UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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
(State or other jurisdiction of
incorporation or organization)
27-1865814
(I.R.S. Employer
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
Common Stock, par value $0.001 per share
Trading Symbol(s)
SGLB
Name of each exchange on which registered
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 ☒.
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 ☒.
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 ☒. 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 ☒.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 ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
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 ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ . No ☒.
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, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $40,750,250. 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, 2022 was 10,498,802.
Documents incorporated by reference: None
SIGMA LABS, INC.
FORM 10-K — FISCAL YEAR ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
PART I
PART II
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 6.
ITEM 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
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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.
Certain 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 report, 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 and a corresponding decrease in the number of
shares of our common stock that we are authorized to issue. 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.
3
ITEM 1. BUSINESS.
The Company:
PART I
Sigma is a 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, or 3D printing, 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.
Additive Metal Manufacturing and the role and need for Sigma’s technology:
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.
We believe that there are several significant hurdles to be overcome for broader adoption of additive technologies for the production of industrial metal parts. Among these are
lack of quality, consistency, and industry standards along with cost. The Company believes PrintRite3D® has the potential to contribute to widespread industrialization of 3D
metal printing. Additionally, the disruption in complex and rigid supply chains caused by COVID-19 exposed the country’s vulnerability to shortages in times of crisis. In
response, 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.
4
PrintRite3D® Technology and Product Family
PrintRite3D® is an integrated hardware and software edge computing platform, or in-process quality assurance system that combines inspection, feedback, data collection and
critical analysis. It is a 3D printer 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 detects 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.
PrintRite3D was initially developed to work with industrial 3D metal printers using the Powder Bed Fusion (PBF) process, which is the most widely used process for industrial
metal applications. In 2020, we announced PrintRite3D for Direct Energy Deposition, or DED, for metal parts. PrintRite3D DED opens up another segment of the industrial
metal market for Sigma to sell and distribute our technology. In 2021, the Company introduced PrintRite3D Selective Laser Sintering, or (SLS) for polymer materials. The
polymer market is larger and more advanced than the metal market. There is an increasing need for quality and standards within the polymer market to support mission critical
parts such as those being used in aerospace, space exploration, and defense. The Company’s entry into this market was customer driven by a supplier of critical equipment to
the space exploration market. The Company believes that PrintRite3D’s ability to work across a different 3D printers, processes and materials gives it a competitive advantage
and will help accelerate the adoption of 3D printing for industrial applications.
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 2021, 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. Since 2020, the Company has moved aggressively to establish and extend
relationships with 3D printer OEMs and began to generate revenue from this channel. The revenue generated by the OEMs in 2021 did not meet the Company’s projections due
to several reasons, including but not limited to: (1) the ramp up time for the OEM’s sales force, (2) the ongoing impact of COVID on our European based OEM partners, and
(3) the lack of OEM sales into select vertical markets (e.g., aerospace and space exploration) that require that parts conform to specific quality standards. We expect that the
percentage of the Company’s revenue coming from OEMs will increase in 2022 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 and cost
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.
Dependence on a Few Major Customers and Partners
The Company has established distribution agreements with two international 3D printer OEMs. We expected each to contribute a significant percentage of our 2021 revenue,
however due to the previously discussed reasons, revenue in the first year of the relationship did not meet either company’s expectations. The Company supports the OEMs
with joint marketing programs, 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
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 has been 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®. Over the past year or so, new
competitors have entered the market with monitoring technology that follows Sigma’s lead as a 3rd party agnostic system capable of working across 3D printer machine types.
These systems use camera-based technology and machine learning to identify gross defects during the printing process. These solutions are useful; however, they fall short of
determining root cause, and unlike PrintRite3D, are not capable of instructing the printer, through closed-loop control, to vary certain machine variables such as laser power to
avoid creating the defects.
5
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 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.
Sigma Labs, Inc. Patent Portfolio as of
December 31, 2021
Granted
In Process
Jurisdiction
US
PCT
EP
Germany
China
Japan
Korea
Total
13
-
-
1
1
-
-
15
16
3
4
7
4
2
1
37
Total
29
3
4
8
5
2
1
52
The Company believes that its patented PrintRite3D® technology is a significant barrier to entry to competitors attempting to replicate the Company’s strategy.
6
Title
Methods and Systems for Monitoring Additive Manufacturing Processes
Systems and Methods for Additive Manufacturing Operations
Material Qualification System and Methodology
Material Qualification System and Methodology
Optical Manufacturing Process Sensing and Status Indication System
Systems and Methods for Measuring Radiated Thermal Energy During an
Additive Manufacturing Operation
Optical Manufacturing Process Sensing and Status Indication System
Systems and Methods for Additive Manufacturing Operations
Systems and Methods for Measuring Radiated Thermal Energy During an
Additive Manufacturing Operation
Photodetector Array for Additive Manufacturing Operations
Multi-Sensor Quality Inference and Control for Additive Manufacturing
Processes
Optical Manufacturing Process Sensing and Status Indication System
Method and System for Monitoring Additive Manufacturing Process
Layer-Based Defect Detection Using Normalized Sensor Data
Systems and Methods for Measuring Radiated Thermal Energy During an
Additive Manufacturing Operation
Government Regulation
Type
US Utility
US Utility
US Utility
China Utility
US Utility
US Utility
US Utility
US Utility
US Utility
US Utility
US Utility
US Utility
US Utility
US Utility
Patent No. or Application
No.
Expiration Date
9,999,924
10,207,489
10,226,817
ZL201680010333.X
10,317,294
10,479,020
10,520,372
10,717,264
10,639,745
10,786,850
10,786,948
11,073,431
11,135,654
11,072,043
5/11/36
6/20/37
4/26/37
1/13/26
5/2/35
8/1/38
3/25/35
12/28/38
2/21/39
2/21/39
4/24/37
3/25/35
8/11/35
1/26/40
8/1/38
Germany Utility
112,018,001,597
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 23, 2022, we have several active contracts with government agencies. During fiscal year 2021, we entered into two contracts with government agencies,
and we plan to increase this activity in the future.
Human Capital
As of December 31, 2021, we had 33 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 depends, in part, upon our continued ability to attract and retain highly skilled employees and management and technical
personnel. Employee engagement is important to us and we focus on continuously enhancing our corporate culture.
Compensation and Benefits
We strive to provide robust and competitive compensation and benefits to our employees. Our benefit programs include bonuses, stock-based compensation awards, a
401(k) plan with employer matching, healthcare and insurance benefits, flexible paid time off and other employee assistance programs.
7
COVID-19 Pandemic
The health and wellness of our employees is also critical to our success. In an effort to keep our employees safe during the COVID-19 pandemic, we have
implemented a number of health-related measures including, but not limited to, protocols governing the use of face-masks while on company property, temperature taking
protocols, a flexible work-from-home policy, cleaning procedures at our offices, and social-distancing protocols, which measures we will continue to monitor.
Corporate Information
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.
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 report.
Recent Developments
On February 17, 2022, we announced that Jacob Brunsberg was appointed as President and Chief Operating Officer of the Company. In this position, Mr. Brunsberg
will have responsibility for product direction, strategic relationships, sales, marketing, and engineering. As President and Chief Operating Officer, he will report to Mark K.
Ruport, Sigma’s Chief Executive Officer. Mr. Brunsberg will oversee several strategic initiatives designed to accelerate the growth and performance of the company, including
the transition to a software only offering, initiating and implementing a comprehensive OEM integration program, building strategic partnerships, and implementing a new
subscription-based pricing model as an option to our existing perpetual pricing model. Each of these key initiatives is integral to lowering the additive manufacturing (“AM”)
industry’s technology adoption barriers and easing entry and expansion for manufacturers and OEM partners.
On January 26, 2022, we announced that together with Materialise, a leading provider of additive manufacturing (AM) software and services, we had developed a
breakthrough technology to enhance the scalability of metal AM applications. The new platform combines the Materialise Control Platform and Sigma Labs’ PrintRite3D®
sensor technology to allow users to identify and correct metal build issues in real-time. With added control over their unique processes, manufacturers can optimize metal AM
processes for consistency and repeatability, key factors in scaling AM operations for serial production.
On January 25, 2022, we announced that our PrintRite3D® in-process quality assurance solution had been purchased by Auburn University, based in Auburn,
Alabama. The PrintRite3D solution will be installed on the university’s EOS M290 machine and is the start of an academic and industrial collaboration between the university
and Sigma Labs, and we will deploy the system under a commercial lease/purchase program that provides more flexible and acceptable terms for academic institutions and
early adopters.
PrintRite3D will be implemented to support several projects at the Auburn University National Center for Additive Manufacturing Excellence (NCAME) to utilize 3D
printed (additively manufactured) components to improve commercial air and space travel. As reported by the Auburn University Samuel Ginn College of Engineering,
NCAME is funded by a $3 million grant from the Federal Aviation Administration (FAA). The objective is to address issues related to the variability in additive manufacturing
machines, as well as generate an understanding of how microscopic anomalies in the 3D-printed metals affect overall fatigue and fracture properties.
On January 20, 2022, we announced that our PrintRite3D® in-process quality assurance solution will be certified to work with Aconity3D’s line of 3D metal printers
and available as a standard option via Aconity3D’s online configurator. Aconity3D will designate their printers as ‘PrintRite3D Ready™’. As an original equipment
manufacturer (OEM) Aconity3D will sell, install and support PrintRite3D as an integrated solution to its customers.
Aconity3D is a machine manufacturer for laser-based 3D printing of metals, with a focus on the buildup of customer specific systems for Laser Powder Bed Fusion
(LPBF), in which metal particles are fused layer upon layer by a laser. The Aconity System Framework allows full customization of each machine for customers’ specific
applications. Aconity3D’s customers and partners include leading industrial, aviation and automotive companies, and world-renowned institutes and universities at the forefront
of the additive manufacturing (AM) landscape.
8
ITEM 1A. RISK FACTORS.
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. 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 common stock could decline. 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, 2021 and 2020 were $7,488,172 and $7,009,414, respectively. As of
December 31, 2021, our accumulated deficit was $40,593,180. 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, 2021 and December 31, 2020 were $1,651,765 and $807,488, respectively, and our operating expenses for those
periods were $9,571,185 and $5,914,299, 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.
As of December 31, 2021, we had cash of $11,447,047. We will need to raise additional financings 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. To the extent that funds are not available to
us, we may be required to delay, limit or terminate our business operations and may 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.
9
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 and geopolitical 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.
Some 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.
10
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 eleven 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 product 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 key personnel, and the loss of any of these individuals could harm our business.
We depend on 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;
● the rate of customer adoption of our new subscription pricing program;
11
● 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.
12
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. 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 or she 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.
13
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 COVID-19 pandemic.
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. Additionally, the coronavirus may result in disruption of 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 is subject to volatility related or unrelated to our operations, which could result in substantial losses for our stockholders.
Between January 1, 2021 and December 31, 2021, the trading price of our common stock has ranged from a low of $1.77 to a high of $7.64 and could be subject to
wide fluctuations in the future in response to various factors, some of which are beyond our control. 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.
14
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 our common stock will continue to have a bid price of at least $1.00 per share, which is the minimum bid price under such continued listing requirements, or that we will
be able to satisfy other 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 securities offerings 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.
15
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, 2021, we had 10,498,802 outstanding shares of
common stock. Future sales of a large number of our shares 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.
16
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, 2021, 465 shares of our preferred stock are outstanding, consisting of 132
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.
17
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 and 1,928 square
feet of warehouse / production space for a monthly rent expense of approximately $6,115. The leases expire on July 31, 2022. In addition, we lease one office at a Regus
Business Center at One Sun Plaza, Albuquerque, New Mexico 87109 at a monthly rent expense of $1,115. The lease expires on January 31, 2023. 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 become subject to legal proceedings and claims that arise in the ordinary course of our
business.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
PART II
Market Information
Our common stock trades on The NASDAQ Capital Market under the symbol “SGLB.”
Shareholders
As of March 23, 2022, there were approximately 568 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. 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. The Certificate of Designations of our Series D Preferred Stock prohibits us from declaring or paying
any cash dividend or distribution on any of its capital stock, other than as required by the Certificate of Designations.
18
Recent Sales of Unregistered Securities
In March 2021, the Company issued 1,500 shares of common stock valued at $4.99 per share to an investor relations firm as partial compensation for services
previously rendered. The shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from
registration under Section 4(2) of the Securities Act for transactions not involving a public offering.
Repurchase of Shares
During fiscal 2021, we purchased 5,204 shares of our common stock at a price of $3.47 per share, the average of the Company’s opening and closing stock price on the
date of purchase, upon the exercise of our right of first refusal in connection with an employee’s exercise of an option to purchase such shares.
Total number of
shares purchased
5,204
5,204
Average price paid
per share
$
$
3.47
3.47
Total number of
shares purchased
as part of publicly
announced plans or
programs
Maximum number
or approximate
dollar value of
shares that may yet
be purchased
under the plans or
programs
-
-
-
-
August 15 – August 31, 2021
Total
Period
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
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.
Long-Term Strategic Direction
In January 2022, we announced the foundational elements of a three-year plan that we believe will increase the Company’s ability to achieve its mission of setting the
quality standard for additive manufacturing. The combined strategies are geared at making our technology more consumable in terms of ease of use and cost by end users, both
for initial purchases and expansion opportunities, making it easier for original equipment manufacturers (“OEMs”) to embed our technology and generate attractive revenue
streams for the OEM, and finally increasing the Company’s gross margins by moving towards a software-only solution.
To lower the barrier for initial users and for expansion opportunities within end users with a large number of printers, the Company announced that it will be offering
its current PrintRite3D integrated hardware and software solution on a subscription basis. The impact of the change will reduce the initial upfront cost to a new user from over
$100,000 to approximately $3,000-$4,000 per month. In addition, the subscription model will smooth out the Company’s revenue and cash receipts while making them more
predictable.
In order to expand the number of OEMs distributing our technology, we recently launched a three-tiered OEM program directed to: (1) new OEMs without their own
quality assurance or monitoring solution; (2) established OEMs with a quality monitoring offering, but who have customers with multiple printers from multiple OEMs and
want a single 3rd party quality and analytics solution with consistent quality metrics across printers, processes and materials; and (3) OEMs building open APIs to integrate
components of Sigma’s proprietary technology with their current offerings.
In 2019, Sigma entered the market with a productized integrated hardware/software solution to address the retrofit market, i.e., end users that had purchased a printer,
and wanted a 3rd party quality and analytics solution. Subsequently, the Company was successful in creating initial partnerships with OEMs such as Additive Industries and
DMG Mori to offer PrintRite3D as an integrated hardware/software edge computing solution. We are now working with OEMs on their next generation printers to offer a
software-only solution that will utilize the printer’s computing infrastructure and dramatically reduce the overall cost of its technology, enabling the opportunity to move
towards a software only embedded solution on every printer sold by partner OEMs.
The combination of subscription pricing and the software-only embedded OEM offerings are intended to make our technology more affordable to acquire and easier
for OEM’s to bundle, distribute and support in an effort to become the industry standard.
Covid-19 Business Update
The worldwide COVID-19 pandemic caused a reduction, and in some cases a freeze, in capital spending within the Company’s targeted industries and had what the
Company believes to be a short-term negative impact on the Company’s expected timing of generating meaningful revenue. Further, the future impact of the outbreak,
including variations of the virus, is highly uncertain so that no assurance can be given that the outbreak will not have a material adverse impact on the future results of the
Company. It is also uncertain as to any further disruption of the financial markets, which may reduce our ability to access capital, either at all, or on favorable terms.
Critical Accounting Policies and Estimates
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. By their nature, changes in these assumptions
and estimates could significantly affect our financial position or results of operations. Significant accounting estimates that may materially change in the near future are revenue
recognition, impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory
obsolescence. Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 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.
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The critical accounting policies and estimates addressed below reflect our most significant judgements and estimates used in the preparation of our financial statements
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. Generally, revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
Company expects to be entitled in exchange for those goods or services. Significant estimates and judgements for determining revenue recognition include: (1) identifying the
contract, or contracts, with our 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.
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.
Inventory Valuation - Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components which will be
sold to customers. Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method. Charges for obsolete inventory are based on
specific identification of inventory items resulting from regular, on ongoing reviews of our build of materials.
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. Utility patents are amortized
over a 17-year period. Patents which are pending are not amortized.
Stock Based Compensation – We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are required to provide services. 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. Compensation cost is
measured on the date of grant at its fair value.
Equity instruments issued to non-employees are recorded on the basis of the grant date fair value of the instruments. In general, the measurement date is either (a)
when a performance commitment, as defined, is reached or (b) the earlier of the date that (i) the non-employee performance requirement is complete or (ii) the instruments are
vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant.
The grant date fair value of stock based and other equity instruments is calculated using the Black Scholes valuation model, and requires estimates of several inputs to
the model, including risk-free interest rates, dividends, and expected volatility of our stock price.
Results of Operations
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020.
We generate revenues through hardware and software licensing of our PrintRite3D® technology to customers that seek to improve their manufacturing production
processes, and through ongoing annual software upgrades and maintenance fees. Additionally, we generate revenues from our contract manufacturing activities in metal 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.
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During fiscal 2021, we made a significant investment in both our employees and our infrastructure, adding resources to be in a position to grow our business.
Employees and Headcount
We added 13 full-time employees in 2021. We increased our sales team from two at the beginning of the year to seven in an effort to expand our business. Specifically,
we hired a senior director of sales in the US Western region, an area sales manager for the European, Middle East and Africa (EMEA ) region, and three technical sales
engineers, one of whom is in Europe, to support our business development and sales efforts. We also added a total of seven engineers including three software engineers and
four applications engineers, who will be furthering our machine learning and artificial intelligence (“AI”) initiatives, as well as increasing our manufacturing capacity and
ability to perform customer installations and field support. Finally, in September 2021, we hired a Senior VP of Product Management and Strategic Relationships.
The labor market is extremely competitive, and our highly trained, skilled, and talented employees are heavily recruited by others. To that end, we have made
additional investments in our employees designed to ensure we remain competitive in the marketplace. This also aligns well with, and reinforces, our “employee first” culture.
In addition to salaries, we improved our benefits by offering a premium health care plan option and increasing the Company’s contribution to premiums. We have also added a
Company paid short-term disability insurance plan and optional long-term disability insurance plan. And finally, we have increased equity related compensation to everyone in
our Company, from non-employee directors to executive management to employees and consultants. We believe that this is an important component of aligning shareholder,
company, and employee interests and vests everyone in the growth and success of Sigma.
