UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-38015

Sigma Labs, Inc.

(Exact name of registrant as specified in its charter)

nevada

27-1865814

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

3900 Paseo del Sol

Santa Fe, NM 87507

(Address of principal executive offices)

(505) 438-2576

(Registrant’s telephone number)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SGLB

The NASDAQ Stock Market LLC

Warrants to Purchase Common Stock,

par value $0.001 per share

SGLBW

The NASDAQ Stock Market LLC

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.

Large accelerated filer	☐	Accelerated Filer	☐
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 20, 2021, the issuer had 10,498,802 shares of common stock outstanding.

SIGMA LABS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4. CONTROLS AND PROCEDURES	23

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	24

ITEM 1A. RISK FACTORS	24

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	24

ITEM 4. MINE SAFETY DISCLOSURES	24

ITEM 5. OTHER INFORMATION	24

ITEM 6. EXHIBITS	24

SIGNATURES	25

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Sigma Labs, Inc.

Condensed Balance Sheets

(Unaudited)

	September 30, 2021			December 31, 2020

ASSETS
Current Assets:
Cash	$	13,064,394		$	3,700,814
Accounts Receivable, net		666,740			331,562
Inventory		856,547			659,651
Prepaid Assets		130,675			90,735
Total Current Assets		14,718,356			4,782,762

Other Assets:
Property and Equipment, net		201,752			138,626
Intangible Assets, net		868,265			753,122
Long-Term Prepaid Asset		-			26,000
Total Other Assets		1,070,017			917,748

TOTAL ASSETS	$	15,788,373		$	5,700,510

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts Payable	$	223,157		$	128,937
Deferred Revenue		85,480			77,957
Accrued Expenses		432,615			243,815
Total Current Liabilities		741,252			450,709

Long-Term Liabilities:
Stock Appreciation Rights		93,525			48,341
CARES Act Deferred Payroll Tax Liability		37,728			37,728
Total Long-Term Liabilities		131,253			86,069

TOTAL LIABILITIES		872,505			536,778

Stockholders’ Equity
Preferred Stock, $0.001 par; 10,000,000 shares authorized; 465 and 715 issued and outstanding, respectively		1			1
Common Stock, $0.001 par; 24,000,000 shares authorized; 10,498,802 and 5,995,320 issued and outstanding, respectively		10,499			5,995
Additional Paid-In Capital		53,086,908			38,262,744
Accumulated Deficit		(38,181,540	)		(33,105,008	)
Total Stockholders’ Equity		14,915,868			5,163,732

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,788,373		$	5,700,510

See accompanying notes to condensed financial statements.

Sigma Labs, Inc.

Condensed Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020

REVENUES	$	700,237		$	248,526		$	1,302,525		$	637,944

COST OF REVENUE		164,766			97,785			409,493			400,172

GROSS PROFIT		535,471			150,741			893,032			237,772

OPERATING EXPENSES:
Salaries & Benefits		1,222,760			657,889			3,055,279			1,915,381
Stock-Based Compensation		659,512			58,219			893,431			483,208
Operating R&D Costs		131,772			79,673			608,812			245,008
Investor, Public Relations & Marketing		119,622			66,794			342,725			353,802
Organization Costs		342,112			173,041			578,256			328,716
Legal & Professional Service Fees		261,075			133,273			681,941			530,660
Office Expenses		172,238			84,357			472,335			310,947
Depreciation & Amortization		27,689			50,167			76,502			86,150
Other Operating Expenses		90,108			59,100			267,663			194,836
Total Operating Expenses		3,026,888			1,362,513			6,976,944			4,448,708

LOSS FROM OPERATIONS		(2,491,417	)		(1,211,772	)		(6,083,912	)		(4,210,936	)

OTHER INCOME (EXPENSE)
Interest Income		2,981			77			10,053			959
State Incentives		-			-			-			151,657
Exchange Rate Gain (Loss)		(490	)		(252	)		(333	)		(1,674	)
Interest Expense		(2,052	)		(6,066	)		(5,434	)		(12,741	)
Loss on Dissolution of Joint Venture		-			-			-			(201	)
Other Income		-			-			1,092,441			361,700
Total Other Income (Expense)		439			(6,241	)		1,096,727			499,700

