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 June 30, 2014.
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) | 01-0592299 (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 July 23, 2014 was 298,730,412.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | 1 | |
| 1 | ||
| 2 | ||
| 3 | ||
| 4 | ||
| 5 | ||
| ITEM 2. | 14 | |
| ITEM 3. | 18 | |
| ITEM 4. | 19 | |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | 20 | |
| ITEM 2. | 20 | |
| ITEM 3. | 20 | |
| ITEM 4. | 20 | |
| ITEM 5. | 20 | |
| ITEM 6. | 20 | |
| 22 | ||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SOLAR3D, INC. AND SUBSIDIARY
BALANCE SHEETS
| June 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,229,356 | $ | 10,422 | ||||
| Accounts receivable | 811,733 | - | ||||||
| Inventory | 13,381 | |||||||
| Cost in excess of billing | 2,316,836 | - | ||||||
| Prepaid expense | 35,028 | 4,862 | ||||||
| Advance, employees | 43,427 | - | ||||||
| Total Current Assets | 4,449,761 | 15,284 | ||||||
| Property and Equipment, at cost | ||||||||
| Equipment, computer, software, furniture & fixtures, and automotives | 110,175 | 79,705 | ||||||
| Less accumulated depreciation | (83,274 | ) | (72,971 | ) | ||||
| Net Property and Equipment | 26,901 | 6,734 | ||||||
| Other Assets | ||||||||
| Other deposits | 7,000 | 2,000 | ||||||
| Patents | 23,161 | 23,161 | ||||||
| Goodwill | 2,599,268 | - | ||||||
| Total Other Assets | 2,629,429 | 25,161 | ||||||
| Total Assets | $ | 7,106,091 | $ | 47,179 | ||||
| Liabilities and Shareholders' Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 2,191,153 | $ | 73,791 | ||||
| Accrued expenses | 281,005 | 82,950 | ||||||
| Billing in excess of cost and estimated earnings | 1,083,119 | - | ||||||
| Customer deposits | 32,200 | - | ||||||
| Other payable | 525 | - | ||||||
| Derivative liability | 3,010,370 | 2,822,430 | ||||||
| Convertible promissory notes, net of beneficial conversion feature of $723,404 | 401,596 | - | ||||||
| Convertible promissory notes, net of debt discount of $657,679 and $204,020, respectively | 904,321 | 515,397 | ||||||
| Total Current Liabilities | 7,904,289 | 3,494,568 | ||||||
| Shareholders' Deficit | ||||||||
Preferred stock, $.001 par value; 5,000,000 authorized shares; | - | - | ||||||
Common stock, $.001 par value; 1,000,000,000 authorized shares; 298,730,412 and 213,290,259 shares issued and outstanding, respectively | 298,729 | 213,289 | ||||||
| Additional paid in capital | 18,665,262 | 12,286,429 | ||||||
| Accumulated Deficit | (19,762,189 | ) | (15,947,107 | ) | ||||
| Total Shareholders' Deficit | (798,198 | ) | (3,447,389 | ) | ||||
| Total Liabilities and Shareholders' Deficit | $ | 7,106,091 | $ | 47,179 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |||||||||||||
Sales | $ | 7,471,042 | $ | - | $ | 8,518,458 | $ | - | ||||||||
Cost of Goods Sold | 5,438,473 | - | 6,210,530 | - | ||||||||||||
Gross Profit | 2,032,569 | - | 2,307,928 | - | ||||||||||||
Operating Expenses | ||||||||||||||||
Selling and marketing expenses | 432,605 | - | 618,876 | - | ||||||||||||
General and administrative expenses | 803,751 | 275,801 | 1,759,199 | 566,792 | ||||||||||||
Research and development cost | 31,919 | 33,629 | 60,758 | 57,352 | ||||||||||||
Depreciation and amortization | 2,156 | 563 | 3,453 | 1,126 | ||||||||||||
Total Operating Expenses | 1,270,431 | 309,993 | 2,442,286 | 625,270 | ||||||||||||
Income (Loss) before Other Income/(Expenses) | 762,138 | (309,993 | ) | (134,358 | ) | (625,270 | ) | |||||||||
Other Income/(Expenses) | ||||||||||||||||
Interest and other income | 34 | - | 148 | - | ||||||||||||
Penalties | (6,670 | ) | - | (6,670 | ) | - | ||||||||||
Gain on settlement of debt | 3,920 | 5,262 | 51,142 | 5,262 | ||||||||||||
Change in fair value of derivative liability | 293,287 | (142,082 | ) | (1,592,567 | ) | 189,638 | ||||||||||
Interest expense | (829,066 | ) | (165,084 | ) | (2,132,777 | ) | (279,772 | ) | ||||||||
Total Other Income/(Expenses) | (538,495 | ) | (301,904 | ) | (3,680,724 | ) | (84,872 | ) | ||||||||
Income (Loss) before Income Taxes | 223,643 | (611,897 | ) | (3,815,082 | ) | (710,142 | ) | |||||||||
Income Tax Expense | - | - | - | - | ||||||||||||
Net Income (Loss) | $ | 223,643 | $ | (611,897 | ) | $ | (3,815,082 | ) | $ | (710,142 | ) | |||||
INCOME (LOSS) PER SHARE | ||||||||||||||||
| BASIC | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||||
DILUTED | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
BASIC | 291,761,944 | 154,078,349 | 269,171,296 | 148,080,065 | ||||||||||||
DILUTED | 383,505,342 | 154,078,349 | 269,171,296 | 148,080,065 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC. AND SUBSIDIARY
STATEMENT OF SHAREHOLDERS' (DEFICIT)
(Unaudited)
| Additional | ||||||||||||||||||||||||||||
| Preferred stock | Common stock | Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance at December 31, 2013 | - | $ | - | 213,290,259 | $ | 213,289 | $ | 12,286,429 | $ | (15,947,107 | ) | $ | (3,447,389 | ) | ||||||||||||||
