Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies (Policies)

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Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2021
Accounting Policies [Abstract]  
Nature of Business

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

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 March 31, 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 March 31, 2021 and 2020 are not necessarily indicative of the operating results for the full year.

Reclassification

Reclassification - Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation in the current-period financial statements.

Fair Value of Financial Instruments

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. The derivative warrant liability at March 31, 2021 results from the issuance of warrants to purchase an aggregate of 2,190,000 shares of common stock issued in a private placement which closed concurrently with a registered direct offering of our common stock on March 26, 2021. The warrants will be exercisable commencing on the date the Company obtains 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 does not currently have sufficient authorized and unissued shares of common stock available to settle the warrants, such warrants are accounted for as a derivative liability until such time as the Company receives the foregoing stockholder approval to increase its authorized shares. The Company has called a Special Stockholders’ Meeting (“the Special Meeting”) to be held on May 24, 2021 where it will seek such approval. Upon receiving approval, the Company will reclassify the warrant liability to equity pursuant to ASC 815.40.35.8. However, there can be no guarantee that such approval will be received, and in the event that stockholder approval is not received, the Company will continue to account for the outstanding warrants as a liability. In addition, the Company will be required to call a meeting of stockholders every 75 days after the Special Meeting to seek approval of the increase in authorized shares to not be in breach of the Securities Purchase Agreement.

 

The fair value of the warrant liability measured on a recurring basis is as follows:

 

    March 31, 2021     Date of Issuance March 26, 2021  
    Fair Value     Input Level     Fair Value     Input Level  
                                 
Derivative liability - Warrants   $ 4,905,927       Level 3     $ 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     (802,285 )
Fair value on March 31, 2021   $ 4,905,927  
Loss Per Share

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 March 31, 2021 and 2020, the Company had the following common shares underlying these instruments:

 

    Three Months Ended March 31,  
    2021     2020  
Warrants     1,797,931       1,244,712  
Preferred Stock Warrants     -       2,996,713  
Stock Options     856,082       159,637  
Preferred Stock     124,483       624,412  
Total Underlying Common Shares     2,778,496       5,025,474  

 

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 March 31, 2021 and 2020:

 

    Three Months Ended March 31  
    2021     2020  
             
Net Loss per Common Share - Basic and Diluted   $ (0.09   $ (1.30 )
Loss from continuing                
Operations available to                
Common stockholders (numerator)   $ (711,567   $ (1,898,832 )
                 
Weighted average number of common shares Outstanding used in loss per share during the Period (denominator)     7,790,121       1,463,627  
Accounting Estimates

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.