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-Jul-2013All Recent SEC Filings

Show all filings for WESTINGHOUSE SOLAR, INC.

Form 10-Q for WESTINGHOUSE SOLAR, INC.


31-Jul-2013

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.

On May 7, 2012, we entered into a merger agreement with CBD Energy Limited, an Australian corporation (CBD). On September 21, 2012, we and CBD entered into an amendment to the merger agreement under which we agreed to extend the termination rights under the merger agreement from October 31, 2012 to January 31, 2013 (or in certain circumstances, from December 31, 2012 to March 31, 2013), subject to additional extensions. Subsequent to March 31, 2013, the termination of the merger agreement does not occur automatically, but it can be terminated unilaterally by either party, upon notice to the other. We had originally targeted completion of the merger during the third quarter of 2012, however the target date for completion had been repeatedly delayed, and the necessary registration statement had yet to be completed and filed. The uncertainty has resulted in a disruption in our supply relationships, leading to a significant decline in our revenue and the implementation of significant cost reductions including the layoff of employees. Given the continued delays and uncertainty of whether and when the closing conditions for the merger as set for in the merger agreement will be satisfied, we terminated the merger agreement with CBD effective July 18, 2013. We are now committed to focus our attention on rebuilding our core business, expanding our current product offerings and exploring strategic opportunities.

On May 17, 2010, we entered into an exclusive worldwide license agreement with Westinghouse Electric that permits us to manufacture, distribute and market our solar panels under the Westinghouse name. Since July 22, 2010, we have been operating under the name "Westinghouse Solar." Minimum payments due under the license agreement were $750,000 for the year ending December 31, 2012 and are $1.0 million for the year ending December 31, 2013. We are currently past due for license fee payments of $382,500 related to 2012 and $250,000 for the first quarter of 2013. An additional $250,000 minimum license fee payment related to the second quarter ended 2013 is due on July 31, 2013. On July 22 2013, Westinghouse Electric notified us that we were in breach of contract due to the non-payment of past due license fees. Due to our limited resources, it is unlikely that payment will be made for past due license fees within the thirty-day cure period which will result in the termination of the license agreement. Upon the termination of the license agreement, we must immediately discontinue any and all use of the Westinghouse name and marks but shall be permitted to sell remaining products containing the Westinghouse marks within a six (6) month period. Although we have valued our relationship with Westinghouse, we do not believe that the termination of the license agreement will have a material adverse effect on our future business. While the Westinghouse trademark is an important, world-wide recognized brand, we believe the most important competitive factors relating to our products are their effectiveness, efficiency and consumer cost, i.e., price point, and ultimately to the extent the cost of the Westinghouse license becomes prohibitive, it negatively impacts our cost of goods.

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 Andalay 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 have 6 foreign patents. Currently, we have nine issued patents and 23 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.


Table of Contents

Concentration of Risk in Customer and Supplier Relationships

Disruption of Supplier Relationships

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 had a limited amount of remaining inventory on hand as of June 30, 2013, and although we are actively working with EEG to produce Westinghouse Solar modules, the disruption and loss of our historical primary component supply relationships is severely disruptive to our operations. In recent periods, 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 June 30, 2013, we have included in our Condensed Consolidated Balance Sheets, under accounts payable, a balance due to Suntech America of $870,000, plus accrued interest of $76,438, which is included in accrued liabilities in our Condensed Consolidated Balance Sheets. We do not anticipate that our prior suppliers will make any further shipments to us, which is resulting in decreased sales and revenue for us, and adversely affecting our customer relationships. We currently do not have any unshipped orders for solar panel product pending with Suntech or Lightway and we have not received any shipments of panels since April 2012.

On May 30, 2013, we and Environmental Engineering Group Pty Ltd (EEG) announced a supply agreement for the assembly of Westinghouse Solar's proprietary solar modules. The new modules recently achieved UL certification for U.S. distribution and production and shipment of its initial order are underway. Solar modules distributed in the United States will utilize Taiwan cells and therefore are not subject to punitive Chinese tariffs. Pursuant to the supply agreement, EEG will provide solar modules at market-competitive pricing, and in volume levels sufficient to meet our forecasted needs. We expect to begin shipping product to customers during the third calendar quarter of this year.

