awarding equity compensation to, and thereby increasing ownership of our common stock by, our non-employee directors is an appropriate means to achieve this alignment. Directors who are also employees of our company do not receive compensation for their service on our Board of Directors.

Under our director compensation program for 2020, each non-employee director received annual compensation of $18,500, 2,500 shares of restricted common stock, which is fully vested, and an option to purchase 25,000 shares of our common stock, which is also fully vested. Such grants were fully vested because the directors agreed to defer the payment of their cash compensation for the first two quarters of 2020 as a cash saving measure. In addition, the Chairperson of the Audit Committee received a $2,500 annual retainer in cash. All cash fees are paid quarterly. Also, each non-employee director may be reimbursed for his reasonable expenses incurred in the performance of his duties as a director as our Board of Directors determines from time to time. Our Compensation Committee periodically evaluates our director compensation program and determines whether any changes should be recommended to the Board. In that regard, under our director compensation program for 2021, each non-employee director will receive a quarterly cash payment of $2,500, and received a stock option to purchase 50,000 shares of our common stock, which option will vest ratably each month through December 31, 2021 (26,000 of such shares will only be exercisable upon approval by the Company’s stockholders at the annual meeting of the Company’s stockholders of an increase in the aggregate number of shares of the Company’s common stock that may be issued or issuable under the Plan).

The following table sets forth certain information concerning the compensation paid to non-employee directors in 2020 for their services as directors of the Company. The compensation of Mr. Ruport, who serves as a director and serves as our President and Chief Executive Officer, is described in the Summary Compensation Table of Executive Officers. Our non-employee directors do not receive fringe or other benefits.

Name |  | Fees Earned or Paid in Cash ($) |  |  | Stock Awards ($)(6) |  |  | Option Awards ($)(6) |  |  | Total ($) |
John Rice (1) |  |  | 9,500 |  |  |  | 2,243 |  |  |  | 54,366 |  |  |  | 66,109 |
Salvatore Battinelli(2) |  |  | 18,500 |  |  |  | 6,725 |  |  |  | 54,366 |  |  |  | 79,591 |
Dennis Duitch(3) |  |  | 21,000 |  |  |  | 6,725 |  |  |  | 54,366 |  |  |  | 82,091 |
Frank Garofalo(4) |  |  | 4,500 |  |  |  | - |  |  |  | - |  |  |  | 4,500 |
Kent Summers(5) |  |  | 18,500 |  |  |  | 6,725 |  |  |  | 54,366 |  |  |  | 79,591 |

(1) | The fees shown were paid to Mr. Rice for services as a non-employee director from May 1, 2020 through December 31, 2020. On July 31, 2020, the Company issued 834 shares of the Company’s common stock to Mr. Rice, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with his service as a director, with such shares immediately vested. Such shares were valued at $2,243 or $2.69 per share. Also on July 31, 2020, the Company granted Mr. Rice an option to purchase up to 25,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $2.69 per share, is fully vested, and had a grant date fair value of $54,366. The compensation of Mr. Rice for the period January 1, 2020 through April 30, 2020, during which time he served as President and Chief Executive officer in addition to his service as a director, is described in the Summary Compensation Table of Executive Officers.
(2) | The fees shown were paid to Mr. Battinelli for services as a director. On July 31, 2020, the Company issued 2,500 shares of the Company’s common stock to Mr. Battinelli, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with his service as a director, with such shares immediately vested. Such shares were valued at $6,725 or $2.69 per share. Also on July 31, 2020, the Company granted Mr. Battinelli an option to purchase up to 25,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $2.69 per share, is fully vested, and had a grant date fair value of $54,366.
(3) | The fees shown were paid to Mr. Duitch for services as a director, including $2,500 as a retainer for serving as the Chairman of the Audit Committee. On July 31, 2020, the Company issued 2,500 shares of the Company’s common stock to Mr. Duitch, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with his service as a director, with such shares immediately vested. Such shares were valued at $6,725 or $2.69 per share. Also on July 31, 2020, the Company granted Mr. Duitch an option to purchase up to 25,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $2.69 per share, is fully vested, and had a grant date fair value of $54,366.
(4) | The fees shown were paid to Mr. Garofalo for services as a director. Mr. Garofalo resigned from the Board of Directors on February 19, 2020.
(5) | The fees shown were paid to Mr. Summers for services as a director. On July 31, 2020, the Company issued 2,500 shares of the Company’s common stock to Mr. Summers, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with his service as a director, with such shares immediately vested. Such shares were valued at $6,725 or $2.69 per share. Also on July 31, 2020, the Company granted Mr. Summers an option to purchase up to 25,000 shares of the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $2.69 per share, is fully vested, and had a grant date fair value of $54,366.
(6) | These columns represent the aggregate grant date fair value of stock awards and stock options computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be recognized by the named directors from these awards.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 24, 2021 (a) by each person known by us to own beneficially 5% or more of any class of our common stock, (b) by our named executive officers and each of our directors (and director nominees) and (c) by all executive officers and directors of the Company as a group.

The number of shares beneficially owned by each stockholder is determined in accordance with SEC rules. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power. Percentage ownership is based on 8,302,098 shares of our common stock outstanding on March 24, 2021. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stock options, warrants or other rights held by such person that are currently convertible or exercisable or will become convertible or exercisable within 60 days of March 24, 2021 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.

As of March 24, 2021, there are no 5% or greater beneficial holders of our common shares. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

Name of Beneficial Owner |  | Number of Shares Beneficially Owned |  |  | Percentage of Shares Beneficially Owned |
Named Executive Officers and Directors |  |  |  |  |  |  |  |
John Rice(1) |  |  | 91,905 |  |  |  | 1.11 | %
Mark K Ruport(2) |  |  | 116,494 |  |  |  | 1.40 | %
Ronald Fisher(3) |  |  | 18,637 | * |  |  |  |
Darren Beckett(4) |  |  | 30,545 | * |  |  |  |
Salvatore Battinelli(5) |  |  | 51,877 | * |  |  |  |
Dennis Duitch(6) |  |  | 46,249 | * |  |  |  |
Kent J. Summers(7) |  |  | 45,500 | * |  |  |  |
All executive officers and directors as a group (8 persons)(8) |  |  | 419,581 |  |  |  | 5.05 | %

*Less than 1%.

(1) | Includes 4,000 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options.
(2) | Includes (a) 13,406 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options; (b) 6,166 shares that may be acquired now or within 60 days of March 24, 2021 pursuant to the conversion of the shares of the Company’s Series E Preferred Stock; and (c) 4,855 shares that may be acquired now or within 60 days of March 24, 2021 upon exercise of outstanding Class A Warrants.
(3) | Includes 1,655 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options.
(4) | Includes 1,944 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options.
(5) | Includes (a) 4,000 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options, (b) 3,127 shares that may be acquired now or within 60 days of March 24, 2021 pursuant to the conversion of shares of the Company’s Series E Preferred Stock, and (c) 2,428 shares that may be acquired now or within 60 days of March 24, 2021 upon exercise of outstanding Class A Warrants.
(6) | Includes 4,000 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options.
(7) | Includes 4,000 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options.
(8) | Includes 34,463 shares that may be acquired now or within 60 days of March 24, 2021 upon the exercise of outstanding stock options and 9,293 shares that may be acquired now or within 60 days of March 24, 2021 pursuant to the conversion of the shares of the Company’s Series E Preferred Stock.

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Equity Compensation Plan Information

The following table provides certain information with respect to our equity compensation plans as of December 31, 2020.

|  | (a) |  |  | (b) |  |  | (c) |
Plan Category |  | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |  |  | Weighted- average Exercise Price of Outstanding Options, Warrants and Rights |  |  | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
2013 Equity Incentive Plan(1) |  |  | 713,010 |  |  | $ | 5.15 |  |  |  | 152,753 |
Equity compensation plans not approved by security holders(2) |  |  | - |  |  | $ | 2.61 |  |  |  | - |

(1) On March 15, 2013, the Company’s board of directors approved the Company’s 2013 Equity Incentive Plan. The 2013 Equity Incentive Plan was approved by holders of at least a majority of the issued and outstanding shares of common stock of the Company on October 10, 2013. Pursuant to the 2013 Equity Incentive Plan, the Company is authorized to grant “incentive stock options” and “non-qualified stock options”, grant or sell common stock subject to restrictions or without restrictions, and grant stock appreciation rights to employees, officers, directors, consultants and advisers of the Company and its subsidiaries. Incentive stock options granted under the 2013 Equity Incentive Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code (the “Code”). Non-qualified stock options granted under the 2013 Equity Incentive Plan are not intended to qualify as incentive stock options under the Code. As of December 31, 2020, the Company issued an aggregate of 74,237 shares of the Company’s common stock, as well as options to purchase up to 713,010 shares of the Company’s common stock, some of which are subject to vesting restrictions, pursuant to the Company’s 2013 Equity Incentive Plan. On June 15, 2020, an amendment to our 2013 Equity Incentive Plan was approved by holders of at least a majority of the issued and outstanding shares of common stock of the Company, to increase the number of shares of our common stock subject to the 2013 Equity Incentive Plan to 890,000.

