Ascent Solar Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2023

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, 2022 which was filed with the SEC on March 10, 2023. 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, 2022 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.”

Overview

We target high-volume production and high-value specialty solar markets. These include agrivoltaics, space, aerospace and high-value niche manufacturing/construction sectors. 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 two high-value PV verticals:

I. Aerospace: Space, Near-space and Fixed Wing UAV

II. Agrivoltaics

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 nine months ended September 30, 2023, we generated $455,480 of total revenue. As of September 30, 2023, we had an accumulated deficit of $470,987,945.

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 integrated solutions anywhere that may need power generation such as vehicles in space or in flight, or dual-use installations on agricultural land.

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 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.

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.

In March, 2023, the Company redeployed its Thornton manufacturing facility to focus on industrial commercialization of the Company's patent-pending Perovskite solar technologies. In April 2023, the Company purchased manufacturing assets in Zurich, Switzerland with plans to commence manufacturing using this equipment; however, in June 2023, Management exercised its put option on the equipment to sell it to Affiliates and is planning to restart production at its Thornton facility.

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:

• Our operating history and lack of profitability;
• Our ability to develop demand for, and sales of, our products;
• Our ability to attract and retain qualified personnel to implement our business plan and corporate growth strategies;
• Our ability to develop sales, marketing and distribution capabilities;
• Our ability to successfully develop and maintain strategic relationships with key partners;
• The accuracy of our estimates and projections;
• Our ability to secure additional financing to fund our short-term and long-term financial needs;
• Our ability to maintain the listing of our common stock on the Nasdaq Capital Market;
• The commencement, or outcome, of legal proceedings against us, or by us, including ongoing litigation proceedings;
• Changes in our business plan or corporate strategies;
• The extent to which we are able to manage the growth of our operations effectively, both domestically and abroad, whether directly owned or indirectly through licenses;
• The supply, availability and price of equipment, components and raw materials, including the elements needed to produce our photovoltaic modules;
• Our ability to expand and protect the intellectual property portfolio that relates to our photovoltaic modules and processes;
• Our ability to maintain effective internal controls over financial reporting;
• Our ability to achieve projected operational performance and cost metrics;
• General economic and business conditions, and in particular, conditions specific to the solar power industry; and
• The impact of the COVID-19 pandemic on our business, results of operations, cash flows, financial condition and liquidity.

Basis of Presentation: The accompanying unaudited condensed financial statements have been derived from the accounting records of Ascent Solar Technologies, Inc. as of September 30, 2023 and December 31, 2022, and the results of operations for the three and nine months ended September 30, 2023 and 2022.

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, 2022. Except for the adoption of ASU 2020-06, there have been no significant changes to our accounting policies as of September 30, 2023.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

Total Revenues. Our total revenues increased by $223,610, or 100%, for the three months ended September 30, 2023 when compared to the same period in 2022. Increase is primarily due to revenue generated from fulfilling a supply agreement obligation for one of Flisom's customers acquired as part of the Flisom asset acquisition and increased nonrecurring engineering fees.

Cost of revenue. Cost of revenues is primarily comprised of repair and maintenance, material costs, and direct labor and manufacturing overhead expenses. Our Cost of revenues increased by $282,933, or 69%, for the three months ended September 30, 2023 when compared to the same period in 2022. Increase in cost of revenue is primarily due to expenses incurred from our asset acquisition of Flisom's manufacturing equipment and related costs partially offset by the decrease in production costs with the redeployment of the Thornton facility as a Perovskite research facility.

Research, development and manufacturing operations. Research, development and manufacturing operations costs include costs incurred for product development and pre-production activities in our manufacturing facility. It also includes costs related to technology development. Research, development and manufacturing operations costs decreased by $1,195,228, or 78%, for the three months ended September 30, 2023 when compared to the same period in 2022. This is primarily due to a decrease in manufacturing operations cost, as the Company redeployed its Thornton manufacturing facility as a perovskite research facility.

Selling, general and administrative. Selling, general and administrative expenses decreased by $482,725, or 26%, for the three months ended September 30, 2023 when compared to the same period in 2022. The decrease in costs is due primarily to a one-time termination expense of approximately $500,000 recognized with the departure of our former CEO in the prior period.