Concentration of Risk in Customer Relationships

The relative magnitude and the mix of revenue from our largest customers have varied significantly quarter to quarter. During the six months ended June 30, 2013 and 2012, 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 six months ended June 30, 2013 and 2012, the percentages of sales to Lennar, Lennox and Lowe's are as follows:

                              Six Months Ended
                                  June 30,
                              2013          2012
Lennox International Inc.        13.2 %      12.6 %
Lowe's Companies, Inc.            0.9 %      39.2 %
Lennar Corporation                0.0 %       8.0 %

We had no receivable balance from Lennar as of June 30, 2013 or December 31, 2012. Lennox accounted for 1.6% and 5.9% of our gross accounts receivable as of June 30, 2013 and December 31, 2012, respectively. Lowe's accounted for 0% and 4.0% of our gross accounts receivable as of June 30, 2013 and December 31, 2012.

We maintain reserves for potential credit losses and such losses, in the aggregate, have generally not exceeded management's estimates. At June 30, 2013 and December 31, 2012, accounts payable included amounts owed to our top three vendors of approximately $870,000 and $960,000, respectively.


Table of Contents

Three Months Ended June 30, 2013 as Compared to Three Months Ended June 30, 2012

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 June 30,
                                                      2013                            2012
Net revenue                                $    130,046         100.0 %    $  1,209,211         100.0 %
Cost of goods sold                              151,726         116.7 %       1,243,034         102.8 %
    Gross profit                                (21,680 )       (16.7 )%        (33,823 )        (2.8 )%
Operating expenses
Sales and marketing                             302,063         232.3 %         467,523          38.7 %
General and administrative                      509,673         391.9 %       1,663,885         137.6 %
Total operating expenses                        811,736         624.2 %       2,131,408         176.3 %
Loss from continuing operations                (833,416 )      (640.9 )%     (2,165,231 )      (179.1 )%
Other income (expense)
Interest (expense), net                             (64 )        (0.1 )%        (39,006 )        (3.2 )%
Adjustment to the fair value of common
stock warrants                                        2           0.0 %          10,303           0.9 %
Other income                                    420,000         323.0 %               -           0.0
Total other expense, net                        419,938         322.9 %         (28,703 )        (2.4 )%
Loss before provision for income taxes
and discontinued operations                    (413,478 )      (317.9 )%     (2,193,934 )      (181.4 )%
Provision for income taxes                            -           0.0 %               -           0.0 %
Net loss from continuing operations
(Note 3)                                       (413,478 )      (317.9 )%     (2,193,934 )      (181.4 )%
Net income (loss) from discontinued
operations, net of tax                            4,672           3.6 %          (2,880 )        (0.2 )%
Net loss                                       (408,806 )      (314.3 )%     (2,196,814 )      (181.7 )%
Preferred stock dividend                        (42,309 )       (32.5 )%        (21,028 )        (1.7 )%
Preferred deemed dividend                      (104,000 )         0.0 %               -           0.0 %
Net loss attributable to common
stockholders                               $   (555,115 )      (346.9 )%   $ (2,217,842 )      (183.4 )%

Net loss attributable to common
stockholders per common and common
equivalent share (basic and diluted)       $      (0.01 )                  $      (0.12 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 54,754,456                      18,459,159

Net revenue

We generate revenue from the sale of solar power systems. For the three months ended June 30, 2013, we generated $130,000 of revenue, a decrease of $1.1 million, or 89.2%, compared to $1.2 million of revenue for the three months ended June 30, 2012. The decrease in revenue was due to limited inventory levels due to severe, ongoing supplier relationship issues. As of June 30, 2013, we had no current or unshipped orders for solar panel product pending with Suntech and our supply relationship with Lightway is stalled. On May 30, 2013, we and Environmental Engineering Group Pty Ltd (EEG) announced a supply agreement for the assembly of our proprietary solar modules. The new modules recently achieved UL certification for U.S. distribution and production and shipment of its initial order are underway. Solar modules distributed in the United States will utilize Taiwan cells and therefore are not subject to punitive Chinese tariffs. Pursuant to the supply agreement, EEG will provide solar modules at market-competitive pricing, and in volume levels sufficient to meet our forecasted needs. We expect to begin shipping product to customers during the third calendar quarter of this year.


