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, 2013.
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)
Delaware (State or other jurisdiction of incorporation or organization) | 01-05922991 (I.R.S. Employer Identification No.) |
26 West Mission Avenue, Santa Barbara, CA 93101
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (805) 690-9000
6500 Hollister Avenue, Suite 130 , Goleta, California 93117
(Former Address if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | x | No | o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 | x | No | o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 | o | No | x |
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 November 5, 2013 was 194,130,544.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | 1 | |
| 1 | ||
| 2 | ||
| 3 | ||
| 4 | ||
| 5 | ||
| ITEM 2. | 13 | |
| ITEM 3. | 16 | |
| ITEM 4. | 17 | |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | 18 | |
| ITEM 2. | 18 | |
| ITEM 3. | 18 | |
| ITEM 4. | 18 | |
| ITEM 5. | 18 | |
| ITEM 6. | 18 | |
| 19 | ||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SOLAR3D, INC.
(A Development Stage Company)
BALANCE SHEETS
| September 30, 2013 | December 31, 2012 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 98,610 | $ | 33,637 | ||||
| Prepaid expense | 4,759 | 3,708 | ||||||
| TOTAL CURRENT ASSETS | 103,369 | 37,345 | ||||||
| PROPERTY & EQUIPMENT, at cost | ||||||||
| Machinery & equipment | 14,358 | 13,080 | ||||||
| Computer equipment | 57,795 | 57,795 | ||||||
| Furniture & fixture | 4,670 | 4,670 | ||||||
| 76,823 | 75,545 | |||||||
| Less accumulated depreciation | (72,849 | ) | (71,124 | ) | ||||
| NET PROPERTY AND EQUIPMENT | 3,974 | 4,421 | ||||||
| OTHER ASSETS | ||||||||
| Security deposit | 2,000 | |||||||
| Patents | 23,056 | - | ||||||
| TOTAL OTHER ASSETS | 25,056 | - | ||||||
| TOTAL ASSETS | $ | 132,399 | $ | 41,766 | ||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 53,387 | $ | 67,580 | ||||
| Accrued expenses | 43,060 | 43,060 | ||||||
| Accrued interest payable | 33,588 | 2,790 | ||||||
| Derivative liability | 1,885,906 | 696,564 | ||||||
| Convertible promissory note payable, net of discount $325,860 and $236,017, respectively | 400,641 | 123,400 | ||||||
| TOTAL CURRENT LIABILITIES | 2,416,582 | 933,394 | ||||||
| SHAREHOLDERS' DEFICIT | ||||||||
Preferred stock, $.001 par value; 5,000,000 authorized shares; | - | - | ||||||
Common stock, $.001 par value; 1,000,000,000 authorized shares; | 190,102 | 141,155 | ||||||
| Additional paid in capital | 11,866,477 | 11,099,398 | ||||||
| Deficit accumulated during the development stage | (14,340,762 | ) | (12,132,181 | ) | ||||
| TOTAL SHAREHOLDERS' DEFICIT | (2,284,183 | ) | (891,628 | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | $ | 132,399 | $ | 41,766 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
| From Inception | ||||||||||||||||||||
| January 30, 2002 | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | through | ||||||||||||||||||
| September 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | September 30, 2013 | ||||||||||||||||
| REVENUE | $ | - | $ | - | $ | - | $ | - | $ | 1,127,406 | ||||||||||
| COST OF SERVICES | - | - | - | - | 496,177 | |||||||||||||||
| GROSS PROFIT | - | - | - | - | 631,229 | |||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||
| General and administrative expenses | 193,743 | 326,656 | 760,535 | 928,796 | 8,367,601 | |||||||||||||||
| Research and development | 24,999 | 28,120 | 82,351 | 126,877 | 1,849,196 | |||||||||||||||
| Impairment loss | - | - | - | - | 1,753,502 | |||||||||||||||
| Depreciation and amortization expense | 599 | 563 | 1,725 | 1,502 | 125,173 | |||||||||||||||
| TOTAL OPERATING EXPENSES | 219,341 | 355,339 | 844,611 | 1,057,175 | 12,095,472 | |||||||||||||||
| LOSS FROM OPERATIONS | (219,341 | ) | (355,339 | ) | (844,611 | ) | (1,057,175 | ) | (11,464,243 | ) | ||||||||||
| OTHER INCOME/(EXPENSES) | ||||||||||||||||||||
| Interest income | - | - | - | - | 10,321 | |||||||||||||||
| Interest expense | (200,426 | ) | (23,414 | ) | (480,198 | ) | (42,740 | ) | (860,736 | ) | ||||||||||
| Penalties | - | (56 | ) | - | (112 | ) | (296 | ) | ||||||||||||
| Gain/(loss) on change in derivative liability | (1,098,958 | ) | 2,839 | (909,320 | ) | 2,839 | (1,333,234 | ) | ||||||||||||
