Morningstar® Document Research℠ FORM 10-KSunworks, Inc. - SUNWFiled: March 28, 2013 (period: December 31, 2012)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xx ANNUAL REPORT UNDER SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2012Commission file number 000-49805SOLAR3D, INC.(Exact name of registrant as specified in its charter)Delaware01-05922991(State of Incorporation)(I.R.S. Employer Identification No.) 6500 Hollister Avenue, Suite130, Goleta, California 93117(Address of principal executive offices) (Zip Code)(805) 690-9000Registrant’s telephone number, including area codeSecurities registered pursuant to Section 12(g) of the Act: Title of Each ClassName of Each Exchange OnWhich Registered COMMON STOCKOTC Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x 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 of1934 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 filingrequirements 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 Filerequired 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 shorterperiod that the registrant was required to submit and post such files). Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K. Yes o No x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filero Accelerated fileroNon-accelerated filer(Do not check if a smaller reporting company)o Smaller reporting companyxIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $3,109,640 as of June 30, 2012, the lastbusiness day of the registrant's most recently completed second fiscal quarter. (computed by reference to the last sale price of a share of the registrant’sCommon Stock on that date as reported by OTC Bulletin Board).There were 142,580,412 shares outstanding of the registrant’s Common Stock as of March 20, 2013. Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsTABLE OF CONTENTSPART I ITEM 1Business3ITEM 2Properties5ITEM 3Legal Proceedings5ITEM 4Mine Safety Disclosures5 PART II ITEM 5Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities6ITEM 6Selected Financial Data7ITEM 7Management’s Discussion and Analysis of Financial Condition and Results of Operations7ITEM 8Financial Statements and Supplementary Data12ITEM 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure26ITEM 9AControls and Procedures26ITEM 9BOther Information27 PART III ITEM 10Directors, Executive Officers, and Corporate Governance28ITEM 11Executive Compensation31ITEM 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters35ITEM 13Certain Relationships and Related Transactions, and Director Independence36ITEM 14Principal Accounting Fees and Services36 PART IV ITEM 15Exhibits, Financial Statement Schedules37 SIGNATURES38 Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents PART IITEM 1. BUSINESSGeneralSolar3D, Inc. is a Delaware corporation engaged in the business of developing and marketing a new three-dimensional version of solar celltechnology in order to maximize the conversion of sunlight into electricity. Conventional solar cells reflect a significant amount of incident sunlight, losingmuch of the solar energy that could be utilized to produce additional electrical power. Inspired by light management techniques used in fiber optic devices,Solar3D is designing a new type of solar cell, one that utilizes a three-dimensional design to trap sunlight inside the photovoltaic structure where it isreflected multiple times until much more of the energy is absorbed into the solar cell material. We have applied for patent protection on what we believe tobe a breakthrough design for the next generation in solar cell technology with increased efficiency and resulting in a lower cost per watt of electricityproduced.Corporate HistoryWe were originally formed in January 2002 as MachineTalker, Inc. in order to pursue the development of new wireless process controltechnology. In August 2005, we filed a Registration Statement on Form SB-2 which was declared effective by the Securities and Exchange Commission onDecember 22, 2005. In September 2010, we shifted our engineering and research focus to developing a new means for generating solar-produced electricalpower for use in the manufacture of highly efficient solar cells. In July 2010, we changed our company name to Solar3D, Inc. in order to better reflect our newbusiness plan and filed for patent protection covering our new concepts for 3D solar cell designs.Background of Solar Cell TechnologySolar cell efficiency is the measure of how much incident sunlight is converted into electricity. Most solar cells today are made from silicon, aninexpensive and abundant raw material. Due to the physics of silicon, the theoretical maximum efficiency of high-grade crystalline silicon solar cells isapproximately 29%. In commercial practice, the efficiency ranges from 12% to 19%. We anticipate that our 3D solar cell technology will increase theefficiency of solar cells using low cost processes, in order to decrease the overall cost per watt of solar electricity.Traditional solar cells are two-dimensional, utilizing a single pass sunlight conversion mechanism. There are two primary ways that these deviceslose light and electrons, or electron-hole pairs to be precise, which result in a conversion efficiency much less than the theoretical maximum.· Surface Reflection – Due to fundamental physics, approximately 30% of incident sunlight is reflected off the surface of silicon cells.· Electron Reabsorption – When a photon strikes the solar cell, an electron is “knocked loose” creating an electron-hole pair that moves throughthe cell material creating an electrical current. However, in conventional two-dimensional solar cell designs, these electron-hole pairs musttravel a long distance before reaching a metal contact wire. As a result, they are reabsorbed by the material and do not contribute to theproduction of electrical current.Our 3D Solar Cell TechnologyWe are designing our three-dimensional solar cell from the ground up as an integrated optoelectrical device that optimally reduces all primaryenergy losses in a solar cell to achieve the highest efficiency. By leveraging the scalability of conventional solar and semiconductor processes, we believeour 3D solar cell can deliver an unprecedented level of cost and conversion efficiency.Unlike conventional solar cells where sunlight passes through one time, our 3D solar cell design is planned to use myriad 3D micro-cells that trapsunlight inside photovoltaic structures where photons bounce around until they are all converted into electricity. Our three-dimensional technology isexpected to combine thin- and thick-film technologies to achieve the high efficiencies of crystalline at the lower cost per watt of thin film. 3Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe believe the key features and benefits of our 3D solar cell design are:· Light Collection – Instead of allowing sunlight to bounce off the surface, the new design uses light collecting to trench down into the threedimensional structure.· 3D Photovoltaic Structure – Conventional solar cells have one photon absorbing surface. Solar3D’s unique design is anticipated to increasethe surface area many fold in order to allow the photos to bounce off many surfaces until virtually all the photons that can be absorbed, withinthe limitations of the material, are absorbed.· Thin Absorbing Regions – Our 3D photovoltaic structure is anticipated to be fabricated with very thin absorbing regions and designed toenhance charge carrier separation. Therefore, electron-hole pairs will travel short distances before reaching a contact wire where they will bequickly extracted to produce current. We believe this approach will lead to an overall height and silicon material reduction when compared toconventional crystalline silicon cells.· Below Surface Contacts – Unlike conventional solar cells where electrical contact wires run on the top of the cell, blocking sunlight, ourdesign is expected to use a network of contact wires that run below the light collectors. We believe this approach will allow our 3D solar cellsto trap and utilize nearly 100% of the incident light.· ·A New Solar Cell Design – Almost all conventional solar cells are two-dimensional designs based on wafer or thin film manufacturingprocesses. As a result, their performance is naturally constrained by their physical structure. By redefining the problem in 3D, we expect thatthe new design will be able to break down the 2D constraints and develop a more efficient solution.Our initial commercialization objective is to create a low cost, high efficiency silicon solar cell based on our 3D technology. By keeping our focuson silicon, we believe we can leverage the tremendous silicon infrastructure and manufacturing processes of the growing solar industry, as well as the matureand highly optimized semiconductor industry. However, we anticipate that our 3D technology will be able to be used to create multi-junction cells withexotic materials such as gallium arsenide to achieve efficiencies that may be greater than 50% for use in concentrated solar and high performanceapplications.Business and Revenue ModelsWe recently completed a working prototype of our proprietary three-dimensional solar cell technology. Our focus in 2013 will be on thecommercialization of this new technology. We anticipate that three major milestones must be met in order to bring this technology to market. 1. The development of a manufacturing prototype. We anticipate that we will develop a manufacturing prototype under the guidance of Dr.Changwan Son, our director of technology, in conjunction with a third party foundry, established specifically to help commercialize solarinventions such are ours. The development of this prototype is planned to include third party testing by a recognized testing organizationwithin the solar industry.2. A pilot run of the manufacturing process for our new solar cell. We anticipate that the same foundry that develops the manufacturingprototype will conduct a pilot manufacturing run of several thousand units to prove that the process can be executed economically, and that theperformance of our solar cell can be maintained in a mass production environment. Steps one and two are anticipated to be completed by thefourth quarter of 2013.3. Identify a manufacturing partner to help take our product to market. As opposed to other solar technology developers, Solar3D does notintend to build manufacturing facilities. Instead, we plan to rely on existing processes, equipment and facilities in other organizations toproduce our final product for the marketplace. To do so, Solar3D intends to identify and contract with a solar cell or semiconductormanufacturer to mass-produce the Solar3D cell. We believe that these manufacturers will be able to use our device to increase the energy outputof their existing products. We expect to earn revenue from licensing fees and by partnering or joint venturing with entities that seek to use ourproprietary three-dimensional solar cell technology. We anticipate that we will identify our manufacturing partner by the fourth quarter of2013.Sale of Wideband Detection Technologies, Inc.In June 2011, we sold our entire MachineTalker technology and business to Roland F. Bryan, a director and executive officer of the Company, inconsideration for a secured promissory note from Mr. Bryan and assumption of significant liabilities by the new owner. The sale was made by contributingthe MachineTalker business and technology to Wideband Detection Technology, Inc. (“WDTI”), our prior wholly owned subsidiary, and then selling 100%of the outstanding capital stock of WDTI to Roland F. Bryan. 4Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents CompetitionThe market for solar cell technology is highly competitive. There are many companies throughout the world that manufacture solar cell arrays usingexisting technology and several other companies pursuing new methods to produce more energy efficiency using photovoltaic structures. Additionally,researchers at universities worldwide are currently working on new means to increase photovoltaic efficiency. Many of these competitors have longeroperating histories, greater name recognition, larger installed customer bases, and substantially greater financial and marketing resources than Solar3D. Ourability to compete successfully in this field will depend upon our completion of development of our proprietary technique for production of more efficientsolar cells and the adoption of our technology by major manufacturers in the field. We cannot assure that we will be able to compete successfully in the solarcell technology industry, or that future competition will not have a material adverse effect on our business, operating results, and financial condition.Government RegulationWe are subject to various federal, state and local laws affecting wireless communication and security businesses. The Federal Trade Commission andequivalent state agencies regulate advertising and representations made by businesses in the sale of their products, which apply to us. Our business is alsosubject to government laws and regulations governing health, safety, working conditions, employee relations, wrongful termination, wages, taxes and othermatters applicable to businesses in general. Failure of Solar3D to comply with applicable government rules or regulations could have a material adverseeffect on our financial condition and business operations.EmployeesAs of December 31, 2012, we had two full time employees, our chief executive officer and our director of technology. We also relied upon theservices of consultants to assist us with designing photovoltaic receptors to produce electricity from that incident light energy.SeasonalityOur operations are not expected to be affected by seasonal fluctuations, although our cash flow may be affected by fluctuations in the timing ofinvestment capital to support our research and product development.ITEM 2. PROPERTIESWe currently lease approximately 522 square feet of office space at 6500 Hollister Avenue, Suite 130, Goleta, California 93117 at a base rental rateof $2,500 per month pursuant to month-to-month lease.ITEM 3. LEGAL PROCEEDINGSWe are not currently a party to any material legal proceedings.ITEM 4. MINE SAFETY DISCLOSURESNot applicable. 5Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITYSECURITIESCommon StockOur common stock trades on the OTC Bulletin Board Market under the symbol “SLTD.” The range of high and low bid quotations for each fiscalquarter within the last two fiscal years was as follows:Year Ended December 31, 2012 High Low First Quarter ended March 31, 2012 $0.16 $0.04 Second Quarter ended June 30, 2012 $0.07 $0.04 Third Quarter ended September 30, 2012 $0.05 $0.02 Fourth Quarter ended December 31, 2012 $0.05 $0.03 Year Ended December 31, 2011 High Low First Quarter ended March 31, 2011 $0.30 $0.12 Second Quarter ended June 30, 2011 $0.27 $0.20 Third Quarter ended September 30, 2011 $0.27 $0.15 Fourth Quarter ended December 31, 2011 $0.23 $0.12 The above quotations reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actualtransactions.As of March 21, 2013, there were approximately 134 record holders of our common stock, not including shares held in “street name” in brokerageaccounts, which is unknown. As of March 15, 2013, there were approximately 142,580,412 shares of our common stock outstanding on record.DividendsWe have not declared or paid any cash dividends on our common stock and do not anticipate paying dividends for the foreseeable future.Equity Compensation Plan InformationDuring the fiscal year ended December 31, 2012, we granted nonqualified stock options to purchase up to 5,000,000 shares of our common stock toJames B. Nelson, our chief executive officer, president, interim chief financial officer, at an exercise price of $0.01 per share exercisable on a cashless basisuntil November 1, 2019 in consideration for his services to us. These stock options vest according to the following schedule: 1,388,889 on the date of grant,138,889 on the first day of each month thereafter commencing on December 1, 2012 until December 1, 2014, and then 138,886 on January 1, 2015; providedMr. Nelson is an employee or consultant of Solar3D.Effective July 22, 2010, we granted nonqualified stock options to purchase up to 15,000,000 shares of our common stock to James B. Nelson, ourchief executive officer, president, and interim chief financial officer, at an exercise price of $0.05 per share exercisable until July 22, 2017 in considerationfor his services to us. These stock options vest 1/36th per month, commencing on August 21, 2010, on a monthly basis for as long as Mr. Nelson is anemployee or consultant of Solar3D. 6Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents WarrantsFor the fiscal year ended December 31, 2012, we issued warrants to purchase unregistered common stock. The table below summarizes the numberof warrants issued, to whom issued, those that have been exercised and the number of shares of our common stock issued upon the exercise of those warrants.Warrant Holder Total WarrantsIssued Total WarrantsExercised Number of SharesofCommon StockIssued Bountiful Capital, LLC 23,744,766 0 0 Neil Sullivan 5,333,332 5,333,333 3,515,152 ITEM 6. SELECTED FINANCIAL DATA.Not applicable.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCautionary StatementsThis Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about Solar3DInc.’s financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues andexpenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statementsby looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-lookingstatements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future resultsexpressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to,the following: (a)inability to complete research and development of the new Solar3D technology with little or no current revenue; (b)volatility or decline of our stock price; (c)potential fluctuation in quarterly results; (d)our failure to earn revenues or profits; (e)inadequate capital to continue business; 7Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents (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 theexercise of outstanding convertible securities; (m)inability to effectively develop or commercialize our new Solar3D technology; and (n)inability to obtain patent or other protection for our proprietary intellectual property.Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionarystatements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that weor persons acting on our behalf may issue.We do 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-K 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 tohistorical information, the following discussion and other parts of this quarterly report contain forward-looking information that involves risks anduncertainties. OverviewOn 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 forward our business focus has centered on the development and commercialization of our newproprietary technology which seeks to significantly increase the efficiency and energy production of solar photovoltaic cells that are currently offered in themarket and that may be developed in the future. In furtherance of our business, we applied for patents covering a novel three-dimensional solar celltechnology that is designed to maximize the conversion of sunlight into electricity. We believe our new technology will dramatically increase the efficiencyof 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 trapsunlight inside photovoltaic structures where photons bounce around until they are all converted into electricity. Our three-dimensional technology isexpected to combine thin-film and thick-film technologies to achieve the high efficiencies of crystalline at the lower cost of thin film. 8Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents We currently have two full time employees, our chief executive officer and our director of technology. We also retain the services of several researchconsultants who are responsible for product developmentCritical Accounting PoliciesOur discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets andliabilities. 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 variousother assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, includingthose for the above-described items, are reasonable.Use of EstimatesIn accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reportedamounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate torecording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventoryrealization, 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 InstrumentsOur 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 RecognitionWe will continue to recognize revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104, “RevenueRecognition in Financial Statements” (“SAB 104”). We will continue to recognize revenue upon delivery, provided that evidence of an arrangement exists,title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. We willcontinue to record revenue net of estimated product returns, which is based upon our return policy, sales agreements, management estimates of potentialfuture product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. We willcontinue to accrue for warranty costs, sales returns, and other allowances based on our prior experience in servicing customers and products. We may extendcredit to our customers based upon credit evaluations and do not require collateral. We do not and will not ship a product until we have either a purchaseagreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show onlysales which are “final” with a payment arrangement. We do not intend to make consignment sales or inventory sales subject to a “buy back” or returnarrangement from customers.Provision For Sales Returns, Allowances and Bad DebtsWe will continue to maintain a provision for sales allowances, returns and bad debts. Sales returns and allowances result from equipment damagedin delivery or customer dissatisfaction, as provided by agreement. The provision will continue to be provided for by reducing gross revenue by a portion ofthe amount invoiced during the relevant period. The amount of the reduction will continue to be estimated based on historical experience. 9Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Results of Operations for the Years Ended December 31, 2012 and 2011REVENUE AND COST OF SALESFor the years ended December 31, 2012 and 2011, the Company had no revenue or cost of sales and is in its development stage.GENERAL AND ADMINISTRATIVE EXPENSESGeneral and administrative (“G&A”) expenses decreased by $(43,724) to $1,319,918 for the year ended December 31, 2012 compared to $1,363,642for the year ended December 31, 2011. G&A expenses decreased due to decreases in marketing services and salaries.RESEARCH AND DEVELOPMENTResearch and development (“R&D”) costs increased by $24,546 to $157,742 for the year ended December 31, 2012 compared to $133,196 for theyear ended December 31, 2011. This increase in R&D costs was the result of an increase in engineering costs and consulting fees due to a change in focus ofour technology.NET LOSSNet loss increased by $(496,275) to $(2,042,778) for the year ended December 31, 2012, compared to $(1,546,503) for the year ended December 31,2011. The increase in net loss was the result of an increase in non-cash stock compensation costs, debt discount, and change in derivative. Currently,operating costs exceed revenue because sales are not yet significant. We cannot assure when or if revenue will commence or exceed operating costs.Liquidity and Capital ResourcesWe had $33,637 in cash at December 31, 2012, as compared to no cash for the prior year ended December 31, 2011.During the year ended December 31, 2012, we used $(663,364) of cash for operating activities, as compared to $(889,399) for the prior year endedDecember 31, 2011. The decrease of $(226,035) in cash used in operating activities was a result of an increase in net loss due to non-cash stock compensationcosts, debt discount, and change in derivative, with an overall net change in prepaid expenses, deposits, accounts payable and accrued expenses.Cash used in investing activities for the current year ended December 31, 2012, was $(0), as compared to cash used of $(2,078) for the prior yearended December 31, 2011 to purchase equipment.Cash provided by financing activities during the year ended December 31, 2012 was $697,001as compared to $888,166 for the prior year endedDecember 31, 2011. Our capital needs have primarily been met from the proceeds of equity financing and shareholder loans. 10Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe will have additional capital requirements during 2013 necessary in order to complete research and development of working prototypes of ourthree-dimensional solar cells. We also expect that we will require additional capital in order to fabricate and market arrays of these 3-D solar cells. Althoughwe cannot quantify these anticipated costs with specificity, we estimate that we will require approximately $1,500,000 to 2,000,000 in funding over the next12 months of operations, with approximately 75% of the proceeds going toward product development and the balance going toward concerted marketing andsales efforts. We cannot assure that marketing and research and development costs in 2013 will not exceed or vary from those costs expected bymanagement. We intend to meet our cash requirements through the sale of shares of our common stock. We cannot assure that we will be able to raiseadditional capital or obtain additional financing for our business.We cannot assure that we will have sufficient capital to finance our growth and business operations or that such capital will be available on termsthat are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future. Going Concern QualificationWe have incurred significant losses from operations, and such losses are expected to continue. Our auditors have included a “Going ConcernQualification” in their report for the year ended December 31, 2012. In addition, we have limited working capital. The foregoing raises substantial doubtabout our ability to continue as a going concern. Management’s plans include seeking additional capital. We cannot guarantee that additional capital willbe available when and to the extent required, or that if available, it will be on terms acceptable to us. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” may make it substantially more difficult to raisecapital.Off-Balance Sheet ArrangementsWe 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. 11Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOLAR3D, INC.SOLAR3D, INC.(A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011CONTENTSReports of Independent Registered Public Accounting Firm Balance Sheets as of December 31, 2012 and 2011 Statements of Operations for the years ended December 31, 2012 and 2011 Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2012 and 2011 Statements of Cash Flows for the years ended December 31, 2012 and 2011 Notes to Financial Statements 12Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and ShareholdersSolar3D, Inc. (A Development Stage Company)Goleta, California We have audited the accompanying balance sheets of Solar3D, Inc. (A Development Stage Company) as of December 31, 2012 and 2011, and therelated statements of operations, stockholders' equity/(deficit), and cash flows for the years then ended, and for the period from inception of the developmentstage on January 30, 2002 through December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility isto express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solar3D, Inc. (A Development StageCompany) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, and for the period from inception ofthe development stage on January 30, 2002 through December 31, 2012, in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to thefinancial statements, the Company does not generate significant revenue, it has negative cash flows from operations, and its total liabilities exceed its totalassets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are alsodescribed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ HJ Associates & Consultants, LLPHJ Associates & Consultants, LLPSalt Lake City, UtahMarch 28, 2013 13Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.BALANCE SHEETSDECEMBER 31, 2012 AND 2011 December 31,2012 December 31,2011 ASSETS CURRENT ASSETS Cash $33,637 $- Prepaid expense 3,708 25,000 TOTAL CURRENT ASSETS 37,345 25,000 PROPERTY & EQUIPMENT, at cost Machinery & equipment 13,080 13,080 Computer equipment 57,795 57,795 Furniture & fixture 4,670 4,670 75,545 75,545 Less accumulated depreciation (71,124) (69,514) NET PROPERTY AND EQUIPMENT 4,421 6,031 OTHER ASSETS Security deposit - 2,975 TOTAL OTHER ASSETS - 2,975 TOTAL ASSETS $41,766 $34,006 LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Bank Overdraft $- $12,916 Accounts payable 67,580 17,349 Accrued expenses 43,060 - Accrued interest 2,790 - Derivative liability 696,564 - Convertible promissory note payable, net of discount $236,017 123,400 - TOTAL CURRENT LIABILITIES 933,394 30,265 SHAREHOLDERS' EQUITY/(DEFICIT) Common stock, $.001 par value;550,000,000 authorized shares; 141,155,412 and 118,283,724 shares issued and outstanding, respectively 141,155 118,283 Additional paid in capital 11,099,398 9,974,861 Deficit accumulated during the development stage (12,132,181) (10,089,403) TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (891,628) 3,741 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $41,766 $34,006 The accompanying notes are an integral part of these consolidated financial statements. 14Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 From Inception January 30, 2002 Years Ended through December 31,2012 December 31,2011 December 31,2012 REVENUE $- $- $1,127,406 COST OF SERVICES - - 496,177 GROSS PROFIT - - 631,229 OPERATING EXPENSES General and administrative expenses 1,319,918 1,363,642 7,607,066 Research and development 157,742 133,196 1,766,845 Impairment loss - - 1,753,502 Depreciation and amortization expense 1,610 1,591 123,448 TOTAL OPERATING EXPENSES 1,479,270 1,498,429 11,250,861 LOSS FROM OPERATIONS (1,479,270) (1,498,429) (10,619,632) OTHER INCOME/(EXPENSES) Interest income - 66 10,321 Interest expense (108,732) (2,123) (380,538)Penalties (112) (29) (296)Gain on derivative liability (423,914) - (423,914)Loss on investment - - (73,121)Loss on settlement of debt (30,750) (45,988) (644,038)Loss on sale of asset - - (963) TOTAL OTHER INCOME/(EXPENSES) (563,508) (48,074) (1,512,549) NET LOSS $(2,042,778) $(1,546,503) $(12,132,181) BASIC AND DILUTED LOSS PER SHARE $(0.02) $(0.01) WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED 128,117,443 109,533,761 The accompanying notes are an integral part of these consolidated financial statements. 15Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.STATEMENTS OF STOCKHOLDERS' DEFICITFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 Accumulated Deficit During Additional the Common stock Paid-in Development Shares Amount Capital Stage Total Balance from original Issuance at January 30, 2002($0.00425 per share) ($7,650 in cash and a patent atfair value of $5,100) 3,000,000 $3,000 $9,750 $- $12,750 Issuance of common stock in February and March2002(100,000 shares at $1.25 per share in cash) 100,000 100 124,900 - 125,000 Issuance of common stock in April 2002(8,000 shares at $1.25 per share in cash) 8,000 8 9,992 - 10,000 Issuance of common stock in April 2002(8,000 shares as finders fees) 8,000 8 (8) - - Issuance of common stock in May 2002(56,000 shares at $1.25 per share in cash) 56,000 56 69,944 - 70,000 Issuance of common stock in May 2002(8,000 shares as finders fees) 8,000 8 (8) - - Issuance of common stock in June 2002(20,000 shares at a price of $2.50 per share in cash) 20,000 20 49,980 - 50,000 Net Loss for the year ended December 31, 2002 - - - (852,600) (852,600)Balance at December 31, 2002 3,200,000 3,200 264,550 (852,600) (584,850) Issuance of common stock in January 2003(420,916 ata price of $0.3041 per share in cash) 420,916 421 127,579 - 128,000 Issuance of common stock in March 2003(32,884 at a price of $0.3041 per share in cash) 32,884 33 9,967 - 10,000 Net Loss for the year ended December 31, 2003 - - - (394,115) (394,115)Balance, December 31, 2003 3,653,800 3,654 402,096 (1,246,715) (840,965) Issuance of common stock in January 2004(1,000 shares valued at $6,250 for services 1,000 1 6,249 - 6,250 Issuance of common stock in June 2004(640,000 shares at $0.625 per share in conversion debt) 640,000 640 399,360 - 400,000 Issuance of common stock in June 2004(400,000 shares at $0.625 per share for services) 400,000 400 249,600 - 250,000 Issuance of common stock in Julythrough December 31, 2004 for cash 982,400 982 613,018 - 614,000 Net Loss for the year ended December 31, 2004 - - - (573,454) (573,454)Balance at December 31, 2004 5,677,200 5,677 1,670,323 (1,820,169) (144,169) Issuance of common stock in January 2005(548,800 shares at $0.625 per share for cash) 548,800 549 342,451 - 343,000 Issuance of common stock in March 2005(12,000 shares at $0.50 per share for cash) 12,000 12 29,988 - 30,000 Issuance of 152,680 warrants for services - - 129,550 - 129,550 Issuance of common stock in April 2005(12,000 shares at $2.50 per share for cash) 12,000 12 29,988 - 30,000 Issuance of common stock in May 2005(10,682 shares at fair value for services) 10,682 10 8,058 - 8,068 Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Issuance of common stock in May 2005(58,000 shares at $2.50 per share for cash) 58,000 58 144,942 - 145,000 Issuance of common stock in June 2005(42,000 shares at $2.50 per share for cash) 42,000 42 104,958 - 105,000 Issuance of 10,400 warrants for services - - 23,400 - 23,400 Net Loss for the year ended December 31, 2005 - - - (1,068,190) (1,068,190)Balance at December 31, 2005 6,360,682 6,360 2,483,658 (2,888,359) (398,342) Common stock warrants exercised in March 2006(12,600 common stock warrants exercised at $0.625) 12,600 13 7,862 - 7,875 Private Placement in 2nd Qtr 2006(16,000 shares at $3.75 per share for cash) 16,000 16 59,984 - 60,000 Stock Compensation Cost - - 35,008 - 35,008 Common stock warrants exercised in August 2006(2,000 common stock warrants exercised at $0.625) 2,000 2 1,248 - 1,250 Issuance of common stock in December 2006(6,286 shares issued at $1.75 for cash) 6,286 6 10,994 - 11,000 Investment in Sense Comm(24,000 common stock issued at $3.00 per share atFMV) 24,000 24 71,976 - 72,000 Stock Compensation Cost - - 4,847 - 4,847 Issuance of 24,800 warrants for services - - 46,861 - 46,861 Net Loss for the year ended December 31, 2006 - - - (611,967) (611,967)Balance at December 31, 2006 6,421,568 6,421 2,722,438 (3,500,326) (771,468) Common stock warrants exercised in January 2007(1,273 common stock warrants exercised for cash at$3.00) 1,273 1 3,817 - 3,818 Issuance of common stock in January 2007(33,143 shares at $1.75 per share for cash) 33,143 33 57,967 - 58,000 Issuance of common stock in February 2007(8,000 shares at $1.75 per share for cash) 8,000 8 13,992 - 14,000 Issuance of 24,000 warrants for services - - 49,487 - 49,487 Issuance of common stock in April 2007(32,000 shares at $1.75 per share for cash) 32,000 32 55,968 - 56,000 Issuance of common stock in April 2007(1,530 shares at $2.50 per share for services) 1,530 2 3,824 - 3,826 Exercise of stock options in June 2007(10,000 shares at $0.625 per share for cash) 10,000 10 6,240 - 6,250 Conversion of note to common stock in June 2007(114,286 shares at $1.75 per share in conversion ofdebt) 114,286 114 199,886 - 200,000 Issuance of common stock in June 2007(16,000 shares at $1.25 per share for cash) 16,000 16 19,984 - 20,000 Issuance of common stock in July 2007(61,600 shares at $1.25 per share for cash) 61,600 62 76,938 - 77,000 Issuance of common stock in July 2007(120,000 shares at $2.00 per share for purchase ofinvestment) 120,000 120 239,880 - 240,000 Issuance of common stock in August 2007(4,000 shares at $1.25 per share for cash) 4,000 4 4,996 - 5,000 Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Issuance of common stock in September 2007(19,200 shares at $1.25 per share for cash) 19,200 19 23,981 - 24,000 Issuance of 8,333 warrants for services - - 12,345 - 12,345 Stock compensation cost - - 17,092 - 17,092 Issuance of common stock in October 2007(40,000 shares at $1.25 per share for cash) 40,000 40 49,960 - 50,000 Issuance of common stock in November 2007(3,425 shares at $1.50 per share for services) 3,425 3 5,133 - 5,136 Issuance of common stock in December 2007(345,000 shares at $1.00 per share for license fees) 345,000 345 344,655 - 345,000 Issuance of common stock in December 2007(1,515,000 shares at $1.00 per share for purchase ofsubsidiary) 1,515,000 1,515 1,513,485 - 1,515,000 Net Loss for the year ended December 31, 2007 - - - (1,025,773) (1,025,773)Balance at December 31, 2007 8,746,025 8,745 5,422,068 (4,526,099) 904,714 Issuance of common stock in March 2008(2,649 shares at $1.25 per share for services) 2,649 3 3,308 - 3,311 Issuance of common stock in July 2008 Issuance of common stock in July 2008(14,667 shares at $0.625 per share for services) 14,667 15 9,153 - 9,168 Issuance of common stock in September 2008(60,000 shares at $0.175 per share for services) 60,000 60 10,440 - 10,500 Stock compensation cost - - 12,831 - 12,831 Issuance of common stock in September 2008(14,000 shares at $0.2275 per share for services) 14,000 14 3,171 - 3,185 Contributed capital by shareholder - - 448,712 - 448,712 Net Loss for the year ended December 31, 2008 - - - (2,349,831) (2,349,831)Balance at December 31, 2008 8,837,341 8,837 5,909,683 (6,875,930) (957,410) Issuance of common stock in April 2009(1,240,000 shares at $0.1625 per share issued