(2) On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. As of December 31, 2020, the Company issued an aggregate of 127,679 SARs pursuant to the Plan.

Other Equity Compensation

We have entered into various engagement and placement agent agreements with Dawson James Securities, Inc. (“Dawson”) for which compensation has been paid with equity securities that have been previously disclosed in our filings with the SEC, including warrants issued in April 2018 to purchase up to 14,000 shares of common stock at an exercise price of $14.70 per share and a Unit Purchase Option issued in June 2018 to acquire up to 19,120 Units, at an exercise price of $12.50 per Unit, consisting of 19,120 shares of common stock and warrants to purchase up to 5,736 shares of common stock at an exercise price of $10.80. In connection with our January 27, 2020 private placement of equity securities, we issued Dawson James a warrant to purchase up to 17,004 shares of common stock at an initial exercise price of $11.30. During 2020, we issued Dawson James additional warrants to purchase up to 21,870 shares of common stock at an exercise price of $11.70 per share in connection with the exercise of Series D Preferred Warrants by certain institutional investors,

On January 8, 2021, we entered into an underwriting agreement with H.C. Wainwright & Co., for which compensation has been paid with equity securities that have been previously disclosed in our filings with the SEC, including warrants issued in January 2021 to purchase up to 146,943 shares of common stock at an exercise price of $3.75 per share.

On August 5, 2019 we entered into an agreement with MHZCI, LLC to provide investor relations services to the Company. Pursuant to the terms of the agreement, as partial compensation for services to be rendered 5,000 shares of common stock of the Company were issued to MHZCI, LLC as follows (1) 2,500 shares on or before the 10th day following the Effective Date of the agreement, and (2) 2,500 shares on or before the 10th day following the six-month anniversary of the agreement, if the agreement is still then in effect. Accordingly, on August 15, 2019 the Company issued 2,500 shares of common stock to MHZCI, LLC, and on February 14, 2020 the Company issued an additional 2,500 shares of common stock to MHZCI, LLC.

On November 18, 2019, we entered into a six-month consulting agreement with Iron Dome Ventures, LLC to provide certain investor relations related services to the Company. Pursuant to the terms of the agreement, as partial compensation for services to be rendered we agreed to issue to Iron Dome Ventures LLC each month, beginning on the Effective Date, and subsequently on the 18th of each month during the first three months of the agreement, a warrant to purchase 833 shares of the Company’s common stock at an exercise price of $0.10. Effective November 18, 2020, we entered into a new six-month contract with Iron Dome Ventures, LLC in which we granted 13,500 Stock Appreciation Rights, payable in cash only, with an exercise price of $2.47 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following summarizes transactions by us in which any of our directors, director nominees, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive Compensation” and “Director Compensation” above.

Transactions with Directors and Officers

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We have entered into an “at will” employment agreement, effective as of July 1, 2019, with Frank Orzechowski under which he was engaged to serve as our Chief Financial Officer, Treasurer, Principal Accounting Officer and Corporate Secretary of the Company. Under Mr. Orzechowski’s employment agreement, he was entitled to receive an annual base salary of $135,000, which was increased to $155,000 effective March 1, 2020, and which was increased to $180,000 on January 1, 2021. Pursuant to the employment agreement, Mr. Orzechowski was granted (1) a stock option to purchase up to 250 shares of common stock of the Company, at an exercise price equal to $14.00 per share, which was the closing market price of the Company’s common stock on July 1, 2019 (i.e., the Effective Date), and (2) to purchase up to 6,000 shares of common stock of the Company, with an exercise price of $14.00, and will vest and become exercisable as follows: 387 shares vested and became exercisable on the one-year anniversary of the Effective Date, 900 shares will vest and become exercisable on the second-year anniversary of the Effective Date, 1,413 shares will vest and become exercisable on the third-year anniversary of the Effective Date, and 3,300 shares will vest and become exercisable on the fourth-year anniversary of the Effective Date, provided, in each case, that Mr. Orzechowski remains an employee of the Company through such vesting dates. Further, Mr. Orzechowski is eligible to participate in the Company’s 2013 Equity Incentive Plan, and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan.

On January 27, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors (Mark K. Ruport, Salvatore Battinelli and Frank Garofalo, a former director) and Carl Schwartz, who was the Company’s largest shareholder. Pursuant to the SPA, the Company issued and sold 333.33 shares of the Company’s Series E Convertible Preferred Stock (the “Series E Preferred Stock”), and Class A Warrants to purchase 48,544 shares of the Company’s Common Stock (the “Common Warrants”) for a total gross purchase price of $500,000. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock (61,651 shares of common stock including the “make-whole dividend), and the Class A Warrants have an initial exercise price of $11.30 per share.

Indemnification Agreements

We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer to the fullest extent permitted by Nevada law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in the right of us, arising out of the person’s services as a director or executive officer.

Policies and Procedures for Related Person Transactions

Our Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons (other than compensation-related matters, which should be reviewed by our Compensation Committee), in accordance with its Charter and the Nasdaq marketplace rules. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The following is a summary of the fees billed to the Company by Haynie & Company for professional services rendered with respect to the years ended December 31, 2020 and 2019:

|  | 2020 |  |  | 2019 |
Audit Fees |  | $ | 73,500 |  |  | $ | 71,300 |
Audit Related Fees |  |  | 23,300 |  |  |  | 34,600 |
Tax Fees |  |  | 2,500 |  |  |  | 2,500 |
|  | $ | 99,300 |  |  | $ | 108,400 |

In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees that Sigma Labs, Inc. paid for professional services for the audit of our financial statements included in our Form 10-K and review of the interim financial statements included in quarterly reports, and for services that are normally provided by the registered public accounting firm in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements; and “tax fees” are fees for tax compliance, tax advice and tax planning.

Our Board of Directors established an Audit Committee written charter in February 2017. The Audit Committee’s pre-approval policies and procedures and other protocols are discussed in its written charter which can be found at www.sigmalabsinc.com under the tab “Investors.”

Auditor Independence

In our fiscal year ended December 31, 2020, there were no professional services provided, other than those listed above, that would require our Audit Committee to consider their compatibility with maintaining the independence of Haynie & Company.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Our financial statements and related notes thereto are listed and included in this Annual Report beginning on page F-1. The following documents are furnished as exhibits to this Form 10-K. Exhibits marked with an asterisk are filed herewith. The remainder of the exhibits previously have been filed with the SEC and are incorporated herein by reference.

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Exhibit Number |  | Description
1.1 |  | Underwriting Agreement, dated January 8, 2021, by and among Sigma Labs, Inc. and H.C. Wainwright & Co., LLC, as the representative for the underwriters named therein (filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference).
3.1 |  | Amended and Restated Articles of Incorporation of the Company, as amended .**
3.2 |  | Certificate of Correction to Amended and Restated Articles of Incorporation, as filed with the Nevada Secretary of State on May 25, 2011 (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed June 1, 2011, and incorporated herein by reference).
3.3 |  | Articles of Merger (filed as Exhibit 3.3 to the Company’s Form 10-K, filed on March 16, 2016, for the fiscal year ended December 31, 2015, and incorporated herein by reference).
3.4 |  | Certificate of Change Pursuant to NRS 78.209 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 21, 2016, and incorporated herein by reference).
3.5 |  | Certificate of Change Pursuant to NRS 78.209 (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 21, 2017, and incorporated herein by reference).
3.6 |  | Certificate of Change Pursuant to NRS 78.209. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 28, 2020, and incorporated herein by reference).
3.7 |  | Certificate of Designation of Rights, Preference and Privileges of Series A Convertible Preferred Stock (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 21, 2017, and incorporated herein by reference).
3.8 |  | Certificate of Designation of Rights, Preference and Privileges of Series B Convertible Preferred Stock (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 6, 2018, and incorporated herein by reference).
3.9 |  | Certificate of Designation of Rights, Preference and Privileges of Series C Convertible Preferred Stock of Sigma Labs, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 26, 2018, and incorporated herein by reference).
3.10 |  | Certificate of Designations (Series D Convertible Preferred Stock) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 30, 2020 and incorporated herein by reference).
3.11 |  | Certificate of Designations (Series E Convertible Preferred Stock) (filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed January 30, 2020 and incorporated herein by reference).
3.12 |  | Amended and Restated Bylaws of the Company, as amended.**
4.1 |  | Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 6, 2018, and incorporated herein by reference).
4.2 |  | Form of Placement Agent Warrants (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed April 6, 2018, and incorporated herein by reference).
4.3 |  | Form of Common Stock Purchase Warrant.(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 26, 2018, and incorporated herein by reference).
4.4 |  | Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 14, 2019, and incorporated herein by reference).
4.5 |  | Form of Unit Purchase Option (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 14, 2019, and incorporated herein by reference).
4.6 |  | Form of Common Stock Purchase Warrant.(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference).
4.7 |  | Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference).
4.8 |  | Form of Institutional Common Warrant (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed January 30, 2020, and incorporated herein by reference).
4.9 |  | Form of Class A Warrant(filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed January 30, 2020, and incorporated herein by reference).
4.10 |  | Form of Common Stock Purchase Warrants (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed April 3, 2020, and incorporated herein by reference).
4.11 |  | Form of Underwriter Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference).
4.12 |  | Form of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference).
4.13 |  | Description of Securities. **
10.1 |  | Asset Purchase Agreement dated April 17, 2010 between B6 Sigma, Inc. and Technology Management Company, Inc. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed November 12, 2010, and incorporated herein by reference).