Gross Margin
In fiscal year 2021, we increased our gross margin to 66% from 27% in 2020. The primary reasons for the 39% improvement are: (1) sourcing components from
multiple vendors has enabled us to secure alternative supply sources as well as lower material costs; (2) engineering enhancements, particularly around optics redesigns and
computing power and storage, have lowered costs while improving unit performance; (3) we have become more efficient in our customer installations, through the use of
virtual technology; (4) changes to our Rapid Test and Evaluation (“RTE”) program making them shorter in duration, with clearly defined objectives and more certain outcomes
in terms of ultimately leading to unit sales; and (5) adopting lean manufacturing principles which has improved controls, lowered costs, and improved efficiency.
Infrastructure
In addition to the investments made to improve our manufacturing processes and engineering designs, in fiscal 2021 we added new software applications to assist us in
achieving the leverage we need in our operations, both now and for the future. In particular, we added software subscriptions for a customer relationship management system
(CRM”), a product lifecycle management system (“PLM”), and a project tracking and management system, all of which we believe will help us improve controls, efficiency
and communication throughout the Company.
Revenue and Cost of Revenue
During the fiscal year ended December 31, 2021 (“fiscal 2021”), we generated an aggregate of $1,651,765 in revenues, as compared to an aggregate of $807,488 in
revenues generated by us in the fiscal year ended December 31, 2020 (“fiscal 2020”). The contributors to the $844,277 increase were: (1) increased new PrintRite3D® system
sales of $888,954; (2) increased on-site engineering and installation revenues of $26,200; and (3) increased annual maintenance revenues of $12,402, partially offset by (1) a
decrease in revenues from our Rapid Test and Evaluation (“RTE”) program of $82,064; and (2) decreased revenue from contract AM jobs of $1,215. Our cost of revenue for
fiscal 2021 was $559,965 compared to $591,957 during the same period in 2020, a decrease of $31,992. The decrease is primarily due to a decrease in RTE program expenses
and a decrease in the cost of manufacturing PrintRite 3D units through the aforementioned combination of lower component costs, engineering redesign and increased
manufacturing efficiency, partially offset by increase in the cost of revenues due to increased sales volume in 2021. The Company sold 11 PrintRite3D units in 2021 as
compared to 6 units in 2020.
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Operating Expenses
Sigma’s operating expenses for fiscal 2021 were $9,571,185 as compared to $5,914,299 for fiscal 2020, a $3,656,886 increase.
In fiscal 2021, salaries and benefits costs were $4,286,368 as compared to $2,622,162 for the same period in fiscal 2020. The $1,664,206 increase is comprised of: (a)
$657,298 related to the hire of 13 additional employees; (b) $486,168 related to salary increases for existing employees; (c) increased incentive bonuses of $179,250; (d)
increased commissions of $57,580 as a result of increased sales in 2021; (e) increased taxes and benefits of $244,977; and (f) increased severance of $50,793. Partially
offsetting these increases was a decrease in stock appreciation rights expense of $12,355 due to the year-end revaluation of the compensation liability.
Stock-based compensation for fiscal 2021 was $1,066,455 compared to $596,842 for the same period in fiscal 2020. This $469,613 increase resulted primarily from
options granted to our new Senior Vice President of Product Management and Strategic Relationships of $264,352, initial options granted to 13 new employees totaling
$56,123, and annual option grants to existing employees totaling $149,138.
During fiscal 2021 and 2020, Sigma incurred operations and research and development expenditures of $890,553 and $351,404 respectively. Of the total expense in
2021, $417,744 related to research and development and $472,809 related to operations expenses. Of the total expense in 2020, $126,292 related to research and development
and $225,112 related to operations expenses. The increase of $291,452 in research and development costs in 2021 is primarily related to: (a) costs incurred in connection with
PrintRite3D version 7.0 of $89,798 and $20,977 for PrintRite3D 8.0; (b) an increase in CT scans conducted for new development work and a simulation project totaling
$87,988; (c) increased consulting expense related to our optics redesign of $67,189; and (d) $25,500 of expenses related to upgrading the date acquisition component of the
PrintRite3D unit (“DAQ”). Operations expenses in fiscal year 2021 increased $247,698 from 2020, primarily due to: (a) increased purchases of lab supplies and equipment of
$129,617; (b) write offs of three returned RTE systems with unusable parts of $34,273; and (c) write-off of metal powder and obsolete inventory of $111,158. These increases
were partially offset by a decrease in consulting costs of $27,350 due to the full time hire of a consultant in 2021
Sigma’s investor and public relation fees incurred in fiscal 2021 were $503,823, compared to $408,717 in fiscal 2020. The $95,106 increase in the comparative
expenditures results primarily from an increase in IR consulting costs of $48,847, and increased tradeshow and conference expenses of $90,548 based on increased attendance
due to reduced COVID restrictions, partially offset by decreased advertising expenses of $44,316 due to discontinuation of our public relations firm and Network Newswire
services.
Organizational costs for fiscal 2021 were $726,147, compared to $451,982 for the same period in fiscal 2020. The increase of $274,165 is primarily attributable to
increased directors compensation, consisting of stock options expense of $298,706 partially offset by lower cash compensation of $22,717.
Legal and professional service fees in fiscal 2021 were $915,530 compared to $676,142 in fiscal 2020. The increase of $239,388 is primarily attributable to an increase
in recruiting fees of $169,978 related to 9 of our 13 new hires, an increase in IT services fees of $10,814, and an increase in consulting fees of $64,494 due to the engagement
of external HR, accounting, and manufacturing consultants as well as increased compensation for a consultant to our CEO of $72,000. These amounts were partially offset by
reduced legal fees of $83,669 due to non-recurring expenses incurred in 2020, including expenses related to Nasdaq compliance, our reverse stock split, and an abandoned
financing.
During fiscal 2021, Sigma’s office expenses were $734,386 compared to $416,580 in the same period of fiscal 2020. The $317,806 increase in these expenditures
resulted primarily from: (a) increased payroll service fees of $18,314 due to 4 months of free service in 2020; (b) increased postage of $45,644 due to RTE returns, shipping
PrintRite3D units to trade shows, and expedited shipping of parts and materials due to increased lead times; (c) an increase in computer hardware and office supplies of $40,171
due to the purchase of computers for new hires, promotional items, and cleaning, sanitary and safety supplies related to COVID pandemic; (d) an increase in dues and
subscriptions expense of $50,330 for new customer relationship management, product lifecycle management, and project management software; (e) increased travel expenses
of $148,507 due to virtually no travel in 2020 as a result of COVID 19 restrictions; and (f) an increase in training and education expense of $15,059 for cable manufacturing
certification and employee team building exercises.
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Other operating expenses for fiscal 2021 totaled $353,818, compared to $285,295 for fiscal 2020. The increase of $68,523 is primarily due to an increase in insurance
premiums, in particular our director’s & officer’s policy premium.
In fiscal 2021, our net other income & expense was net income of $1,094,780, compared to net income of $498,629 in fiscal 2020. The increase of $596,151 was
primarily due to a gain on the derivative liability of $1,092,441, as compared to the 2020 State of New Mexico’s high wage tax credit incentive program of $151,656, as well as
the Payroll Protection Plan loan forgiveness of $361,700.
Sigma’s net loss before preferred dividends for fiscal 2021 increased by $2,184,466 and totaled $7,384,605, as compared to a net loss before preferred dividends of
$5,200,139 for fiscal 2020. Net loss applicable to common stockholders for fiscal 2021 was $7,488,172, as compared to $7,009,414 for fiscal 2020. The 2021 net operating loss
component of the overall loss being $2,768,405 higher than in 2020 and the other income component being a $596,151 higher. Preferred stock dividends were $103,567 in
fiscal 2021 and $1,809,275 in fiscal 2020.
Liquidity and Capital Resources
As of December 31, 2021, we had $11,447,047 in cash and working capital of $11,702,358, as compared to $3,700,814 in cash and working capital of $4,332,053 as of
December 31, 2020.
We believe that our existing cash on hand will be sufficient to fund our anticipated operating costs and capital expenditure requirements through 2022. We have based
this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.
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. In January 2021, the Company closed a public offering of 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately
$4,532,444 after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In March 2021, the Company closed a public
offering of 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,488 after deducting placement agent
commissions and other offering costs payable by the Company. Concurrent with the public offering, the Company issued warrants to investors to purchase an aggregate of
2,190,000 shares of common stock to holders in a private placement. The warrants entitle the holders to purchase one share of our common stock at an exercise price equal to
$4.32 per share commencing on May 24, 2021 and will expire two years from such date.
During the first quarter of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net proceeds to the Company
of $1,136,010.
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 2022, we expect to sustain our operations and our commercialization and marketing efforts with our cash reserves and revenues generated from sales of our
PrintRite 3D® technology. We expect that continued enhancements of our IPQA®-enabled PrintRite3D® technology will enable us to further commercialize this technology
into the AM metal market in 2022. To support the commercialization of our PrintRite3D® technology, we plan to continue funding our development activities and operating
expenses by licensing our PrintRite3D® systems and supporting field services, as applicable, and providing PrintRite3D®-enabled engineering consulting services concerning
our areas of expertise (materials and manufacturing quality assurance and process control technologies) and through the use of proceeds from sales of our securities and
potential exercises of our outstanding warrants.
Net Cash Used in Operating Activities
Net cash used in operating activities in fiscal 2021 increased to $6,298,959 from $4,809,868 in fiscal 2020. This increase was primarily attributable to: (1) an increase in
our net loss before preferred dividends of $2,184,466; (2) the gain on the derivative liability of $1,092,441; (3) a decrease in depreciation expense of $11,070; (4) a decrease in
current and long-term prepaid assets of 132,534; and (5) a decrease in deferred payroll taxes under the CARES Act of $37,728 due to repayment of 50% of the total deferral in
December 2021. Partially offsetting these increases were: (1) higher equity-based compensation expenses of $828,623 due to: (a) increased options and common share grants
awarded to employees of $469,613; (b) increased stock options granted to consultants in lieu of cash of $60,308, and (c) increased equity based compensation for directors of
$298,702; (2) a decrease in accounts receivable of $195,392 due to increased cash collections from higher sales volume; (3) a decrease in inventory in 2021 from 2020 of
$10,503; (4) an increase in accounts payable and other accrued expenses of $802,242 primarily due to (a) $196,071 of increased year end compensation accruals; (b) an
increase in SAR’s liability of $93,926; (c) increased trade accounts payable of $77,245; (d) additional professional services fee accruals of $35,000; (e) approximately $400,000
of payments made in fiscal 2020 related to fiscal 2019 payables following closing of our January and April 2020 financings; and (5) an increase in deferred revenue of
$132,388
Net Cash Used by Investing Activities
Net cash used by investing activities during fiscal 2021 was $359,750, which compares to cash used by investing activities during 2020 totaling $298,359. The increase
was primarily due to increased purchases of fixed assets of $94,448, the most significant of which was the purchase of a new laser for our 3D metal printer of $63,000, partially
offset by lower costs incurred for patents of $33,557.
Net Cash Provided by Financing Activities
Cash provided by financing activities during fiscal 2021 increased to $14,404,942 from $8,722,122 during the same period in 2020, an increase of $5,682,820 primarily
as a result of higher net proceeds from our 2021 financings as compared to 2020 of $10,489,160, partially offset by lower proceeds from exercise of warrants in 2021 of
$4,856,340.
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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.
The financial statements included in Item 15 are incorporated herein by reference.
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 with limited revenues and
employees.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f)
under the Exchange Act. Our management, with the participation of our Chief Executive Officer, and Chief Financial Officer, conducted an evaluation of the effectiveness of
our control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on management’s evaluation under the framework, management has concluded that our internal control over financial reporting was effective as of
December 31, 2021.
We continuously seek to improve and strengthen our control processes to ensure that all of our controls and procedures are adequate and effective. Any failure to
implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and
regulations. Any failure to improve our internal controls to address the weakness we have identified could also cause investors to lose confidence in our reported financial
information, which could have a negative impact on the trading price of our common stock.
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This report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm pursuant to SEC rules applicable to smaller reporting companies.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2021 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
MANAGEMENT
Executive Officers
PART III
The following table sets forth the name, age and position of each of our executive officers as of March 23, 2022:
Name
Mark K. Ruport
Frank Orzechowski
Ronald Fisher
Darren Beckett
Jacob Brunsberg
Age
69
62
52
48
35
Position
Chief Executive Officer
Chief Financial Officer, Treasurer and Corporate Secretary
Vice President of Business Development
Chief Technology Officer
President and Chief Operating Officer
Mark Ruport served as Executive Chairman from December 3, 2019 until April 30, 2020 and became our President and Chief Executive Officer on April 30, 2020. On
February 16, 2022, Mr. Ruport resigned as President but continues to be our Chief Executive Officer. Additional information regarding Mr. Ruport is set forth below under
“Board of Directors and Corporate Governance.”
Frank Orzechowski has served as our Chief Financial Officer, Treasurer, principal accounting officer, principal financial officer, and Corporate Secretary since July 1,
2019. Prior to joining the Company, Mr. Orzechowski served as the Chief Financial Officer of StormHarbour Partners LP, an independent global markets and financial advisory
firm since September 2013. From May 2013 to August 2013, Mr. Orzechowski served as a contract CFO for Etouches Inc., a cloud-based event management software
company, to assist with financial matters in connection with that company’s planned equity financing. Prior to that, he served as President and Owner/Operator of Four-O
Technologies Inc. from August 2009 to December 2012, where he successfully launched and guided operations for two Cartridge World franchise units in Connecticut. From
February 2006 to July 2009, Mr. Orzechowski served as President and Chief Financial Officer of Nikko Americas Holding Company Inc., where he was responsible for
managing all of the support and infrastructure for that company’s U.S. business, as well as investment manager selection and due diligence functions for its World Series
Platform. Mr. Orzechowski began his career at Coopers & Lybrand in 1982, received his CPA certification in 1984 and received his Bachelor of Science in Business
Administration with a major in Accounting from Georgetown University in 1982.
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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.
Jacob Brunsberg was appointed Senior Vice-President of Product Management and Strategic Relationships on September 20, 2021, and on February 16, 2022, he was
named President and Chief Operating Officer. Prior to joining the Company, Mr. Brunsberg was a P&L leader for General Electric’s Binder Jet Technology unit, with
management responsibility for strategy, development, commercialization, and overall business performance. From 2017 to 2019 he served as Sr. Managing Director of the
Central Region, tasked with helping establish the US sales infrastructure for post-acquisition integration of several additive manufacturing technology companies including
Concept Laser, Arcam and GEonX into the newly formed GE Additive business entity. Prior to GE, Mr. Brunsberg worked for the American Roller Company in sales
leadership and product marketing positions, responsible for the development and oversight of growth strategies, focused on advanced welding, cladding, thermal spray, and
powder metallurgy technologies across a number of industrial markets. Mr. Brunsberg holds a Bachelor of Science degree in Material Science and Engineering from the
University of Wisconsin-Madison.
The following table sets forth the names, ages as of March 23, 2022, and certain other information regarding our directors:
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Directors
John Rice
Mark K. Ruport
Salvatore Battinelli(1)
Dennis Duitch(1)
Kent Summers(1)
Class
I
I
II
III
III
Age
75
69
80
77
63
Position
Chairman of the Board and Director
Chief Executive Officer
Director
Director
Director
(1) Member of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee.
Directors
Director Since
2017
2019
2017
2017
2018
Current Term
Expires
2024
2024
2022
2023
2023
John Rice was appointed to our Board of Directors on February 15, 2017, was appointed as Chairman of our Board on April 19, 2017, was appointed as our interim
Chief Executive Officer on July 24, 2017, became our Chief Executive Officer on July 14, 2017 and was appointed as our President on October 10, 2018. Effective April 30,
2020, Mr. Rice resigned from his position as President and Chief Executive Officer. Mr. Rice has extensive experience in business operations. In 1990, Mr. Rice founded ASiQ,
LLC, a firm specializing in operations management services ranging from launching successful startups and executing business turnarounds to financings, crisis management
and the repositioning of enterprises for sale at optimum market prices. Mr. Rice presently serves as ASiQ’s CEO and President. He also served as CEO of Coca-Cola Bottling
Company of Santa Fe, a client of ASiQ’s, from 2009 to 2015. From 2010 to 2012, Mr. Rice served as Director and Contracts Officer of Detector Networks International. Mr.
Rice frequently lectures on breakout growth strategies, crisis management, corporate turnarounds, venture capital, and financial structuring and strategies. He has also served on
a number of boards. Since 2005, Mr. Rice has served as Director of New Mexico Angels, Inc., a New Mexico based group of accredited individual angel investors. Since 2016,
Mr. Rice has served as Director of Akal Security, Inc. He was also a Director of Detector Networks International from 2010-2012, where he successfully negotiated the
principal component of a business turnaround for the company. Mr. Rice is an honors graduate of Harvard College.
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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 and, as of February 16, 2022, no longer serves as President. Mr. Ruport remains a director on the Board of Directors but no longer serves as Executive
Chairman. Mr. Ruport brings more than 30 years of public and private company experience in the software sector to his position at Sigma Labs. Prior to joining Sigma Labs,
Mr. Ruport served since 2010 as the President of Step Function Consulting, LLC, a consulting firm that provides strategic consulting services to early and mid-stage portfolio
software companies. Mr. Ruport also served from 2014 to 2017 as the Executive Chairman of the Board of Directors of Content Analyst Company, a leading developer of
advanced analytics software for searching and analyzing unstructured text, and before that served as its Vice Chairman from 2012 to 2013. From 2005 to 2009, Mr. Ruport
served as the President and Chief Executive Officer of Configuresoft, Inc., a venture-backed Enterprise Systems Management company, where he orchestrated an OEM
agreement which later led to its acquisition by EMC Corp. Prior to Configuresoft, Mr. Ruport served from 2004 to 2005 as the Executive Vice President of Worldwide
Operations at Stellent, Inc., which was subsequently acquired by Oracle, Inc., and from 1995 to 2005 as the President, Chief Executive Officer and Chairman of the Board of
Directors of Optika, Inc., a venture-backed Enterprise Content Management Company that he led through its initial public offering and merger with Stellent, Inc. From 1990 to
1994, Mr. Ruport served as the President and Chief Executive Officer of Interleaf, Inc., a public software company. He also held various senior executive positions from 1985
to 1989 at Informix, Inc., a relational database management system company later acquired by IBM, and from 1985 to 1989 at Cullinet, Inc., a mainframe database
management system and enterprise resource planning company later acquired by Computer Associates, Inc. Mr. Ruport received his Bachelor of Science degree and MBA from
Bowling Green State University.Mr. Ruport received a Bachelor of Science in Business and an MBA from Bowling Green State University.