forservices) 1,240,000 1,240 200,260 - 201,500 Issuance of common stock in May 2009(18,648,018 shares at $0.0053625 per share issued forcash) 18,648,018 18,648 81,352 - 100,000 Issuance of common stock in May 2009(350,000 shares at $0.1275 per share issued forservices) 350,000 350 44,275 - 44,625 Issuance of common stock in May 2009(380,000 shares at $0.1275 per share issued forconversion of promissory note) 380,000 380 48,070 - 48,450 Issuance of common stock in May 2009(6,940,000 shares at $0.1275 per share issued forconversion of promissory note) 6,940,000 6,940 877,910 - 884,850 Contributed capital by shareholder - - 58,827 - 58,827 Net Loss for the year ended December 31, 2009 - - - (1,050,064) (1,050,064)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 $0.0125per share) 16,000,000 16,000 184,000 - 200,000 Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Issuance of common stock in July 2010 for cash(44,444,444 shares of common stock issued at$0.00225 per share) 44,444,444 44,444 55,556 - 100,000 Issuance of common stock in August 2010 for cash(1,050,000 shares of common stock issued at$0.010476 per share) 1,050,000 1,050 9,950 - 11,000 Issuance of common stock in December 2010 for cash(2,800,000 shares of common stock issued at $0.05 pershare) 2,800,000 2,800 137,200 - 140,000 Rounding shares 22 - - - - Stock compensation cost - - 208,005 - 208,005 Net loss for the year ended December 31, 2010 - - - (616,906) (616,906)Balance at December 31, 2010 100,689,829 100,689 7,815,088 (8,542,900) (627,123) Issuance of common stock for cash and subscriptionpayableprices per share between $0.05 and $0.075 13,203,338 13,203 855,297 - 868,500 Issuance of common stock for servicesprice per share $0.15 650,000 650 96,850 - 97,500 Conversion of debt into common stock 1,839,500 1,840 136,123 - 137,963 Cashless exercise of warrants 1,781,927 1,782 (1,782) - - Issuance of common stock for a fee at fair value of$7,148 119,130 119 7,029 - 7,148 Stock compensation cost - - 499,200 - 499,200 Contribution of capital from related party sale ofsubsidiary - - 560,306 - 560,306 Common stock subscription payable - - 6,750 - 6,750 Net loss for the year ended December 31, 2011 - - - (1,546,503) (1,546,503)Balance at December 31, 2011 118,283,724 118,283 9,974,861 (10,089,403) 3,741 Issuance of common stock for cash and subscriptionpayable(price per share between $0.015 and $0.05) 15,876,906 15,877 334,623 - 350,500 Issuance of common stock at fair value for accountspayable & services 3,479,630 3,480 169,455 - 172,935 Issuance of common stock through a cashless exerciseof warrants 3,515,152 3,515 (3,515) - - Debt discount on promissory notes - - 59,388 - 59,388 Stock compensation cost - - 564,586 - 564,586 Net loss for the year ended December 31, 2012 - - - (2,042,778) (2,042,778) Balance at December 31, 2012 141,155,412 $141,155 $11,099,398 $(12,132,181) $(891,628)The accompanying notes are an integral part of these consolidated financial statements. 16Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 From Inception January 30, 2002 Year Ended through December 31,2012 December 31,2011 December 31,2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,042,778) $(1,546,503) $(12,132,181)Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 1,610 1,591 123,448 Issuance of common shares and warrants for services - 104,648 832,361 Issuance of common shares in conversion of debt - - 400,000 (Gain)/loss on investment - - 73,121 Stock Compensation Cost 564,586 499,200 1,341,569 Change in derivative liability 423,914 - 423,914 Gain on sale of asset - - 963 Impairment loss - - 1,753,502 Amortization of debt discount recognized as interest 96,021 - 96,021 Loss on settlement of debt 30,750 45,988 644,038 Changes in Assets and Liabilities (Increase) Decrease in: Prepaid expenses 21,292 (178) (3,708) Deposits and other assets 2,975 - 5,000 Increase (Decrease) in: Accounts payable 192,416 3,905 289,265 Accrued expenses 45,850 1,950 633,131 NET CASH USED IN OPERATING ACTIVITIES (663,364) (889,399) (5,519,556) NET CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment - (2,078) (81,198) Sale of asset - - 3,963 Investment in companies - - (6,121) NET CASH USED IN INVESTING ACTIVITIES - (2,078) (83,356) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of bank overdraft (12,916) 12,916 - Proceeds from notes payable related parties - - 1,174,342 Proceeds from convertible promissory note 359,417 - 488,417 Repayment of notes payable related party - - (184,000) Contributed capital by shareholder - - 19,197 Proceeds from subsidiary - 300,000 Proceeds from issuance of common stock and subscription payable 350,500 875,250 3,830,943 NET CASH PROVIDED BY FINANCING ACTIVITIES 697,001 888,166 5,628,899 NET INCREASE IN CASH 33,637 (3,311) 25,987 CASH, BEGINNING OF PERIOD - 3,311 7,650 CASH, END OF PERIOD $33,637 $- $33,637 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $4 $173 $137,661 Income taxes $- $- $- SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS During the year ended December 31, 2012, the Company issued 3,515,152 shares of common stock for 5,333,332 purchase warrants through a cashlessexercise. During the year ended December 31, 2011, the Company sold WDTI its subsidiary, for a secured note receivable of $100,000. The sale included the netbook value of the assets and liabilities of $(560,036). Also, 2,666,668 warrants to purchase shares of common stock were exercised through a cashlessconversion for 1,781,927 shares of common stock; 133,334 shares were issued for a subscription receivable; issued 1,839,500 shares of common stock forconvertible debt. Also, the Company issued 650,000 shares for services at a fair value of $97,500. Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The accompanying notes are an integral part of these consolidated financial statements. 17Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 2011 1. ORGANIZATION AND LINE OF BUSINESSOrganizationSolar3D, Inc. (the "Company") was incorporated in the state of Delaware on January 30, 2002. The Company, based in Santa Barbara, California, beganoperations on January 30, 2002. We were originally formed in January 2002 as MachineTalker, Inc. in order to pursue the development of new wirelessprocess control technology. In September 2010, we shifted our engineering and research focus to developing a new means for generating solar-producedelectrical power, which we plan to patent and perfect for use in the manufacture of highly efficient solar cells. In July 2010, we changed our companyname to Solar3D, Inc. in order to better reflect our new business plan.Line of BusinessThe Company is currently in the stage of developing and marketing a new three-dimensional version of solar cell technology in order to maximize theconversion of sunlight into electricity. Conventional solar cells reflect a significant amount of incident sunlight losing much of the solar energy thatcould have been utilized to produce additional electrical power. Inspired by light management techniques used in fiber optic devices, Solar3D isdesigning a new type of solar cell, one that utilizes a three-dimensional design to trap sunlight inside the photovoltaic structure where it is reflectedmultiple times until much more of the energy is absorbed into the solar cell material. We have applied for patent protection on what we believe to be abreakthrough design for the next generation in solar cell technology with increased efficiency and resulting in a lower cost per watt of electricityproduced.Going ConcernThe 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 anyadjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and hasnegative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of theCompany to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additionalcash infusion. Management believes the existing shareholders and potential prospective new investors will provide the additional cash needed to meetthe Company’s obligations as they become due, and will allow the development of its core of business.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThis summary of significant accounting policies of Solar3D, Inc. is presented to assist in understanding the Company’s financial statements. Thefinancial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Theseaccounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in thepreparation of the financial statements.Development Stage Activities and OperationsThe Company has been in its initial stages of development and for the year ended December 31, 2012, had insignificant revenues. A development stageactivity 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.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates andassumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financialstatements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options.Actual results could differ from those estimates.Cash and Cash EquivalentThe Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.Property and EquipmentProperty and equipment are stated at cost, and are depreciated using the straight line method over its estimated useful lives: Machinery & equipment5 YearsFurniture & fixtures5-7 YearsComputer equipment5 Years Depreciation expense as of December 31, 2012 and 2011 was $1,610 and $1,591 respectively. 18Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 2011 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Revenue RecognitionWe recognize revenue upon delivery, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed ordeterminable, and collection of the related receivable is reasonably assured. We record revenue net of estimated product returns, which is based upon ourreturn policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends,changes in customer composition and historical experience. Generally, we extend credit to our customers and do not require collateral. We performongoing credit evaluations of our customers and historic credit losses have been within our expectations. We do not ship a product until we have apurchase agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show only saleswhich are “final” with a payment arrangement. We do not make consignment sales, nor inventory sales subject to a “buy back” or return arrangementfrom customers. Accordingly, original equipment manufacturers do not presently have a right to return unsold products to us.Fair Value of Financial InstrumentsDisclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet,where it is practicable to estimate that value. As of September 30, 2012, the amounts reported for cash, accrued interest and other expenses, and notespayable 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 fairvalue on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principlesgenerally 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 participantsat the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. Thehierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowestpriority 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 pricesfor 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 ownassumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers areunobservable.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 followsat December 31, 2012: Total (Level 1) (Level 2) (Level 3) Assets $- $- $- $- Total assets measured at fairvalue $- $- $- $- Liabilities Derivative liability 696,564 - - 696,564 Convertible promissorynote 123,400 - - 123,400 Total liabilities measured atfair value $819,964 $- $- $819,964 AdvertisingThe Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 2012 and 2011 were $37,766 and $11,523,respectively.Research and Development CostsResearch and development costs are expensed as incurred. These costs consist primarily of consulting fees, salaries and direct payroll related costs. Thecosts for the years ended December 31, 2012 and 2011 were $157,742 and $133,196, respectively. 19Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 20112. