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 Quarterly Period Ended June 30, 2010
or
[ ] 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
MACHINETALKER, INC.
-------------------------------------
(Name of registrant in its charter)
DELAWARE 01-05922991
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
513 DE LA VINA STREET, SANTA BARBARA, CALIFORNIA 93101
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone Number: (805) 957-1680
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[__] No[_X_]
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 (ss.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[__] No[_X_]
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 [___] Accelerated filer [___]
Non-accelerated filer (Do not check [___] Smaller reporting company [_X_]
if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[__] 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 August 14,
2010 was 96,839,803.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED ...................................................................................... 2
Consolidated Balance Sheets..................................................................... 3
Consolidated Statements of Operations........................................................... 4
Consolidated Statements of Shareholders' Deficit................................................ 5
Consolidated Statements of Cash Flows........................................................... 6
Notes to the Consolidated Financial Statements.................................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
ITEM 4T. CONTROLS AND PROCEDURES............................................................................13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................................14
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS........................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................................14
ITEM 4. (REMOVED AND RESERVED).............................................................................14
ITEM 5. OTHER INFORMATION..................................................................................14
ITEM 6. EXHIBITS...........................................................................................15
SIGNATURES.........................................................................................................15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
June 30, 2010 December 31, 2009
------------------ -------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 69,427 $ 10,002
------------------ -------------------
TOTAL CURRENT ASSETS 69,427 10,002
------------------ -------------------
PROPERTY & EQUIPMENT, at cost
Machinery & equipment 13,080 13,080
Computer equipment 50,351 50,351
Furniture & fixture 4,670 4,670
------------------ -------------------
68,101 68,101
Less accumulated depreciation (67,657) (67,423)
------------------ -------------------
NET PROPERTY AND EQUIPMENT 444 678
------------------ -------------------
OTHER ASSETS
Security deposit 2,975 2,975
------------------ -------------------
TOTAL OTHER ASSETS 2,975 2,975
------------------ -------------------
TOTAL ASSETS $ 72,846 $ 13,655
================== ===================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 12,263 $ 45,582
Accrued expenses 459,232 401,029
Accrued interest, other 21,125 17,225
Accrued interest, related parties 107,073 110,041
Convertible promissory note 65,000 65,000
Notes payable, related parties - 44,000
------------------ -------------------
TOTAL CURRENT LIABILITIES 664,693 682,877
------------------ -------------------
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value;
550,000,000 authorized shares;
52,395,359 and 36,395,359 shares issued and
outstanding, respectively 52,395 36,395
Additional paid in capital 7,404,377 7,220,377
Deficit accumulated during the development stage (8,048,619) (7,925,994)
------------------ -------------------
TOTAL SHAREHOLDERS' DEFICIT (591,847) (669,222)
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 72,846 $ 13,655
================== ===================
The accompanying notes are an integral part of these consolidated financial statements
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MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended From Inception
---------------------------- --------------------------- January 30,2002
through
June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009 June 30, 2010
------------- ------------- ------------- ------------- ---------------
REVENUE $ - $ 14,510 $ - $ 24,510 $ 1,127,406
COST OF SERVICES - - - - 496,177
------------- ------------- ------------- ------------- ---------------
GROSS PROFIT - 14,510 - 24,510 631,229
------------- ------------- ------------- ------------- ---------------
OPERATING EXPENSES
Selling and marketing expenses - 22,877 - 25,028 1,264,814
General and administrative expenses 68,236 249,367 115,544 320,484 3,126,962
Stock compensation expense - - - - 69,778
Research and development 800 538 2,380 1,830 1,442,245
Impairment loss - - - - 1,753,502
