Sunworks, Inc. - FORM 10-Q

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EX-31.2 - Sunworks, Inc.	ex31-2.htm
EX-32.2 - Sunworks, Inc.	ex32-2.htm
EX-31.1 - Sunworks, Inc.	ex31-1.htm
EX-32.1 - Sunworks, Inc.	ex32-1.htm

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 March 31, 2013.

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)

Delaware

(State or other jurisdiction of incorporation or organization)

01-05922991

(I.R.S. Employer Identification No.)

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.

Yes

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).

Yes

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.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o		Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

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 April 30, 2013 was 149,481,125.

Table of Contents

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	1
	Balance Sheets at March 31, 2013 (Unaudited) and December 31, 2012	1
	Statements of Operations for the Three Months Ended March 31, 2013 and March 31, 2012 (Unaudited)	2
	Statement of Shareholders' Deficit at March 31, 2013 (Unaudited)	3
	Statements of Cash Flows for the Three Months Ended March 31, 2013 and March 31, 2012 (Unaudited)	4
	Notes to the Financial Statements (Unaudited)	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 4.	CONTROLS AND PROCEDURES	13

PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	14
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	14
ITEM 4.	MINE SAFETY DISCLOSURES	14
ITEM 5.	OTHER INFORMATION	14
ITEM 6.	EXHIBITS	14

SIGNATURES		15

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SOLAR3D, INC.

(A Development Stage Company)

BALANCE SHEETS

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	9,326		$	33,637
Prepaid expense		2,068			3,708

TOTAL CURRENT ASSETS		11,394			37,345

PROPERTY & EQUIPMENT, at cost
Machinery & equipment		13,080			13,080
Computer equipment		57,795			57,795
Furniture & fixture		4,670			4,670
		75,545			75,545
Less accumulated depreciation		(71,687	)		(71,124	)

NET PROPERTY AND EQUIPMENT		3,858			4,421

OTHER ASSETS
Patents		18,925			-

TOTAL OTHER ASSETS		18,925			-

TOTAL ASSETS	$	34,177		$	41,766

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	90,376		$	67,580
Accrued expenses		43,060			43,060
Accrued interest		10,972			2,790
Derivative liability		470,391			696,564
Convertible promissory note payable, net of discount $240,892		239,358			123,400

TOTAL CURRENT LIABILITIES		854,157			933,394



SHAREHOLDERS' DEFICIT
Common stock, $.001 par value; 550,000,000 authorized shares; 142,280,412 and 141,155,412 shares issued and outstanding, respectively		142,280			141,155
Additional paid in capital		11,268,166			11,099,398
Deficit accumulated during the development stage		(12,230,426	)		(12,132,181	)

TOTAL SHAREHOLDERS' DEFICIT		(819,980	)		(891,628	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	34,177		$	41,766

The accompanying notes are an integral part of these consolidated financial statements.

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SOLAR3D, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Unaudited)

							From Inception
							January 30, 2002
	Three Months Ended						through
	March 31, 2013			March 31, 2012			March 31, 2013

REVENUE	$	-		$	-		$	1,127,406

COST OF SERVICES		-			-			496,177

GROSS PROFIT		-			-			631,229

OPERATING EXPENSES
General and administrative expenses		290,991			318,476			7,898,057
Research and development		23,723			53,237			1,790,568
Impairment loss		-			-			1,753,502
Depreciation and amortization expense		563			402			124,011

TOTAL OPERATING EXPENSES		315,277			372,115			11,566,138

LOSS FROM OPERATIONS		(315,277	)		(372,115	)		(10,934,909	)

OTHER INCOME/(EXPENSES)
Interest income		-			-			10,321
Interest expense		(114,688	)		(78,742	)		(495,226	)
Penalties		-			-			(296	)
Gain/(loss) on change in derivative liability		331,720			-			(92,194	)
Loss on investment		-			-			(73,121	)
Loss on settlement of debt		-			-			(644,038	)
Loss on sale of asset		-			-			(963	)

TOTAL OTHER INCOME/(EXPENSES)		217,032			(78,742	)		(1,295,517	)

NET LOSS	$	(98,245	)	$	(450,857	)	$	(12,230,426	)


BASIC AND DILUTED LOSS PER SHARE	$	(0.00	)	$	(0.00	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED		142,015,134			119,534,136

The accompanying notes are an integral part of these consolidated financial statements.

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SOLAR3D, INC.

