See accompanying notes to these Condensed Consolidated Financial
Statements.
See accompanying notes to these Condensed Consolidated Financial
Statements.
See accompanying notes to these Condensed Consolidated Financial
Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands except share amounts, per share amounts
or unless otherwise noted
NOTE 1—BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements and
the related interim information contained within the notes to the Condensed Consolidated Financial Statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable
rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and quarterly
reports on the Form 10-Q. Accordingly, they do not include all of the information and the notes required for complete financial
statements. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 2018, included in STR Holdings, Inc.’s (the “Company”) Annual
Report on Form 10–K filed with the SEC on March 27, 2019. The unaudited interim Condensed Consolidated Financial Statements
have been prepared on the same basis as the audited consolidated financial statements, and in the opinion of management, reflect
all adjustments, consisting of only normal and recurring adjustments, necessary for the fair presentation of the Company’s
financial position, results of operations and cash flows for the interim periods presented. The results for the interim periods
presented are not necessarily indicative of future results.
The year-end Condensed Consolidated Balance Sheet data was derived
from audited financial statements, but does not include all disclosures required by GAAP.
The preparation of the Condensed Consolidated Financial Statements
in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.
Liquidity
The Condensed Consolidated Financial Statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Management has evaluated whether relevant conditions or events, considered in the aggregate, indicate
that there is substantial doubt about the Company’s ability to continue as a going concern. Substantial doubt exists when
conditions and events, considered in the aggregate, indicate it is probable that the Company will be unable to meet its obligations
as they become due during the next 12 months. The assessment is based on the relevant conditions that are known or reasonably knowable
as of the date of this report.
If the Company does not generate sufficient
cash flows from operations or obtain alternative or additional sources of capital to fund operations, the Company will not have
sufficient liquidity to satisfy operating expenses, capital expenditures and other cash needs. This raises substantial doubt about
the Company’s ability to continue as a going concern.
The Company has historically incurred significant
losses during its attempts to reduce cash burn, stabilize the existing platform and invest in new areas of growth. As of March
31, 2019, the Company had working capital of approximately $4,402, approximately $800 in outstanding commitments for capital expenditures,
and approximately $5,536 of cash available to fund our operations. In March 2019, the Company entered into a term loan in
the principal amount of €2,000 (approx. $2,244 as of March 31, 2019) to provide additional liquidity in support of its packaging
initiative. See Note 12.
Based on the Company’s projected cash requirements for operations
and capital expenditures, its current available cash of approximately $5,536 and its projected 2019 cash flow pursuant to management’s
plans, management believes it will have adequate resources to fund operations and capital expenditures for at least the next 12
months. If we are unable to timely complete the sale of our Malaysia facility or execute our strategic plans, our liquidity and
capital resources will be adversely affected and we may wind down or cease any or all of our operations. Any wind down or dissolution
may be a lengthy, complex and costly process and, in such event, there can be no assurance that there will be any funds available
for distribution to stockholders.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is principally derived from the sale and licensing of highly
engineered plastic sheet and film products.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 2— SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company receives specific purchase orders for the manufacture, sale and delivery
of these products that identify the goods and/or services to be transferred, the price for those goods and other commercial terms
of the order. The goods are generally purchased under EXW (or EX-Works) terms, meaning that the customer is responsible for arranging
the shipping of the goods and title passes when the goods are picked up from the Company’s dock. Revenue is recognized upon
the transfer of title, and there are no price concessions, volume discounts, rebates, refunds, credits, incentives, performance
bonuses, royalties or other types of variable consideration.
In the specific case of the Equipment Purchase Agreement and a Technology
License Agreement (the “Agreements”) signed on January 16, 2018 for an aggregate transaction price of $6,000, the Company
will purchase from a third party specialized equipment (the “Equipment”) for the production of one of the Company’s
proprietary encapsulants (the “Encapsulant”), resell the Equipment to the customer, install the Equipment at a facility
of the customer and train the
customer’s personnel in the Equipment’s use. Under the license agreement,
the Company has granted the customer the right to use the formula for the Encapsulant and certain of the Company’s production
techniques to make or have made the Encapsulant for use in photovoltaic (PV) modules manufactured by the customer. For revenue
recognition purposes, the Company defines the following three distinct major performance obligations of the Agreements and the
corresponding transaction price allocated to those performance obligations:
•
|
Obligation 1 - $1,750 - Price Report, Formula and Sample
|
•
|
Obligation 2 - $2,000 - Equipment, including delivery & installation (incl. training)
|
•
|
Obligation 3 - $2,250 - License (perpetual)
|
|
|
|
Obligation 1 is considered to be separate and distinct from the other
two obligations, in that the information provided under this obligation represents significant standalone value to the customer
and the Company’s obligation to provide this information is separately identifiable from the other obligations in the agreements.
