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
(unaudited)
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, 2016, included in STR Holdings, Inc.’s (the “Company”) Annual
Report on Form 10–K filed with the SEC on March 9, 2017. 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.
On December 1, 2016, the Company was notified by the OTCQX that the
Company did not meet the OTCQX Requirements for Continued Qualification found in Section 3.2 of the OTCQX Rules for U.S. Companies
due to the Company failing to maintain a market capitalization of at least $5,000 for at least one of every 30 consecutive
calendar days. The OTCQX granted the Company a 60 day extension beginning on January 3, 2017 with a re-evaluation on or after February
28, 2017. The Company’s market capitalization did not return to at least $5,000, and following that re-evaluation the Company’s
stock began trading on the OTCQB market effective April 3, 2017.
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.
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
There are no new accounting pronouncements that the Company believes
will have an impact on its consolidated financial statements.
NOTE 3—TRANSACTION WITH ZHEN FA NEW ENERGY (U.S.) CO., LTD. AND ZHENFA ENERGY GROUP
CO., LTD.
The Company has entered into certain definitive agreements with Zhenfa
Energy Group Co., Ltd., a Chinese limited liability company (“Zhenfa”) and its affiliate, Zhen Fa New Energy (U.S.)
Co., Ltd., a Nevada corporation (“Zhenfa U.S.”).
Purchase Agreement and Special Dividend
On August 11, 2014, the Company entered into a Stock Purchase Agreement
(the “Purchase Agreement”) with Zhenfa U.S., pursuant to which Zhenfa U.S. acquired approximately 51% of the Company’s
then outstanding shares of common stock (the “Transaction”) on December 15, 2014 (the “Closing Date”).
The Company also entered into a guarantee agreement (the “Guarantee
Agreement”) with Zhenfa pursuant to which Zhenfa agreed to guarantee all obligations of Zhenfa U.S. under the Purchase Agreement,
including but not limited to, the payment of the purchase price and the performance of all covenants and agreements of Zhenfa U.S
in the Purchase Agreement.
In connection with the closing of the Transaction, the Company entered into a registration rights agreement
(the “Registration Rights Agreement”) with Zhenfa U.S. that, among other things, requires the Company to register the
shares acquired by Zhenfa U.S. in the Transaction, at the Company’s expense, upon the request of Zhenfa U.S. or certain transferees
of Zhenfa U.S.
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 3—TRANSACTION WITH ZHEN FA NEW ENERGY (U.S.) CO., LTD. AND ZHENFA ENERGY GROUP
CO., LTD. (Continued)
Sales Service Agreement
In connection with the execution of the Purchase Agreement, Specialized
Technology Resources, Inc., an operating subsidiary of the Company, entered into a Sales Service Agreement (the “ Sales Service
Agreement”) with Zhenfa whereby Zhenfa agreed, among other things, to assist the Company in a number of endeavors, including,
without limitation, marketing and selling the Company’s products in China, acquiring local raw materials, hiring and training
personnel in China, and complying with Chinese law. The Sales Service Agreement also provided the Company a two-year option, which
expired on December 15, 2016, to lease a Zhenfa-owned manufacturing facility rent free for a period of five years, The Sales Service
Agreement became effective on the Closing Date for an initial term of two years, and automatically extends for one year periods
unless terminated earlier by either party. The Sales Service Agreement may also be terminated by either party at such time as Zhenfa
and its affiliates own less than 10% of the outstanding common stock of the Company.
NOTE 4—LOSS PER SHARE
The calculation of basic and diluted net loss per share for the periods
presented is as follows:
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,047
|
)
|
|
$
|
(2,947
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted–average shares outstanding
|
|
|
18,795,927
|
|
|
|
18,265,845
|
|
Add:
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
-
|
|
|
|
-
|
|
Dilutive effect of restricted common stock
|
|
|
-
|
|
|
|
-
|
|
Weighted–average shares outstanding with dilution
|
|
|
18,795,927
|
|
|
|
18,265,845
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.16
|
)
|
Due to the loss from operations for the three months ended March 31,
2017 and 2016, 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 and 1,332,442
stock options outstanding that were not included in the computation of diluted weighted-average shares outstanding for the three
months ended March 31, 2017 and 2016, respectively.