Share-based compensation. Share-based compensation expense decreased by $3,657,084 or 96% for the three months ended September 30, 2023 when compared to the same period in 2022. The decrease is primarily due to the employment termination of former CEO on April 26, 2023. The prior period expense also includes the immediate vesting of 20% of the former CEO's restricted stock units.

Other Income/Expense. Other income was $468,750 for the three months ended September 30, 2023, compared to other expense of $232,571 for the same period in 2022, an increase of $701,321. The increase is due primarily to a one-time employment retention credit received and a gain on lease modification, partially offset by an asset disposal.

Net Loss. Our Net Loss decreased by $6,001,293, or 76%, for the three months ended September 30, 2023 compared to the same period in 2022 due primarily to the items mentioned above.

Comparison of the Nine Months Ended September 30, 2023 and 2022

Total Revenues. Our total revenues decreased by $754,645, or 62%, for the nine months ended September 30, 2023 when compared to the same period in 2022. This is primarily due to a large customer order in the prior period that was not repeated in the current period, partially offset by product revenue earned from fulfilling a supply agreement obligation under the Asset Purchase Agreement. Additionally, the Company recognized $512,000 in engineering revenue from TubeSolar in the prior period which was not repeated 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 $301,113, or 20%, for the nine months ended September 30, 2023 when compared to the same period in 2022. The increase is primarily due to expenses from our asset acquisition of Flisom's manufacturing equipment and employee contracts, partially offset by a reduction in production costs by redeploying the Company's manufacturing facilities as a perovskite research facility.

Research, development and manufacturing operations. Research, development and manufacturing operations costs include costs incurred for product development and pre-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 decreased by $1,566,809, or 36%, for the nine months ended September 30, 2023 when compared to the same period in 2022. This is primarily due to a decrease in manufacturing operations cost, as the Company redeployed its Thornton manufacturing facility as a perovskite research facility.

Selling, general and administrative. Selling, general and administrative expenses increased by $594,780, or 17% for the nine months ended September 30, 2023 when compared to the same period in 2022. The increase in costs is due primarily to increased professional services and other administrative expenses.

Share-based compensation. Share-based compensation expense decreased by $1,691,773 or 45% for the nine months ended September 30, 2023 when compared to the same period in 2022. The decrease is primarily due to the employment termination of former CEO on April 26, 2023. The prior period expense also includes the immediate vesting of 20% of the former CEO's restricted stock units.

Other Income/Expense. Other expense was $1,351,164 for the nine months ended September 30, 2023, compared to other expense of $2,349,256 for the same period in 2022, a decrease of $998,092. The decline is due primarily to a one-time employment retention credit received and a gain on lease modification. Additionally, the Company recording accelerating debt discount as interest expense in the prior year. With the adoption of ASU 2020-06, the accelerated debt discount is now recorded in stockholders' equity.

Net Loss. Our Net Loss decreased by $2,614,503, or 18%, for the nine months ended September 30, 2023 compared to the same period in 2022 due primarily to the items mentioned above.

Liquidity and Capital Resources

In March, 2023, the Company redeployed its Thornton facilities from a manufacturing facility to a research and development facility. In April 2023, the Company purchased manufacturing assets in Zurich, Switzerland with plans to commence manufacturing using this equipment; however, in June 2023, Management exercised its put option on the equipment and is planning to restart production at its Thornton facility. Management does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until the Company is able to achieve large-scale production capacities. During the nine months ended September 30, 2023 the Company used $7,329,398 in cash for operations.

Additionally, projected total revenues are not anticipated to result in a positive cash flow position for the year overall and, as of September 30, 2023, the Company has working capital deficit of $8,726,319. As such, cash liquidity would not be sufficient for the next twelve months and will require additional financing.

The Company has begun activities related to securing additional financing through strategic or financial investors and has closed on an equity offering on October 2, 2023, but there is no assurance the Company will be able to continue 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 unaudited condensed 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 Nine Months Ended September 30, 2023 and 2022

For the nine months ended September 30, 2023, our cash used in operations was $7,329,398 compared to $7,925,786 for the nine months ended September 30, 2022, a decrease of $596,388. This decrease is due primarily to decreased Company expenses and revenue and timing of cash outflows. For the nine months ended September 30, 2023, cash used in investing activities was $3,863,963 compared to $185,703 used in investing activities for the nine months ended September 30, 2022. This change was primarily the result of the asset acquisition in Zurich, Switzerland. During the nine months ended September 30, 2023, net cash used in operations of $7,329,398 were primarily funded from 2022 financing agreements.