LOSS BEFORE PROVISION FOR INCOME TAXES		(2,490,978	)		(1,218,013	)		(4,987,185	)		(3,711,236	)

Provision for income Taxes		-			-			-			-

Net Loss	$	(2,490,978	)	$	(1,218,013	)	$	(4,987,185	)	$	(3,711,236	)

Preferred Dividends		(14,220	)		(737,344	)		(89,347	)		(1,744,471	)

Net Loss Applicable to Common Stockholders	$	(2,505,198	)	$	(1,955,357	)	$	(5,076,532	)	$	(5,455,707	)

Net Loss per Common Share – Basic and Diluted	$	(0.24	)	$	(0.42	)	$	(0.53	)	$	(1.74	)

Weighted Average Number of Shares Outstanding – Basic and Diluted		10,494,560			4,675,749			9,602,666			3,137,459

See accompanying notes to condensed financial statements.

Sigma Labs, Inc.

Statement of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited)

For the Three Months Ended September 30, 2021 and September 30, 2020


	Preferred Stock				Common Stock				Additional
	Shares Outstanding		Preferred Stock		Shares Outstanding		Common Stock		Paid-in Capital		Accumulated Deficit			Total
Balances, June 30, 2021		465	$	1		10,493,598	$	10,494	$	52,058,003	$	(35,676,342	)	$	16,392,156

Preferred Stock Dividends		-		-		-		-		14,220		(14,220	)		-
Preferred Stock Dividends, shares
Shares Securities Issued to Directors for Services		-		-		-		-		282,306		-			282,306
Securities Issued to Directors for Services, Shares
Securities Issued for Third Party Services		-		-		-		-		72,872		-			72,872
Securities Issued for Third Party Services, shares
Securities Awarded to Employees		-		-		5,204		5		659,507		-			659,512
Preferred Shares issued for Exercise of Preferred Warrants
Preferred Shares issued for Exercise of Preferred Warrants, shares
Common Shares issued for Conversion of Preferred Shares
Common Shares issued for Conversion of Preferred Shares, shares
Common Shares Sold in Public Offering
Common Shares Sold in Public Offering, shares
Preferred Shares Sold in Private Offering
Preferred Shares Sold in Private Offering, shares
Extinguishment of Derivative Liability
Common Shares issued for Exercise of Common Warrants
Common Shares issued for Exercise of Common Warrants, shares
Offering Costs
Issuance of Fractional Shares from Reverse Split
Issuance of Fractional Shares from Reverse Split, shares
Stock Options Awarded to Directors
Securities Issued to Directors for Services
Net Loss		-		-		-		-		-		(2,490,978	)		(2,490,978	)

Balances, September 30, 2021		465	$	1		10,498,802	$	10,499	$	53,086,908	$	(38,181,540	)	$	14,915,868

	Preferred Stock						Common Stock				Additional
	Shares Outstanding			Preferred Stock			Shares Outstanding		Common Stock		Paid-in Capital			Accumulated Deficit			Total
Balances, June 30, 2020		333		$	1			3,926,362	$	3,926	$	33,151,829		$	(29,595,944	)	$	3,559,812

Preferred Stock Dividends		-			-			339,499		339		737,005			(737,344	)		-
Common Shares issued for Conversion of Preferred Shares		(3,318	)		(3	)		1,555,550		1,556		(1,553	)		-			-
Preferred Shares issued for Exercise of Preferred Warrants		3,568			3			-		-		3,478,796			-			3,478,799
Securities Issued to Directors for Services		-			-			8,334		8		131,142			-			131,150
Securities Issued for Third Party Services		-			-			3,500		4		58,918			-			58,922
Securities Awarded to Employees		-			-			-		-		58,220			-			58,220
Net Loss		-			-			-		-		-			(1,218,013	)		(1,218,013	)

Balances, September 30, 2020		583		$	1			5,833,245	$	5,833	$	37,614,357		$	(31,551,301	)	$	6,068,890

