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 13-Nov-2013All Recent SEC Filings

Show all filings for ANDALAY SOLAR, INC.

Form 10-Q for ANDALAY SOLAR, INC.


13-Nov-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 Andalay Solar, Inc. and its subsidiaries ("Andalay 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 and do-it-yourself customers 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.

We were incorporated in February 2001 as Akeena Solar, Inc. in the State of California and elected at that time to be taxed as an S corporation. During June 2006, we reincorporated in the State of Delaware and became a C corporation. On August 11, 2006, we entered into a reverse merger transaction with Fairview Energy Corporation, Inc. ("Fairview"). Pursuant to the Merger, the stockholders of the Company received one share of Fairview common stock for each issued and outstanding share of The Company's common stock. The Company's common shares were also adjusted from $0.01 par value to $0.001 par value at the time of the Merger. On May 17, 2010, we entered into an exclusive worldwide license agreement with Westinghouse, Inc, which permitted us to manufacture, distribute and market solar panels under the Westinghouse name and in connection therewith, on April 6, 2011, we changed our name to Westinghouse Solar, Inc. On August 23, 2013, the license agreement with Westinghouse, Inc. was terminated and on September 19, 2013, we changed our name to our current name, Andalay Solar, Inc.

In September 2007, we introduced our "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) 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 five U.S. patents (Patent No. 7,406,800, Patent No. 7,832,157, Patent No. 7,866,098, Patent No. 7,987,614 and Patent No. 8,505,248) 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 9 foreign patents. Currently, we have 14 issued patents and 15 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

Concentration of Risk in Supplier Relationships

Historically, we obtained virtually all of our solar panels from Suntech and Lightway. During 2012, because of our cash position and liquidity constraints, we were late in making payments to both of these 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 filed a complaint for breach of contract, goods sold and delivered, account stated and open account against us in the Superior Court of the State of California, County of San Francisco. Suntech alleged that it delivered products and did not receive full payment from us. On July 31, 2012, we and Suntech entered into a settlement of this dispute. Because of our inability to make scheduled settlement payments, on March 15, 2013, Suntech entered a judgment against us in the amount of $946,438. As of September 30, 2013, Suntech has not sought to enforce its judgment. As of September 30, 2013, we have included in our Condensed Consolidated Balance Sheets a balance due to Suntech America of $946,438. We currently have no unshipped orders from Suntech or Lightway.

In May 2013, we entered into a new supply agreement for assembly of our proprietary modules with Environmental Engineering Group Pty Ltd ("EEG"), an assembler of polycrystalline modules located in Australia. In August 2013, we began receiving product from EEG and began shipping product to customers during the third calendar quarter of this year. We anticipate increased shipments to customers during the fourth quarter of 2013. We have remaining panel inventory on hand as of September 30, 2013 and anticipate receiving a final shipment of product in November 2013, fulfilling our purchase order with EEG. In September 2013, we entered into a second supply agreement for assembly of our proprietary modules with Tianwei New Energy Co, Ltd., a panel supplier located in China. We anticipate beginning to receive product from this new supplier beginning in the first quarter of 2014. Although we believe we can find alternative suppliers for solar panels manufactured to our specifications, our operations would be disrupted unless we are able to rapidly secure alternative sources of supply, our inventory and revenue could diminish significantly, causing disruption to our operations.

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 nine months ended September 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 nine months ended September 30, 2013 and 2012, the percentages of sales to Lennar, Lennox and Lowe's are as follows:

                              Nine Months Ended
                                September 30,
                              2013          2012
Lennox International Inc.        7.7 %        33.3 %
Lowe's Companies, Inc.           7.1 %         8.0 %
Lennar Corporation               0.0 %        10.3 %

We had no receivable balance from Lennar as of September 30, 2013 or December 31, 2012. Lennox accounted for 0.7% and 5.9% of our gross accounts receivable as of September 30, 2013 and December 31, 2012, respectively. Lowe's accounted for 8.8% and 4.0% of our gross accounts receivable as of September 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. Our top three vendors accounted for approximately 25% and 36% of accounts payable as of September 30, 2013 and December 31, 2012, respectively. At September 30, 2013 and December 31, 2012, accounts payable included amounts owed to our top three vendors of approximately $1.1 million and $960,000, respectively.


Table of Contents

Three Months Ended September 30, 2013 as Compared to Three Months Ended
September 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
revenue:

