Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WEST > SEC Filings for WEST > Form 10-Q on 31-Oct-2012All Recent SEC Filings

Show all filings for WESTINGHOUSE SOLAR, INC.

Form 10-Q for WESTINGHOUSE SOLAR, INC.


31-Oct-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to the "Company," "we," "our," and "us" refer to Westinghouse Solar, Inc. and its subsidiaries ("Westinghouse Solar").

The following discussion highlights what we believe are the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report and in our Annual Report on Form 10-K. This discussion contains "forward-looking statements," including but not limited to expectations regarding revenue growth, net sales, gross profit, operating expenses and performance objectives, and statements using the terms "believes," "expects," "will," "could," "plans," "anticipates," "estimates," "predicts," "intends," "potential," "continue," "should," "may," or the negative of these terms or similar expressions. These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Such risks and uncertainties include, without limitation, the risks described below in Item 1A. of Part II of this Quarterly Report. Further information on potential risk factors that could affect our future business and financial results and financial condition can be found in our periodic filings with the Securities and Exchange Commission (the "SEC"). We undertake no obligation to update any of these forward-looking statements.

Company Overview

We are a designer and manufacturer of solar power systems and solar panels with integrated microinverters (which we call AC solar panels). We design, market and sell these solar power systems to solar installers, trade workers and do-it-yourself customers in the United States and Canada through distribution partnerships, our dealer network and retail outlets. Our products are designed for use in solar power systems for residential and commercial rooftop customers. Prior to September 2010, we were also in the solar power installation business.

In September 2007, we introduced our new "plug and play" solar panel technology (under the brand name "Andalay"), which we believe significantly reduces the installation time and costs, and provides superior reliability and aesthetics, when compared to other solar panel mounting products and technology. Our panel technology offers the following features: (i) mounts closer to the roof with less space in between panels; (ii) all black appearance with no unsightly racks underneath or beside panels; (iii) built-in wiring connections; (iv) approximately 70% fewer roof-assembled parts and approximately 50% less roof-top labor required; (v) approximately 25% fewer roof attachment points; (vi) complete compliance with the National Electric Code and UL wiring and grounding requirements. We have three U.S. patents (Patent No. 7,406,800, Patent No. 7,832,157 and Patent No. 7,866,098) that cover key aspects of our solar panel technology, as well as U.S. Trademark No. 3481373 for registration of the mark "Andalay." In addition to these U.S. patents, we received three foreign patents in 2010: Australian Patent No. 2,005,248,343; Indian Patent No. 243,626; and Mexican Patent No. 274,182. A Korean Patent No. 751,614 was issued in 2007. Currently, we have seven issued patents and eighteen other pending U.S. and foreign patent applications that cover the Andalay technology working their way through the USPTO and foreign patent offices.

In February 2009, we announced a strategic relationship with Enphase, a leading manufacturer of microinverters, to develop and market solar panel systems with ordinary AC house current output instead of high voltage DC output. We introduced Andalay AC panel products and began offering them to our customers in the second quarter of 2009. Andalay AC panels cost less to install, are safer, and generally provide higher energy output than ordinary DC panels. Andalay AC panels deliver 5-25% more energy compared to ordinary panels, produce safe household AC power, and have built-in panel level monitoring, racking, wiring, grounding and microinverters. With 80% fewer parts and 5 - 25% better performance than ordinary DC panels, we believe Andalay AC panels are an ideal solution for solar installers, trade workers and do-it-yourself customers.

On May 17, 2010, we entered into an exclusive worldwide license agreement that permits us to distribute and market our solar panels under the Westinghouse name. On July 22, 2010, we announced that we will operate under the name "Westinghouse Solar" and, effective July 23, 2010 at the opening of the market, our stock began trading under the stock symbol "WEST."

As a result of our announced exit from the solar panel installation business, our installation business has been reclassified in our financial statements as discontinued operations. The exit from the installation business was essentially completed by the end of the fourth quarter of 2010.

At the Annual Meeting of Stockholders held on March 31, 2011, our stockholders approved an amendment to our Certificate of Incorporation to formally change our name from "Akeena Solar, Inc." to "Westinghouse Solar, Inc.". The name change became effective on April 6, 2011. Also on April 6, 2011, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse split of our common stock at a ratio of 1-for-4. The reverse stock split became effective at the close of business on April 13, 2011.

