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 and our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 14, 2022. 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. You should carefully read the "Risk Factors" section of this Quarterly Report and of our Annual Report on Form 10-K for the year ended December 31, 2021 to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Forward-Looking Statements."
We target high-value specialty solar markets. These include aerospace, defense, emergency management and consumer/OEM applications. This strategy enables us to fully leverage what we believe are the unique advantages of our technology, including flexibility, durability and attractive power to weight and power to area performance. It further enables us to offer unique, differentiated solutions in large markets with less competition, and more attractive pricing.
Specifically, we focus on commercializing our proprietary solar technology in three highest-value PV verticals:
I. Aerospace: Space, Near-space and Fixed Wing UAV II. Public Sector: Defense and Emergency Management III. Commercial Off-grid and Portable Power
We believe the value proposition of Ascent's proprietary solar technology not only aligns with the needs of customers in these verticals, but also overcomes many of the obstacles other solar technologies face in these unique markets. Ascent has the capability to design and develop finished products for end users in these areas as well as collaborate with strategic partners to design and develop custom integrated solutions for products like airships and fixed-wing UAVs. Ascent sees significant overlap in the needs of end users across some of these verticals and believes it can achieve economies of scale in sourcing, development, and production in commercializing products for these customers.
The integration of Ascent's solar modules into space, near space, and aeronautic vehicles with ultra-lightweight and flexible solar modules is an important market opportunity for the Company. Customers in this market have historically required a high level of durability, high voltage and conversion efficiency from solar module suppliers, and we believe our products are well suited to compete in this premium market.
For the six months ended June 30, 2022, we generated $1,203,781 of total revenue. As of June 30, 2022, we had an accumulated deficit of $434,392,822.
In January 2017, Ascent was awarded a contract to supply high-voltage SuperLight thin-film CIGS PV blankets. These 50W, fully laminated, flexible blankets were manufactured using a new process that was optimized for high performance in near-space conditions at elevated temperatures, and are custom designed for easy modular integration into series and parallel configurations to achieve the desired voltage and current required for such application.
In November 2017, Ascent introduced the next generation of our USB-based portable power systems with the XD™ series. The first product introduced was the XD-12 which, like previous products, is a folding, lightweight, easily stowable, PV system with USB power regulation. Unique to this generation of PV portable power is more PV power (12 Watts) and a 2.0 Amp smart USB output to enable the XD-12 to charge most smartphones, tablets, and USB-enabled devices as fast as a wall outlet. The enhanced smart USB circuit works with the device to be charged so that the device can determine the maximum power it is able to receive from the XD-12 and ensures the best possible charging performance directly from the sun.
Also in 2017, Ascent manufactured a new micro-module for a space customer, approximately 12.8mm x 50mm (0.5in x 2.0in) in size that is ideal for both laboratory-scale environmental testing, and for subsequent integration into flight experiments.
In February 2018, the Company introduced the second product in our XD series. Delivering up to 48 Watts of solar power, we believe the durable and compact Ascent XD-48 Solar Charger is the ideal solution for charging many portable electronics and off-grid power systems. The XD-48's versatility allows it to charge both military and consumer electronics directly from the sun wherever needed. Like the XD-12, the XD-48 has a compact and portable design, and its rugged, weather-resistant construction withstands shocks, drops, damage and even minor punctures to power through the harshest conditions.
In March 2018, we collaborated with a European based customer for their lighter-than-air, helium-filled airship project, which was based on our newly developed ultra-light modules with substrate material that was half of the thickness of our standard modules. In 2019, we completed a repeat order from the same customer who had since established its airship development operation in the US. In 2020, we received a third and enlarged order from the same customer and completed the order in the second quarter of 2021. Most recently, in the 4th quarter of 2021 we received a fourth order that was fulfilled during the 2nd quarter of 2022.
On September 15, 2021, the Company entered into a Long-Term Supply and Joint Development Agreement ("JDA") with TubeSolar, a significant existing stakeholder in the Company. See "Principal Stockholders," and "Certain Transactions." Under the terms of the JDA, the Company will produce, and TubeSolar will purchase, thin-film PV foils ("PV Foils") for use in TubeSolar's solar modules for agricultural photovoltaic ("APV") applications that require solar foils for its production. Under the JDA, the Company will receive (i) up to $4 million of non-recurring engineering ("NRE") fees, (ii) up to $13.5 million of payments upon achievement of certain agreed upon production and cost structure milestones, and (iii) product revenues from sales of PV Foils to TubeSolar. The JDA has no fixed term, and may only be terminated by either party for breach.
