Quarterly Report (10-q)
14 August 2019 - 10:17PM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarterly Period Ended June 30, 2019
Or
|
|
o
|
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 001–34529
STR Holdings, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware
|
|
27–1023344
|
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
|
|
10 Water Street, Enfield, Connecticut
|
|
06082
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(860) 272–4235
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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
x
NO
o
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
x
NO
o
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
o
|
|
Accelerated filer
o
|
|
|
|
|
|
Non–accelerated filer
o
|
|
Smaller reporting company
x
|
|
|
|
Emerging growth company
o
|
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.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b–2 of the Exchange Act). YES
o
NO
x
At July 31, 2019, there were 20,152,029 shares of Common Stock
outstanding.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STR Holdings, Inc. and Subsidiaries
Three and Six Months Ended June 30, 2019
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STR Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
All amounts in thousands except share and per share amounts
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,969
|
|
|
$
|
5,639
|
|
Accounts receivable, trade, less allowances for doubtful accounts of $2,955 and
$2,163 in 2019 and 2018, respectively
|
|
|
1,450
|
|
|
|
2,261
|
|
|
Inventories, net
|
|
|
1,150
|
|
|
|
1,808
|
|
|
Prepaid expenses
|
|
|
689
|
|
|
|
501
|
|
|
Other current assets
|
|
|
532
|
|
|
|
642
|
|
|
Total current assets
|
|
|
5,790
|
|
|
|
10,851
|
|
|
Property, plant and equipment, net
|
|
|
11,616
|
|
|
|
10,887
|
|
|
Assets held for sale (Note 6)
|
|
|
5,336
|
|
|
|
5,336
|
|
|
Other long-term assets
|
|
|
87
|
|
|
|
75
|
|
|
Total assets
|
|
$
|
22,829
|
|
|
$
|
27,149
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,195
|
|
|
$
|
2,218
|
|
|
Accrued liabilities (Note 7)
|
|
|
1,806
|
|
|
|
1,348
|
|
|
Income taxes payable
|
|
|
903
|
|
|
|
900
|
|
|
Due to factor
|
|
|
209
|
|
|
|
374
|
|
|
Total current liabilities
|
|
|
4,113
|
|
|
|
4,840
|
|
|
Long-term debt
|
|
|
2,274
|
|
|
|
—
|
|
|
Deferred tax liabilities
|
|
|
—
|
|
|
|
306
|
|
|
Total liabilities
|
|
|
6,387
|
|
|
|
5,146
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 8)
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 20,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01 par value, 200,000,000 shares authorized; 20,153,269 and 20,152,029 issued and outstanding, respectively, in 2019 and 20,153,269 and
20,152,029 issued and outstanding, respectively, in 2018
|
|
|
201
|
|
|
|
201
|
|
|
Treasury stock, 1,240 shares at cost
|
|
|
(57
|
)
|
|
|
(57
|
)
|
|
Additional paid–in capital
|
|
|
232,345
|
|
|
|
232,345
|
|
|
Accumulated deficit
|
|
|
(210,265
|
)
|
|
|
(204,832
|
)
|
|
Accumulated other comprehensive loss, net
|
|
|
(5,782
|
)
|
|
|
(5,654
|
)
|
|
Total stockholders’ equity
|
|
|
16,442
|
|
|
|
22,003
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
22,829
|
|
|
$
|
27,149
|
|
See accompanying notes to these condensed consolidated financial
statements.