On May 7, 2012, we entered into a Merger Agreement with CBD. Under the terms of the Merger Agreement, a subsidiary of CBD will be merged with and into the Company, with the Company to be the surviving corporation and a wholly-owned subsidiary of CBD. Completion of the Merger is subject to customary conditions, including shareholder approvals by the Company and CBD.

Under the Merger Agreement, our stockholders would receive shares of CBD in exchange for their shares. Our common stockholders are to receive approximately
3.7 CBD common shares for each common share held and our preferred stockholders will receive CBD preferred shares which will be convertible into CBD common shares. On an as-converted basis, the holders of our common stock and holders of our Series B preferred stock would collectively hold approximately 15% of the outstanding CBD common shares, calculated as if the Merger was consummated on the signing date. The Merger will not qualify as a "tax free reorganization" for U.S. federal income tax purposes. CBD has applied for listing on the Nasdaq Stock Market, with listing to be effective on or before consummation of the Merger. Completion of the Merger is subject to customary conditions, including
(i) the adoption of the Merger Agreement by the required vote of the holders of our outstanding common stock, (ii) the Securities and Exchange Commission (the "SEC") has declared effective a Registration Statement registering the CBD common shares under the Securities Act of 1933, as amended, (iii) the approval and adoption by the holders of outstanding CBD common shares of the Merger Agreement and the issuance of additional CBD common shares as consideration in the Merger, and (iv) the approval by the Australian Securities Exchange (the "ASX") and the holders of outstanding CBD common shares of the delisting of the CBD common shares from the ASX. In conjunction with the execution of the Merger Agreement, the holders of a majority of our outstanding Company Series B preferred stock entered into a Waiver and Agreement in substantially the form attached as Exhibit D to the Merger Agreement (and included in Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on May 9, 2012).


Concentration of Risk in Customer and Supplier Relationships

The relative magnitude and the mix of revenue from our largest customers have varied significantly quarter to quarter. During the three and nine months ended September 30, 2012 and 2011, three customers have accounted for significant revenues, varying by period, to our company: Lennar Corporation (Lennar), a leading national homebuilder, Lennox International Inc. (Lennox), a global leader in the heating and air conditioning markets, and Lowe's Companies, Inc. (Lowe's), a nationwide home improvement retail chain. For the three and nine months ended September 30, 2012 and 2011, the percentages of sales to Lennar, Lennox and Lowe's are as follows:

                                              Three Months Ended September 30,            Nine Months Ended September 30,
                                               2012                    2011                2012                    2011

Lennar Corporation                                     -                     37.2 %              10.3 %                  24.0 %
Lennox International Inc.                            7.9 %                    7.2 %              33.3 %                  21.9 %
Lowe's Companies, Inc.                               7.9 %                    2.2 %               8.0 %                   6.1 %

We had no receivable balance from Lennar as of September 30, 2012 or December 31, 2011. Lennox accounted for 17.4% and 23.1% of our gross accounts receivable as of September 30, 2012, and December 31, 2011, respectively. Lowe's accounted for 1.2% and 13.9% of our gross accounts receivable as of September 30, 2012, and December 31, 2011, respectively.

Over time, as we work to add additional distributors to our network and to grow our distribution business, we anticipate the relative significance to our revenue of any particular customer will decline.

We maintain reserves for potential credit losses and such losses, in the aggregate, have generally not exceeded management's estimates. Our top three vendors accounted for approximately 39.6% and 58.1% of materials purchased during the nine months ended September 30, 2012 and 2011, respectively. At September 30, 2012, accounts payable included amounts owed to these top three vendors of approximately $1.0 million. At December 31, 2011, accounts payable included amounts owed to the top three vendors of approximately $3.3 million.

