10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended March 31, 2022

 

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File Number 001-40350

FTC SOLAR, INC.
(Exact name of Registrant as Specified in its Charter)

Delaware

 

81-4816270

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

9020 N Capital of Texas Hwy, Suite I-260,

Austin, Texas 78759

 

 

78759

  (Address of Principal Executive Offices)

 

(Zip Code)

 

(737) 787-7906

Registrant's Telephone Number, Including Area Code

Not Applicable

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

FTCI

The Nasdaq Stock Market LLC


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of April 30, 2022, 99,810,544 shares of the registrant's common stock were outstanding.

 

 

 


 

FTC Solar, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

 

 

 

 

Pages(s)

 

 

Forward looking statements

1

 

Item 1.

Financial Statements (Unaudited)

2

 

 

Condensed Consolidated Balance Sheets

2

 

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

Notes to Condensed Consolidated Financial Statements

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

 

Item 1A.

Risk Factors

33

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

Item 3.

Defaults Upon Senior Securities

34

 

Item 4.

Mine Safety Disclosures

34

 

Item 5.

Other Information

34

 

Item 6.

Exhibits

35

 

SIGNATURES

36

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical or current facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. Forward-looking statements can be identified in some cases by the use of words such as “believe,” “can,” “could,” “potential,” “plan,” “predict,” “goals,” “seek,” “should,” “may,” “may have,” “would,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” the negative of these words, other similar expressions or by discussions of strategy, plans or intentions.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these factors include, but are not limited to, the factors set forth under the heading “Risk Factors.” Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

1


 

ITEM 1. FINANCIAL STATEMENTS

 

FTC Solar, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except shares and per share data)

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,383

 

 

$

102,185

 

Accounts receivable, net

 

 

132,230

 

 

 

107,548

 

Inventories

 

 

8,918

 

 

 

8,860

 

Prepaid and other current assets

 

 

13,762

 

 

 

17,186

 

Total current assets

 

 

204,293

 

 

 

235,779

 

Operating lease right-of-use assets

 

 

1,622

 

 

 

1,733

 

Property and equipment, net

 

 

1,564

 

 

 

1,582

 

Other assets

 

 

3,929

 

 

 

3,926

 

Total assets

 

$

211,408

 

 

$

243,020

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

46,102

 

 

$

39,264

 

Accrued expenses

 

 

30,648

 

 

 

47,860

 

Income taxes payable

 

 

87

 

 

 

47

 

Deferred revenue

 

 

3,100

 

 

 

1,421

 

Other current liabilities

 

 

4,523

 

 

 

4,656

 

Total current liabilities

 

 

84,460

 

 

 

93,248

 

Operating lease liability, net of current portion

 

 

1,190

 

 

 

1,340

 

Other non-current liabilities

 

 

5,590

 

 

 

5,566

 

Total liabilities

 

 

91,240

 

 

 

100,154

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock par value of $0.0001 per share, 10,000,000 shares authorized; none issued as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock par value of $0.0001 per share, 850,000,000 shares
authorized;
99,724,843 and 92,619,641 shares issued and outstanding as of March 31, 2022 and December 30, 2021

 

 

10

 

 

 

9

 

Treasury stock, at cost; 10,762,566 shares as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

297,119

 

 

 

292,082

 

Accumulated other comprehensive income (loss)

 

 

64

 

 

 

7

 

Accumulated deficit

 

 

(177,025

)

 

 

(149,232

)

Total stockholders’ equity

 

 

120,168

 

 

 

142,866

 

Total liabilities and stockholders’ equity

 

$

211,408

 

 

$

243,020

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

2


 

FTC Solar, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

 

Three months ended March 31,

 

(in thousands, except shares and per share data)

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

Product

 

$

30,968

 

 

$

56,462

 

Service

 

 

18,585

 

 

 

9,245

 

Total revenue

 

 

49,553

 

 

 

65,707

 

Cost of revenue:

 

 

 

 

 

 

Product

 

 

34,963

 

 

 

54,996

 

Service

 

 

23,877

 

 

 

10,592

 

