UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011 

OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 33-2783-S

Sigma Labs, Inc.
(Exact name of registrant as specified in its charter)

NEVADA
82-0404220
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
3900 Paseo del Sol
Santa Fe, New Mexico 87507
(Address of principal executive offices)
 
(505) 438-2576
(Registrant’s telephone number)
 
(Former Name or Former Address, if Changed Since Last Report

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
 
Large accelerated filer
o
Accelerated Filer
o
Non-accelerated filer
o
Smaller reporting company
x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of May 6, 2011, the issuer had 357,077,750 shares of common stock outstanding.

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

 

SIGMA LABS, INC.
 
For the quarter ended March 31, 2011
 
FORM 10-Q
 
TABLE OF CONTENTS
 
PART I
1
ITEM 1.  FINANCIAL STATEMENTS.
1
ITEM 2.   MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
9
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
13
ITEM 4.  CONTROLS AND PROCEDURES.
13
PART II
13
ITEM 1.  LEGAL PROCEEDINGS.
13
ITEM 1A.   RISK FACTORS.
13
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
13
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
14
ITEM 4.  REMOVED AND RESERVED.
14
ITEM 5.  OTHER INFORMATION
14
ITEM 6.  EXHIBITS
14
 
 
i

 
 
PART I
 
 ITEM 1.  FINANCIAL STATEMENTS.
 
Sigma Labs, Inc.
Consolidated Balance Sheets
March 31, 2011
             
   
March 31, 2011
   
December 31, 2010
 
   
Unaudited
       
             
             
ASSETS
           
Current Assets
           
Cash
  $ 862,080     $ 226,268  
Accounts Receivable
    4,884       180,855  
Other Assets
    865       370  
Total Current Assets
    867,829       407,493  
                 
Fixed Assets (Net)
               
Furniture and Equipment
    38,111       42,778  
Patents
    24,830       25,083  
Fixed Assets
    62,941       67,861  
                 
TOTAL ASSETS
  $ 930,770     $ 475,354  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Funds Held Pending Private Placement Closing
  $ 682,500     $ -  
Accounts Payable
    35,880       44,996  
Current Liabilities
    718,380       44,996  
                 
TOTAL LIABILITIES
    718,380       44,996  
                 
Stockholders' Equity
               
Common Stock, $0.001 par value; 750,000,000 shares authorized;
               
314,167,400 shares issued and outstanding
    314,167          
313,067,400 shares issued and outstanding
            313,067  
Additional Paid-In Capital
    560,137       539,237  
Retained Earnings (Deficit)
    (661,914 )     (421,946 )
Total Stockholders' Equity
    212,390       430,358  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 930,770     $ 475,354  
 
 
1

 
 
Sigma Labs, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
             
   
Three Months Ended March 31,
 
   
2011
   
2010
 
OPERATING ACTIVITIES
           
Net Income (Loss)
  $ (239,968 )   $ (55,120 )
                 
Adjustments to reconcile Net Income (Loss)  to Net Cash used by operations:
               
Noncash Expenses:
               
Amortization
    253       -  
Depreciation
    4,667       -  
Stock Compensation
    22,000          
Change in assets and liabilities:
            -  
Decrease in Accounts Receivable
    175,971       -  
(Increase) in Cafeteria Plan
    (495 )     -  
(Decrease) Increase in Accounts Payable
    (9,116 )     29,759  
NET CASH (USED) BY OPERATING ACTIVITIES
    (46,688 )     (25,361 )
                 
INVESTING ACTIVITIES
               
Purchase of Furniture and Equipment
    -       -  
Purchase of Patent
    -       -  
NET CASH USED BY INVESTING ACTIVITIES
    -       -  
                 
FINANCING ACTIVITIES
               
Proceeds fron sale of Stock Subscription
    682,500       28,804  
Increase in Convertible Notes Payable
    -       100,000  
 