Depreciation and amortization expense 117 2,212 234 4,424 119,981
------------- ------------- ------------- ------------- ---------------
TOTAL OPERATING EXPENSES 69,153 274,994 118,158 351,766 7,777,282
------------- ------------- ------------- ------------- ---------------
LOSS FROM OPERATIONS (69,153) (260,484) (118,158) (327,256) (7,146,053)
------------- ------------- ------------- ------------- ---------------
OTHER INCOME/(EXPENSES) BEFORE PROVISION
FOR INCOME TAXES
Interest income - 1 1 2 10,256
Interest expense (1,950) (4,194) (4,468) (11,567) (265,683)
Penalties - - - - (155)
Gain/(loss) on investment - - - 1,347 (73,121)
Loss on settlement of debt - (567,300) - (567,300) (567,300)
Gain/(loss) on sale of asset - - - - (963)
------------- ------------- ------------- ------------- ---------------
TOTAL OTHER INCOME/(EXPENSES) (1,950) (571,493) (4,467) (577,518) (896,966)
------------- ------------- ------------- ------------- ---------------
LOSS BEFORE PROVISION FOR INCOME TAXES (71,103) (831,977) (122,625) (904,774) (8,043,019)
PROVISION FOR INCOME TAXES - - - - (5,600)
------------- ------------- ------------- ------------- ---------------
NET LOSS $ (71,103) $ (831,977) $ (122,625) $ (904,774) $ (8,048,619)
============= ============= ============= ============= ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.03) $ (0.00) $ (0.05)
============= ============= ============= =============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 52,395,359 25,864,253 48,682,652 17,397,832
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements
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MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
Accumulated
Deficit During
Common stock Additional the
---------------------- Paid-in Development
Shares Amount Capital Stage Total
---------- --------- ----------- ------------ -----------
Balance at December 31, 2009 36,395,359 $ 36,395 $ 7,220,377 $(7,925,994) $ (669,222)
Issuance of common stock in February 2010 for cash
(16,000,000 shares of common stock issued at
$0.0125 per share) (unaudited) 16,000,000 16,000 184,000 - 200,000
Net loss for the six months ended June 30, 2010 (unaudited) - - - (122,625) (122,625)
---------- --------- ----------- ------------ -----------
Balance at June 30, 2010 (unaudited) 52,395,359 $ 52,395 $ 7,404,377 $(8,048,619) $ (591,847)
========== ========= =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements
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MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From Inception
Six Months Ended January 30, 2002
----------------------------- through
June 30, 2010 June 30, 2009 June 30, 2010
------------- ------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (122,625) $ (904,774) $ (8,048,619)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 234 4,424 119,981
Issuance of common shares and warrants for services - 166,625 727,713
Issuance of common shares in conversion of debt - - 400,000
(Gain)/loss on investment - (1,347) 73,121
Stock Compensation Cost - - 69,778
Gain on sale of asset - - 963
Impairment loss - - 1,753,502
Loss on settlement of debt - 567,300 567,300
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses - 904 -
Patents - 656 -
Deposits and other assets - 5,000 2,025
Increase (Decrease) in:
Accounts payable (33,319) 10,687 91,763
Accrued expenses 59,135 71,567 587,430
Unearned revenue - (20,000) -
------------- ------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (96,575) (98,958) (3,655,043)
------------- ------------- ---------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment - - (73,754)
Sale of asset - - 3,963
Investment in companies - 1,347 (6,121)
------------- ------------- ---------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES - 1,347 (75,912)
------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable related parties - - 1,127,342
Proceeds from convertible promissory note - - 129,000
Repayment of notes payable related party (44,000) - (137,000)
Contributed capital by shareholder - 6,485 19,197
Proceeds from subsidiary - - 300,000
Proceeds from issuance of common stock 200,000 100,000 2,354,193
------------- ------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 156,000 106,485 3,792,732
------------- ------------- ---------------
NET INCREASE IN CASH 59,425 8,874 61,777
CASH, BEGINNING OF PERIOD 10,002 2,949 7,650
------------- ------------- ---------------
CASH, END OF PERIOD $ 69,427 $ 11,823 $ 69,427
============= ============= ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 133,948
============= ============= ===============
Income taxes $ - $ - $ 5,600
============= ============= ===============
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the six months ended June 30, 2009, a shareholder forgave $52,342 in notes payable, which has been
recorded by the Company as a capital contribution; 1,590,000 shares of common stock were issued for services
and accounts payable at a fair value of $246,125; 7,320,000 shares of common stock with a fair value of
$933,300 were issued in conversion of $366,000 in debt resulting in a $567,300 loss on settlement of debt.