Obligation 2 and Obligation 3 were also clearly identifiable, as defined by the Equipment Purchase Agreement (including delivery
and installation by an agreed-upon date) and the license (“License”) granted pursuant to the Technology License Agreement
(with an effective start date upon the receipt of an acceptance test payment).
The Company is applying a “cost-plus” approach to Obligation
1 and Obligation 2. As the Company had never before sold any type of license, had no established specific license pricing and had
no knowledge of pricing for similar licenses, the Company is using the residual approach for Obligation 3. The License is perpetual,
distinct and not combined with other goods and services, and is a right to use, rather than to access, functional intellectual
property.
The Company also assessed whether it was acting in a principal or
agent role in each performance obligation of the
Agreements. In all obligations, the Company determined it was acting in the role of principal
and therefore revenue is recognized on a gross basis.
The Company is presently engaged in discussions of potential modifications
to the Agreements with our client that may affect the timing, scope and overall value of the agreement.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842).” This ASU requires a lessee to recognize in the statement of financial position a liability to make lease payments
and a right-of-use asset representing its right to use the underlying asset for the lease term and also requires additional qualitative
and quantitative disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption
permitted. After a thorough assessment, the Company determined that this pronouncement had no impact on its Condensed Consolidated
Financial Statements.
There are no other new accounting pronouncements that the Company
believes may have a material impact on its Condensed Consolidated Financial Statements.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 3—(LOSS) EARNINGS PER SHARE
The calculation of basic and diluted net (loss) earnings per share
for the periods presented is as follows:
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Basic and diluted net (loss) earnings per share
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(2,856
|
)
|
|
$
|
319
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted–average shares outstanding
|
|
|
20,152,029
|
|
|
|
19,571,947
|
|
Add:
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
—
|
|
|
|
—
|
|
Dilutive effect of restricted common stock
|
|
|
—
|
|
|
|
137,409
|
|
Weighted–average shares outstanding with dilution
|
|
|
20,152,029
|
|
|
|
19,709,356
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
Due to the loss from operations for the three months ended March
31, 2019, the computation of dilutive weighted-average common shares outstanding does not include any stock options or any shares
of unvested restricted common stock as these potential awards are anti-dilutive.
Because the effect would be anti-dilutive, there were 1,121,332 stock
options outstanding that were not included in the computation of diluted weighted-average shares outstanding for the three months
ended March 31, 2019 and 2018.
NOTE 4—INVENTORIES
Inventories consist of the following:
|
|
March 31,
2019
|
|
December 31,
2018
|
Finished goods
|
|
$
|
433
|
|
|
$
|
544
|
|
Raw materials
|
|
|
1,363
|
|
|
|
1,274
|
|
Reserve
|
|
|
(105
|
)
|
|
|
(10
|
)
|
Inventories, net
|
|
$
|
1,691
|
|
|
$
|
1,808
|
|
NOTE 5—LONG–LIVED ASSETS
Impairment Testing
In accordance with ASC 360-Property, Plant and Equipment, the Company
assesses the impairment of its long-lived assets whenever changes in events or circumstances indicate that the carrying value of
such assets may not be recoverable. During each reporting period, the Company assessed if the following factors were present, which
would cause an impairment review: overall negative solar industry conditions; a significant or prolonged decrease in net sales
generated under its trademarks; loss of a significant customer or a reduction in demand for customers’ products; a significant
adverse change in the extent to or manner in which the Company used its trademarks or proprietary technology; such assets becoming
obsolete due to new technology or manufacturing processes entering the markets or an adverse change in legal factors; and the market
capitalization of the Company’s common stock.