               
NET CASH PROVIDED BY FINANCING ACTIVITIES
    682,500       128,804  
                 
NET CASH INCREASE FOR PERIOD
    635,812       103,443  
                 
CASH AT BEGINNING OF PERIOD
    226,268       -  
                 
CASH AT END OF PERIOD
  $ 862,080     $ 103,443  
                 
Supplemental Disclosure for Cash Flow Information
               
Cash paid during the period for:
               
Interest
  $ -     $ -  
Income Taxes
  $ -     $ -  
                 
Supplemental Schedule of Noncash Investing and Financing Activities
               
For the three months ended March 31, 2011
               
1,100,000 shares issued for consulting services at $0.02 per share
               
For the three months ended March 31, 2010
               
Common stock issued for subscription receivable of $2,500
               
 
 
2

 
 
Sigma Labs, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2011 and 2010
             
   
Three Months Ended March 31,
 
   
2011
   
2010
 
             
INCOME
           
Services
  $ 57,039        
Total Revenue
    57,039       -  
                 
COST OF SERVICE REVENUE
    17,181          
                 
GROSS PROFIT
    39,858       -  
                 
EXPENSES
               
General & Administration
    140,074       55,120  
Payroll Expense
    139,752          
Total Expenses
    279,826       55,120  
                 
NET INCOME (LOSS) BEFORE INCOME TAXES
    (239,968 )     (55,120 )
                 
Current Income Tax Expense
    -       -  
                 
Deferred Income Tax Expense
    -       -  
                 
Net Income (Loss)
  $ (239,968 )   $ (55,120 )
                 
Loss per Common Share - Basic and Diluted
  $ 0.00     $ 0.00  
                 
Weighted Average Number of Shares Outstanding Basic and Diluted
    314,118,511       197,099,235  
 
 
3

 
 
SIGMA LABS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2011
 
NOTE 1 – Summary of Significant Accounting Policies
 
Nature of Business – On September 13, 2010 Sigma Labs, Inc., formerly named Framewaves, Inc., a Nevada corporation, acquired 100% of the shares of B6 Sigma, Inc. by exchanging 6.67 shares of Framewaves, Inc. restricted common stock for each issued and outstanding share of B6 Sigma, Inc.  The acquisition has been accounted for as a “reverse purchase”, and accordingly the operations of Framewaves, Inc. prior to the date of acquisition have been eliminated.
 
B6 Sigma, Inc., incorporated February 5, 2010, was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies.  A Company trademark, In Process Quality Assurance (IPQA®), is a technology that management believes will fundamentally redefine manufacturing practices by embedding quality assurance in the manufacturing processes in real time.  Management also anticipates that the Company’s core competencies will allow its clientele to combine advanced manufacturing with novel material to achieve breakthrough product potential in many industries including aerospace, defense, oil and gas, prosthetic implants, sporting goods, and power generation.
 
Principles of Consolidation – The consolidated financial statements for March 31, 2011 include the accounts of Sigma Labs, Inc. and B6 Sigma, Inc.  All significant intercompany balances and transactions have been eliminated.
 
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 three years unless a unique circumstance exists, which is then fully documented as an exception to the policy.
 
Fair Value of Financial Instruments – The Company estimates that the fair value of all financial instruments does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets.
 
Income Taxes The Company accounts for income taxes in accordance with ASC Topic No. 740, “Accounting for Income Taxes.”
 
The Company adopted the provisions of ASC Topic No. 740, “Accounting for Income Taxes,” at the date of inception on February 5, 2010.  As a result of the implementation of ASC Topic No. 740, the Company recognized no increase in the liability for unrecognized tax benefits.
 
The Company has no tax positions at March 31, 2011 for which the ultimate deductibility is highly certain 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 period ended March 31, 2011, the Company recognized no interest and penalties.  The Company had no accruals for interest and penalties at March 31, 2011.  All tax years starting with 2010 are open for examination.
 
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.”
 
 
4

 
 
Allowance for Doubtful Accounts - The Company establishes an allowance for doubtful accounts to ensure accounts receivables are not overstated due to uncollectibility.  Bad debt reserves are maintained based on a variety of factors, including the length of time receivables are past due and a detailed review of certain individual customer accounts.  If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.  The allowance for doubtful accounts at March 31, 2011 is $0.
 