| Loss on investment | - | - | - | - | (73,121 | ) | ||||||||||||||
| Gain/(Loss) on settlement of debt | 20,286 | - | 25,548 | (33,750 | ) | (618,490 | ) | |||||||||||||
| Loss on sale of asset | - | - | - | - | (963 | ) | ||||||||||||||
| TOTAL OTHER INCOME/(EXPENSES) | (1,279,098 | ) | (20,631 | ) | (1,363,970 | ) | (73,763 | ) | (2,876,519 | ) | ||||||||||
| NET LOSS | $ | (1,498,439 | ) | $ | (375,970 | ) | $ | (2,208,581 | ) | $ | (1,130,938 | ) | $ | (14,340,762 | ) | |||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED | 175,851,224 | 130,333,909 | 157,438,844 | 124,416,096 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' (DEFICIT)
(Unaudited)
| Additional | Accumulated Deficit During | |||||||||||||||||||||||||||
| Preferred stock | Common stock | Paid-in | Development | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stage | Total | ||||||||||||||||||||||
| Balance at December 31, 2012 (Audited) | - | $ | - | 141,155,412 | $ | 141,155 | $ | 11,099,398 | $ | (12,132,181 | ) | $ | (891,628 | ) | ||||||||||||||
| Issuance of common stock at prices ranging from $0.01 - $0.02 per share for cash | - | - | 3,125,000 | 3,125 | 39,375 | - | 42,500 | |||||||||||||||||||||
| Issuance of common stock for conversion of promissory notes, plus accrued interest | - | - | 28,305,663 | 28,305 | 385,284 | - | 413,589 | |||||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | - | - | 17,517,375 | 17,517 | (17,517 | ) | - | - | ||||||||||||||||||||
| Stock compensation cost | - | - | - | - | 359,937 | - | 359,937 | |||||||||||||||||||||
| Net loss for the nine months ended September 30, 2013 | - | - | - | - | - | (2,208,581 | ) | (2,208,581 | ) | |||||||||||||||||||
| Balance at September 30, 2013 (unaudited) | - | $ | - | 190,103,450 | $ | 190,102 | $ | 11,866,477 | $ | (14,340,762 | ) | $ | (2,284,183 | ) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
| From Inception | ||||||||||||
| January 30, 2002 | ||||||||||||
| Nine Months Ended | through | |||||||||||
| September 30, 2013 | September 30, 2012 | September 30, 2013 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (2,208,581 | ) | $ | (1,130,938 | ) | $ | (14,340,762 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||
| Depreciation and amortization | 1,725 | 1,502 | 125,173 | |||||||||
| 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 | 359,937 | 376,893 | 1,701,506 | |||||||||
| (Gain)/loss on change in derivative liability | 909,320 | (2,839 | ) | 1,333,234 | ||||||||
| Gain on sale of asset | - | - | 963 | |||||||||
| Impairment loss | - | - | 1,753,502 | |||||||||
| Amortization of debt discount and OID recognized as interest | 444,816 | 39,875 | 540,837 | |||||||||
| (Gain)/loss on settlement of debt | (25,548 | ) | 33,750 | 618,490 | ||||||||
| Changes in Assets and Liabilities | ||||||||||||
| (Increase) Decrease in: | ||||||||||||
| Prepaid expenses | (1,051 | ) | 16,361 | (4,759 | ) | |||||||
| Deposits and other assets | (2,000 | ) | 2,975 | 3,000 | ||||||||
| Increase (Decrease) in: | ||||||||||||
| Accounts payable | (14,193 | ) | 149,373 | 275,072 | ||||||||
| Accrued expenses | 35,382 | 49,556 | 668,513 | |||||||||
| NET CASH USED IN OPERATING ACTIVITIES | (500,193 | ) | (463,492 | ) | (6,019,749 | ) | ||||||
| NET CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property and equipment | (1,278 | ) | (3,213 | ) | (82,476 | ) | ||||||
| Expenditures for intangible assets | (23,056 | ) | - | (23,056 | ) | |||||||
| Sale of asset | - | - | 3,963 | |||||||||
| Investment in companies | - | - | (6,121 | ) | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (24,334 | ) | (3,213 | ) | (107,690 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Payment of bank overdraft | - | (12,916 | ) | - | ||||||||
| Proceeds from notes payable related parties | - | 114,500 | 1,174,342 | |||||||||
| Proceeds from convertible promissory note | 547,000 | 42,500 | 1,035,417 | |||||||||
| 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 | 42,500 | 331,500 | 3,873,443 | |||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 589,500 | 475,584 | 6,218,399 | |||||||||
| NET INCREASE IN CASH | 64,973 | 8,879 | 90,960 | |||||||||
| CASH, BEGINNING OF PERIOD | 33,637 | - | 7,650 | |||||||||
| CASH, END OF PERIOD | $ | 98,610 | $ | 8,879 | $ | 98,610 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||||
| Interest paid | $ | - | $ | - | $ | 137,661 | ||||||