The accompanying notes are an integral part of these consolidated financial statements
-6-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2010
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010. 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, 2009.
GOING CONCERN
The accompanying consolidated 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 consolidated 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 June 30, 2010. 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 MachineTalker, Inc. is
presented to assist in understanding the Company's consolidated financial
statements. The consolidated 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 consolidated financial
statements.
DEVELOPMENT STAGE ACTIVITIES AND OPERATIONS
The Company has been in its initial stages of formation and for the six
months ended June 30, 2010, had insignificant 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries Wideband Detection Technologies, Inc. and Micro
Wireless Technologies, Inc. All significant inter-company balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENT
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
-7-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
We recognize revenue upon delivery, provided that evidence of an
arrangement exists, title, and risk of loss have passed to the customer,
fees are fixed or determinable, and collection of the related receivable is
reasonably assured. We record revenue net of estimated product returns,
which is based upon our return policy, sales agreements, management
estimates of potential future product returns related to current period
revenue, current economic trends, changes in customer composition and
historical experience. We accrue for warranty costs, sales returns, and
other allowances based on our experience, which tells us we have less than
$25,000 per year in warranty returns and allowances. Generally, we extend
credit to our customers and do not require collateral. We perform ongoing
credit evaluations of our customers and historic credit losses have been
within our expectations. We do not ship a product until we have either a
purchase agreement or rental agreement signed by the customer with a
payment arrangement. This is a critical policy, because we want our
accounting to show only sales which are "final" with a payment arrangement.
We do not make consignment sales, nor inventory sales subject to a "buy
back" or return arrangement from customers. Accordingly, original equipment
manufacturers do not presently have a right to return unsold products to
us.
We also grant exclusive licenses for the use of the technology required to
operate our products. Software license revenue is recognized over the
contract period, for those contracts that either do not contain a service
component or that have services which are not essential to the
functionality of any other element of the contract.
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 six months ended June 30, 2010 and 2009 as the
inclusion of any potential shares would have had an anti-dilutive effect
due to the Company generating a loss.
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.
3. CAPITAL STOCK AND WARRANTS
On August 5, 2010, the Majority shareholders of the issued and outstanding
shares of the Company's common stock approved a one-for-five reverse common
stock split, and these interim financial statements have been adjusted for
the effects of this reverse split.
-8-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2010
3. CAPITAL STOCK AND WARRANTS (Continued)
During the six months ended June 30, 2010, the Company issued 16,000,000
shares of common stock at a price of $0.0125 for $200,000 in cash. During
the six months ended June 30, 2009, the Company issued 18,648,019 shares of
common stock at a price of $0.0053625; 1,590,000 shares of common stock
were issued for services and accounts payable at a fair value of $246,125;
732,000 shares of common stock with a fair value of $933,300 were issued in
conversion of $366,000 in debt resulting in the recognition of a $567,300
loss on settlement of debt.
WARRANTS
During the six months ended June 30, 2010, the Company issued no warrants.
At June 30, 2010, the Company had a total of 866,400 warrants to purchase
866,400 shares of common stock outstanding.
4. RETURN ON INVESTMENT
During the six months ended June 30, 2009, the Company received $1,347 on
its initial investment in Listen4U, LLC.
5. RELATED PARTY TRANSACTION
During the year ended December 31, 2009, an investor loaned the Company
$37,000 for operating expenses. The note was due and payable upon demand,
and bore interest at 6% per annum. The note, including interest of $1,601
was paid off during the six months ended June 30, 2010.
