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ASTI > SEC Filings for ASTI > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for ASCENT SOLAR TECHNOLOGIES, INC.

Form 10-Q for ASCENT SOLAR TECHNOLOGIES, INC.


7-Nov-2013

Quarterly Report


Item 2. 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 unaudited financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q. 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 photovoltaic modules using our proprietary technology. Since our formation in October 2005, the majority of our cash outlays have gone toward the investment in capital equipment necessary to develop our manufacturing capabilities for producing the commercial products we envision and for research and development. For the nine months ended September 30, 2013, we generated $735,000 of revenue. Our product revenue was $609,000 and our revenue from government research and development contracts was $126,000. We do not consider this level of sales sufficient for exiting development stage.
Product revenue for the quarter reflects the shift in our sales strategy to focus on 1) our dual offering of EnerPlex™ consumer products, in addition to our off-grid applications for the specialty markets that employ our technology in a variety of end-use applications, and 2) sales channel and geographic expansion. Our results reflect EnerPlex traction in segments including consumer electronics and outdoor specialty gear. With respect to off-grid products, our co-development partners are developing products for diverse applications in vehicle battery charging, military applications, specialty outdoor gear,


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transportation and aerospace applications. Our product roadmap includes the release of several complimentary products presented in a wide range of wattages which we expect will accelerate our sales traction in the markets noted above. Our geographic expansion includes new distribution and retail relationships in the Americas, Europe and Asia-Pacific Regions.
Our proprietary manufacturing process deposits multiple layers of materials, including a thin film of highly efficient Copper-Indium-Gallium-diSelenide ("CIGS") semiconductor material, on a flexible, lightweight, plastic substrate using a roll-to-roll manufacturing process and then laser patterns the layers to create interconnected PV cells, or PV modules, in a process known as monolithic integration. We believe that our technology and manufacturing process, which results in a lighter, flexible module package, provides us with a unique market opportunity relative to both the crystalline silicon ("c-Si") based PV manufacturers that currently lead the PV market, as well as other thin-film PV manufacturers that use substrate materials such as glass, stainless steel or other metals that can be heavier and more rigid than plastics. 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 believe there are numerous potential applications for our products.
We continue to accelerate our transition to a business model focusing on developing PV integrated re-charging solutions for consumer electronics. In June 2012, we launched our new line of consumer products under the EnerPlex™ brand, and introduced our first product, the Surfr™, a case with a solar assisted charger and battery back-up 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. The charger adds minimal weight and size to an iPhone smart phone, yet provides supplemental charging when needed. In August 2012, we announced the launch of the second version of Surfr, a case with a solar assisted charger and battery back-up for the Samsung® Galaxy S® III, which provides 85% additional battery life.
In December 2012, we launched the EnerPlex Kickr™ and EnerPlex Jumpr™ PV integrated 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 6 watts of regulated power that can help charge phones, tablets, digital cameras, and other portable electronic devices. The Kickr IV is ideal for outdoor activities such as camping, hiking and mountain climbing, as well as everyday use. Complementing the PV integrated series is our Jumpr™ product family. The Jumpr line has no PV component and is focused on providing portable electronics battery re-charging when an electronic outlet is not available. The line consists of the Jumpr Classic (4400 and 7800 milli-Amp hours ("mAh") capacity), the Jumpr Mini (1350 mAh and only 6mm in thickness) and the Jumpr Stack, which includes three Jumpr Mini's (carrying power of 1600 mAh each) and docking station, designed to provide the convenience of the Jumpr Mini for family members on the go.
We continue to design and manufacture PV integrated consumer electronics, as well as portable power applications for commercial and military users, and we have adjusted our equipment utilization to meet our near term sales forecast. Products in these consumer oriented 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 as typically used in commodity solar markets.
During the first three quarters of 2013, we launched our new retail relationship with Fry's Electronics Inc., a premier California-based retailer. Our entire EnerPlex series of products is now available at all Fry's retail locations, as well as online through www.frys.com.
We also established additional distributor relationships to reach consumers, including:
• Wintec Industries as a distributor of our EnerPlex series to Walmart.com.

• MKRAK Management Inc. as our exclusive distributor to golf pro-shops and select retail stores in the Canadian market.

• Power IT-2 for distribution of our EnerPlex series of consumer products in the United Kingdom.

• Sun2Voltage as our exclusive distributor of EnerPlex products in Scandinavia.

• D.Phone (DiXinTong Inc.), one of China's largest retailers of mobile phones and accessories.

• Hainan Airlines of China, which has over 500 domestic and international routes, including those of its subsidiaries: Shanxi, Chang'an and China Xinhua Airlines.

