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 -1- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. - -------------------------------- -2- 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 -3- 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 -4- 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 -5- 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. -12- 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. - ------------------------------------------------------------------ Not Applicable. ITEM 4T. 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 the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. -13- 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. - ------------------------- 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. - --------------------------------------- None. ITEM 4. (REMOVED AND RESERVED). - ------------------------------ ITEM 5. OTHER INFORMATION. - ------------------------- 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. -14- 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. - ---------------- 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) -15-