Table of Contents

Cost of goods sold

Cost of goods sold as a percent of revenue for the three months ended June 30, 2013, was 116.7% of net revenue, compared to 102.8% for the three months ended June 30, 2012. Gross loss for the three months ended June 30, 2013 was $22,000, or 16.7% of revenue, compared to gross loss of $34,000 or 2.8% of revenue for the same period in 2012. The decrease in gross margin for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, was due to higher inventory overhead allocations related to lower revenue volume.

Sales and marketing expenses

Sales and marketing expenses for the three months ended June 30, 2013 were $302,000, or 232.3% of net revenue as compared to $468,000, or 38.7% of net revenue during the same period of the prior year. The $165,000 decrease in sales and marketing expenses for the three months ended June 30, 2013 compared to the same period in 2012 was primarily due to decreases in payroll and commission costs of $141,000, advertising costs and trade shows expense of $51,000 and stock compensation costs of $43,000, partially offset by an increase in licensing fees owed to Westinghouse Electric Corporation of $63,000 and an increase in travel costs of $6,000. The decrease in payroll and stock compensation costs was due to lower headcount.

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2013 were $510,000, or 391.9% of net revenue as compared to $1.7 million, or 137.6% of net revenue during the same period of the prior year. The decrease in general and administrative expense for the three months ended June 30, 2013 compared to the same period in 2012, was due primarily to lower professional fees of $755,000, payroll costs of $173,000, research and development costs of $99,000, insurance expense of $42,000 and travel costs of $23,000. The decrease in legal and professional fees related to the recently terminated CBD merger transaction and patent litigation costs in the prior year. The decrease in payroll and stock compensation costs was due to lower headcount. The decrease in research and development costs was due to lower prototype parts and material and lower headcount.

Interest, net

During the three months ended June 30, 2013, net interest expense was essentially zero compared with net interest expense of $39,000 for the same period in 2012.

Adjustment to the fair value of common stock warrants

During the three months ended June 30, 2013, the fair value of the warrants was reduced to zero as a result of the decrease in the price of our common stock. During the three months ended June 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 $10,000 in our condensed consolidated statements of operations.

Other Income

During the quarter ended June 30, 2013, we recorded other income of $420,000, net of legal fees, relating to the favorable settlement of a legal dispute relating to a supply agreement with a former customer. Income taxes

During the three months ended June 30, 2013 and 2012, 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 three months ended June 30, 2013 was $833,000, compared to a net loss from continuing operations of $2.2 million for the three months ended June 30, 2012. For the three months ended June 30, 2012, the net loss included a favorable non-cash adjustment to the fair value of common stock warrants of $10,000. Excluding the impact of the common stock warrant adjustment, net loss from continuing operations for the three months ended June 30, 2012 was $2.2 million, or $0.12 per share.

Net income (loss) from discontinued operations

As a result of the exit from the installation business on September 7, 2010, we recorded net income of $5,000 from the discontinuance of our installation business segment for the three months ended June 30, 2013, compared with a net loss of $3,000 during the same period in 2012.

Preferred deemed dividend

On February 15, 2013, we entered into a securities purchase agreement with an institutional accredited investor relating to the sale and issuance of up to 1,150 shares of our newly created Series D Preferred Stock at a price per share equal to the stated value, which is $1,000 per share, for aggregate proceeds of up to $1,000,000. At the initial closing, concurrent with entering the agreement, we issued 150 shares of Series D Preferred, for initial aggregate proceeds of $150,000. After the initial closing, the securities purchase agreement permits the purchaser to exercise a "call" right to purchase additional Series D Preferred in multiple draw downs from time to time until December 31, 2013, subject to certain limits, terms and conditions. In March 2013, we and investors entered into a letter agreement to the securities purchase agreement dated as of February 15, 2013, modifying the number of shares of Series D Preferred Stock to be issued upon settlement of any purchaser draw downs made on or after March 18, 2013, equal to the purchaser investment amount divided by the stated value multiplied by a number agreed upon by the Company and the purchaser, which shall not be higher than 1.67. Subsequently, on March 21, 2013, we issued 167 shares of Series D Preferred for aggregate proceeds of $100,000. On May 13, 2013, we and investors entered into a letter agreement amendment to the securities purchase agreement dated as of February 15, 2013, modifying the number of shares of Series D Preferred Stock that may be issued upon draw downs made on or after May 13, 2013, equal to the purchaser investment amount divided by the stated value multiplied by a number agreed upon by us and the purchaser, which shall not be higher than 3.34. The corresponding conversion price into underlying shares of our common stock is $0.03 per share. On May 13, 2013, we issued 583 shares of Series D Preferred to an investor for aggregate proceeds of $175,000. As a result of the contingent conversion feature on the Series C Preferred, which reduced the conversion price from $0.05 to $0.03 per share on the total 260 shares of Series C Preferred Stock issued and outstanding at May 13, 2013, and which resulted in an increase in the number of common shares issuable, we recognized additional preferred deemed dividends of $104,000. The net loss attributable to common shareholders reflects both the net loss and the deemed dividend.