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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, as a director and Chairman of the
Compensation Committee with iQ3 Connect, Inc. Mr. Summers also currently serves as Chairman, Board of Managers, Massachusetts Materials Technologies LLC.
From 2005 to 2017, Mr. Summers served as Managing Partner at Practical Computer Applications, Inc., a Boston-based database consulting and engineering services
firm, where he was responsible for sales planning and execution activities. Prior to Practical Computer Applications, from 2001 to 2005, Mr. Summers provided independent
merger & acquisition advisory services to support the sale of privately-owned companies. Over a prior 14-year period, Mr. Summers served in leadership roles at several
software and internet start-ups, including: Chairman and CEO of Collego Corporation (acquired by MRO Software), founder and CEO of MyHelpDesk, Inc. (acquired by
Support.com), founder of PCMovingVan.com (acquired by a PE firm), and Vice President of Marketing at Electronic Book Technologies, Inc. (acquired by INSO Corporation,
formerly listed on Nasdaq).
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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 exist, which, in the
opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations,
our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as
they may relate to us and our management. There are no family relationships among any of our directors or executive officers.
Classified Board of Directors
In accordance with our amended and restated bylaws, our Board of Directors is divided into three classes with staggered, three-year terms. At each annual meeting of
stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following
election. Our directors are classified as follows:
● the Class I directors are John Rice and Mark Ruport, with terms expiring at our 2024 annual meeting of stockholders;
● the Class II director is Salvatore Battinelli, with a term expiring at our 2022 annual meeting of stockholders; and
● the Class III directors are Dennis Duitch and Kent Summers, with terms expiring at our 2023 annual meeting of stockholders.
Our amended and restated bylaws provide that the authorized number of directors may be changed by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third
of the directors. The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in
control of our company.
30
Leadership Structure of the Board
Our directors may be removed with or without cause at any meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding
voting stock entitled to vote in the election of directors. Our amended and restated bylaws provide our Board of Directors with flexibility in its discretion to combine or separate
the positions of Chairman of the Board and Chief Executive Officer, if we elect to appoint a Chairman of the Board. Our Board of Directors believes it is important to select the
Company’s Chairman and Chief Executive Officer in the manner it considers in the best interests of the Company at any given time. Our Board of Directors believes that the
Chairman and Chief Executive Officer positions may be filled by one individual or by two different individuals, as determined by our Board of Directors based on
circumstances then in existence.
On August 19, 2017, our Board of Directors appointed Mr. Rice as Chairman of the Board. The Chairman of the Board presides at all meetings of our Board of
Directors and exercises and performs such other powers and duties as may be assigned to him from time to time by the Board or prescribed by our amended and restated
bylaws. The Chairman of the Board is appointed by our Board of Directors on an annual basis.
Our Board of Directors has no established policy on whether it should be led by a Chairman who is also the Chief Executive Officer, and has in the past combined the
roles of Chairman and Chief Executive Officer. Our Board currently is committed to the separated roles given the circumstances of our Company. However, our Board of
Directors continually evaluates our leadership structure and could, in the future, decide to combine the Chairman and Chief Executive Officer positions if it believes that doing
so would serve the best interests of our Company and our stockholders.
Board Meetings and Committees
During our fiscal year ended December 31, 2021, the Board of Directors held eight meetings, and each director attended at least 75% of the aggregate of (i) the total
number of meetings of our Board of Directors held during the period for which he has been a director and (ii) the total number of meetings held by all committees of our Board
of Directors on which he served during the periods that he served.
Although we do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of stockholders, we encourage, but do not
require, our directors to attend. Each of our then current directors attended our 2021 Annual Meeting of Stockholders.
Our Board has established three standing committees-audit, compensation, and nominating and corporate governance-each of which operates under a written charter
that has been approved by our board. Until February 15, 2017, when our common stock became listed on The Nasdaq Capital Market, we were not required to establish or
maintain an audit, nominating or compensation committee. Each committee charter has been posted on the Investors section of our website at www.sigmalabsinc.com. The
reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it
to be a part of this Annual Report.
Audit Committee
The Audit Committee’s responsibilities include:
● appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;
● overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;
● reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures;
● monitoring our internal control over financial reporting, disclosure controls and procedures;
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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 2021.
Compensation Committee
The Compensation Committee’s responsibilities include:
● annually reviewing and approving corporate goals and objectives applicable to CEO compensation;
● determining our CEO’s compensation;
● reviewing and approving, or making recommendations to our board with respect to, the compensation of our other executive officers;
● overseeing an evaluation of our senior executives;
● overseeing and administering our equity incentive plans;
● reviewing and making recommendations to our board with respect to director compensation; and
● reviewing and discussing annually with management our “Compensation Discussion and Analysis” when it is required by SEC rules to be included in our Proxy
Statements.
The members of our Compensation Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Battinelli serves as the chairperson of the committee. Our board
has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable Nasdaq rules and regulations and is a “non-employee director” as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee’s responsibilities include:
● identifying individuals qualified to become board members;
● recommending to our board the persons to be nominated for election as directors and to each of the board’s committees; and
● overseeing an annual evaluation of the board.
The members of our Nominating and Corporate Governance Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the chairperson of the
committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable NASDAQ rules and regulations.
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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 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 the fiscal year ended December 31, 2021, its executive officers, directors and greater than 10% stockholders complied with the
filing requirements under Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
Processes and Procedures for Compensation Decisions
Our Compensation Committee is responsible for the executive compensation programs for our executive officers and reports to our board of directors on its
discussions, decisions and other actions. Typically, our Chief Executive Officer makes recommendations to our Compensation Committee and is involved in the determination
of compensation for the respective executive officers that report to him. Our Chief Executive Officer does not determine his own compensation. Our Chief Executive Officer
makes recommendations to our Compensation Committee regarding short- and long-term compensation for all executive officers based on our results, an individual executive
officer’s contribution toward these results and performance toward individual goal achievement. Our Compensation Committee then reviews the recommendations and other
data and makes decisions (or makes recommendations to the Board) as to total compensation for each executive officer as well as each individual compensation component.
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The following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served as the Company’s Chief Executive
Officer at any time during the past fiscal year, and (ii) for our two most highly compensated executive officers, other than our Chief Executive Officer, who were employed
with the Company on December 31, 2021 (the foregoing executives are herein collectively referred to as the “named executive officers”).
Name and Principal Position
Mark Ruport - Chief
Executive Officer and Director
Darren Beckett - Chief Technology Officer
Frank Orzechowski - Chief Financial Officer
(1) Actual amounts paid or accrued.
Summary Compensation Table
Year
2021
2020
2021
2020
2021
2020
Salary ($)
(1)
250,000
155,000
Bonus ($)
(1)
208,333(2)
50,000(3)
185,000
180,000
185,000
151,667
25,800(2)
18,000(3)
26,500(2)
15,500(3)
Stock
Awards ($)
(5)
-
1,986
-
2,306
-
1,986
Option
Awards ($)
(6)
368,660(7)
618,980(8)
All Other
Compensation
($)
-
802
Total ($)
826,993
826,768
361,812(9)
152,984(10)
276,424(11
114,738(12)
-
928
572,612
354,218
-
802
487,924
284,693
(2) On January 24, 2022, the Compensation Committee granted Messrs. Ruport, Beckett, and Orzechowski performance bonuses of $208,333, $25,800, and $26,500
respectively, for the fiscal year ended December 31, 2021 in accordance with the provisions of their incentive compensation plans.
(3) On February 25, 2021, the Compensation Committee granted Mr. Ruport a $50,000 performance bonus for the fiscal year ended December 31, 2020. In October 2020, the
Compensation Committee granted Mr. Beckett a performance bonus of $10,000. In December 2020, Mr. Beckett was granted an additional performance bonus of $8,000,
and Mr. Orzechowski was granted a performance bonus of $15,500.
(5) On April 10, 2020 Messrs. Ruport, Beckett and Orzechowski were granted 969, 1,125, and 969 shares of our common stock, respectively, valued at the closing price of
$2.05 on the date of the grant. The shares fully vested on December 31, 2020.
(6) Includes option awards and stock appreciation rights awards. On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive
awards that are only made in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of
the Plan since no shares will be issued pursuant to the Plan. The Fair Value of option and SARs awards are calculated in accordance with FASB ASC Topic 718. The
amount recognized for all awards is calculated using the Black Scholes pricing model.
(7) On August 11, 2021, we granted Mr. Ruport an option to purchase 51,832 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,958 shares vested and became exercisable on August 11, 2021, and
the remaining 38,874 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 17,278 shares were vested and exercisable. The
option had a grant date fair value of $147,464. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 77,748 Stock
Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and
third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $221,196.
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(8) On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price of $2.50 and vests as follows: 25%, or 29,164 shares vested and became exercisable on June 15, 2020, and the
remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 72,904 shares were vested and exercisable. The option
had an aggregate grant date fair value of $254,474. On November 24, 2020, we granted Mr. Ruport and option to purchase 114,915 shares of our common stock under our
2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.55 and vests over three years in equal monthly
installments beginning one month from the grant date. As of December 31, 2021, 41,496 shares were fully vested and exercisable. The option had an aggregate grant date
fair value of $236,519. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 Stock Appreciation Rights (“SAR’s). The
SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant
date. As of December 31, 2021, 20,031 SARs were vested and exercisable. The SAR’s had an aggregate grant date fair value of $127,987.
(9) On August 11, 2021, we granted Mr. Beckett an option to purchase 50,869 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,718 shares vested and became exercisable on August 11, 2021, and
the remaining 38,151 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 16,957 shares were vested and exercisable. The
option had a grant date fair value of $144,724. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 76,304 Stock
Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and
third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $217,088.
(10) On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price equal to $2.50 per share and vests as follows: 25%, or 11,665 shares vested and became exercisable on June 15,
2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 29,161 shares were fully vested and
exercisable. The option had an aggregate grant date fair value of $101,788. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr.
Beckett 24,038 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each
of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 8,013 SARs were vested and exercisable. The SAR’s had an aggregate grant date
fair value of $51,196.
(11) On August 11, 2021, we granted Mr. Orzechowski an option to purchase 48,580 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price of $3.42 and vests as follows: 25%, or 12,145 shares vested and became exercisable on August 11, 2021, and
the remaining 36,435 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 16,193 shares were vested and exercisable. The
option had a grant date fair value of $138,212. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 48,580 Stock
Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and
third anniversaries of the grant date. The SAR’s had an aggregate grant date fair value of $138,212.
(12) On May 28, 2020, we granted Mr. Orzechowski an option to purchase 34,996 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price equal to $2.50 per share and vests as follows: 25%, or 8,749 shares vested and became exercisable on June 15,
2020, and the remaining 26,247 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, 21,871 shares were fully vested and
exercisable. The option had an aggregate grant date fair value of $76,342. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr.
Orzechowski 18,028 Stock Appreciation Rights (“SAR’s). The SAR’s have an exercise price of $2.63 and will vest and become exercisable in three equal installments on
each of the first, second, and third anniversaries of the grant date. As of December 31, 2021, 6,009 SARs were vested and exercisable. The SAR’s had an aggregate grant
date fair value of $38,396.
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Named Executive Officer Employment Agreements
Mark K Ruport
On December 3, 2019, we entered into an “at-will’ employment letter agreement with Mark Ruport, effective as of December 3, 2019 (the “effective date”), pursuant
to which Mr. Ruport agreed to serve as our Executive Chairman on an “at-will” basis. Additionally, Mr. Ruport was appointed to serve as a member of our Board of Directors,
effective as of December 3, 2019, with a term expiring at the 2021 annual meeting of stockholders. As of April 30, 2020, Mr. Ruport was appointed as President, Chief
Executive Officer, and principal executive officer of the Company, and no longer serves as Executive Chairman. On February 16, 2022, Mr. Ruport resigned as President, and
continues to serve as Chief Executive Officer and as a member of the Board of Directors.
Under the employment letter agreement, Mr. Ruport is entitled to (i) an annual base salary of $155,000, which was increased to $250,000 effective January 1, 2021,
and in connection with his resignation as President was decreased to $200,000 effective February 16, 2022 (such base salary is not subject to decrease, but may be increased in
the discretion of the Company’s Compensation Committee of the Board of Directors based on annual or special case assessments of Mr. Ruport’s performance and other
factors), and (ii) all benefits that we elect in our sole discretion to provide from time to time to our other executive officers, and received a grant of (1) a five-year stock option
to purchase up to 10,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date,
and vested and became exercisable in full on the first month’s anniversary of the effective date, and (2) a five-year stock option to purchase up to 40,000 shares of common
stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and will vest and become exercisable in
equal (as closely as possible) monthly installments over three years from the effective date, provided, in each case, that Mr. Ruport remains an employee of the Company
through such vesting date.
Such options are on such other terms and provisions as are contained in the Company’s standard form nonqualified stock option agreement; provided, however, that (x)
upon the occurrence of a Change of Control (as defined in the employment letter agreement), any unvested portion of the options as of the date of such Change of Control will
immediately and automatically vest; provided, however, that, the options may be assumed or, in the discretion of the Board of Directors, an equivalent option may be
substituted by an applicable successor corporation or any subsidiary of the successor corporation in connection with a Change of Control), and (y) in the event that the Board of
Directors determines that Mr. Ruport is unable to perform his duties due to an accident, illness or other event or condition which physically or mentally incapacitates him for a
period of 45 consecutive days (“Disability”), if he ceases to be employed by the Company as a result of a Disability, the options will continue to vest and remain exercisable for
the 5-year term of the options in accordance with the terms of the option agreements.
37
Additionally, during the term of his employment, Mr. Ruport is eligible to receive one or more bonuses relating to each fiscal year in recognition of his achievement of
individual and Company goals established by the Board of Directors from time to time. However, the decision to provide any such bonuses and the amount and terms of any
such bonuses is in the sole discretion of the Board of Directors. On January 24, 2022, Mr. Ruport was awarded a performance bonus of $208,333 for 2021.
Darren P. Beckett
Mr. Beckett has served as an employee of the Company since September 25, 2017, pursuant to an “at will” employment agreement with the Company, under which he
was engaged to serve as our Engineering Manager. On October 18, 2018, his title was changed from Vice President of Engineering to Chief Technology Officer of the
Company. On October 18, 2018, the Company also increased the annual base salary of Mr. Beckett from $135,000 to $180,000, effective retroactive to September 16, 2018, and
granted Mr. Beckett an option to purchase 2,000 shares of common stock under the 2013 Plan at an exercise price of $12.10 per share. The option has a term of five years and
vests in equal annual installments over four years from the date of grant subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable
vesting date. Under the agreement, Mr. Beckett is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the
Company’s Section 125 cafeteria plan, vision plan and 401K plan. On October 13, 2017, in connection with his employment, Mr. Beckett was granted an option to purchase up
to 1,500 shares of our common stock with an exercise price equal to $19.20 per share. Such option is fully vested and exercisable at December 31, 2021.
Frank D. Orzechowski
On July 1, 2019, we entered into an “at will” employment agreement, with Frank Orzechowski under which he was engaged to serve as our Chief Financial Officer,
Treasurer, Principal Accounting Officer and Corporate Secretary of the Company. Under Mr. Orzechowski’s employment agreement, he was entitled to receive an annual base
salary of $135,000, which was increased to $155,000 effective March 1, 2020, which was increased to $180,000 on January 1, 2021, and which was increased to $200,000 on
October 1, 2021. Pursuant to the employment agreement, Mr. Orzechowski was granted (1) a stock option to purchase up to 250 shares of common stock of the Company, at an
exercise price equal to $14.00 per share, which was the closing market price of the Company’s common stock on July 1, 2019 (i.e., the Effective Date), and (2) to purchase up
to 6,000 shares of common stock of the Company, with an exercise price of $14.00, and will vest and become exercisable as follows: 387 shares vested and became exercisable
on the one-year anniversary of the Effective Date, 900 shares vested and became exercisable on the second-year anniversary of the Effective Date, 1,413 shares will vest and
become exercisable on the third-year anniversary of the Effective Date, and 3,300 shares will vest and become exercisable on the fourth-year anniversary of the Effective Date,
provided, in each case, that Mr. Orzechowski remains an employee of the Company through such vesting dates. Further, Mr. Orzechowski is eligible to participate in the
Company’s 2013 Equity Incentive Plan, and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the
Company’s Section 125 cafeteria plan, vision plan and 401K plan.
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Outstanding Equity Awards at 2021 Fiscal Year-End
The following table sets forth outstanding equity awards issued under or outside of our 2013 Equity Incentive Plan and 2020 Stock Appreciation Rights Plan as of December
31, 2021 that are held by our named executive officers.
Name
Mark K. Ruport(2)
Darren Beckett(3)
Frank Orzechowski(4)
Option Awards(1)
Number of
securities
underlying
unexercised options
(#) exercisable
Number of
securities
underlying
unexercised options
(#) unexercisable
Option
exercise
price ($)
Option
expiration
date
10,000
27,025
72,904
20,031
41,496
17,278
-
1,500
900
188
250
5,000
29,161
8,013
16,957
-
675
250
1,287
21,871
6,009
16,193
-
-
12,975
43,750
40,063
73,419
34,554
77,748
-
1,100
187
250
-
17,500
16,025
33,912
76,304
825
-
4,713
13,125
12,019
32,387
48,580
11.20
11.20
2.50
2.63
2.55
3.42
3.42
19.20
12.10
15.00
12.40
6.70
2.50
2.63
3.42
3.42
15.60
14.00
14.00
2.50
2.63
3.42
3.42
12/3/24
12/3/24
6/14/25
6/22/25
11/24/25
8/11/26
8/11/26
10/13/22
10/18/23
1/1/24
7/18/24
10/11/24
6/14/25
6/22/25
8/11/26
8/11/26
2/26/28
7/1/24
7/1/24
6/14/25
6/22/25
8/11/26
8/11/26
(1) On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan only provides for incentive awards that are only made in the form of stock appreciation
rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.
Awards issued under the Plan are included in the table.
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(2) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to
purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3,2020; and (ii) an option to purchase up
to 40,000 shares of our common stock, with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the date of
grant. As of December 31, 2021, a total of 27,025 shares were vested and exercisable. On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our
common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as follows: 29,164
shares vested and became exercisable on June 15, 2020, and the remaining 87,490 shares will vest in equal monthly installments over the next three years. As of December 31,
2021, a total of 72,904 shares were vested and exercisable. On November 24, 2020, we granted Mr. Ruport an option to purchase up to 114,915 shares of our common stock.
