Sunworks, Inc. - Quarter Report: 2012 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012.
Or
o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 000-49805
SOLAR3D, INC.
(Name of registrant in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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01-05922991
(I.R.S. Employer Identification No.)
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6500 Hollister Avenue, Suite 130 , Goleta, California 93117
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (805) 690-9000
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.
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Yes
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x
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No
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o
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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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes
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x
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No
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o
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer (Do not check if a smaller reporting company)
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o
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Smaller reporting company
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x
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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o
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No
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x
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of registrant’s common stock outstanding as of October 31, 2012 was 136,640,260.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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ITEM 1.
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1
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3
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5
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ITEM 2.
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10
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ITEM 3.
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13
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ITEM 4.
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14
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PART II - OTHER INFORMATION
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ITEM 1.
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15
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ITEM 2.
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15
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ITEM 3.
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15
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ITEM 4.
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15
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ITEM 5.
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ITEM 6.
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15
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16
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SOLAR3D, INC.
(A Development Stage Company)
BALANCE SHEETS
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September 30, 2012
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December 31, 2011
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(Unaudited)
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ASSETS
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CURRENT ASSETS
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Cash
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$ | 8,879 | $ | - | ||||
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Prepaid expense
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8,639 | 25,000 | ||||||
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TOTAL CURRENT ASSETS
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17,518 | 25,000 | ||||||
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PROPERTY & EQUIPMENT, at cost
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Machinery & equipment
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13,080 | 13,080 | ||||||
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Computer equipment
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57,795 | 57,795 | ||||||
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Furniture & fixture
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7,883 | 4,670 | ||||||
| 78,758 | 75,545 | |||||||
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Less accumulated depreciation
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(71,016 | ) | (69,514 | ) | ||||
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NET PROPERTY AND EQUIPMENT
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7,742 | 6,031 | ||||||
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OTHER ASSETS
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Security deposit
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- | 2,975 | ||||||
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TOTAL OTHER ASSETS
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- | 2,975 | ||||||
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TOTAL ASSETS
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$ | 25,260 | $ | 34,006 | ||||
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LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
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CURRENT LIABILITIES
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Bank Overdraft
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$ | - | $ | 12,916 | ||||
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Accounts payable
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91,722 | 17,349 | ||||||
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Accrued expenses
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46,695 | - | ||||||
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Accrued interest, related parties
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2,861 | - | ||||||
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Derivative liability
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39,661 | - | ||||||
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Convertible promissory note payable, net of discount $40,611
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1,889 | - | ||||||
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Promissory notes payable, net of discount $53,594
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60,906 | - | ||||||
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TOTAL CURRENT LIABILITIES
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243,734 | 30,265 | ||||||
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SHAREHOLDERS' EQUITY/(DEFICIT)
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Common stock, $.001 par value;
550,000,000 authorized shares; |
135,035 | 118,283 | ||||||
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Additional paid in capital
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10,866,832 | 9,974,861 | ||||||
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Deficit accumulated during the development stage
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(11,220,341 | ) | (10,089,403 | ) | ||||
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TOTAL SHAREHOLDERS' EQUITY/(DEFICIT)
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(218,474 | ) | 3,741 | |||||
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
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$ | 25,260 | $ | 34,006 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
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From Inception
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January 30, 2002
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Three Months Ended
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Nine Months Ended
