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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 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: 001-36083

Applied Optoelectronics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

76-0533927

(State or other jurisdiction of incorporation or organization)

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

13139 Jess Pirtle Blvd.

Sugar Land, TX 77478

(Address of principal executive offices)

(281295-1800

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Trading Name of each exchange on which registered

Common Stock, Par value $0.001

AAOI

NASDAQ Global Market

 

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 Exchange Act).                                       Yes   No ☒

 

As of August 1, 2022 there were 27,882,758 shares of the registrant’s Common Stock outstanding.

 

 

 

 
 

Applied Optoelectronics, Inc.

Table of Contents

   

Page

Part I. Financial Information

   

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

   

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021

3

   

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2022 and 2021 (Unaudited)

4

   

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months ended June 30, 2022 and 2021 (Unaudited)

5

   

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2022 and 2021 (Unaudited)

6

   

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2022 and 2021 (Unaudited)

7

   

 

 

Notes To Condensed Consolidated Financial Statements (Unaudited)

8

   

 

Item 2.

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

19

   

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

   

 

Item 4.

Controls and Procedures

27

   

 

Part II. Other Information

     

Item 1.

Legal Proceedings

27

     

Item 1A.

Risk Factors

27

     

Item 6.

Exhibits

27

     
 

Signatures

29

 

2

 

 

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

  

June 30,

  

December 31,

 

 

2022

  

2021

 

ASSETS

 

  

 

Current Assets

 

  

 

Cash and cash equivalents

 $33,667  $34,656 

Restricted cash

  6,983   6,480 

Accounts receivable - trade, net of allowance of $26 and $30, respectively

  49,139   47,944 

Notes receivable

  212   8,148 

Inventories, net

  98,181   92,516 

Prepaid income tax

  -   1 

Prepaid expenses and other current assets

  6,235   4,334 

Total current assets

  194,417   194,079 

Property, plant and equipment, net

  224,349   243,035 

Land use rights, net

  5,500   5,856 

Operating right of use asset

  6,165   7,078 

Financing right of use asset

  41   57 

Intangible assets, net

  3,763   3,836 

Other assets, net

  520   518 

TOTAL ASSETS

 $434,755  $454,459 

LIABILITIES AND STOCKHOLDERS' EQUITY

    

 

Current liabilities

 

    

Current portion of notes payable and long-term debt

 $53,565  $49,689 

Accounts payable

  52,496   34,402 

Bank acceptance payable

  10,273   8,198 

Current lease liability - operating

  1,023   1,062 

Current lease liability - financing

  19   19 

Accrued liabilities

  12,440   15,587 

Total current liabilities

  129,816   108,957 

Notes payable and long-term debt, less current portion

  -   5,000 

Convertible senior notes

  79,090   78,680 

Non-current lease liability - operating

  6,202   7,189 

Non-current lease liability - financing

  53   63 

TOTAL LIABILITIES

  215,161   199,889 

Stockholders' equity:

 

  

 

Common Stock; 45,000 shares authorized at $0.001 par value; 27,658 and 27,323 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

  28   27 

Additional paid-in capital

  385,531   381,143 

Accumulated other comprehensive income

  7,226   16,071 

Accumulated deficit

  (173,191)  (142,671)

TOTAL STOCKHOLDERS' EQUITY

  219,594   254,570 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $434,755  $454,459 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share and per share data)

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2022

  

2021

  

2022

  

2021

 

Revenue, net

 $52,299  $54,189  $104,540  $103,890 

Cost of goods sold

  43,671   43,411   86,888   82,393 

Gross profit

  8,628   10,778   17,652   21,497 

Operating expenses

 

  

  

  

 

Research and development

  8,328   10,914   17,814   21,842 

Sales and marketing

  2,164   2,832   4,722   5,792 

General and administrative

  11,035   10,681   22,254   21,550 

Total operating expenses

  21,527   24,427   44,790   49,184 

Loss from operations

  (12,899)  (13,649)  (27,138)  (27,687)

Other income (expense)

 

  

  

  

 

Interest income

  31   16   59   32 

Interest expense

  (1,408)  (1,367)  (2,810)  (2,798)