Total cost of revenue

 

 

58,840

 

 

 

65,588

 

Gross profit (loss)

 

 

(9,287

)

 

 

119

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

2,701

 

 

 

1,954

 

Selling and marketing

 

 

1,972

 

 

 

1,100

 

General and administrative

 

 

13,818

 

 

 

5,084

 

Total operating expenses

 

 

18,491

 

 

 

8,138

 

Loss from operations

 

 

(27,778

)

 

 

(8,019

)

Interest expense, net

 

 

(295

)

 

 

(14

)

Gain from disposal of investment in unconsolidated subsidiary

 

 

337

 

 

 

 

Gain on extinguishment of debt

 

 

 

 

 

790

 

Other income (expense)

 

 

19

 

 

 

 

Loss from unconsolidated subsidiary

 

 

 

 

 

(218

)

Loss before income taxes

 

 

(27,717

)

 

 

(7,461

)

(Provision) benefit for income taxes

 

 

(76

)

 

 

19

 

Net loss

 

 

(27,793

)

 

 

(7,442

)

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

57

 

 

 

(1

)

Comprehensive loss

 

$

(27,736

)

 

$

(7,443

)

Net loss per share:

 

 

 

 

 

 

Basic

 

$

(0.28

)

 

$

(0.11

)

Diluted

 

$

(0.28

)

 

$

(0.11

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

99,211,792

 

 

 

66,875,469

 

Diluted

 

 

99,211,792

 

 

 

66,875,469

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3


 

FTC Solar, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

 

 

 

Preferred stock

 

 

Common stock

 

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except shares)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional
paid-In
capital

 

 

Accumulated
other
comprehensive
income (loss)

 

 

Accumulated
deficit

 

 

Total
stockholders'
equity
(deficit)

 

Balance as of December 31, 2021

 

 

 

 

$

 

 

 

92,619,641

 

 

$

9

 

 

 

10,762,566

 

 

$

 

 

$

292,082

 

 

$

7

 

 

$

(149,232

)

 

$

142,866

 

Shares issued during the period for vested restricted stock awards

 

 

 

 

 

 

 

 

5,311,326

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

1,793,876

 

 

 

 

 

 

 

 

 

 

 

 

428

 

 

 

 

 

 

 

 

 

428

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,610

 

 

 

 

 

 

 

 

 

4,610

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,793

)

 

 

(27,793

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

57

 

Balance as of March 31, 2022

 

 

 

 

$

 

 

 

99,724,843

 

 

$

10

 

 

 

10,762,566

 

 

$

 

 

$

297,119

 

 

$

64

 

 

$

(177,025

)

 

$

120,168

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except shares)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional
paid-In
capital

 

 

Accumulated
other
comprehensive
income (loss)

 

 

Accumulated
deficit

 

 

Total
stockholders'
equity
(deficit)

 

Balance as of December 31, 2020

 

 

 

 

$

 

 

 

66,155,340

 

 

$

1

 

 

 

9,896,666

 

 

$

 

 

$

50,096

 

 

$

(3

)

 

$

(42,643

)

 

$

7,451

 

Shares issued during the period for vested restricted stock awards

 

 

 

 

 

 

 

 

1,169,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

152,902

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

Repurchases of treasury stock

 

 

 

 

 

 

 

 

(148,440

)

 

 

 

 

 

148,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

449

 

 

 

 

 

 

 

 

 

449

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,442

)

 

 

(7,442

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of March 31, 2021

 

 

 

 

$

 

 

 

67,329,409

 

 

$

1

 

 

 

10,045,106

 

 

$

 

 

$

50,584

 

 

$

(4

)

 

$

(50,085

)

 

$

496

 

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

4


 

FTC Solar, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Three months ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(27,793

)

 

$

(7,442

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

4,610

 

 

 

449

 

Depreciation

 

 

121

 

 

 

9

 

Amortization of debt issue costs

 

 

173

 

 

 

 

Loss from unconsolidated subsidiary

 

 

 

 

 

218

 

Gain from disposal of investment in unconsolidated subsidiary

 

 