• West Coast Limited, one of the leading electronics distributors in the United Kingdom and Ireland.


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We also launched our retail presence in Colorado through the operation of sales kiosks at Denver International Airport (Concourse B) as well as malls in the Denver Metro area, and also at the world famous Red Rocks Amphitheater. These new retail locations bring us closer to a diverse and educated group of consumers in our home state of Colorado.
Energizer Holdings (NYSE: ENR) chose us to be the solar panel provider for the donated Energizer lanterns and lights used in the One Million Lights program designed to provide, not just light, but opportunity in the developing world. Our panels are used in a 7-LED Energizer® Rechargeable Lantern and a 4-LED Energizer® Rechargeable Area Light. Both solar solutions provide a safe, cost-effective alternative to traditional kerosene lamps for rural families. In addition, we announced our agreement with the Denver Broncos Football Club to become a 'Hometown Sponsor' for the NFL franchise, a deal which will include in-stadium advertising rights at Sports Authority Field at Mile High and promotional rights for our EnerPlex products.
Our consumer products are available to customers through third party distributors and retailers and through our website at www.GoEnerPlex.com, our retail website. For the balance of 2013 and throughout 2014, we plan to continue our expansion of distribution channels in the U.S. and worldwide. Commercialization and Manufacturing Strategy We manufacture our products by affixing a thin CIGS layer to a flexible, plastic substrate using a large format, roll-to-roll process that permits us to fabricate our flexible PV modules in an integrated sequential operation. We use proprietary monolithic integration techniques that enable us to form complete PV modules with less or no costly back end assembly of intercell connections. Traditional PV manufacturers assemble PV modules by bonding or soldering discrete PV cells together. This manufacturing step typically increases manufacturing costs and at times proves detrimental to the overall yield and reliability of the finished product. By reducing or eliminating this added step using our proprietary monolithic integration techniques, we believe that we can achieve cost savings in, and increase the reliability of, our PV modules. All tooling necessary for us to meet our near term production requirements is installed in our Thornton, Colorado plant. In 2012, we accelerated the change in strategy initiated in March 2011 when we revised our strategy to focus on applications for emerging and specialty markets, including off grid, military and defense and consumer oriented products (EnerPlex).
On February 1, 2012, we announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee has served on our Board since November 2011. Mr. Lee is the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant.
The addition of TFG Radiant as a major shareholder in August 2011 has significantly improved our capabilities on a number of fronts. TFG Radiant's domicile in China provides us access to high quality, low cost contract manufacturing in Asia through expansion of TFG Radiant existing relationships developed through many years of successful operation in China. Integrating these suppliers into our supply chain enables us to bring our products to market faster. TFG Radiant also provides a global product perspective that significantly improves the product design activities of our Thornton, Colorado designers as they collaborate with designers in Asia. We continue to integrate and improve the design-to-manufacture process where we manufacture modules in our US plant, ship them to Asia for completion into finished goods at low cost and then ship products to all markets we will serve. See Related Party Activity below.
On July 2, 2013, we entered into a framework agreement for the establishment of a joint venture with the Government of the Municipal City of Suqian in Jiangsu Province, China ("Suqian").
The agreement covers a multi-faceted, three-phase project. Completion of all three phases would involve an anticipated investment of up to $500 million over six years, primarily funded by Suqian.
Under the framework agreement, in the first phase we will form a joint venture entity with Suqian ("JV") in which we will have majority interest of up to 80%. The JV will build a factory to manufacture our proprietary photovoltaic modules. We will contribute proprietary technology and intellectual property, approximately $1.6 million in cash and certain equipment from our Colorado facility. Suqian will provide cash of approximately $32.5 million as well as rent-free use of a 270,000 square foot factory that is currently being built in the Suqian Economic & Industrial Development Science Park. This factory is expandable to 1,000,000 square feet for phases two and three of the agreement. The total project size of phase one under the agreement is expected to be approximately $160 million. We will have the right to purchase this factory within the first 5 years at the initial construction cost, as well as the right to purchase Suqian's ownership interest in the JV for a modest nominal cost above Suqian's cash investment.
The implementation of the framework agreement, including the formation of the JV entity, will be subject to a number of contractual conditions and governmental approvals. Such conditions and approvals must be obtained in the future in order for the Suqian factory to be built and become operational.