NOTE 5—BANK ACCEPTANCE NOTES
Customers in China may settle their accounts with bank acceptance notes,
which are draft instruments that are guaranteed to be paid at maturity by the issuing bank. Upon receipt of the bank acceptance
note, the Company can elect to hold the instrument until maturity and receive full face value, discount it with the bank for a
fee, or transfer it at full face value to suppliers who will accept the note as settlement of the Company’s accounts payable
balance with them.
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—BANK ACCEPTANCE NOTES (Continued)
Bank acceptance notes consists of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
Balance as of beginning of period
|
|
$
|
3,360
|
|
|
$
|
92
|
|
Received from customers
|
|
|
552
|
|
|
|
7,030
|
|
Converted to cash
|
|
|
(1,452
|
)
|
|
|
-
|
|
Paid to suppliers
|
|
|
(737
|
)
|
|
|
(3,756
|
)
|
Foreign exchange impact
|
|
|
28
|
|
|
|
(6
|
)
|
Balance as of end of period
|
|
$
|
1,751
|
|
|
$
|
3,360
|
|
All of the bank acceptance notes as of March 31, 2017 mature prior to
June 30, 2017. Due to the short time to maturity, the Company believes the bank acceptance notes’ carrying value approximates
fair value. As of March 31, 2017, the annual effective discount rate for all of the bank acceptance notes was 5.5%.
NOTE 6—INVENTORIES
Inventories consist of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
Finished goods
|
|
$
|
559
|
|
|
$
|
470
|
|
Raw materials
|
|
|
1,554
|
|
|
|
1,812
|
|
Reserve
|
|
|
(178
|
)
|
|
|
(435
|
)
|
Inventories, net
|
|
$
|
1,935
|
|
|
$
|
1,847
|
|
NOTE 7—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, 2017 and December 31, 2016, 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 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 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, 2017. 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 8—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. In the first six
months of 2016, the Company received and ultimately accepted an offer for RM25,000 ($5,650 as of March 31, 2017) for the land-use
right and building, subject to completion of definitive documentation. In November 2016, the formal purchase and sale agreement
was executed. Closing of the transaction is subject to customary conditions to closing of transactions of this type, including
the approval of the Johor Port Authority.
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—ASSETS HELD FOR SALE (Continued)
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, 2017 and December 31,
2016 as assets held for sale. An impairment loss of $440, related to the foreign currency fluctuation of the Ringgit, was recorded
in the Company’s condensed consolidated statement of comprehensive loss in other expense, net during the first quarter of
2017.
NOTE 9—ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
March 31,
2017
|
|
December 31,
2016
|
Product performance (see Note 10)
|
|
$
|
-
|
|
|
$
|
21
|
|
Salary and wages
|
|
|
305
|
|
|
|
310
|
|
Accrued bonus
|
|
|
376
|
|
|
|
270
|
|
Professional fees
|
|
|
584
|
|
|
|
535
|
|
Restructuring severance and benefits (see Note 11)
|
|
|
323
|
|
|
|
269
|
|
Environmental (see Note 10)
|
|
|
57
|
|
|
|
57
|
|
Accrued franchise tax
|
|
|
59
|
|
|
|
66
|
|
Client deposits
|
|
|
970
|
|
|
|
922
|
|
Accrued income tax
|
|
|
53
|
|
|
|
-
|
|
Other
|
|
|
239
|
|
|
|
167
|
|
Total
|
|
$
|
2,966
|
|
|
$
|
2,617
|
|
NOTE 10—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.
Product Performance
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.