                                                        Three Months Ended September 30,
                                                      2013                             2012
Net revenue                                $    156,630          100.0 %    $    838,446         100.0 %
Cost of goods sold                              167,891          107.2 %       1,063,538         126.8 %
    Gross loss                                  (11,261 )         (7.2 )%       (225,092 )       (26.8 )%
Operating expenses
Sales and marketing                             201,590          128.7 %         536,463          64.0 %
General and administrative                      595,241          380.0 %       1,458,468         173.9 %
Total operating expenses                        796,831          508.7 %       1,994,931         237.9 %
Loss from continuing operations                (808,092 )       (515.9 )%     (2,220,023 )      (264.8 )%
Other income (expense)
Interest (expense), net                          (1,367 )         (0.9 )%        (36,432 )        (4.6 )%
Adjustment to the fair value of common
stock warrants                                        -            0.0 %           8,972           1.1 %
Other income                                          -            0.0 %               -           0.0 %
Total other expense, net                         (1,367 )         (0.9 )%        (27,460 )        (3.3 )%
Loss before provision for income taxes
and discontinued operations                    (809,459 )       (516.8 )%     (2,247,484 )      (268.1 )%
Provision for income taxes                            -            0.0 %               -           0.0 %
Net loss from continuing operations
(Note 3)                                       (809,459 )       (516.8 )%     (2,247,484 )      (268.1 )%
Net income (loss) from discontinued
operations, net of tax                            3,200            2.0 %           8,932           1.1 %
Net loss                                       (806,259 )       (514.8 )%     (2,238,552 )      (267.0 )%
Preferred stock dividend                        (28,980 )        (18.5 )%        (75,331 )        (9.0 )%
Preferred deemed dividend                      (501,304 )       (506.2 )%              -           0.0 %
Net loss attributable to common
stockholders                               $ (1,336,543 )     (1,039.5 )%   $ (2,313,883 )      (276.0 )%

Net loss attributable to common
stockholders per common and common
equivalent share (basic and diluted)       $      (0.02 )                   $      (0.11 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 81,746,372                       19,883,887

Net revenue

We generate revenue from the sale of solar power systems. For the three months ended September 30, 2013, we generated $157,000 of revenue, a decrease of $682,000, or 81.3%, compared to $838,000 of revenue for the three months ended September 30, 2012. The decrease in revenue was due to limited inventory levels due to supplier relationship issues. In May 2013, we entered into a new supply agreement for assembly of our proprietary modules with Environmental Engineering Group Pty Ltd ("EEG"), an assembler of polycrystalline modules located in Australia. In August 2013, we began receiving product from EEG and began shipping product to customers during the third calendar quarter of this year. We anticipate increased shipments to customers during the fourth quarter of 2013. We have remaining panel inventory on hand as of September 30, 2013 and anticipate receiving a final shipment of product in November 2013, fulfilling our purchase order with EEG. In September 2013, we entered into a second supply agreement for assembly of our proprietary modules with Tianwei New Energy Co, Ltd., a panel supplier located in China. We anticipate beginning to receive product from this new supplier beginning in the first quarter of 2014.


Table of Contents

Cost of goods sold

Cost of goods sold as a percent of revenue for the three months ended September 30, 2013, was 107.2% of net revenue, compared to 126.8% for the three months ended September 30, 2012. Gross loss for the three months ended September 30, 2013 was $11,000, or 7.2% of revenue, compared to gross loss of $225,000 or 26.8% of revenue for the same period in 2012. 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 increase in gross margin in the three months ended September 30, 2013 compared to the three months ended September 30, 2012, was due to the inventory revaluation and higher inventory overhead allocations.

Sales and marketing expenses

Sales and marketing expenses for the three months ended September 30, 2013 were $202,000, or 128.7% of net revenue as compared to $536,000, or 64.0% of net revenue during the same period of the prior year. The $335,000 decrease in sales and marketing expenses for the three months ended September 30, 2013 compared to the same period in 2012 was primarily due to decreases in payroll and commission costs of $131,000, advertising costs and trade shows expense of $72,000, licensing fees owed to Westinghouse Electric Corporation of $49,000 and stock compensation costs of $40,000. 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 September 30, 2013 were $595,000, or 380.0% of net revenue as compared to $1.5 million, or 173.9% of net revenue during the same period of the prior year. The decrease in general and administrative expense for the three months ended September 30, 2013 compared to the same period in 2012, was due primarily to lower bad debt expense of $358,000, legal and professional fees of $273,000, payroll costs of $125,000, research and development costs of $72,000 and insurance expense of $48,000. The decrease in bad debt expense was driven by a $400,000 non-cash write-down of a receivable from a supplier in the prior year. The decrease in legal and professional fees related to the recently terminated CBD merger transaction 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 September 30, 2013, net interest expense was approximately $1,000 compared with net interest expense of $36,000 for the same period in 2012.

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.

Income taxes

During the three months ended September 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.


Table of Contents

Net loss from continuing operations

Net loss from continuing operations for the three months ended September 30, 2013 was $809,000, compared to a net loss from continuing operations of $2.2 million for the three months ended September 30, 2012. For the three months ended September 30, 2012, the net loss included a favorable non-cash adjustment to the fair value of common stock warrants of $9,000. Excluding the impact of the common stock warrant adjustment, net loss from continuing operations for the three months ended September 30, 2012 was $2.2 million, or $0.11 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 $3,000 from the discontinuance of our installation business segment for the three months ended September 30, 2013, compared with net income of $9,000 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. On August 30, 2013, we entered into an agreement to sell $200,000 in convertible notes. As a result of the sale of these convertible notes and as a result of the contingent conversion feature on the Series C Preferred and Series D Preferred, which reduced the conversion price from $0.03 to $0.02 per share on the Series C and from $0.10 to $0.02 per share on the Series D on the total 147 shares and 930 shares, respectively, of Series C Preferred Stock and Series D Preferred Stock issued and outstanding at August 30, 2013, and which resulted in an increase in the number of common shares issuable, we recognized additional preferred deemed dividends of $36,000 on the Series C Preferred Stock and $465,000 on the Series D Preferred Stock. The net loss attributable to common shareholders reflects both the net loss and the deemed dividend. As a result of the $500,000 loan and security agreement entered into on September 30, 2013, we issued to the lender 50 shares of our Series D Preferred stock for the $50,000 loan origination fee.