| Income taxes | $ | - | $ | - | $ | - | ||||||
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, 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 nine months ended September 30, 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 September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2013 and 2012, 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, 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 September 30, 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 September 30, 2013:
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total assets measured at fair value | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liability | 1,885,906 | - | - | 1,885,906 | ||||||||||||
| Convertible promissory note | 400,641 | - | - | 400,641 | ||||||||||||
| Total liabilities measured at fair value | $ | 2,286,547 | $ | - | $ | - | $ | 2,286,547 | ||||||||
Recently adopted pronouncements
Management reviewed accounting pronouncements issued during the nine months ended September 30, 2013, and no pronouncements were adopted.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
3. CAPITAL STOCK AND WARRANTS
On March 29, 2013, the Company increased its number of authorized shares of common stock from 500,000,000, par value $0.001 per share to 1,000,000,000, par value $0.001 per share, and authorized 5,000,000 shares of preferred stock, par value $0.001 per share.
During the nine months ended September 30, 2013, the Company issued 3,125,000 shares of common stock at prices per share ranging from $0.01 to $0.02 for cash in the amount of $42,500; issued 28,305,663 shares of common stock at fair values of prices between $0.004 and $0.0088 for the conversion of promissory notes in the principal amount of $194,500, plus accrued interest of $4584. The Company recognized a gain on conversion of $25,548, plus the portion attributable to the derivative of $218,131. Also, an investor exercised 25,884,770 common stock purchase warrants for 17,517,375 shares of common stock through a cashless exercise at fair value.
4. STOCK OPTIONS AND WARRANTS
As of September 30, 2013, the Board of Directors of the Company had granted non-qualified stock options to purchase 25,000,000 shares of common stock to its employees, directors and consultants, on the terms set forth in the option agreements. Notwithstanding any other provisions of the option agreements, each option expires on the date specified in the applicable option agreement, which date shall not be later than the seventh (7th) anniversary from the grant date of the option. 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:
| 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:
| 9/30/2013 | ||||||||
| Weighted | ||||||||
| Number | average | |||||||
| of | exercise | |||||||
| Options | price | |||||||
| Outstanding, beginning of period | 23,000,000 | $ | 0.040 | |||||
| Granted | 2,000,000 | 0.018 | ||||||
| Exercised | - | - | ||||||
| Expired | - | - | ||||||
| Outstanding, end of period | 25,000,000 | $ | 0.037 | |||||
| Exercisable at the end of period | 18,916,668 | $ | 0.040 | |||||
Weighted average fair value of options granted during the period | $ | 0.017 | ||||||
RESTRICTED STOCK
On September 30, 2013, the Company entered into a Restricted Stock Grant Agreement (“the RSGA”) with its Chief Executive Officer, James B. Nelson, to create management incentives to improve the economic performance of the Company and to increase its value and stock price. All shares issuable under the RSGA are performance shares and none have yet vested nor have been issued. The RSGA provides for the issuance of up to 20,000,000 shares of the Company’s common stock to the CEO provided certain milestones are met in the following stages: a.)If the Company’s market capitalization exceeds $10,000,000, the Company will issue 4,000,000 shares of common stock; b.) If the Company’s consolidated gross revenue, calculated in accordance with GAAP, equals or exceeds $10,000,000 for the trailing twelve month period, the Company will issue 6,000,000 shares of common stock; c.) If the Company’s consolidated net profit, calculated in accordance to GAAP, equals or exceeds $2,000,000 for the trailing twelve month period, the Company will issue 10,000,000 shares of the Company’s common stock. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.