The Company and TubeSolar have also jointly established a subsidiary company in Germany, in which TubeSolar holds a minority stake of 30% (the "JV"). The purpose of the JV is to establish and operate a PV manufacturing facility in Germany that will produce and deliver PV Foils exclusively to TubeSolar. Until the JV facility is fully operational, PV Foils will be manufactured in the Company's existing facility in Thornton, Colorado. The parties expect to jointly develop next generation tooling for use in manufacturing PV Foils at the JV facility. The Company purchased 17,500 shares of the JV for 1 Euro per share, on November 10, 2021.
We continue to design and manufacture PV integrated portable power applications for commercial and military users, including the US Marine Corps, US AF Special Operations Command, US Special Operations Command, US Army Special Operations Command, US Army Futures Command, and others. Due to the high durability enabled by the monolithic integration employed by our technology, the capability to customize modules into different form factors and what we believe is the industry leading light weight and flexibility provided by our modules, we believe that the potential applications for our products are extensive, including anywhere that may need power generation such as in disaster recovery and emergency preparedness, commercial and personal adventure expeditions to remote areas, humanitarian efforts in areas with poor power infrastructure, photography and filming involved in wildlife observation, and elsewhere needing remote and mobile power generation.
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 which enable us to form complete PV modules with little to no back-end assembly cost of inter- cell 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 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.
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.
Significant Trends, Uncertainties and Challenges
We believe the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include:
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been derived from the accounting records of Ascent Solar Technologies, Inc. and Ascent Solar (Asia) Pte. Ltd. (collectively, the "Company") as of June 30, 2022 and December 31, 2021, and the results of operations for the three and six months ended June 30, 2022 and 2021. Ascent Solar (Asia) Pte. Ltd. is wholly owned by Ascent Solar Technologies, Inc. All significant inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
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.
The Company's significant accounting policies were described in Note 3 to the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to our accounting policies as of June 30, 2022.
Comparison of the Three Months Ended June 30, 2022 and 2021
Comparison of the Three Months Ended June 30, 2022 and 2021
Total Revenues. Our total revenues increased by $257,083, or 68%, for the three months ended June 30, 2022 when compared to the same period in 2021, due primarily to the completion of a larger order in the current period.
Cost of revenue. Cost of revenues is primarily comprised of repair and maintenance, material costs, and direct labor and overhead expenses. Our Cost of revenues increased by $153,133, or 36%, for the three months ended June 30, 2022 when compared to the same period in 2021. This is due primarily to the increase in repair and maintenance, personnel, materials and freight, and other operating costs as a result of an increase in operations during the three months ended June 30, 2022 when compared to the same period in 2021. Management believes our factory is significantly under-utilized, and a substantial increase in revenue would result in marginal increases to Direct Labor and Overhead included in the Cost of revenues. As such management's continued focus going forward is to improve gross margin through increased sales and improved utilization of our factory.
Research, development and manufacturing operations. Research, development and manufacturing operations costs include costs incurred for product development, pre-production and production activities in our manufacturing facility. Research, development and manufacturing operations costs also include costs related to technology development. Research, development and manufacturing operations costs increased by $551,423, or 61%, for the three months ended June 30, 2022 when compared to the same period in 2021. This is due primarily to an increase in personnel and other operating costs as a result of increased level of operations in the current period as compared to the Company's restart status in the same period in 2021.
Selling, general and administrative. Selling, general and administrative expenses increased by $71,465, or 9%, for the three months ended June 30, 2022 when compared to the same period in 2021. The increase in costs is due primarily to increased administrative costs in the current period as compared to the Company's restart status in the same period in 2021.
Other Income/Expense. Other expense was $30,370 for the three months ended June 30, 2022, compared to other income of $64,764 for the same period in 2021, a decline of $95,134. The decline is due primarily to a one time gain recognized in 2021 and not repeated in 2022.
Net (Loss)/Income. Our Net Loss increased by $619,846, or 37%, for the three months ended June 30, 2022 compared to the same period in 2021 due primarily to the items mentioned above.