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10.2 |  | Form of Nonqualified Stock Option Agreement for the Plan (previously filed by the Company as Exhibit 10.4 to the Company’s Form 10-K, filed on April 1, 2019, and incorporated herein by reference
10.3 |  | Form of Incentive Stock Option Agreement for the 2013 Equity Incentive Plan (filed as Exhibit 4.3 to the Company’s Form S-8 Registration Statement, filed on July 24, 2014, and incorporated herein by reference).*
10.4 |  | Form of Restricted Stock Agreement for the Plan (previously filed by the Company as Exhibit 10.6 to the Company’s Form 10-K, filed on April 1, 2019, and incorporated herein by reference).
10.5 |  | Employment Offer Letter Agreement, effective August 10, 2015, between Sigma Labs, Inc. and Ronald Fisher (Filed as Exhibit 10.12 to the Company’s Form 10-K, filed on March 16, 2016, for the fiscal year ended December 31, 2015, and incorporated herein by reference).*
10.6 |  | Form of Indemnification Agreement for directors and officers of Sigma Labs, Inc. (filed as Exhibit 10.12 to the Company’s Registration Statement on Form S-1, filed on July 28, 2016, and incorporated herein by reference).*
10.7 |  | Amendment No. 1, dated September 18, 2017, to Employment Offer Letter Agreement, effective August 10, 2015, between Sigma Labs, Inc. and Ronald Fisher (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 20, 2017 and incorporated herein by reference).*
10.8 |  | Amendment No. 2, dated February 21, 2018, to Employment Offer Letter Agreement between the Company and Ronald Fisher (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 27, 2018 and incorporated herein by reference).*
10.9 |  | Securities Purchase Agreement, dated as of April 6, 2018, between Sigma Labs, Inc. and the Purchasers thereunder (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 6, 2018 and incorporated herein by reference).
10.10 |  | Employment Agreement, effective as of September 25, 2017, between Darren Beckett and Sigma Labs, Inc. (filed as Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2018, for the period ended September 30, 2018, and incorporated herein by reference).*
10.11 |  | Securities Purchase Agreement, dated as of May 7, 2019, between the Company and the Purchaser (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 8, 2019, and incorporated herein by reference).
10.12 |  | Employment letter agreement, effective as of July 1, 2019, between the Company and Frank D. Orzechowski. (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2019, and incorporated herein by reference) *
10.13 |  | Sigma Labs, Inc. 2013 Equity Incentive Plan, as Amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 19, 2020 and incorporated herein by reference). *
10.14 |  | Employment letter agreement, effective as of December 3, 2020, between the Company and Mark Ruport (filed by the Company as Exhibit 10.15 to the Company’s Form 10-K, filed on March 24, 2020, and incorporated herein by reference).*
10.15 |  | Securities Purchase Agreement (Institutional Investors) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference).
10.16 |  | Registration Rights Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference).
10.17 |  | Securities Purchase Agreement (Other Investors) (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference).
10.18 |  | Private Placement Agreement (filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed January 27, 2020, and incorporated herein by reference).
10.19 |  | Securities Purchase Agreement, dated as of April 2, 2020, between the Company and Purchasers (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 3, 2020, and incorporated herein by reference).
10.20 |  | Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).*
10.21 |  | Form of Stock Appreciation Rights Agreement (Employees; 2020 Stock Appreciation Rights Plan) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).*
10.22 |  | Form of Stock Appreciation Rights Agreement (Non-employee Directors; 2020 Stock Appreciation Rights Plan) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).
10.23 |  | Form of Waiver (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 12, 2021, and incorporated herein by reference).

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23.1 |  | Consent of Haynie & Company.**
31.1 |  | Certificate of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
31.2 |  | Certificate of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32.1 |  | Certificate of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
101.INS |  | XBRL Instance Document.
101.SCH |  | XBRL Taxonomy Extension Schema Document.
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document.

* Indicates a management contract or compensatory plan or arrangement.

** Filed herewith.

*** Furnished herewith.

ITEM 16. FORM 10-K SUMMARY.

We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.

49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| SIGMA LABS, INC.
March 24, 2021 | By: | /s/ Mark K. Ruport
|  | Mark K. Ruport
|  | President and Chief Executive Officer (Principal Executive Officer)
March 24, 2021 | By: | /s/ Frank Orzechowski
|  | Frank Orzechowski
|  | Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature |  | Title |  | Date
/s/ Mark K. Ruport |  | President and Chief Executive Officer |  | March 24, 2021
Mark K. Ruport |  | (Principal Executive Officer) and Director |  |
/s/ Frank Orzechowski |  | Chief Financial Officer |  | March 24, 2021
Frank Orzechowski |  | (Principal Financial and Accounting Officer) |  |
/s/ John Rice |  | Chairman, Director |  | March 24, 2021
John Rice |  |  |  |
/s/ Salvatore Battinelli |  | Director |  | March 24, 2021
Salvatore Battinelli |  |  |  |
/s/ Dennis Duitch |  | Director |  | March 24, 2021
Dennis Duitch |  |  |  |
/s/ Kent Summers |  | Director |  | March 24, 2021
Kent Summers |  |  |  |

50

Index to Financial Statements

Financial Statements: |
Report of Independent Registered Public Accounting Firm | F-2
Balance Sheets | F-3
Statements of Operations | F-4
Statement of Stockholders’ Equity | F-5
Statements of Cash Flows | F-6
Notes to Financial Statements | F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Sigma Labs, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Sigma Labs, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Multiple Deliverables in Revenue Contracts

Description of the Matter:

As discussed in Note 1 to the financial statements, Sigma Labs, Inc.’s revenue is derived primarily from the sale of software, the related hardware suite, and engineering services. The Company’s contracts with customers typically include the promise to transfer multiple goods and/or services to the customer. Management must assess whether each promised good or service is distinct for the purpose of identifying the performance obligations within the contract and must then determine and allocate the transaction price to the performance obligations. This assessment can be subjective and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable and distinct from the other aspects of the contractual relationship.

Auditing management’s assessment and recognition of revenue can be complex, involves judgment, and is based on a thorough understanding of the Company’s offerings.

How we Addressed the Matter in Our Audit:

We obtained a thorough understanding of the controls the Company has in place to perform this assessment including walk-throughs of the key controls and analysis of whether the controls are designed and operating effectively. To evaluate Sigma Labs Inc.’s assessment of performance obligations and allocation of price, our audit procedures included, among others, reading and evaluating management’s assumptions used to determine the distinct performance obligations and price allocations. We compared the stand-alone price for each performance obligation to the allocated prices to ensure the allocation was reasonable. We also obtained confirmations from customers verifying the terms of the contracts.

/s/ Haynie & Company |

Haynie & Company

Salt Lake City, Utah

March 24, 2021

We have served as the Company’s auditor since 2018.

F-2

Sigma Labs, Inc.