The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2021, 41,496
shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 SARs. The SARs have an exercise
price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2021,
20,031 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Ruport an option to purchase 51,832 shares of our common stock under our 2013 Equity
Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows: 12,958 shares vested and became exercisable on
August 11, 2021, and the remaining 38,874 shares will vest in equal monthly installments over the next three years. As of December 31, 2021, a total of 17,278 shares were
vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 77,748 SARs. The SARs have an exercise price of
$3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date.
(3) On February 26, 2018 we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his
employment arrangement. The option has an exercise price per share equal to $15.60 and is vested as to 675 shares. The remaining 825 shares will vest and become exercisable
on February 26, 2022. On October 18, 2018, we granted Mr. Beckett an option to purchase up to 2,000 shares of our common stock. The option has an exercise price per share
equal to $12.10 and is vested as to 900 shares. The 1,100 remaining shares will vest and become exercisable on September 16, 2022. On October 13, 2017, we granted Mr.
Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has
an exercise price per share equal to $19.20. The option is fully vested and exercisable. On January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of
our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00, and vests
in equal installments on the first through the fourth anniversaries of the grant. As of December 31, 2021, 188 shares are vested and exercisable. On July 18, 2019, we granted
Mr. Beckett an option to purchase up to 500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has
an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through the fourth anniversaries of the date of grant.
As of December 31, 2021, the option was vested as to 250 shares. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our common stock
under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $6.70 and is fully vested and
exercisable. On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock. The option has an exercise price per share equal to $2.50 and
vests as follows: 11,665 shares vested and became exercisable on June 15, 2020, and the remaining 34,996 shares will vest in equal monthly installments over the next three
years. As of December 31, 2021, a total of 29,161 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr.
Beckett 24,038 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third
anniversaries of the grant date. As of December 31, 2021, 8,013 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Beckett an option to purchase 50,869
shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as
follows: 12,718 shares vested and became exercisable on August 11, 2021, and the remaining 38,151 shares will vest in equal monthly installments over the next three years.
As of December 31, 2021, a total of 16,957 shares were vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr.
Beckett 76,304 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third
anniversaries of the grant date.
(4) On July 1, 2019, in conjunction with the hiring of Frank Orzechowski, the Financial Officer, the Company granted to Mr. Orzechowski (i) an option to purchase 250 shares
of our common stock with an exercise price of $14.00, which fully vested and became exercisable on July 1, 2019; and (ii) an option to purchase up to 6,000 shares of our
common stock, with an exercise price of $14.00, which will vest and become exercisable as follows: 387 shares became vested and exercisable on July 1, 2020; 900 shares
became vested and exercisable on July 1, 2021; 1,413 shares will vest and become exercisable on July 1, 2022, and the remaining 3,300 shares will vest and become exercisable
on July 1, 2023. As of December 31, 2021, a total of 1,287 shares were vested and exercisable. On May 28, 2020, we granted Mr. Orzechowski an option to purchase 34,996
shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and vests as
follows: 8,749 shares vested and became exercisable on June 15, 2020, and the remaining 26,247 shares will vest in equal monthly installments over the next three years. As of
December 31, 2021, a total of 21,871 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski
18,028 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of
the grant date. As of December 31, 2021, 6,009 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Orzechowski an option to purchase 48,580 shares of
our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and vests as follows:
12,145 shares vested and became exercisable on August 11, 2021, and the remaining 36,435 shares will vest in equal monthly installments over the next three years. As of
December 31, 2021, a total of 16,193 shares were vested and exercisable. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr.
Orzechowski 48,580 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third
anniversaries of the grant date.
Equity Awards
We offer stock options, stock appreciation rights, and stock awards to certain of our employees, including our executive officers, as the long-term incentive component
of our compensation program. We generally grant equity awards to new hires upon their commencing employment with us. Our stock options allow employees to purchase
shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and may or may not be intended to qualify as “incentive
stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow employees to receive a cash payment for the difference between the market price of our
common stock on the date of exercise and the strike price. We sometimes also offer stock options, stock appreciation rights and stock awards to our consultants in lieu of cash.
Our stock options allow consultants to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and are
not intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow consultants to receive a cash payment for the
difference between the market price of our common stock on the date of exercise and the strike price. Stock options, stock appreciation rights, and stock awards granted to our
executive officers may be subject to accelerated vesting in certain circumstances.
Retirement Plans
We maintain a qualified 401(k) plan, in which all eligible employees may participate. We make safe harbor contributions to match 100% of each participant’s
contribution up to 3% of salary, and 50% of the next 2% of salary contributed. Safe harbor contributions are 100% vested. We may also elect, on an annual basis, to make a
discretionary contribution to the plan, but have not done so to date. Our elective matches and elective contributions vest to participant accounts as follows: 20% after two years
of service, and 20% per year thereafter until the participant reaches 6 years of service, at which time, employer contributions vest 100%. As a tax-qualified retirement plan,
contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan.
No Tax Gross-Ups
We do not make gross-up payments to cover our executive officers’ personal income taxes that may pertain to any of the compensation paid or provided by our
company.
40
2013 Equity Incentive Plan
Plan Purpose
Our Board of Directors adopted the 2013 Plan to (1) encourage selected employees, officers, directors, consultants and advisers to improve our operations and increase
our profitability, (2) encourage selected employees, officers, directors, consultants and advisers to accept or continue employment or association with us, and (3) increase the
interest of selected employees, officers, directors, consultants and advisers in our welfare through participation in the growth in value of our common stock. All of our current
employees, directors and consultants are eligible to participate in the 2013 Plan.
Administration
The 2013 Plan is to be administered by the Board or by a committee to which administration of the Plan, or of part of thereof, is delegated by the Board. The 2013
Plan is currently administered by our Compensation Committee, which we refer to below as the “Administrator.” The Administrator is responsible for selecting the officers,
employees, directors, consultants and advisers who will receive Options, Stock Appreciation Rights and Stock Awards. Subject to the requirements imposed by the 2013 Plan,
the Administrator is also responsible for determining the terms and conditions of each Option and Stock Appreciation Right award, including the number of shares subject to
the Option, the exercise price, expiration date and vesting period of the Option and whether the option is an Incentive Option or a Non-Qualified Option. Subject to the
requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Stock Award, including the number of shares
granted, the purchase price (if any), and the vesting, transfer and other restrictions imposed on the stock. The Administrator has the power, authority and discretion to make all
other determinations deemed necessary or advisable for the administration of the 2013 Plan or of any award under the 2013 Plan.
Neither the Board nor any committee of the Board to which administration of the 2013 Plan is delegated will provide advice to participants about whether or not to
accept or exercise their awards. Each participant must make his or her own decision about whether or not to accept or exercise an award.
The 2013 Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not a qualified pension, profit sharing or bonus plan under Section 401(a)
of the Internal Revenue Code
Stock Subject to the 2013 Plan
As of March 23, 2022, there were 1,473,297 shares previously issued or subject to outstanding awards under the 2013 Plan and 262,262 shares were available for
future issuance under the 2013 Plan.
If awards granted under the 2013 Plan expire or otherwise terminate or are cancelled without being exercised in full, the shares of common stock not acquired pursuant
to such awards will again become available for issuance under the 2013 Plan. If shares of common stock issued pursuant to awards under the 2013 Plan are forfeited to or
repurchased by us, the forfeited or repurchased stock will again become available for issuance under the 2013 Plan.
If shares of common stock subject to an award are not delivered to a participant because such shares are withheld for payment of taxes incurred in connection with the
exercise of an Option, or the issuance of shares under a Stock Award, or the award is exercised through a reduction of shares subject to the award (“net exercised”), then the
number of shares that are not delivered will not again be available for issuance under the 2013 Plan. In addition, if the exercise price of any award is satisfied by the tender of
shares of common stock to us (whether by actual delivery or attestation), the shares tendered will not again be available for issuance under the 2013 Plan.
41
Eligibility
All directors, employees, consultants and advisors of the Company and its subsidiaries are eligible to receive awards under the 2013 Plan. Incentive Options may only
be granted under the 2013 Plan to a person who is a full-time officer or employee of the Company or a subsidiary. The Administrator will determine from time-to-time which
directors, employees, consultants and advisers will be granted awards under the 2013 Plan.
Terms of Awards
Written Agreement
Each award under the 2013 Plan will be evidenced by an agreement in a form approved by the Administrator.
Exercise Price; Base Value
The exercise price for a Non-Qualified Option or an Incentive Option may not be less than 100% of the fair market value of the Common Stock on the date of the
grant of the Non-Qualified Option or Incentive Option. With respect to an Option holder who owns stock possessing more than 10% of the total voting power of all classes of
our stock, the exercise price for an Incentive Option may not be less than 110% of the fair market value of the Common Stock on the date of the grant of the Incentive Option.
The base value of a Stock Appreciation Right shall also be no less than 100% of the Common Stock on the date of the grant of the Stock Appreciation Right. The 2013 Plan
does not specify a minimum exercise price for Stock Awards.
Vesting
Each Option, Stock Appreciation Right or Stock Award will become exercisable or non-forfeitable (that is, “vest”) under conditions specified by the Administrator at
the time of grant. Vesting typically is based upon continued service as a director or employee but may be based upon any performance criteria and other contingencies that are
determined by the Administrator. Shares subject to Stock Awards may be subject to specified restrictions concerning transferability, repurchase by the Company and forfeiture
of the shares issued, together with such other restrictions as may be determined by the Administrator.
Expiration Date
Each Option or Stock Appreciation Right must be exercised by a date specified in the award agreement, which may not be more than ten years after the grant date.
Except as otherwise provided in the relevant agreement, an Option or Stock Appreciation Right ceases to be exercisable ninety days after the termination of the holder’s
employment with us.
Transfers of Options
Unless otherwise determined by the Administrator, Options are not transferable except by will or the laws of descent and distribution.
42
Purchase Price Payment
Unless otherwise determined by the Administrator, the purchase price of common stock acquired under the 2013 Plan is payable by cash or check at the time of an
Option exercise or acquisition of a Stock Award. The Company does not charge participants any fees or commissions in connection with their acquisition of common stock
under the 2013 Plan. The Administrator also has discretion to accept the following types of payment from participants:
● A secured or unsecured promissory note, provided that this method of payment is not available to a participant who is a director or an executive officer;
● Shares of our Common Stock already owned by the Option or Stock Award holder as long as the surrendered shares have a fair market value that is equal to the
acquired stock and have been owned by the participant for at least six months;
● The surrender of shares of Common Stock then issuable upon exercise of an Option; and
● A “cashless” option exercise in accordance with applicable regulations of the SEC and the Federal Reserve Board.
Withholding Taxes
At the time of his or her exercise of an Option or Stock Appreciation Right, an employee is responsible for paying all applicable federal and state withholding taxes. A
holder of Stock Awards is responsible for paying all applicable federal and state withholding taxes once the shares covered by the award cease to be forfeitable or at any other
time required by applicable law.
Securities Law Compliance
Shares of common stock will not be issued pursuant to the exercise of an Option or the receipt of a Stock Award unless the Administrator determines that the exercise
of the Option or receipt of the Stock Award and the issuance and delivery of such shares will comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933 (the “Securities Act”), applicable state and foreign securities laws and the requirements of any stock exchange on which our Common Stock is traded.
Effects of Certain Corporate Transactions
Except as otherwise determined by the Administrator, in the event of a “corporate transaction,” all previously unexercised Options and Stock Appreciation Rights will
terminate immediately prior to the consummation of the corporate transaction and all unvested Restricted Stock awards will be forfeited immediately prior to the consummation
of the corporate transaction. The Administrator, in its discretion, may permit exercise of any Options or Stock Appreciation Rights prior to their termination, even if those
awards would not otherwise have been exercisable, or provide that outstanding awards will be assumed or an equivalent Option or Stock Appreciation Right substituted by a
successor corporation. The Administrator, in its discretion, may remove any restrictions as to any Restricted Stock awards or provide that all outstanding Restricted Stock
awards will participate in the corporate transaction with an equivalent stock substituted by the successor corporation subject to the restrictions. In general, a “corporate
transaction” means:
● Our liquidation or dissolution;
● Our merger or consolidation with or into another corporation as a result of which we are not the surviving corporation;
● A sale of all or substantially all of our assets; or
● A purchase or other acquisition of more than 50% of our outstanding stock by one person, or by more than one person acting in concert.
Other Adjustment Provisions
If the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, appropriate
adjustments shall be made by the Administrator, in its discretion, in (1) the number and class of shares of stock subject to the 2013 Plan and each Option and grant of Stock
Awards outstanding under the 2013 Plan, and (2) the purchase price of each outstanding Option and (if applicable) Stock Award.
43
Amendment or Termination of the Plan
The Board of Directors may at any time amend, discontinue or terminate the 2013 Plan. With specified exceptions, no amendment, suspension or termination of the
Plan may adversely affect outstanding Options or Stock Appreciation Rights or the terms that are applicable to outstanding Stock Awards. No amendment, suspension or
termination of the Plan requires stockholder approval unless such approval is required under applicable law or under the rules of any stock exchange on which our Common
Stock is traded. Unless terminated earlier by the Board of Directors, the 2013 Plan will terminate automatically on March 15, 2023, which is the tenth anniversary of the date of
the 2013 Plan’s adoption by the Board.
2020 Stock Appreciation Rights Plan
On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable
the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range
success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s
business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were
reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.
Governance of the Plan
The Plan will be administered by the Compensation Committee of the Board or, in the Board’s sole discretion, by the Board. The Compensation Committee will have
the authority to, among other things, (i) construe and interpret the Plan and apply its provisions; (ii) promulgate, amend, and rescind rules and regulations relating to the
administration of the Plan; (iii) delegate its authority to one or more persons who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder with respect to SARs that do not involve “insiders” within the meaning of
Section 16 of the Exchange Act; (iv) determine when SARs are to be granted under the Plan and the applicable grant date; (v) prescribe the terms and conditions of each SAR,
including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant; (vi)
amend any outstanding SARs, subject, in certain cases, to the participant’s consent; and (vii) make all other determinations which may be necessary or advisable for the
administration of the Plan.
Eligible Participants
SARS may be granted only to persons who are Service Providers, and those persons whom the Committee determines are reasonably expected to become Service
Providers following the grant date. The Committee may from time to time designate those Service Providers, if any, to be granted SARs under the Plan, the number of SARs
which will be granted to each such person, and any other terms or conditions relating to SARs as it may deem appropriate to the extent consistent with the provisions of the
Plan. A participant who has been granted a SAR may, if otherwise eligible, be granted additional incentive awards at any time.
Grant. The Committee may grant SARs to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s
common stock upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair
market value per share on the date of exercise of the SAR.
44
General Provisions. The terms and conditions of each SAR will be evidenced by a SAR agreement. The exercise price per share will not be less than 100% of the fair
market value of a Share on the date of grant of the SAR. The term of the SAR will be determined by the Committee but may not be greater than ten years from the date of grant.
Exercise. SARs are exercisable subject to such terms and conditions as the Committee may specify in the SAR agreement for the SAR. A SAR may be exercised by
the delivery of a signed written notice of exercise to the Company, which must be received and accepted by the Company as of a date set by the Company in advance of the
effective date of the proposed exercise. The notice must set forth the number of SARs being exercised, together with any additional documents the Company may require.
Settlement. Upon exercise of a SAR, the Grantee will receive an amount equal to the Spread. The Spread, less applicable withholdings, will be payable only in cash. In
no event may any SAR be settled in any manner other than by delivery of a cash payment from the Company.
Form of SAR Agreement
Each participant to whom a SAR is granted will be required to enter into a SAR agreement with the Company, in such a form as is provided by the Committee. The
SAR agreement will contain specific terms as determined by the Committee, in its discretion, with respect to the participant’s particular SAR. Such terms need not be uniform
among all participants or any similarly situated participants. The SAR agreement may include, without limitation, vesting, forfeiture and other provisions particular to the
particular participant’s SAR, as well as, for example, provisions to the effect that the participant must abide by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee. A SAR will include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with
respect to any participant.
The Committee may specify in a SAR agreement that the participant’s rights, payments, and benefits with respect to a SAR will be subject to forfeiture upon the
occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the incentive award. Such events may include, but are not
limited to, termination with cause or other conduct by the participant that is detrimental to the business or reputation of the Company.
Termination of Employment
Unless otherwise expressly provided in the participant’s SAR agreement, if the participant’s employment is terminated for any reason other than due to cause, death or
disability, any non-vested portion of any outstanding SAR at the time of such termination will automatically expire and terminate and no further vesting will occur after the
termination date. In such event, except as otherwise expressly provided in the SAR agreement, the participant will be entitled to exercise such participant’s rights only with
respect to the portion of the SAR that was vested as of the termination date for a period that will end on the earlier of (i) the expiration date set forth in the SAR agreement or
(ii) ninety days after the date of termination.
Termination for Cause
Unless otherwise expressly provided in the participant’s SAR agreement, in the event of the termination of a participant’s employment for cause, all vested and non-
vested SARs granted to such participant will immediately expire, and will not be exercisable to any extent.
Disability or Death
Unless otherwise expressly provided in the participant’s SAR agreement, upon termination of employment as a result of the participant’s disability or death, (i) any
non-vested portion of any outstanding SAR will immediately terminate upon termination and no further vesting will occur, and (ii) any vested SAR will expire on the earlier of
either (A) the expiration date set forth in the SAR agreement or (B) 12 months following the participant’s termination of employment.
45
Continuation
Subject to the conditions and limitations of the Plan and applicable law, in the event that a participant ceases to be an employee, outside director or consultant, as
applicable, for whatever reason, the Committee and participant may mutually agree with respect to any outstanding SAR then held by the participant (i) for an acceleration or
other adjustment in any vesting schedule applicable to the SAR award; (ii) for a continuation of the exercise period following termination for a longer period than is otherwise
provided under such SAR; or (iii) to any other change in the terms and conditions of the SAR. In the event of any such change to an outstanding SAR, a written amendment to
the participant’s SAR agreement will be required. No amendment to a participant’s SAR will be made to the extent compensation payable pursuant thereto as a result of such
amendment would be considered deferred compensation that is not excepted from taxation or penalties under Code Section 409A, unless otherwise determined by the
Committee.
SARs granted under the Plan are not transferable other than to a designated beneficiary upon the Participant’s death or by will or the laws of descent and distribution.
Change in Control
Unless otherwise provided in a SAR Agreement, notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined in the Plan), all
outstanding SARs will become 100% vested and immediately and fully exercisable.