STR Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited)
All amounts in thousands except share and per share amounts
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
|
$
|
1,701
|
|
|
$
|
2,515
|
|
|
$
|
3,518
|
|
|
$
|
6,261
|
|
|
Cost of sales
|
|
|
2,613
|
|
|
|
3,490
|
|
|
|
5,442
|
|
|
|
5,935
|
|
|
Gross (loss) profit
|
|
|
(912
|
)
|
|
|
(975
|
)
|
|
|
(1,924
|
)
|
|
|
326
|
|
|
Selling, general and administrative expenses
|
|
|
1,225
|
|
|
|
1,380
|
|
|
|
2,562
|
|
|
|
3,072
|
|
|
Research and development expense
|
|
|
189
|
|
|
|
190
|
|
|
|
383
|
|
|
|
405
|
|
|
Provision for bad debt expense
|
|
|
486
|
|
|
|
67
|
|
|
|
790
|
|
|
|
6
|
|
|
Operating loss
|
|
|
(2,812
|
)
|
|
|
(2,612
|
)
|
|
|
(5,659
|
)
|
|
|
(3,157
|
)
|
|
Interest (expense) income, net
|
|
|
(11
|
)
|
|
|
16
|
|
|
|
(12
|
)
|
|
|
15
|
|
|
Other (expense) income, net
|
|
|
(44
|
)
|
|
|
183
|
|
|
|
(69
|
)
|
|
|
1,203
|
|
|
Gain (loss) on disposal of fixed assets
|
|
|
1
|
|
|
|
(383
|
)
|
|
|
1
|
|
|
|
(383
|
)
|
|
Foreign currency transaction gain (loss)
|
|
|
71
|
|
|
|
(106
|
)
|
|
|
—
|
|
|
|
(162
|
)
|
|
Loss before income tax (benefit) expense
|
|
|
(2,795
|
)
|
|
|
(2,902
|
)
|
|
|
(5,739
|
)
|
|
|
(2,484
|
)
|
|
Income tax (benefit) expense
|
|
|
(218
|
)
|
|
|
172
|
|
|
|
(306
|
)
|
|
|
271
|
|
|
Net loss
|
|
$
|
(2,577
|
)
|
|
$
|
(3,074
|
)
|
|
$
|
(5,433
|
)
|
|
$
|
(2,755
|
)
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (net of tax effect of
$16, $(81), $(17) and $(36), respectively)
|
|
|
(9
|
)
|
|
|
(542
|
)
|
|
|
(128
|
)
|
|
|
(88
|
)
|
|
Other comprehensive loss
|
|
|
(9
|
)
|
|
|
(542
|
)
|
|
|
(128
|
)
|
|
|
(88
|
)
|
|
Comprehensive loss
|
|
$
|
(2,586
|
)
|
|
$
|
(3,616
|
)
|
|
$
|
(5,561
|
)
|
|
$
|
(2,843
|
)
|
|
Net loss per share (Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
|
Weighted–average shares outstanding (Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,152,029
|
|
|
|
19,669,353
|
|
|
|
20,152,029
|
|
|
|
19,607,204
|
|
|
Diluted
|
|
|
20,152,029
|
|
|
|
19,669,353
|
|
|
|
20,152,029
|
|
|
|
19,607,204
|
|
See accompanying notes to these condensed consolidated financial
statements.
STR Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
All amounts in thousands
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,433
|
)
|
|
|
$$(2,755
)
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
422
|
|
|
|
383
|
|
|
Stock–based compensation expense
|
|
|
—
|
|
|
|
161
|
|
|
(Gain) loss on disposal of property, plant and equipment
|
|
|
(1
|
)
|
|
|
383
|
|
|
Provision for bad debt expense
|
|
|
790
|
|
|
|
6
|
|
|
(Benefit) provision for deferred taxes
|
|
|
(306
|
)
|
|
|
271
|
|
|
Customer forfeiture of deposit
|
|
|
—
|
|
|
|
(940
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
15
|
|
|
|
(637
|
)
|
|
Inventories, net
|
|
|
653
|
|
|
|
(269
|
)
|
|
Other current assets
|
|
|
108
|
|
|
|
860
|
|
|
Accounts payable
|
|
|
(1,293
|
)
|
|
|
244
|
|
|
Accrued liabilities
|
|
|
460
|
|
|
|
67
|
|
|
Income taxes payable
|
|
|
3
|
|
|
|
4
|
|
|
Other, net
|
|
|
88
|
|
|
|
150
|
|
|
Total net cash used in operating activities
|
|
|
(4,494
|
)
|
|
|
(2,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital investments
|
|
|
(1,230
|
)
|
|
|
(36
|
)
|
|
Proceeds from sale of fixed assets
|
|
|
1
|
|
|
|
238
|
|
|
Total net cash (used in) provided by investing activities
|
|
|
(1,229
|
)
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
2,228
|
|
|
|
—
|
|
|
Factoring arrangement
|
|
|
(161
|
)
|
|
|
(46
|
)
|
|
Total net cash provided by (used in) financing activities
|
|
|
2,067
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(14
|
)
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(3,670
|
)
|
|
|
(1,789
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,639
|
|
|
|
13,499
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,969
|
|
|
$
|
11,710
|
|
See accompanying notes to these 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 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, as amended on April 26, 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 June 30,
2019, the Company had working capital of approximately $1,677, approximately $400 in outstanding commitments for capital expenditures,
and approximately $1,969 of cash available to fund its operations. In March 2019, the Company’s Spanish subsidiary entered
into a term loan in the principal amount of €2,000 (approx. $2,274 as of June 30, 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 $1,969 and its projected 2019 cash flow pursuant to management’s
plans (which includes the completion of the sale of the Company’s Malaysian facility by the end of the fiscal year), management
believes it will have adequate resources to fund operations and capital expenditures for at least the next 12 months. If the Company
is unable to timely complete the sale of its Malaysia facility or execute its strategic plans, its liquidity and capital resources
will be adversely affected and the Company may wind down or cease any or all of its 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.