Other income (expense), net

  (180)  6,797   (629)  6,628 

Total other income (expense), net

  (1,557)  5,446   (3,380)  3,862 

Loss before income taxes

  (14,456)  (8,203)  (30,518)  (23,825)

Net loss

 $(14,456) $(8,203) $(30,518) $(23,825)

Net loss per share

 

  

  

  

 

Basic

 $(0.52) $(0.31) $(1.11) $(0.89)

Diluted

 $(0.52) $(0.31) $(1.11) $(0.89)

 

  

  

  

 

Weighted average shares used to compute net loss per share:

 

  

  

  

 

Basic

  27,612,315   26,850,032   27,537,048   26,636,755 

Diluted

  27,612,315   26,850,032   27,537,048   26,636,755 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 

Three months ended June 30,

  

Six months ended June 30,

 

 

2022

  

2021

  

2022

  

2021

 

Net loss

 $(14,456) $(8,203) $(30,518) $(23,825)

Gain (Loss) on foreign currency translation adjustment

  (7,583)  3,630   (8,845)  2,596 

Comprehensive loss

 $(22,039) $(4,573) $(39,363) $(21,229)

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Six Months ended June 30, 2022 and 2021

(Unaudited, in thousands)

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

March 31, 2022

    $   27,530  $28  $383,474  $14,809  $(158,735) $239,576 

Issuance of restricted stock, net of shares withheld for employee tax

        128      (87)        (87)

Share-based compensation

              2,144         2,144 

Foreign currency translation adjustment

                 (7,583)     (7,583)

Net loss

                    (14,456)  (14,456)

June 30, 2022

    $   27,658  $28  $385,531  $7,226  $(173,191) $219,594 

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

March 31, 2021

    $   26,787  $27  $371,920  $10,656  $(104,131) $278,472 

Public offering of common stock, net

        35      262         262 

Issuance of restricted stock, net of shares withheld for employee tax

        97      (144)        (144)

Share-based compensation

              3,274         3,274 

Foreign currency translation adjustment

                 3,630      3,630 

Net loss

                    (8,203)  (8,203)

June 30, 2021

    $   26,919  $27  $375,312  $14,286  $(112,334) $277,291 

 

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

January 1, 2022

    $   27,323  $27  $381,143  $16,071  $(142,671) $254,570 

Stock options exercised, net of shares withheld for employee tax

                        

Issuance of restricted stock, net of shares withheld for employee tax

        335   1   (228)        (227)

Share-based compensation

              4,616         4,616 

Foreign currency translation adjustment

                 (8,845)  (2)  (8,847)

Net loss

                    (30,518)  (30,518)

June 30, 2022

    $   27,658  $28  $385,531  $7,226  $(173,191) $219,594 

 

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Retained

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

earnings

  

equity

 

January 1, 2021

    $   25,110  $25  $354,685  $11,690  $(88,509) $277,891 

Public offering of common stock, net

        1,546   2   15,228         15,230 

Stock options exercised, net of shares withheld for employee tax

        2      8         8 

Issuance of restricted stock, net of shares withheld for employee tax

        261      (402)        (402)

Share-based compensation

              5,793         5,793 

Foreign currency translation adjustment

                 2,596      2,596 

Net loss

                    (23,825)  (23,825)

June 30, 2021

    $   26,919  $27  $375,312  $14,286  $(112,334) $277,291 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

  

Six months ended June 30,

 

 

2022

  

2021

 

Operating activities:

 

  

 

Net loss

 $(30,518) $(23,825)

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

 

  

 

Provision for losses on accounts receivable

  (4)  - 

Lower of cost or market reserve adjustment to inventory

  2,403   2,211 

Depreciation and amortization

  11,995   12,870 

Amortization of debt issuance costs

  425   434 

Loss on disposal of assets

  (35)  5 

Share-based compensation

  4,616   5,793 

Interest for extinguishment of debt

  -   (70)

Extinguishment of debt

  -   (6,229)

Unrealized foreign exchange gain

  1,366   692 

Changes in operating assets and liabilities:

      

Accounts receivable, trade

  5,938   (5,362)

Notes receivable

  7,911   (3,390)