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through
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September 30, 2012
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September 30, 2011
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September 30, 2012
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September 30, 2011
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September 30, 2012
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REVENUE
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$ | - | $ | - | $ | - | $ | - | $ | 1,127,406 | ||||||||||
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COST OF SERVICES
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- | - | - | - | 496,177 | |||||||||||||||
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GROSS PROFIT
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- | - | - | - | 631,229 | |||||||||||||||
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OPERATING EXPENSES
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Selling, general and administrative expenses
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326,656 | 347,731 | 928,796 | 963,091 | 7,215,944 | |||||||||||||||
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Research and development
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28,120 | 49,627 | 126,877 | 97,960 | 1,735,980 | |||||||||||||||
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Impairment loss
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- | - | - | - | 1,753,502 | |||||||||||||||
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Depreciation and amortization expense
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563 | 455 | 1,502 | 1,136 | 123,340 | |||||||||||||||
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TOTAL OPERATING EXPENSES
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355,339 | 397,813 | 1,057,175 | 1,062,187 | 10,828,766 | |||||||||||||||
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LOSS FROM OPERATIONS
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(355,339 | ) | (397,813 | ) | (1,057,175 | ) | (1,062,187 | ) | (10,197,537 | ) | ||||||||||
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OTHER INCOME/(EXPENSES)
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Interest income
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- | 21 | - | 21 | 10,321 | |||||||||||||||
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Interest expense
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(23,414 | ) | (29 | ) | (42,740 | ) | (2,122 | ) | (314,546 | ) | ||||||||||
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Penalties
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(56 | ) | - | (112 | ) | - | (296 | ) | ||||||||||||
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Gain on derivative liability
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2,839 | - | 2,839 | - | 2,839 | |||||||||||||||
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Loss on investment
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- | - | - | - | (73,121 | ) | ||||||||||||||
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Loss on settlement of debt
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- | - | (33,750 | ) | (45,988 | ) | (647,038 | ) | ||||||||||||
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Loss on sale of asset
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- | - | - | - | (963 | ) | ||||||||||||||
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TOTAL OTHER INCOME/(EXPENSES)
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(20,631 | ) | (8 | ) | (73,763 | ) | (48,089 | ) | (1,022,804 | ) | ||||||||||
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NET LOSS
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$ | (375,970 | ) | $ | (397,821 | ) | $ | (1,130,938 | ) | $ | (1,110,276 | ) | $ | (11,220,341 | ) | |||||
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BASIC AND DILUTED LOSS PER SHARE
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||
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WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED
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130,333,909 | 112,026,112 | 124,416,096 | 107,302,392 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY/(DEFICIT)
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Accumulated
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Additional
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the
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Common stock
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Paid-in
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Development
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Shares
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Amount
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Capital
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Stage
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Total
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Balance at December 31, 2011
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118,283,724 | $ | 118,283 | $ | 9,974,861 | $ | (10,089,403 | ) | $ | 3,741 | ||||||||||
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Issuance of common stock for cash and subscription payable
(price per share between $0.015 and $0.05) (unaudited) |
14,876,906 | 14,877 | 316,623 | - | 331,500 | |||||||||||||||
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Issuance of common stock at fair value for accounts payable & services (unaudited)
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1,875,000 | 1,875 | 106,875 | - | 108,750 | |||||||||||||||
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Debt discount on promissory notes (unaudited)
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- | - | 91,580 | - | 91,580 | |||||||||||||||
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Stock compensation cost (unaudited)
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- | - | 376,893 | - | 376,893 | |||||||||||||||
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Net loss for the nine months ended September 30, 2012 (unaudited)
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- | - | - | (1,130,938 | ) | (1,130,938 | ) | |||||||||||||
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Balance at September 30, 2012 (unaudited)
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135,035,630 | $ | 135,035 | $ | 10,866,832 | $ | (11,220,341 | ) | $ | (218,474 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
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From Inception
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January 30, 2002
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Nine Months Ended
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through
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September 30, 2012
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September 30, 2011
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September 30, 2012
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (1,130,938 | ) | $ | (1,110,276 | ) | $ | (11,220,341 | ) | |||
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Adjustments to reconcile net loss to net cash
used in operating activities
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Depreciation and amortization
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1,502 | 1,136 | 123,340 | |||||||||
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Issuance of common shares and warrants for services
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- | 7,148 | 832,361 | |||||||||
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Issuance of common shares in conversion of debt
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- | - | 400,000 | |||||||||
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(Gain)/loss on investment
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- | - | 73,121 | |||||||||
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Stock Compensation Cost