Issuance of common stock for conversion of promissory notes, plus accrued interest | - | - | 79,594,527 | 79,595 | 4,035,234 | - | 4,114,829 | |||||||||||||||||||||
Issuance of common stock for cashless exercise of stock options | - | - | 227,979 | 227 | (227 | ) | - | - | ||||||||||||||||||||
Issuance of common stock for cashless exercise of warrants | - | - | 1,617,647 | 1,618 | (1,618 | ) | - | - | ||||||||||||||||||||
Issuance of restricted common stock for services | - | - | 4,000,000 | 4,000 | 184,000 | - | 188,000 | |||||||||||||||||||||
Beneficial conversion feature | - | - | - | - | 1,750,000 | - | 1,750,000 | |||||||||||||||||||||
Stock compensation cost | - | - | - | - | 411,444 | - | 411,444 | |||||||||||||||||||||
Net loss for the six months ended June 30, 2014 | - | - | - | - | - | (3,815,082 | ) | (3,815,082 | ) | |||||||||||||||||||
Balance at June 30, 2014 (unaudited) | - | $ | - | 298,730,412 | $ | 298,729 | $ | 18,665,262 | $ | (19,762,189 | ) | $ | (798,198 | ) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||
| June 30, 2014 | June 30, 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (3,815,082 | ) | $ | (710,142 | ) | ||
Adjustments to reconcile net loss to net cash provided (used) in operating activities | ||||||||
Depreciation and amortization | 3,453 | 1,126 | ||||||
Stock Compensation Cost | 599,444 | 294,785 | ||||||
(Gain)/loss on change in derivative liability | 1,592,567 | (189,638 | ) | |||||
Amortization of debt discount and OID recognized as interest | 2,037,937 | 261,930 | ||||||
(Gain)/loss on settlement of debt | (51,142 | ) | (5,262 | ) | ||||
Changes in Assets and Liabilities | ||||||||
(Increase) Decrease in: | ||||||||
Accounts receivable | (245,133 | ) | - | |||||
Inventory | (13,381 | ) | - | |||||
Prepaid expenses | 109,360 | 1,757 | ||||||
Cost in excess of billings | (2,316,836 | ) | - | |||||
Other assets | 500 | - | ||||||
Increase (Decrease) in: | ||||||||
Accounts payable | 1,628,923 | 30,864 | ||||||
Accrued expenses | (76,151 | ) | 17,842 | |||||
Billings in excess of cost | 1,083,119 | - | ||||||
Other liabilities | (195,716 | ) | - | |||||
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES | 341,862 | (296,738 | ) | |||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
Cash paid for acquisition | (1,061,750 | ) | ||||||
Purchase of property and equipment | (16,239 | ) | - | |||||
Expenditures for intangible assets | - | (18,925 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES | (1,077,989 | ) | (18,925 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Cash received from subsidiary | 490,061 | |||||||
Proceeds from convertible promissory note | 1,465,000 | 277,500 | ||||||
Proceeds from issuance of common stock and subscription payable | - | 42,500 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,955,061 | 320,000 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 1,218,934 | 4,337 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 10,422 | 33,637 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,229,356 | $ | 37,974 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Interest paid | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS | ||||||||
Convertible promissory notes issued for acquisition | $ | 1,750,000 | $ | - | ||||
Issuance of common stock upon conversion of debt at fair value | $ | 4,114,831 | $ | - | ||||
Issuance of common stock upon a cashless conversion of services | $ | 227 | $ | - | ||||
Issuance of common stock upon a cashless conversion of warrants | $ | 1,618 | $ | - | ||||
Issuance of common stock upon conversion of restricted stock options | $ | 188,000 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
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 six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.
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. Management believes the existing shareholders and potential prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.
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 acquired Solar United Networks, and planned operations have started. The Company has significant revenues, thereby eliminating the development stage as of December 31, 2013.
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.
Income (Loss) per Share Calculations
Income (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. The shares for employee options, warrants and convertible notes were used in the calculation of the diluted income per share.
Revenue Recognition
We recognize revenue on construction contracts using the percentage-of-completion method of accounting based on the proportion of costs incurred on the contract to total estimated contract costs, except that material estimated losses which become apparent prior to completion are provided for in their entirety. Claims for additional contract compensation due the Company are not reflected in the accounts until the year in which such claims are allowed.