Off Balance Sheet Transactions

As of September 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Smaller Reporting Company Status

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 requirements 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.

Foreign Currency Exchange Risk

Although our reporting currency is the U.S. Dollar, we conduct business and incur costs in the local currencies of other countries in which we operate, make sales and buy materials. As a result, we are subject to currency translation risk. Further, changes in exchange rates between foreign currencies and the U.S. Dollar could affect our future net sales and cost of sales and could result in exchange losses.

We currently do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although, we may do so in the future.

We hold no significant funds denominated in foreign currencies as of September 30, 2023.

Interest Rate Risk

Our exposure to market risks for changes in interest rates relates primarily to our cash equivalents and investment portfolio. As of September 30, 2023, our cash equivalents consisted only of operating accounts held with financial institutions. From time to time, we may hold restricted funds, money market funds, investments in U.S. government securities and high-quality corporate securities. The primary objective of our investment activities is to preserve principal and provide liquidity on demand, while at the same time maximizing the income we receive from our investments without significantly increasing risk. The direct risk to us associated with fluctuating interest rates is limited to our investment portfolio, and we do not believe a change in interest rates will have a significant impact on our financial position, results of operations, or cash flows.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Our management conducted an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act as of September 30, 2023. Based on this evaluation, our management concluded the design and operation of our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Except as set forth below, there have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2022.

We may not be able to maintain our current listing for our common stock on the Nasdaq Capital Market. Failure to maintain the listing of our common stock on Nasdaq could adversely affect the liquidity of our common stock.

Our inability to maintain our current listing on Nasdaq may limit the liquidity of our stock, increase its volatility, and hinder our ability to raise capital. If our common stock is delisted by Nasdaq, our common stock may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such delisting, our common stock would become subject to the regulations of the SEC relating to the market for penny stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit the ability of shareholders to sell securities in the secondary market. In such a case, an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and there can be no assurance that our common stock will be eligible for trading or quotation on any alternative exchanges or markets.

Delisting from Nasdaq could adversely affect our ability to raise additional financing through public or private sales of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

On March 23, 2023 the Company received a written notice (the “Notice”) from the Listing Qualifications Department of Nasdaq indicating that the Company was not in compliance with the $1.00 Minimum Bid Price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days to regain compliance with the Bid Price Requirement.

On July 28, 2023, the Company received notice (the “Second Notice”) that Nasdaq had determined that the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”). As a result, the Nasdaq staff determined to delist the Company’s common stock from Nasdaq, unless the Company timely requests an appeal of the staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.

In addition, Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Rule”) requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. On May 25, 2023, we received a letter from Nasdaq indicating that we were not in compliance with the Stockholders’ Equity Rule.

On July 28, 2023, the Company received notice that Nasdaq had determined that the Company’s common stock had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced Stocks Rule”). As a result, the Nasdaq staff determined to delist the Company’s common stock from Nasdaq, unless the Company timely requests an appeal of the staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The Company requested a hearing before the Panel, which was scheduled for October 12, 2023.

On September 12, 2023, the Company implemented a reverse stock split in an effort to regain compliance with the $1 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), and by letter dated September 29, 2023, the Company was notified by the Staff that the Company had regained compliance with the Bid Price Rule. The Staff, however, determined that, following the reverse split, the Company no longer satisfied the minimum 500,000 publicly held shares requirement set forth in Nasdaq Listing Rule 5550(a)(4) (the “Public Float Rule”).

On October 2, 2023, the Company completed a public offering of units (each unit consisting of (x) one share or one prefunded warrant and (y) one common stock warrant) for gross proceeds of $10.3 million. As a result of the offering, the Company had the minimum of $2.5 million in stockholders’ equity and has therefore regained compliance with the Equity Rule. The offering also resulted in an increase in the Company’s publicly held shares above the minimum Nasdaq threshold of 500,000 shares and as such the Company believes it has regained compliance with the Public Float Rule.

On October 11, 2023, the Company received notice from the Nasdaq Listing Qualifications staff that the Company has regained compliance with Nasdaq’s minimum $2.5 million stockholders’ equity requirement in Listing Rule 5550(b)(1) and the minimum 500,000 publicly held shares requirement under Listing Rule 5550(a)(4), and that the Company is therefore in compliance with the Nasdaq Capital Market’s listing requirements.