Amendment
The Board at any time, and from time to time, may amend or terminate the Plan. The Committee at any time, and from time to time, may amend the terms of any one
or more SAR agreements, except that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any SAR unless the
participant consents in writing.
As of March 23, 2022, there were 412,657 SARs outstanding under the 2020 Plan.
Director Compensation
We believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve on our Board of Directors. Our
cash compensation policies are designed to encourage frequent and active interaction between directors and our executives both during and between formal meetings as well as
compensate our directors for their time and effort. Further, we believe it is important to align the long-term interests of our non-employee directors (i.e., directors who are not
employed by us as officers or employees) with those of the Company and its stockholders, and that awarding equity compensation to, and thereby increasing ownership of our
common stock by, our non-employee directors is an appropriate means to achieve this alignment. Directors who are also employees of our company do not receive
compensation for their service on our Board of Directors.
Under our director compensation program for 2021, each non-employee director received annual compensation of $10,000, and an option to purchase 50,000 shares of
our common stock, which is fully vested. All cash fees are paid quarterly. Also, each non-employee director may be reimbursed for his reasonable expenses incurred in the
performance of his duties as a director as our Board of Directors determines from time to time. Our Compensation Committee intends to evaluate our director compensation
program and determine whether any changes should be recommended to the Board.
The following table sets forth certain information concerning the compensation paid to non-employee directors in 2021 for their services as directors of the Company.
The compensation of Mr. Ruport, who serves as a director and serves as our Chief Executive Officer, is described in the Summary Compensation Table of Executive Officers.
Our non-employee directors do not receive fringe or other benefits.
Name
John Rice (1)
Salvatore Battinelli(2)
Dennis Duitch(3)
Kent Summers(4)
Fees
Earned or
Paid in
Cash ($)
Option
Awards ($)(5)
Total ($)
10,000
10,000
10,000
10,000
134,647
134,647
134,647
134,647
144,647
144,647
144,647
144,647
(1) The fees shown were paid to Mr. Rice for services as a director. On January 4, 2021, the Company granted Mr. Rice an option to purchase up to 50,000 shares of the
Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair
value of $134,647.
(2) The fees shown were paid to Mr. Battinelli for services as a director. On January 4, 2021, the Company granted Mr. Battinelli an option to purchase up to 50,000 shares of
the Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date
fair value of $134,647.
(3) The fees shown were paid to Mr. Duitch for services as a director. On January 4, 2021, the Company granted Mr. Duitch an option to purchase up to 50,000 shares of the
Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair
value of $134,647.
(4) The fees shown were paid to Mr. Summers for services as a director. On July 31, 2020, the Company granted Mr. Summers an option to purchase up to 50,000 shares of the
Company’s common stock in connection with his service as a director. The exercise price of the option is equal to $3.13 per share, is fully vested, and had a grant date fair
value of $134,647.
(5) These columns represent the aggregate grant date fair value of stock awards and stock options computed in accordance with FASB ASC Topic 718. These amounts do not
correspond to the actual value that will be recognized by the named directors from these awards.
46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 23, 2022 (a) by each person known by us to own
beneficially 5% or more of any class of our common stock, (b) by our named executive officers and each of our directors (and director nominees) and (c) by all executive
officers and directors of the Company as a group.
The number of shares beneficially owned by each stockholder is determined in accordance with SEC rules. Under these rules, beneficial ownership includes any shares
as to which a person has sole or shared voting power or investment power. Percentage ownership is based on 10,498,802 shares of our common stock outstanding on March 23,
2022. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stock options,
warrants or other rights held by such person that are currently convertible or exercisable or will become convertible or exercisable within 60 days of March 23, 2022 are
considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.
We believe, based on information provided to us, that each of the stockholders listed below has sole voting and investment power with respect to the shares
beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.
Name of Beneficial Owner
Named Executive Officers and Directors:
John Rice(1)
Mark K Ruport(2)
Frank Orzechowski(3)
Darren Beckett(4)
Salvatore Battinelli(5)
Dennis Duitch(6)
Kent J. Summers(7)
All executive officers and directors as a group (9 persons)(8)
5% Beneficial Holders:
AWM Investment Company, Inc.(9)
*Less than 1%.
Number of Shares Beneficially
Owned
Percentage of Shares
Beneficially Owned
133,905
231,416
49,275
66,835
93,832
88,249
87,500
896,080
1,087,792
1.26%
2.16%
*
*
*
*
*
7.91%
9.99%
(1) Includes 132,548 shares issuable upon the exercise of stock options.
(2) Includes (a) 204,426 shares issuable upon the exercise of stock options; (b) 6,166 shares issuable upon the conversion of the shares of the Company’s Series E Preferred
Stock; and (c) 4,855 shares issuable upon exercise of Class A Warrants.
(3) Includes 48,306 shares issuable upon the exercise of stock options.
(4) Includes 65,710 shares issuable upon the exercise of stock options.
(5) Includes (a) 75,000 shares issuable upon the exercise of stock options, (b) 3,082 shares issuable upon the conversion of shares of the Company’s Series E Preferred Stock,
and (c) 2,428 shares issuable upon exercise of Class A Warrants.
(6) Includes 75,000 shares issuable upon the exercise of stock options.
(7) Includes 75,000 shares issuable upon the exercise of stock options.
(8)
Includes (a) 819,733 shares issuable upon the exercise of stock options, (b) and 9,248 shares issuable upon the conversion of the shares of the Company’s Series E
Preferred Stock, and (c) 7,283 shares issuable upon exercise of Class A Warrants.
(9) AWM Investment Company, Inc. is the investment advisor to Special Situations Technology Fund. L.P. (“Tech”) and Special Situations Technology Fund II (“Tech II”) and
holds sole voting and investment power over 105,089 shares and 90,029 warrants to purchase shares held by Tech, and 592,696 shares and 507,757 warrants to purchase
shares held by Tech II. Such warrants may only be exercised to the extent that the total number of shares then beneficially owned does not exceed 9.9% of the outstanding
shares. AWM Investment Company, Inc.’s address is c/o Special Situations Funds, 527 Madison Avenue, Suite 2600, New York, NY 10022.
47
Equity Compensation Plan Information
The following table provides certain information with respect to our equity compensation plans as of December 31, 2021.
Plan Category
2013 Equity Incentive Plan(1)
Equity compensation plans not approved by security holders(2)
Chief Executive Officer Inducement Options(3)
(a)
(b)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-
average
Exercise Price
of Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
1,345,882
-
50,000
$
$
$
3.98
3.15
11.20
339,677
-
-
(1) On March 15, 2013, the Company’s board of directors approved the Company’s 2013 Equity Incentive Plan. The 2013 Equity Incentive Plan was approved by our
stockholders on October 10, 2013. On July 15, 2021, an amendment to our 2013 Equity Incentive Plan was approved by our stockholders to increase the number of shares of
our common stock subject to the 2013 Equity Incentive Plan to 1,765,000.
(2) On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the
Company to attract and retain the types of employees, consultants, and directors who will contribute to the Company’s long-range success; (ii) provide incentives that align the
interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive
awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the
Plan since no shares will be issued pursuant to the Plan. As of December 31, 2021, the Company has awarded 370,624 SARs pursuant to the Plan.
(3) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to
purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3,2020; and (ii) an option to purchase up
to 40,000 shares of our common stock, with an exercise price of $11.20, which will vest and become exercisable in equal monthly installments over three years from the date of
grant. As of December 31, 2021, a total of 27,025 shares were vested and exercisable. In accordance with Nasdaq Listing Rule 5635(c)(4), such options were granted to Mr.
Ruport as an inducement award outside of the 2013 Equity Incentive Plan.
Other Equity Compensation
48
On January 8, 2021, we entered into an underwriting agreement with H.C. Wainwright & Co., for which compensation has been paid with equity securities that have
been previously disclosed in our filings with the SEC, including warrants issued in January 2021 to purchase up to 136,943 shares of common stock at an exercise price of
$3.75 per share. On March 22, 2021, we entered into an amendment to the underwriting agreement with H.C. Wainwright & Co., for which compensation has been paid with
equity securities that have been previously disclosed in our filings with the SEC, including warrants issued in March 2021 to purchase up to 175,200 shares of common stock at
an exercise price of $5.55625 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following summarizes transactions by us since the beginning of the Company’s last fiscal year, and any proposed transactions in which any of our directors,
director nominees, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which
are described under “Executive Compensation” and “Director Compensation” above.
49
Transactions with Directors and Officers
We have entered into an “at will” employment agreement, effective as of September 20, 2021, with Jacob Brunsberg under which he was engaged to serve as our
Senior Vice President of Product Management and Strategic Relationships. On February 16, 2022, Mr. Brunsberg’s employment agreement was amended in connection with his
appointment as President and Chief Operating Officer of the Company to increase his annual base salary from $200,000 to $250,000. In addition, on February 16, 2022, Mr.
Brunsberg was granted a stock option to purchase up to 70,000 shares of common stock of the Company, at an exercise price equal to $2.50 per share under the 2013 Equity
Incentive Plan, and 30,000 stock appreciation rights (“SARs”) under the 2020 Stock Appreciation Rights Plan, at an exercise price of $2.50 each. Both the option and the SARs
vest in equal (as closely as possible) monthly installments over thirty-six months from the grant date, have five year-terms and are on such other terms and conditions as set
forth in the Company’s respective forms of standard agreement. Pursuant to the employment agreement, Mr. Brunsberg was previously granted a stock option to purchase up to
100,000 shares of common stock of the Company, at an exercise price equal to $3.18 per share, which was the closing market price of the Company’s common stock on
September 20, 2021 (i.e., the date of grant), under the 2013 Equity Incentive Plan. Such option is fully vested and exercisable. The option has a five-year term and is on such
other terms set forth in the Company’s standard form of non-qualified stock option agreement, Further, Mr. Brunsberg is eligible to participate in the Company’s 2013 Equity
Incentive Plan and 2020 Stock Appreciation Rights Plan and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to
participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan.
We have entered into an “at will” employment agreement, effective as of August 10, 2015, with Ronald Fisher under which he was engaged to serve as our Vice
President of Business Development. Mr. Fisher is entitled to receive an annual base salary of $180,000. Pursuant to the employment agreement, Mr. Fisher also was granted, as
a signing bonus, (i) a stock option to purchase up to 2,375 shares of common stock of the Company, at an exercise price equal to $118.00 per share, which was the closing
market price of the Company’s common stock on August 10, 2015 (i.e., the date of grant), under the 2013 Equity Incentive Plan. Such option is fully vested and exercisable.
The option has a ten-year term and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement, and (ii) 125 shares of common
stock of the Company with a value equal to the closing price of our common stock on the date of grant and is on such other terms and provisions as are contained in Sigma
Labs’ standard form of restricted stock letter agreement under the Plan. Such shares are fully vested. Additionally, the Company granted Mr. Fisher under the 2013 Plan,
effective as of August 11, 2016, a stock option to purchase up to 500 shares of common stock of the Company. Such option has an exercise price equal to the closing price of
our common stock on the date of grant and is fully vested and exercisable. Further, Mr. Fisher is eligible to participate in the Company’s 2013 Equity Incentive Plan and Stock
Appreciation Rights Plan and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s
Section 125 cafeteria plan, vision plan and 401K plan.
On September 18, 2017, we and Mr. Fisher entered into Amendment No. 1 to Mr. Fisher’s employment agreement, effective August 10, 2015, pursuant to which,
effective as of February 11, 2017, item 2, entitled “Performance Bonuses,” of Exhibit A of Mr. Fisher’s employment agreement was deleted in its entirety and replaced with the
new item 2 that was set forth in the amendment to employment agreement. Such amendment provided that Mr. Fisher would become entitled to receive performance-based
stock and cash bonuses if certain milestones were satisfied by February 11, 2018, so long as Mr. Fisher remained an employee of the Company as of the date the applicable
milestone was satisfied. On February 21, 2018, the Company and Mr. Fisher entered into Amendment No. 2 to Mr. Fisher’s employment agreement, pursuant to which the
foregoing February 11, 2018 date was extended to December 31, 2018. On January 10, 2019, the Company granted Mr. Fisher an option to purchase up to 1,184 shares of
common stock in exchange for the cancellation of his accrued but unpaid vacation balance at December 31, 2018. On March 7, 2019, the Company issued 150 shares of
common stock under the 2013 Plan to Mr. Fisher connected with the satisfaction of a performance milestone.
On January 27, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Mark K. Ruport, Salvatore Battinelli and Frank Garofalo, a former
director, and Carl Schwartz, who was the Company’s largest shareholder. Pursuant to the SPA, the Company issued and sold 333.33 shares of the Company’s Series E
Convertible Preferred Stock (the “Series E Preferred Stock”), and 5½ year Class A Warrants to purchase 48,544 shares of the Company’s common stock (the “Class A
Warrants”) for a total gross purchase price of $500,000. Upon any liquidation, dissolution or winding-up of the Company, the holders of Series E Preferred Stock will be
entitled to receive out of the assets of the Company an amount equal to the stated value of the Series E Preferred Stock, plus any accrued and unpaid dividends thereon and any
other fees or liquidated damages then due and owing thereon under the Certificate of Designation, for each share of Series E Preferred Stock before any distribution or payment
may be made to the holders of any junior securities, but after distribution or payment to holders of the Series D Preferred Stock and any other senior securities; and if the assets
of the Company are insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of Series E Preferred Stock are to be ratably distributed among
such holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The Series E Preferred Stock is
initially convertible into 48,544 shares of common stock (61,651 shares of common stock including the “make-whole dividend), and the Class A Warrants have an initial
exercise price of $11.30 per share.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify
each director and executive officer to the fullest extent permitted by Nevada law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement
amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in the right of us, arising out of the person’s services
as a director or executive officer.
Policies and Procedures for Related Person Transactions
Our Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons (other than compensation-related matters, which
should be reviewed by our Compensation Committee), in accordance with its Charter and the Nasdaq marketplace rules. In reviewing and approving any such transactions, our
Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be
obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The following is a summary of the fees billed to the Company by Haynie & Company for professional services rendered with respect to the years ended December 31,
2021 and 2020:
Audit Fees
Audit Related Fees
Tax Fees
$
$
2021
2020
76,500 $
14,800
4,000
95,300 $
73,500
23,300
2,500
99,300
In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees that we paid for professional services for the audit of our financial
statements included in our Form 10-K and review of the interim financial statements included in quarterly reports, and for services that are normally provided by the registered
public accounting firm in connection with statutory and regulatory filings or engagements; “audit-related fees” are fees for assurance and related services that are reasonably
related to the performance of the audit or review of our financial statements; and “tax fees” are fees for tax compliance, tax advice and tax planning.
The Audit Committee’s pre-approval policies and procedures and other protocols are discussed in its written charter which can be found at www.sigmalabsinc.com under the
tab “Investors.” Before our independent registered public accounting firm is engaged by the Company to render audit or non-audit services, the Audit Committee must pre-
approve the engagement. Audit Committee pre-approval of audit and non-audit services are not required if the engagement for the services is entered into pursuant to pre-
approval policies and procedures established by the Audit Committee regarding the Company’s engagement of the independent registered public accounting firm, provided the
policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include
delegation of the Audit Committee’s responsibilities under the Exchange Act to the Company’s management. The Audit Committee may delegate to one or more designated
members of the Audit Committee the authority to grant pre-approvals. If the Audit Committee elects to establish pre-approval policies and procedures regarding non-audit
services, the Audit Committee must be informed of each non-audit service provided by the independent registered public accounting firm. Audit Committee pre-approval of
non-audit services (other than review and attestation services) also will not be required if such services fall within available exceptions established by the SEC. The Audit
Committee may not engage the independent registered public accounting firm to perform non-audit services prohibited by law or regulation. On an annual basis, our
management reports to the Audit Committee all audit services performed during the previous 12 months and all fees billed by our independent registered public accounting firm
for such services.
Auditor Independence
In our fiscal year ended December 31, 2021, Haynie & Company provided no professional services other than those described above, that would require our Audit
Committee to consider their compatibility with maintaining the independence of Haynie & Company.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
Our financial statements and related notes thereto are listed and included in this Annual Report beginning on page F-1. The following documents are furnished as
exhibits to this Form 10-K.
50
Exhibit
Number
1.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
Description
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).
Amended and Restated Articles of Incorporation of the Company, as amended.**
Amended and Restated Bylaws of the Company, as amended. (previously filed by the Company as Exhibit 3.12 to the Company’s Form 10-K, filed on March
24, 2021, and incorporated herein by reference).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
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).
Form of Warrant to Purchase Common Stock (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein
by reference).
Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein by
reference).
Description of Securities. **
Asset Purchase Agreement dated April 17, 2010 between B6 Sigma, Inc. and Technology Management Company, Inc. (filed as Exhibit 10.2 to the Company’s
Current Report on Form 8-K/A filed November 12, 2010, and incorporated herein by reference).
51
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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)*
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).*
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).
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).*
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).*
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).*
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).*
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,
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
filed on November 14, 2018, for the period ended September 30, 2018, and incorporated herein by reference).*
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).
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) *
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).
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).
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).
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).
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).
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).*
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).*
Form of Stock Appreciation Rights Agreement (Non-employee Directors; 2020 Stock Appreciation Rights Plan) (filed as Exhibit 10.3 to the Company’s Current
Report on Form 8-K filed June 29, 2020 and incorporated herein by reference).
10.21
10.22
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).
Form of Securities Purchase Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 30, 2021, and incorporated herein by
reference).
10.23
Amended and Restated Employment Agreement, dated June 10, 2021, between Sigma Labs, Inc. and Mark K. Ruport (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed June 15, 2021 and incorporated herein by reference).*
10.24
2021 and 2022 Corporate Goals – Cash and Equity Incentive Plan, dated June 10, 2021 (filed as an exhibit to the Company’s Current Report on Form 8-K filed
June 15, 2021, and incorporated herein by reference).*
10.25
Sigma Labs, Inc. 2013 Equity Incentive Plan, as Amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2021 and
incorporated herein by reference).*
10.26
Sigma Labs, Inc. 2021 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 16, 2021 and incorporated
herein by reference).*
10.27
Employment letter agreement, effective as of September 20, 2021, between Sigma Labs, Inc. and Jacob Brunsberg (filed as Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q filed October 21, 2021, and incorporated herein by reference).*
10.28
Amendment, dated February 16, 2022, to Employment letter agreement, effective as of September 20, 2021, between Sigma Labs, Inc. and Jacob Brunsberg.*
**
10.29
Amendment, dated February 16, 2022, to Amended and Restated Employment Agreement, dated June 10, 2021, between Sigma Labs, Inc. and Mark K.