Balance Sheets

|  | December 31, 2020 |  |  | December 31, 2019 |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash |  | $ | 3,700,814 |  |  | $ | 86,919 |
Accounts Receivable, net |  |  | 331,562 |  |  |  | 55,540 |
Inventory |  |  | 659,651 |  |  |  | 598,718 |
Prepaid Assets |  |  | 90,735 |  |  |  | 199,727 |
Total Current Assets |  |  | 4,782,762 |  |  |  | 940,904 |
Other Assets: |  |  |  |  |  |  |  |
Property and Equipment, net |  |  | 138,626 |  |  |  | 128,723 |
Intangible Assets, net |  |  | 753,122 |  |  |  | 569,341 |
Investment in Joint Venture |  |  | - |  |  |  | 500 |
Long-Term Prepaid Asset |  |  | 26,000 |  |  |  | 52,000 |
Total Other Assets |  |  | 917,748 |  |  |  | 750,564 |
TOTAL ASSETS |  | $ | 5,700,510 |  |  | $ | 1,691,468 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts Payable |  | $ | 128,937 |  |  | $ | 727,114 |
Note Payable |  |  | - |  |  |  | 50,000 |
Deferred Revenue |  |  | 77,957 |  |  |  | 139,447 |
Accrued Expenses |  |  | 243,815 |  |  |  | 122,658 |
Total Current Liabilities |  |  | 450,709 |  |  |  | 1,039,219 |
Long-Term Liabilities |  |  |  |  |  |  |  |
Stock Appreciation Rights |  |  | 48,341 |  |  |  | - |
CARES Act Deferred Payroll Taxes |  |  | 37,728 |  |  |  | - |
Total Long-Term Liabilities |  |  | 86,069 |  |  |  | - |
TOTAL LIABILITIES |  |  | 536,778 |  |  |  | 1,039,219 |
Stockholders’ Equity |  |  |  |  |  |  |  |
Preferred Stock, $0.001 par; 10,000,000 shares authorized; 715 and 0 issued and outstanding, respectively |  |  | 1 |  |  |  | - |
Common Stock, $0.001 par; 12,000,000 authorized; 5,995,320 and 1,403,759 issued and outstanding, respectively |  |  | 5,995 |  |  |  | 1,404 |
Additional Paid-In Capital |  |  | 38,262,744 |  |  |  | 26,746,439 |
Accumulated Deficit |  |  | (33,105,008 | ) |  |  | (26,095,594 | )
Total Stockholders’ Equity |  |  | 5,163,732 |  |  |  | 652,249 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |  | $ | 5,700,510 |  |  | $ | 1,691,468 |

See accompanying notes to financial statements

F-3

Sigma Labs, Inc.

Statements of Operations

|  | Years Ended |
|  | December 31, 2020 |  |  | December 31, 2019 |
REVENUES |  | $ | 807,488 |  |  | $ | 402,446 |
COST OF REVENUE |  |  | 591,957 |  |  |  | 574,301 |
GROSS PROFIT (LOSS) |  |  | 215,531 |  |  |  | (171,855 | )
EXPENSES: |  |  |  |  |  |  |  |
Salaries & Benefits |  |  | 2,622,162 |  |  |  | 2,354,329 |
Stock-Based Compensation |  |  | 596,842 |  |  |  | 497,240 |
Operating R&D Costs |  |  | 351,404 |  |  |  | 647,994 |
Investor & Public Relations |  |  | 434,852 |  |  |  | 417,750 |
Organizational Costs |  |  | 425,847 |  |  |  | 530,958 |
Legal & Professional Service Fees |  |  | 676,142 |  |  |  | 664,403 |
Office Expenses |  |  | 416,580 |  |  |  | 747,881 |
Depreciation & Amortization |  |  | 105,175 |  |  |  | 192,569 |
Other Operating Expenses |  |  | 285,295 |  |  |  | 158,706 |
Total Operating Expenses |  |  | 5,914,299 |  |  |  | 6,211,830 |
LOSS FROM OPERATIONS |  |  | (5,698,768 | ) |  |  | (6,383,685 | )
OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |
Interest Income |  |  | 1,058 |  |  |  | 18,760 |
State Incentives |  |  | 151,657 |  |  |  | 51,877 |
Bad Debt Expense |  |  | - |  |  |  | (2,500 | )
Exchange Rate Gain (Loss) |  |  | (1,677) |  |  |  | (4,879 | )
Other Income |  |  | 361,700 |  |  |  | 8,263 |
Interest Expense |  |  | (13,908) |  |  |  | (8,685 | )
Loss on Dissolution of Joint Venture |  |  | (201) |  |  |  | - |
Total Other Income (Expense) |  |  | 498,629 |  |  |  | 62,836 |
LOSS BEFORE PROVISION FOR INCOME TAXES |  |  | (5,200,139 | ) |  |  | (6,320,849 | )
Provision for Income Taxes |  |  | - |  |  |  | - |
Net Loss |  | $ | (5,200,139 | ) |  | $ | (6,320,849 | )
Preferred Dividends |  |  | 1,809,275 |  |  |  | - |
Net Loss applicable to Common Stockholders |  | $ | (7,009,414 | ) |  | $ | (6,320,849 | )
Net Loss per Common Share - Basic and Diluted |  | $ | (1.83) |  |  | $ | (5.37 | )
Weighted Average Number of Shares Outstanding - Basic and Diluted |  |  | 3,829,716 |  |  |  | 1,176,278 |

See accompanying notes to financial statements

F-4

Sigma Labs, Inc.

Statement of Stockholders’ Equity

For The Years Ended December 31, 2020 and 2019

|  | Preferred Shares Outstanding |  |  | Preferred Stock |  |  | Common Shares Outstanding |  |  | Common Stock |  |  | Additional Paid-in Capital |  |  | Accumulated Deficit |  |  | Total |
Balances, December 31, 2018 |  |  | - |  |  | $ | - |  |  |  | 877,663 |  |  | $ | 878 |  |  | $ | 21,509,306 |  |  | $ | (19,774,745 | ) |  | $ | 1,735,439 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
Shares and Warrants Issued in Public Offering |  |  | - |  |  |  | - |  |  |  | 447,580 |  |  |  | 447 |  |  |  | 4,465,674 |  |  |  | - |  |  |  | 4,466,121 |
Shares Issued for Exercise of Warrants |  |  | - |  |  |  | - |  |  |  | 7,023 |  |  |  | 7 |  |  |  | 75,841 |  |  |  | - |  |  |  | 75,848 |
UPO Proceeds in Public Offering |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100 |  |  |  |  |  |  |  | 100 |
Shares Issued for Cashless Exchange of UPO’s |  |  | - |  |  |  | - |  |  |  | 8,843 |  |  |  | 9 |  |  |  | (9 | ) |  |  | - |  |  |  | - |
Shares Sold in Private Placement |  |  | - |  |  |  | - |  |  |  | 40,000 |  |  |  | 40 |  |  |  | 514,960 |  |  |  | - |  |  |  | 515,000 |
Shares Issued to Directors for Services |  |  | - |  |  |  | - |  |  |  | 20,000 |  |  |  | 20 |  |  |  | 299,980 |  |  |  | - |  |  |  | 300,000 |
Securities Issued for Third Party Services |  |  | - |  |  |  | - |  |  |  | 2,500 |  |  |  | 3 |  |  |  | 32,676 |  |  |  | - |  |  |  | 32,679 |
Securities Awarded to Employees |  |  | - |  |  |  | - |  |  |  | 150 |  |  |  | - |  |  |  | 497,240 |  |  |  | - |  |  |  | 497,240 |
Offering Costs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (649,329 | ) |  |  | - |  |  |  | (649,329 | )
Net Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (6,320,849 | ) |  |  | (6,320,849 | )
Balances, December 31, 2019 |  |  | - |  |  | $ | - |  |  |  | 1,403,759 |  |  | $ | 1,404 |  |  | $ | 26,746,439 |  |  | $ | (26,095,594 | ) |  | $ | 652,249 |
Common Shares Sold in Public Offering |  |  | - |  |  |  | - |  |  |  | 493,027 |  |  |  | 493 |  |  |  | 1,499,507 |  |  |  | - |  |  |  | 1,500,000 |
Preferred Shares Sold in Public Offering |  |  | 1,973 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 2,099,998 |  |  |  | - |  |  |  | 2,100,000 |
Preferred Stock Dividends |  |  | - |  |  |  | - |  |  |  | 774,940 |  |  |  | 775 |  |  |  | 1,808,500 |  |  |  | (1,809,275 | ) |  |  | - |
Common Shares Issued for Conversion of Preferred Shares |  |  | (7,404 | ) |  |  | (7 | ) |  |  | 3,272,048 |  |  |  | 3,272 |  |  |  | (3,265 | ) |  |  | - |  |  |  | - |
Common Shares Issued for Conversion of Series D Prefunded Warrants |  |  | - |  |  |  | - |  |  |  | 22,438 |  |  |  | 22 |  |  |  | (22 | ) |  |  | - |  |  |  | - |
Preferred Shares issued for Exercise of Preferred Warrants |  |  | 6,146 |  |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | 5,992,344 |  |  |  | - |  |  |  | 5,992,350 |
Securities Issued to Directors for Services |  |  | - |  |  |  | - |  |  |  | 8,334 |  |  |  | 8 |  |  |  | 239,875 |  |  |  | - |  |  |  | 239,883 |
Securities Issued for Third Party Services |  |  | - |  |  |  | - |  |  |  | 6,000 |  |  |  | 6 |  |  |  | 102,769 |  |  |  | - |  |  |  | 102,775 |
Securities Awarded to Employees |  |  | - |  |  |  | - |  |  |  | 11,517 |  |  |  | 12 |  |  |  | 596,830 |  |  |  | - |  |  |  | 596,842 |
Offering Costs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (820,228 | ) |  |  | - |  |  |  | (820,228 | )
Issuance of Fractional Shares from Reverse Split |  |  | - |  |  |  | - |  |  |  | 3,257 |  |  |  | 3 |  |  |  | (3 | ) |  |  | - |  |  |  | - |
Net Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,200,139 | ) |  |  | (5,200,139 | )
Balances, December 31, 2020 |  |  | 715 |  |  | $ | 1 |  |  |  | 5,995,320 |  |  | $ | 5,995 |  |  | $ | 38,262,744 |  |  | $ | (33,105,008 | ) |  | $ | 5,163,732 |