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 2—SIGNIFICANT ACCOUNTING POLICIES
Revenue is principally derived from the sale and licensing of highly
engineered plastic sheet and film products. 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 (collectively, the “Original 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 Technology and 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 Original Agreements. In all obligations, the Company determined it was acting
in the role of principal and therefore revenue is recognized on a gross basis.
On July 29, 2019 the Company entered into certain new agreements
with respect to the Original Agreements. See Note 18.
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 PER SHARE
The calculation of basic and diluted net loss per share for the periods
presented is as follows:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,577
|
)
|
|
$
|
(3,074
|
)
|
|
$
|
(5,433
|
)
|
|
$
|
(2,755
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted–average shares outstanding
|
|
|
20,152,029
|
|
|
|
19,669,353
|
|
|
|
20,152,029
|
|
|
|
19,607,204
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Dilutive effect of restricted common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted–average shares outstanding with
dilution
|
|
|
20,152,029
|
|
|
|
19,669,353
|
|
|
|
20,152,029
|
|
|
|
19,607,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.14
|
)
|
Due to the net loss for the three and six months ended June 30,
2019 and 2018, 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 each of the three
and six months ended June 30, 2019 and 2018.
NOTE 4—INVENTORIES
Inventories consist of the following:
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Finished goods
|
|
$
|
155
|
|
|
$
|
544
|
|
|
Raw materials
|
|
|
1,123
|
|
|
|
1,274
|
|
|
Reserve
|
|
|
(128
|
)
|
|
|
(10
|
)
|
|
Inventories, net
|
|
$
|
1,150
|
|
|
$
|
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.
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 5—LONG–LIVED ASSETS (Continued)
At June 30, 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 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 June 30, 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, effective
August 2, 2015, that included the closure of its Johor, Malaysia facility. 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.
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 $5,336, after realtor fees, as of June
30, 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 Johor Port Authority. The agreement further provides that if the closing did not occur within six months either party may
terminate the agreement, however the Company and the buyer have agreed 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 June 30, 2019 and December 31, 2018
as assets held for sale.
NOTE 7—ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Salaries and wages
|
|
$
|
343
|
|
|
$
|
181
|
|
|
Accrued bonus
|
|
|
500
|
|
|
|
326
|
|
|
Professional fees
|
|
|
362
|
|
|
|
238
|
|
|
Restructuring severance and benefits (see Note 9)
|
|
|
89
|
|
|
|
102
|
|
|
Environmental (see Note 8)
|
|
|
57
|
|
|
|
57
|
|
|
Accrued franchise tax
|
|
|
136
|
|
|
|
164
|
|
|
Client deposits
|
|
|
197
|
|
|
|
224
|
|
|
Other
|
|
|
122
|
|
|
|
56
|
|
|
Total accrued liabilities
|
|
$
|
1,806
|
|
|
$
|
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
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 8—COMMITMENTS AND CONTINGENCIES (Continued)
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.