Ruport.* **
52
23.1
31.1
31.2
32.1
Consent of Haynie & Company.**
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.**
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.**
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
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Inline XBRL Instance Document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Indicates a management contract or compensatory plan or arrangement.
** Filed herewith.
*** Furnished herewith.
ITEM 16. FORM 10-K SUMMARY.
We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.
53
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.
SIGNATURES
March 24, 2022
March 24, 2022
SIGMA LABS, INC.
By:
By:
/s/ Mark K. Ruport
Mark K. Ruport
Chief Executive Officer
(Principal Executive Officer)
/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
/s/ Mark K. Ruport
Mark K. Ruport
/s/ Frank Orzechowski
Frank Orzechowski
/s/ John Rice
John Rice
/s/ Salvatore Battinelli
Salvatore Battinelli
/s/ Dennis Duitch
Dennis Duitch
/s/ Kent Summers
Kent Summers
Title
Date
Chief Executive Officer (Principal Executive Officer and Director)
March 24, 2022
Chief Financial Officer
(Principal Financial and Accounting Officer)
Chairman, Director
Director
Director
Director
54
March 24, 2022
March 24, 2022
March 24, 2022
March 24, 2022
March 24, 2022
Index to Financial Statements
Financial Statements:
Report of Independent Registered Public Accounting Firm PCAOB ID No. 00457
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Sigma Labs, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Sigma Labs, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements of operations,
stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Multiple Deliverables in Revenue Contracts
Description of the Matter:
As discussed in Note 1 to the financial statements, Sigma Labs, Inc.’s revenue is derived primarily from the sale of software, the related hardware suite, and
engineering services. The Company’s contracts with customers typically include the promise to transfer multiple goods and/or services to the customer. Management
must assess whether each promised good or service is distinct for the purpose of identifying the performance obligations within the contract and must then determine
and allocate the transaction price to the performance obligations. This assessment can be subjective and requires management to make judgments about the individual
promised goods or services and whether such goods or services are separable and distinct from the other aspects of the contractual relationship.
Auditing management’s assessment and recognition of revenue can be complex, involves judgment, and is based on a thorough understanding of the Company’s
offerings.
How we Addressed the Matter in Our Audit:
We obtained a thorough understanding of the controls the Company has in place to perform this assessment including walk-throughs of the key controls and analysis of
the design and operating effectiveness of these controls. To evaluate Sigma Labs Inc.’s assessment of performance obligations and allocation of price, our audit
procedures included, among others, reading and evaluating management’s assumptions used to determine the distinct performance obligations and price allocations.
We compared the stand-alone price for each performance obligation to the allocated prices to ensure the allocation was reasonable. We also obtained confirmations
from customers verifying the terms of the contracts.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
March 24, 2022
We have served as the Company’s auditor since 2018.
F-2
Sigma Labs, Inc.
Balance Sheets
ASSETS
December 31, 2021
December 31, 2020
Current Assets:
Cash
Accounts Receivable, net
Inventory
Prepaid Assets
Total Current Assets
Other Assets:
Property and Equipment, net
Intangible Assets, net
Long-Term Prepaid Asset
Total Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable
Deferred Revenue
Accrued Expenses
Total Current Liabilities
Long-Term Liabilities
Stock Appreciation Rights
CARES Act Deferred Payroll Taxes
Total Long-Term Liabilities
TOTAL LIABILITIES
Stockholders’ Equity
Preferred Stock, $0.001 par; 10,000,000 shares authorized; 465 and 715 shares issued and outstanding,
respectively
Common Stock, $0.001 par; 24,000,000 authorized; 10,498,802 and 5,995,320 shares issued and
outstanding, respectively
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders’ Equity
$
$
$
$
$
$
11,447,047
412,192
710,080
114,278
12,683,597
232,282
925,111
-
1,157,393
13,840,990
206,442
148,855
625,942
981,239
-
-
-
981,239
1
10,499
53,442,431
(40,593,180)
12,859,751
3,700,814
331,562
659,651
90,735
4,782,762
138,626
753,122
26,000
917,748
5,700,510
128,937
77,957
243,815
450,709
48,341
37,728
86,069
536,778
1
5,995
38,262,744
(33,105,008)
5,163,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
13,840,990
$
5,700,510
See accompanying notes to financial statements
F-3
REVENUES
COST OF REVENUE
GROSS PROFIT (LOSS)
EXPENSES:
Salaries & Benefits
Stock-Based Compensation
Operations and R&D Costs
Investor, Public Relations and Marketing
Organizational Costs
Legal & Professional Service Fees
Office Expenses
Depreciation & Amortization
Other Operating Expenses
Total Operating Expenses
LOSS FROM OPERATIONS
OTHER INCOME (EXPENSE)
Interest Income
State Incentives
Exchange Rate Gain (Loss)
Other Income
Interest Expense
Loss on Dissolution of Joint Venture
Total Other Income (Expense)
Sigma Labs, Inc.
Statements of Operations
Year Ended
December 31, 2021
December 31, 2020
$
1,651,765
$
559,965
1,091,800
4,286,368
1,066,455
890,553
503,823
726,147
915,530
734,386
94,105
353,818
9,571,185
807,488
591,957
215,531
2,622,162
596,842
351,404
408,717
451,982
676,142
416,580
105,175
285,295
5,914,299
(8,479,385)
(5,698,768)
13,866
-
(263)
1,092,441
(11,264)
-
1,094,780
1,058
151,657
(1,677)
361,700
(13,908)
(201)
498,629
LOSS BEFORE PROVISION FOR INCOME TAXES
(7,384,605)
(5,200,139)
Provision for Income Taxes
Net Loss
Preferred Dividends
Net Loss applicable to Common Stockholders
Net Loss per Common Share - Basic and Diluted
Weighted Average Number of Shares Outstanding - Basic and Diluted
$
$
$
-
(7,384,605)
$
103,567
(7,488,172)
(0.76)
9,828,541
$
$
-
(5,200,139)
1,809,275
(7,009,414)
(1.83)
3,829,716
See accompanying notes to financial statements
F-4
Sigma Labs, Inc.
Statement of Stockholders’ Equity
For The Years Ended December 31, 2021 and 2020
Preferred
Shares
Outstanding
-
Preferred
Stock
$
-
Common
Shares
Outstanding
1,403,759
Common
Stock
$
1,404
-
1,973
-
(7,404)
-
6,146
-
-
-
-
-
-
715
-
-
-
(250)
-
-
-
-
-
-
$
-
2
-
(7)
-
6
-
-
-
-
-
-
1
-
-
-
-
-
-
-
-
-
-
493,027
-
774,940
3,272,048
22,438
-
8,334
6,000
11,517
-
3,257
-
5,995,320
3,901,783
-
19,000
100,000
475,995
-
1,500
5,204
-
-
493
-
775
3,272
22
-
8
6
12
-
3
-
5,995
3,902
-
19
100
476
-
2
5
-
-
$
Additional
Paid-in
Capital
$ 26,746,439
1,499,507
2,099,998
1,808,500
(3,265)
(22)
5,992,344
239,875
102,769
596,830
(820,228)
(3)
-
$ 38,262,744
14,865,997
(1,092,441)
103,548
(100)
1,135,534
538,585
163,081
1,066,450
(1,600,967)
-
Accumulated
Deficit
$ (26,095,594)
Total
652,249
$
-
-
(1,809,275)
-
1,500,000
2,100,000
-
-
-
-
-
-
-
-
-
(5,200,139)
$ (33,105,008)
-
5,992,350
239,883
102,775
596,842
(820,228)
-
(5,200,139)
$ 5,163,732
-
-
(103,567)
-
-
14,869,899
(1,092,441)
-
-
1,136,010
-
-
-
-
(7,384,605)
538,585
163,083
1,066,455
(1,600,967)
(7,384,605)
Balances, December 31, 2019
Common Shares Sold in Public Offering
Preferred Shares Sold in Public Offering
Preferred Stock Dividends
Common Shares Issued for Conversion of Preferred Shares
Common Shares Issued for Conversion of Series D Prefunded
Warrants
Preferred Shares issued for Exercise of Preferred Warrants
Securities Issued to Directors for Services
Securities Issued for Third Party Services
Securities Awarded to Employees
Offering Costs
Issuance of Fractional Shares from Reverse Split
Net Loss
Balances, December 31, 2020
Common Shares Sold in Public Offerings
Gain on Derivative Liability
Preferred Stock Dividends
Common Shares Issued for Conversion of Preferred Shares
Common Shares Issued for Exercise of Common Warrants
Securities Issued to Directors for Services
Securities Issued for Third Party Services
Securities Awarded to Employees
Offering Costs
Net Loss
Balances, December 31, 2021
465
$
1
10,498,802
$
10,499
$ 53,442,431
$ (40,593,180)
$ 12,859,751
See accompanying notes to financial statements
F-5
Sigma Labs, Inc. and Subsidiaries
Statements of Cash Flows
OPERATING ACTIVITIES
Net Loss
Adjustments to reconcile Net Loss to Net Cash used in operating activities:
Noncash Expenses:
Year Ended
December 31, 2021
December 31, 2020
$
(7,384,605)
$
(5,200,139)
Depreciation and Amortization
Gain on Derivative Liability
Stock Based Compensation - Employees
Stock Based Compensation - Third Party Services
Stock Based Compensation - Directors
Change in assets and liabilities:
Accounts Receivable
Inventory
Prepaid Assets
Accounts Payable
Deferred Revenue
Accrued Expenses
Long-term portion of Stock Appreciation Rights
Long Term portion of Deferred Payroll Taxes under the CARES Act
NET CASH USED IN OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of Property and Equipment
Purchase of Intangible Assets
Dissolution of Joint Venture
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Gross Proceeds from Public and Private Issuances of Securities
Less Offering Costs
Payment of Note Payable
Proceeds from Exercise of Warrants
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET CHANGE IN CASH FOR PERIOD
CASH AT BEGINNING OF PERIOD
CASH AT END OF PERIOD
Supplemental Disclosures:
Noncash investing and financing activities disclosure:
Issuance of Common Shares for Preferred Dividends
Disclosure of Cash Received for:
Issuance of Preferred Stock for Exercise of Preferred Warrants
Other noncash operating activities disclosure:
Issuance of Securities for services
Disclosure of cash paid for:
Interest
Income Taxes
94,105
(1,092,441)
1,066,455
163,083
538,585
(80,630)
(50,429)
2,457
77,505
70,898
382,127
(48,341)
(37,728)
(6,298,959)
(182,522)
(177,228)
-
(359,750)
14,869,899
(1,600,967)
-
1,136,010
14,404,942
7,746,233
3,700,814
11,447,047
103,567
-
701,668
11,264
-
$
$
$
$
$
$
105,175
-
596,842
102,775
239,883
(276,022)
(60,932)
134,991
(598,177)
(61,490)
121,157
48,341
37,728
(4,809,868)
(88,074)
(210,785)
500
(298,359)
3,600,000
(820,228)
(50,000)
5,992,350
8,722,122
3,613,895
86,919
3,700,814
1,809,275
5,992,350
342,658
13,908
-
$
$
$
$
$
$
See accompanying notes to financial statements
F-6
SIGMA LABS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business –Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, was founded by a group of scientists, engineers and businessmen to develop
and commercialize novel and unique manufacturing and materials technologies. Sigma believes that some of these technologies will fundamentally redefine conventional
quality assurance and process control practices by embedding them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed
loop process control. The Company anticipates that its core technologies will allow its clientele to combine advanced manufacturing quality assurance and process control
protocols with novel materials to achieve breakthrough product potential in many industries including aerospace, defense, oil and gas, bio-medical, and power generation. The
terms the “Company,” “Sigma,” “we,” “us” and “our” refer to Sigma Labs, Inc.
Reverse Stock Split - Effective February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of our common
stock on a 1-for-10 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share
Decrease”). The effects of the stock split have been retroactively reflected to all periods presented.
Basis of Presentation – The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“GAAP”)
in the United States of America. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at December 31, 2021 and 2020 and for the periods then ended have been made.
Reclassification - Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation in the current-period
financial statements. These reclassifications have no impact on the previously reported results
Continuing Operations – The Company has sustained losses and had negative cash flows from operating activities since its inception. Commencing in 2017, the company
committed itself to a focused initiative to transition its product and its company culture from research and development into an enterprise with a commercial industrial product
and a business-oriented operation culture.
In 2021 and 2020, the Company relied on both public and private offerings to finance its operations. In January 2021, the Company closed a public offering of our common
stock in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $4,532,444 after deducting underwriting discounts and
commissions and other offering expenses payable by the Company. In March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of
common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,488 after deducting placement agent commissions and other offering
costs payable by the Company. During the first quarter of 2021, the Company issued 454,404 shares of common stock pursuant to the exercise of warrants, resulting in net
proceeds to the Company of $1,136,010.
In January 2020, we completed two private placements consisting of shares of our newly created Series D and Series E Preferred Stock, warrants to purchase additional
shares of Series D Preferred Stock and warrants to purchase shares of our Common Stock resulting in net cash proceeds to us of approximately $1,711,124. On March 27, 2020,
pursuant to the terms of the Agreement, we forced the exercise of a portion of the warrants to purchase our Series D Preferred Stock which resulted in net cash proceeds to the
Company of $460,000. On April 6, 2020, the Company closed an offering of equity securities in which the Company sold and issued to certain institutional investors (a)
493,027 shares of the Company’s common stock (the “Common Shares”) and pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 22,438 shares of the
Company’s common stock, and (b) Series A Warrants (the “Private Warrants”) to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a
private placement resulting in net proceeds of approximately $1,230,000. On April 14, 2020 we were granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate
amount of $361,700, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the
“CARES Act”), which was enacted March 27, 2020. The Company used the entire loan proceeds to fund payroll expenses, and as such, the loan was forgiven in full on January
13, 2021.
F-7
The continuing operations of the Company are no longer solely dependent upon financing the cost of product development in the absence of revenues, but rather upon our
abilities to finance our efforts to successfully ramp up commercialization, thus earning the product validation of both customer licensing and purchases and creating a dynamic
in which public and private offerings facilitate the growth of revenues.
As a result, the Company currently has sufficient cash and working capital to fund operations through the end of 2022 and is anticipating that contracts may be closed during
fiscal 2022 generating additional cash flow in the near-term. In addition, the Company has access to public and private markets from which to derive additional financing to
sustain operations beyond that term, if required; however, the Company is unable to predict the extent to which the novel coronavirus or global economic and geopolitical
developments may affect the financial markets and the Company’s access to such markets. There is no assurance that we will be successful in obtaining additional funding. If
we fail to obtain sufficient funding when needed, we may be forced to delay, scale back or eliminate all or a portion of our commercialization efforts and operations.
Loss Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260,
“Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options or note conversion features were excluded due to the anti-dilutive effect they would have
on the computation. At December 31, 2021 and 2020, the Company had the following common shares underlying these instruments:
Warrants
Preferred Stock Warrants
Stock Options
Preferred Stock
Total Underlying Common Shares
Year Ended December 31,
2021
2020
3,987,931
-
1,395,882
148,918
5,532,731
1,881,429
4,748
713,010
243,024
2,842,211
Property and Equipment – Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment
are capitalized upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. The estimated life has been determined to be five years unless a unique circumstance exists, which is then fully
documented as an exception to the policy.
In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis.
Income Taxes – The Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.”
The Company has no tax positions at December 31, 2021 and 2020 for which the ultimate deductibility is highly uncertain but for which there is uncertainty about the timing of
such deductibility.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31,
2021 and 2020, the Company recognized no interest and penalties. All tax years starting with 2018 are open for examination.
Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts.
We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of
accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when
received. There was no allowance for doubtful accounts at December 31, 2021 or 2020.
F-8
Long-Lived and Intangible Assets – Long-lived assets and certain identifiable definite life intangibles to be held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of
its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets and provides for impairment if such undiscounted cash
flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is
recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external
appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. Three patents were written off totaling $10,510 in
December of 2021, and no patents were written off in 2020.
Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less at date of purchase to be cash equivalents.
Fair Value of Financial Instruments - The Company applies ASC 820, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial instrument.
● Level 3 - inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables, accounts payable, and accrued liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their
current market rate of interest.
The Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes. On March 26, 2021, the Company closed an offering in
which it issued warrants to purchase an aggregate of 2,190,000 shares of common stock in a private placement concurrently with a registered direct offering (“Registered
Offering”) of our common stock The warrants became exercisable on May 24, 2021, the date the Company obtained stockholder approval to increase its authorized common
shares from 12,000,000 to 24,000,000 (“the Initial Exercise Date”) and will expire two years after the Initial Exercise Date.
Pursuant to ASC 815-40-25-10, because the Company did not have sufficient authorized and unissued shares of common stock available to settle the warrants at the issue date,
such warrants were accounted for as a derivative liability. On May 24, 2021, upon receiving shareholder approval to increase its authorized common shares, the Company
reclassified the warrant liability to equity pursuant to ASC 815.40.35.8.
The fair value of the warrant liability measured on a recurring basis is as follows:
December 31, 2021
Date of Issuance March 26, 2021
Fair Value
Input Level
Fair Value
Input Level
Derivative Liability - Warrants
$
-
-
$
5,708,212
Level 3
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3):
Fair Value on Issuance Date
Change in Fair Value
Fair Value on May 24, 2021
Extinguishment of Derivative Liability
Fair Value on December 31, 2021
$
$
Warrants
5,708,212
(1,092,441)
4,615,771
(4,615,771)
-
F-9
Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Stock Based Compensation – The Company recognizes compensation costs to employees under ASC Topic No. 718, “Compensation – Stock Compensation.” Under ASC
Topic No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs
in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements may include stock options, grants
of shares of common stock with and without restrictions, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost
is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option or stock grants.
Equity instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC Topic No. 505, “Equity Based Payments to Non-
Employees.” In general, the measurement date is either (a) when a performance commitment, as defined, is reached or (b) the earlier of the date that (i) the non-employee
performance requirement is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and
circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
Amortization - Utility patents are amortized over a 17-year period. Patents which are pending are not amortized.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make
estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting
estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering
costs, and allowance for bad debts and inventory obsolescence.
Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite and from providing engineering services under
contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all
existing revenue recognition guidance under prior U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. The core principle of the
standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to
be entitled in exchange for those goods or services.
In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3)
determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy
performance obligations by transferring the promised goods or services.
Deferred Stock Offering Costs – Costs related to stock offerings (if any) are deferred and will be offset against the proceeds of the offering in additional paid-in capital. In the
event a stock offering is unsuccessful, the costs relating to the offering will be written-off directly to expense.