The stock-based compensation expense recognized in the statement of operations during the nine months ended September 30, 2013 and 2012, respectively, was $359,937 and $376,893.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
4. STOCK OPTIONS AND WARRANTS (Continued)
WARRANTS
During the nine months ended September 30, 2013, no warrants were granted. During the nine months ended September 30, 2103, the Company issued through a cashless exercise of 25,884,770 common stock purchase warrants 17,517,375 shares of common stock. As of September 30, 2013, the Company had a total of 12,093,336 common stock purchase warrants outstanding.
5. CONVERTIBLE PROMISSORY NOTE
As of September 30, 2013, the Company had the following securities purchase agreements:
On September 19, 2012 and November 23, 2012, the Company entered into two securities purchase agreements each providing for the sale of an 8% unsecured Convertible Notes (“the Notes”) in the principal amounts of $42,500, and $32,500 for an aggregate total of $75,000. The notes matured on June 21, 2013, and August 15, 2013, respectively. After one hundred and eighty days (180) the holder converted both notes for an aggregate principal sum of $75,000, plus accrued interest of $3,000 on various dates during the nine months ended September 30, 2013, into 9,875,627 shares of common stock at prices ranging from $0.0068 to $0.0118 per share. The notes were measured at fair value using the Black-Scholes pricing model, and the Company recognized a gain on conversion of $2,490. The Company recorded debt discount of $62,446 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the remaining debt discount was amortized, and recorded as interest expense in the amount of $43,530, resulting in a net remaining debt discount of $0 at September 30, 2013.
On October 24, 2012, the Company entered into a securities purchase agreement, providing for the sale of a 10% convertible note in the aggregate principal amount of $335,000, with an original issue discount of $35,000. Advances will be paid in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received an advance of $50,000, with an original issued discount of $5,833. The note matures one (1) year from the effective date of each advance. If the advances are 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 prior to conversion. On September 25, 2013, the Company received an additional advance of $25,000, with an original issue discount of $2,916. During the nine months ended September 30, 2013, the investor converted principal in the amount of $94,500, and recognized a gain of $21,120. The advances received after the execution of the note equal a total principal amount of $125,000, with an original issued discount of $14,584. As of September 30, 2013, the aggregate principal sum outstanding was $80,500, plus the original issued discount of $20,416 for a total of 100,916. The Company recorded debt discount of $138,845 related to the conversion feature of the note, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $81,391, resulting in a remaining net debt discount of $57,454 at September 30, 2013.
On November 13, 2012, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts are at the lender’s discretion. The Company received additional advances for the sum of $80,000 on various dates]. As of September 30, 2013, the total aggregate principal amount outstanding 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 in the previous 25 trading days. The note matures one (1) year from the effective date of each advance with respect to each advance. The Company recorded debt discount of $100,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $79,808, resulting in a remaining net debt discount of $20,192 at September 30, 2013.
On November 29, 2012, the Company entered into a securities purchase agreement providing for the sale of a 10% unsecured convertible note in the principal aggregate amount of up to $80,000, at which time an initial advance of $12,500 was received by the Company. The note is, payable in full on or before November 29, 2013 unless sooner converted into shares of the Company’s common stock. The holder converted the principal amount of the note of $12,500, plus accrued interest of $625 on May 31, 2013, into 3,088,235 shares of common stock at a price of $0.0043 per share. The note was measured at fair value using the Black-Scholes pricing model, and the Company recognized a gain on conversion of $293. The Company recorded debt discount of $12,500 related to the conversion feature of the note, along with derivative liabilities at inception. As of September 30, 2013, the remaining debt discount was amortized, and recorded as interest expense in the amount of $12,500, resulting in a remaining net debt discount of $0 at September 30, 2013.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
5. CONVERTIBLE PROMISSORY NOTE (Continued)
On November 29, 2012, the Company entered into a securities purchase agreements providing for the sale of a 10% unsecured convertible note in the principal aggregate amount of up to $80,000, at which time an initial advance of $12,500 was received by the Company. The note is payable in full on or before November 29, 2013 unless sooner converted into shares of the Company’s common stock. The holder converted the principal amount of the note of $12,500, plus accrued interest of $959 on September 5, 2013, into 3,166,801 shares of common stock at a price of $0.0043 per share. The fair value of the note has been determined by using the Black-Scholes pricing model, and recognized a gain on conversion of $607. The Company recorded debt discount of $12,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $12,500, resulting in a remaining net debt discount of $0 at September 30, 2013
On December 26, 2012, the Company exchanged certain demand promissory notes in the aggregate amount of $114,500 plus accrued interest of $4,084 for a convertible promissory note in the aggregate principal amount of $118,584, 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 matured on July 25, 2013. The Company recorded the remaining debt discount from the previous promissory notes of $59,196 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $59,196, resulting in a remaining net debt discount of $0 at September 30, 2013
On February 19, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $15,000. The advance amounts are at the lenders discretion. The Company received additional advances for the sum of $85,000 for a total aggregate principal amount of $100,000 outstanding as of September 30, 2013. 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 of the previous 25 trading days. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $100,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $88,944, resulting in a remaining net debt discount of $10,056 at September 30, 2013.