Intangible Assets – Long-lived assets and certain identifiable 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.
 
Recently Enacted Accounting Standards – In June 2009, the FASB established the Accounting Standards Codification (“Codification” or “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 generally accepted accounting principles in the United States (“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.  Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements.  The ASC does change the way the guidance is organized and presented.
 
Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU NO. 2011-03 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued.  These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
 
Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less at date of purchase to be cash equivalents.
 
Organization Expenditures – Organizational expenditures are expensed as incurred for Securities Exchange Commission (SEC) filings, but capitalized and amortized for income tax purposes.
 
Amortization - Utility patents are amortized over a 17 year period.
 
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.
 
Revenue Recognition – The Company’s revenue is derived primarily from providing services under contractual agreements.  Revenue is recognized when a project is completed.
 
NOTE 2 – Capital Stock
 
The Company has authorized 750,000,000 shares of common stock, $.001 par value.
 
 
5

 
 
On September 13, 2010 the Company closed a share exchange transaction (the “Reorganization”) with the shareholders of B6 Sigma, Inc., a Delaware corporation (“B6 Sigma”), which resulted in B6 Sigma becoming a wholly-owned subsidiary of the Company.  Each share of B6 Sigma, Inc. common stock outstanding as at the closing of the Reorganization was exchanged for 6.67 shares of the Company’s common stock.  At the closing, B6 Sigma, Inc. also acquired and cancelled 110,700,000 shares of the Company’s common stock from three shareholders for the sum of $195,000.  Upon the closing of the Reorganization, the Company ceased to be a “Shell” company (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended).  As a condition to the closing of the reorganization, B6 Sigma, Inc. also closed a private offering of $1,000,000 of its common stock contemporaneously with the closing of the reorganization, which included the conversion of $300,000 of previously issued convertible notes by B6 Sigma, Inc. into the private offering of common stock.
 
Following issuance of the reorganization shares to the B6 Sigma shareholders and the stock cancellation, the Company had 313,067,400 (post split) shares of its common stock issued and outstanding.  In connection with the closing of the reorganization, the shareholders of the Company approved a 150:1 forward stock split, and a change of the name of the corporation to Sigma Labs, Inc.  Additionally, following completion of the reorganization, B6 Sigma became a wholly owned subsidiary and its operations comprise the sole business activity.
 
On January 6, 2011 the Company issued an aggregate of 1,100,000 shares of the Company’s common stock to two consultants as noncash compensation for services rendered valued at $22,000 or $0.02 per share.
 
On March 9, 2011, our Board of Directors adopted an equity incentive plan, the 2011 Equity Incentive Plan (the “Equity Plan”).  On March 31, 2011, the holders of at least a majority of the issued and outstanding shares of common stock of the Company approved the Equity Plan.  Pursuant to the Equity Plan, we are authorized to grant options, restricted stock and stock appreciation rights to purchase up to 31,000,000 shares of common stock to our employees, officers, directors, consultants and advisors.  The Equity Plan provides for awards of incentive stock options, non-statutory stock options, and rights to acquire restricted stock.  Incentive stock options granted under the Equity Plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  Non-statutory stock options granted under the Equity Plan are not intended to qualify as incentive stock options under the Code.
 
NOTE 3 – Going Concern
 
The Company was only recently formed and has not yet achieved profitable operations.  The ability of the Company to continue as a going concern is dependent on expanding income opportunities.  Management anticipates that additional contracts will allow the Company to achieve profitable operations.
 
NOTE 4 – Income Taxes
 
The Company accounts for income taxes in accordance with ASC Topic No. 740, “Income Taxes.”  ASC Topic No. 740 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.
 
The Company has available at March 31, 2011, unused operating loss carryforwards of approximately $589,881, which may be applied against future taxable income and which expire in various years through 2031.  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 carryfowards (approximately $88,500) at March 31, 2011 and, therefore, no deferred tax asset has been recognized for the loss carryforwards.  The change in the valuation allowance is approximately $36,200 for the period ended March 31, 2011.
 