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Stock-Based CompensationShare based payments apply to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities anentity 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 usingan option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculatedunder the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensationhas no material impact on our results of operations.Loss per Share CalculationsLoss per Share dictates the calculation of basic earnings per share and diluted earnings per share are computed by dividing income available to commonshareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per shareexcept that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential commonshares had been issued and if the additional common shares were dilutive. No shares for employee options or warrants were used in the calculation of theloss 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 years ended December 31,2012 and 2011, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss. The Company hasexcluded 37,798,106 and 14,353,340 warrants for the years ended December 31, 2012 and 2011, respectively. For the years ended December 31, 2012 2011 (Loss) to common shareholders (Numerator) $(2,042,778) $(1,546,503) Basic and diluted weighted average number of common sharesoutstanding (Denominator) 128,117,443 109,533,761 Income TaxesThe Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax creditcarry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred taxassets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to berealized. Recently Issued Accounting Pronouncements Management reviewed accounting pronouncements issued during the year ended December 31, 2012, and the following pronouncements were adoptedduring the year.The Company adopted ASC 815 “Accounting for Derivative Instruments and Hedging Activities”. This pronouncement addresses the accounting forderivative instruments including certain derivative instruments embedded in other contracts, and hedging activities. Derivative instruments that meet thedefinition of assets and liabilities should be reported in the financial statements at fair value, and any gain or loss should be recognized in currentearnings. The adoption of this pronouncement did not have a material effect on the financial statements of the Company.The Company adopted ASC 835 "Accounting for Interest". This pronouncement addresses the appropriate accounting when the face amount of a notedoes not reasonably represent the present value of the consideration given or received in the exchange. A note issued solely for cash equal to its faceamount is presumed to earn the stated rate of interest, however, in some cases the parties may also exchange unstated or stated rights or privileges, whichare given accounting recognition by establishing a note discount or premium account. In such instances, the effective interest rate differs from the statedrate. The note discount shall be amortized as interest expense over the life of the note. The Company recognized interest expense on the promissorynotes in prior periods of $99,500, before the adoption of the pronouncement. During the current period the Company reclassified $61,514 of interestexpense from earnings and recognized a debt discount netted against the face amount of the notes. The adoption of this pronouncement had a materialeffect on the financial statements of the Company. 3. INCOME TAXES The Company files income tax returns in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject toU.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010. 20Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 2011 3. INCOME TAXES (Continued) Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets foramounts when the realization is uncertain.Included in the balances at December 31, 2012 and 2011, are no tax positions for which the ultimatedeductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred taxaccounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but wouldaccelerate the payment of cash to the taxing authority to an earlier period. The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.During the periods ended December 31, 2012 and 2011, the Company did not recognize interest and penalties.4. DEFERRED TAX BENEFITThe income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income fromcontinuing operations for the year ended December 31, 2012 and 2011 due to the following: 2012 2011 Book Income $(817,100) $(665,000)Other 400 1,000 Stock for Services 69,200 42,000 Loss on Settlement of Debt 12,300 18,000 Related Party Accrual 17,200 - Depreciation 600 - R&D Credit 5,400 - Stock Compensation Expense 225,800 200,000 Non Deductible Expenses 208,000 - Valuation Allowance 278,200 404,000 Income tax expense $- $- Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax creditcarry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reportedamounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it ismore likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment.Net deferred tax liabilities consist of the following components as of December 31, 2012 and 2011: 2012 2011 Deferred tax assets: NOL carryover $2,437,400 $2,383,000 R&D 153,700 140,000 Contributions 400 1,000 Related party accruals 17,200 - Deferred tax liabilities: Depreciation (1,300) - Less valuation allowance (2,607,400) (2,524,000) Net deferred tax asset $- $- At December 31, 2012, the Company had net operating loss carry-forwards of approximately $6,093,600 that may be offset against future taxable incomefrom the year 2012 through 2032. No tax benefit has been reported in the December 2012 financial statements, since the potential tax benefit is offset bya valuation allowance of the same amount.Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for federal income tax reporting purposes aresubject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years. 21Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 20115. CAPITAL STOCKDuring the year ended December 31, 2012, the Company issued 5,533,334 shares of common stock, with 10,666,666 shares of common stock purchasewarrants at a price of $0.015 per share for cash of $83,000; issued 2,825,000 shares of common stock at a price of $0.020 per share for cash of $56,500;issued 3,180,000 shares of common stock, with 6,360,000 shares of common stock purchase warrants at a price of $0.025 per share for cash of $79,500;issued 2,150,000 shares of common stock at a price of $0.025 per share for cash of $53,750; issued 3,479,630 shares of common stock for services at afair value of $172,935, recognizing a loss of $30,750 on settlement of debt; issued 300,000 shares of common stock at a price of $0.03 per share for cashof $9,000; issued 428,572 shares of common stock with 857,144 shares of common stock purchase warrants at a price of $0.035 per share for cash of$15,000; issued 25,000 shares of common stock at a price of $0.05 per share for cash of $1,250; issued 800,000 shares of common stock with 1,600,000shares of common stock purchase warrants at a price of $0.05 per share for cash of $40,000; issued 135,000 shares of common stock at a price of $0.05 fora subscription payable of $6,750; issued 500,000 shares of common stock at a price of $0.025 for a subscription payable of $12,500; issued 750,000shares of common stock for accounts payable at fair value of $30,000.During the year ended December 31, 2011, the Company issued 5,953,338 shares of common stock at a price of $0.075 per share for cash of $456,500,with warrants attached to purchase 2,333,334 shares of common stock; issued 5,616,670 shares of common stock at a price of $0.06 per share for cash of$337,000, with warrants attached to purchase 11,233,340 shares of common stock; issued 1,500,000 shares of common stock at a price of $0.05 per sharefor cash of $75,000; and issued 1,839,500 shares of common stock with a fair value of $137,963 that were issued in conversion of $91,975 of debtresulting in the recognition of a $45,988 loss on settlement of debt. As part of the private placement in which warrants were attached for the purchase ofcommon stock, an investor exercised 2,666,668 warrants through a cashless exercise to purchase 1,781,927 shares of common stock. During the yearended December 31, 2011, the Company also issued 650,000 shares of common stock at $0.15 per share for services with a fair value of $97,500, andissued 119,130 shares of common stock for a fee with a fair value of $7,148. Also, 133,334 shares of common stock were issued for a $10,000subscription receivable, and the Company received cash of $6,750 for a subscription payable at the year ended December 31, 2011.6. STOCK OPTIONS AND WARRANTSAs of December 31, 2012, the Board of Directors of the Company granted non-qualified stock options for 23,000,000 shares of common stock to itsemployees, directors and consultants, as agreements may provide. Notwithstanding any other provisions of the option agreements, each option expireson the date specified in the option agreements, which date shall not be later than the fifth (5th) anniversary from the grant date of the options. The stockoptions 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 pershare, 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 usingthe Black Scholes option valuation model with the following significant assumptions: 2012 2011 Risk free interest rate 1.01% - 2.38% 2.38%Stock volatility factor 93.6% - 229% 229%Weighted average expected option life 7 years 7 years Expected dividend yield None None A summary of the Company’s stock option activity and related information follows: 12/31/2012 12/31/2011 Weighted Weighted Number average Number average of exercise of exercise Options price Options price Outstanding, beginning ofperiod 15,000,000 $0.05 - $- Granted 8,000,000 0.01 15,000,000 0.05 Exercised - - - - Expired - - - - Outstanding, end of period 23,000,000 $0.04 15,000,000 $0.05 Exercisable at the end ofperiod 13,944,445 $0.04 7,083,333 $0.05 Weighted average fair valueof options granted during theperiod $0.03 $- The stock-based compensation expense recognized in the statement of operations during the years ended December 31, 2012 and 2011, is $564,586 and$499,200 respectively. 22Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 20116. STOCK OPTIONS AND WARRANTS (Continued)WarrantsA summary of the Company’s warrant activity and related information follows: 12/31/2012 12/31/2011 Weighted Weighted Number average Number average of exercise of exercise Warrants price Warrants price Outstanding, beginning of period 14,353,340 $0.06 131,614 $0.11 Granted 29,078,098 0.023 16,900,008 - Exercised (5,333,332) 0.015 (2,666,668) - Expired (120,000) 0.12 (11,614) 0.06 Outstanding, end of period 37,978,106 $0.04 14,353,340 $0.06 Exercisable at the end of period 37,978,106 $0.04 14,353,340 $0.06 Weighted average fair value of options granted during the period $0.00 $0.00 At December 31, 2012, the weighted average remaining contractual life of warrants outstanding: Weighted Average Remaining Exercisable Warrants Warrants Contractual Prices Outstanding Exercisable Life (years) $0.08 1,333,334 1,333,334 3.42 $0.08 1,000,000 1,000,000 3.47 $0.08 1,333,334 1,333,334 3.54 $0.06 1,666,666 1,666,666 3.63 $0.06 1,000,000 1,000,000 3.69 $0.06 833,334 833,334 3.72 $0.06 666,668 666,668 3.75 $0.06 400,000 400,000 3.76 $0.06 833,334 833,334 3.81 $0.06 833,334 833,334 3.82 $0.06 833,334 833,334 3.86 $0.06 833,334 833,334 3.88 $0.06 1,000,000 1,000,000 3.90 $0.06 1,000,000 1,000,000 3.94 $0.06 666,668 666,668 3.96 $0.05 400,000 400,000 4.02 $0.05 1,200,000 1,200,000 4.04 $0.035 857,144 857,144 4.08 $0.035 1,914,286 1,914,286 4.15 $0.025 600,000 600,000 4.17 $0.025 3,000,000 3,000,000 4.24 $0.025 960,000 960,000 4.26 $0.025 720,000 720,000 4.30 $0.025 640,000 640,000 4.34 $0.025 2,360,000 2,360,000 4.38 $0.025 960,000 960,000 4.42 $0.025 800,000 800,000 4.43 $0.025 800,000 800,000 4.49 $0.025 800,000 800,000 4.53 $0.015 1,333,334 1,333,334 4.58 $0.015 1,333,334 1,333,334 4.60 $0.015 2,666,668 2,666,668 4.64 $0.015 2,000,000 2,000,000 4.72 $0.015 400,000 400,000 4.78 37,978,106 37,978,106 The majority of the warrants were issued through equity financing, and has a cashless exercise option to purchase 37,978,106 shares of common stock asof December 31, 2012. 23Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 2011 7. PROMISSORY NOTESDuring the nine months ended September 30, 2012, the Company signed promissory notes for funds received in the amount of $114,500 for operatingexpenses from an existing shareholder. The notes bore interest at 5% per annum, and were due within one year from the effective dates. Also, as collateralthe shareholder was assigned common stock purchase warrants to purchase 9,594,286 shares of common stock. The warrants were evaluated for purposesof classification under ASC Topic 480-10. “Distinguishing Liabilities from Equity” (pre-codification SFAS 150, Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity). The warrants did not embody any of the conditions for liability classification under theASC 480-10 context. The warrants were then evaluated under ASC 815, and were accounted for under the equity classification, and the proceeds wereallocated based on the relative fair value of the instruments. As of December 26, 2012, the principal of $114,500 and accrued interest of $4,084 wereexchanged for six month convertible promissory notes8. CONVERTIBLE PROMISSORY NOTES On September 19, 2012, and November 13, 2012, the Company received funds on two securities purchase agreements entered into on September 19,2012 and November 13, 2012, respectively, for the sale of 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes areconvertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market pricerepresenting a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) tradingday period ending on the latest complete trading day prior to the conversion date. The notes mature on June 21, 2013 and August 15, 2013, respectively.On October 24, 2012, the Company received in consideration upon execution of a note the sum of $50,000 on a securities purchase agreements enteredinto for the sale of 10% convertible promissory notes in the aggregate principal amount of $335,000 with an original issue discount of $35,000. Theprincipal amount of $55,833 outstanding on the note as of December 31, 2012, includes the payment received of $50,000 plus original issued discountof $833. If the note is repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one time interest rate of five percent (5%) will beapplied to the principal sums outstanding. The note is convertible into shares of common stock of the Company at a price equal to a variable conversionprice of the lesser of $0.035 per share or seventy percent (70%) of the lowest trading price of the previous 25 trading days. The notes mature one (1) yearfrom the effective date of each payment.On November 29, 2012, the Company received in consideration upon execution of two (2) notes for the aggregate sum of $25,000 on two (2) securitiespurchase agreements entered into for the sale of 10% convertible promissory notes in the aggregate principal amount of $160,000. The notes areconvertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.015 per share or fifty percent(50%) of the lowest trading price of the previous 25 trading days. The notes mature one (1) year from the effective date of each payment.During the months of November and December 2012, the Company received in consideration upon execution of a note the aggregate sums of $20,000,$15,000 and $50,000 on a securities purchase agreement entered into for the sale of a 10% convertible promissory note in the aggregate principalamount of $100,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of$0.01 per share or fifty percent (50%) of the lowest trading price of the previous 25 trading days. The note matures one (1) year from the effective date ofeach payment.On December 26, 2012, the Company exchanged certain promissory notes in the aggregate amount of $114,500 plus accrued interest of $4,084 to aconvertible promissory note. The securities purchase agreement entered into for the sale of a 10% convertible promissory note in the aggregate principalamount of $118,584, are convertible into shares of common stock of the Company at a price equal to (a) the lesser of $0.0326 per share or (b) 50% of thelowest trade price of common stock recorded on any trade day after the effective date. The note matures six (6) months from the effective date of the note.ASC Topic 815 provides guidance applicable to convertible debt issued by the Company in instances where the number into which the debt can beconverted is not fixed. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion, ASCTopic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded at their fair value. Inaccounting for derivatives under accounting standards, the Company recorded a liability of $561,049 representing the estimated present value of theconversion feature considering the historic volatility of the Company’s stock, and a discount of $272,650 representing the imputed interest associatedwith the embedded derivative. The discount is amortized over the life of the convertible debt, which resulted in the recognition of $96,021 in interestexpense for the year ended December 31, 2012, and the derivative liability is adjusted periodically according to stock price fluctuations. At the time ofconversion, any remaining derivative liability will be charged to additional paid-in capital. 24Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2012 and 20118. 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 significantassumptions used in the Black Scholes valuation of the derivative are as follows: Stock price on the valuation dates $ 0.04 Conversion price for the debt $0.01 -$ 0.02 Dividend yield 0.00%Years to Maturity 0.5 - 1.0 Risk free rate .13% - .19%Expected volatility 107.09% - 136.97%The value of the derivative liability at December 31, 2012 was $696,564.9. SUBSEQUENT EVENTS Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following events; During the month of January 2013, the Company received $28,500 for the purchase of 1,425,000 shares of common stock at a price of $0.02 per share.On January 30, 2012, the Company received in an additional note for the sum of $15,000, on a securities purchase agreement entered into for the sale ofa 10% convertible promissory note in the aggregate principal amount of $100,000. The note is convertible into shares of common stock of the Companyat a price equal to a variable conversion price of the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price of the previous 25 tradingdays. The note matures one (1) year from the effective date of each payment.On February 24, 2013, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") providing for the sale by the Company ofan unsecured Convertible Note (“the Note”) in the principal amount of $8,000, of which the Company received in consideration upon execution of thenote. The Note matures two (2) years from the effective date. The note may be converted into shares of the Company’s common stock at a conversionprice of $0.02 per share of common stock. The note bears interest at the rate of 5% per year. 25Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer andprincipal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Basedupon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, ourdisclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to ourmanagement, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls andprocedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resourceconstraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, weperformed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual reporthave been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements includedin this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as ofDecember 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal controlover financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not beprevented or detected on a timely basis. We have identified the following material weaknesses:As of December 31, 2012, we did not maintain effective controls over the control environment. Specifically, the board of directors currently hasonly one independent member and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since theseentity 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 ofDecember 31, 2012, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO. 26Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsNo Attestation Report by Independent Registered AccountantThe effectiveness of our internal control over financial reporting as of December 31, 2012 has not been audited by our independent registered publicaccounting firm by virtue of our exemption from such requirement as a smaller reporting company.Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting through the date of this report or during the quarter ended December 31,2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Corrective ActionManagement plans to seek a candidate who would qualify as a financial expert to join our Board of Directors as an independent director to becomethe member of our audit committee. Improvements in our disclosure controls and procedures and in our internal control over financial reporting depends onour ability to add additional financial personnel and independent directors to provide more internal checks and balances, and to provide qualifiedindependence for our audit committee. We believe we will be able to commence achieving these goals once our sales and cash flow grow and our financialcondition improves.ITEM 9B. OTHER INFORMATIONNone. 27Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEThe following table lists our executive officers and directors as of December 31, 2012:Name Age Position James B. Nelson 60 Chief Executive Officer, President, interim Chief FinancialOfficer, and Director Mark J. Richardson 59 Director (1)Member of audit committee. Mr. Nelson is not an independent director and he may not qualify as a financial expert for the purposes of satisfying therequirements of the Securities and Exchange Commission that audit committees be comprised of independent directors, at least one of whom is afinancial expert. Management believes that our small size and limited resources has so far hindered us from attracting a fourth director who can serve onthe audit committee as an independent financial expert. Nevertheless, we will continue to seek such a candidate.James B. Nelson has been a director and chief executive officer of Solar3D since October 2010 and the president, and interim chief financial officerof Solar3D since August 2012. Mr. James Nelson began his executive career 30 years ago at Bain and Company, a business strategy consulting firm, wherehe managed a team of consultants on four continents solving CEO-level programs for global companies. Prior to joining Solar3D, he spent 20 years workingin the private equity industry as both a capital partner and operating CEO to portfolio companies. Mr. Nelson was a general partner at Peterson Partners(2007-2009) and at Millennial Capital Partners (1991-2010--previously known as Invest West Capital). In addition to his responsibilities in acquisition anddivestiture, Mr. Nelson worked as an executive of a number of portfolio companies. He served as chief executive officer of Euro-Tek Store Fixture, LLC,chairman of the board of American Retail Interiors, chairman of the board and chief executive officer of Panelview Inc. and chairman of the board of CriticalPower Exchange, as well as sitting on numerous boards both in and out of the private equity funds’ portfolios. Prior to his years in private equity, Mr. Nelsonserved as Vice President of Marketing at Banana Republic/The Gap, where he managed company-wide marketing, as well as the initial internationalexpansion of Banana Republic. He was also general manager for Banana Republic’s highly profitable catalog division. He also served as Vice President ofMarketing and Corporate Development at Saga Corporation, a multi-billion dollar food service company. Mr. Nelson received his MBA from BrighamYoung University, where he graduated summa cum laude and was named the Outstanding Master of Business Administration Graduate.Mr. Nelson’s qualifications:· Leadership experience – Chief executive officer since October 2010 and president since August 2012, and previously general partner atPeterson Partners (2007-2009) and at Millennial Capital Partners (1991-2010--previously known as Invest West Capital). He has alsoserved as the chief executive officer of Euro-Tek Store Fixture, LLC and Panelview Inc.· Industry experience - Mr. Nelson has worked in the solar industry since October 2010.· ·Education experience - Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and wasnamed the Outstanding Master of Business Administration Graduate. 28Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Mark J. Richardson has been a director of Solar3D since October 2008. Mr. Richardson has been a securities lawyer since he graduated from theUniversity of Michigan Law School in 1978. He practiced as an associate and partner in large law firms until 1993, when he established his own practiceunder the name Richardson & Associates. He has been the principal securities counsel on a variety of equity and debt placements for corporations,partnerships, and real estate companies. His practice includes public and private offerings, venture capital placements, debt restructuring, compliance withfederal and state securities laws, representation of publicly traded companies, Nadsaq filings, corporate law, partnerships, joint ventures, mergers, assetacquisitions, and stock purchase agreements. As a partner in a major international law firm in the 1980’s, Mr. Richardson participated in the leveragedbuyout and recapitalization of a well known producer of animated programming for children, financed by Prudential Insurance and Bear Stearns, Inc. He wasalso instrumental in restructuring the public debentures of a real estate company without resorting to a bankruptcy proceeding. From 1986 to 1993 Mr.Richardson was a contributing author to State Limited Partnerships Laws – California Practice Guide, Prentice Hall Law and Business. Prior to receiving hisjuris doctor degree cum laude from the University of Michigan Law School in 1978, Mr. Richardson received a bachelor of science degree summa cum laudein Resource Economics from the University of Michigan School of Natural Resources in 1975, where he earned the Bankstrom Prize for academic excellenceand achieved Phi Beta Kappa honors. Mr. Richardson is an active member of the Los Angeles County and California State Bar Associations, including theSection on Corporations, Business and Finance and the Section on Real Estate. Richardson & Associates is outside corporate legal counsel for Solar3D andcertain of our affiliates.Mr. Richardson’s qualifications:· Leadership experience – Established his own law practice under the name Richardson & Associates in 1993.· Industry experience - Mr. Richardson’s practice includes public and private offerings, venture capital placements, debt restructuring,compliance with federal and state securities laws, representation of publicly traded companies, Nasdaq filings, corporate law, partnerships,joint ventures, mergers, asset acquisitions, and stock purchase agreements.· Education experience - Mr. Richardson received his juris doctor degree cum laude from the University of Michigan Law School in 1978and a bachelor of science degree summa cum laude in Resource Economics from the University of Michigan School of Natural Resources in1975, where he earned the Bankstrom Prize for academic excellence and achieved Phi Beta Kappa honors.No officer or director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends todevote such amount of his or her time to our affairs as is required or deemed appropriate by us.Limitation of Liability and Indemnification of Officers and DirectorsUnder Delaware General Corporation Law and our articles of incorporation, our directors will have no personal liability to us or our stockholders formonetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i)acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contraryto the best interests of the corporation or our shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transactionfrom which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation orour shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of arisk of serious injury to the corporation or our shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to anabdication of the director’s duty to the corporation or our shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase orredemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.The effect of this provision in our articles of incorporation is to eliminate the rights of Solar3D and our stockholders (through stockholder’sderivative suits on behalf of Solar3D) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breachesresulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit noreliminate the rights of Solar3D or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s dutyof care. In addition, our Articles of Incorporation provide that if Delaware law is amended to authorize the future elimination or limitation of the liability of adirector, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. Delaware General CorporationLaw grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide forindemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federalsecurities laws. 29Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. Theseagreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlementamounts incurred by any such person in any action or proceeding, including any action by or in the right of Solar3D, arising out of such person’s services as adirector or officer of Solar3D, any subsidiary of Solar3D or any other company or enterprise to which the person provides services at the request ofSolar3D. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Solar3Dpursuant to the foregoing provisions, Solar3D has been informed that in the opinion of the Securities and Exchange Commission, such indemnification isagainst public policy as expressed in the Securities Act and is therefore unenforceable.Board CommitteesOur board of directors has appointed an audit committee. As of March 21, 2013, the sole member of the audit committee is James B. Nelson, whomay not be considered to be independent as defined in Rule 4200 of Nasdaq’s listing standards. The board of directors has adopted a written charter of theaudit committee. The audit committee is authorized by the board of directors to review, with our independent accountants, our annual financial statementsprior to publication, and to review the work of, and approve non-audit services performed by, such independent accountants. The audit committee will makeannual recommendations to the board for the appointment of independent public accountants for the ensuing year. The audit committee will also review theeffectiveness of the financial and accounting functions and our organization, operations and management. The audit committee was formed on February 8,2005. The audit committee held one meeting during fiscal year ended December 31, 2012.Our board of directors does not have a compensation committee so all decisions with respect to management compensation are made by the wholeboard. Our board of directors does not have a nominating committee. Therefore, the selection of persons or election to the board of directors was neitherindependently made nor negotiated at arm’s length.Report of the Audit CommitteeOur audit committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2012 with seniormanagement. The audit committee has also discussed with HJ Associates & Consultants, LLP, Certified Public Accountants, our independent auditors, thematters required to be discussed by the statement on Auditing Standards No. 61 (Communication with Audit Committees) and received the writtendisclosures and the letter from HJ required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees). The auditcommittee has discussed with HJ the independence of HJ as our auditors. Finally, in considering whether the independent auditors provision of non-auditservices to us is compatible with the auditors’ independence for HJ, our audit committee has recommended to the board of directors that our audited financialstatements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 for filing with the United States Securities andExchange Commission. Our audit committee did not submit a formal report regarding its findings. 30Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsAUDIT COMMITTEEJames B. NelsonNotwithstanding anything to the contrary set forth in any of our previous or future filings under the United States Securities Act of 1933, asamended, or the Securities Exchange Act of 1934, as amended, that might incorporate this report in future filings with the Securities and ExchangeCommission, in whole or in part, the foregoing report shall not be deemed to be incorporated by reference into any such filing.Code of ConductWe have adopted a code of conduct that applies to all of our directors, officers and employees. The text of the code of conduct has been posted onSolar3D’s internet website and can be viewed at www.Solar3D.com. Any waiver of the provisions of the code of conduct for executive officers and directorsmay be made only by the audit committee and, in the case of a waiver for members of the audit committee, by the board of directors. Any such waivers will bepromptly disclosed to our shareholders.Compliance with Section 16(A) of Exchange ActSection 16(a) of the Exchange Act requires our officers and directors, and certain persons who own more than 10% of a registered class of our equitysecurities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and ExchangeCommission. Reporting Persons are required by the SEC to furnish us with copies of all Section 16 Reports they file.Based solely on our review of the copies of such Section 16 Reports received by us, or written representations received from certain ReportingPersons, all Section 16(a) filing requirements applicable to our Reporting Persons during and with respect to the fiscal year ended December 31, 2012 havebeen complied with on a timely basis.ITEM 11. EXECUTIVE COMPENSATIONCompensation Discussion and AnalysisThe following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in theSummary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our boardof directors makes all decisions for the total direct compensation of our executive officers, including the Named Executive Officers. We do not have acompensation committee, so all decisions with respect to management compensation are made by the whole board.Compensation Program Objectives and RewardsOur compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, workingtoward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following thisphilosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay withperformance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance,and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensationpackages consisting of a combination of competitive base salary and incentive compensation. 31Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWhile we have only hired one additional executive since inception because our business has not grown sufficiently to justify additional hires, weexpect to grow and hire in the future. One of our Named Executive Officers has been with us for many years and his compensation has basically been static,based primarily on the level at which we can afford to retain him and his responsibilities and individual contributions. To date, we have not applied a formalcompensation program to determine the compensation of the Named Executives Officers. In the future, as we and our management team expand, our board ofdirectors expects to add independent members, form a compensation committee comprised of independent directors, and apply the compensation philosophyand policies described in this section of the Form 10-K.The primary purpose of the compensation and benefits described below is to attract, retain, and motivate highly talented individuals when we dohire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitivemarketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each NamedExecutive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executivecompensation structure.· Base salary and benefits are designed to attract and retain employees over time.· Incentive compensation awards are designed to focus employees on the business objectives for a particular year.· Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control thatthey believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in ourprofitability and other elements.· Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete for talentedemployees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our NameExecutive Officers.BenchmarkingWe have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compareeach element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includesboth publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, theyare not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies basedon scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.The Elements of Solar3D’s Compensation ProgramBase SalaryExecutive officer base salaries are based on job responsibilities and individual contribution. The board reviews the base salaries of our executiveofficers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to anyspecific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employmentagreements with us. Additional factors reviewed by the board of directors in determining appropriate base salary levels and raises include subjective factorsrelated to corporate and individual performance. For the year ended December 31, 2012, all executive officer base salary decisions were approved by theboard of directors.Our board of directors determines base salaries for the Named Executive Officers at the beginning of each fiscal year, and the board proposes newbase salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, butif we adopt one in the future, base salary would be the only element of compensation that would be used in determining the amount of contributionspermitted under the 401(k) Plan.Incentive Compensation AwardsThe Named Executives have not been paid bonuses and our board of directors has not yet established a formal compensation policy for thedetermination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying andquantifying bonuses for our Named Executive Officers and other officers of Solar3D: (1) the growth in our revenue, (2) the growth in our earnings beforeinterest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals andtarget bonus amounts for any of our fiscal years, but may do so in the future. 32Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsEquity Incentive AwardsOur board has not yet adopted a management equity incentive plan and no stock options or other equity incentive awards have yet been made toany of our Named Executives or other officers or employees of Solar3D, except for the one-time grant of 15,000,000 stock options in 2010 and the one-timegrant of 5,000,000 stock options in November 2012 to James B. Nelson, our chief executive officer, president, and interim chief financial officer. In thefuture we plan to adopt a formal management equity incentive plan pursuant to which we plan to grant stock options and make restricted stock awards tomembers of management, which would not be assignable during the executive’s life, except for certain gifts to family members or trusts that benefit familymembers. These equity incentive awards, we believe, would motivate our employees to work to improve our business and stock price performance, therebyfurther linking the interests of our senior management and our stockholders. The board will consider several factors in determining whether awards aregranted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and theamount of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy will prohibit backdating options or grantingthem retroactively.Benefits and PrerequisitesAt this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits thatare generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We donot have a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for ourexecutive officers in the future if our business grows sufficiently to enable us to afford them.Separation and Change in Control ArrangementsWe do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of Solar3D. None ofthem are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.Executive Officer CompensationThe following table sets forth the total compensation paid in all forms to the executive officers and directors of Solar3D during the periodsindicated: Summary Compensation TableName and Principal Position(1)Year Salary Bonus OptionAwards Non-EquityIncentive Plan Compensation Non-QualifiedDeferredCompensationEarnings All OtherCompensation Total James B. Nelson,2012 $270,000 0 $554,613 0 0 0 $824,613 Chief ExecutiveOfficer, President,and interim Chieffinancial Officer2011 $258,333 (1) 0 $0 0 0 0 $258,333 Roland F. Bryan,2012 $40,000 (2) 0 $0 0 0 0 $40,000 Former Presidentand Chief FinancialOfficer2011 $60,000 0 $0 0 0 0 $60,000 Officers as a Group2012 $310,000 0 $554,613 0 0 0 $864,613 2011 $318,333 0 $0 0 0 0 $318,333 (1) Based on an annual salary of $200,000 through February 28, 2011 and $270,000 thereafter.(2) Mr. Bryan retired from the Company effective August 31, 2012. 33Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Employment AgreementsWe have not entered into any employment agreements with our executive officers to date. We may enter into employment agreements with them inthe future.Outstanding Equity AwardsThe following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awardsheld by our executive officers at December 31, 2012.Option AwardsName Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable Number ofSecuritiesUnderlyingUnexercisedOptionsUnexercisable Option ExercisePrice Option ExpirationDate James B. Nelson, 12,083,333(1) 2,916,667 $0.05 July 22, 2017Chief Executive Officer,President, and interim ChiefFinancial Officer 1,527,775(2) 3,472,225 $0.01 November 1, 2019(1) On July 22, 2010, Mr. Nelson received nonqualified stock options to purchase 15,000,000 shares of our common stock at an exercise price of $0.05per share exercisable until July 22, 2017 in consideration for his services to us. These stock options vest 1/36th per month, commencing on August21, 2010, on a monthly basis for as long as Mr. Nelson is an employee or consultant of Solar3D.(2) On November 1, 2012, Mr. Nelson received nonqualified stock options to purchase 5,000,000 shares of our common at an exercise price of $0.01 pershare exercisable on a cashless basis until November 1, 2019 for his services to us. These stock options vest according to the following schedule:1,388,889 on the date of grant, 138,889 on the first day of each month thereafter commencing on December 1, 2012 until December 1, 2014, andthen 138,886 on January 1, 2015; provided Mr. Nelson is an employee or consultant of Solar3D.Option Exercises and Stock VestedNone of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year endedDecember 31, 2012.Director CompensationNo compensation was paid to our directors and no stock or option awards for directors were outstanding on December 31, 2012. 34Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe following table sets forth the names of our executive officers and directors and all persons known by us to beneficially own 5% or more of theissued and outstanding common stock of Solar3D at March 15, 2013. Beneficial ownership is determined in accordance with the rules of the Securities andExchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares ofcommon stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of March 15, 2013 are deemedoutstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentageownership of any other person. The percentage ownership of each beneficial owner is based on 142,580,412 outstanding shares of common stock. Except asotherwise listed below, the address of each person is c/o Solar3D, Inc., 6500 Hollister Avenue, Suite 130, Goleta, California 93117. Except as indicated, eachperson listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name as of March 15, 2013.Name, Title, and Address of Stockholder Number ofSharesBeneficiallyOwned (1) PercentageOwnership James B. Nelson, Chief Executive Officer, President, interim ChiefFinancial Officer, and Director 14,861,111(2) 10.4% Mark J. Richardson, Director1453 Third Street Promenade, Suite 315Santa Monica, California 90401 2,304,000 1.6% All Current Executive Officers as a Group (Two Persons) 17,165,111 12.0% Roland F. Bryan, Former President and, Chief Financial Officer 15,722,495(3) 11.0% Cumorah Capital 26,695,950 18.7% Pearl Innovations, LLC 23,565,950 16.5%(1)Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to allshares of common stock beneficially owned. The total number of issued and outstanding shares and the total number of shares owned by each persondoes not include unexercised warrants and stock options, and is calculated as of March 15, 2013.(2)Includes shares which may be purchased pursuant to stock options that are exercisable within 60 days of March 15, 2013.(3)Includes 940,000 shares owned by the Bryan Family Trust. Mr. Bryan holds an option to purchase 216,000 shares from two existing shareholders at$2.50 per share, after accounting for reverse stock splits. Mr. Bryan retired from the Company in August 2012. 35Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEAs of March 15, 2013, our sole member of the audit committee is James B. Nelson, who may not be considered to be independent as defined in Rule4200 of the National Association of Securities Dealers’ listing standards.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESHJ Associates & Consultants, LLP, Certified Public Accountants is our principal auditing accountant firm. HJ has provided other non-audit servicesto us. The audit committee approved the engagement of HJ before HJ rendered audit and non-audit services to us.Each year the independent auditor’s retention to audit our financial statements, including the associated fee, is approved by the Board before thefiling of the previous year’s Annual Report on Form 10-K.HJ Fees 2012 2011 Audit Fees(1) $ 34,900 $ 25,700 Audit Related Fees -0- - 0 - Tax Fees(2) 790 740 All Other Fees -0- - 0 - $ 35,690 $26,440 (1)Audit fees consist of fees for the audit of our financial statements and review of the financial statements included in our quarterly reports.(2)Tax fees consist of fees for the preparation of original federal and state income tax returns and fees for miscellaneous tax consulting services.Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting FirmThe audit committee’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimisnon-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accountingfirm and management are required to periodically report to the full board of directors regarding the extent of services provided by the independent registeredpublic accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the board’s review, the board willevaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, andapprove or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-auditservice on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management maypresent subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at thebeginning of the year.The audit committee has considered the provision of non-audit services provided by our independent registered public accounting firm to becompatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by ourindependent registered public accounting firm. 36Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESExhibitsExhibit No. Description101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 31.1 Section 302 Certification of Principal Executive Officer31.2 Section 302 Certification of Principal Accounting Officer32.1 Section 906 Certification of Principal Executive Officer32.2 Section 906 Certification of Principal Accounting Officer 37Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.Dated: March 28, 2013 SOLAR3D, INC.By: /s/James B. Nelson James B. Nelson, Chief Executive Officer, President, and interim Chief FinancialOfficer (Principal Executive Officer and Principal Accounting Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. Dated: March 28, 2013 /s/James B. Nelson James B. Nelson, Director and Chief Executive Officer, President, and interim Chief Financial Officer (Principal Executive Officer and Principal AccountingOfficer) Dated: March 28, 2013 /s/Mark J. Richardson Mark J. Richardson, Director 38Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSource: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1 SECTION 302 CERTIFICATIONI, James B. Nelson, certify that:1.I have reviewed this Annual Report on Form 10-K of Solar3D, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting.5.The registrant’s other certifying officer(s) and I have disclosed, based on Solar3D’s most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’sinternal control over financial reporting.Dated: March 28, 2013By: /s/ James B. Nelson James B. Nelson, Chief Executive Officer(Principal Executive Officer)Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2 SECTION 302 CERTIFICATION I, Roland F. Bryan, certify that:1.I have reviewed this Annual Report on Form 10-K of Solar3D, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting.5.The registrant’s other certifying officer(s) and I have disclosed, based on Solar3D’s most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’sinternal control over financial reporting.Dated: March 28, 2013By: /s/ James B. Nelson James B. Nelson, Chief Financial Officer(Principal Accounting Officer)Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Solar3D, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 (the “Report”) I,James B. Nelson, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: March 28, 2013By: /s/ James B. Nelson James B. Nelson, Chief Executive Officer(Principal Executive Officer)This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required bythe Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Solar3D, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2012 (the “Report”) I,James B. Nelson, interim Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: March 28, 2013By: /s/ James B. Nelson James B. Nelson, interim Chief Financial Officer(Principal Accounting Officer)This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required bythe Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: Sunworks, Inc., 10-K, March 28, 2013Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
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