At March 31, 2019 and December 31, 2018, the Company recorded valuation
allowances against its deferred tax assets. The valuation allowances were recorded since the Company had three consecutive years
of taxable losses and determined that its history of actual net losses was evidence that should be given more weight than future
projections. The Company determined the recording of valuation allowances against deferred tax assets to be an indicator to test
its long-lived assets, which consist solely of property, plant and equipment, for impairment. The Company assessed the specific
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 5—LONG–LIVED ASSETS (Continued)
recoverability of its property, plant and equipment using updated real estate appraisals
and other data for its other fixed assets, mainly production equipment. Based upon this analysis, the Company believes its property,
plant and equipment carrying value was recoverable and depreciable lives were appropriate as of March 31, 2019. Therefore no impairment
was recorded in 2019. If the Company experiences a significant reduction in future sales volume, further average selling price
(“ASP”) reductions, lower profitability, a cessation of operations at any of its facilities, or negative changes in
U.S. or Spain real estate markets, the Company’s property, plant and equipment may be subject to future impairment or accelerated
depreciation.
NOTE 6—ASSETS HELD FOR SALE
In July 2015, the Company announced a restructuring plan that included
the closure of its Johor, Malaysia facility effective August 2, 2015. Subsequent to the announcement, the Company engaged advisors
and was actively trying to sell its land-use right, building and other fixed assets located at the facility. During 2016, the Company
entered into a definitive
Purchase and Sale Agreement for the land-use right and the building for a purchase price
of RM25,000 (approximately $6,123 as of March 31, 2019). Closing of the transaction was subject to customary conditions to closing
of transactions of this type, including the approval of the Johor Port Authority (“JPA”). On July 31, 2017, the Company
received a notice from the purchaser purporting to terminate the agreement, alleging that the JPA was seeking to impose certain
conditions on the approval of the transfer of the facility to the purchaser that it found unacceptable. The Company was not successful
in removing those conditions and the agreement terminated.
On November 1, 2018, the Company received a non-binding letter of
intent from a potential buyer for its Johor, Malaysia facility for RM22,500 (approximately $5,400, after realtor fees, as of March
31, 2019) and subsequently entered into a Purchase and Sale Agreement with this buyer effective January 10, 2019. The agreement
provides that the closing of the sale is subject to various customary and regulatory approvals and conditions, including the approval
of the JPA. The agreement further provides that if the conditions to the closing are not net and the closing does not occur within
six months either party may terminate the agreement, although the Company and the buyer expect to sign an amendment to extend the
closing window by an additional six months to allow for potential delays in obtaining the necessary approvals. The sale of the
property is part of the Company’s focus to reduce its footprint and operating costs.
In accordance with ASC 360-Property, Plant and Equipment, the Company
assessed the asset group attributed to the sale for impairment. Based upon the Company’s assessment of the status of the
Malaysia property, plant and equipment, all of the requirements (including the held for sale requirements) set forth in ASC 360-10-45-9
were met and the assets were classified on the Condensed Consolidated Balance Sheet as of March 31, 2019 and December 31,
2018 as assets held for sale.
NOTE 7—ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
March 31,
2019
|
|
December 31,
2018
|
Salary and wages
|
|
$
|
238
|
|
|
$
|
181
|
|
Accrued bonus
|
|
|
387
|
|
|
|
326
|
|
Professional fees
|
|
|
317
|
|
|
|
238
|
|
Restructuring severance and benefits (see Note 9)
|
|
|
103
|
|
|
|
102
|
|
Environmental (see Note 8)
|
|
|
57
|
|
|
|
57
|
|
Accrued franchise tax
|
|
|
222
|
|
|
|
164
|
|
Client deposits
|
|
|
265
|
|
|
|
224
|
|
Other
|
|
|
81
|
|
|
|
56
|
|
Total
|
|
$
|
1,670
|
|
|
$
|
1,348
|
|
NOTE 8—COMMITMENTS AND CONTINGENCIES
The Company is a party to claims and litigation in the normal course
of its operations. Management believes that the ultimate outcome of these matters will not have a material adverse effect on the
Company’s financial position, results of operations, or cash flows.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 8—COMMITMENTS AND CONTINGENCIES (Continued)
Product Performance Matters
The Company provides a short-term warranty that it has manufactured
its products to the Company’s specifications. On limited occasions, the Company incurs costs to service its products in connection
with specific product performance matters that do not meet the Company’s specifications. Anticipated future costs are recorded
as part of cost of sales and accrued liabilities for specific product performance matters when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
On isolated occasions, the Company has also offered limited
short-term performance warranties relating to its encapsulants not causing module power loss. The Company’s
encapsulants are validated by long-term performance testing during product development prior to launch and during customer
certification prior to mass production. The Company has operated its solar business since the 1970s and over 20 GW of solar
modules incorporating its encapsulants have been installed in the field with no reported module power performance issues
caused by the Company’s encapsulants and no related warranty claims to date. Based on this fact pattern, the
Company has not accrued any warranty liability associated for this potential liability as its occurrence is deemed to be
remote. If the Company was to ever receive a warranty claim for such matter, the Company would assess the need for a warranty
accrual at that time.