 
6

 
 
NOTE 5 – 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 period ended March 31, 2011 and March 31, 2010:
 
   
Three Months Ended
March 31, 2011
   
Three Months Ended
March 31, 2010
 
             
Loss from continuing operations available to Common stockholders
  $ (239,968 )   $ (55,120 )
Weighted average number of common shares
               
Outstanding used in loss per share during the Period
    314,118,511       197,099,255  

NOTE 6 – Furniture and Equipment
 
The following is a summary of property and equipment, purchased used and depreciated over a period of three years, less accumulated depreciation, as of March 31, 2011 and December 31, 2010:
 
Furniture and Fixtures
  $ 56,000     $ 56,000  
Less:  Accumulated Depreciation
    (17,889 )     (13,222 )
Net Property and Equipment
  $ 38,111     $ 42,778  

Depreciation expense on property and equipment was $4,667 and $0 for the period ended March 31, 2011 and 2010.
 
NOTE 7 – Patents
 
The following is a summary of patents less accumulated amortization as of March 31, 2011 and December 31, 2010:
 
Patents
  $ 25,800     $ 25,800  
Less:  Accumulated Amortization
    (970 )     (717 )
Net Patents
  $ 24,830     $ 25,083  

Amortization expense on patents was $253 and $0 for the period ended March 31, 2011 and 2010.
 
NOTE 8 – Commitments and Contingencies
 
Operating Leases – The Company leases office space under operating leases.  Expense relating to these operating leases was $5,880 for the period ended March 31, 2011.  There are no future minimum lease payments required under operating leases at March 31, 2011.
 
 
7

 
 
NOTE 9 – Subsequent Events
 
On April 8, 2011, the Company granted five Company employees an aggregate of 20,000,000 shares of the Company’s common stock, at an issue price of $0.02 per share subject to restrictions, pursuant to the Company’s 2011 Equity Incentive Plan.
 
Also on April 8, 2011, the Company granted an aggregate of 3,625,000 shares of the Company’s common stock, at an issue price of $0.02 per share subject to restrictions, to one consultant and two professionals for services rendered to the Company.
 
In January 2011, the Company commenced a private offering of up to 75,000,000 shares of common stock, $0.001 par value per share, at an issue price of $0.02 per share of common stock, for total gross proceeds of up to $1,500,000.  Funds received by March 31, 2011 of $682,500 were held by the Company as a liability pending the closing of the private offering, which occurred on April 15, 2011.  55,875,000 shares of the Company’s common stock were subscribed with respect to the offering, resulting in aggregate gross proceeds of $1,117,500 (which includes $100,000 of proceeds that the Company expects to receive by May 17, 2011).
 
Hudson Valley Capital Management Corp. (“Hudson”) acted as placement agent and will receive a total of $105,735 in commissions following the Company’s receipt of the foregoing $100,000 of proceeds.  The Company also will issue to Hudson in connection with the offering five year warrants to purchase up to 7,931,250 shares of the Company’s common stock.  Such warrants have an exercise price of $0.025 per share.
 
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined there were no additional items to report.
 
 
8

 
 
ITEM 2.   MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward-looking statements
 
This Quarterly 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 any projections of 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.  All subsequent Forward-Looking Statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.  Additional factors that may have a direct bearing on our operating results are described under “Risk Factors” and elsewhere in this report.
 
Introductory Comment
 
Our predecessor, Framewaves, Inc., a Nevada corporation, was a shell company (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) immediately prior to the closing of the Reorganization (as defined below in the discussion captioned “The Reorganization”) with no ongoing operations, and was focused on seeking a business opportunity.  Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, the term “Framewaves” refers to our predecessor shell-entity prior to consummation of the Reorganization; the term “B6 Sigma” refers to B6 Sigma, Inc., a Delaware corporation and the operating company acquired in connection with the Reorganization; and the terms the “Company,” “Sigma,” “we,” “us” and “our” refers to Sigma Labs, Inc. (f/k/a Framewaves, Inc.) together with B6 Sigma, Inc., our wholly owned subsidiary following completion of the Reorganization.
 
