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ASTI > SEC Filings for ASTI > Form 10-K on 14-Mar-2013All Recent SEC Filings

Show all filings for ASCENT SOLAR TECHNOLOGIES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for ASCENT SOLAR TECHNOLOGIES, INC.


14-Mar-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Overview
We are a development stage company formed to commercialize flexible PV modules using our proprietary technology. For the year ended December 31, 2012, we generated $1.2 million of revenue. Our revenue from product sales was $0.6 million and revenue from government research and development contracts was $0.6 million. As of December 31, 2012, we had an accumulated deficit of $211.8 million. Currently, we are producing consumer oriented products focusing on charging devices powered by or enhanced by our solar modules. Products in these markets are priced based on the overall product value proposition as compared with directly competitive products or substitute products rather than on a cost per watt basis, typically used in commodity solar markets. We continue to develop new consumer products and we have adjusted our utilization of our equipment to meet our near term forecast sales In 2012 we accelerated our transition to a business model focusing on developing PV integrated consumer electronics. In June we launched our new line of consumer products under the EnerPlex™ brand, and introduced our first product, the Surfr™, a solar assisted case and charger for the Apple® iPhone® 4/4S smart phone featuring our ultra light CIGS thin film technology. The charger incorporates our ultra light and thin PV module into a sleek, protective iPhone 4/4S case, along with a thin battery.


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The charger adds minimal weight and size to an iPhone smart phone, yet provides supplemental charging when needed. In August we announced the launch of the second version of Surfr, a solar assisted charger for the Samsung® Galaxy S® III, which provides 85% additional battery life.
In December 2012, we launched the EnerPlex Kickr™ and EnerPlex Jumpr™ product series. The EnerPlex Kickr IV is an extremely portable, compact and durable solar charging device, approximately seven inches by seven inches when folded, and weighing only 316 grams, or less than half a pound. The Kickr IV provides 4.5 watt regulated power that can help charge phones, tablets, digital cameras, and other devices. The Kickr IV is ideal for outdoor activities such as camping, hiking and mountain climbing and daily city use. Complementing the Kickr IV is the Jumpr 4400 and the Jumpr 4800, rechargeable, portable battery packs providing from three to five complete charge cycles for a smart phone. Currently, we are working to develop the iPhone® 5 version of the Surfr solar assisted charger. Our consumer products are available to customers through third party distributors and retailers and through our website at www.EnerPlex.biz, our retail website. In 2013, we plan to continue our expansion of distribution channels in the US and worldwide.
We continue to design and manufacture PV integrated consumer electronics as well as portable power applications for commercial and military users. Due to the high durability of the monolithic integration employed by our technology, the capability to customize modules into different form factors and the industry leading light weight and flexibility provided by our modules, we feel that the potential applications for our products are numerous. Significant Trends, Uncertainties and Challenges We believe that the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include:
• our ability to generate customer acceptance of and demand for our products;

• successful ramping up of commercial production on the equipment installed;

• our products are successfully and timely certified for use in our target markets;

• successful operating of production tools to achieve the efficiencies, throughput and yield necessary to reach our cost targets;

•the products we design are saleable at a price sufficient to generate profits;
• our strategic alliance with TFG Radiant results in the design, manufacture and sale of sufficient products to achieve profitability;

• our ability to raise sufficient capital to enable us to reach a level of sales sufficient to achieve profitability on terms favorable to us;

•effective management of the planned ramp up of our operations;
• our ability to successfully develop and maintain strategic relationships with key partners, including OEMs, system integrators and distributors, who deal directly with end users in our target markets;

• our ability to maintain the listing of our common stock on the NASDAQ Global Market or Capital Market;

• our ability to achieve projected operational performance and cost metrics;

• our ability to enter into commercially viable licensing, joint venture, or other commercial arrangements; and

• availability of raw materials.

Basis of Presentation: Our activities to date have consisted substantially of raising capital, research and development, and establishment of our production operation. Revenues to date have been generated primarily from our governmental research and development contracts and have not been significant. Our planned principal operations to commercialize flexible PV modules and PV integrated electronics have commenced, but have generated limited revenue to date. Accordingly, we are considered to be in the development stage and we have provided additional disclosure of inception to date activity in our Statements of Operations and Comprehensive Income (Loss), Statements of Stockholders' Equity and Statements of Cash Flows.
Significant Accounting Policies