The Company’s product performance liability that is recorded
in accrued liabilities in the Condensed Consolidated Balance Sheets was $0 as of March 31, 2019 and December 31, 2018.
Environmental
During 2010, the Company performed a Phase II environmental
site assessment at its 10 Water Street, Enfield, Connecticut location. During its investigation, the site was found to
contain a presence of volatile organic compounds. The Company has been in contact with the Department of Environmental Protection
and has engaged a licensed contractor to remediate this circumstance. Based on ASC 450-Contingencies, the Company has accrued the
estimated cost to remediate. The Company’s environmental liability that is recorded in accrued liabilities in the Condensed
Consolidated Balance Sheets was $57 as of March 31, 2019 and December 31, 2018.
Solaria
In October 2016, a complaint was filed by Solaria Energia y Medio
Ambiente S.A.U. (“Solaria”) against the Company and its Spanish subsidiary, Specialized Technology Resources España,
S.A.U. (“STR Spain”), in the Court of the First Instance No. 8 in Oviedo, Spain, relating to a product quality claim
in connection with a non-encapsulant product that
STR Spain purchased from a vendor in 2005 and 2006 and resold to Solaria. The Company
stopped selling this product in 2006. Solaria was seeking approximately €3,300, plus interest, in damages.
A trial was held on April 6, 2017 in Oviedo, Spain. On January 9,
2019, the judge issued a ruling dismissing Solaria’s case, and the appeal period ended on February 8, 2019 with no appeal
filed. As a result, no accrual relating to this complaint was recorded as of March 31, 2019 and December 31, 2018 and the Company
considers the matter closed.
NOTE 9—COST
–
REDUCTION ACTIONS
In March 2017, the Company made the decision to wind down its China
manufacturing operations substantially by the end of the second quarter of 2017. The decision was consistent with ongoing
efforts to reorganize its business to better align with customer geography, to reduce losses related to unprofitable locations
and to convert assets to cash for potential redeployment into more profitable endeavors. In connection with the restructuring,
the Company does not expect any significant asset impairment charges and recorded $112 of severance charges and benefits in cost
of sales and $29 of severance charges and benefits in selling, general and administrative expenses during 2017 and $67 of severance
charges during 2018. The Company sold certain production and testing equipment from the China facility to its tolling partner in
India during the third quarter of 2017.
In June 2018, the Company eliminated certain positions at its Spain
facility, effective June 18, 2018. The Company recorded $635 of severance and benefits in cost of sales and $67 of severance and
benefits in selling, general and administrative expenses during 2018.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 9—COST
–
REDUCTION ACTIONS (Continued)
The restructuring accrual consists of $102 for severance and benefits
as of March 31, 2019. A rollforward of the severance and other exit cost accrual activity is as follows:
|
|
March 31,
2019
|
|
March 31,
2018
|
Balance as of beginning of period
|
|
$
|
102
|
|
|
$
|
87
|
|
Additions
|
|
|
—
|
|
|
|
67
|
|
Reductions
|
|
|
—
|
|
|
|
(29
|
)
|
Balance as of end of period
|
|
$
|
102
|
|
|
$
|
125
|
|
NOTE 10—FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at
fair value on a recurring basis in the financial statements. The hierarchy ranks the quality and reliability of inputs, or assumptions,
used in the determination of fair value
and requires financial assets and liabilities carried at fair value to be classified
and disclosed in one of the following three categories:
|
•
|
Level 1-quoted prices (unadjusted) in active markets for identical assets and liabilities;
|
|
•
|
Level 2-unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical
or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the
asset or liability; and
|
|
•
|
Level 3-unobservable inputs that are not corroborated by market data.