Organizational History
 
Framewaves was incorporated in December 1985 as “Messidor Limited.” In December 2000, Messidor Limited’s shareholders approved a name change to “Framewaves, Inc.” At that time, the shareholders also approved the acquisition of Corners, Inc., a Nevada corporation (“Corners”), which was originally intended to be used as an operating subsidiary as part of the corporation’s business strategy to actively pursue the custom framing business. Ultimately, the corporation decided to pursue a different business opportunity.
 
B6 Sigma, Inc., a Delaware corporation (“B6 Sigma”), was incorporated in February 2010.  Four members of our current management team worked together at Technology Management Company, Inc., a New Mexico corporation (“TMC”), before leaving to form B6 Sigma. Pursuant to an asset purchase agreement, B6 Sigma acquired certain assets from a division of TMC in exchange for the surrender of certain securities of TMC previously issued to the founders of B6 Sigma. The assets acquired include equipment, contracts, licenses and intellectual property relating to our IPQA® technology.  See further discussion of our IPQA® technology under “Products and Services” included under Item 1 (“Business”), Part I of our Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
9

 
 
On September 13, 2010, Framewaves entered into a share exchange agreement with B6 Sigma and the shareholders of B6 Sigma pursuant to which it acquired all of the issued and outstanding shares of B6 Sigma. Following closing of the transactions contemplated by the share exchange agreement, B6 Sigma became our wholly owned subsidiary and its operations now comprise our sole business activity.
 
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.
 
The Reorganization
 
On September 13, 2010, Framewaves entered into a share exchange agreement (“Share Exchange Agreement”) with B6 Sigma and the holders of all of the issued and outstanding capital stock of B6 Sigma (collectively, the “B6 Sigma Shareholders”).  The transactions contemplated by the Share Exchange Agreement are hereinafter collectively referred to as the “Reorganization.” Pursuant to the Share Exchange Agreement, Framewaves issued to the B6 sigma Shareholders 234,917,400 (post-split) shares (the “Reorganization Shares”) of its common stock, $0.001 par value per share, in exchange for all of the issued and outstanding capital stock of B6 Sigma.  In connection with the Reorganization, B6 Sigma acquired 110,700,000 (post-split) shares of Framewaves common stock from three shareholders of Framewaves for the cash sum of $195,000, and simultaneously cancelled all such shares (such transactions, collectively, the “Stock Cancellation”). In addition, as a condition to the closing of the Reorganization, B6 Sigma also closed a private offering of $1,000,000 of its common stock contemporaneous with the closing of the Reorganization. In connection with the Reorganization, the Chief Executive Officer (and also a director) of Framewaves resigned and the officers and directors of B6 Sigma were elected to serve as officers and directors of the Company.
 
Following issuance of the Reorganization Shares to the B6 Sigma Shareholders and the Stock Cancellation, Framewaves had 313,067,400 (post-split) shares of its common stock issued and outstanding. In connection with the closing of the Reorganization, the shareholders of Framewaves approved a 150:1 forward stock split, and a change of the name of the corporation to “Sigma Labs, Inc.” Additionally, following completion of the Reorganization, B6 Sigma became our wholly owned subsidiary and its operations now comprise our sole business activity.
 
Overview of Business
 
B6 Sigma is an early-stage company that specializes in the development and commercialization of novel manufacturing and materials technology solutions. We believe that our primary manufacturing solutions technology, which we refer to as “In Process Quality Assurance” or “IPQA®,” will redefine conventional manufacturing practices primarily by embedding quality assurance protocols in real-time manufacturing processes, thereby reducing the need for and cost of post-manufacturing quality assurance processes. Further, we expect the materials solutions technology we are developing will be beneficial to manufacturers and other businesses that seek to improve the most relevant characteristics of the materials used in their production processes or other business operations.  For instance, we are working with the United States Army in connection with the development of a new munitions technology we refer to as Advanced Reactive Materials and Structures or “ARMS,” the goal of which is to reduce the weight of munitions without a loss of effectiveness.  This technology could have significant applications for munitions designed specifically for drones and similar unmanned aircrafts.  We are also developing technology to improve the “heal time” of nano-based dental implants.
 