Direct contract costs included all direct labor and labor burden, materials, subcontractors, and other direct costs. Selling, general, and administrative costs are charged to expense as incurred.
The asset, “Costs and estimated earnings in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The liability, “Billings in excess of costs and estimated earnings”, represents billings in excess of revenues recognized on contracts in progress.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contracts Receivable
The Company performs ongoing credit evaluation of its customers. Management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information, and records bad debts using the direct write-off-method. Generally accepted accounting principles require the allowance method to be used to reflect bad debts. However, the effect of the use of the direct write-off-method is not materially different from the results that would have been obtained had the allowance method been followed.
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 June 30, 2014, 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 June 30, 2014:
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets | $ | - | $ | - | $ | - | $ | - | ||||||||
Total assets measured at fair value | $ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities | ||||||||||||||||
Derivative liability | 3,010,370 | - | - | 3,010,370 | ||||||||||||
Convertible promissory notes | 1,305,917 | - | - | 1,305,917 | ||||||||||||
Total liabilities measured at fair value | $ | 4,316,287 | $ | - | $ | - | $ | 4,316,287 | ||||||||
Recently adopted pronouncements
Management reviewed accounting pronouncements issued during the six months ended June 30, 2014, and no pronouncements were adopted.
3. CAPITAL STOCK
During the six months ended June 30, 2014, the Company issued 85,440,153 shares of common stock at prices per share ranging from $0.02 to $0.10 for conversion of principal for convertible promissory notes in the amount of $1,247,417, plus accrued interest payable of $48,929.
During the six months ended June 30, 2014, the Company issued 4,000,000 shares of common stock through a cashless exercise at fair value per share of $0.05 in conversion of restricted common stock for services.
During the six months ended June 30, 2014, the Company issued 227,979 shares of common stock at fair value for a cashless exercise of 277,780 stock options for services.
During the six months ended June 30, 2014, the Company issued 1,617,647 shares of common stock at fair value for a cashless exercise of 2,000,000 common stock purchase warrants.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
4. OPTIONS AND WARRANTS
Options
As of June 30, 2014, the Company has 24,722,220 non-qualified stock options outstanding to purchase 24,722,220 shares of common stock, per 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.
A summary of the Company’s stock option activity and related information follows:
| 6/30/2014 | ||||||||
| Weighted | ||||||||
| Number | average | |||||||
| of | exercise | |||||||
| Options | price | |||||||
| Outstanding, beginning January 31, 2014 | 25,000,000 | $ | 0.037 | |||||
| Granted | - | - | ||||||
| Exercised | (277,780 | ) | 0.018 | |||||
| Expired | - | - | ||||||
| Outstanding, end of March 31, 2014 | 24,722,220 | $ | 0.038 | |||||
| Exercisable at the end of June 30, 2014 | 20,972,225 | $ | 0.037 | |||||
Weighted average fair value of options granted during the period | $ | - | ||||||
Restricted Stock
During the year ended December 31, 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 based shares. 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 certain stages. As of June 30, 2014, the first stage was met, when the Company’s market capitalization exceeded $10,000,000. The Company issued 4,000,000 shares of common stock to the CEO, which was exercised through a cashless exercise at fair value of $188,000 during the six months ended June 30, 2014. The two remaining milestones are as follows: 1.) 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; 2.) 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. Based on the probability that the Company will reach the $10,000,000 in gross revenue, the Company recognized $360,500 in stock compensation expense for the six months ended June 30, 2014. As the performance goals are achieved, the shares shall become eligible for vesting and issuance.
The total stock-based compensation expense recognized in the statement of operations during the six months ended June 30, 2014 and 2013, was $411,444 and $294,785.
Warrants
During the six months ended June 30, 2014, no warrants were granted. On June 19, 2014, the Company issued 1,617,647 shares of common stock for a cashless exercise of 2,000,000 common stock purchase warrants. As of June 30, 2014, the Company had a total of 1,000,000 common stock purchase warrants outstanding.
5. CONVERTIBLE PROMISSORY NOTES
As of June 30, 2014, the Company had the following securities purchase agreements:
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 on October 24, 2012. Advances will be paid in amounts at the lender’s discretion. There was $55,833 outstanding on the note, plus accrued interest of $1,396 as of December 31, 2013. During the six months ended June 30, 2014, the lender converted in full the principal in the amount of $50,000, original issued discount of $5,433, plus accrued interest of $2,792 for 2,441,906 shares of common stock. During the six months ended June 30, 2014, the debt discount was amortized and recorded as interest expense in the amount of $28,541.
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 on November 13, 2012. Advances were paid in amounts at the lender’s discretion. The Company received advances for an aggregate sum of $100,000, and had a remaining balance of $65,000 as of December 31, 2013. The remaining principal of $65,000 and accrued interest of $7,307 was converted into 7,230,658 shares of common stock of the Company during the six months ended June 30, 2014. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $1,233 at June 30, 2014.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
5. CONVERTIBLE PROMISSORY NOTES (Continued)
The Company exchanged various notes on December 26, 2012, with an aggregate principal of $118,584. On February 13, 2014, the lender converted the note, plus accrued interest of $13,450 into 8,518,345 shares of common stock of the Company.