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376,893 | 374,400 | 1,153,876 | |||||||||
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Change in derivative liability
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(2,839 | ) | - | (2,839 | ) | |||||||
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Gain on sale of asset
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- | - | 963 | |||||||||
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Impairment loss
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- | - | 1,753,502 | |||||||||
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Amortization of debt discount recognized as interest
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39,875 | - | 39,875 | |||||||||
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Loss on settlement of debt
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33,750 | 45,988 | 647,038 | |||||||||
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Changes in Assets and Liabilities
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(Increase) Decrease in:
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Prepaid expenses
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16,361 | 18,000 | (8,639 | ) | ||||||||
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Deposits and other assets
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2,975 | - | 5,000 | |||||||||
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Increase (Decrease) in:
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Accounts payable
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149,373 | 14,574 | 246,222 | |||||||||
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Accrued expenses
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49,556 | 1,950 | 636,837 | |||||||||
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NET CASH USED IN OPERATING ACTIVITIES
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(463,492 | ) | (647,080 | ) | (5,319,684 | ) | ||||||
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NET CASH FLOWS USED IN INVESTING ACTIVITIES:
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Purchase of property and equipment
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(3,213 | ) | (2,078 | ) | (84,411 | ) | ||||||
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Sale of asset
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- | - | 3,963 | |||||||||
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Investment in companies
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- | - | (6,121 | ) | ||||||||
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NET CASH USED IN INVESTING ACTIVITIES
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(3,213 | ) | (2,078 | ) | (86,569 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Payment of bank overdraft
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(12,916 | ) | - | - | ||||||||
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Proceeds from notes payable related parties
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114,500 | 47,000 | 1,288,842 | |||||||||
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Proceeds from convertible promissory note
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42,500 | - | 171,500 | |||||||||
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Repayment of notes payable related party
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- | (47,000 | ) | (184,000 | ) | |||||||
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Contributed capital by shareholder
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- | - | 19,197 | |||||||||
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Proceeds from subsidiary
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- | - | 300,000 | |||||||||
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Proceeds from issuance of common stock and subscription payable
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331,500 | 656,500 | 3,811,943 | |||||||||
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NET CASH PROVIDED BY FINANCING ACTIVITIES
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475,584 | 656,500 | 5,407,482 | |||||||||
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NET INCREASE IN CASH
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8,879 | 7,342 | 1,229 | |||||||||
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CASH, BEGINNING OF PERIOD
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- | 3,311 | 7,650 | |||||||||
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CASH, END OF PERIOD
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$ | 8,879 | $ | 10,653 | $ | 8,879 | ||||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
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Interest paid
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$ | - | $ | 134 | $ | 137,657 | ||||||
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Income taxes
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$ | - | $ | - | $ | - | ||||||
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SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
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During the nine months ended September 30, 2011, the Company sold WDTI its subsidiary, for a secured note receivable of $100,000. The sale included the net book value of the assets and liabilities of $(560,036).
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| Also, 2,000,000 warrants to purchase shares of common stock were exercised through a cashless conversion for 1,375,000 shares of common stock; 133,334 shares were issued for a subscription receivable; issued 1,839,500 shares of common stock for convertible debt. | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2012
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2011.
Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additional cash infusion. The Company has obtained funds from its shareholders since its inception through September 30, 2012. It is Management's plan to generate additional working capital from investors, and then continue to pursue its business plan and purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Solar3D, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Development Stage Activities and Operations
The Company has been in its initial stages of formation and for the nine months ended September 30, 2012, had no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.
Cash and Cash Equivalent
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Stock-Based Compensation
Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach using an option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.
Loss per Share Calculations
Loss per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. No shares for employee options or warrants were used in the calculation of the loss per share as they were all anti-dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the nine months ended September 30, 2012 and 2011 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
We recognize revenue upon delivery, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. We record revenue net of estimated product returns, which is based upon our return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. We accrue for warranty costs, sales returns, and other allowances based on our experience, which tells us we have less than $25,000 per year in warranty returns and allowances. Generally, we extend credit to our customers and do not require collateral. We perform ongoing credit evaluations of our customers and historic credit losses have been within our expectations. We do not ship a product until we have either a purchase agreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accountings to show only sales which are “final” with a payment arrangement. We do not make consignment sales or inventory sales subject to a “buy back” or return arrangement from customers. Accordingly, original equipment manufacturers do not presently have a right to return unsold products to us.