During the year ended December 31, 2009, the Company's President loaned
$7,000 to the Company for operating expenses. The note bore interest at 6%
per annum, and was paid off during the six months ended June 30, 2010.
During the six months ended June 30, 2009, the Company's President forgave
a note payable of $52,342 and contributed cash of $6,485, both of which
were recorded as contributed capital.
6. SUBSEQUENT EVENTS
Management evaluated subsequent events as of the date of the financial
statements pursuant to TOPIC 855.
As of August 3, 2010, the Company through a private placement issued
44,444,444 shares of common stock to seven investors, at a purchase price
of $0.00225 per share for cash in the amount of $100,000.
On August 3, 2010, the Company entered into a non-statutory stock option
agreement with a consultant, granting him an option to purchase 15,000,000
shares of common stock at a price of $0.05 per share over a period of seven
years. The options were granted effective July 22, 2010, and vest 1/36th
per month commencing on August 21, 2010. The options will continue to vest
as long as he is a consultant of the Company.
On August 5, 2010, the Majority shareholders of the Company's issued and
outstanding common stock approved the one-for-five reverse stock split of
the Company's issued and outstanding common stock, and these financial
statements have been adjusted to reflect this stock split. The Majority
shareholders also approved the change of the Company's name to Solar3D,
Inc.
-9-
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 MachineTalker, Inc.'s ("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) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue business;
(e) barriers to raising the additional capital or to obtaining the
financing needed to implement its business plans;
(f) lack of demand for the Company's products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside
parties;
(i) insufficient revenues to cover operating costs; and
(j) inability to start or acquire new businesses, or lack of
success of new businesses started or acquired by the Company,
if any.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. The Company cautions you not to place undue reliance
on the statements, which speak only as of the date of this Form 10-Q. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that the Company or persons acting on its behalf may issue.
The Company does not undertake any obligation to review or confirm
analysts' expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this 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
In May 2008, we successfully interconnected our Talker(R) product line
to our new "GuardDog" product which uses Ultra-Wide Band ("UWB') technology to
detect any movement or motion in its vicinity. The combination of Talkers(R) and
GuardDog employs UWB radar-like signals to detect movement within an area,
either in the open space or inside of a closed chamber like that of a shipping
container. In addition, this new product can detect changes other than movement,
such as a break or hole being made in the side of a container. This product is
aimed at a unique method of protection for goods in transit or in storage, and
has been proposed as part of a package to several potential customers.
Another recently released product, the CBM6, has been proposed for use
in monitoring the vibration in high speed rotating spindles and slower speed
-10-
rotating fans and motors in oil refineries for wireless data acquisition in
support of Condition-Based Maintenance ("CBM"). This product has been packaged
within explosion-proof housings for use in oil refineries and in less costly
polycarbonate enclosures for other harsh environments. The CBM6 has been
designed to gather data from high speed sources and sensors, and to process that
data at a remote site prior to sending it by wireless means to a central
computer facility.
We currently do not have full time employees. We generally utilize
consultants who are technical contributors to product development with our Chief
Scientist providing a marketing presence by presenting seminars at trade shows
and by being a contributing member of wireless standards committees. This work
helps to address the wireless process control aspects of our product line. We
have also minimized the use of administration personnel in favor of technical
staff concerned with the application of our products to security and industrial
customers. We are negotiating with several Systems Integrators to utilize our
products in their respective fields of business. The Company does not currently
have a general product liability insurance plan in place, but plans to purchase
a new policy if and when sales of our products are made.
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.
The Company is in the process of satisfying the rules and regulations of the
Securities and Exchange Commission before recording the above described
amendments to its Certificate of Incorporation, as amended. The Company plans to
develop new technology for commercial application in the solar energy industry
in the future.