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 on February 19, 2013. The Company received an aggregate of $84,000 in advances on the note during the year ended December 31, 2013. On March 6, 2014, the lender converted the note in full for 5,924,454 shares of common stock of the Company for principal in the amount of $84,000, plus accrued interest of $7,829.
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. During the six months ended June 30, 2014, debt discount was amortized, and recorded as interest expense in the amount of $1,891.
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 $20,000. The advance amounts received are at the lender’s discretion. The Company received additional advances for a sum of $73,000 on various dates. On April 16, 2014, the Company issued 5,233,530 shares of common stock for principal in the amount of $63,000, plus interest for $5,036. As of June 30, 2014, the aggregate principal amount outstanding is $30,000. 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 matured six (6) months from the effective date of each advances. On July 9, 2014, the lender extended the remaining balance of the Note to November 19, 2014. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $12,472 during the six months ended June 30, 2014.
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 was converted in full during the month of February 2014 into 821,886 shares of common stock of the Company for principal of $42,500, plus accrued interest of $1,700. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $18,662 during the six months ended June 30, 2014.
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 note was converted on March 21, 2014 into 2,968,937 shares of common stock of the Company for principal of $20,000, plus accrued interest of $1,079. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $6,111 during the six months ended June 30, 2014.
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 note was converted on February 26, 2014 into 1,615,384 shares of common stock of the Company for principal of $20,000, plus accrued interest of $1,000. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $6,333 during the six months ended June 30, 2014.
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 note was converted on March 9, 2014 into 2,957,361 shares of common stock of the Company for principal of $20,000, plus accrued interest of $997. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $7,444 during the six months ended June 30, 2014.
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 note was converted on March 19, 2014 into 2,957,746 shares of common stock of the Company for principal of $20,000, plus accrued interest of $1,000. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $8,556 during the six months ended June 30, 2014.
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. On October 10, 2013, the lender advanced an additional $14,000 for a total aggregate of $81,000. The advances received were at the lender’s discretion. On May 29, 2014, the note was converted in full into 6,649,104 shares of common stock for the principal of $81,000, plus interest of $5,438. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $38,144 during the six months ended June 30, 2014.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
5. CONVERTIBLE PROMISSORY NOTES (Continued)
On October 8, 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. During the month of April 2014, the note was converted into 1,025,216 shares of common stock for principal in the amount of $32,500, plus interest of $1,300. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $23,249 during the six months ended June 30, 2014.
On November 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 $44,000. The Company received additional advances in the aggregate amount of $40,000, for a total aggregate of $84,000 as of June 30, 2014. The advance amounts received were 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 $0.013 per share, or fifty percent (50%) of the lowest trading price after the effective date. The note matured six (6) months from the effective date of each advance with respect to each advance. On July 9, 2014, the notes were extended to November 19, 2014. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $71,555 during the six months ended June 30, 2014.
On January 29, 2014, 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 $90,000. 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 nine (9) months from the effective date of the advance. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $50,667 during the six months ended June 30, 2014.
On January 31, 2014, 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 $500,000, for consideration of $500,000. The proceeds were restricted and were used for the purchase of Solar United Network, Inc. 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 $0.05 per share, or fifty percent (50%) of the lowest trading price after the effective date. Also, if the Company issues any common stock resulting from conversion of another security, whether issued and outstanding before or after the effective date, at a net effective price per share below the conversion price issued to the lender, the price shall be adjusted to the lower conversion price. The note matures nine (9) months from the effective date of the note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $277,778 during the six months ended June 30, 2014.
On January 31, 2014, 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 $750,000, for consideration of $750,000. The proceeds were restricted and were used for the purchase of Solar United Network, Inc. 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 $0.05 per share, or fifty percent (50%) of the lowest trading price after the effective date. Also, if the Company issues any common stock resulting from conversion of another security, whether issued and outstanding before or after the effective date, at a net effective price per share below the conversion price issued to the lender, the price shall be adjusted to the lower conversion price. The note matures nine (9) months from the effective date of the note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $416,667 during the six months ended June 30, 2014.
On February 11, 2014, 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. In February and March, the Company received additional advances in an aggregate amount of $80,000 for an aggregate total 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 $0.05 per share, or fifty percent (50%) of the lowest trading price after the effective date. Also, if the Company issues any common stock resulting from conversion of another security, whether issued and outstanding before or after the effective date, at a net effective price per share below the conversion price issued to the lender, the price shall be adjusted to the lower conversion price. The note matures nine (9) months from the effective date of each advance with respect to each advance. At the sole discretion of the lender, the lender may modify the maturity date to be twelve (12) months form the effective date. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $42,037 during the six months ended June 30, 2014.