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Related Party Transactions: We are party to several operating agreements, including a Joint Development Agreement, a Supply Agreement, a Contract Manufacturing Agreement, and a Services Agreement with TFG Radiant, which is also our largest shareholder. Accounting for transactions under these agreements is consistent with those defined in our Significant Accounting Policies. Additional disclosure of related party transactions is included in our financial statements and footnotes.
Revenue Recognition:
Product revenue - Product revenue is generated from commercial sales of flexible PV modules and PV integrated consumer electronics. Products are sold through our own website and through the use of online retailers and distributors. Revenue is recognized as modules are delivered and title has transferred to the customer. Estimated costs of returns and allowances and discounts are accrued as a reduction to sales when revenue is recognized. We are in the development stage and we generated product revenues of $578,000 for the year ended December 31, 2012.
Government contracts revenue - Revenue from governmental research and development contracts is generated under terms that are cost plus fee or firm fixed price. Revenue from cost plus fee contracts is recognized as costs are incurred on the basis of direct costs plus allowable indirect costs and an allocable portion of the fixed fee. Revenue from firm fixed price contracts is recognized under the percentage-of-completion method of accounting, with costs and estimated profits included in contract revenue as work is performed. If actual and estimated costs to complete a contract indicate a loss, provision is made currently for the loss anticipated on the contract.
Inventories: All inventories are stated at the lower of cost or market, with cost determined using the weighted average method. As a development stage entity with limited production, inventory values do not include labor and overhead allocations which would be typical in higher volume production environments, however, such differences are not significant.
Inventory balances are frequently evaluated to ensure that they do not exceed net realizable value. The computation for net realizable value takes into account many factors, including expected demand, product lifecycle and development plans, module efficiency, quality issues, obsolescence and others. Management's judgment is required to determine reserves for obsolete or excess inventory. If actual demand and market conditions are less favorable than those estimated by management, additional inventory write downs may be required. The majority of our inventory is raw materials which have a long life cycle; obsolescence is not a significant factor in their valuation. During the years ended December 31, 2012 and December 31, 2011, we recognized lower of cost or market adjustments on certain raw materials in the amounts of $1,022,000 and $609,000, respectively. These expenses are included within "Research and development" expense in the Statements of Operations and Comprehensive Income (Loss).
Impairment of Long-lived assets: We analyze our long-lived assets (property, plant and equipment) and definitive-lived intangible assets (patents) for impairment, both individually and as a group, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events that might cause impairment would include significant current period operating or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. An undiscounted cash flow analysis is calculated to determine if an impairment exists. If an impairment is determined to exist, any related loss is calculated using the difference between the fair value and the carrying value of the assets. During the years ended December 31, 2012, 2011 and 2010, we incurred impairments of our manufacturing facilities and equipment in the amounts of $3.4 million, $78.0 million and $1.8 million, respectively, based on estimates prepared by management, as well as, in certain cases, valuation analysis by an independent firm.
Research and Development Costs: Research and development costs are incurred during the process of researching and developing new products and enhancing our manufacturing processes and consist primarily of compensation and related costs for personnel, materials, supplies and equipment depreciation. We expense these costs as incurred until the resulting product has been completed and tested and is ready for commercial manufacturing. We also incur research and development expenses on federal government research and development contracts and expense as incurred.
Share-Based Compensation: We measure and recognize compensation expense for all share-based payment awards made to employees, officers, directors, and consultants based on estimated fair values. We estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in our statements of operations included herein. Share-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. For purposes of determining estimated fair value of share-based payment awards on the date of grant, we use the Black-Scholes option-pricing model ("Black-Scholes Model") for option awards. The Black-Scholes Model requires the input of highly subjective assumptions. Because our employee stock options may have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in