APPLICATION OF 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, cash equivalents, investments, 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 in accordance with the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements" ("SAB 104"). 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
-11-
estimates of potential future product returns related to current period revenue,
current economic trends, changes in customer composition and historical
experience. We accrue for warranty costs, sales returns, and other allowances
based on our experience which tells us we have less than $25,000 per year in
warranty returns and allowances. Generally, we extend credit to our customers
and do not require collateral. We perform ongoing credit evaluations of our
customers and historic credit losses have been within our expectations. We do
not ship a product until we have either a purchase agreement or rental agreement
signed by the customer with a payment arrangement. This is a critical policy,
because we want our accounting 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, OEMs do not
presently have a right to return unsold products to the Company.
We also grant exclusive licenses for the use of the technology required
to operate our products. We recognize revenue from software licensing
arrangements under SOP 97-2 "Software Revenue Recognition," as amended by
SOP-98-9, Modification of SOP 97-2, "Software Revenue Recognition with Respect
to Certain Transactions." For those contracts that either do not contain a
services component or that have services which are not essential to the
functionality of any other element of the contract, software license revenue is
recognized over the contract period.
PROVISION FOR SALES RETURNS, ALLOWANCES AND BAD DEBTS
We 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 is provided
for by reducing gross revenue by a portion of the amount invoiced during the
relevant period. The amount of the reduction is estimated based on historical
experience.
RESERVE FOR OBSOLETE/EXCESS INVENTORY
Inventories are stated at the lower of cost or market. We regularly
review our inventories and, when required, will record a provision for excess
and obsolete inventory based on factors that may impact the realizable value of
our inventory including, but not limited to, technological changes, market
demand, regulatory requirements and significant changes in our cost structure.
If ultimate usage varies significantly from expected usage, or other factors
arise that are significantly different than those anticipated by management,
inventory write-downs or increases in reserves may be required.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO THE
THREE AND SIX MONTHS ENDED JUNE 30, 2009
REVENUE
Total revenue for the three months ended June 30, 2010 decreased by
$(14,510) to $0 compared to $14,510 for the three months ended June 30, 2009.
Total revenue for the six months ended June 30, 2010 decreased by $(24,510) to
$0 compared to $24,510 for the six months ended June 30, 2009. The decrease in
revenue was the result of deferred income being fully recognized in the prior
periods, and the Company being in its development stage.
COST OF SALES
There was no cost of sales for the three and six months ended June 30,
2010 and 2009, respectively. This was a result of recognition of previously
deferred income with no related purchases of materials.
SELLING AND MARKETING EXPENSES
Selling and marketing ("S&M") expenses decreased by $(22,877) to $0 for
the three months ended June 30, 2010 compared to $22,877 for the three months
ended June 30, 2009. S&M expenses decreased by $(25,028) to $0 for the six
months ended June 30, 2010 compared to $25,028 for the six months ended June 30,
2009. This decrease in S&M expenses was the result of a decrease in outside
service expenses and a reduction in investor relations services.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses decreased by $(181,131) to
$68,236 for the three months ended June 30, 2010 compared to $249,367 for the
three months ended June 30, 2009. G&A expenses decreased by $(204,940) to
$115,544 compared to $320,484 for the six months ended June 30, 2009. This
decrease in G&A expenses was the result of a decrease in overall operating
expenses, primarily professional fees and utilities.
RESEARCH AND DEVELOPMENT
Research and Development ("R&D") costs increased by $262 to $800 for
the three months ended June 30, 2010 compared to $538 for the three months ended
June 30, 2009. R&D costs increased by $550 to $2,380 for the six months ended
June 30, 2010 compared to $1,830 for the six months ended June 30, 2009. This
increase in R&D costs was the result of an increase in outside services for
securing new patents.
NET LOSS
Net Loss decreased by $(760,874) to $71,103 for the three months ended
June 30, 2010 compared to $831,977 for the three months ended June 30, 2009. Net
Loss decreased by $(782,149) to $122,625 for the six months ended June 30, 2010
compared to $904,774 for the six months ended June 30, 2009. This decrease in
Net Loss was the result of a decrease in operational costs and other expenses.