(A Development Stage Company)

STATEMENT OF SHAREHOLDERS' EQUITY/(DEFICIT)

					Additional		Accumulated Deficit During the
	Common stock				Paid-in		Development
	Shares		Amount		Capital		Stage			Total
Balance at December 31, 2012		141,155,412	$	141,155	$	11,099,398	$	(12,132,181	)	$	(891,628	)

Issuance of common stock at $0.02 per share for cash (unaudited)		1,125,000		1,125		21,375		-			22,500

Stock compensation cost (unaudited)		-		-		147,393		-			147,393

Net loss for the three months ended March 31, 2013 (unaudited)		-		-		-		(98,245	)		(98,245	)
Balance at March 31, 2013 (unaudited)		142,280,412	$	142,280	$	11,268,166	$	(12,230,426	)	$	(819,980	)

The accompanying notes are an integral part of these consolidated financial statements.

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SOLAR3D, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

							From Inception
							January 30, 2002
	Three Months Ended						through
	March 31, 2013			March 31, 2012			March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(98,245	)	$	(450,857	)	$	(12,230,426	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		563			402			124,011
Issuance of common shares and warrants for services		-			-			832,361
Issuance of common shares in conversion of debt		-			-			400,000
(Gain)/loss on investment		-			-			73,121
Stock Compensation Cost		147,393			124,800			1,488,962
(Gain)/loss on change in derivative liability		(331,720	)		-			92,194
Gain on sale of asset		-			-			963
Impairment loss		-			-			1,753,502
Amortization of debt discount recognized as interest		106,505			78,500			202,526
Loss on settlement of debt		-			-			644,038
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		1,640			6,250			(2,068	)
Deposits and other assets		-			-			5,000
Increase (Decrease) in:
Accounts payable		22,796			62,350			312,061
Accrued expenses		8,182			16,089			641,313

NET CASH USED IN OPERATING ACTIVITIES		(142,886	)		(162,466	)		(5,662,442	)

NET CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		-			-			(81,198	)
Expenditures for intangible assets		(18,925	)		-			(18,925	)
Sale of asset		-			-			3,963
Investment in companies		-			-			(6,121	)

NET CASH USED IN INVESTING ACTIVITIES		(18,925	)		-			(102,281	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bank overdraft		-			(6,284	)		-
Proceeds from notes payable related parties		-			78,500			1,174,342
Proceeds from convertible promissory note		115,000			-			603,417
Repayment of notes payable related party		-			-			(184,000	)
Contributed capital by shareholder		-			-			19,197
Proceeds from subsidiary		-			-			300,000
Proceeds from issuance of common stock and subscription payable		22,500			90,250			3,853,443

NET CASH PROVIDED BY FINANCING ACTIVITIES		137,500			162,466			5,766,399

NET INCREASE/(DECREASE) IN CASH		(24,311	)		-			1,676


CASH, BEGINNING OF PERIOD		33,637			-			7,650

CASH, END OF PERIOD	$	9,326		$	-		$	9,326

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	-		$	-		$	137,661
Income taxes	$	-		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

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SOLAR3D, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

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 three months ended March 31 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.

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 March 31 2013. 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 three months ended March 31 2013, 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 three months ended March 31, 2013 and 2012, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

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SOLAR3D, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

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. 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.

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 March 31, 2013, 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:

·	Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·	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

·	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.

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 March 31, 2013:

	Total		(Level 1)		(Level 2)		(Level 3)

Assets	$	-	$	-	$	-	$	-

Total assets measured at fair value	$	-	$	-	$	-	$	-

Liabilities

Derivative liability		470,391		-		-		470,391
Convertible promissory note		239,358		-		-		239,358
Total liabilities measured at fair value	$	709,749	$	-	$	-	$	709,749

Recently adopted pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2013, and no pronouncements were adopted.

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SOLAR3D, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

3. CAPITAL STOCK AND WARRANTS

During the three months ended March 31, 2013, the Company issued 1,125,000 shares of common stock at a price per share of $0.02 for cash in the amount of $22,500.

4. STOCK OPTIONS AND WARRANTS

As of March 31, 2013, the Board of Directors of the Company granted non-qualified stock options for 23,000,000 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 seventh (7th) 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 $0.01 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:

	3/31/2013
Risk free interest rate		1.01	%	-	2.38	%
Stock volatility factor		93.6	%	-	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:

	3/31/2013
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		23,000,000	$	0.04
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding, end of period		23,000,000	$	0.04
Exercisable at the end of period		15,861,112	$	0.04
Weighted average fair value of options granted during the period			$	-

The stock-based compensation expense recognized in the statement of operations during the three months ended March 31, 2013 and 2012, respectively, was $147,393 and $124,800.

WARRANTS

During the three months ended March 31, 2013, there were no warrants granted during the period. As of March 31, 2013, the Company had a total of 37,978,106 common stock purchase warrants outstanding.