We also grant exclusive licenses for the use of the technology required to operate our products. Software license revenue is recognized over the contract period, for those contracts that either do not contain a service component or that have services which are not essential to the functionality of any other element of the contract.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.
We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2012:
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Total
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(Level 1)
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(Level 2)
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(Level 3)
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Assets
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Total assets measured at fair value
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Liabilities
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Derivative liability
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39,661 | - | - | 39,661 | ||||||||||||
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Convertible promissory note
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1,889 | - | - | 1,889 | ||||||||||||
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Promissory notes, net of discount
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60,906 | - | - | 60,906 | ||||||||||||
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Total liabilities measured at fair value
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$ | 102,456 | $ | - | $ | - | $ | 102,456 | ||||||||
Recently adopted pronouncements
Management reviewed accounting pronouncements issued during the nine months ended September 30, 2012, and adopted the following:
The Company adopted ASC 815 “Accounting for Derivative Instruments and Hedging Activities”. This pronouncement addresses the accounting for derivative instruments including certain derivative instruments embedded in other contracts, and hedging activities. Derivative instruments that meet the definition of assets and liabilities should be reported in the financial statements at fair value, and any gain or loss should be recognized in current earnings. The adoption of this pronouncement did not have a material effect on the financial statements of the Company.
The Company adopted ASC 835 "Accounting for Interest". This pronouncement addresses the appropriate accounting when the face amount of a note does not reasonably represent the present value of the consideration given or received in the exchange. A note issued solely for cash equal to its face amount is presumed to earn the stated rate of interest, however, in some cases the parties may also exchange unstated or stated rights or privileges, which are given accounting recognition by establishing a note discount or premium account. In such instances, the effective interest rate differs from the stated rate. The note discount shall be amortized as interest expense over the life of the note. The Company recognized interest expense on the promissory notes in prior periods of $99,500, before the adoption of the pronouncement. During the current period the Company reclassified $61,514 of interest expense from earnings and recognized a debt discount netted against the face amount of the notes. The adoption of this pronouncement had a material effect on the financial statements of the Company.
3. CAPITAL STOCK AND WARRANTS
During the nine months ended September 30, 2012, the Company issued 5,333,334 shares of common stock, with 8,000,000 stock purchase warrants at a price of $0.015 per share for cash of $80,000; issued 2,025,000 shares of common stock at a price of $0.020 per share for cash of $40,500; issued 3,180,000 shares of common stock, with 6,360,000 stock purchase warrants at a price of $0.025 per share for cash of $79,500; issued 2,150,000 shares of common stock at a price of $0.025 per share for cash of $53,750; issued 1,125,000 shares of common stock for services at a fair value of $78,750, recognizing a loss of $33,750 on settlement of debt; issued 300,000 shares of common stock at a price of $0.03 per share for cash of $9,000; issued 428,572 shares of common stock with 857,144 stock purchase warrants at a price of $0.035 per share for cash of $15,000; issued 25,000 shares of common stock at a price of $0.05 per share for cash of $1,250; issued 800,000 shares of common stock with 1,600,000 stock purchase warrants at a price of $0.05 per share for cash of $40,000; issued 135,000 shares of common stock at a price of $0.05 for a subscription payable of $6,750; issued 500,000 shares of common stock at a price of $0.025 for a subscription payable of $12,500; issued 750,000 shares of common stock for accounts payable at fair value of $30,000.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2012
4. STOCK OPTIONS AND WARRANTS
As of September 30, 2012, the Board of Directors of the Company granted non-qualified stock options for 18,000,000 shares of common stock to its employees, directors and consultants, as agreements may provide. Notwithstanding any other provisions of the Option agreements, each Option expires on the date specified in the Option agreements, which date shall not be later than the fifth (5th) anniversary from the grant date of the options. The stock options vest at various times, and are exercisable for a period of seven years from the date of grant at exercise prices ranging from $0.03 to $0.05 per share, the market value of the Company’s common stock on the date of grant. The Company determined the fair market value of these options by using the Black Scholes option valuation model with the following significant assumptions:
|
Risk free interest rate
|
1.01% -2.38 | % | ||
|
Stock volatility factor
|
213.03% -229 | % | ||
|
Weighted average expected option life
|
7 years
|
|||
|
Expected dividend yield
|
None
|
|||
A summary of the Company’s stock option activity and related information follows:
|
9/30/2012
|
||||||||
|
Weighted
|
||||||||
|
Number
|
average
|
|||||||
|
of
|
exercise
|
|||||||
|
Options
|
price
|
|||||||
|
Outstanding, beginning of period
|
15,000,000 | $ | 0.05 | |||||
|
Granted
|
3,000,000 | 0.01 | ||||||
|
Exercised
|
- | - | ||||||
|
Expired
|
- | - | ||||||
|
Outstanding, end of period
|
18,000,000 | $ | 0.04 | |||||
|
Exercisable at the end of period
|
10,916,667 | $ | 0.05 | |||||
|
Weighted average fair value of
options granted during the period
|
$ | 0.01 | ||||||
The stock-based compensation expense recognized in the statement of operations during the nine months ended September 30, 2012 was $376,893.