(337

)

 

 

 

(Gain) loss on extinguishment of debt

 

 

 

 

 

(790

)

Warranty provision

 

 

516

 

 

 

1,554

 

Warranty recoverable from manufacturer

 

 

(205

)

 

 

328

 

Bad debt expense (credit)

 

 

(30

)

 

 

58

 

Deferred income taxes

 

 

 

 

 

(20

)

Lease expense and other non-cash items

 

 

198

 

 

 

 

Impact on cash from changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(24,652

)

 

 

(20,230

)

Inventories

 

 

(58

)

 

 

(2,587

)

Prepaid and other current assets

 

 

3,440

 

 

 

216

 

Other assets

 

 

(40

)

 

 

(3,649

)

Accounts payable

 

 

7,258

 

 

 

12,913

 

Accruals and other current liabilities

 

 

(17,044

)

 

 

8,360

 

Accrued interest – related party debt

 

 

 

 

 

(207

)

Deferred revenue

 

 

1,679

 

 

 

(14,797

)

Other non-current liabilities

 

 

(752

)

 

 

(206

)

Lease payments and other, net

 

 

(190

)

 

 

(81

)

Net cash used in operating activities

 

 

(53,106

)

 

 

(25,904

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(523

)

 

 

(85

)

Proceeds from disposal of investment in unconsolidated subsidiary

 

 

337

 

 

 

 

Net cash used in investing activities

 

 

(186

)

 

 

(85

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of borrowings

 

 

 

 

 

(1,000

)

Offering costs paid

 

 

 

 

 

(1,084

)

Proceeds from stock issuance

 

 

 

 

 

39

 

Proceeds from stock option exercises

 

 

428

 

 

 

 

Net cash provided by (used in) financing activities

 

 

428

 

 

 

(2,045

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

62

 

 

 

1

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(52,802

)

 

 

(28,033

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

102,185

 

 

 

33,373

 

Cash, cash equivalents and restricted cash at end of period

 

$

49,383

 

 

$

5,340

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Purchases of property and equipment included in ending accounts payable and accruals

 

$

59

 

 

 

67

 

Increase in offering costs in period end accruals

 

$

 

 

 

2,019

 

Commencement of new operating leases

 

$

 

 

 

246

 

Cash paid during the period for third party interest

 

$

128

 

 

 

40

 

Cash paid during the period for related party interest

 

$

 

 

 

207

 

Cash paid during the period for taxes

 

$

7

 

 

 

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

5


 

FTC Solar, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of business

FTC Solar, Inc. (the “Company”, “we”, “our”, or “us”) was founded in 2017 and is incorporated in the state of Delaware. We are a global provider of advanced solar tracker systems, supported by proprietary software and value-added engineering services. Our mission is to provide differentiated products, software, and services that maximize energy generation and cost savings for our customers, and to help facilitate the continued growth and adoption of solar power globally. Trackers significantly increase the amount of solar energy produced at a solar installation by moving solar panels throughout the day to maintain an optimal orientation relative to the sun. Our tracker systems are currently marketed under the Voyager brand name (“Voyager Tracker” or “Voyager”). Voyager is a next-generation two-panel in-portrait single-axis tracker solution that we believe offers industry-leading performance and ease of installation. We have a team of dedicated renewable energy professionals with significant project installation experience focused on delivering cost reductions to our US and worldwide clients across the solar project development and construction cycle. Our solar solutions span a range of applications, including ground mount, tracker, canopy, and rooftop. The Company is headquartered in Austin, Texas, and has international subsidiaries in Australia, India, Singapore, and South Africa.