On March 1, 2013, the Company entered into a securities purchase agreement providing for the sale of a 5% convertible promissory note in the aggregate principal amount of $8,000, for consideration 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 the advance. The Company recorded debt discount of $7,626 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,225, resulting in a remaining net debt discount of $5,401 at September 30, 2013.
On May 1, 2013, the Company entered into a securities purchase agreement providing for the sale of an 8% convertible promissory note in the aggregate principal amount of $32,500, for consideration of $32,500. The note is convertible into shares of common stock of the Company at a price equal to 58% times the average of the lowest three trading prices for the common stock during the ten days prior to the conversion. The note matures on January 29, 2014. The Company recorded debt discount of $32,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $18,095, resulting in a remaining net debt discount of $14,405 at September 30, 2013.
On May 30, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of $100,000. Upon execution of the note, the Company received an initial advance of $4,000. The advance amounts received are at the lender’s discretion. The Company received additional advances for a sum of $73,000 on various dates. As of September 30, 2013, the aggregate principal amount outstanding is $77,000. 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 $0.013 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 with respect to each advance. The Company recorded debt discount of $77,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $27,450, resulting in a remaining net debt discount of $49,550 at September 30, 2013.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
5. CONVERTIBLE PROMISSORY NOTE (Continued)
On August 1, 2013, the Company entered into a securities purchase agreement providing for the sale of an 8% convertible promissory note in the aggregate principal amount of $42,500, for consideration of $42,500. The note is convertible into shares of common stock of the Company at a price equal to 58% times the average of the lowest three trading prices for the common stock during the ten days prior to the conversion. The note matures on April 29, 2014. The Company recorded debt discount of $42,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $9,410, resulting in a remaining net debt discount of $33,090 at September 30, 2013.
On August 28, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. 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 a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $3,667, resulting in a remaining net debt discount of $16,333 at September 30, 2013.
On August 30, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. 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 a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $3,444, resulting in a remaining net debt discount of $16,556 at September 30, 2013.
On September 9, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. 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 a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,333, resulting in a remaining net debt discount of $17,667 at September 30, 2013.
On September 19, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. 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 a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $1,222, resulting in a remaining net debt discount of $18,778 at September 30, 2013.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
5. CONVERTIBLE PROMISSORY NOTE (Continued)
On September 24, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $67,000. The advance amounts received are at the lender’s discretion. 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 a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $67,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,233, resulting in a remaining net debt discount of $64,767 at September 30, 2013.
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 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 market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
| Stock price on the valuation dates | $ | 0.0161 | ||||||||
| Conversion price for the debt | $ | 0.002 | - | $ | 0.02 | |||||
| Dividend yield | 0.00 | % | ||||||||
| Years to Maturity | 6 months | - | 2 years | |||||||
| Risk free rate | .02 | % | - | .34 | % | |||||
| Expected volatility | 30.45 | % | - | 272.98 | % | |||||
The derivative liability recognized in the financial statements as of September 30, 2013 was $1,885,906.
6. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has reported the following events:
On October 8, 2013, the Company entered into a securities purchase agreement for the sale of a 8% convertible promissory note in the principal amount of $32,500, with an initial consideration of $32,500. The note is convertible into shares of common stock of the Company at a price equal to 58% times the average of the lowest three (3) trading prices for the common stock during the ten days prior to the conversion. The note is payable in full on or before July 10, 2014.
On October 22, 2013, the Company issued 2,241,380 shares of common stock upon the conversion of a note in the principal amount of $22,750.