Prepaid income tax

  1   - 

Inventories

  (11,530)  8,934 

Other current assets

  (2,118)  72 

Operating right of use asset

  476   381 

Accounts payable

  10,966   (3,889)

Accrued liabilities

  (2,730)  (3,082)

Lease liability

  (512)  (427)

Net cash used in operating activities

  (1,350)  (14,882)

Investing activities:

 

  

 

Purchase of property, plant and equipment

  (1,669)  (3,582)

Proceeds from disposal of equipment

  118   110 

Deposits for equipment

  (214)  (272)

Purchase of intangible assets

  (245)  (188)

Net cash used in investing activities

  (2,010)  (3,932)

Financing activities:

 

  

 

Principal payments of long-term debt and notes payable

  (7,336)  (2,227)

Proceeds from line of credit borrowings

  76,903   66,742 

Repayments of line of credit borrowings

  (69,988)  (50,119)

Proceeds from bank acceptance payable

  19,951   10,722 

Repayments of bank acceptance payable

  (17,292)  (20,206)

Principal payments of financing lease

  (9)  (9)

Exercise of stock options

  -   8 

Payments of tax withholding on behalf of employees related to share-based compensation

  (227)  (402)

Proceeds from common stock offering, net

  -   15,336 

Net cash provided by financing activities

  2,002   19,845 

Effect of exchange rate changes on cash

  872   (646)

Net decrease in cash, cash equivalents and restricted cash

  (486)  385 

Cash, cash equivalents and restricted cash at beginning of period

  41,136   50,114 

Cash, cash equivalents and restricted cash at end of period

 $40,650  $50,499 

Supplemental disclosure of cash flow information:

      

Cash paid for:

      

Interest, net of amounts capitalized

 $2,616  $2,394 

Income taxes

  -   1 

Non-cash investing and financing activities:

      

Extinguishment of Debt and interest

  -   (6,299)

Net change in accounts payable related to property and equipment additions

  (291)  (2,341)

Net change in deposits and prepaid for equipment related to property and equipment additions

  41   35 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

Applied Optoelectronics, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.   Description of Business​

Business Overview

Applied Optoelectronics, Inc. (“AOI” or the “Company”) is a Delaware corporation. The Company is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: cable television ("CATV"), internet data center, telecommunications ("telecom") and fiber-to-the-home ("FTTH"). The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.

The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. In the U.S., at its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components and performs research and development activities for laser component and optical module products. In addition, the Company also has a research and development facility in Duluth, Georgia. The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd. (“Prime World”, incorporated in the British Virgin Islands). Prime World operates a branch in Taipei, Taiwan, which primarily manufactures transceivers and performs research and development activities for the transceiver products. Prime World is also the parent of Global Technology, Inc. (“Global”, incorporated in the People’s Republic of China). Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies, as well as CATV systems and equipment, and performs research and development activities for the CATV products.

Interim Financial Statements

The unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and June 30, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes required by GAAP for annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates in the consolidated financial statements and accompanying notes. Significant estimates and assumptions that impact these financial statements and the accompanying notes relate to, among other things, allowance for credit losses, inventory reserve, product warranty costs, share-based compensation expense, estimated useful lives of property and equipment, and taxes.

 

Note 2.  Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies for the three and six months ended June 30, 2022, as compared to the significant accounting policies described in its 2021 Annual Report, except as described below.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Yet to be Adopted

 

To date, there have been no recent accounting pronouncement not yet effective that have significance, or potential significance, to our Consolidated Financial Statements. 

 

8

 
 

Note 3.  Revenue Recognition

Disaggregation of Revenue

Revenue is classified based on the location where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note 17, "Geographic Information.”

 

Revenue is also classified by major product category and is presented below (in thousands):

  

Three months ended June 30,

 

     

% of

      

% of

 

 

2022

  

Revenue

  

2021

  

Revenue

 

CATV

 $23,713   45.4% $27,599   51.0%

Data Center

  21,497   41.1%  22,392   41.3%

Telecom

  6,276   12.0%  3,333   6.2%

FTTH

  27   0%  298   0.5%

Other

  786   1.5%  567   1.0%

Total Revenue

 $52,299   100.0% $54,189   100.0%

  

Six months ended June 30,

 

     

% of

      

% of

 

 

2022

  

Revenue

  

2021

  

Revenue

 

CATV

 $48,694   46.7% $46,238   44.5%

Data Center

  42,911   41.0%  48,331   46.5%

Telecom

  11,541   11.0%  7,811   7.5%

FTTH

  124   0.1%  722   0.7%

Other

  1,270   1.2%  788   0.8%

Total Revenue

 $104,540   100.0% $103,890   100.0%

 

 

 

Note 4.  Leases

The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the right of use ("ROU") asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.