In April 2021, we completed an initial public offering (IPO) of 19,840,000 shares of our common stock receiving proceeds of $241.2 million, net of underwriting discounts and commissions, but before offering costs, and began trading on the Nasdaq Global Market under the symbol “FTCI”. Prior to the completion of the IPO, the board of directors and stockholders approved an approximately 8.25-for-1 forward stock split (the “Forward Stock Split”) of the Company’s shares of common stock which became effective on April 28, 2021. Proceeds from the IPO were used for general corporate purposes, with $54.2 million used to purchase an aggregate of 4,455,384 shares of our common stock, including shares resulting from the settlement of certain vested restricted stock units (“RSUs”) and exercise of certain options in connection with the IPO at the IPO price, less underwriting discounts and commissions.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. Under the JOBS Act, we elected to use the allowed extended transition period to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

2. Summary of significant accounting policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the results of the Company and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments have been made that are considered necessary for a fair statement of our financial position as of March 31, 2022, and December 31, 2021, our results of operations for the three months ended March 31, 2022 and 2021 and our cash flows for the three months ended March 31, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated financial statements but, does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Intercompany balances and transactions have been eliminated in consolidation.

Certain information and disclosures normally included in the notes to annual financial statements prepared in accordance with GAAP have been omitted from these interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

On April 28, 2021, we effected an approximately 8.25-for-1 forward split of our issued and outstanding shares of common stock, par value $0.0001 per share. As a result of the forward stock split, one (1) share of common stock issued and outstanding was automatically increased to approximately 8.25 shares of issued and outstanding common stock, without any change in the par value per share. All information related to common stock, stock options, restricted stock awards and earnings per share have been retroactively adjusted to give effect to the forward stock split for all periods presented, unless otherwise indicated.

 

6


 

We currently operate in one business segment, the manufacturing and servicing of Voyager Tracker.

Liquidity

We have incurred cumulative losses since inception, resulting in an accumulated deficit of $177.0 million at March 31, 2022, and have a history of cash outflows from operations. During the year ended December 31, 2021, and the three months ended March 31, 2022, we had $132.9 million and $53.1 million, respectively, of cash outflow from operations. At March 31, 2022, we had $49.4 million of cash on hand, $119.8 million of working capital and approximately $98.1 million of unused borrowing capacity under our existing revolving credit facility. The revolving credit facility includes a financial condition covenant stating we are required to have a minimum liquidity, consisting of cash on hand and unused borrowing capacity, of $125.0 million as of each quarter end. After considering this financial condition covenant, we had approximately $22.4 million of available liquidity as of March 31, 2022, in order to retain access to our revolving credit facility. Additionally, we had no long-term borrowings or other material obligations requiring the use of cash as of March 31, 2022.

As of May 12, 2022, we have collected approximately $62 million of receivables since March 31, 2022, and have a cash balance of approximately $71 million.

On March 25, 2022, the U.S. Department of Commerce, in response to a petition by Auxin Solar, Inc., initiated an investigation of claims related to alleged circumvention of U.S. antidumping and countervailing duties ("AD/CVD") by solar manufacturers in certain Southeast Asian countries in an effort to determine whether or not solar cells and/or modules made in those Southeast Asian nations use parts originating from China in order to circumvent the AD/CVD tariffs. This decision has resulted in some developers deferring projects later in the year due to the uncertainty of panel supply and costs, which is expected to negatively impact our anticipated revenues and our cash flows.

Our costs are affected by certain component costs including steel, motors and micro-chips, as well as transportation costs. Current market conditions that constrain supply of materials and disrupt the flow of materials from international vendors impact the cost of our products and services. These cost increases impact our operating margins. We are taking steps to expand and diversify our manufacturing partnerships and have employed alternative modes of transportation to mitigate the impact of the current headwinds in the global supply chain and logistics markets. Additionally, we have contracted with a consulting firm to support us with improvements to our processes and performance in various areas including design, sourcing, logistics, pricing, software and standard configuration. For further information regarding this consulting firm, see "Note 13. Related party transactions".

In accordance with ASC 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, which raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Based on our recurring losses from operations, impact of the U.S. Department of Commerce investigation of AD/CVD circumvention claims, the expectation of continued operating losses during 2022, and the need to improve profitability and cash flow to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within twelve months of the issuance date of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes we will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

As we continue to address these current market challenges, management has also undertaken the following actions:

we are in discussions with the lenders of our revolving credit facility to lower the minimum required liquidity amount, which, if successful, could result in additional liquidity;
we have initiated a program, as described above, with third party assistance, to improve our operating performance and increase our gross margins;
we are freezing non-essential hiring, reducing our travel expenses, decreasing the future use of consultants and deferring non-critical initiatives;
we are negotiating improved payment terms with both our customers and vendors;
we have initiated frequent, consistent communication with our customers, which has allowed us to resolve issues preventing timely collection of certain outstanding receivables subsequent to March 31, 2022; and
we are exploring options to obtain additional sources of capital.