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management's opinion, the existing models may not provide a reliable single measure of the fair value of our employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, which could materially impact our fair value determination. We estimate the fair value of our restricted stock awards at our stock price on the grant date.
The accounting guidance for share-based compensation may be subject to further interpretation and refinement over time. There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions. If factors change and we employ different assumptions in the accounting for share-based compensation in future periods, or if we decide to use a different valuation model, the compensation expense that we record in the future may differ significantly from what we have recorded in the current period and could materially affect our loss from operations, net loss and net loss per share. Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Results of Operations
Comparison of the Years Ended December 31, 2012 and 2011 Our activities to date have substantially consisted of raising capital, business and product development, research and development and the development of our production lines.
Revenues. Our revenues were $1,197,000 for the year ended December 31, 2012 compared to $3,950,000 for the year ended December 31, 2011, a decrease of $2,753,000. Revenues for the years ended December 31, 2012 and December 31, 2011 included product sales of $578,000 and $538,000, respectively. Revenues earned on our government research and development contracts decreased by $2,793,000 for the year ended December 31, 2012 due to the winding down of several government contracts.
Research and development. Research and development costs were $20,729,000 for the year ended December 31, 2012 compared to $24,122,000 for the year ended December 31, 2011, a decrease of $3,393,000. Research and development costs include the costs incurred for pre-production, production activities in our manufacturing facility and facility and equipment infrastructure costs. Research and development costs also include costs related to our governmental contracts. Costs related to pre-production and production activities decreased by $1,625,000. The pre-production cost decreases were comprised of depreciation and amortization of $1,329,000, materials and equipment related costs of $1,173,000 and personnel related costs of $164,000, offset by increases in consulting and contract services of $1,045,000. Governmental research and development costs decreased by $1,768,000. The governmental research and development cost decreases were comprised of consulting and contract services of $1,623,000 and personnel related costs of $132,000.
Selling, general and administrative. Selling, general and administrative expenses were $5,008,000 for the year ended December 31, 2012 compared to $7,131,000 for the year ended December 31, 2011, a decrease of $2,123,000. This decrease is primarily the result of reductions in personnel related costs of $1,054,000, stock option expense of $650,000, general supplies expense of $281,000, public company expenses of $103,000 and consulting and contract services of $86,000, partially offset by an increase in insurance expense of $127,000.
Impairment loss. Impairment losses incurred as a result of write downs of Property, Plant and Equipment and Deposits on manufacturing equipment were $3,402,000 and $78,000,000 for years ended December 31, 2012 and 2011, respectively. The impairment loss incurred during 2012 was the result of certain manufacturing equipment no longer being utilized for its intended purpose. The significant impairment loss incurred in 2011 was the result of adverse changes in market conditions, particularly the decreases in current and expected average selling prices for PV modules.
Other Income/(Expense), net:
Interest expense. Interest expense was $272,000 and $113,000 for the years ended December 31, 2012 and 2011, respectively. Interest costs of $177,300 and $352,000 were incurred and capitalized as property, plant and equipment for the years ended December 31, 2012 and 2011, respectively. Interest incurred relates to our CHFA loan utilized for our production facility expansion in Thornton, Colorado.


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Interest income. Interest income was $29,000 for the year ended December 31, 2012 compared to $53,000 for the year ended December 31, 2011, a decrease of $24,000. Interest income represents interest on cash and short-term investments. The decrease is due to liquidation of investments and lower average cash balances.
Contract cancellation loss. Contract cancellation loss was $577,000 and $591,000 for the years ended December 31, 2012 and 2011, respectively. Contract cancellation losses are the result of changes in strategy and subsequent delivery cancellation of certain equipment.
Realized gain (loss) on forward contracts. Realized gain (loss) on forward contracts includes gains and losses incurred when forward contracts mature. For the year ended December 31, 2011, we recorded a realized gain on forward contracts of $64,000 compared to $0 for the year ended December 31, 2012. The gain recorded for the year ended December 31, 2011 was generated from the exercise of foreign currency options held to hedge future equipment payments to be remitted in Yen.
Foreign currency transaction gain (loss). Foreign currency transaction gain
(loss) is calculated on cash held in foreign currencies to reflect the current exchange rate. Foreign currency transaction loss was $5,000 for the year ended December 31, 2012 compared to foreign currency transaction gain of $146,000 for the year ended December 31, 2011, a net change of $151,000. The gains and losses are the result of changes in the exchange rate related to our deposits of foreign currencies. Net Loss. Our Net Loss was $28,768,000 for the year ended December 31, 2012, compared to a Net Loss of $105,744,000 for the year ended December 31, 2011, a decrease in Net Loss of $76,976,000. The decrease in Net Loss for the year ended December 31, 2012 can be summarized in variances in significant account activity as follows:

                                                  (Increase) decrease
                                                      in Net Loss
                                                   For the Year Ended
                                                   December 31, 2012
                                               Compared to the Year Ended
                                                   December 31, 2011
Revenues                                      $               (2,753,000 )
Research and development costs
Manufacturing research and development                         1,639,000
Government research and development                            1,756,000
Non-cash stock based compensation                                 (2,000 )
Selling, general and administrative expenses
Corporate selling, general and administrative                  1,472,000
Non-cash stock based compensation                                650,000
Impairment loss                                               74,598,000
Interest expense                                                (159,000 )
Interest income                                                  (24,000 )
Contract cancellation loss                                        14,000
Realized gain on investments                                           -
Realized gain (loss) on forward contracts                        (64,000 )
Foreign currency transaction gain (loss)                        (151,000 )
Increase to Net Loss                          $               76,976,000