We expect to generate revenues primarily by marketing and deploying our technology solutions to businesses that seek to improve their production processes and/or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations. Our management anticipates that the Company’s technology solutions will allow its clientele to combine advanced manufacturing with novel materials to achieve breakthrough product potential in many industries including the following industries: aerospace, defense, oil and gas, prosthetic implants, sporting goods, and power generation. We are currently investigating and pursuing application of our IPQA® and other technologies in some of these markets, and we anticipate growth in both the breadth and depth of IPQA® applications in the future.
 
 
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We anticipate that our primary business focus will be in the (i) deployment and implementation of our IPQA® technology to all appropriate manufacturing businesses, and (ii) development and commercialization of additional breakthrough technologies and innovations in the materials and manufacturing sciences. We will continue to expand our operations in this regard, including investigating additional opportunities for applications of our technology as well as undertaking further development efforts towards the commercialization of various technologies we have identified.
 
Our board of directors and management comprise scientists and business professionals with extensive experience in the energy and advanced manufacturing/advanced materials technology market. These individuals have worked with some of the largest defense contractors in the world in varied projects such as advanced armor and anti-armor systems, hypervelocity projectile launch systems, advanced reactive munitions and nuclear weapons stewardship programs.  These individuals collectively possess over 100 years of experience working in the advanced manufacturing and materials technology space.  As such, we believe we possess the resident expertise to provide consulting services to other companies regarding their manufacturing operations, or to companies seeking to improve the design of their products by using alternative next-generation materials or improving certain characteristics of the original input material, on a fee for services basis. Accordingly, in addition to our primary business focus, we intend to generate revenues by providing such consulting services to businesses seeking the same. Such consulting services may not necessarily involve deployment of our own technologies and may be limited to consulting with respect to the development, exploitation or improvement of the client’s own technology.     
 
Moreover, some members of our management team have worked at or with United States Department of Energy (“DOE”) national laboratories (including the Los Alamos National Laboratory (“LANL”) and Sandia National Laboratory (“SNL”)) over the last 30 years. Due to their work with the DOE, members of our management team have developed extensive relationships with the DOE and its network of national laboratories.  Accordingly, we expect to leverage these relationships in connection with licensing and developing technologies created at such national laboratories for commercialization in the private sector.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements.  Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain.  Such critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 1 to the Consolidated Financial Statements included in this Quarterly Report.  However, we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements.
 
Results of Operations
 
We expect to generate revenues primarily by marketing and deploying our technology solutions to businesses that seek to improve their production processes and/or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations.  However, our target technologies are still under development, and we presently make no sales of these technologies and generate no revenues therefrom.  During the three months ended March 31, 2011, we recognized revenue of $57,039, which was primarily generated from engineering consulting services we provided to third parties during this period.  We generated no revenue for the same period in 2010; B6 Sigma was formed February 5, 2010 and had not yet generated revenue from services rendered or other sources from that date through March 31, 2010.
 
 
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Our general and administrative expenses and payroll expenses for the three months ended March 31, 2011, were $140,074 and $139,752, respectively, compared to $55,120 and $0 for the three months ended March 31, 2010.  General and administrative expenses principally include organizational expenses and professional fees, the largest component of which consists of services in connection with our obligations as an SEC reporting company, in addition to legal and accounting fees.  The net increase in general and administrative expenses and payroll expenses from the three months ended March 31, 2010 to same period in 2010 is principally the result of increased outside services costs and payroll obligations associated with our growing operations.  We expect our general and administrative expenses to continue to increase during the quarter ending June 30, 2011, as we increase our operations and marketing.  Similarly, we expect our payroll expense to increase as we intend to engage additional employees.
 
Our net loss for the three months ended March 31, 2011 increased to $239,968 from a net loss of $55,120 for the same period in 2010 due primarily to the increased general and administrative expenses related to our increased operations.
 