The components of lease expense were as follows for the periods indicated (in thousands):

 

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2022

  

2021

  

2022

  

2021

 

Operating lease expense

 $293  $304  $598  $606 

Financing lease expense

  8   8   16   16 

Short Term lease expense

  17   5   21   14 

Total lease expense

 $318  $317  $635  $636 

 

Maturities of lease liabilities are as follows for the future one-year periods ending  June 30, 2022 (in thousands):

   Operating   Financing 

2023

 $1,241  $22 

2024

  1,204   54 

2025

  1,157    

2026

  1,168    

2027

  1,108    

2028 and thereafter

  2,165    

Total lease payments

 $8,043  $76 

Less imputed interest

  (818)  (4)

Present value

 $7,225  $72 

 

9

 

The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:

  

Six months ended June 30,

 

 

2022

  

2021

 

Weighted Average Remaining Lease Term (Years) - operating leases

  6.67   7.84 

Weighted Average Remaining Lease Term (Years) - financing leases

  1.33   2.33 

Weighted Average Discount Rate - operating leases

  3.22%  3.23%

Weighted Average Discount Rate - financing leases

  5.00%  5.00%

 

 

Supplemental cash flow information related to operating leases was as follows for the periods indicated (in thousands):

 

  

Six months ended June 30,

 

 

2022

  

2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

Operating cash flows from operating leases

  622   653 

Operating cash flows from financing lease

  2   3 

Financing cash flows from financing lease

  9   9 

Right-of-use assets obtained in exchange for new operating lease liabilities

  -   109 

 

Note 5.  Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):

 

  

June 30,

  

December 31,

 

 

2022

  

2021

 

Cash and cash equivalents

 $33,667  $34,656 

Restricted cash

  6,983   6,480 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 $40,650  $41,136 

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances required for certain credit facilities. As of June 30, 2022 and December 31, 2021, there was $4.8 million and $3.0 million of restricted cash required for bank acceptance notes issued to vendors, respectively. In addition, there was $0.3 million and $2.4 million certificate of deposit associated with credit facilities with a bank in China as of June 30, 2022 and December 31, 2021, respectively. There was $1.8 million and $1.0 million guarantee deposits for customs duties as of  June 30, 2022 and December 31, 2021, respectively.

 

Note 6.  Earnings (Loss) Per Share

Basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from stock options, restricted stock units and senior convertible notes outstanding during the period. In periods with net losses, normally dilutive shares become anti-dilutive. Therefore, basic and diluted loss per share are the same.

The following table sets forth the computation of the basic and diluted net loss per share for the periods indicated (in thousands):

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2022

  

2021

  

2022

  

2021

 

Numerator:

 

  

  

  

 

Net loss

 $(14,456) $(8,203) $(30,518) $(23,825)

Denominator:

 

   

   

   

  

Weighted average shares used to compute net loss per share

 

   

   

   

  

Basic

  27,612   26,850   27,537   26,637 

Diluted

  27,612   26,850   27,537   26,637 

Net loss per share

 

   

   

   

  

Basic

 $(0.52) $(0.31) $(1.11) $(0.89)

Diluted

 $(0.52) $(0.31) $(1.11) $(0.89)

 

The following potentially dilutive securities were excluded from the diluted net loss per share as their effect would have been antidilutive (in thousands):

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2022

  

2021

  

2022

  

2021

 

Employee stock options

  

__

   4   __   8 

Restricted stock units

  

__

   9   __   14 

Shares for convertible senior notes

  4,587   4,587   4,587   4,587 

Total antidilutive shares

  4,587   4,600   4,587   4,609 

10

 
 