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We plan to continue the development of our current PV technology to increase module efficiency, improve our manufacturing tooling and process capabilities and reduce manufacturing costs. We also plan to continue to take advantage of research and development contracts to fund a portion of this development. Related Party Activity
TFG Radiant Investment Group Ltd. and its affiliates ("TFG Radiant") owns approximately 29% of our outstanding common stock as of September 30, 2013. In February 2012, we announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee had served on our Board of Directors since November 2011 and is currently the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant. In April 2012, we appointed the Chairman of TFG Radiant, Mr. Winston Xu (aka Xu Biao), as a member of our Board of Directors.
In June 2012, we entered into a supply agreement and a contract manufacturing agreement with TFG Radiant. Under the terms of the contract manufacturing agreement, TFG Radiant will oversee certain aspects of the contract manufacturing process related to our EnerPlex line of consumer products. We will compensate TFG Radiant for acting as general contractor in the contract manufacturing process. Under the supply agreement, TFG Radiant intends to distribute our consumer products in Asia. In December 2012, we entered into a consulting agreement with TFG Radiant for product design, product development and manufacturing coordinating activities provided by TFG Radiant to us in connection with our new line of consumer electronic products. The services agreement has a one year term initially, and the services agreement may be terminated by either party upon 10 days prior written notice.
During the nine months ended September 30, 2013, we made disbursements to TFG Radiant in the amount of $1,082,000, consisting of $600,000 for consulting fees and $482,000 for finished goods received and deposits for work-in-process. During the three and nine months ended September 30, 2013 and 2012, we recognized revenue in the amount of $143,000 and $405,000, respectively, for products sold to TFG Radiant under the supply agreement. As of September 30, 2013 and December 31, 2012, we held $10,000 and $596,000, respectively, in receivables due from and deposits paid to TFG Radiant. 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 whether:
• we can generate customer acceptance of and demand for our products;

• we successfully ramp up commercial production on the equipment installed;

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

• we successfully operate 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;

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

• we are able to be successful in designing, manufacturing, marketing, distributing and selling our newly introduced line of consumer oriented products;

• we effectively manage the planned ramp up of our operations;

• we are able to maintain the listing of our common stock on The NASDAQ Global Market or Capital Market;

• we are able to achieve projected operational performance and cost metrics;

• we 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;

• we are able to enter into commercially viable licensing, joint venture, or other commercial arrangements; and

• raw materials are available to us on acceptable terms and in sufficient quantities.


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Critical Accounting Policies and Estimates Critical accounting policies used in reporting our financial results are reviewed by management on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Processes used to develop these estimates are evaluated on an ongoing basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities. Actual results may differ as outcomes from assumptions may change.
Our significant accounting policies were described in Note 3 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no changes to these policies that are of potential significance to us during the nine months ended September 30, 2013. Recent Accounting Pronouncements
See Note 3, "Summary of Significant Accounting Policies," in the Notes to Condensed Financial Statements. There are no new accounting pronouncements that are of significance or potential significance to us.

Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2013 and 2012 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 $275,000 for the three months ended September 30, 2013 compared to $556,000 for the three months ended September 30, 2012, a decrease of $281,000. Revenues for the three months ended September 30, 2013 include $267,000 of product sales compared to $474,000 for the three months ended September 30, 2012, a decrease of $207,000. Revenues earned on our government research and development contracts decreased by $74,000 during the three months ended September 30, 2013, due to the winding down of several government contracts.
Our revenues were $735,000 for the nine months ended September 30, 2013 compared to $1,152,000 for the nine months ended September 30, 2012, a decrease of $417,000. Revenues for the nine months ended September 30, 2013 include $609,000 of product sales compared to $547,000 for the nine months ended September 30, 2012, an increase of $62,000. Revenues earned on our government research and development contracts decreased by $479,000 during the nine months ended September 30, 2013, due to the winding down of several government contracts. Research and development. Research and development costs were $5,336,000 for the three months ended September 30, 2013 compared to $5,730,000 for the three months ended September 30, 2012, a decrease of $394,000. Research and development costs include the costs incurred for 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 production activities decreased by $352,000. The production cost decrease was comprised of consulting and contract service costs of $397,000, materials and equipment related costs of $89,000, facility costs of $42,000, depreciation and amortization of $36,000 and stock option expense of $21,000, offset by an increase in personnel related costs of $245,000. Governmental research and development expenditures decreased by $42,000 in the three months ended September 30, 2013. This decrease was comprised of consulting and contract services costs of $27,000, materials and equipment related costs of $25,000 and facility costs of $16,000, offset by an increase in personnel related costs of $28,000.
Research and development costs were $16,246,000 for the nine months ended September 30, 2013 compared to $14,950,000 for the nine months ended September 30, 2012, an increase of $1,296,000. Research and development costs include the costs incurred for 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 production activities increased by $1,637,000. The production cost increase was comprised of personnel related costs of $751,000, materials and equipment related costs of $675,000 and consulting and contract service costs of $552,000, offset by decreases in facility related costs of $220,000, stock option expense of $52,000, depreciation and amortization of $42,000 and other manufacturing related expenses of $27,000. Governmental research and development expenditures decreased by $341,000 in the nine months ended September 30, 2013. This decrease is the result of reductions in consulting and contract service costs of $272,000, facilities related costs of $48,000, material and equipment related costs of $34,000 and stock option expense of $17,000, offset by an increase in personnel related costs of $35,000. Selling, general and administrative. Selling, general and administrative expenses were $1,385,000 for the three months ended September 30, 2013 compared to $1,188,000 for the three months ended September 30, 2012, an increase of $197,000.