See accompanying notes to financial statements

F-5

Sigma Labs, Inc. and Subsidiaries

Statements of Cash Flows

|  | Years Ended |
|  | December 31, 2020 |  |  | December 31, 2019 |
OPERATING ACTIVITIES |  |  |  |  |  |  |  |
Net Loss |  | $ | (5,200,139 | ) |  | $ | (6,320,849 | )
Adjustments to reconcile Net Loss to Net Cash used in operating activities: |  |  |  |  |  |  |  |
Noncash Expenses: |  |  |  |  |  |  |  |
Depreciation and Amortization |  |  | 105,175 |  |  |  | 192,569 |
Stock Based Compensation - Employees |  |  | 596,842 |  |  |  | 497,240 |
Stock Based Compensation - Third Party Services |  |  | 102,775 |  |  |  | 32,679 |
Stock Based Compensation - Directors |  |  | 239,883 |  |  |  | 300,000 |
Change in assets and liabilities: |  |  |  |  |  |  |  |
Accounts Receivable |  |  | (276,022 | ) |  |  | (16,740 | )
Inventory |  |  | (60,932 | ) |  |  | (358,632 | )
Prepaid Assets |  |  | 134,991 |  |  |  | (184,472 | )
Accounts Payable |  |  | (598,177 | ) |  |  | 509,626 |
Deferred Revenue |  |  | (61,490 | ) |  |  | 87,949 |
Accrued Expenses |  |  | 121,157 |  |  |  | (254,175 | )
Long-term portion of Stock Appreciation Rights |  |  | 48,341 |  |  |  | - |
Long Term portion of Deferred Payroll Taxes under the CARES Act |  |  | 37,728 |  |  |  | - |
NET CASH USED IN OPERATING ACTIVITIES |  |  | (4,809,868 | ) |  |  | (5,514,805 | )
INVESTING ACTIVITIES |  |  |  |  |  |  |  |
Purchase of Property and Equipment |  |  | (88,074 | ) |  |  | (33,487 | )
Purchase of Intangible Assets |  |  | (210,785 | ) |  |  | (174,224 | )
Payment Received from Notes Receivable |  |  | - |  |  |  | 121,913 |
Dissolution of Joint Venture |  |  | 500 |  |  |  | - |
NET CASH USED IN INVESTING ACTIVITIES |  |  | (298,359 | ) |  |  | (85,798 | )
FINANCING ACTIVITIES |  |  |  |  |  |  |  |
Gross Proceeds from Public and Private Issuances of Securities |  |  | 3,600,000 |  |  |  | 4,981,221 |
Less Offering Costs |  |  | (820,228 | ) |  |  | (649,329 | )
Payment of Note Payable |  |  | (50,000 | ) |  |  | - |
Proceeds from Exercise of Warrants |  |  | 5,992,350 |  |  |  | 75,848 |
NET CASH PROVIDED BY FINANCING ACTIVITIES |  |  | 8,722,122 |  |  |  | 4,407,740 |
NET CHANGE IN CASH FOR PERIOD |  |  | 3,613,895 |  |  |  | (1,192,863 | )
CASH AT BEGINNING OF PERIOD |  |  | 86,919 |  |  |  | 1,279,782 |
CASH AT END OF PERIOD |  | $ | 3,700,814 |  |  | $ | 86,919 |
Supplemental Disclosures: |  |  |  |  |  |  |  |
Noncash investing and financing activities disclosure: |  |  |  |  |  |  |  |
Issuance of Common Shares for Preferred Dividends |  | $ | 1,809,275 |  |  | $ | - |
Disclosure of Cash Received for: |  |  |  |  |  |  |  |
Issuance of Preferred Stock for Exercise of Preferred Warrants |  | $ | 5,992,350 |  |  | $ | - |
Other noncash operating activities disclosure: |  |  |  |  |  |  |  |
Issuance of Securities for services |  | $ | 342,657 |  |  | $ | 335,679 |
Disclosure of cash paid for: |  |  |  |  |  |  |  |
Interest |  | $ | 13,908 |  |  | $ | 5,069 |
Income Taxes |  | $ | - |  |  | $ | - |

See accompanying notes to financial statements

F-6

SIGMA LABS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2020

NOTE 1 – Summary of Significant Accounting Policies

Nature of Business –Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma believes that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries including aerospace, defense, oil and gas, bio-medical, and power generation. The terms the “Company,” “Sigma,” “we,” “us” and “our” refer to Sigma Labs, Inc.

Reverse Stock Split - Effective February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of our common stock on a 1-for-10 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”). The effects of the stock split have been retroactively reflected to all periods presented.

Basis of Presentation – The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 2020 and 2019 and for the periods then ended have been made.

Continuing Operations – The Company has sustained losses and had negative cash flows from operating activities since its inception. Commencing in 2017, the company committed itself to a focused initiative to transition its product and its company culture from research and development into an enterprise with a commercial industrial product and a business-oriented operation culture.

In 2020, the Company relied on both public and private offerings to finance the commencement of commercialization by entering test and evaluation programs with large potential customers, both end-users and OEMs. In January 2020, we completed two private placements consisting of shares of our newly created Series D and Series E Preferred Stock, warrants to purchase additional shares of Series D Preferred Stock and warrants to purchase shares of our Common Stock resulting in net cash proceeds to us of approximately $1,711,124. On March 27, 2020, pursuant to the terms of the Agreement, we forced the exercise of a portion of the warrants to purchase our Series D Preferred Stock which resulted in net cash proceeds to the Company of $460,000. On April 6, 2020, the Company closed an offering of equity securities in which the Company sold and issued to certain institutional investors (a) 493,027 shares of the Company’s common stock (the “Common Shares”) and pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 22,438 shares of the Company’s common stock, and (b) Series A Warrants (the “Private Warrants”) to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement resulting in net proceeds of approximately $1,230,000. On April 14, 2020 we were granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate amount of $361,700, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. The Company used the entire loan proceeds to fund payroll expenses, and as such, the loan was forgiven in full on January 13, 2021. During 2020, 6,146 Series D Preferred Warrants were exercised by institutional investors, resulting in net proceeds to the company of 5,820,998. In January 2021, the Company closed a public offering of our common stock resulting in net proceeds of approximately $4,532,444 after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

The continuing operations of the Company are no longer solely dependent upon financing the cost of product development in the absence of revenues, but rather upon our abilities to finance our efforts to successfully ramp up commercialization, thus earning the product validation of both customer licensing and purchases and creating a dynamic in which public and private offerings facilitate the growth of revenues.

As a result, the Company currently has sufficient cash and working capital to fund operations through the end of 2021 and is anticipating that contracts may be closed during fiscal 2021 generating additional cash flow in the near-term. In addition, the Company has access to public and private markets from which to derive additional financing to sustain operations beyond that term, if required; however, the Company is unable to predict the extent to which the novel coronavirus may affect the financial markets and the Company’s access to such markets. There is no assurance that we will be successful in obtaining additional funding. If we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.