|
The following table provides the fair value measurements of applicable
financial assets and liabilities as of March 31, 2019:
|
|
Financial assets and liabilities at fair value
as of March 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market funds (1)
|
|
$
|
1,266
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-recurring fair value measurements (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,336
|
|
Total
|
|
$
|
1,266
|
|
|
$
|
—
|
|
|
$
|
5,336
|
|
The following table provides the fair value measurements of applicable
financial assets and liabilities as of December 31, 2018:
|
|
Financial assets and liabilities at fair value
as of December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market funds (1)
|
|
$
|
2,494
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-recurring fair value measurements (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,336
|
|
Total
|
|
$
|
2,494
|
|
|
$
|
—
|
|
|
$
|
5,336
|
|
_________________
(1)
|
|
Included in cash and cash equivalents on the Company’s Condensed Consolidated
Balance Sheets. The carrying amount of money market funds is a reasonable estimate of fair value due to the short-term maturity.
|
(2)
|
|
Included in assets held for sale on the Company’s Condensed Consolidated Balance
Sheets. Refer to Note 6 for further information.
|
NOTE 11—FACTORING ARRANGEMENT
In October 2015, the Company’s wholly owned Spanish
subsidiary, STR Spain, entered into a factoring agreement to sell, with recourse, certain European, U.S. and other foreign
company-based receivables to Eurofactor Hispania S.A.U., who was later acquired by Credit Agricole Leasing and Factoring
Sucursal en España during the first quarter of 2017. Under the current terms of the factoring agreement, the maximum
amount of outstanding advances at any one time is €1,500 (approximately $1,683 as of March 31, 2019), which is subject
to adjustment based on the level of eligible receivables, restrictions on concentrations of receivables and the historical
performance of the receivables sold. The annual discount rate is 2% plus EURIBOR for Euro denominated receivables and 2% plus LIBOR for all other currencies.
The term of the agreement is for one year, which will be automatically extended unless terminated by either party with 90 days
prior written notice. As of March 31, 2019 and December 31, 2018 the Company has recorded $248 and $374, respectively, as due to
factor on the Condensed Consolidated Balance Sheets.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 12—LONG-TERM DEBT
On March 13, 2019, the Company’s wholly owned subsidiary, STR
Spain, entered into a Loan with Mortgage Guarantee (the “Loan Agreement”) with the Regional Society of Promotion of
the Principality of Asturias, SA (the “Lender”), for a term loan (the “Loan”) in the aggregate principal
amount of a €2,000 ($2,244 as of March 31, 2019). STR Spain is required to use the loan proceeds to help finance the launch
and operation of its food packaging business. The Loan matures on December 31, 2025, with principal due and payable in equal quarterly
installments of €100 each, commencing on March 31, 2021. Interest, which is payable quarterly in arrears, accrues at the annual
EURIBOR rate (as such term is defined in the Loan agreement) plus an applicable margin. During the first two years, the applicable
margin is 2%, and thereafter increases by 1% per year until the applicable margin is 5% in the fifth year of the Loan. The Loan
may be prepaid at any time without premium or penalty. The Loan is secured by a mortgage of STR Spain’s business and certain
facilities, and contains customary covenants, including a covenant prohibiting STR Spain from making distributions to the Company,
as sole shareholder, without the prior approval of the Lender. In connection with the Loan, the Company has separately agreed to
provide STR Spain with resources to support the Loan and the continuity of the packaging initiative.
NOTE 13—INCOME TAXES FROM OPERATIONS
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”)
was enacted into law in the United States. The legislation contains several key tax provisions including the reduction of the corporate
income tax rate to 21% effective January 1, 2018, a one-time transition tax on foreign earnings which have not previously been
subject to tax in the United States, as well as a variety of other changes, including limitation of the tax deductibility of interest
expense, limitations for the deduction for net operating losses, new taxes on certain foreign-sourced earnings, and modification
or repeal of many business deductions and credits.
The TCJA subjects a U.S. shareholder to tax on global intangible
low-taxed income (GILTI) earned by certain foreign subsidiaries for which an entity can make an accounting policy election to either
recognize deferred taxes for
temporary basis differences expected to reverse as GILTI in future years or provide for
the tax expense related to GILTI in the year the tax is incurred. In 2018, the Company made the election to use the period cost
method and will treat taxes due related to GILTI as a current-period expense when incurred. As of March 31, 2019, the Company does
not anticipate a GILTI inclusion for the taxable year.
During the three months ended March 31, 2019, the Company recorded
an income tax benefit of $88 resulting in an effective tax rate of 3.0%. This effective tax rate for the three months ended March
31, 2019 differs from the U.S. statutory tax rate primarily due to the effect of taxes on foreign earnings.