For the Nine Months Ended September 30, 2021 and September 30, 2020

	Preferred Stock					Common Stock				Additional
	Shares Outstanding			Preferred Stock		Shares Outstanding		Common Stock		Paid-in Capital			Accumulated Deficit			Total
Balances, December 31, 2020		715		$	1		5,995,320	$	5,995	$	38,262,744		$	(33,105,008	)	$	5,163,732
Beginning balance		715		$	1		5,995,320	$	5,995	$	38,262,744		$	(33,105,008	)	$	5,163,732

Common Shares Sold in Public Offering		-			-		3,901,783		3,902		14,865,997			-			14,869,899
Extinguishment of Derivative Liability		-			-		-		-		(1,092,441	)		-			(1,092,441	)
Preferred Stock Dividends		-			-		19,000		19		89,328			(89,347	)		-
Common Shares issued for Conversion of Preferred Shares		(250	)		-		100,000		100		(100	)		-			-
Common Shares issued for Exercise of Common Warrants		-			-		475,995		476		1,135,534			-			1,136,010
Stock Options Awarded to Directors		-			-		-		-		404,580			-			404,580
Securities Issued for Third Party Services		-			-		1,500		2		128,807			-			128,809
Securities Awarded to Employees		-			-		5,204		5		893,426			-			893,431
Offering Costs		-			-		-		-		(1,600,967	)		-			(1,600,967	)
Net Loss		-			-		-		-		-			(4,987,185	)		(4,987,185	)

Balances, September 30, 2021		465		$	1		10,498,802	$	10,499	$	53,086,908		$	(38,181,540	)	$	14,915,868
Ending balance		465		$	1		10,498,802	$	10,499	$	53,086,908		$	(38,181,540	)	$	14,915,868

	Preferred Stock						Common Stock				Additional
	Shares Outstanding			Preferred Stock			Shares Outstanding		Common Stock		Paid-in Capital			Accumulated Deficit			Total
Balances, December 31, 2019		-		$	-			1,403,759	$	1,404	$	26,746,439		$	(26,095,594	)	$	652,249

Common Shares Sold in Public Offering		-			-			493,027		493		1,499,507			-			1,500,000
Preferred Shares Sold in Private Offering		1,973			3			-		-		2,099,997			-			2,100,000
Preferred Stock Dividends		-			-			749,924		750		1,743,721			(1,744,471	)		-
Common Shares issued for Conversion of Preferred Shares		(7,154	)		(7	)		3,157,427		3,157		(3,150	)		-			-
Preferred Shares issued for Exercise of Preferred Warrants		5,764			5			-		-		5,619,895			-			5,619,900
Securities Issued to Directors for Services		-			-			8,334		8		131,142			-			131,150
Securities Issued for Third Party Services		-			-			6,000		6		113,837			-			113,843
Securities Awarded to Employees		-			-			11,517		12		483,196			-			483,208

Offering Costs					-			-		-		(820,224	)		-			(820,224	)
Issuance of Fractional Shares from Reverse Split		-			-			3,257		3		(3	)		-			-
Net Loss		-			-			-		-		-			(3,711,236	)		(3,711,236	)

Balances, September 30, 2020		583		$	1			5,833,245	$	5,833	$	37,614,357		$	(31,551,301	)	$	6,068,890

See accompanying notes to condensed financial statements.

Sigma Labs, Inc.

Condensed Statements of Cash Flows

(Unaudited)


	Nine Months Ended
	September 30, 2021			September 30, 2020
OPERATING ACTIVITIES
Net Loss	$	(4,987,185	)	$	(3,711,236	)
Adjustments to reconcile Net Loss to Net Cash used in operating activities:
Noncash Expenses:
Depreciation and Amortization		76,502			86,150
Gain on Derivative Liability		(1,092,441	)		-
Stock Based Compensation - Employees		893,431			483,208
Stock Based Compensation – Third Party Services		128,809			113,843
Stock Based Compensation - Directors		404,580			131,150
Change in assets and liabilities:
Accounts Receivable		(335,178	)		(429,527	)
Inventory		(196,896	)		24,178
Prepaid Assets		(13,940	)		55,669
Accounts Payable		94,220			(544,991	)
Deferred Revenue		7,523			(46,606	)
Accrued Expenses		233,985			108,022
Deferral of Payroll Taxes under the CARES Act		-			53,545
NET CASH USED IN OPERATING ACTIVITIES		(4,786,590	)		(3,676,595	)