Loss Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options or note conversion features were excluded due to the anti-dilutive effect they would have on the computation. At December 31, 2020 and 2019, the Company had the following common shares underlying these instruments:

|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |
Warrants |  |  | 1,881,429 |  |  |  | 363,728 |
Preferred Stock Warrants |  |  | 4,748 |  |  |  | - |
Stock Options |  |  | 713,010 |  |  |  | 180,903 |
Preferred Stock |  |  | 243,024 |  |  |  | - |
Convertible Note Payable |  |  | - |  |  |  | 2,500 |
Total Underlying Common Shares |  |  | 2,842,211 |  |  |  | 547,131 |

Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated life has been determined to be five years unless a unique circumstance exists, which is then fully documented as an exception to the policy.

F-7

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis.

Income Taxes – The Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.”

The Company has no tax positions at December 31, 2020 and 2019 for which the ultimate deductibility is highly uncertain but for which there is uncertainty about the timing of such deductibility.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2020 and 2019, the Company recognized no interest and penalties. All tax years starting with 2017 are open for examination.

Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. There was no allowance for doubtful accounts at December 31, 2020 or 2019.

F-8

Long-Lived and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. No patents were written off in 2020, and $23,909 of patents related to PrintRite3D® Contour were written off in December of 2019.

Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less at date of purchase to be cash equivalents.

Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Stock Based Compensation – The Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.” Under ASC Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements may include stock options, grants of shares of common stock with and without restrictions, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option or stock grants.

Equity instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments to Non-Employees.” In general, the measurement date is either (a) when a performance commitment, as defined, is reached or (b) the earlier of the date that (i) the non-employee performance requirement is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

Amortization - Utility patents are amortized over a 17-year period. Patents which are pending are not amortized.

Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence.

Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.

F-9

Deferred Stock Offering Costs – Costs related to stock offerings (if any) are deferred and will be offset against the proceeds of the offering in additional paid-in capital. In the event a stock offering is unsuccessful, the costs relating to the offering will be written-off directly to expense.

Inventory – Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components which will be sold to customers. Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method.

Research and Development – Research and development costs are expensed as they are incurred. Research and development costs for the years ended December 31, 2020 and 2019 were $351,404 and $647,994, respectively.

NOTE 2 - Inventory

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

|  | December 31 2020 |  |  | December 31, 2019 |
Raw Materials |  | $ | 309,305 |  |  | $ | 173,102 |
Work in Process |  |  | 175,884 |  |  |  | 92,493 |
Finished Goods |  |  | 174,462 |  |  |  | 333,123 |
Total Inventory |  | $ | 659,651 |  |  | $ | 598,718 |

F-10

NOTE 3 – Property and Equipment

The following is a summary of property and equipment, less accumulated depreciation, as of December 31, 2020 and 2019:

|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |
Property and Equipment |  | $ | 1,196,450 |  |  | $ | 1,108,375 |
Less: Accumulated Depreciation |  |  | (1,057,824 | ) |  |  | (979,652 | )
Net Property and Equipment |  | $ | 138,626 |  |  | $ | 128,723 |

Depreciation expense on property and equipment was $78,172 and $182,708 for the years ended December 31, 2020 and 2019, respectively.

NOTE 4 – Intangible Assets

The Company’s intangible assets consist of Patents and Patent Pending Applications.

Provisional patent applications are not amortized until a patent has been granted. Once a patent is granted, the Company will amortize the related costs over the estimated useful life of the patent. If a patent application is denied, then the costs will be expensed at that time.

During 2020, $70,175 of costs related to patents issued to us during 2020 were reclassified from provisional patent application to patent status and began to be amortized as of the date of issue.

The following is a summary of definite-life intangible assets less accumulated amortization as of December 31, 2020 and 2019, respectively:

|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |
Provisional Patent Applications |  | $ | 585,152 |  |  | $ | 448,714 |
Patents |  |  | 209,110 |  |  |  | 138,936 |
Less: Accumulated Amortization |  |  | (41,140 | ) |  |  | (18,309 | )
Net Intangible Assets |  | $ | 753,122 |  |  | $ | 569,341 |

Amortization expense on intangible assets was $27,003 and $9,861 for the years ended December 31, 2020 and 2019, respectively.

The estimated aggregate amortization expense for each of the succeeding years ending December 31 is as follows:

2021 |  | $ | 12,301 |
2022 |  |  | 12,301 |
2023 |  |  | 12,301 |
2024 |  |  | 12,301 |
Thereafter |  |  | 118,766 |
|  | $ | 167,970 |

F-11

NOTE 5 - Notes Payable

On January 31, 2020, the Company paid off its Secured Convertible Promissory Note in full in the amount of $56,458, including accrued interest of $1,458 and a late fee penalty of $5,000.

NOTE 6 – Paycheck Protection Plan Loan

On April 14, 2020, the Company was granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate amount of $361,700, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. Under the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.

As of December 31, 2020, the Company has used the entire loan proceeds to fund its payroll expenses. As a result, the Company believes that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to be forgiven. As such, the Company has recognized the entire loan amount as Other Income at December 31, 2020.

In January 2021, the Company received notice from the lender that the entire amount of the loan had been forgiven.

NOTE 7 – Deferral of Social Security Tax Payments

Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral period”. The payroll tax deferral period began on March 27, 2020 and ended on December 31, 2020. At December 31, 2020 the total amount of such deferral was $75,455. Per the terms of the deferral program, 50% of the deferred amount is due on December 31, 2021, and the remaining 50% is due on December 31, 2022 at 0% interest.

F-12

NOTE 8 – Stockholders’ Equity

Common Stock

Effective February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of our common stock on a 1-for-10 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”). The effects of the stock split have been retroactively reflected to all periods presented.

On March 27, 2020, at a special shareholders’ meeting, our authorized shares of common stock were increased from 2,250,000 to 8,000,000. At our annual shareholders’ meeting held on June 15, 2020, our authorized shares of common stock were increased from 8,000,000 to 12,000,000.

On April 6, 2020, the Company closed a public offering of equity securities in which it issued 493,027 shares of common stock and pre-funded warrants to purchase up to 22,438 shares of the Company’s common stock. The Company also issued Series A Warrants to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement. In connection with this offering, the Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate of 41,237 shares of the Company’s Common Stock (which amount is based on the number of Common Shares and shares underlying the Pre-Funded Warrants) at an exercise price of $3.64 per share. Net proceeds to the Company after deducting offering expenses were approximately $1,230,000. On December 4, 2020, the Company issued 22,438 shares of common stock for the exercise of the pre-funded warrants.

In the twelve months ended December 31, 2020, the Company issued 3,272,048 shares of common stock in exchange for the conversion of 7,404 shares of Series D Convertible Preferred stock, and 774,940 shares of common stock as in-kind payment of preferred stock dividends.

In the twelve months ended December 31, 2020, the Company issued 25,851 shares of common stock for services.

In January 2019, the Company issued 20,000 shares of common stock to directors valued at $15.00 per share, or $300,000, with such shares vesting ratably over four quarterly installments.

Also in January 2019, the Company issued 8,843 shares of common stock upon the cashless exercise of Unit Purchase Options issued in our June 2018 public offering.

In January and February 2019, the Company issued a total of 7,023 shares of common stock upon the exercise of 7,023 warrants having an exercise price of $10.80 resulting in gross cash proceeds of $75,848.

In March 2019, the Company issued 150 shares of common stock valued at $20.00 per share to the Company’s Vice President of Business Development in connection with his achievement of performance milestones, with such shares vesting immediately.

Also in March 2019, the Company closed a public offering of equity securities in which it issued 140,080 shares of common stock and warrants to purchase a total of 42,024 shares of common stock resulting in net proceeds of approximately $1,679,230, after deducting placement agent commissions and other offering expenses payable by the Company.

In May 2019, the Company closed a private placement of equity securities in which it issued 40,000 shares of common stock and warrants to purchase a total of 22,000 shares of common stock resulting in net proceeds of approximately $515,000, after deducting placement agent commissions and other offering expenses payable by the Company.

On August 2, 2019, the Company closed a public offering of equity securities in which it issued 287,500 shares of common stock resulting in net proceeds of approximately $1,971,000, after deducting commissions and other offering expenses payable by the Company.

On August 15, 2019, the Company issued 2,500 shares of common stock valued at $6.84 per share to MHZCI, LLC, an investor relations firm engaged by the Company, as partial compensation for services to be rendered.

On September 13, 2019, Aegis Capital Corp. partially exercised its over-allotment option granted by the Company in the foregoing August 2019 public offering by purchasing an additional 20,000 shares of common stock, resulting in net proceeds of $148,800 after deducting commissions.

F-13

Deferred Compensation

In 2020 and 2019, the Company issued to various employees, directors, and contractors shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013 Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over the vesting period and recorded as a reduction of stockholders’ equity. During 2020 and 2019, $77,187 and $303,000, respectively, of the unvested compensation cost related to these issues was recognized.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 715 and 0 shares of preferred stock were issued and outstanding at December 31, 2020 and 2019, respectively.