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This increase is comprised of consulting and contract service costs of $237,000, marketing costs of $180,000 and personnel related costs of $112,000, offset by decreases in legal costs of $219,000, public company costs of $75,000, safety related costs of $26,000 and stock option expense of $15,000.
Selling, general and administrative expenses were $4,238,000 for the nine months ended September 30, 2013 compared to $3,868,000 for the nine months ended September 30, 2012, an increase of $370,000. This increase is comprised of consulting and contract service costs of $535,000, marketing related costs of $439,000 and personnel related costs of $38,000, offset by decreases in legal costs of $182,000, moving expenses of $162,000, stock option expense of $154,000, public company costs of $110,000 and facility and IT related costs of $49,000.
Other Income / (Expense), net. Other Income / (Expense) was $107,000 net expense for the three months ended September 30, 2013 compared to $37,000 net expense for the three months ended September 30, 2012, an increase of $70,000, primarily the result of an increase in interest expense as we are no longer capitalizing interests costs on our manufacturing facility building loan.
Other Income / (Expense) was $320,000 net expense for the nine months ended September 30, 2013 compared to $149,000 net expense for the nine months ended September 30, 2012, an increase of $171,000, primarily the result of an increase in interest expense as we are no longer capitalizing interests costs on our manufacturing facility building loan.
Net Loss. Our Net Loss was $6,482,000 for the three months ended September 30, 2013 compared to a Net Loss of $6,398,000 for the three months ended September 30, 2012, an increase of $84,000.
Our Net Loss was $19,999,000 for the nine months ended September 30, 2013 compared to a Net Loss of $17,815,000 for the nine months ended September 30, 2012, an increase of $2,185,000.

The increase in Net Loss can be summarized in variances in significant account activity as follows:

                                                             Decrease (increase)             Decrease (increase)
                                                                 to Net Loss                     to Net Loss
                                                                For the Three                    For the Nine
                                                                Months  Ended                   Months  Ended
                                                        September 30, 2013 Compared to   September 30, 2013 Compared
                                                            the Three Months Ended         to the Nine Months Ended
                                                              September 30, 2012              September 30, 2012
Revenues
Products                                                $              (207,000 )        $               62,000
Government Contracts                                                    (74,000 )                      (479,000 )
Research and development costs
Manufacturing research and development                                  331,000                      (1,689,000 )
Government research and development                                      39,000                         324,000
Non-cash stock based compensation                                        24,000                          69,000
Selling, general and administrative expenses
Corporate selling, general and administrative                          (212,000 )                      (524,000 )
Non-cash stock based compensation                                        15,000                         154,000
Other Income / (Expense)
Other Income / (Expense), net                                           (70,000 )                      (171,000 )
Change in fair value of make-whole dividend liability                    70,000                          70,000
Increase to Net Loss                                    $               (84,000 )        $           (2,184,000 )

Liquidity and Capital Resources
As of September 30, 2013, we had approximately $3.9 million in cash and cash equivalents and working capital of $2.6 million. We are in the development stage and are currently incurring significant losses from operations as we work toward further commercialization.
In May 2013, we sold 2,500,000 shares of common stock in a private placement for proceeds of $1.4 million.
In June and August 2013, we sold 750,000 shares of Series A Preferred Stock at a price of $8.00 per share to an investor, resulting in gross proceeds of $6,000,000. This purchase included warrants to purchase up to 2,625,000 shares of our common stock.


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Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of 8.0% per annum when and if declared by the Board of Directors in its sole discretion. The dividends may be paid in cash or in the form of common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period), at the discretion of the Board of Directors. The dividend rate on the Series A Preferred Stock is indexed to our stock price and subject to adjustment. In addition, the Series A Preferred Stock contains a make-whole provision whereby, conversion or redemption of the . . .

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