INVESTING ACTIVITIES
Purchase of Property and Equipment		(116,631	)		(88,074	)
Purchase of Intangible Assets		(138,141	)		(161,878	)
Dissolution of Joint Venture		-			500
NET CASH USED IN INVESTING ACTIVITIES		(254,772	)		(249,452	)

FINANCING ACTIVITIES
Gross Proceeds from Public and Private Issuances of Securities		14,869,899			3,600,000
Less Offering Costs		(1,600,967	)		(820,224	)
Payment of Note Payable		-			(50,000	)
Proceeds from Exercise of Warrants		1,136,010			5,619,900
NET CASH PROVIDED BY FINANCING ACTIVITIES		14,404,942			8,349,676

NET CHANGE IN CASH FOR PERIOD		9,363,580			4,423,629

CASH AT BEGINNING OF PERIOD		3,700,814			86,919

CASH AT END OF PERIOD	$	13,064,394		$	4,510,548

Supplemental Disclosures:
Noncash investing and financing activities disclosure:
Issuance of Common Shares for Preferred Dividends	$	89,347		$	1,744,471
Issuance of Securities for Services	$	533,387		$	244,993
Disclosure of cash paid for:
Interest	$	5,434		$	12,741
Income Taxes	$	-		$	-

See accompanying notes to condensed financial statements.

SIGMA LABS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

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.

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 September 30, 2021 and 2020 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 2020 audited financial statements and notes thereto included in the Company’s Form 10-K. The results of operations for the periods ended September 30, 2021 and 2020 are not necessarily indicative of the operating results for the full year.

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.

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:

September 30, 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):

	Warrants
Fair Value on Issuance Date	$	5,708,212
Change in Fair Value		(1,092,441	)
Fair Value on May 24, 2021		4,615,771
Extinguishment of Derivative Liability		(4,615,771	)
Fair Value on September 30, 2021	$	-

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 Companies outstanding warrants, options and preferred shares were excluded due to the anti-dilutive effect they would have on the computation. At September 30, 2021 and 2020, the Company had the following common shares underlying these instruments:

	September 30,
	2021		2020
Warrants		3,987,931		1,845,722
Preferred Stock Warrants		-		260,089
Stock Options		1,400,407		610,229
Preferred Stock		124,483		227,695

Total Underlying Common Shares		5,512,821		2,943,735

The following data shows 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 September 30, 2021 and 2020:

	2021			2020			2021			2020
	Three Months Ended September 30						Nine Months Ended September 30
	2021			2020			2021			2020

Net Loss per Common Share - Basic and Diluted	$	(0.24	)	$	(0.42	)	$	(0.53	)	$	(1.74	)
Loss from continuing
Operations available to Common stockholders (numerator)	$	(2,505,198	)	$	(1,955,357	)	$	(5,076,532	)	$	(5,455,707	)
Loss from continuing Operations available to Common stockholders (numerator)	$	(2,505,198	)	$	(1,955,357	)	$	(5,076,532	)	$	(5,455,707	)

Weighted average number of common shares Outstanding used in loss per share during the Period (denominator)		10,494,560			4,675,749			9,602,666			3,137,459

Recently Enacted Accounting Standards - The FASB established the ASC as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.

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.

NOTE 2 – Inventory

At September 30, 2021 and December 31, 2020, the Company’s inventory was comprised of:

Schedule of Inventory

	September 30, 2021		December 31, 2020
Raw Materials	$	312,181	$	309,305
Work in Process		260,380		175,884
Finished Goods		283,986		174,462
Total Inventory	$	856,547	$	659,651

NOTE 3 – CARES Act Deferred Payroll Tax Liability

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 September 30, 2021 the total amount of such deferral was $75,455. Per the terms of the deferral program, 50% of the deferred amount is due on December 31, 2021, and the remaining 50% is due on December 31, 2022 at 0% interest.

NOTE 4 - 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