WARRANTS
During the nine months ended September 30, 2012, the Company granted 16,817,144 stock purchase warrants associated with the issuance of 9,741,906 shares of common stock through a private placement at prices between $0.015 and $0.05. Also, the Company granted 9,194,286 common stock purchase warrants associated with the promissory notes in the amount of $114,500 as collateral. As of September 30, 2012, the Company had a total of 40,244,770 common stock purchase warrants outstanding.
5. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2012, the Company signed promissory notes for funds received in the amount of $114,500 for operating expenses from an existing shareholder. The notes bear interest at 5% per annum, and are due within one year. Also, as collateral the shareholder was assigned common stock purchase warrants to purchase 9,194,286 shares of common stock. The warrants were evaluated for purposes of classification under ASC Topic 480-10. “Distinguishing Liabilities from Equity” (pre-codification SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity). The warrants did not embody any of the conditions for liability classification under the ASC 480-10 context. The warrants were then evaluated under ASC 815, and were accounted for under the equity classification, and the proceeds were allocated based on the relative fair value of the instruments.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2012
6. CONVERTIBLE PROMISSORY NOTE
During the period ended September 30, 2012, the Company entered into a securities purchase agreement dated September 19, 2012, providing for the issuance of the 8% Convertible Promissory Note (“Note”) in the principal amount of $42,500 with a maturity date of June 21, 2013. The note bears interest at the rate of 8% per annum from the date of issuance. The note can be converted into common stock at a variable conversion price. The variable conversion price is 58% multiplied by the market price, representing a 42% discount rate. The market price is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading days prior to the conversion date.
We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory note was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability of $42,500 representing the imputed interest associated with the embedded derivative. The discount is amortized over the life of the note, and for the period ended September 30, 2012, the Company recognized $1,889 as interest expense. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged to additional paid-in capital. For purpose of determining the fair value of the note, the Company used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation are as follows:
|
Stock price on the valuation date
|
$ | 0.04 | ||
|
Conversion price for the note
|
$ | 0.0232 | ||
|
Years to maturity
|
1 | |||
|
Risk free rate
|
0.17 | % | ||
|
Expected volatility
|
110.16 | % |
The change in derivative liability recognized in the financial statements as of September 30, 2012 was $2,839.
7. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has reported the following events:
On October 3, 2012, the Company issued 575,000 shares of common stock for settlement of debt for services at a fair value of $26,000.
On October 10, 2012, the Company issued 1,029,630 shares of common stock for settlement of debt for services at a fair value of $41,185.