Historically, we obtained virtually all of our solar panels from Suntech. On March 25, 2011, we entered into a volume supply agreement for a new generation of our solar panel products with Lightway, and in August 2011, we began purchasing solar panels from Lightway. Both Suntech and Lightway manufacture panels for us that are built to our unique specifications. We have a limited amount of remaining inventory on hand as of September 30, 2012, and although we believe we can find alternative suppliers for solar panels manufactured to our specifications, the disruption or loss of our current primary component supply relationships would be disruptive to our operations. In recent months, because of our cash position and liquidity constraints, we have been late in making payments to both of our panel suppliers. On March 30, 2012, pursuant to our Supply Agreement with Lightway, we issued 1,900,000 shares of our common stock to Lightway in partial payment of our past due account payable to them. At the time of issuance, the shares were valued at $1,045,000. On May 1, 2012, Suntech America filed a lawsuit against us for breach of contract, alleging that it delivered products to us and has not received full payment, and seeking payment of approximately $990,000. On July 31, 2012, we and Suntech entered into a settlement of this dispute, which allows and requires us make payment of the account balance over time, with the unpaid balance accruing interest at 10% per annum. As of September 30, 2012, we have included in our Condensed Consolidated Balance Sheets, under accounts payable, a balance due to Suntech America of $889,771, plus accrued interest of $60,426, which is included in accrued liabilities in our Condensed Consolidated Balance Sheets. Unless we are able to satisfy our panel suppliers that we will make timely payment for future product orders, our suppliers may delay further shipments to us, which could result in decreased sales and revenue for us, and adversely affect our customer relationships and result in cancelled orders.


Three Months Ended September 30, 2012 as Compared to Three Months Ended
September 30, 2011

Results of Operations

The following table sets forth, for the periods indicated, certain information
related to our operations, expressed in dollars and as a percentage of net
sales:

                                                        Three Months Ended September 30,
                                                      2012                            2011
Net revenue                                $    838,446         100.0 %    $  3,373,692         100.0 %
Cost of goods sold                            1,063,538         126.8 %       3,090,257          91.6 %
    Gross profit                               (225,092 )       (26.8 )%        283,435           8.4 %
Operating expenses
Sales and marketing                             536,463          64.0 %         560,034          16.6 %
General and administrative                    1,458,468         173.9 %       1,325,166          39.3 %
Total operating expenses                      1,994,931         237.9 %       1,885,200          55.9 %
Loss from continuing operations              (2,220,023 )      (264.8 )%     (1,601,765 )       (47.5 )%
Other income (expense)
Interest income (expense), net                  (36,433 )        (4.3 )%         49,869           1.5 %
Adjustment to the fair value of common
stock warrants                                    8,972           1.1 %         849,121          25.2 %
Total other income (expense)                    (27,461 )        (3.3 )%        898,990          26.6 %
Loss before provision for income taxes
and discontinued operations                  (2,247,484 )      (268.1 )%       (702,775 )       (20.8 )%
Provision for income taxes                            -           0.0 %               -           0.0 %
Net loss from continuing operations
(Note 3)                                     (2,247,484 )      (268.1 )%       (702,775 )       (20.8 )%
Gain (loss) from discontinued
operations, net of tax                            8,932           1.1 %         (42,138 )        (1.2 )%
Net loss                                     (2,238,552 )      (267.0 )%       (744,913 )       (22.1 )%
Preferred stock dividend                        (75,331 )        (9.0 )%        (77,788 )        (2.3 )%
Preferred deemed dividend                             -           0.0 %               -           0.0 %
Net loss attributable to common
stockholders                               $ (2,313,883 )      (276.0 )%   $   (822,701 )       (24.4 )%


Net loss per common and common
equivalent share (basic and diluted)       $      (0.11 )                  $      (0.06 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 19,883,887                      12,611,868

Discontinued operations

As a result of the exit from the installation business on September 7, 2010, and in accordance with generally accepted accounting principles, the installation business operation has been reclassified to discontinued operations in our Consolidated Balance Sheets and our Consolidated Statements of Operations. The installation business segment had historically been our core business and represented most of our revenue.

Net revenue

We generate revenue from the sale of solar power systems. In the three months ended September 30, 2012, we generated $838,000 of revenue, a decrease of $2.5 million, or 75.1%, compared to $3.4 million of revenue in the three months ended September 30, 2011. The decrease in revenue was due to a decrease in sales to strategic partners, lower average selling prices, limited inventory levels during the current quarter due to supplier relationship issues and the overall soft solar market conditions following punitive tariff announcements in the U.S. related to solar modules manufactured in China. As of September 30, 2012, we had no current or unshipped orders for solar panel product pending with Suntech. Our supply relationship with Lightway was stalled. We are actively seeking and negotiating with alternative sources of supply, including CBD Energy Limited. Unless we rapidly secure alternative, cost competitive source of supply, our inventor will be depleted and our revenue could diminish significantly, causing disruption to our operations.