In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Institutional Private Placement”). Pursuant to the SPA, the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of $1,000 per share (the “Stated Value”). Dividends accrue at a dividend rate of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares will have the right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50 (subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection). In addition, a holder may at any time, alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative conversion price, which equals the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85% of the average volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to such conversion. Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium to the underlying value of the Series D Preferred Shares being redeemed.

At December 31, 2020 there were 382 shares of Series D Convertible Preferred stock outstanding, which if converted as of December 31, 2020, including the make-whole dividends, would have resulted in the issuance of 181,374 shares of common stock.

Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors and the Company’s largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and sold 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”). Dividends accrue at a dividend rate of 9% per annum and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock.

At December 31, 2020, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of December 31, 2020, including the make-whole dividends, would have resulted in the issuance of 61,651 shares of common stock.

F-14

Stock Options

On June 15, 2020, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by 650,000 shares of our common stock to a total of 890,000 shares. As of December 31, 2020, there were 152,753 shares available for issuance under the 2013 Plan.

During 2020, the Company granted a total of 579,998 options to 19 employees, 4 directors, and 5 consultants with vesting periods ranging from immediately upon issue to three years beginning May 1, 2020. In 2020, 294,373 options vested and $854,217 of compensation cost was recognized during the year. As of December 31, 2020, there were options to purchase 663,010 shares issued and outstanding under the 2013 Plan. Of this amount, there are vested options exercisable for 349,642 shares of common stock. No options were exercised during the year ended December 31, 2020.

During 2019, the Company granted a total of 100,326 options to 22 employees and 2 consultants with vesting periods ranging from immediately upon issue to 4 years beginning January 1, 2019. In 2019, 38,143 options vested and $494,240 of compensation cost was recognized during the year. As of December 31, 2019, there were options to purchase 180,903 shares issued and outstanding under the 2013 Plan. Of this amount, there are vested options exercisable for 88,163 shares of common stock. No options were exercised during the year ended December 31, 2019.

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service and expire ten years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

Total share-based compensation expense included in the statements of operations for the years ended December 31, 2020 and 2019 is $596,842, of which $573,232 is related to stock options, and $497,240, of which $ 494,740 is related to stock options, respectively. There was no capitalized share-based compensation cost as of December 31, 2020 and 2019, and there were no recognized tax benefits during the years ended December 31, 2020 and 2019.

To estimate the value of an award, the Company uses the Black-Scholes option-pricing model. This model requires inputs such as expected life, expected volatility and risk-free interest rate. The forfeiture rate also impacts the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards. The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2020 and 2019:

F-15

Assumptions:

|  | 2020 |  |  | 2019 |
Dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
Risk-free interest rate |  |  | 0.19-0.50 | % |  |  | 1.42-2.53 | %
Expected volatility |  |  | 116.0 – 117.0 | % |  |  | 105.2-112.1 | %
Expected life (in years) |  |  | 5 |  |  |  | 5-10 |

Option activity for the year ended December 31, 2020 and 2019 was as follows:

|  |  |  |  | Weighted Average |  |  | Weighted Average |  |  |  |
|  |  |  |  | Exercise |  |  | Remaining |  |  | Aggregate |
|  |  |  |  | Price |  |  | Contractual |  |  | Intrinsic |
|  | Options |  |  | ($) |  |  | Life (Yrs.) |  |  | Value ($) |
Options outstanding at December 31, 2018 |  |  | 82,629 |  |  |  | 2.49 |  |  |  | 6.47 |  |  |  | 60,090 |
Granted |  |  | 100,333 |  |  |  | 1.25 |  |  |  | 4.79 |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | (2,050 | ) |  |  | 1.68 |  |  |  | - |  |  |  | - |
Options outstanding at December 31, 2019 |  |  | 180,912 |  |  |  | 1.81 |  |  |  | 5.09 |  |  |  | 25,988 |
Granted |  |  | 579,998 |  |  |  | 2.55 |  |  |  | 4.57 |  |  |  | 477,802 |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | (47,900) |  |  |  | 22.62 |  |  |  | - |  |  |  | - |
Options outstanding at December 31, 2020 |  |  | 713,010 |  |  |  | 5.15 |  |  |  | 4.40 |  |  |  | 477,802 |
Options expected to vest in the future as of December 31, 2020 |  |  | 363,368 |  |  |  | 3.92 |  |  |  | 4.53 |  |  |  | - |
Options exercisable at December 31, 2020 |  |  | 349,642 |  |  |  | 6.43 |  |  |  | 4.27 |  |  |  | - |
Options vested, exercisable, and options expected to vest at December 31, 2020 |  |  | 713,010 |  |  |  | 5.15 |  |  |  | 4.40 |  |  |  | 477,802 |

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $3.38 closing price of our Common Stock on December 31, 2020. All of the 2020 option grants have an exercise price currently below $3.38.

At December 31, 2020, there was $1,029,056 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.90 years.

Stock Appreciation Rights

On June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.

On June 23, 2020, the Company granted, pursuant to the Plan, (i) 60,094 SARs to its President and Chief Executive Officer, (ii) 12,019 SARs to its Vice President of Business Development, (iii) 24,038 SARs to its Chief Technology Officer, and (iv) 18,028 SARs to its Chief Financial Officer. The exercise price of each such SAR is $2.63, which was the closing price of the Company’s common stock on the date of grant. Such SARs expire on the fifth anniversary of the grant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as possible) installments on each of the first, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested and exercisable as long as the applicable holder is in the Company’s employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement. On November 19, 2020, we granted 13,500 SARs to a consultant as partial compensation for services pursuant to the consulting agreement.

F-16

The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period for each SAR award. The SAR’s are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in income as of the applicable reporting date.

The fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the twelve months ended December 31, 2020:

Assumptions:

|  | 2020 |
Dividend yield |  |  | 0.00 | %
Risk-free interest rate |  |  | 0.22 | %
Expected volatility |  |  | 116.8 | %
Expected life (in years) |  |  | 5 |

SARs activity for the twelve months ended December 31, 2020 was as follows:

|  |  |  |  | Weighted Average |  |  | Weighted Average |  |  |  |
|  |  |  |  | Exercise |  |  | Remaining |  |  | Aggregate |
|  |  |  |  | Price |  |  | Contractual |  |  | Intrinsic |
|  | SARs |  |  | ($) |  |  | Life (Yrs.) |  |  | Value ($) |
SARs outstanding at December 31, 2019 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Granted |  |  | 127,679 |  |  |  | 2.61 |  |  |  | 4.52 |  |  |  | 97,919 |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
SARs outstanding December 31, 2020 |  |  | 127,679 |  |  |  | 2.61 |  |  |  | 4.52 |  |  |  | 97,919 |
SARs expected to vest in the future as of December 31, 2020 |  |  | 125,429 |  |  |  | 2.62 |  |  |  | 4.51 |  |  |  | 95,872 |
SARs exercisable at December 31, 2020 |  |  | 2,250 |  |  |  | 2.47 |  |  |  | 4.89 |  |  |  | 2,047 |
SARs vested, exercisable, and options expected to vest at December 31, 2020 |  |  | 127,679 |  |  |  | 2.61 |  |  |  | 4.52 |  |  |  | 97,919 |

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $3.38 closing price of our common stock on December 31, 2020. All of the 2020 SARs grants have an exercise price currently below $3.38.

At December 31, 2020, there was $216,149 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 2.48 years.

Warrants

At December 31, 2020, the Company had outstanding warrants to purchase a total of 1,881,429 shares of common stock. The warrants have exercise prices that range from $0.10 to $40.00, which if not exercised, will expire between February 21, 2022 and December 9, 2025.

Warrant activity for the year ended December 31, 2020 and 2019 was as follows:

|  |  |  |  | Weighted Average |  |  | Weighted Average |
|  |  |  |  | Exercise |  |  | Remaining |
|  |  |  |  | Price |  |  | Contractual |
|  | Warrants |  |  | ($) |  |  | Life (Yrs.) |
Warrants outstanding at December 31, 2018 |  |  | 305,060 |  |  |  | 27.50 |  |  |  | 3.86 |
Granted |  |  | 65,690 |  |  |  | 15.60 |  |  |  | 4.39 |
Exercised |  |  | (7,023 | ) |  |  | 10.80 |  |  |  | - |
Forfeited or cancelled |  |  | - |  |  |  | - |  |  |  | - |
Warrants outstanding at December 31, 2019 |  |  | 363,728 |  |  |  | 25.60 |  |  |  | 3.12 |
Granted |  |  | 1,540,139 |  |  |  | 3.19 |  |  |  | 4.64 |
Exercised |  |  | (22,438 | ) |  |  | - |  |  |  | - |
Forfeited or cancelled |  |  | - |  |  |  | - |  |  |  | - |
Warrants outstanding at December 31, 2020 |  |  | 1,881,429 |  |  |  | 7.57 |  |  |  | 4.16 |

In connection with its January 2020 private placement, the Company issued 6,156 warrants to purchase its Series D Preferred Stock (the Preferred Warrants”). As of December 31, 2020, there were 10 Preferred Warrants outstanding, which if exercised would result in the issuance of 10 shares of Series D Convertible Preferred Stock. The Series D Convertible Preferred stock, including make-whole dividends, was convertible into 4,748 shares of common stock on December 31, 2020.