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.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
5. CONVERTIBLE PROMISSORY NOTES (Continued)
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 | $ | 0.064 -$0.10 | ||
| Conversion price for the debt | $ | 0.013 - $0.05 | ||
| Dividend yield | 0.00 | % | ||
| Years to Maturity | 6 months - 2 years | |||
| Risk free rate | .03% - .13 | % | ||
| Expected volatility | 54.43% - 256.72 | % | ||
The derivative liability recognized in the financial statements as of June 30, 2014 was $3,010,370.
Acquisition Promissory Notes
On January 31, 2014, the Company entered into a securities purchase agreement providing for the sale of four 4% convertible promissory notes in the aggregate principal amount of $,1750,000 as part of the consideration to acquire 100% of the total outstanding stock of SUN. The notes are convertible at any time after issuance into shares of fully paid and non-assessable shares of common stock. The conversion price is $0.02 per share until March 30, 2015, and thereafter the conversion price will be the greater of $0.02 or 50% of the average closing price of the common stock during the ten (10) consecutive trading days following the submission of the conversion notice. The Notes are five (5) year notes and bear interest at the rate of 4% per annum. In February and March 2014, $625,000 of the notes was converted into 31,250,000 shares of common stock, leaving a remaining balance of $1,125,000 as of June 30, 2014. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $1,026,596, during the six months ended June 30, 2014.
We evaluated the financing transactions in accordance with ASC Topic 470, Debt with Conversion and Other Options, and determined that the conversion feature of the convertible promissory note was afforded the exemption for conventional convertible instruments due to its fixed conversion rate. The note has an explicit limit on the number of shares issuable so they did meet the conditions set forth in current accounting standards for equity classification. The debt was issued with non-detachable conversion options that are beneficial to the investors at inception, because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The accounting for the beneficial conversion feature requires that the beneficial conversion feature be recognized by allocating the intrinsic value of the conversion option to additional paid-in-capital, resulting in a discount on the convertible notes, which will be amortized and recognized as interest expense.
6. BUSINESS COMBINATION
During the month of January 2014, Solar3D, Inc. (SLTD) acquired 100% of the total issued and outstanding stock of Solar United Network, Inc. (SUN) in a transaction accounted for under ASC 805, for cash in the amount of $1,061,750, and convertible promissory notes for $1,750,000. SUN provides solar photovoltaic installation and consulting services to residential, commercial and agricultural properties. The acquisition is designed to enhance our services for solar technology. SUN is now a wholly-owned subsidiary of SLTD.
Under the purchase method of accounting, the transactions were valued for accounting purposes at $2,811,750, which was the fair value of the Company at time of acquisition. The assets and liabilities of SUN were recorded at their respective fair values as of the date of acquisition. The following table summarizes these values.
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
| Purchase Price Allocation | ||||
| Month Ended | ||||
| 1/31/2014 | ||||
| Assets acquired | ||||
| Current Assets | ||||
Cash | $ | 490,061 | ||
Contract Receivables | 566,601 | |||
Costs and Estimated Earnings in Excess of Billings | 139,526 | |||
Advances to Employees | 43,926 | |||
Total Current Assets | 1,240,114 | |||
Tangible Assets subject to depreciation | ||||
Machinery and Equipment, net of depreciation | 7,382 | |||
Other Assets | ||||
Security Deposit | 5,000 | |||
Goodwill | 2,599,268 | |||
Total Other Assets | 2,604,268 | |||
Total assets acquired | 3,851,764 | |||
Liabilities assumed | ||||
Current liabilities | ||||
Accounts Payable | $ | 488,439 | ||
Billings in Excess of Costs and Estimated Earnings | 225,288 | |||
Accrued expenses and other liabilities | 326,287 | |||
Total liabilities acquired | 1,040,014 | |||
Net assets acquired | $ | 2,811,750 | ||
11
6. BUSINESS COMBINATION (Continued)
The following is a condensed consolidated statement of operations for the six months ended June 30, 2014 showing the combined results of operations of the Company including SUN as though the Company had acquired the common stock on January 1, 2014.