The decrease in other expenses resulted from the Company recognizing no losses
on settlement of debt during the current period compared to a loss of $567,300
recognized during the prior year. Currently operating costs exceed revenue
because sales are not yet significant. We cannot assure when or if revenue will
exceed operating costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2010, we had a working capital deficit of $(595,266) as
compared to $(672,875) at December 31, 2009. This decrease in working capital
deficit of $(77,609) was due primarily to an increase in cash from investors.
Cash flow used in operating activities was $(96,575) for the six months
ended June 30, 2010, as compared to cash used of $(98,958) for the six months
ended June 30, 2009. This decrease of $2,383 was primarily attributable to the
payment of accounts payable.
Cash provided by investing activities was $0 for the six months ended
June 30, 2010 as compared to cash provided of $1,347 for the six months ended
June 30, 2009. The decrease of cash provided by investing activities was due to
no investment returns being experienced during the current period.
Cash provided from financing activities during the six months ended
June 30, 2010 was $156,000 as compared to cash provided of $106,485 for the six
months ended June 30, 2009. The increase of $49,515 was primarily due to an
increase in equity financing.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company is recorded,
processed, summarized, and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
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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, 2010. As
part of such evaluation, management considered the matters discussed below
relating to internal control over financial reporting. Based on this evaluation
our management, including the Company's Chief Executive Officer and Principal
Financial Officer, has concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2010.
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 quarter ended June 30, 2010 that materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
- -------------------------------------------------------------------
During the three month period ended June 30, 2010, the Company did not
issue any shares of common stock. On July 22, 2010, the Company granted
75,000,000 stock options (15,000,000 post one-for-five reverse split) to James
B. Nelson, a consultant to the Company, to purchase 75,000,000 shares
(15,000,000 post one-for-five reverse split) of the Company's common stock for
$.01 per share ($.05 per share post one-for-five reverse split), for a period of
seven years from date of grant, vesting 1/36th per month commencing on August
21, 2010, in a private placement pursuant to Section 4(2) and Rule 506 of
Regulation D of the Securities Act of 1933, as amended. On August 3, 2010, the
Company issued 222,222,222 (44,444,444 post one-for-five reverse split) shares
of its common stock in a private placement under Section 4(2) of the Securities
Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, to
seven investors for total capital of $100,000. See our Report on Form 8-K, dated
August 3, 2010, filed with the Securities and Exchange Commission.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
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None.
ITEM 4. (REMOVED AND RESERVED).
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ITEM 5. OTHER INFORMATION.
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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.
The Company is in the process of satisfying the rules and regulations of the
Securities and Exchange Commission before recording the above described
amendments to its Certificate of Incorporation, as amended. The Company plans to
develop new technology for commercial application in the solar energy industry
in the future.
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In light of the fact that the Board of Directors and the holders of a
majority of the outstanding voting shares of the Company have approved the
one-for-five reverse stock split, the financial statements included in this
Quarterly Report on Form 10-Q are adjusted to reflect the pending reverse split,
even though it will not be recorded and become effective until after the
Securities and Exchange Commission reviews the Company's Information Statement
on Schedule 14C and ten (10) days after the Information Statement is mailed to
the Company's shareholders.
ITEM 6. EXHIBITS.
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EXHIBIT DESCRIPTION
------- ----------------------------------------------------------
10.1 Form of Stock Purchase Agreement, dated July 22, 2010*
10.2 Nonstatutory Stock Option Agreement, dated July 22, 2010*
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
- ----------
*Incorporated by reference from the Report on Form 8-K filed by the
Company with the Securities and Exchange Commission, dated August 3, 2010.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MACHINETALKER, INC.
Dated: August 16, 2010 By: /s/Roland F. Bryan
--------------------------------------------
Roland F. Bryan, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
Dated: August 16, 2010 By: /s/Roland F. Bryan
--------------------------------------------
Roland F. Bryan, Chief Financial Officer
(Principal Financial Officer)
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