 

7


 

Should we not be successful in executing the above initiatives, or in reducing our historical levels of use of cash to fund our operations, or should market conditions deteriorate significantly from what we currently expect, or regulatory and international trade policies become more stringent as a result of findings from the Department of Commerce's AD/CVD investigation, or other factors, we may need to issue additional debt or obtain new equity financing to fund our operations for the next twelve months. We may be unable to obtain any desired additional financing on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors that are outside of our control, including general economic and market conditions, the health of financial institutions, investors' and lenders' assessments of our prospects and the prospects of the solar industry in general.

Use of estimates

Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenue and expenses during the period. Estimates are used for calculating the measure of progress of Voyager tracker projects and deriving the standalone selling prices of the individual performance obligations when determining amounts to recognize for revenue, estimating allowances for doubtful accounts and slow-moving and obsolete inventory, determining useful lives of noncurrent assets and the estimated fair value of those assets for impairment assessments, and estimating the fair value of investments, stock compensation awards, warranty liabilities and federal and state taxes and contingencies. We base our estimates on historical experience and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable.

We regularly maintain cash balances with various financial institutions that exceed federally insured amounts, but we have experienced no losses associated with these amounts to date.

The Company extends credit to customers in the normal course of business, often without requiring collateral. The Company performs credit analyses and monitors the financial health of its customers to reduce credit risk.

The Company’s accounts receivables are derived from revenue earned from customers primarily located in the U.S. and in the Asia Pacific region. No country other than the U.S. accounts for 10% or more of our revenue. Most of our customers are project developers, solar asset owners and engineering, procurement and construction (“EPC”) contractors that design and build solar energy projects. Often times, a small number of customers account for a significant portion of our outstanding receivables at period end and our total revenue for the year.

Cash and cash equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. We regularly maintain cash balances that exceed federally insured amounts, but we have experienced no losses associated with these amounts to date.

Accounts receivable, net

Trade receivables are recorded at invoiced amounts, net of allowances for doubtful accounts if applicable, and do not bear interest. We generally do not require collateral from our customers; however, in certain circumstances, we may require letters of credit, other collateral, additional guarantees or advance payments. The allowance for doubtful accounts is based on our assessment of the collectability of our customer accounts. We regularly review our accounts receivable that remain outstanding past their applicable payment terms and establish allowances or make potential write-offs by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customers’ ability to pay.

Receivables arising from revenue recognized in excess of billings represents our unconditional right to consideration before customers are invoiced due to the level of progress obtained as of period end on our contracts to install Voyager tracker systems and related equipment. Further information may be found below in our revenue recognition policy.

 

8


 

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with costs computed on a first-in, first-out basis. The Company periodically reviews its inventories for excess and obsolete items and adjusts carrying costs to estimated net realizable values when they are determined to be less than cost.

Warranty

Typically, the sale of Voyager Tracker projects includes parts warranties to customers as part of the overall price of the product. We provide standard assurance type warranties for our products for periods generally ranging from five to ten years. We record a provision for estimated warranty expenses in cost of sales, net of amounts recoverable from manufacturers under their warranty obligations to us. We do not maintain general or unspecified reserves; all warranty reserves are related to specific projects. All actual or estimated material costs incurred for warranty services in subsequent periods are charged to those established reserves.

While we periodically monitor our warranty activities and claims, if actual costs incurred were to be different from our estimates, we would recognize adjustments to our warranty reserves in the period in which those differences arise or are identified.