| CONDENSED CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||||||
| For the Period Ended June 30, 2014 | ||||||||||||||||||||
| SOLAR3D | SUN | Eliminations | Consolidated | |||||||||||||||||
| Jan 1 to June 30,2014 | Jan 1, to June 30, 2014 | Dr | Cr | Balances | ||||||||||||||||
| Sales | $ | - | $ | 9,068,984 | $ | 9,068,984 | ||||||||||||||
| Cost of Goods Sold | - | 6,617,198 | 6,617,198 | |||||||||||||||||
| Gross Profit | - | 2,451,786 | 2,451,786 | |||||||||||||||||
| Total Operating Expenses | 1,166,981 | 1,476,288 | 2,643,269 | |||||||||||||||||
| Income before Other Income (Expenses) | (1,166,981 | ) | 975,498 | (191,483 | ) | |||||||||||||||
| Total Other Income (Expenses) | (3,674,032 | ) | (6,586 | ) | (3,680,618 | ) | ||||||||||||||
| Net Loss | $ | (4,841,013 | ) | $ | 968,912 | $ | (3,872,101 | ) | ||||||||||||
| BASIC AND DILUTED INCOME PER SHARE | $ | (0.02 | ) | $ | 0.00 | $ | (0.01 | ) | ||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED | 269,171,296 | - | 269,171,296 | |||||||||||||||||
SOLAR3D, INC. AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2014
| SOLAR3D | SUN | Eliminations | Consolidated | |||||||||||||||||
| June 30, 2013 | June 30, 2013 | Dr | Cr | Balances | ||||||||||||||||
| Sales | $ | - | $ | 2,535,765 | $ | 2,535,765 | ||||||||||||||
| Cost of Goods Sold | - | 1,981,370 | 1,981,370 | |||||||||||||||||
| Gross Profit | - | 554,395 | 554,395 | |||||||||||||||||
| Total Operating Expenses | 625,270 | 719,590 | 1,344,860 | |||||||||||||||||
| Income before Other Income (Expenses) | (625,270 | ) | (165,195 | ) | (790,465 | ) | ||||||||||||||
| Total Other Income (Expenses) | (84,872 | ) | (2,206 | ) | (87,078 | ) | ||||||||||||||
| Net Loss | $ | (710,142 | ) | $ | (167,401 | ) | $ | (877,543 | ) | |||||||||||
| BASIC AND DILUTED INCOME PER SHARE | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | ||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED | 148,080,065 | - | 148,080,065 | |||||||||||||||||
All transactions from January 31, 2014 through December 31, 2014 will be consolidated during the year ended December 31, 2014.
7. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855 and has no subsequent events to report.
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 limited working capital; |
| (b) | volatility or decline of our stock price; |
| (c) | potential fluctuation in quarterly results; |
| (d) | our failure 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 our business plans; |
| (g) | lack of demand for our 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 us, if any; |
| (l) | dilution experienced by our shareholders in their ownership of Solar3D because of the issuance of additional securities by us, or the exercise of outstanding convertible securities; |
| (m) | inability to effectively develop or commercialize our new Solar3D technology; |
| (n) | inability to obtain patent or other protection for our proprietary intellectual property; |
| (o) | loss of key personnel; |
| (p) | effect of significant competition which is intense in the solar industry; and, |
| (q) | elimination of key drivers of SUNworks’ business, including but not limited to loss of media exposure, elimination of government subsidies for solar power, or a reduction in utility prices. |
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 our outstanding voting stock voted by written consent to (1) effect a one-for-five reverse stock split, and (2) change our name to Solar 3D, Inc. From that date until January 31, 2014, our business focus has centered on the development and commercialization of our 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 business, we 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. Our development division has two full time employees, our chief executive officer and our director of technology, and a part time office manager. We also retain the services of several research consultants who are responsible for product development
As of January 31, 2014, Solar3D, Inc. acquired 100% of the outstanding capital stock of Solar United Networks, Inc. (“SUNworks”). SUNworks is engaged in the business of the design, installation, and management of solar systems for commercial, agricultural, and residential customers in California. SUNworks designs, finances, and installs systems ranging in size from 2KW (kilowatt) for residential loads to multi MW (megawatt) systems for larger commercial projects. SUNworks currently employs approximately 40 personnel involved in the operations and administration of the business. It also utilizes outside subcontractors to assist with providing solar systems to its customers.
We currently have 44 full time employees, our chief executive officer, our director of technology, three managers at SUNworks, along with 6 sales people and 33 other employees at SUNworks. 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 recognize revenue on construction contracts using the percentage-of-completion method of accounting based on the proportion of costs incurred on the contract to total estimated contract costs, except that material estimated losses which become apparent prior to completion are provided for in their entirety. Claims for additional contract compensation due the Company are not reflected in the accounts until the year in which such claims are allowed.
Direct contract costs included all direct labor and labor burden, materials, subcontractors, and other direct costs. Selling, general, and administrative costs are charged to expense as incurred.
The asset, “Costs and estimated earnings in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The liability, “Billings in excess of costs and estimated earnings”, represents billings in excess of revenues recognized on contracts in progress.
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 JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013
REVENUE AND COST OF SALES
For the three months ended June 30, 2014, the Company had revenue of $7,471,042 from the sale of solar systems at SUNworks. Three months of SUNworks sales were consolidated into the Company’s financial statements for the period. Cost of sales for the three months ending June 30, 2014, was $5,438,473.
SELLING AND MARKETING EXPENSES
For the six months ended June 30, 2014, the Company had selling and marketing expenses (“S&M”) expenses of $432,605, compared to $0 for the prior three months ended June 30, 2013. S&M expenses increased primarily due to the acquisition of SUNworks.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (“G&A”) expenses increased by $527,950 to $803,751, compared to $275,801 for the prior three months ended June 30, 2013. G&A expenses increased primarily due to the expenses incurred from January 31, 2014 to June 30, 2014 by SUNworks, our recently acquired wholly owned subsidiary, in the amount of $456,641, professional fees in the amount of $7,329 incurred in connection with the purchase of SUNworks, outside services in the amount of $11,573, non-cash stock compensation of $94,379 and an overall decrease in G&A expenses of $41,972.