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NOTE 9 – Income Taxes

The Company accounts for income taxes in accordance with ASC Topic No. 740. This standard requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. Income tax returns open for examination by the Internal Revenue Service consist of tax years ended December 31, 2017 through 2019.

The Company has available at December 31, 2020, unused operating loss carryforwards of approximately $19,925,769 which may be applied against future taxable income and which expire in various years through 2040. However, if certain substantial changes in the Company’s ownership should occur, there could be an annual limitation on the amount of net operating loss carryforward which can be utilized. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards and other temporary differences of approximately $4,170,100 and $3,037,800 at December 31, 2020 and 2019, respectively, and, therefore, no deferred tax asset has been recognized for the loss carryforwards.

Deferred tax assets are comprised of the following:

|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
NOL carryover |  | $ | 4,184,400 |  |  | $ | 3,038,600 |
Depreciation |  |  | (14,300 | ) |  |  | (800 | )
Valuation allowance |  |  | (4,170,100 | ) |  |  | (3,037,800 | )
Net deferred tax asset |  | $ | - |  |  | $ | - |

The reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate (21%) to the Company’s effective tax rate for the years ended December 31, 2020 and 2019 is as follows:

|  | 2020 |  |  | 2019 |
Book Loss |  | $ | (1,472,000 | ) |  | $ | (1,327,400 | )
Depreciation |  |  | 13,500 |  |  |  | 19,000 |
Meals & Entertainment |  |  | 200 |  |  |  | 167,420 |
Stock Compensation |  |  | 177,333 |  |  |  | 1,900 |
Change in valuation allowance |  |  | 1,280,967 |  |  |  | 1,139,080 |
Provision for Income Taxes |  | $ | - |  |  | $ | - |

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NOTE 10 – Loss Per Share

The following data show the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the periods ended December 31, 2020 and 2019:

|  | Year Ended December 31 |
|  | 2020 |  |  | 2019 |
Loss from continuing Operations available to Common stockholders (numerator) |  | $ | (7,009,414 | ) |  | $ | (6,320,849 | )
Weighted average number of common shares Outstanding used in loss per share during the Period (denominator) |  |  | 3,829,716 |  |  |  | 1,176,278 |

Dilutive loss per share was not presented as the Company’s outstanding common and preferred warrants, stock options and preferred stock common equivalent shares for the periods presented would have had an anti-dilutive effect. At December 31, 2020, the Company had outstanding 1,881,429 common warrants which could be converted to 1,881,429 shares of common stock, and 713,010 stock options exercisable for 713,010 shares of common stock, 10 Series D Preferred Warrants exercisable for 10 shares of Series D Preferred Stock, which in turn, are convertible into 4,748 shares of common stock, and 715 shares of preferred stock, which could be converted into 243,024 shares of common stock, resulting in a potential total additional 2,842,211 common stock shares outstanding in the future. At December 31, 2019, the Company had outstanding 363,728 warrants which could be converted to 363,728 shares of common stock, a $50,000 note payable convertible into 2,500 shares of common stock, and 180,903 stock options exercisable for 180,903 shares of common stock resulting in a potential total additional 547,131 common stock shares outstanding in the future.

NOTE 11 – Commitments and Contingencies

Operating Leases – The Company leases office and laboratory space under operating leases. Expense relating to these operating leases was $76,394 and $73,255 for the years ended December 31, 2020 and 2019, respectively. The future minimum lease payments required under non-cancellable operating leases at December 31, 2020 were $6,115. The future minimum lease payments are due during the year 2021.

NOTE 12 – Concentrations

Revenues – During the years ended December 31, 2020 and 2019, the Company had the following significant customers who accounted for more than 10% each of the Company’s revenue in at least one of the periods presented. The change in the composition of customers between the two years resulted primarily from the change of focus from sales to R&D customers to Proof-of-Concept sales to customers preparing to initiate commercial production.

Customer |  | 2020 |  |  | 2019 |
A |  |  | 22.31 | % |  |  | - |
B |  |  | 16.78 | % |  |  | - |
C |  |  | 16.72 | % |  |  | - |
D |  |  | 15.26 | % |  |  | - |
E |  |  | 10.53 | % |  |  | - |
F |  |  | - |  |  |  | 27.42 | %
G |  |  | - |  |  |  | 21.20 | %
H |  |  | - |  |  |  | 20.34 | %
I |  |  | - |  |  |  | 11.83 | %

Accounts Receivable – The Company had the following significant customers who accounted for more than 10% each of the Company’s accounts receivable balance at December 31, 2020 and 2019, respectively.

Customer |  | 2020 |  |  | 2019 |
A |  |  | 45.88 | % |  |  | - |
B |  |  | 25.94 | % |  |  | - |
C |  |  | 22.62 | % |  |  | - |
D |  |  | - |  |  |  | 76.46 | %
E |  |  | - |  |  |  | 23.54 | %

F-19

NOTE 13 - Joint Venture

In July 2015, we entered into a joint venture agreement with Arete Innovative Solutions LLC (“Arete”). The Joint Venture was not consolidated, but rather was accounted for on the equity method of recording investments. The Company and Arete terminated the Joint Venture in 2020 and distributed the remaining cash to the former partners.

NOTE 14 - Defined Contribution Plan

In 2014, the Company adopted a qualified 401(K) plan (“the Plan”), in which all employees over the age of 21 may participate. The Company makes a Safe Harbor contribution match of 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed. The costs of matching contributions were $55,321 in 2020 and $45,080 in 2019.

NOTE 15 – Related Party Transactions

As of December 31, 2020, there are no related party transactions.

NOTE 16 – Subsequent Events

In February and March of 2021, the Company issued 454,404 shares of common stock upon the exercise of warrants with an exercise price of $2.50 per share, resulting in net cash proceeds to the Company of $1,136,010.

In March of 2021, the Company issued 119,000 shares of common stock pursuant to the conversion of 250 Series D Preferred shares.

On January 13, 2021, we were notified by our bank, BOKF, NA dba Bank of Oklahoma, that the SBA had forgiven 100% of our PPP loan of $361,700.

On January 8, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co. (the “Underwriter”), which provided for the issuance and sale by the Company in an underwritten public offering and the purchase by the Underwriter of 1,488,507 shares of the Company’s common stock, $0.001 par value per share. The offering closed on January 12, 2021.

Subject to the terms and conditions contained in the Underwriting Agreement, the shares were sold to the Underwriter at a public offering price of $3.00 per share, less underwriting discounts and commissions. The Company also granted the Underwriters a 30-day option to purchase up to 223,276 additional shares of the Company’s common stock on the same terms and conditions. The Underwriter fully exercised such option to purchase up to 223,276 additional shares of the Company’s common stock, for an aggregate of 1,711,783 shares of Common Stock. Pursuant to the Underwriting Agreement, we have also issued to the Underwriter or its designee warrants to purchase a number of shares equal to 8% of the aggregate number of shares of common stock sold in the Offering, including shares issued upon exercise of the option to purchase additional shares (the “Underwriter Warrants”). The Underwriter Warrants have a term of five years from the commencement of sales in the Offering and an exercise price of $3.75 per share. The net offering proceeds to the Company from the Offering are approximately $3,919,552 (or approximately $4,532,444 taking into account the Underwriter’s exercise of its option to purchase additional shares in full), after deducting underwriting discounts and commissions and other estimated offering expenses.

On January 8, 2021, the Company obtained a waiver (“Waiver”) from certain investors (“Investors”) with respect to certain anti-dilution adjustment provisions of a January 2020 warrant and an April 2020 warrant issued to the Investors. As consideration for the Waiver, the Company issued an additional warrant (“Warrant”) to the Investors to purchase an aggregate of 100,000 shares of common stock, each exercisable after six months for a five-year period with an exercise price equal to 115% of the closing price of the Company’s stock on the date of the waiver.

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