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 10—COMMITMENTS AND CONTINGENCIES (Continued)
The Company has accrued for specific product performance matters
incurred in 2017 and 2016 that are based on management’s best estimate of ultimate expenditures that it may incur for such
items. The Company’s product performance liability that is recorded in accrued liabilities in the condensed consolidated
balance sheets was $0 and $1 as of March 31, 2017 and December 31, 2016, respectively.
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, 2017 and December 31, 2016.
Solaria
In October 2016, a complaint was filed by Solaria Energia y Medio Ambiente
S.A. (“Solaria”) against the Company and its Spanish subsidiary, Specialized Technology Resources España S.A.
(“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 is seeking approximately €3.3 million, plus interest, in damages.
As of the date of this filing, the Company has filed its statement of
defense, as well as its technical report related to the claim, and is in compliance with the requirements of the court relative
to the claim. A trial was held on April 6, 2017 in Oviedo, Spain. The Company is currently awaiting a ruling from the court. The
Company believes it has meritorious defenses and does not believe a loss is probable or can be reasonably estimated. As such, no
accrual relating to this complaint was recorded as of March 31, 2017 and December 31, 2016.
NOTE 11—COST
–
REDUCTION ACTIONS
In June 2016, the Company eliminated certain positions at its Spain facility,
effective July 5, 2016. The Company recorded $121 of severance and benefits in cost of sales and $108 of severance and benefits
in selling, general and administrative expenses during 2016.
In light of continued difficulties in the China market, on March 7, 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 is consistent with ongoing efforts to reorganize its encapsulant 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 $136 of severance charges during the first quarter of 2017.
The restructuring accrual consists of $323 for severance and benefits
as of March 31, 2017. A rollforward of the severance and other exit cost accrual activity is as follows:
|
|
March 31,
2017
|
|
March 31,
2016
|
Balance as of beginning of period
|
|
$
|
269
|
|
|
$
|
268
|
|
Additions
|
|
|
136
|
|
|
|
2
|
|
Reductions
|
|
|
(82
|
)
|
|
|
(17
|
)
|
Balance as of end of period
|
|
$
|
323
|
|
|
$
|
253
|
|
NOTE 12—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
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—FAIR VALUE MEASUREMENTS (Continued)
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, 2017:
|
|
Financial assets and liabilities at fair value
as of March 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market funds (1)
|
|
$
|
6,027
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bank acceptance notes (2)
|
|
$
|
1,751
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-recurring fair value measurements (3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,650
|
|
Total
|
|
$
|
7,778
|
|
|
$
|
-
|
|
|
$
|
5,650
|
|
The following table provides the fair value measurements of applicable
financial assets and liabilities as of December 31, 2016:
|
|
Financial assets and liabilities at fair value
as of December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Money market funds (1)
|
|
$
|
7,429
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bank acceptance notes (2)
|
|
$
|
3,360
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-recurring fair value measurements (3)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,090
|
|
Total
|
|
$
|
10,789
|
|
|
$
|
-
|
|
|
$
|
6,090
|
|
|
(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)
|
Refer to Note 5 for further information.
|
|
(3)
|
Included in assets held for sale on the Company’s Condensed Consolidated Balance Sheets. Refer to Note 8 for further
information.
|
NOTE 13—FACTORING ARRANGEMENT
In October 2015, the Company’s wholly owned Spanish subsidiary,
Specialized Technology Resources España S.A., 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 ($1,598 as of March 31, 2017), 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, 2017 and December 31, 2016 the Company has recorded $417 and $381, respectively,
as due to factor on the Condensed Consolidated Balance Sheets.
NOTE 14—INCOME TAXES FROM OPERATIONS
There is no provision or benefit for federal, foreign, or state income taxes for the three months ended March
31, 2017 other than the $18 income tax benefit resulting from an intraperiod tax allocation between operations and other comprehensive
income. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets.
Based on the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly,
the Company has provided a full valuation allowance for deferred tax assets as of March 31, 2017 and December 31, 2016.
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—INCOME TAXES FROM OPERATIONS (Continued)
There was no provision or benefit for federal, foreign, or state
income taxes for the three months ended March 31, 2016 other than the $214 income tax benefit resulting from an intraperiod tax
allocation between operations and other comprehensive income.