Cost of goods sold

Cost of goods sold as a percent of revenue during the three months ended September 30, 2012, was 126.8% of net revenue, compared to 91.6% during the three months ended September 30, 2011. Gross loss for the three months ended September 30, 2012 was $225,000, or 26.8% of revenue, compared to gross profit of $283,000 or 8.4% of revenue for the same period in 2011. During the quarter ended September 30, 2012, we recorded a $271,000 inventory write-down which represented 32.3% of revenue. This non-cash charge was an adjustment to the carrying value of our older, smaller-format solar panels and older micro-inverter inventory to reflect the decline in market prices compared to our original cost and a write-off of accumulated inventory overhead costs. The decrease in gross margin in the three months ended September 30, 2012 compared to the three months ended September 30, 2011, was due to the inventory revaluation, higher inventory overhead allocations related to lower revenue volume, and lower average selling prices, partially offset by a decline in panel and component costs.

Sales and marketing expenses

Sales and marketing expenses for the three months ended September 30, 2012 were $536,000, or 64.0% of net revenue as compared to $560,000, or 16.6% of net revenue during the same period of the prior year. The decrease in sales and marketing expense for the three months ended September 30, 2012, reflects lower payroll and commissions of $102,000 partially offset by an increase in licensing fees we owe to Westinghouse Electric of $63,000.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2012 were $1.5 million, or 173.9% of net revenue as compared to $1.3 million, or 39.3% of net revenue during the same period of the prior year. The increase in general and administrative expense for the three months ended September 30, 2012 was due primarily to increases in bad debt expense of $374,000, legal fees of $131,000 and professional fees of $48,000, related to the pending CBD merger transaction, partially offset by lower payroll costs of $232,000. The increase in bad debt expense was driven by a $400,000 non-cash write-down of a receivable from a supplier reflected in "Other Receivables" in our Condensed Consolidated Balance Sheets.

Interest, net

During the three months ended September 30, 2012, net interest expense was approximately $36,000 compared with net interest income of $50,000 for the same period in 2011.

Adjustment to the fair value of common stock warrants

During the three months ended September 30, 2012, we recorded mark-to-market adjustments to reflect the fair value of outstanding common stock warrants accounted for as a liability, resulting in an unrealized gain of $9,000 in our condensed consolidated statements of operations. The fair value of the warrants is lower now primarily due to a decrease in the price of our common stock and a shorter life for the remainder of our outstanding warrants. During the three months ended September 30, 2011, we recorded mark-to-market adjustments resulting in an $849,000 unrealized gain in our condensed consolidated statements of operations.

Income taxes

During the three months ended September 30, 2012 and September 30, 2011, there was no income tax expense or benefit for federal and state income taxes reflected in our condensed consolidated statements of operations due to our net loss and a valuation allowance on the resulting deferred tax asset.

Net loss from continuing operations

Net loss from continuing operations for the quarter ended September 30, 2012 was $2.2 million, or $0.11 per share, compared to a net loss from continuing operations of $703,000, or $0.06 per share, for the quarter ended September 30, 2011. For the quarter ended September 30, 2012, the net loss includes a favorable non-cash adjustment to the fair value of common stock warrants of $9,000 compared with a favorable non-cash adjustment to the fair value of the common stock warrants of $849,000 for the quarter ended September 30, 2011. Excluding the impact of the common stock warrant adjustments in both periods, net loss from continuing operations for the quarter ended September 30, 2012 was $2.2 million, or $0.11 per share, compared to a net loss of $1.6 million, or $0.13 per share, for the same quarter of 2011.

Gain (loss) from discontinued operations

During the quarter ended September 30, 2012, we recorded a $9,000 net gain from the discontinuance of our installation business segment, compared with a loss of $42,000 during the same period in 2011.


Nine Months Ended September 30, 2012 as Compared to Nine Months Ended September 30, 2011

Results of Operations

The following table sets forth, for the periods indicated, certain information
related to our operations, expressed in dollars and as a percentage of net
sales:

                                                        Nine Months Ended September 30,
                                                      2012                            2011
Net revenue                                $  4,469,997         100.0 %    $  8,125,783         100.0 %
Cost of goods sold                            4,486,541         100.4 %       7,370,662          90.7 %
    Gross profit                                (16,544 )        (0.4 )%        755,121           9.3 %
Operating expenses
Sales and marketing                           1,627,166          36.4 %       1,606,465          19.8 %
General and administrative                    5,185,762         116.0 %       4,468,380          55.0 %
Total operating expenses                      6,812,928         152.4 %       6,074,845          74.8 %
Loss from continuing operations              (6,829,472 )      (152.8 )%     (5,319,724 )       (65.5 )%
Other income (expense)
Interest income (expense), net                  (71,219 )        (1.6 )%         (7,980 )        (0.1 )%
Adjustment to the fair value of common
stock warrants                                 (417,668 )        (9.3 )%      1,980,110          24.4 %
Total other income (expense)                   (488,887 )       (10.9 )%      1,972,130          24.3 %
Loss before provision for income taxes
and discontinued operations                  (7,318,359 )      (163.7 )%     (3,347,594 )       (41.2 )%
Provision for income taxes                            -           0.0 %               -           0.0 %
Net loss from continuing operations
(Note 3)                                     (7,318,359 )      (163.7 )%     (3,347,594 )       (41.2 )%
Gain (loss) from discontinued
operations, net of tax                           31,905           0.7 %         (38,570 )         0.5 %
Net loss                                     (7,286,454 )      (163.0 )%     (3,386,164 )       (41.7 )%
Preferred stock dividend                       (117,618 )        (2.6 )%        (77,788 )        (1.0 )%
Preferred deemed dividend                             -           0.0 %        (975,460 )       (12.0 )%
Net loss attributable to common
stockholders                               $ (7,404,072 )      (165.6 )%   $ (4,439,412 )       (54.6 )%

Net loss per common and common
equivalent share (basic and diluted)       $      (0.40 )                  $      (0.37 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 18,168,851                      11,791,722

Net revenue

In the nine months ended September 30, 2012, we generated $4.5 million of revenue, a decrease of $3.7 million, or 45.0%, compared to $8.1 million of revenue in the nine months ended September 30, 2011. The decrease in revenue was due to a decrease in unit volume of product sales to our dealer network and strategic partners, lower average selling prices, limited inventory levels due to supplier relationship issues, and the overall soft solar market conditions following punitive tariff announcements in the U.S. related to solar modules manufactured in China. In addition, as of September 30, 2012, we had no current or unshipped orders for solar panel product pending with Suntech. Our supply relationship with Lightway was stalled. We are actively seeking and negotiating with alternative sources of supply, including CBD Energy Limited. Unless we rapidly secure alternative, cost competitive source of supply, our inventor will be depleted and our revenue could diminish significantly, causing disruption to our operations.


Cost of goods sold

Cost of goods sold as a percent of revenue during the nine months ended September 30, 2012, was 100.4% of net revenue, compared to 90.7% during the nine months ended September 30, 2011. Gross loss for the nine months ended September 30, 2012 was $17,000, or 0.4% of revenue, compared to gross profit of $755,000 or 9.3% of revenue for the same period in 2011. During the nine months ended September 30, 2012, we recorded a $271,000 inventory write-down which represented 6.1% of revenue. This non-cash charge was an adjustment to the carrying value of our older, smaller-format solar panels and older microinverter inventory to reflect the decline in market prices compared to our original cost and a write-off of accumulated inventory overhead costs. The decrease in gross margin in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, was due to the inventory revaluation, the impact of imposed tariffs on Chinese modules, higher inventory overhead allocations related to lower revenue volume, and lower average selling prices, partially offset by a decline in panel and component costs. Excluding the inventory revaluation of $206,000 and tariff expense of $68,000, gross profit would have been $257,000 or 5.8% of revenue.

Sales and marketing expenses

Sales and marketing expenses for the nine months ended September 30, 2012 were $1.6 million, or 36.4% of net revenue as compared to $1.6 million, or 19.8% of net revenue during the same period of the prior year. An increase in licensing fees we owe to Westinghouse Electric of $188,000 was almost entirely offset by decreases in payroll and commission costs of $115,000, travel of $36,000 and advertising and trade shows of $38,000.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2012 were $5.2 million, or 116.0% of net revenue as compared to $4.5 million, or 55.0% of net revenue during the same period of the prior year. The increase in general and administrative expense for the nine months ended September 30, 2012 was due primarily to increases in legal fees of $944,000, bad debt expense of $466,000 and professional fees of $347,000, related to the pending CBD merger transaction and patent litigation settled in May 2012, and due to higher insurance costs of $83,000 and tax consulting costs of $26,000, partially offset by lower payroll and payroll tax costs of $604,000. The increase in bad debt . . .

  Add WEST to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WEST - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.