Comparison of the Years Ended December 31, 2011 and 2010 Revenues. Our revenues were $3,950,000 for the year ended December 31, 2011 compared to $2,482,000 for the year ended December 31, 2010, an increase of $1,468,000. Revenues for the year ended December 31, 2011 and December 31, 2010 included product sales of $538,000 and $812,000, respectively. Revenues earned on our government research and development contracts increased by $1,742,000 for the year ended December 31, 2011 as a result of two new government contracts that were entered into and began generating revenue in June 2010.
Research and development. Research and development costs were $24,122,000 for the year ended December 31, 2011 compared to $24,354,000 for the year ended December 31, 2010, a decrease of $232,000. Research and development costs include the costs incurred for pre-production, production activities in our manufacturing facility and facility and equipment


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infrastructure costs. Research and development costs also include costs related to our governmental contracts. Costs related to pre-production and production activities decreased by $1,555,000. The pre-production cost decreases were comprised of personnel related costs of $1,720,000, consulting and contract services of $1,014,000, facility related costs of $602,000 and stock option expense of $356,000, offset by increases in depreciation and amortization of $1,321,000 and materials and equipment related costs of $841,000. Governmental research and development costs increased by $1,323,000. The governmental research and development cost increases were comprised of consulting and contract service of $1,211,000 and personnel related costs of $179,000, offset by decreases in facilities related costs of $114,000.
Selling, general and administrative. Selling, general and administrative expenses were $7,131,000 for the year ended December 31, 2011 compared to $7,454,000 for the year ended December 31, 2010, a decrease of $323,000. This decrease is primarily the result of reductions in stock option expense of $812,000, personnel related costs of $308,000 and depreciation and amortization expense of $268,000, offset by increases in facility related costs of $369,000, general supplies expenses of $258,000, legal expenses of $204,000, consulting and contract services of $164,000, public company expenses of $60,000 and marketing costs of $26,000.
Impairment loss. As a result of significant changes in market conditions, particularly the decreases in current and expected average selling prices for PV modules, an impairment charge was taken against Property, Plant and Equipment during the second quarter of 2011. The impairment loss incurred on the write down of Property, Plant and Equipment and Deposits on manufacturing equipment was $78,000,000 for year ended December 31, 2011 compared to $1,769,000 for year ended December 31, 2010.
Other Income/(Expense), net:
Interest expense. Interest expense was $113,000 and $0 for the years ended December 31, 2011 and 2010, respectively. Interest costs of $352,000 and $480,000 were incurred and capitalized as property, plant and equipment for the years ended December 31, 2011 and 2010, respectively. Interest incurred relates to our CHFA loan utilized for our production facility expansion in Thornton, Colorado.
Interest income. Interest income was $53,000 for the year ended December 31, 2011 compared to $42,000 for the year ended December 31, 2010, an increase of $11,000. Interest income represents interest on cash and short-term investments. Despite lower average cash balance, interest income increased due to slight improvements in interest rates in 2011 as compared to 2010.
Contract cancellation loss. Due to changes in our strategy, during the third quarter of 2011 we canceled delivery of certain equipment. As a result we recorded a loss of $591,000 for year ended December 31, 2011.
Realized gain (loss) on forward contracts. Realized gain (loss) on forward contracts includes gains and losses incurred when forward contracts mature. For the year ended December 31, 2011, we recorded a realized gain on forward contracts of $64,000 compared to $0 for the year ended December 31, 2010. The gain recorded for the year ended December 31, 2011 was generated from the exercise of foreign currency options held to hedge future equipment payments to be remitted in Yen.
Foreign currency transaction gain (loss). Foreign currency transaction gain
(loss) is calculated on cash held in foreign currencies to reflect the current exchange rate. Foreign currency transaction gain was $146,000 for the year ended December 31, 2011 compared to foreign currency transaction loss of $181,000 for the year ended December 31, 2010, a net change of $327,000. The decreases and increases are the result of changes in the exchange rate related to our deposits of foreign currencies. Net Loss. Our Net Loss was $105,744,000 for the year ended December 31, 2011 compared to a Net Loss of $31,234,000 for the year ended December 31, 2010, an increase in Net Loss of $74,510,000. The increase in Net Loss for the year ended December 31, 2011 can be summarized in variances in significant account activity as follows:


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                                                                      (Increase) decrease
                                                                          in Net Loss
                                                                       For the Year Ended
                                                                       December 31, 2011
                                                                   Compared to the Year Ended
                                                                       December 31, 2010
Revenues                                                        $                 1,468,000
Research and development costs
Manufacturing research and development                                           (1,296,000 )
Government research and development                                               1,199,000
Non-cash stock based compensation                                                   329,000
Selling, general and administrative expenses
Corporate selling, general and administrative                                      (489,000 )
Non-cash stock based compensation                                                   812,000
Impairment loss                                                                 (76,231,000 )
Interest expense                                                                   (113,000 )
Interest income                                                                      11,000
Contract cancellation loss                                                         (591,000 )
. . .
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