Management concluded there were no other subsequent events or transactions that require recognition or disclosure in the financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statements
This Form 10-Q contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about Solar3D, Inc.’s (“Solar3D,” “we,” “us,” or the “Company”) financial condition, results of operations and business. These statements include, among others: statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-Q. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important facts that could prevent the Company from achieving its stated goals include, but are not limited to, the following:
|
|
(a)
|
inability to complete research and development of the new Solar3D technology with little or no current revenue;
|
|
|
(b)
|
volatility or decline of the Company’s stock price;
|
|
|
(c)
|
potential fluctuation in quarterly results;
|
|
|
(d)
|
failure of the Company to earn revenues or profits;
|
|
|
(e)
|
inadequate capital to continue business;
|
|
|
(f)
|
barriers to raising the additional capital or to obtaining the financing needed to implement its business plans;
|
|
|
(g)
|
lack of demand for the Company’s products and services;
|
|
|
(h)
|
rapid and significant changes in markets;
|
|
|
(i)
|
litigation with or legal claims and allegations by outside parties;
|
|
|
(j)
|
insufficient revenues to cover operating costs;
|
|
|
(k)
|
inability to start or acquire new businesses, or lack of success of new businesses started or acquired by the Company, if any;
|
|
|
(l)
|
inability to effectively develop or commercialize our new Solar3D technology; and
|
|
|
(m)
|
inability to obtain patent or other protection for the Company’s proprietary intellectual property.
|
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. The Company cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.
The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our condensed financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking information that involves risks and uncertainties.
Overview
On August 5, 2010, the holders of a majority of the outstanding voting stock of the Company voted by written consent to (1) effect a one-for-five reverse stock split, and (2) change the name of the Company to Solar 3D, Inc. Our new business focus is centered on the acquisition, development, and commercialization of new proprietary technology to significantly increase the efficiency and energy production of solar photovoltaic cells that are currently offered in the market and that may be developed in the future. In furtherance of our new business focus, we recently applied for patents covering a novel nine-dimensional solar cell technology that is designed to maximize the conversion of sunlight into electricity. We believe our new technology will dramatically increase the efficiency of solar cells.
Almost all conventional solar cells have a two-dimensional design where up to 30 percent of incident is sunlight reflected off of each solar cell’s surface and more light energy absorbed and lost inside the solar cell materials than is converted into energy. By contrast, our Solar3D design uses a matrix of light-collecting elements that guide sunlight into a corresponding array of nine-dimensional, micro-photovoltaic structures. The sunlight, in the form of photons, is trapped among these micro-structures, where it bounces around until virtually all of the energy is converted into electricity.Solar3D aims to create a better solar cell using this innovative technique by eliminating surface reflection and maximizing the conversion of photons into electrons to achieve greater efficiency and a lower cost per watt.
We currently have one full time employee, our chief executive officer. We also retain the services of several research consultants who are responsible for product development and a receptionist/secretary who oversees bookkeeping and office coordination.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.
Use of Estimates
In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.
Fair Value of Financial Instruments
Our cash, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.
Revenue Recognition
We will continue to recognize revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). We will continue to recognize revenue upon delivery, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. We will continue to record revenue net of estimated product returns, which is based upon our return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. We will continue to accrue for warranty costs, sales returns, and other allowances based on our prior experience in servicing customers and products. We may extend credit to our customers based upon credit evaluations and do not require collateral. We do not and will not ship a product until we have either a purchase agreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show only sales which are “final” with a payment arrangement. We do not and will not make consignment sales or inventory sales subject to a “buy back” or return arrangement from customers.
Provision For Sales Returns, Allowances and Bad Debts
We will continue to maintain a provision for sales allowances, returns and bad debts. Sales returns and allowances result from equipment damaged in delivery or customer dissatisfaction, as provided by agreement. The provision will continue to be provided for by reducing gross revenue by a portion of the amount invoiced during the relevant period. The amount of the reduction will continue to be estimated based on historical experience.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
REVENUE AND COST OF SALES
For the three and nine months ended September 30, 2012 and 2011, the Company had no revenue or cost of sales and is in its development stage.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SG&A”) expenses decreased by $(21,075) to $326,656 for the three months ended September 30, 2012 compared to $347,731 for the three months ended September 30, 2011. SG&A expenses decreased by $(34,295) to $928,796 for the nine months ended September 30, 2012, compared to $963,091 for the nine months ended September 30, 2011. SG&A expenses decreased primarily due to a decrease in public relations expense, and overall SG&A expenses.