Liquidity and Capital Resources
 
As of March 31, 2011, we had $862,080 in cash and had a working capital surplus of $149,449, as compared with $226,268 in cash and a working capital surplus of $362,497 as of December 31, 2010.  On April 15, 2011, we closed a private placement of our common stock, pursuant to which 55,875,000 shares of our common stock were subscribed for aggregate gross proceeds of $1,117,500 (which includes $100,000 of proceeds that the Company expects to receive by May 17, 2011). We plan to obtain additional funding through private sales of equity and/or debt securities.
 
We plan to generate revenues primarily by marketing and selling our manufacturing and materials technologies.  However, for the period from our inception through March 31, 2011, we generated revenues and financed our operations primarily from engineering consulting services we provided during this period.  We will continue to refine our technologies for commercialization during fiscal 2011.  However, until commercialization of such technologies, we plan to continue to fund our development activities and operating expenses by providing consulting services concerning our areas of expertise, i.e., materials and manufacturing technologies, and through the use of proceeds from the foregoing private placement.  As of May 6, 2011, we have five active consulting contracts with respect to which we expect to perform and generate up to $753,190 in revenues in fiscal 2011.
 
Some of these consulting contracts are fixed price contracts, for which we will receive a specified fee regardless of our cost to perform under such contract.  With respect to entering into these fixed-contract consulting arrangements, we are required to estimate our costs of performance.  To actually earn a profit on these contracts, we must accurately estimate costs involved and assess the probability of meeting the specified objectives, realizing the expected units of work or completing individual transactions, within the contracted time period.  Accordingly, if we under-estimate the cost to complete a contract, we remain obligated to complete the work based on our initial cost estimate, which would reduce the amount of profit actually earned under the contract.
 
We have no credit lines or facilities as of May 6, 2011, nor have we ever had a credit facility since our inception.
 
 
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Based on the funds we have on May 6, 2011 and the revenues we expect to receive under our consulting agreements, we believe that we will have sufficient funds to pay our administrative and other operating expenses for the balance of 2011.  Until we are able to generate significant revenues from sales of our technologies, our ability to continue to fund our liquidity and working capital needs will be dependent upon revenues from existing and future consulting contracts and proceeds received from sales of our securities.
 
Inflation and changing prices have had no effect on our continuing operations over our two most recent fiscal years.
 
We have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.
 
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
 ITEM 4.  CONTROLS AND PROCEDURES.
 
Our management, including our chief executive officer and treasurer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
 
Based on that evaluation, we have concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods.  The foregoing conclusion is based, in part, on the fact that we are a small public company in the development stage of our business, with limited revenues and employees.  Based upon our evaluation, we also concluded that there was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
 
 ITEM 1.  LEGAL PROCEEDINGS.
 
Not applicable.
 
 ITEM 1A.   RISK FACTORS.
 
Information regarding risk factors appears under “Risk Factors” included in Item 1A, Part I, and under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2010.
 
 ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
On January 6, 2011 we issued an aggregate of 1,100,000 shares of the Company’s common stock to two consultants as non-cash compensation for services rendered valued at $22,000 or $0.02 per share. These securities were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act.
 
 
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 ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
 
Not applicable
 
 ITEM 4.  REMOVED AND RESERVED.
 
 ITEM 5.  OTHER INFORMATION
 
None.
 
ITEM 6.  EXHIBITS
 
10.1
2011 Equity Incentive Plan adopted by the Board of Directors as of March 9, 2011.
10.2
Form of Subscription Agreement between participants in April 2011 private placement and Sigma Labs, Inc.
10.3
Placement Agent Agreement dated February 9, 2011 between Hudson Valley Capital Management Corp. and Sigma Labs, Inc.
10.4
Form of Warrant issued to placement agent in April 2011 private placement to purchase shares of common stock of Sigma Labs, Inc.
31.1
Rule 13a-14(a) Certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SIGMA LABS, INC.
 
       
May 16, 2011
By:
/s/ Richard Mah      
    Richard Mah  
    Chief Executive Officer (Principal Executive Officer)  
       
 
May 16, 2011
By:
/s/ James Stout      
    James Stout  
    Chairman of the Board and Treasurer (Principal Accounting Officer)  
       
 
 
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