Note 7.  Inventories

Inventories, net of inventory write-downs, consist of the following for the periods indicated (in thousands):

 

June 30, 2022

  

December 31, 2021

 

Raw materials

 $36,596  $29,469 

Work in process and sub-assemblies

  50,446   41,528 

Finished goods

  11,139   21,519 

Total inventories

 $98,181  $92,516 

The lower of cost or market adjustment expensed for inventory for the three months ended June 30, 2022 and 2021 was $0.4 million and $1.3 million, respectively. The lower of cost or market adjustment expensed for inventory for the six months ended June 30, 2022 and 2021 was $2.4 million and $2.2 million, respectively.

 

For the three months ended June 30, 2022 and 2021, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $1.8 million and $4.8 million, respectively. For the six months ended June 30, 2022 and 2021, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $2.7 million and $10.8 million, respectively.

 

Note 8.  Property, Plant & Equipment

Property, plant and equipment consisted of the following for the periods indicated (in thousands):

 

June 30, 2022

  

December 31, 2021

 

Land improvements

 $806  $806 

Building and improvements

  87,118   89,698 

Machinery and equipment

  256,414   266,386 

Furniture and fixtures

  5,491   5,658 

Computer equipment and software

  12,144   12,727 

Transportation equipment

  703   726 

  362,676   376,001 

Less accumulated depreciation and amortization

  (171,735)  (167,772)

  190,941   208,229 

Construction in progress

  32,307   33,705 

Land

  1,101   1,101 

Total property, plant and equipment, net

 $224,349  $243,035 

For the three months ended June 30, 2022 and 2021, the depreciation expense of property, plant and equipment was $5.7 million and $6.3 million, respectively. For the six months ended June 30, 2022 and 2021, the depreciation expense of property, plant and equipment was $11.7 million and $12.6 million, respectively. For the three months ended June 30, 2022 and 2021, the capitalized interest was $0.1 million and $0.2 million, respectively. For the six months ended June 30, 2022 and 2021, the capitalized interest was $0.2 million and $0.3 million, respectively.

 

As of June 30, 2022, the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360-10-35-21,Property, Plant, and Equipment.  The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded. 

 

 

Note 9.  Intangible Assets, net

Intangible assets consisted of the following for the periods indicated (in thousands):

  

June 30, 2022

 

 

Gross

  

Accumulated

  

Intangible

 

 

Amount

  

amortization

  

assets, net

 

Patents

 $8,781  $(5,041) $3,740 

Trademarks

  42   (19)  23 

Total intangible assets

 $8,823  $(5,060) $3,763 

 

  

December 31, 2021

 

 

Gross

  

Accumulated

  

Intangible

 

 

Amount

  

amortization

  

assets, net

 

Patents

 $8,597  $(4,779) $3,818 

Trademarks

  35   (17)  18 

Total intangible assets

 $8,632  $(4,796) $3,836 

For the three months ended June 30, 2022 and 2021, amortization expense for intangible assets, included in general and administrative expenses on the income statement, was each $0.2 million. For the six months ended June 30, 2022 and 2021, the amortization expense for intangible assets, was each $0.3 million. The remaining weighted average amortization period for intangible assets is approximately 6 years.

 

11

 

At June 30, 2022, future amortization expense for intangible assets for future one year periods is estimated to be (in thousands):

 

2023

 $611 

2024

  611 

2025

  611 

2026

  611 

2027

  611 

2028

  611 

thereafter

  97 
  $3,763 

 

 

Note 10.  Fair Value of Financial Instruments​

The following table represents a summary of the Company’s financial instruments measured at fair value on a recurring basis for the periods indicated (in thousands):

  

As of June 30, 2022

  

As of December 31, 2021

 

 

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Assets:

 

  

  

  

  

  

  

  

 

Cash and cash equivalents

 $33,667  $  $  $33,667  $34,656  $  $  $34,656 

Restricted cash

  6,983         6,983   6,480        $6,480 

Note receivable

     212      212      8,148      8,148 

Total assets

 $40,650  $212  $  $40,862  $41,136  $8,148  $  $49,284 

Liabilities:

 

  

  

  

  

  

  

  

 

Bank acceptance payable

 $  $10,273  $  $10,273  $  $8,198  $   8,198 

Convertible senior notes

     68,667      68,667      67,588      67,588 

Total liabilities

 $  $78,940  $  $78,940  $  $75,786  $  $75,786 

The carrying value amounts of accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value because of the short-term maturity of these instruments. The carrying value amounts of bank acceptances approximate fair value due to the short-term nature of the debt since it renews frequently at current interest rates. The Company believes that the interest rates in effect at each period end represent the current market rates for similar borrowings.