NOTE 15—STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the three months ended March
31, 2017 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, 2016
|
|
|
18,669,927
|
|
|
$
|
187
|
|
|
|
1,240
|
|
|
$
|
(57
|
)
|
|
$
|
231,627
|
|
|
$
|
(6,431
|
)
|
|
$
|
(193,971
|
)
|
|
$
|
31,355
|
|
Stock–based compensation
|
|
|
210,000
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,047
|
)
|
|
|
(3,047
|
)
|
Foreign currency translation, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130
|
|
|
|
-
|
|
|
|
130
|
|
Balance at March 31, 2017
|
|
|
18,879,927
|
|
|
$
|
189
|
|
|
|
1,240
|
|
|
$
|
(57
|
)
|
|
$
|
231,749
|
|
|
$
|
(6,301
|
)
|
|
$
|
(197,018
|
)
|
|
$
|
28,562
|
|
Common Stock
The Company’s Board of Directors has authorized 200,000,000 shares
of common stock, $0.01 par value. At March 31, 2017, there were 19,256,733 shares issued and 19,255,493 shares outstanding of
common stock. Each share of common stock is entitled to one vote per share. Included in the 19,255,493 shares outstanding are
18,879,927 shares of common stock and 375,566 shares of unvested restricted common stock.
NOTE 16—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 the date
of grant. There were 1,214,423 shares available for grant under the 2009 Plan as of March 31, 2017.
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—STOCK
–
BASED COMPENSATION (Continued)
The following table summarizes the options activity under the Company’s
2009 Plan for the three months ended March 31, 2017:
|
|
|
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, 2016
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
-
|
|
|
$
|
0.99
|
|
|
$
|
(1,472
|
)
|
Options granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cancelled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Balance at March 31, 2017
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
7.86
|
|
|
$
|
0.99
|
|
|
$
|
(1,472
|
)
|
Vested and exercisable as of March 31, 2017
|
|
|
747,552
|
|
|
$
|
1.52
|
|
|
|
7.86
|
|
|
$
|
0.99
|
|
|
$
|
(982
|
)
|
Vested and exercisable as of March 31, 2017 and expected to vest thereafter
|
|
|
1,105,359
|
|
|
$
|
1.52
|
|
|
|
7.86
|
|
|
$
|
0.99
|
|
|
$
|
(1,451
|
)
|
(1) The aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the closing stock price of $0.21 of the Company’s common stock on March 31, 2017.
As of March 31, 2017, there was $308 of unrecognized compensation cost
related to outstanding stock option awards. This amount is expected to be recognized over a weighted-average remaining vesting
period of less than one year. To the extent the actual forfeiture rate is different from what the Company has anticipated, stock-based
compensation related to these awards will be different from its expectations. The Company did not receive any proceeds related
to the exercise of stock options for the three months ended March 31, 2017.
The following table summarizes the restricted shares activity of the
Company for the three months ended March 31, 2017:
|
|
Unvested
Restricted Shares
|
|
|
Number of
Shares
|
|
Weighted–
Average
Grant–Date
Fair Value
|
Unvested at December 31, 2016
|
|
|
568,420
|
|
|
$
|
-
|
|
Granted
|
|
|
301,356
|
|
|
$
|
-
|
|
Vested
|
|
|
(210,000
|
)
|
|
$
|
0.15
|
|
Cancelled
|
|
|
(284,210
|
)
|
|
$
|
-
|
|
Unvested at March 31, 2017
|
|
|
375,566
|
|
|
$
|
-
|
|
Expected to vest after March 31, 2017
|
|
|
375,566
|
|
|
$
|
-
|
|
As of March 31, 2017, there was $48 of unrecognized compensation cost
related to unvested restricted shares. This amount is expected to be recognized over a weighted-average remaining vesting period
of less than one year. To the extent the actual forfeiture rate is different from what the Company has anticipated, stock-based
compensation related to these awards will be different from its expectations.