Stock-based compensation

We recognize compensation expense for all share-based payment awards made, including stock options and restricted stock, based on the estimated fair value of the award on the grant date, in the accompanying consolidated statement of operations and comprehensive loss. We calculate the fair value of stock options using the Black-Scholes Option-Pricing model, while the fair value of restricted stock grants is based on the estimated fair value of the Company's common stock on the date of grant. Since completion of our IPO, we consider the closing price of our stock, as reported on the Nasdaq Global Market, to be the fair value of our stock on the grant date.

Forfeitures are accounted for as they occur. For service-based awards, stock-based compensation is recognized using the straight-line attribution approach over the requisite service period. For performance-based awards, stock-based compensation is recognized based on graded vesting over the requisite service period when the performance condition is probable of being achieved.

Revenue recognition

Product revenue includes revenue from the sale of Voyager Tracker and customized components of Voyager Tracker, individual part sales for certain specific transactions, and sale of term-based software licenses. Term-based software licenses are deployed on the customers’ own servers and have significant standalone functionality.

Service revenue includes revenue from shipping and handling services, subscription fees from licensing subscription services, and maintenance and support services in connection with the term-based software licenses. Our subscription-based enterprise licensing model typically has contract terms ranging from one to two years and consists of subscription fees from the licensing of subscription services. Our hosted on-demand service arrangements do not provide customers with the right to take possession of the software supporting the hosted services. Support services include ongoing security updates, upgrades, bug fixes, and maintenance.

We recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below.

Identify the contract with a customer: A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the products and services to be transferred and identifies the payment terms related to these products and services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. In assessing the recognition of revenue, we also evaluate whether two or more contracts should be combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period. Change orders may include changes in specifications or design, manner of

 

9


 

performance, equipment, materials, scope of work, and/or the period of completion of the project. We analyze change orders to determine if they should be accounted for as a modification to an existing contract or a new stand-alone contract.

Contracts we enter into with our customers for sale of Voyager Trackers are generally under two different types of arrangements: (1) purchase agreements and equipment supply contracts (“Purchase Agreements”) and (2) sale of individual parts of the Voyager Tracker.

Change orders from our customers are generally modifications to existing contracts and are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized.

Identify the performance obligations in the contract: We enter into contracts that can include various combinations of products and services, which are either capable of being distinct and accounted for as separate performance obligations or as one performance obligation since the majority of tasks and services are part of a single project or capability. However, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.

Our Purchase Agreements typically include two performance obligations- 1) Voyager Tracker or customized components of Voyager Tracker, and 2) shipping and handling services. The deliverables included as part of the Voyager Tracker are predominantly accounted for as one performance obligation, as these deliverables are part of a combined promise to deliver a project.

The revenue for shipping and handling services will be recognized over time based on progress in meeting shipping terms of the arrangements, as this faithfully depicts the Company’s performance in transferring control.

Sale of individual parts of Voyager Tracker for certain specific transactions includes multiple performance obligations consisting of individual parts of the Voyager Tracker. Revenue is recognized for parts sales at a point in time when the obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control of the asset, which is in line with shipping terms.

Determine the transaction price: The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring services to the customer. Such amounts are typically stated in the customer contract, and to the extent that we identify variable consideration, we will estimate the variable consideration at the onset of the arrangement as long as it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The majority of our contracts do not contain variable consideration provisions as a continuation of the original contract. None of our contracts contain a significant financing component. Taxes collected from customers and remitted to governmental authorities are not included in revenue.

Allocate the transaction price to performance obligations in the contract: Once we have determined the transaction price, we allocate the total transaction price to each performance obligation in a manner depicting the amount of consideration to which we expect to be entitled in exchange for transferring the good(s) or service(s) to the customer. We allocate the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis.

We use the expected cost-plus margin approach based on hardware, labor, and related overhead cost to estimate the standalone selling price of the Voyager Tracker, customized components of Voyager Tracker, and individual parts of Voyager Tracker for certain specific transactions. We use the adjusted market assessment approach for all other performance obligations except shipping, handling, and logistics. For shipping, handling, and logistics performance obligations, we use a residual approach to calculate the standalone selling price, because of the nature of the highly variable and broad range of prices we charge to various customers for this performance obligation in the contracts.