Table of Contents

Nine Months Ended September 30, 2013 as Compared to Nine Months Ended September 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:
                                                        Nine Months Ended September 30,
                                                      2013                            2012
Net revenue                                $    367,870         100.0 %    $  4,469,997         100.0 %
Cost of goods sold                              407,359         110.7 %       4,486,541         100.4 %
    Gross loss                                  (39,489 )       (10.7 )%        (16,544 )        (0.4 )%
Operating expenses
Sales and marketing                             804,048         218.6 %       1,627,166          36.4 %
General and administrative                    1,816,338         493.7 %       5,185,762         116.0 %
Total operating expenses                      2,620,386         712.3 %       6,812,928         152.4 %
Loss from continuing operations              (2,659,875 )      (723.0 )%     (6,829,472 )      (152.8 )%
Other income (expense)
Interest income (expense), net                   (6,730 )        (1.8 )%        (71,219 )        (1.6 )%
Adjustment to the fair value of common
stock warrants                                        9           0.0 %        (417,668 )        (9.3 )%
Other income                                    420,000         114.2 %               -           0.0 %
Total other income (expense)                    413,279         112.3 %        (488,887 )       (10.9 )%
Loss before provision for income taxes
and discontinued operations                  (2,246,596 )      (610.7 )%     (7,318,359 )      (163.7 )%
Provision for income taxes                            -           0.0 %               -           0.0 %
Net loss from continuing operations          (2,246,596 )      (610.7 )%     (7,318,359 )      (163.7 )%
Net income from discontinued operations,
net of tax (Note 3)                              10,797           2.9 %          31,905           0.7 %
Net loss                                     (2,235,799 )      (607.8 )%     (7,286,454 )      (163.0 )%
Preferred stock dividend                       (124,509 )       (33.8 )%       (117,618 )        (2.6 )%
Preferred deemed dividend                      (875,304 )      (317.2 )%              -           0.0 %
Net loss attributable to common
stockholders                               $ (3,235,612 )      (958.8 )%   $ (7,404,072 )      (165.6 )%

Net loss attributable to common
stockholders per common and common
equivalent share (basic and diluted)       $      (0.06 )                  $      (0.40 )

Weighted average shares used in
computing loss per common share: (basic
and diluted)                                 56,695,767                      18,163,851

Net revenue

We generate revenue from the sale of solar power systems. For the nine months ended September 30, 2013, we generated $368,000 of revenue, a decrease of $4.1 million, or 91.8%, compared to $4.5 million of revenue for the nine months ended September 30, 2012. The decrease in revenue was due to limited inventory levels due to supplier relationship issues. In May 2013, we entered into a new supply agreement for assembly of our proprietary modules with Environmental Engineering Group Pty Ltd ("EEG"), an assembler of polycrystalline modules located in Australia. In August 2013, we began receiving product from EEG and began shipping product to customers during the third calendar quarter of this year. We anticipate increased shipments to customers during the fourth quarter of 2013. We have remaining panel inventory on hand as of September 30, 2013 and anticipate receiving a final shipment of product in November 2013, fulfilling our purchase order with EEG. In September 2013, we entered into a second supply agreement for assembly of our proprietary modules with Tianwei New Energy Co, Ltd., a panel supplier located in China. We anticipate beginning to receive product from this new supplier beginning in the first quarter of 2014.


Table of Contents

Cost of goods sold

Cost of goods sold as a percent of revenue for the nine months ended September 30, 2013, was 110.7% of net revenue, compared to 100.4% for the nine months ended September 30, 2012. Gross loss for the nine months ended September 30, 2013 was $39,000, or 10.7% of revenue, compared to gross loss of $17,000 or 0.4% of revenue for the same period in 2012. During the nine months 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 for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, was due to higher inventory overhead allocations related to lower revenue volume.

Sales and marketing expenses

Sales and marketing expenses for the nine months ended September 30, 2013 were $804,000, or 218.6% of net revenue as compared to $1.6 million, or 36.4% of net revenue during the same period of the prior year. The $823,000 decrease in sales and marketing expenses for the nine months ended September 30, 2013 compared to the same period in 2012 was primarily due to decreases in payroll and commission costs of $467,000, advertising costs and trade shows expense of $214,000, stock compensation costs of $153,000 and $65,000 in travel costs, partially offset by an increase in licensing fees owed to Westinghouse Electric Corporation of $76,000. The decrease in payroll and stock compensation costs was due to lower headcount.

General and administrative expenses

. . .

  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.