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—STOCK
–
BASED COMPENSATION (Continued)
Stock-based compensation expense was included in the following Condensed
Consolidated Statements of Comprehensive Loss categories for operations:
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative expense
|
|
$
|
120
|
|
|
$
|
159
|
|
Research and development expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Total stock-based compensation expense
|
|
$
|
120
|
|
|
$
|
159
|
|
NOTE 17—REPORTABLE SEGMENT AND 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.
Adjusted EBITDA is the main metric used by the management team and the
Board of Directors to plan, forecast and review the Company’s segment performance. Adjusted EBITDA represents net loss from
operations before interest income and expense, income tax expense, depreciation, stock-based compensation expense, restructuring
and certain non-recurring income and expenses from the results of operations.
The following tables set forth information about the Company’s
operations by its reportable segment and by geographic area:
Operations by Reportable Segment
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
Reconciliation of Adjusted EBITDA to Net Loss from Operations
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(2,027
|
)
|
|
$
|
(2,515
|
)
|
Depreciation
|
|
|
(340
|
)
|
|
|
(474
|
)
|
Interest (expense) income, net
|
|
|
(4
|
)
|
|
|
(11
|
)
|
Income tax benefit (expense)
|
|
|
18
|
|
|
|
214
|
|
Restructuring
|
|
|
(137
|
)
|
|
|
(2
|
)
|
Stock-based compensation
|
|
|
(120
|
)
|
|
|
(159
|
)
|
Impairment of fixed assets held for sale
|
|
|
440
|
|
|
|
-
|
|
Gain (loss) on disposal of fixed assets
|
|
|
3
|
|
|
|
-
|
|
Net Loss from Operations
|
|
$
|
(3,047
|
)
|
|
$
|
(2,947
|
)
|
Operations by Geographic Area
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
Net Sales
|
|
|
|
|
|
|
|
|
Spain
|
|
$
|
1,712
|
|
|
$
|
3,847
|
|
China
|
|
|
1,991
|
|
|
|
2,565
|
|
United States
|
|
|
10
|
|
|
|
11
|
|
Total Net Sales
|
|
$
|
3,713
|
|
|
$
|
6,423
|
|
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—REPORTABLE SEGMENT AND GEOGRAPHICAL INFORMATION (Continued)
Long
–
Lived Assets by Geographic Area
|
|
March 31,
2017
|
|
December 31,
2016
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,428
|
|
|
$
|
1,448
|
|
Spain
|
|
|
5,959
|
|
|
|
5,990
|
|
China
|
|
|
729
|
|
|
|
535
|
|
Hong Kong
|
|
|
1
|
|
|
|
1
|
|
Total Long–Lived Assets
|
|
$
|
8,117
|
|
|
$
|
7,974
|
|
Foreign sales are based on the country in which the sales originated.
Net sales to one of the Company’s major customers that exceeded 10% of the Company’s consolidated net sales for the
three months ended March 31, 2017 was $700. 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, 2016 was $1,933.
Accounts receivable from one customer amounted to $591 as of March 31,
2017 and accounts receivable from two customers amounted to $597 as of December 31, 2016.
NOTE 18—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 for an additional six months 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 provides
that Huhui’s obligations are 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 March 31, 2017, Huhui had not commenced the sample production run. The
Huhui Supply Agreement shall automatically renew for additional one year terms if either party fails to notify the other
party at least 90 days prior to the end of the then current term that it is 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 is included in accrued liabilities on the
Condensed Consolidated Balance Sheets. During the three months ended March 31, 2017 the Company did not record any sales to this
customer.
NOTE 19—SUBSEQUENT EVENT
In April 2017, the Company’s China subsidiary received an interim
payment of RMB5,000 ($726 as of April 30, 2017) from our local China insurance carrier related to the existing fire insurance claim. This
payment does not represent a final settlement, and the Company continues to work with its agents and the carrier to finalize the
claim.
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