 

The fair value of its convertible senior debt is measured for disclosure purpose. The fair value is based on observable market prices for this debt, which is traded in less active markets and are therefore classified as a Level 2 fair value measurement.

 

Note 11.  Notes Payable and Long-Term Debt

Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):

  

June 30, 2022

  

December 31, 2021

 

Revolving line of credit with a U.S. bank up to $20,000 with interest at 2.56% , maturing April 15, 2023

 $17,038  $14,373 

Notes payable to a finance company due in monthly installments with 3.1% interest, matured January 21, 2022

  -   170 

Revolving line of credit with a China bank up to $25,449 with interest from 2.8% to 4.57%, maturing May 24, 2024

  19,651   19,595 

Credit facility with a China bank up to $29,800 with interest of 2.6%~4.8%, maturing June 6, 2027

  16,885   13,044 

Credit facility with a China bank up to $7,167 with interest of 5.7%, matured June 27, 2022

  -   7529 

Sub-total

  53,574   54,711 

Less debt issuance costs, net

  (9)  (22)

Grand total

  53,565   54,689 

Less current portion

  (53,565)  (49,689)

Non-current portion

 $-  $5,000 
       
       

Bank Acceptance Notes Payable

 

  

 

Bank acceptance notes issued to vendors with a zero percent interest rate

 $10,273  $8,198 

 

12

 

The current portion of long-term debt is the amount payable within one year of the balance sheet date of June 30, 2022.

Maturities of long-term debt are as follows for the future one-year periods ending June 30, (in thousands):

Within one year

 $53,565 

Beyond one year

  - 

Total outstanding

 $53,565 

On September 28, 2017, the Company entered into a Loan Agreement (“Loan Agreement”), a Promissory Note, an Addendum to the Promissory Note, a Truist Bank Security Agreement, a Trademark Security Agreement, and a Patent Security Agreement (together the “Credit Facility”) with Truist Bank. The Company’s obligations under the Credit Facility are secured by the Company’s accounts receivable, inventory, intellectual property, and all business assets with the exception of real estate and equipment.

On  December 29, 2021, the Company executed a Sixth Amendment to the Loan Agreement (the "Sixth Amendment") and a Fifth Amendment to Security Agreement, a Note Modification Agreement, and an Addendum to Promissory Note (together the "Sixth Amended Credit Facility") with Truist Bank. The Sixth Amended Credit Facility extends the $20 million line of credit, originally entered into on  September 28, 2017, until  April 15, 2023. Borrowings will bear interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 1.56%, with a SOFR floor of 0.75%. As of June 30, 2022, the Company had $17 million of outstanding borrowings and was in compliance with all covenants under the Sixth Amended Credit Facility.

 

On September 15, 2020, Prime World entered into an Amendment to the Finance Lease Agreements dated November 29, 2018 and January 21, 2019 (the “Amendment”) with Chailease Finance Co., Ltd. (“Chailease”). The Amendment amends the Finance Lease Agreements, dated November 29, 2018 and January 21, 2019 (hereafter collectively referred to as the “Original Finance Agreements”). Pursuant to the Amendment, Prime World agrees to pay Chailease NT$22,311,381, or approximately $0.8 million for certain leased equipment listed in the Amendment (the “Leased Equipment”). This payment includes all outstanding lease payments, costs and expenses; simultaneously, Chailease agrees to transfer title of such Leased Equipment back to Prime World. Regarding all other equipment contemplated in the Original Finance Agreements but not listed in the Amendment, pursuant to the terms and conditions made under the Original Finance Agreements, Prime World is obligated to pay Chailease monthly lease payments which total NT$159,027,448, or approximately $5.5 million (the “Lease Payments”). The Lease Payments began on September 21, 2020 with the last Lease Payment due on January 21, 2022, title of all other equipment contemplated under the Original Finance Agreements but not listed in the Amendment transferred to Prime World upon completion of the Lease Payments and expiration of the Original Finance Agreements. As of June 30, 2022, the Company has fully repaid the Original Finance Agreements and Amendment.
 