RESEARCH AND DEVELOPMENT
Research and development (“R&D”) costs for the three months ended June 30, 2014 and 2013 were $31,919 and $33,629, respectively. The Company’s focus was on increasing its revenue through a purchase acquisition, which closed on January 31, 2014 when SUNworks became a wholly owned subsidiary of the Company.
OTHER INCOME/(EXPENSES)
Other income and (expenses) increased by $236,491 to $538,395 for the three months ended June 30, 2014, compared to $301,904 for the prior three months ended June 30, 2013. The increase was the result of an increase in interest income of $34, gain on settlement of debt of $1,342, the loss on change in fair value of the derivative instruments of $435,369, amortization of debt discount in the amount of $625,834, penalties of $6,670 and an increase of interest expense in the amount of $38,048. The increase in other income and (expenses) was due to the Company entering into debt financing with convertible promissory notes.
NET LOSS
Net loss decreased by $835,540 to $223,643 for the three months ended June 30, 2014, compared to an increase in loss of $611,897 for the prior three months ended June 30, 2013. The decrease in net loss was the result of a net increase of other income and (expenses) of $236,491, and an increase of operating expenses of $960,438, with an increase in gross profit of $2,032,569. Currently, operating costs exceed revenue because sales have not yet commenced at the parent company, we only recently acquired SUNworks, our wholly owned subsidiary, and substantial costs were incurred by the Company in the course of acquiring SUNworks. We cannot assure when or if revenue will exceed operating costs.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013
REVENUE AND COST OF SALES
For the six months ended June 30, 2014, the Company had revenue of $8,518,458 from the sale of solar systems at SUNworks. Only five months of SUNworks sales were consolidated into the Company’s financial statements since the acquisition took place on January 31, 2014. Cost of sales for the six months ending June 30, 2014, was $6,210,530.
SELLING AND MARKETING EXPENSES
For the three months ended June 30, 2014, the Company had selling and marketing expenses (“S&M”) expenses of $618,876, compared to $0 for the prior six months ended June 30, 2013. S&M expenses increased primarily due to the acquisition of SUNworks.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (“G&A”) expenses increased by $1,192,407 to $1,759,199, compared to $566,792 for the prior six months ended June 30, 2013. G&A expenses increased primarily due to the expenses incurred from January 31, 2014 to June 30, 2014 by SUNworks, our recently acquired wholly owned subsidiary, in the amount of $728,160, professional fees in the amount of $238,609 incurred in connection with the purchase of SUNworks, outside services in the amount of $12,960, non-cash stock compensation of $304,657 and an overall decrease in G&A expenses of $91,979.
RESEARCH AND DEVELOPMENT
Research and development (“R&D”) costs for the six months ended June 30, 2014 and 2013 were $60,758 and $57,352, respectively. The Company’s focus was on increasing its revenue through a purchase acquisition, which closed on January 31, 2014 when SUNworks became a wholly owned subsidiary of the Company.
OTHER INCOME/(EXPENSES)
Other income and (expenses) increased by $3,595,852 to $3,680,724 for the six months ended June 30, 2014, compared to $84,872 for the prior six months ended June 30, 2013. The increase was the result of an increase in interest income of $148, an increase in gain on settlement of debt of $45,880, the loss on change in fair value of the derivative instruments of $1,782,205, amortization of debt discount in the amount of $1,779,632, penalties of $6,670 and an increase of interest expense in the amount of $73,373. 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 $3,104,940 to $3,815,082 for the six months ended June 30, 2014, compared to $710,142 for the prior six months ended June 30, 2013. The increase in net loss was the result of a net increase of other income and (expenses) of $3,595,852, and an increase of operating expenses of $1,817,016, with an increase in gross profit of $2,307,928. Currently, operating costs exceed revenue because sales have not yet commenced at the parent company, we only recently acquired SUNworks, our wholly owned subsidiary, and substantial costs were incurred by the Company in the course of acquiring SUNworks. We cannot assure when or if revenue will exceed operating costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2014, we had a working capital deficit of $3,454,528 as compared to a working capital deficit of $3,479,284 at December 31, 2013. This increase in working capital deficit was due primarily to an increase in accrued expenses, derivative liability, equity financing through the issuance of convertible promissory notes, accounts payable, and other payables.
Cash flow provided in operating activities was $341,862 for the six months ended June 30, 2014, as compared to cash used of $296,738 for the six months ended June 30, 2013. This increase of cash provided in operating activities of $638,600 was primarily attributable to the acquisition of SUNworks, accounts receivable, inventory, prepaid expenses, accounts payable, other liabilities, non cash stock compensation, amortization of debt discount recognized as interest expense, gain on settlement of debt and derivative liability, with a decrease in other assets, and accrued expenses.
Cash used in investing activities was $1,077,989 for the six months ended June 30, 2014, compared to $18,925 for the six months ended June 30, 2013. The increase in the use of cash in investing activities was due to the purchase of SUNworks, our wholly owned subsidiary, and expenditures for fixed assets during the current period.
Cash provided from financing activities during the six months ended June 30, 2014 was $1,955,061 as compared to cash provided of $320,000 for the six months ended June 30, 2013. The increase of $1,635,061 was primarily due to an increase in equity financing through the issuance of convertible promissory notes, and the cash received from the subsidiary.