Comparison of the six months ended June 30, 2022 and 2021
Comparison of the six months ended June 30, 2022 and 2021
Total Revenues. Our total revenues increased by $658,135, or 121%, for the six months ended June 30, 2022 when compared to the same period in 2021, due primarily to the increased order from a repeat customer and NRE fees from TubeSolar in the current period.
Cost of revenue. Cost of revenues is primarily comprised of repair and maintenance, direct labor, and overhead expenses. Our Cost of revenues increased by $613,242, or 123%, for the six months ended June 30, 2022 when compared to the same period in 2021. This is due primarily to the increase in repair and maintenance, materials and freight, personnel, and other
operating costs as a result of an increase in operations during the six months ended June 30, 2022 when compared to the same period in 2021. During the first half of 2021, the Company continued to ramp up its operations and incurred less expenses when compared to current year results. Management believes our factory is significantly under-utilized, and a substantial increase in revenue would result in marginal increases to Direct Labor and Overhead included in the Cost of revenues. As such management's continued focus going forward is to improve gross margin through increased sales and improved utilization of our factory.
Research, development and manufacturing operations. Research, development and manufacturing operations costs include costs incurred for product development, pre-production and production activities in our manufacturing facility. Research, development and manufacturing operations costs also include costs related to technology development. Research, development and manufacturing operations costs increased by $1,229,709, or 75%, for the six months ended June 30, 2022 when compared to the same period in 2021. This is due primarily to an increase in repair and maintenance, personnel and other operating costs as a result of increased level of operations in the current period as compared to the Company's restart status in the same period in 2021.
Selling, general and administrative. Selling, general and administrative expenses increased by $331,019, or 24%, for the six months ended June 30, 2022 when compared to the same period in 2021. The increase in costs is due primarily to increased administrative costs in the current period as compared to the Company's restart status in the same period in 2021.
Other Income/Expense. Other expense was $2,116,685 for the six months ended June 30, 2022, compare to other income of $3,121,390 in the same period 2021, a decline of $5,238,075. The decline is due primarily to a gain from the change in fair value of derivative liabilities recognized in the prior period and not repeated in the current period, and additionally, as a result of the Company accelerating the amortization of approximately $2 million in convertible debt discount and recognizing it as interest expense upon conversion of certain notes to equity in the current period.
Net (Loss)/Income. Our Net Loss was $6,610,034 for the six months ended June 30, 2022, compared to Net Income of $153,445 in the same period in 2021, a decline of $6,763,479. The decline is due primarily to the items mentioned above.
The Company has continued limited PV production at its manufacturing facility. The Company does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until it has fully implemented its product strategy. During the six months ended June 30, 2022 the Company used $5,375,684 in cash for operations.
Additional projected total revenues are not anticipated to result in a positive cash flow position for the year overall and, as of June 30, 2022, the Company has working capital deficit of $1,085,161. As such, cash liquidity would not be sufficient for the next twelve months and will require additional financing.
The Company continues to accelerate sales and marketing efforts related to its military solar products and specialty PV application strategies through expansion of its sales and distribution channels. The Company has begun activities related to securing additional financing through strategic or financial investors, but there is no assurance the Company will be able to raise additional capital on acceptable terms or at all. If the Company's revenues do not increase rapidly, and/or additional financing is not obtained, the Company will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on the Company's future operations.
As a result of the Company's recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company's ability to maintain liquidity sufficient to operate its business effectively, which raises doubt as to the Company's ability to continue as a going concern.
Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Statements of Cash Flows Comparison of the Six Months Ended June 30, 2022 and 2021
For the six months ended June 30, 2022, our cash used in operations was $5,375,684 compared to $4,213,354 for the six months ended June 30, 2021, an increase of $1,162,330. The increase is due primarily to the scaling up of operations during the current period as compared to the Company's restart status in the 2021 six months period. For the six months ended June 30, 2022, cash used in investing activities was $156,804 compared to $96,738 used in investing activities for the six months ended June 30, 2021. This change was due primarily to the Company investing in Ascent Germany and purchasing new PP&E in the current period. During the six months ended June 30, 2022, net cash used in operations of $5,375,684 were primarily funded through the proceeds from issuances of preferred and common stock during 2021.
As of June 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
We are a "smaller reporting company" meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. As a smaller reporting company, we may rely on exemptions from certain disclosure requirement that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and smaller reporting companies have reduced disclosure obligations regarding executive compensation.
© Edgar Online, source Glimpses