On May 24, 2019, the Company’s China subsidiary, Global, entered into a five-year revolving credit line agreement, totaling 180,000,000 RMB (the “SPD Credit Line”), or approximately $25.4 million, and a mortgage security agreement (the “Security Agreement”), with Shanghai Pudong Development Bank Co., Ltd ("SPD"). Borrowing under the SPD Credit Line will be used for general corporate and capital investment purposes, including the issuance of bank acceptance notes to Global’s vendors. The total SPD Credit Line of 180 million RMB is inclusive of all credit facilities previously entered into with SPD including: a 30 million RMB credit facility entered into on May 7, 2019; and a 9.9 million RMB credit facility entered into on April 30, 2019 and $2 million credit facility entered into on May 8, 2019. Global may draw upon the SPD Credit Line on an as-needed basis at any time during the 5-year term; however, draws under the SPD Credit Line may become due and repayable to SPD at SPD’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will bear interest equal to SPD’s commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the SPD Credit Line will be secured by real property owned by Global and mortgaged to the Bank under the terms of the Security Agreement. As of June 30, 2022, $19.7 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $4.2 million.

 

On June 21, 2019, the Company’s China subsidiary, Global, entered into an 18 month credit facility totaling 100,000,000 RMB (the “¥100M Credit Facility”), or approximately $14.1 million, with China Zheshang Bank Co., Ltd., in Ningbo City, China (“CZB”). Borrowing under the ¥100M Credit Facility will be used by Global for general corporate purposes. On January 6, 2021, the ¥100M Credit Facility with CZB was extended for three (3) years until January 5, 2024. Global may draw upon the ¥100M Credit Facility from June 21, 2019 until January 5, 2024 (the “¥100M Credit Period”). The Company repaid and replaced this loan agreement on June 7, 2022.

 

On June 7, 2022, the Company's China Subsidiary, Global, entered a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a five-year credit line agreement, totaling 200,000,000 RMB (the "¥200M Credit Facility"), or approximately $29.9 million. Global may draw upon the ¥200M Credit Facility between June 7, 2022 and June 6, 2027 (" ¥200M Credit Period"). During the ¥200M Credit Period, Global may request to draw upon the ¥200M Credit Facility on an as-needed basis; however, draws under the ¥200M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will be facilitated by a separate credit agreement specifying the terms of each draw and will bear interest equal to the Bank's commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ¥200M Credit Facility will be secured by real property owned by Global and mortgaged to CZB under the terms of the Real Estate Security Agreement. As of June 30, 2022, $16.9 million was outstanding under the ¥200M Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was $6.1 million.

On June 21, 2019, the Company’s China subsidiary, Global, entered into a three-year credit facility totaling 50,000,000 RMB (the “¥50M Credit Facility”), or approximately $7.1 million, with CZB. Borrowing under the ¥50M Credit Facility will be used by Global for general corporate purposes. Global may draw upon the ¥50M Credit Facility from June 21, 2019 until June 20, 2022 (the “¥50M Credit Period”). During the ¥50M Credit Period, Global may request to draw upon the ¥50M Credit Facility on an as-needed basis; however, draws under the ¥50M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will bear interest equal to CZB’s commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ¥50M Credit Facility will be secured by machinery and equipment owned by Global and mortgaged to CZB under the terms of the Machinery and Equipment Security Agreement. As of June 30, 2022, the Company has fully repaid the ¥50M Credit Facility.

As of June 30, 2022 and December 31, 2021, the Company had $14.8 million and $7.4 million of unused borrowing capacity respectively

 

As of June 30, 2022 and December 31, 2021, there was $5.1 million and $5.4 million of restricted cash, investments or security deposits associated with the loan facilities, respectively.

13

 
 

Note 12.  Convertible Senior Notes

On March 5, 2019, the Company issued $