Inventory – Inventories consist of raw materials used in the production of customized parts, work-in-process and finished goods components which will be sold to customers.
Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method.
Research and Development – Research and development costs are expensed as they are incurred. Research and development costs for the years ended December 31, 2021 and
2020 were $417,744 and $126,292, respectively.
NOTE 2 - Inventory
At December 31, 2021 and December 31, 2020, the Company’s inventory was comprised of:
Raw Materials
Work in Process
Finished Goods
Total Inventory
December 31 2021
December 31, 2020
202,015 $
224,079
283,986
710,080 $
309,305
175,884
174,462
659,651
$
$
F-10
NOTE 3 – Property and Equipment
The following is a summary of property and equipment, less accumulated depreciation, as of December 31, 2021 and 2020:
Property and Equipment
Less: Accumulated Depreciation
Net Property and Equipment
Year Ended December 31,
2021
2020
$
$
1,378,972 $
(1,146,690)
232,282 $
1,196,450
(1,057,824)
138,626
Depreciation expense on property and equipment was $88,866 and $78,172 for the years ended December 31, 2021 and 2020, respectively.
NOTE 4 – Intangible Assets
The Company’s intangible assets consist of Patents and Patent Pending Applications.
Provisional patent applications are not amortized until a patent has been granted. Once a patent is granted, the Company will amortize the related costs over the estimated useful
life of the patent. If a patent application is denied, then the costs will be expensed at that time.
During 2021, $91,260 of costs related to patents issued to us during 2021 were reclassified from provisional patent application to patent status and began to be amortized as of
the date of issue.
The following is a summary of definite-life intangible assets less accumulated amortization as of December 31, 2021 and 2020, respectively:
Provisional Patent Applications
Patents
Less: Accumulated Amortization
Net Intangible Assets
Year Ended December 31,
2021
2020
$
$
675,291 $
300,370
(50,550)
925,111 $
585,152
209,110
(41,140)
753,122
Amortization expense on intangible assets was $5,239 and $27,003 for the years ended December 31, 2021 and 2020, respectively.
The estimated aggregate amortization expense for each of the succeeding years ending December 31 is as follows:
2022
2023
2024
2025
Thereafter
$
17,446
17,446
17,446
17,446
198,305
$
268,089
NOTE 5 – Paycheck Protection Plan Loan
On April 14, 2020, the Company was granted a loan from BOKF, NA dba Bank of Oklahoma in the aggregate amount of $361,700, pursuant to the Paycheck Protection
Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. Under the
terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll,
benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the
forgiveness period.
As of December 31, 2020, the Company had used the entire loan proceeds to fund its payroll expenses. As a result, the Company concluded that it met the PPP eligibility
criteria for forgiveness and recognized the entire loan amount as Other Income.
In January 2021, the Company received notice from the lender that the entire amount of the loan had been forgiven.
NOTE 6 – Deferral of Social Security Tax Payments
Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral
period”. The payroll tax deferral period began on March 27, 2020 and ended on December 31, 2020. At December 31, 2021 the total remaining amount of the deferral was
$37,728. Per the terms of the deferral program, such amount is due on December 31, 2022 at 0% interest.
F-11
NOTE 7 - Derivative Liability
On March 26, 2021 (the “Issuance Date”), the Company issued warrants to purchase an aggregate of 2,190,000 shares of common stock to holders in a private placement
concurrently with a registered direct offering of 2,190,000 shares of its common stock. The warrants entitle the holders to purchase one share of our common stock at an
exercise price equal to $4.32 per share commencing on May 24, 2021 and will expire two years from such date. The Company has determined that these warrants are free
standing financial instruments that are legally detachable and separately exercisable from the common stock included in the registered direct offering. Management also
determined that on the Issuance Date, the Company did not have sufficient authorized and unissued shares to settle the warrants, and as such required classification as a liability
pursuant to ASC 815 “Derivative Instruments and Hedging”. In accordance with the accounting guidance, the outstanding warrants were recognized as a warrant liability on
the balance sheet and were measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of
other income in the statement of operations.
At a Special Stockholders Meeting held on May 24, 2021, the Company received approval to increase its authorized common shares from 12,000,000 to 24,000,000. Pursuant
to ASC 815-40-35-8, the Company reclassified the warrant liability to equity as of such date.
The fair value of the derivative liability presented below was measured using the Black Scholes valuation model. Significant inputs into the model for the year ended December
31, 2021 are as follows:
Dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
December 31, 2021
0.00%
0.6% - 0.7%
121.2 % - 124.0%
2
The warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Warrant Liability
Fair Value at initial measurement date of March 26, 2021
(Gain) on change in Fair Value of Warrant Liability
Fair Value as of May 24, 2021
Extinguishment of Derivative Liability
Fair Value as of December 31, 2021
Warrants Outstanding
2,190,000
-
2,190,000
(2,190,000)
-
$
$
$
$
$
Fair Value Per Share
Fair Value
$
2.61
-
2.11
2.11
-
5,708,212
(1,092,441)
4,615,771
(4,615,771)
-
The Company has presented the fair value measurement as a Level 3 measurement, relying on unobservable inputs reflecting management’s assumptions. Level 3
measurements, which are not based on quoted prices in active markets, introduce a higher degree of subjectivity and may be more sensitive to fluctuations in stock prices,
volatility rates and U.S. Treasury Bond rates and could have a material impact on future fair value measurements.
The Company uses the Black Scholes model, based on the adjusted historical volatility rates for fair value measurements through the date of stockholder approval (i.e., May 24,
2021). Management has determined the Black Scholes model to be the most reliable and least volatile determinate of the current fair value of the warrants. It is the Company’s
expectation to maximize on all observable market inputs for the warrants and calibrate the model to incorporate relevant observable market data into the fair value measurement
at each future measurement date, if applicable.
During the twelve months ended December 31, 2021, the Company recognized a gain of $1,092,441 on the change in fair value of the warrants.
NOTE 8 – Stockholders’ Equity
Common Stock
Effective February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of our common stock on a 1-for-10 basis
(the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”). The effects of
the stock split have been retroactively reflected to all periods presented.
F-12
On May 24, 2021, at a special shareholders’ meeting, our authorized shares of common stock were increased from 12,000,000 to 24,000,000. At our annual shareholders’
meeting held on June 15, 2020, our authorized shares of common stock were increased from 8,000,000 to 12,000,000. On March 27, 2020, at a special shareholders’ meeting,
our authorized shares of common stock were increased from 2,250,000 to 8,000,000.
In January 2021, the Company closed a public offering of its securities in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of
approximately $4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company. Pursuant to the Underwriting Agreement, the
Company also issued to the Underwriter or its designee warrants to purchase 136,943 shares of common stock. Such warrants have a term of five years and an exercise price of
$3.75 per share.
In February 2021, the Company issued 263,200 shares of common stock pursuant to the exercise of warrants issued in our January 2020 private placement.
In March 2021, the Company issued 119,000 shares of common stock in exchange for the conversion of 250 shares of Series D Convertible Preferred Stock, including 19,000
shares of common stock as in-kind payment of preferred stock dividends. Also in March 2021, the Company issued 191,204 shares of common stock pursuant to the exercise of
warrants issued in our April 2020 offering, and 21,591 shares of common stock issued pursuant to the cashless exercise of placement agent warrants.
In March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the
Company of approximately $8,736,488 after deducting placement agent commissions and other offering costs payable by the Company. In a concurrent private placement under
the Purchase Agreement, the Company issued to the purchasers warrants to purchase an aggregate of 2,190,000 shares of Common Stock at an exercise price of $4.32 per share.
Each Warrant became exercisable on May 24, 2021, the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common
Stock and will expire two years from such date. The Company also issued to designees of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock
(the “Placement Agent Warrants”) constituting 8% of the aggregate number of shares of Common Stock sold in the Registered Offering. The Placement Agent Warrants have
substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price per share (or $5.55625 per
share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to purchase 8.0% of the number of shares of our Common Stock
issued upon the cash exercise of the Warrants.
In March 2021, Company issued 1,500 shares of common stock valued at $4.99 per share to an investor relations firm as partial compensation for services previously rendered.
In September 2021, the Company granted 5,204 shares of common stock to non-executive employees pursuant to the 2013 Equity Incentive Plan.
On April 6, 2020, the Company closed a public offering of equity securities in which it issued 493,027 shares of common stock and pre-funded warrants to purchase up to
22,438 shares of the Company’s common stock. The Company also issued Series A Warrants to purchase an aggregate of 515,465 shares of the Company’s common stock
pursuant to a private placement. In connection with this offering, the Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate
of 41,237 shares of the Company’s Common Stock (which amount is based on the number of Common Shares and shares underlying the Pre-Funded Warrants) at an exercise
price of $3.64 per share. Net proceeds to the Company after deducting offering expenses were approximately $1,230,000. On December 4, 2020, the Company issued 22,438
shares of common stock for the exercise of the pre-funded warrants.
In the twelve months ended December 31, 2020, the Company issued 3,272,048 shares of common stock in exchange for the conversion of 7,404 shares of Series D Convertible
Preferred stock, and 774,940 shares of common stock as in-kind payment of preferred stock dividends.
In the twelve months ended December 31, 2020, the Company issued 25,851 shares of common stock for services.
F-13
Deferred Compensation
In 2021 and 2020, the Company issued to various employees, directors, and contractors shares of the Company’s common stock, subject to restrictions, pursuant to the 2013
Equity Incentive Plan (the “2013 Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over the vesting period and
recorded as a reduction of stockholders’ equity. During 2021 and 2020, $19,255 and $77,187, respectively, of the unvested compensation cost related to these issues was
recognized.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 465 and 715 shares of preferred stock were issued and outstanding at December 31,
2021 and 2020, respectively.
In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Institutional Private Placement”). Pursuant to
the SPA, the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the
Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of $1,000 per share (the “Stated Value”). Dividends accrue
at a dividend rate of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and, on a monthly
basis, shall be payable in kind by the increase of the Stated Value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares will have the
right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the
third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50 (subject to adjustment for stock splits,
dividends, recapitalizations and similar events and full ratchet price protection). In addition, a holder may at any time, alternatively, convert all, or any part, of its Series D
Preferred Shares at an alternative conversion price, which equals the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85% of the
average volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to such conversion. Upon the occurrence of certain triggering
events, described in the Certificate of Designations, including, but not limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq
Capital Market, and other defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium to the
underlying value of the Series D Preferred Shares being redeemed.
At December 31, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted as of December 31, 2021, including the make-whole
dividends, would have resulted in the issuance of 87,267 shares of common stock.
Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors and the Company’s
formerly largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and sold 333 shares of the Company’s newly created Series E
Convertible Preferred Stock (the “Series E Preferred Stock”). Dividends accrue at a dividend rate of 9% per annum and, on a monthly basis, shall be payable in kind by the
increase of the Stated Value of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock.
At December 31, 2021, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of December 31, 2021, including the make-whole
dividends, would have resulted in the issuance of 61,651 shares of common stock.
F-14
Stock Options
On July 15, 2021, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of
shares of the Company’s common stock reserved for issuance under the 2013 Plan by 875,000 shares of our common stock to a total of 1,765,000 shares. As of December 31,
2021, there were 339,677 shares available for issuance under the 2013 Plan.
During 2021, the Company granted a total of 698,831 options to 35 employees, 4 directors, and 4 consultants with vesting periods ranging from immediately upon issue to three
years beginning January 4, 2021. In 2021, 598,789 options vested and $1,741,366 of compensation cost was recognized during the year. As of December 31, 2021, there were
options to purchase 1,395,882, shares issued and outstanding, 1,345,882 of which have been issued under the 2013 Plan. At December 31, 2021, there are vested options
exercisable for 941,934 shares of common stock. Options to purchase 5,204 shares of common stock were exercised during the year ended December 31, 2021.
During 2020, the Company granted a total of 579,998 options to 19 employees, 4 directors, and 5 consultants with vesting periods ranging from immediately upon issue to three
years beginning May 1, 2020. In 2020, 294,373 options vested and $854,217 of compensation cost was recognized during the year. As of December 31, 2020, there were
options to purchase 713,010 shares issued and outstanding, 663,010 of which have been issued under the 2013 Plan. At December 31, 2020, there were vested options
exercisable for 349,642 shares of common stock. No options were exercised during the year ended December 31, 2020.
The Company generally grants stock options to employees, consultants and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of
grant. Stock options are typically granted throughout the year and generally vest over three years of service and expire five years from the date of the award, unless otherwise
specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.
Total employee share-based compensation expense included in the statements of operations for the year ended December 31, 2021 is $1,066,455 of which $1,047,200 is related
to stock options. Total employee share-based compensation for 2020 totaled $596,842, of which $573,232 is related to stock options. There was no capitalized share-based
compensation cost as of December 31, 2021 and 2020, and there were no recognized tax benefits during the years ended December 31, 2021 and 2020.
To estimate the value of an award, the Company uses the Black-Scholes option-pricing model. This model requires inputs such as expected life, expected volatility and risk-free
interest rate. The forfeiture rate also impacts the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to
develop. While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available
on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards. The fair value of share-based awards was estimated using the
Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2021 and 2020:
F-15
Assumptions:
Dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
2021
0.00%
0.19-0.67%
117.0 – 124.0%
5
2020
0.00%
0.19-0.50%
116.0 – 117.0%
5
Option activity for the year ended December 31, 2021 and 2020 was as follows:
Weighted Average
Exercise
Price
($)
Weighted
Average
Remaining
Contractual
Life (Yrs.)
Options
Aggregate
Intrinsic
Value ($)
Options outstanding at December 31, 2019
Granted
Exercised
Forfeited or cancelled
Options outstanding at December 31, 2020
Options expected to vest in the future as of December 31, 2020
Options exercisable at December 31, 2020
Options vested, exercisable, and options expected to vest at December 31,
2020
Options outstanding at December 31, 2020
Granted
Exercised
Forfeited or cancelled
Options outstanding at December 31, 2021
Options expected to vest in the future as of December 31, 2021
Options exercisable at December 31, 2021
Options vested, exercisable, and options expected to vest at December 31,
2021
180,912
579,998
-
(47,900)
713,010
363,368
349,642
713,010
713,010
698,831
(5,204)
(10,755)
1,395,882
453,948
941,934
1,395,882
1.81
2.55
-
22.62
5.15
3.92
6.43
5.15
5.15
3.29
2.50
3.49
4.24
3.64
4.53
4.24
5.09
4.57
-
-
4.40
4.53
4.27
4.40
4.40
4.39
-
-
3.89
4.07
3.81
3.89
25,988
477,802
-
-
477,802
-
-
477,802
477,802
46,800
-
-
-
-
-
-
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that
have an exercise price currently below the $1.84 closing price of our Common Stock on December 31, 2021. All of the 2021 option grants have an exercise price currently
above $1.84.
At December 31, 2021, there was $1,164,723 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining
recognition period of 2.10 years.
Stock Appreciation Rights
On June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the
Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the
Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success
of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common
stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.
SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”)
upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value
per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The
administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and
medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.
On August 11, 2021, the Company granted, pursuant to the Plan, (i) 77,748 SARs to its Chief Executive Officer, (ii) 30,313 SARs to its Vice President of Business
Development, (iii) 76,304 SARs to its Chief Technology Officer, and (iv) 48,580 SARs to its Chief Financial Officer. The exercise price of each such SAR is $3.42, which was
the closing price of the Company’s common stock on the date of grant. On June 23, 2020, the Company granted, pursuant to the Plan, (i) 60,094 SARs to its Chief Executive
Officer, (ii) 12,019 SARs to its Vice President of Business Development, (iii) 24,038 SARs to its Chief Technology Officer, and (iv) 18,028 SARs to its Chief Financial Officer.
The exercise price of each such SAR is $2.63, which was the closing price of the Company’s common stock on the date of grant. Such SARs expire on the fifth anniversary of
the grant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as possible) installments on each of the
first, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable
vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested and exercisable as long as the applicable holder is in the
Company’s employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement.
On July 29, 2021, we granted 10,000 SARs to a consultant as partial compensation for services pursuant to his consulting agreement, and on November 19, 2020, we granted
13,500 SARs to such consultant as partial compensation for services pursuant to his consulting agreement. As of December 31, 2021, all such SARs were full vested and
exercisable.
F-16
The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period for each SAR award. The SAR’s
are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in income as of the
applicable reporting date.
The fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the twelve months ended December 31,
2021:
Assumptions:
Dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
SARs activity for the twelve months ended December 31, 2021 was as follows:
SARs outstanding at December 31, 2019
Granted
Exercised
Forfeited or cancelled
SARs outstanding at December 31, 2020
Granted
Exercised
Forfeited or cancelled
SARs outstanding December 31, 2021
SARs expected to vest in the future as of December 31, 2021
SARs exercisable at December 31, 2021
SARs vested, exercisable, and options expected to vest at December 31, 2021
2021
2020
0.00%
0.39-0.40%
123.0%
5
0.00%
0.19-0.22%
116.8%
5
Weighted Average
Exercise
Price
($)
SARs
Weighted
Average
Remaining
Contractual
Life (Yrs.)
Aggregate
Intrinsic
Value ($)
-
127,679
-
-
127,679
242,945
-
-
370,624
309,065
61,559
370,624
-
2.61
-
-
2.61
3.43
-
-
3.15
3.23
2.78
3.15
-
4.52
-
-
4.52
4.61
-
-
4.24
4.33
3.75
4.24
-
97,919
-
-
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 $1.84 closing price of our common stock on December 31, 2021. All of the SARs grants have an exercise price currently above
$1.84.
At December 31, 2021, there was $685,503 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining recognition
period of 2.37 years.
Warrants
At December 31, 2021, the Company had outstanding warrants to purchase a total of 3,987,931 shares of common stock. The warrants have exercise prices that range from
$0.10 to $40.00, which if not exercised, will expire between February 22, 2022 and January 6, 2026.
Warrant activity for the year ended December 31, 2021 and 2020 was as follows:
Warrants outstanding at December 31, 2019
Granted
Exercised
Forfeited or cancelled
Warrants outstanding at December 31, 2020
Granted
Exercised
Forfeited or cancelled
Warrants outstanding at December 31, 2021
Weighted Average
Exercise
Price
($)
Warrants
Weighted
Average
Remaining
Contractual
Life (Yrs.)