During the three months ended March 31, 2018, the Company recorded
an income tax expense of $99 resulting in an effective tax rate of 23.7%. This effective tax rate for the three months ended March
31, 2018 differs from the U.S. statutory tax rate primarily due to the effect of taxes on foreign earnings.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 14—STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the three months ended
March 31, 2019 are as follows:
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
Paid-In
|
|
Accumulated
Other
Comprehensive
|
|
Accumulated
|
|
Total
Stockholders’
|
|
|
Issued
|
|
Amount
|
|
Acquired
|
|
Loss
|
|
Capital
|
|
Loss
|
|
Deficit
|
|
Equity
|
Balance at December 31, 2018
|
|
|
20,152,029
|
|
|
$
|
201
|
|
|
|
1,240
|
|
|
$
|
(57
|
)
|
|
$
|
232,345
|
|
|
$
|
(5,654
|
)
|
|
$
|
(204,832
|
)
|
|
$
|
22,003
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,856
|
)
|
|
|
(2,856
|
)
|
Foreign currency translation, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(119
|
)
|
|
|
—
|
|
|
|
(119
|
)
|
Balance at March 31, 2019
|
|
|
20,152,029
|
|
|
$
|
201
|
|
|
|
1,240
|
|
|
$
|
(57
|
)
|
|
$
|
232,345
|
|
|
$
|
(5,773
|
)
|
|
$
|
(207,688
|
)
|
|
$
|
19,028
|
|
Common Stock
The Company’s Board of Directors has authorized 200,000,000
shares of common stock, $0.01 par value. At March 31, 2019, there were 20,153,269 shares issued and 20,152,029 shares outstanding
of common stock. Each share of common
stock is entitled to one vote per share.
NOTE 15—STOCK
–
BASED COMPENSATION
On November 6, 2009, the Company’s Board of Directors
approved the Company’s 2009 Equity Incentive Plan (the “2009 Plan”) which became effective on the same day. Effective
May 14, 2013, the 2009 Plan was amended to increase the number of shares subject to the Plan. As a result, a total of 4,133,133
shares of common stock are reserved for issuance under the 2009 Plan. The 2009 Plan is administered by the Board of Directors or
any committee designated by the Board of Directors, which has the authority to designate participants and determine the number
and type of awards to be granted, the time at which awards are exercisable, the method of payment and any other terms or conditions
of the awards. The 2009 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock
options, collectively, “options,” stock appreciation rights, shares of restricted stock, or “restricted stock,”
rights to dividend equivalents and other stock-based awards, collectively, the “awards.” The Board of Directors or
the committee will, with regard to each award, determine the terms and conditions of the award, including the number of shares
subject to the award, the vesting terms of the award, and the purchase price for the award. Awards may be made in assumption of
or in substitution for outstanding awards previously granted by the Company or its affiliates, or a company acquired by the Company
or with which it combines. Options outstanding generally vest over a three or four-year period and expire ten years from date of
grant. There were 317,323 shares available for grant under the 2009 Plan as of March 31, 2019.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 15—STOCK
–
BASED COMPENSATION (Continued)
The following table summarizes the options activity under the Company’s
2009 Plan for the three months ended March 31, 2019:
|
|
Options Outstanding
|
|
|
Number
of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value(1)
|
Balance at December 31, 2018
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
—
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
Options granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cancelled/forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Balance at March 31, 2019
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.86
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
Vested and exercisable as of March 31, 2019
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.86
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
Vested and exercisable as of March 31, 2019 and expected to vest thereafter
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.86
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
_________________
(1)
|
|
The aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the closing stock price of $0.32 of the Company’s common stock on March 31, 2019 (to
the extent that the closing stock price exceeds the exercise price).
|
As of March 31, 2019, there was $0 of unrecognized compensation
cost related to outstanding stock option awards. The Company did not receive any proceeds related to the exercise of stock options
for the year ended March 31, 2019.