SOLAR3D, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2013
6. SUBSEQUENT EVENTS (Continued)
On November 1, 2013, Solar3D, Inc., a Delaware corporation (“S3D”) entered into a stock purchase agreement, dated as of October 31, 2013 (“SPA”), with Solar United Network, Inc., a California corporation (“SUN”), and Emil Beitpolous, an individual shareholder holding 30% of the outstanding shares of SUN, Abe Emard, an individual shareholder holding 30% of the outstanding shares of SUN, Richard Emard, an individual shareholder holding 20% of the outstanding shares of SUN, and Mikhail Podnesbesnyy, an individual shareholder holding 20% of the outstanding shares of SUN (collectively, the “Sellers” or “SUN Shareholders”), pursuant to which S3D agreed to purchase 100% of the outstanding shares of SUN’s common stock (the “SUN Stock”) from the Sellers in consideration for $2,794,500, $1,044,500 of which is payable in cash at the closing of the SPA and $1,750,000 of which is payable in installments over a period of five years after the closing of the SPA pursuant to convertible promissory notes bearing simple interest the rate of 4% per annum (the “Notes”). The Notes are convertible at any time after issuance into shares of fully paid and non-assessable shares of the common stock of S3D. The conversion price is $0.02 per share until March 30, 2015, and thereafter the conversion price will be the greater of (a) $0.02 per share or (b) Fifty Percent (50%) of the average closing price of the common stock of S3D as reported by Bloomberg for the ten (10) consecutive trading days following the submission of a notice in writing signed by the Note holder of his intent to convert. At the closing of the SPA the SUN Board of Directors will consist of three members, one of whom will be James B. Nelson, one of whom will be Mark J. Richardson, and one of whom will be a designee of SUN reasonably acceptable to S3D and who will initially be Abe Emard. In the event that S3D proposes to sell all of the SUN Stock or cause SUN to sell all or substantially all of its assets in the future in one or a series of predetermined transactions in consideration for only cash or notes and not for any securities (the “SUN Sale Proposal”), with the intent of exiting the type of business in which SUN is then engaged, each Seller will have the right of first refusal to elect to purchase up to his pro rata share of the SUN Stock or SUN assets proposed for sale, as the case may be, based on the relative outstanding balances of their Notes on the date of the first delivery of notice of the SUN Sale Proposal by S3D. SUN is engaged in the business of the design, installation, and management of solar systems for commercial, agricultural, and residential customers in California.
On November 4, 2013, the Company issued 1,785,714 shares of common stock upon the conversion of a note in the principal amount of $17,500.
7. COMMITMENTS
On September 11, 2013, the Company entered into a lease agreement for a period of one (1) year for new office space. The lease commenced on September 24, 2013 and expires on September 23, 2014. The lease payments are $1,700 per month.
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 Quarterly Report on 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 arising 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 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 have 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.
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 SEPTEMBER 30, 2013 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2012
REVENUE AND COST OF SALES
For the three months ended September 30, 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 decreased by $132,913 to $193,743 for the three months ended September 30, 2013 compared to $326,656 for the prior three months ended September 30, 2012. G&A expenses decreased primarily due to an decrease in non cash stock compensation expense of $62,141, investor relations expense of $75,900, salary expense of $10,000, and with an increase in professional fees of $9,615, outside services of $9,278 and an overall decrease in other G&A expenses of $3,765.
RESEARCH AND DEVELOPMENT
Research and development (“R&D”) costs for the three months ended September 30, 2013 and 2012 were $24,999 and $28,120, respectively. This net decrease in R&D costs was the result of an increase in salary expense, with a decrease in outside services related to review of the technology.
OTHER INCOME/(EXPENSES)
Other income and (expenses) increased by $1,258,467 to $1,279,098 for the three months ended September 30, 2013, compared to $20,631 for the prior three months ended September 30, 2012. The increase was the result of an increase in gain on settlement of debt of $20,286, the loss on change in fair value of the derivative instruments of $1,101,797, amortization of debt discount in the amount of $161,561, a decrease in penalties of $56, and an increase of interest expense in the amount of $15,451. The increase in other income and (expenses) was due to the Company entering into debt financing with convertible promissory notes.