5. CONVERTIBLE PROMISSORY NOTE

As of March 31, 2013, the Company had the following securities purchase agreements:

On September 19, 2012, and November 13, 2012, the Company received funds on two securities purchase agreements entered into on September 19, 2012 and November 13, 2012, respectively, for the sale of 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The notes mature on June 21, 2013 and August 15, 2013, respectively.

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SOLAR3D, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

5. CONVERTIBLE PROMISSORY NOTE (Continued)

On November 29, 2012, the Company received an initial advance of $25,000 in consideration for the issuance of two (2) notes in the aggregate principal amount of $160,000 on two (2) securities purchase agreements entered into for the sale of 10% convertible promissory notes in the aggregate principal amount of $160,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.015 per share or fifty percent (50%) of the lowest trading price of the previous 25 trading days. The notes mature one (1) year from the effective date of each advance.

On December 26, 2012, the Company exchanged certain promissory notes in the aggregate amount of $114,500 plus accrued interest of $4,084 for a convertible promissory note. The securities purchase agreement entered into for the sale of a 10% convertible promissory note in the aggregate principal amount of $118,584 is convertible into shares of common stock of the Company at a price equal to the lesser of (a) $0.0326 per share or (b) 50% of the lowest trade price of common stock recorded on any trade day after the effective date. The note matures six (6) months from the effective date of the note.

On February 13, 2013, the Company received an initial advance of $50,000 in consideration for the issuance of a note in the principal amount of $335,000 on a securities purchase agreements entered into for the sale of a 10% convertible promissory note, with an aggregate sum of $335,000 and original issue discount of $35,000. Additional advances were made under the note. The aggregate sum of $111,666 is outstanding on the note as of March 31, 2013, which includes the aggregate advances received of $100,000 plus an original issued discount of $11,666. If the note is repaid within 90 days, the interest rate will be zero percent (0%), otherwise a one time interest rate of five percent (5%) will be applied to the principal sums outstanding. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.035 per share or seventy percent (70%) of the lowest trading price of the previous 25 trading days. The notes mature one (1) year from the effective date of each advance.

On February 19, and March 13, 2013, the Company received an initial advance of $42,000 in consideration for the issuance of a note in the principal amount of $42,000 on a securities purchase agreement entered into for the sale of a 10% convertible promissory note in the principal amount of $100,000. The aggregate principal amount outstanding on this note as of March 31, 2013, was $42,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.032 per share or fifty percent (50%) of the lowest trading price after the effective date. The note matures six (6) months from the effective date of each advance.

On March 1, 2013, the Company received an initial advance of $8,000 in consideration for the issuance of a note in the principal amount of $8,000 on a securities purchase agreement entered into for the sale of a 5% convertible promissory note in the aggregate principal amount of $8,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.02 per share or the lowest closing price after the effective date. The note matures two (2) years from the effective date of each advance.

During the three months ended March 31, 2013, the Company received an initial advance of $15,000 in consideration for the issuance of of a note in the aggregate amount of $15,000 on a securities purchase agreement entered into for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000. The aggregate amount outstanding on this note as of March 31, 2013, was $100,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the previous 25 trading days. The note matures one (1) year from the effective date of each advance.

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SOLAR3D, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

5. CONVERTIBLE PROMISSORY NOTE (Continued)

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 representing the imputed interest associated with the embedded derivative. The debt discount is amortized over the life of the note and recognized as interest expense. For the period ended March 31, 2013, the Company recognized $100,672 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	$	0.03		-	$	0.05
Conversion price for the notes	$	0.01		-	$	0.0232
Years to maturity	6 mos			-	2 year
Risk free rate		0.07	%	-		0.23	%
Expected volatility		95.44	%	-		124.89	%

The change in derivative liability recognized in the financial statements as of March 31, 2013 was $331,720.

6. SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has reported the following events:

On April 5, 2013, the Company issued 1,500,000 shares of common stock at a price of $0.01 per share for cash in the amount of $15,000.

On April 10, 2013, the Company received an advance of $17,000 associated with a securities purchase agreement for the sale of a 10% convertible note in the aggregate principal amount of $100,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.0.32 per share or fifty percent (50%) of the lowest trading price after the effective date. The note matures six (6) months from the effective date of each advance.

On April 17, 2013, the Company issued 500,000 shares of common stock at a price of $0.01 per share for cash in the amount of $5,000.

During the month of April 2013, the Company issued 5,200,713 shares of common stock in conversion of an 8% convertible note for the principal amount of $42,500, plus accrued interest of $1,700. The note was executed on September 19, 2012, and fully converted as of April 19, 2013.