363,728
1,540,139
(22,438)
-
1,881,429
2,602,143
(495,641)
-
3,987,931
F-17
25.60
3.19
-
-
7.57
4.36
-
-
6.10
3.12
4.64
-
-
4.16
1.63
-
-
2.10
NOTE 9 – Income Taxes
The Company accounts for income taxes in accordance with ASC Topic No. 740. This standard requires the Company to provide a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit
carryforwards. Income tax returns open for examination by the Internal Revenue Service consist of tax years ended December 31, 2018 through 2020.
The Company has available at December 31, 2021, unused operating loss carryforwards of approximately $26,342,855 which may be applied against future taxable income and
which expire in various years through 2040. However, if certain substantial changes in the Company’s ownership should occur, there could be an annual limitation on the
amount of net operating loss carryforward which can be utilized. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax
purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of
the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards and
other temporary differences of approximately $6,771,000 and $4,170,100 at December 31, 2021 and 2020, respectively, and, therefore, no deferred tax asset has been
recognized for the loss carryforwards.
Deferred tax assets are comprised of the following:
Deferred tax assets:
NOL carryover
Depreciation
Valuation allowance
Net deferred tax asset
2021
2020
$
$
6,729,300 $
41,700
(6,771,000)
- $
4,184,400
(14,300)
(4,170,100)
-
The reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate (21%) to the Company’s effective tax rate for the years ended December 31,
2021 and 2020 is as follows:
Book Loss
Depreciation
Meals & Entertainment
Stock Compensation
Change in valuation allowance
Provision for Income Taxes
$
$
2020
2019
(1,572,500) $
(25,700)
500
340,521
1,257,179
- $
(1,472,000)
13,500
200
177,333
1,280,967
-
F-18
NOTE 10 – Loss Per Share
The following data show the amounts used in computing loss per share and the effect on income and the weighted average number of shares of dilutive potential common stock
for the periods ended December 31, 2021 and 2020:
Loss from continuing Operations available to Common stockholders (numerator)
$
(7,488,172) $
(7,009,414)
Weighted average number of common shares Outstanding used in loss per share during
the Period (denominator)
9,828,541
3,829,716
Year Ended December 31
2021
2020
Dilutive loss per share was not presented as the Company’s outstanding common and preferred warrants, stock options and preferred stock common equivalent shares for the
periods presented would have had an anti-dilutive effect. At December 31, 2021, the Company had outstanding 3,987,931 common warrants which could be converted to
3,987,931 shares of common stock, and 1,395,882 stock options exercisable for 1,395,882 shares of common stock, 132 shares of Series D Preferred Stock, which is
convertible into 87,267 shares of common stock, and 333 shares of Series E Preferred Stock, which could be converted into 61,651 shares of common stock, resulting in a
potential total additional 5,532,731 shares of common stock outstanding in the future. At December 31, 2020, the Company had outstanding 1,881,429 common warrants which
could be converted to 1,881,429 shares of common stock, and 713,010 stock options exercisable for 713,010 shares of common stock, 10 Series D Preferred Warrants
exercisable for 10 shares of Series D Preferred Stock, which in turn, are convertible into 4,748 shares of common stock, and 715 shares of preferred stock, which could be
converted into 243,024 shares of common stock, resulting in a potential total additional 2,842,211 common stock shares outstanding in the future.
NOTE 11 – Commitments and Contingencies
Operating Leases – The Company leases office and laboratory space under operating leases. Expense relating to these operating leases was $101,004 and $103,242 for the
years ended December 31, 2021 and 2020, respectively. The future minimum lease payments required under non-cancellable operating leases at December 31, 2021 were
$7,230. The future minimum lease payments are due during the year 2022, with $1,115 due in January 2023.
NOTE 12 – Concentrations
Revenues – During the years ended December 31, 2021 and 2020, the Company had the following significant customers who accounted for more than 10% each of the
Company’s revenue in at least one of the periods presented. The change in the composition of customers between the two years resulted primarily from the change of focus
from sales to R&D customers to customers preparing to initiate commercial production.
Customer
A
B
C
D
E
F
G
2021
2020
27.81%
17.23%
-
-
-
-
-
-
-
22.31%
16.78%
16.72%
15.26%
10.53%
Accounts Receivable – The Company had the following significant customers who accounted for more than 10% each of the Company’s accounts receivable balance at
December 31, 2021 and 2020, respectively.
Customer
A
B
C
D
2021
2020
51.25%
46.34%
-
-
-
45.88%
25.94%
22.62%
NOTE 13 - Joint Venture
In July 2015, we entered into a joint venture agreement with Arete Innovative Solutions LLC (“Arete”). The Joint Venture was not consolidated, but rather was
accounted for on the equity method of recording investments. The Company and Arete terminated the Joint Venture in 2020 and distributed the remaining cash to the former
partners.
NOTE 14 - Defined Contribution Plan
In 2014, the Company adopted a qualified 401(K) plan (“the Plan”), in which all employees over the age of 21 may participate. The Company makes a Safe Harbor
contribution match of 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed. The costs of matching contributions were
$86,554 in 2021 and $55,321 in 2020.
NOTE 15 – Related Party Transactions
As of December 31, 2021, there are no related party transactions.
NOTE 16 – Subsequent Events
On February 16, 2022, Jacob Brunsberg was appointed as President and Chief Operating Officer. In connection with this appointment, Mr. Brunsberg’s employment
agreement was amended to increase his salary to $250,000 from $200,000 per annum. In addition, Mr. Brunsberg was granted a stock option to purchase up to 70,000 shares of
our common stock under our 2013 Equity Incentive Plan at an exercise price of $2.50, and 30,000 stock appreciation rights (“SARs”) under our 2020 Stock Appreciation
Rights Plan at an exercise price of $2.50 each. Both the option and the SARs have a five-year term and are on such other terms and conditions as contained in the Company’s
forms of standard agreement. Concurrently, Mark K. Ruport resigned as President but remains as Chief Executive Officer and continues to serve as a director on the Board of
Directors. Mr. Ruport’s employment agreement was amended to decrease his salary from $250,000 to $200,000 per annum.
F-19
Exhibit 3.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT
TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.15
Sigma Labs, Inc. (“Sigma,” “we,” “our,” and “us”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, which
is our common stock, par value $0.001 per share (the “common stock”).
The following description of our common stock, and preferred stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by
reference to (1) our Amended and Restated Articles of Incorporation filed as an Exhibit to our Form 10-K, (2) our Certificate of Correction to Amended and Restated Articles
of Incorporation filed as an Exhibit to our Current Report on Form 8-K on June 1, 2011, (3) our Amended and Restated Bylaws filed as an Exhibit to our Form 10-K, (4)
Certificate of Designations of Rights Preferences and Privileges of our Series D Convertible Preferred Stock filed as an Exhibit to our Current Report on Form 8-K filed
January 30, 2020, and (5) Certificate of Designations of Rights Preferences and Privileges of our Series E Convertible Preferred Stock filed as an Exhibit to our Current Report
on Form 8-K on January 30, 2020, each of which is filed as an exhibit to our Annual Report on Form 10-K of which this Exhibit 4.15 is a part. We encourage you to read the
Articles of Incorporation, the Bylaws, and the Certificates of Designations, as well as the applicable provisions of the Nevada Revised Statutes (the “NRS”), for additional
information.
Authorized Capital Stock
We are presently authorized to issue 24,000,000 shares of common stock, $0.001 par value per share, of which 10,498,802 shares were outstanding as of March 23,
2022. We are presently authorized to issue 10,000,000 shares of $0.001 par value preferred stock, of which 1,610,000 shares have been designated “Series A Preferred Stock,”
1,000 shares have been designated “Series B Convertible Preferred Stock,” 1,500 shares have been designated “Series C Convertible Preferred Stock,” 7,796 shares have been
designated as “Series D Convertible Stock” and 500 shares have been designated as “Series E Convertible Stock.” As of the date of this Form 10-K, we had no shares of Series
A Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Stock issued and outstanding, 132 shares of Series D Convertible Preferred Stock issued and
outstanding and 333.33 shares of Series E Convertible Preferred Stock issued and outstanding.
Common Stock
We have one class of common stock. Holders of our common stock are entitled to one vote per share on all matters to be voted upon by stockholders and do not have
cumulative voting rights in the election of directors. Holders of shares of common stock are entitled to receive on a pro rata basis such dividends, if any, as may be declared
from time to time by our board of directors in its discretion from funds legally available for that use, subject to any preferential dividend rights of outstanding preferred stock.
They are also entitled to share on a pro rata basis in any distribution to our common stockholders upon our liquidation, dissolution or winding up, subject to the prior rights of
any outstanding preferred stock. Common stockholders do not have preemptive rights to subscribe to any additional stock issuances by us, and they do not have the right to
require the redemption of their shares or the conversion of their shares into any other class of our stock. The rights, preferences and privileges of holders of common stock are
subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Under our articles of incorporation, our board of directors has the authority, without further action by stockholders, to designate one or more series of preferred stock
and to fix the voting powers, designations, preferences, limitations, restrictions and relative rights granted to or imposed upon the preferred stock, including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be preferential to or greater than the
rights of the common stock.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the
holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among
other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock.
In connection with our underwritten public offering of equity securities on February 21, 2017, we created a series of Preferred Stock called “Series A Preferred Stock.”
None of such shares were issued in such offering. In our April 6, 2018 private placement, we issued 1,000 shares of Series B Preferred Stock (“Series B Preferred”), which
were convertible into 100,000 shares of common stock. All shares of our Series B Preferred have been converted. In our June 26, 2018 public offering of equity securities, we
issued 350 shares of Series C Preferred Stock which were initially convertible into 35,000 shares of common stock. Accordingly, as of the date of this Form 10-K, all shares of
such preferred stock have been fully converted. In connection with the private placements occurring on January 27, 2020, we created two new series of Preferred Stock: Series
D Preferred Stock and Series E Preferred Stock. As of the date of this Form 10-K, 132 shares of Series D Preferred Stock and 333.33 shares of Series E Preferred Stock are
issued and outstanding.
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) will
accrue 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 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.
Under the Certificate of Designations for the Series E Preferred Stock, the Series E Preferred Shares have an initial stated value of $1,500 per share (the “Stated
Value”). Dividends at the initial rate of 9% per annum will accrue and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred
Stock by said amount. The holders of the Series E Preferred Shares have the right at any time to convert all or a portion of the 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 an initial conversion
rate determined by dividing the Conversion Amount by the Conversion Price ($0.13 above the consolidated closing bid price for the trading day prior to the execution of the
Securities Purchase Agreement, dated January 27, 2020, between and the purchasers referenced therein). The Conversion Amount is the sum of the Stated Value of the Series E
Preferred Shares then being converted plus any other unpaid amounts payable with respect to the Series E Preferred Shares being converted plus the “Make Whole Amount”
(the amount of any dividends that, but for the conversion, would have accrued at the dividend rate for the period through the third anniversary of the initial issuance date). The
Conversion Rate is also subject to adjustment for stock splits, dividends recapitalizations and similar events.
Transfer Agent
The transfer agent and registrar of our common stock is Issuer Direct Corporation. The address of our transfer agent and registrar is 1981 Murray Holladay Road, Suite
100 Salt Lake City, Utah 84117, and its telephone number is (801) 272-9294.
Anti-Takeover Effects of Certain Provisions of Our Charter Documents
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
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.
These provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.
NASDAQ Capital Market
Our common stock is currently traded on the NASDAQ Capital Market under the symbol “SGLB.”
Nevada Anti-Takeover Law and Charter and Bylaws Provisions
NRS sections 78.378 to 78.3793 provide state regulation over the acquisition of controlling interest in certain Nevada corporations unless the articles of incorporation
or bylaws of the corporation provide that the provisions of these sections do not apply. This statute currently does not apply to our company because in order to be applicable,
we would need to have a specified number of Nevada residents as shareholders, and we would have to do business in Nevada directly or through an affiliate.
AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.28
This Amendment (“Amendment”) to the employment letter agreement by and between Sigma Labs, Inc. (the “Company”) and Jacob Brunsberg (“Brunsberg” or
“you”), effective as of September 20, 2021 (the “Agreement”), is made effective as of February 16, 2022 (the “Effective Date”).
The Company and you desire to amend the Agreement upon the terms set forth in this Amendment.
RECITAL
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the
Company and Brunsberg hereby agree as follows:
AMENDMENT
1. Definitions. Terms not otherwise defined in this Amendment shall have the meanings attributed to such terms in the Agreement. References in the Agreement and in this
Amendment to this “Agreement” mean the Agreement as amended by this Amendment and as further amended from time to time as provided in the Agreement.
2. Amendments.
2.1 Section 1 of the Agreement shall be deleted and replaced in its entirety with the following:
“1. Position; Reporting; Duties, Responsibilities and Authority; Principal Business Office: Effective as the Effective Date, you shall serve as President and
Chief Operating Officer of the Company. You shall report on a day-to-day basis directly to and shall be subject to the supervision and direction of, the Company’s Chief
Executive Officer.
You shall perform your duties hereunder during normal business hours and at all other times and locations necessary for you to carry out your duties. You shall devote
substantially all of your business time to the Company and shall perform such duties as are customarily performed by individuals acting as President and Chief Operating
Officer of a public company of a similar size as the Company, and other such duties as you may be assigned from time to time by the Chief Executive Officer or the Board of
Directors of the Company. You shall at all times be subject to, observe and carry out such reasonable employment-related rules, regulations and policies as the Company’s
Board of Directors or Chief Executive Officer may from time to time establish for the Company’s employees, including, without limitation, the Company’s Employee
Handbook, Insider Trading Policy and Code of Ethics and Business Conduct.
Without limiting the foregoing, your responsibilities shall include those matters set forth on Exhibit A hereto. Without restricting any requirement that you engage in
reasonable business-related travel, including travel to the Company’s principal business office located in Santa Fe, NM, the principal location in which you shall be required to
perform your duties and responsibilities shall be your home-based office located at 2724 Ewing Ave S., Minneapolis, MN 55416.”
2.2 The Base Salary referenced in Section 3(a) of the Agreement shall be changed from $200,000 to $250,000 effective as of the Effective Date.
3. No Other Changes to the Agreement; Miscellaneous. Except as expressly amended by this Amendment, the terms and conditions of the Agreement shall remain in full force
and effect. This Amendment may be executed in counterparts, each of which shall be deemed an original document, and all of which, taken together, shall be deemed and all
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Brunsberg have executed and delivered this Amendment as of the Effective Date.
Sigma Labs, Inc.
By:
Name:
Title:
/s/ Mark K. Ruport
Mark K. Ruport
Chief Executive Officer
Brunsberg
By
Name:
/s/ Jacob Brunsberg
Jacob Brunsberg
AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.29
This Amendment (“Amendment”) to the employment letter agreement by and between Sigma Labs, Inc. (the “Company”) and Mark Ruport (“Ruport” or “you”), dated
as of June 10, 2021 (the “Agreement”), is made effective as of February 16, 2022 (the “Effective Date”).
The Company and you desire to amend the Agreement upon the terms set forth in this Amendment.
RECITAL
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the
Company and Ruport hereby agree as follows:
AMENDMENT
1. Definitions. Terms not otherwise defined in this Amendment shall have the meanings attributed to such terms in the Agreement. References in the Agreement and in this
Amendment to this “Agreement” mean the Agreement as amended by this Amendment and as further amended from time to time as provided in the Agreement.
2. Amendments.
2.1 Section 2 of the Agreement shall be deleted and replaced in its entirety with the following:
“2. Employment; Title; Duties: Effective as of February 16, 2022, the Company shall employ you, and you shall serve, as the Company’s Chief Executive
Officer. You understand that your duties as Chief Executive Officer may change from time to time during the Term (as herewith defined) in the discretion of the Board, but such
duties shall be consistent with the duties customarily assigned to the office of chief executive officer of a company substantially comparable to the Company as of February 16,
2022. You shall perform faithfully, diligently and to the best of your ability all of your duties and responsibilities hereunder in accordance with the policies established by and
under the direction of the Board. Subject to the direction and supervision of the Board, you shall have such corporate power and authority as shall reasonably be required to
enable you to discharge your duties under this Agreement. Your services hereunder shall be rendered primarily at the Company’s principal executive offices and at your current
home office in Colorado, except for travel when and as required in the performance of your duties hereunder. For as long as you serve as the Chief Executive Officer, you will
serve on the Board of Directors of the Company. The duration of your employment is hereafter referred to as the ‘Term.’”
2.2 The Base Salary referenced in Section 4(a) of the Agreement shall be changed from $250,000 to $200,000 effective as of the Effective Date.
3. No Other Changes to the Agreement; Miscellaneous. Except as expressly amended by this Amendment, the terms and conditions of the Agreement shall remain in full force
and effect. This Amendment may be executed in counterparts, each of which shall be deemed an original document, and all of which, taken together, shall be deemed and all
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Ruport have executed and delivered this Amendment as of the Effective Date.
[Signature Page Follows]
Sigma Labs, Inc.
By:
Name:
Title:
/s/ Salvatore Battinelli
Salvatore Battinelli
Chairman of Compensation Committee
Ruport
By
Name: Mark K. Ruport
/s/ Mark K. Ruport
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-174897, 333-197616, 333-212612, 333-222369, 333-228628, 333-233348, 333-250181, 333-
258683 and 333-259523 on Form S-8, Registration Statement Nos. 333-225377, 333-232037, 333-236231, 333-239774, 333-256934 and 333-257054 on Form S-3, and
Registration Statement Nos. 333-224621, 333-218021, and 333-212735 on Form S-1 of Sigma Labs, Inc. of our report dated March 24, 2022, relating to our audits of the
financial statements which appear in this Annual Report on Form 10K of Sigma Labs, Inc. for the years ended December 31, 2021 and 2020.
Exhibit 23.1
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
March 24, 2022
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Mark K. Ruport, certify that:
1. I have reviewed this Annual Report on Form 10-K of Sigma Labs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 24, 2022
/s/ Mark K. Ruport
By:
Name: Mark K. Ruport
Title:
Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Frank Orzechowski, certify that:
1. I have reviewed this Annual Report on Form 10- K of Sigma Labs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 24, 2022
/s/ Frank Orzechowski
By:
Name: Frank Orzechowski
Title:
Chief Financial Officer, Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report of Sigma Labs, Inc., (the “Company”) on Form 10-K for the period ended December 31, 2021 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:
(i) The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 24, 2022
Date: March 24, 2022
/s/ Mark K. Ruport
By:
Name: Mark K. Ruport
Title:
Chief Executive Officer (Principal Executive Officer)
/s/ Frank Orzechowski
By:
Name: Frank Orzechowski
Title:
Chief Financial Officer (Principal Financial and Accounting Officer)