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 June 30, 2014. 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 June 30, 2014. Specifically, the board of directors currently has no independent members 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 June 30, 2014, 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 six months ended June 30, 2014 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 June 30, 2014, we issued 13,445,350 shares of common stock upon conversion of $186,800 in principal amount of convertible promissory notes, plus original issue discount of $2,917 and accrued interest of $13,170 at fair value. The convertible promissory notes were originally issued by the Company to accredited investors 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 notes are being used for general working capital.
During the three months ended June 30, 2014, we issued 1,617,647 shares of common stock for 2,000,000 purchase warrants through a cashless exercise at fair value.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibit No. | Description | |
| 3.1 | Certificate of Incorporation (1) | |
| 3.2 | Amendments to Certificate of Incorporation (1) | |
| 3.3 | Amendment to Certificate of Incorporation (7) | |
| 3.4 | Amendment to Certificate of Incorporation (8) | |
| 3.5 | Bylaws (1) | |
| 4.1 | Specimen Certificate for Common Stock (1) | |
| 4.2 | 2002 Stock Option Plan (1) | |
| 4.3 | Form of Incentive Stock Option Agreement (1) | |
| 4.4 | Form of Non Qualified Stock Option Agreement (1) | |
| 4.5 | Form of Lock-Up Agreement entered into by us with Wings Fund, Inc., Roland F. Bryan, Mark J. Richardson, and Chris Outwater, dated as of May 2, 2009 (6) | |
| 10.1 | Lease Agreement by and between MachineTalker, Inc. and SecureCoin, Inc., dated August 20, 2003 (1) | |
| 10.2 | Agreement No. CA-00062 by and between MachineTalker, Inc. and Kellogg, Brown & Root Services, Inc., dated December 20, 2004 (2) | |
| 10.3 | Agreement by and between MachineTalker, Inc. and Science Applications International Corporation, dated July 1, 2004 (1) | |
| 10.4 | Acquisition Agreement for Wideband Detection Technologies, Inc. dated July 20, 2007 (4) | |
| 10.5 | Acquisition Agreement for Micro Wireless Technologies, Inc. dated December 28, 2007 (5) | |
| 10.6 | Stock Purchase Agreement with Wings Fund, Inc., a Nevada corporation, and Pearl Innovations, LLC, a Nevada limited liability company, dated as of May 5, 2009 (6) | |
| 10.7 | Nonstatutory Stock Option Agreement with James B. Nelson, dated July 22, 2010 (9) | |
| 10.8 | Assignment of Intangible Assets and Assumption of Liabilities by and between Solar3D, Inc., a Delaware corporation and Wideband Detection Technologies, Inc., a Florida corporation, dated as of June 28, 2011 (10) |
| 10.9 | Patent Assignment by and between Solar3D, Inc., a Delaware corporation, as assignor and Wideband Detection Technologies, Inc., a Florida corporation, as assignee (10) | |
| 10.10 | Stock Purchase Agreement by and between Solar3D, Inc., a Delaware corporation, as seller, and Roland F. Bryan, as buyer, dated as of June 30, 2011 (10) | |
| 10.11 | Restricted Stock Grant Agreement, dated September 23, 2013, by and between Solar3D, Inc., a Delaware corporation, as Grantor, and James B. Nelson, as Grantee (11) | |
| 10.12 | Stock Purchase Agreement by and among Solar United Network, Inc., Emil Beitpolous, Abe Emard, Richard Emard, Mikhail Podnesbesnyy, and Solar3D, Inc., dated October 31, 2013 (12) | |
| 10.13 | Addendum to Stock Purchase Agreement by and among Solar United Network, Inc., Emil Beitpolous, Abe Emard, Richard Emard, Mikhail Podnesbesnyy, and Solar3D, Inc., dated January 31, 2014 (13) | |
| 14.1 | Code of Conduct (3) | |
| 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 Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| (1) | Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated August 1, 2005. |
| (2) | Incorporated by reference to Amendment No. 4 to the Form SB-2 Registration Statement filed with the Securities and Exchange Commission dated November 2, 2005. |
| (3) | Incorporated by reference to the Form 10-KSB filed with the Securities and Exchange Commission, dated April 14, 2007. |
| (4) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated July 20, 2007. |
| (5) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated January 3, 2008. |
| (6) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated May 13, 2009. |
| (7) | Incorporated by reference to the Form 10K filed with the Securities and Exchange Commission, dated July 15, 2009. |
| (8) | Incorporated by reference from the Definitive Information Statement on Schedule 14Cfiled by the Company with the Securities and Exchange Commission, dated August 30, 2010. |
| (9) | Incorporated by reference from the Report on Form 8-Kfiled by the Company with the Securities and Exchange Commission, dated August 5, 2010. |
| (10) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated June 30, 2011. |
| (11) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated September 26, 2013. |
| (12) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated November 6, 2013. |
| (13) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated January 31, 2014. |
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: July 23, 2014 | 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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