Stock-based compensation expense was included in the following Condensed
Consolidated Statements of Comprehensive Income (Loss) categories for operations:
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Selling, general and administrative expense
|
|
$
|
—
|
|
|
$
|
74
|
|
Total stock-based compensation expense
|
|
$
|
—
|
|
|
$
|
74
|
|
NOTE 16—GEOGRAPHICAL INFORMATION
ASC 280-10-50, “ Disclosure about Segments of an Enterprise
and Related Information,” establishes standards for the manner in which companies report information about operating segments,
products, geographic areas and major customers The method of determining what information to report is based on the way that management
organizes the operating segment within the enterprise for making operating decisions and assessing financial performance. Since
the Company has one product, sells to global customers in one industry, procures raw materials from similar vendors and expects
similar long-term economic characteristics, the Company has one reporting segment and the information as to its operation is set
forth below.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 16—GEOGRAPHICAL INFORMATION (Continued)
Operations by Geographic Area
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Net Sales
|
|
|
|
|
|
|
|
|
Spain
|
|
$
|
816
|
|
|
$
|
1,476
|
|
United States
|
|
|
455
|
|
|
|
1,814
|
|
India
|
|
|
546
|
|
|
|
426
|
|
China
|
|
|
—
|
|
|
|
30
|
|
Total Net Sales
|
|
$
|
1,817
|
|
|
$
|
3,746
|
|
Long
–
Lived Assets by Geographic Area
|
|
March 31,
2019
|
|
December 31,
2018
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,146
|
|
|
$
|
1,180
|
|
Spain
|
|
|
10,529
|
|
|
|
9,707
|
|
China
|
|
|
—
|
|
|
|
—
|
|
Hong Kong
|
|
|
—
|
|
|
|
—
|
|
Total Long–Lived Assets
|
|
$
|
11,675
|
|
|
$
|
10,887
|
|
Foreign sales are based on the country in which the sales originated.
Net sales to two of the Company’s major customers that exceeded 10% of the Company’s consolidated net sales for the
three months ended March 31, 2019 was $822. Net sales to two of the Company’s major customers that exceeded 10% of the Company’s
consolidated net sales for the three months ended March 31, 2018 was $2,176.
Accounts receivable from two customers amounted to $2,158 as of March
31, 2019 and accounts receivable from one customer amounted to $2,051 as of December 31, 2018.
NOTE 17—RELATED PARTIES
Huhui Supply Agreement
The Company’s Chinese subsidiary, Specialized Technology
Resources Solar (Suzhou) Co. Ltd. (“STR China”) entered into a supply agreement (the “Huhui Supply
Agreement”) dated as of December 31, 2014 with Zhangjiagang Huhui Segpv Co. Ltd ("Huhui"), a solar module
manufacturer and an affiliate of Zhenfa. Pursuant to the Huhui Supply Agreement, STR China agreed to supply
Huhui with the Company's encapsulant products and Huhui agreed (i) to purchase not less than 535 MW worth of encapsulants
(the “Minimum Amount”) during each contract year, (ii) to pay the Company a deposit equal to 10% of the
Minimum Amount, and (iii) not to purchase encapsulant products from other encapsulant manufacturers. The initial
term of the Huhui Supply Agreement was for one year; however, such initial term was extended due to failure by Huhui to
purchase the Minimum Amount at the end of the first year anniversary of the effective date of the Huhui Supply Agreement. The
Huhui Supply Agreement further provided that Huhui’s obligations were contingent (unless otherwise provided in the
agreement) upon (i) the delivery by STR China of an initial shipment of products in accordance with the specifications and
(ii) the qualification of the products by Huhui during a sample production run of not less than 30 days. As of December 31,
2017, Huhui had not commenced the sample production run. The Huhui Supply Agreement automatically renewed for additional
one year terms if either party failed to notify the other party at least 90 days prior to the end of the then current term
that it was electing to terminate the agreement. The Company believes that the terms and conditions set forth in the Huhui
Agreement at that time were fair and reasonable to the Company. The Company received $1,148 as a deposit from Huhui during
the year ended December 31, 2015, which was included in accrued liabilities on the Condensed Consolidated Balance Sheets.
STR Holdings, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 17—RELATED PARTIES (Continued)
Huhui did not complete its 30 day production run as contemplated
under the Supply Agreement and on March 27, 2018, following the approval of the Company’s Special Committee of Continuing
Directors, STR China entered into an agreement to terminate the Supply Agreement (the “Termination Agreement”). Pursuant
to the Termination Agreement,
Huhui agreed that STR China would retain the Deposit, and each of Huhui and STR China
agreed to release the other from any liability or further obligations under the Supply Agreement. The Company recognized the full
amount of the deposit as other income on the Condensed Consolidated Statement of Comprehensive Income (Loss) in the first quarter
of 2018.