RESEARCH AND DEVELOPMENT
Research and development (“R&D”) costs decreased by $(21,507) to $28,120 for the three months ended September 30, 2012 compared to $49,627 for the three months ended September 30, 2011. R&D costs increased by $28,917 to $126,877 for the nine months ended September 30, 2012, compared to $97,960 for the nine months ended September 30, 2011. This net increase in R&D costs was the result of an increase in consulting fees and outside services related to review of the technology.
NET LOSS
Net loss decreased by $(99,719) to $(298,102) for the three months ended September 30, 2012, compared to $(397,821) for the three months ended September 30, 2011. Net loss increased by $24,452 to (1,134,728) for the nine months ended September 30, 2012, compared to $(1,110,276) for the nine months ended September 30, 2011. The increase in net loss was the result of a net increase in overall operating expenses. Currently, operating costs exceed revenue because sales have not yet commenced. We cannot assure when or if revenue will exceed operating costs.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2012, we had a working capital deficit of $(187,506) as compared to a working capital deficit of $(5,265) at December 31, 2011. This increase in working capital deficit was due primarily to an overall increase in accounts payable, accrued expenses, and promissory notes payable.
Cash flow used in operating activities was $(463,492) for the nine months ended September 30, 2012, as compared to cash used of $(647,080) for the nine months ended September 30, 2011. This decrease of cash used in operating activities of $(183,588) was primarily attributable to the increase in net loss plus the payment of prepaid expenses and the increase in accounts payable and accrued expenses.
Cash used in investing activities was $(3,213) for the nine months ended September 30, 2012, compared to $(2,078) for the nine months ended September 30, 2011. The increase of $1,135 in the use of cash in investing activities was due to higher purchases of tangible assets during the current period.
Cash provided from financing activities during the nine months ended September 30, 2012 was $475,584 as compared to cash provided of $656,500 for the nine months ended September 30, 2011. The decrease of $(180,916) was primarily due to a decrease in equity financing.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity, or capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Our management, under the direction of our Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2012. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation our management, including our Chief Executive Officer and Principal Financial Officer, has concluded that our disclosure controls and procedures were effective as of September 30, 2012.
Internal Control over Financial Reporting
The Company’s Chief Executive Officer and Principal Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the nine month period ended September 30, 2012 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In addition to the sales of equity reported by us on Form 8K during the three month period ended September 30, 2012, we issued 2,725,000 shares of common stock at prices between $0.020 and $0.025 per share for $45,500 in cash; 3,066,668 shares of common stock, with 3,066,668 common stock purchase warrants, at prices ranging from $0.015 to $0.025 per unit, each unit consisting of one (1) share of common stock and one (1) common stock purchase warrants, for cash of $50,000; 2,666,668 shares of common stock, with 5,333,332 common stock purchase warrants, at a price of $0.015 per unit, each unit consisting of one (1) share of common stock and two (2) common stock purchase warrants, for cash of $40,000, pursuant to the private placement exemption available under Rule 506 of Regulation D of the Securities Act of 1933, as amended. The proceeds from the sale of these shares are being used for general working capital.
During the three month period ended September 30, 2012, the Company issued 2,000,000 common stock purchase warrants to purchase 2,000,000 shares of the Company’s common stock in conjunction with the issuance of a $15,000 promissory note pursuant to the private placement exemption available under Rule 506 of Regulation D of the Securities Act of 1933, as amended.
During the three month period ended September 30, 2012, the Company issued 750,000 shares of common stock for settlement of debt for accounts payable at a fair value of $30,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
|
Exhibit
|
|
Description
|
|
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
32.2
|
|
|
101.INS
|
XBRL Instance Document *
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document *
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase *
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document *
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document **
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document *
|
* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SOLAR3D, INC.
Dated: November 6, 2012 By: /s/James B. Nelson
James B. Nelson, Director, Chief Executive Officer, President, and Interim Chief Financial Officer (Principal Executive Officer/Principal Financial Officer)