On April 24, 2013, the Company received $32,500 in consideration upon execution of a securities purchase agreement for the sale of an 8% convertible note in the aggregate principal amount of $32,500. The note is convertible into shares of common stock of the Company at a price equal to variable conversion price equal to the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day prior to the conversion date. The lender has the right to convert all or part of the note following one hundred eighty (180) days following the date of the note. The note matures on January 29, 2014,

Management concluded there were no other subsequent events or transactions that require recognition or disclosure in the financial statements.

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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.

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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 which seeks 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 three-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.

Unlike conventional solar cells where sunlight passes through one time, our 3D solar cell design is planned to use myriad 3D micro-cells that trap sunlight inside photovoltaic structures where photons bounce around until they are all converted into electricity. Our three-dimensional technology is expected to combine thin-film and thick-film technologies to achieve the high efficiencies of crystalline at the lower cost of thin film.

We currently have two full time employees, our chief executive officer and our director of technology. We also retain the services of several research consultants who are responsible for product development

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.

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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 MONTHS ENDED MARCH 31, 2013 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2012

REVENUE AND COST OF SALES

For the three months ended March 31, 2013 and 2012, the Company had no revenue or cost of sales and is in its development stage.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative (“G&A”) expenses increased by $27,485 to $290,991 for the three months ended March 31, 2013 compared to $318,476 for the three months ended March 31, 2012. G&A expenses increased primarily due to an increase in non cash stock compensation expense of $22,593, with an increase of $4,892 in the overall G&A expenses.

RESEARCH AND DEVELOPMENT

Research and development (“R&D”) costs decreased by $(29,514) to $23,723 for the three months ended March 31, 2013 compared to $53,237 for the three months ended March 31, 2012. This net decrease in R&D costs was the result of a decrease in consulting fees and outside services related to review of the technology.

NET LOSS

Net loss decreased by $(352,612) to $(98,245) for the three months ended March 31, 2013, compared to $(450,857) for the three months ended March 31, 2012. The decrease in net loss was the result of a net increase in non cash amortization of debt discount recognized as interest expense of $35,946, non cash stock compensation expense of $22,593, a gain in the change in derivative of $(331,721), and a decrease in R&D of $(29,514), a decrease of $(39,199) in investor relations expenses, and net change of $(10,717) of other G&A 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 March 31, 2013, we had a working capital deficit of $(842,763) as compared to a working capital deficit of $(896,049) at December 31, 2012. This decrease in working capital deficit was due primarily to an overall decrease in derivative liability.

Cash flow used in operating activities was $(142,886) for the three months ended March 31, 2013, as compared to cash used of $(162,466) for the three months ended March 31, 2012. This decrease of cash used in operating activities of $(19,580) was primarily attributable to the decrease in net loss, prepaid expenses and change in derivative, with an increase in accounts payable, accrued expenses, and non cash stock compensation.

Cash used in investing activities was $(18,925) for the three months ended March 31, 2013, compared to $0 for the three months ended March 31, 2012. The increase in the use of cash in investing activities was due to expenditures for intangible assets during the current period.

Cash provided from financing activities during the three months ended March 31, 2013 was $137,500 as compared to cash provided of $162,466 for the three months ended March 31, 2012. The decrease of $(24,966) was primarily due to a decrease in equity financing.

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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 March 31, 2013. In making this evaluation, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on this evaluation our management, including our chief executive officer and principal financial officer, has concluded that our disclosure controls and procedures were not effective as of March 31, 2013. Specifically, the board of directors currently has only one independent member and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

Because of this material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of March 31, 2013, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

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 three month period ended March 31, 2013 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Corrective Action

Management plans to seek a candidate who would qualify as a financial expert to join our Board of Directors as an independent director to become the member of our audit committee. Improvements in our disclosure controls and procedures and in our internal control over financial reporting depends on our ability to add additional financial personnel and independent directors to provide more internal checks and balances, and to provide qualified independence for our audit committee. We believe we will be able to commence achieving these goals once our sales and cash flow grow and our financial condition improves.

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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 March 31, 2013, we issued 1,125,000 shares of common stock at $0.02 per share for cash of $22,500, 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.

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	Section 302 Certification of Principal Executive Officer
31.2	Section 302 Certification of Principal Accounting Officer
32.1	Section 906 Certification of Principal Executive Officer
32.2	Section 906 Certification of Principal Accounting Officer
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.

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SIGNATURES

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: May 13, 2013	By:	/s/James B. Nelson
		James B. Nelson, Director, Chief Executive Officer, President, and Interim Chief Financial Officer (Principal Executive Officer/Principal Accounting Officer)

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Sunworks, Inc. - FORM 10-Q - May 13, 2013

Attached files

Sunworks, Inc. Reports