Table of Contents

Six Months Ended June 30, 2013 as Compared to Six Months Ended June 30, 2012

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:

                                                           Six Months Ended March 31,
                                                      2013                            2012
Net revenue                                $    211,240         100.0 %    $  3,631,551         100.0 %
Cost of goods sold                              239,468         113.4 %       3,423,003          94.3 %
    Gross profit                                (28,228 )       (13.4 )%        208,548           5.7 %
Operating expenses
Sales and marketing                             602,458         285.2 %       1,090,703          30.0 %
General and administrative                    1,221,097         578.1 %       3,727,294         102.6 %
Total operating expenses                      1,823,555         863.3 %       4,817,997         132.7 %
Loss from continuing operations              (1,851,783 )      (876.6 )%     (4,609,449 )      (126.9 )%
Other income (expense)
Interest income (expense), net                   (5,363 )        (2.5 )%        (34,786 )        (1.0 )%
Adjustment to the fair value of common
stock warrants                                        9           0.0 %        (426,640 )       (11.7 )%
Other income                                    420,000         198.8 %               -           0.0 %
Total other income (expense)                    414,646         196.3 %        (461,426 )       (12.7 )%
Loss before provision for income taxes
and discontinued operations                  (1,437,137 )      (680.3 )%     (5,070,875 )      (139.6 )%
Provision for income taxes                            -           0.0 %               -           0.0 %
Net loss from continuing operations          (1,437,137 )      (680.3 )%     (5,070,875 )      (139.6 )%
Net income from discontinued operations,
net of tax (Note 3)                               7,597           3.6 %          22,973           0.6 %

Net loss                                     (1,429,540 )      (676.7 )%     (5,047,902 )      (139.0 )%
Preferred stock dividend                        (95,529 )       (45.2 )%        (42,287 )        (1.2 )%
Preferred deemed dividend                      (374,000 )      (127.8 )%              -           0.0 %
Net loss attributable to common
stockholders                               $ (1,899,069 )      (849.8 )%   $ (5,090,189 )      (140.2 )%

Net loss attributable to common
stockholders per common and common
equivalent share (basic and diluted)       $      (0.04 )                  $      (0.29 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 43,962,863                      17,302,561

Net revenue

We generate revenue from the sale of solar power systems. For the six months ended June 30, 2013, we generated $211,000 of revenue, a decrease of $3.4 million, or 94.2%, compared to $3.6 million of revenue for the six months ended June 30, 2012. The decrease in revenue was due to limited inventory levels due to severe, ongoing supplier relationship issues. As of June 30, 2013, we had no current or unshipped orders for solar panel product pending with Suntech and our supply relationship with Lightway is stalled. On May 30, 2013, we and Environmental Engineering Group Pty Ltd (EEG) announced a supply agreement for the assembly of our proprietary solar modules. The new modules recently achieved UL certification for U.S. distribution and production and shipment of its initial order are underway. Solar modules distributed in the United States will utilize Taiwan cells and therefore are not subject to punitive Chinese tariffs. Pursuant to the supply agreement, EEG will provide solar modules at market-competitive pricing, and in volume levels sufficient to meet our forecasted needs. We expect to begin shipping product to customers during the third calendar quarter of this year.


Table of Contents

Cost of goods sold

Cost of goods sold as a percent of revenue for the six months ended June 30, 2013, was 113.4% of net revenue, compared to 94.3% for the six months ended June 30, 2012. Gross loss for the six months ended June 30, 2013 was $28,000, or 13.4% of revenue, compared to gross profit of $209,000 or 5.7% of revenue for the same period in 2012. The decrease in gross margin for the six months ended June 30, 2013 compared to the six months ended June 30, 2012, was due to higher . . .

  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.