NET LOSS
Net loss increased by $1,122,469 to $1,498,439 for the three months ended September 30, 2013, compared to $375,970 for the prior three months ended September 30, 2012. The increase in net loss was the result of a net increase of other income and expenses of $1,258,467, and a decrease of operating expenses equal to $135,998. Currently, operating costs exceed revenue because sales have not yet commenced. We cannot assure when or if revenue will exceed operating costs.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2012
REVENUE AND COST OF SALES
For the nine months ended September 30, 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 decreased by $168,261 to $760,535 for the nine months ended September 30, 2013 compared to $928,796 for the prior nine months ended September 30, 2012. G&A expenses decreased primarily due to an increase in non cash stock compensation expense of $16,956, professional fees of $17,438, with a decrease in investor relations expense of $153,400, salaries of $34,375 and an overall decrease in G&A of $14,880.
RESEARCH AND DEVELOPMENT
Research and development (“R&D”) costs for the nine months ended September 30, 2013 and 2012, were $82,351 and $126,877, respectively. 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.
OTHER INCOME AND EXPENSES
Other income and expenses increased by $1,290,207 to $1,363,970 for the nine months ended September 30, 2013, compared to $73,763 for the prior period ended September 30, 2012. The increase was the result of an increase in gain on settlement of debt of $59,298, the loss on change in fair value of the derivative instruments of $912,159, amortization of debt discount in the amount of $404,941, a decrease in penalties of $112, and an increase of interest expense in the amount of $32,512. The increase is the result of the issuance by the Company of convertible promissory notes.
NET LOSS
Net loss increased by $1,077,643 to $2,208,581 for the nine months ended September 30, 2013, compared to $1,130,938 for the prior nine months ended September 30, 2012. The increase in net loss was the result of a net increase of other income and expenses of $1,290,207, and a decrease of operating expenses equal to $212,564. 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, 2013, we had a working capital deficit of $2,313,213 as compared to a working capital deficit of $896,049 at December 31, 2012. This increase in working capital deficit was due primarily to an increase in cash, prepaid expense, accrued interest payable, derivative liability, equity financing through the issuance of convertible promissory notes, and a decrease in accounts payable.
Cash flow used in operating activities was $500,193 for the nine months ended September 30, 2013, as compared to cash used of $463,492 for the nine months ended September 30, 2012. This increase of cash used in operating activities of $36,701 was primarily attributable to the increase in net loss, prepaid expenses, non cash stock compensation, amortization of debt discount recognized as interest expense, gain on settlement of debt and derivative liability, with a decrease in accounts payable, and accrued expenses.
Cash used in investing activities was $24,334 for the nine months ended September 30, 2013, compared to $3,213 for the nine months ended September 30, 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 nine months ended September 30, 2013 was $589,500 as compared to cash provided of $475,584 for the nine months ended September 30, 2012. The increase of $113,916 was primarily due to an increase in equity financing through the issuance of convertible promissory notes.
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, 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 September 30, 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 September 30, 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 nine months ended September 30, 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.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended September 30, 2013, we issued 2,000,000 shares of common stock at a purchase price of $0.01 per share for total cash of $20,000, pursuant to the private placement exemption available under Rule 506(b) 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 months ended September 30, 2013, we granted 2,000,000 options to purchase 2,000,000 shares of our common stock to a director of the Company. The options are exercisable for a period of seven years from the date of grant at an exercise price of $0.018 per share. The options vest according to the following schedule: 55,556 on the date of grant, 55,556 on the first day of each month thereafter commencing on October 1, 2013 and ending on August 1, 2016, and 55,540 on September 1, 2016.
During the three months ended September 30, 2013, we issued 20,000,000 shares to our chief executive officer pursuant to a restricted stock agreement. The shares vest pursuant to the following performance goals (a) if our market capitalization exceeds $10,000,000, we will issue 4,000,000 shares of common stock to our chief executive officer; (b) if our consolidated gross revenue, calculated in accordance with GAAP, equals or exceeds $10,000,000 for the trailing twelve month period, we will issue 6,000,000 shares of common stock to our chief executive officer; and (c) if our consolidated net profit, calculated in accordance to GAAP, equals or exceeds $2,000,000 for the trailing twelve month period, we will issue 10,000,000 shares of our common stock to our chief executive officer. As of the date of this Report none of these performance goals have been met and no shares have been issued to our chief executive officer pursuant the restricted stock agreement.
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 12, 2013 | By: | /s/ James B. Nelson | |
| James B. Nelson, Director, Chief Executive Officer, President, | |||
| Interim Chief Financial Officer (Principal Executive Officer/Principal Accounting Officer) | |||
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