The Company’s product performance liability that is recorded
in accrued liabilities in the Condensed Consolidated Balance Sheets was $0 as of June 30, 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 June 30, 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 June 30, 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
(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 $89 for severance and benefits
as of June 30, 2019. A rollforward of the severance and other exit cost accrual activity is as follows:
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Balance as of beginning of year
|
|
$
|
102
|
|
|
$
|
87
|
|
|
Additions
|
|
|
—
|
|
|
|
722
|
|
|
Reductions
|
|
|
(13
|
)
|
|
|
(707
|
)
|
|
Balance as of end of period
|
|
$
|
89
|
|
|
$
|
102
|
|
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 June 30, 2019:
|
|
|
Financial assets and liabilities at fair value
as of June 30, 2019
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
758
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-recurring fair value measurements (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,336
|
|
|
Total
|
|
$
|
758
|
|
|
$
|
—
|
|
|
$
|
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.
|
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 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 $1,706 as of June 30, 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 June 30, 2019 and December 31, 2018 the Company has
recorded $209 and $374, respectively, as due to factor on the Condensed Consolidated Balance Sheets.
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 ($2,274 as of June 30, 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
During the three and six months ended June 30, 2019, the Company
recorded an income tax benefit of $218 and $306 resulting in an effective tax rate of 7.8% and 5.3%, respectively. This effective
tax rate for the three months ended June 30, 2019 differs from the U.S. statutory tax rate primarily due to the effect of taxes
on foreign earnings.
During the three and six months ended June 30, 2018, the Company
recorded an income tax expense of $172 and $271 resulting in an effective tax rate of (5.9%) and (10.9%), respectively. This effective
tax rate for the three months ended June 30, 2018 differs from the U.S. statutory tax rate primarily due to the effect of taxes
on foreign earnings.
NOTE 14—STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the six months ended June
30, 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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,433
|
)
|
|
|
(5,433
|
)
|
|
Foreign currency translation, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128
|
)
|
|
|
—
|
|
|
|
(128
|
)
|
|
Balance at June 30, 2019
|
|
|
20,152,029
|
|
|
$
|
201
|
|
|
|
1,240
|
|
|
$
|
(57
|
)
|
|
$
|
232,345
|
|
|
$
|
(5,782
|
)
|
|
$
|
(210,265
|
)
|
|
$
|
16,442
|
|
Common Stock
The Company’s Board of Directors has authorized 200,000,000
shares of common stock, $0.01 par value. At June 30, 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.
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 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 June 30, 2019.
The following table summarizes the options activity under the Company’s
2009 Plan for the six months ended June 30, 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 June 30, 2019
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.61
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
|
Vested and exercisable as of June 30, 2019
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.61
|
|
|
$
|
0.99
|
|
|
$
|
—
|
|
|
Vested and exercisable as of June 30, 2019 and expected to vest thereafter
|
|
|
1,121,332
|
|
|
$
|
1.52
|
|
|
|
5.61
|
|
|
$
|
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 $0.18 of the Company’s common stock on June 30, 2019
(to the extent that the closing stock price exceeds the exercise price).
As of June 30, 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 six months ended June 30, 2019.
Stock-based compensation expense was included in the following Condensed
Consolidated Statements of Comprehensive Loss categories for operations:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Selling, general and administrative expense
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
161
|
|
|
Total stock-based compensation expense
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
161
|
|
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 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.
Operations by Geographic Area
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spain
|
|
$
|
850
|
|
|
$
|
1,906
|
|
|
$
|
1,665
|
|
|
$
|
3,382
|
|
|
United States
|
|
|
532
|
|
|
|
131
|
|
|
|
988
|
|
|
|
1,945
|
|
|
India
|
|
|
319
|
|
|
|
478
|
|
|
|
865
|
|
|
|
904
|
|
|
China
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
Total Net Sales
|
|
$
|
1,701
|
|
|
$
|
2,515
|
|
|
$
|
3,518
|
|
|
$
|
6,261
|
|
Long-Lived Assets by Geographic Area
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,117
|
|
|
$
|
1,180
|
|
|
Spain
|
|
|
10,499
|
|
|
|
9,707
|
|
|
Total Long-Lived Assets
|
|
$
|
11,616
|
|
|
$
|
10,887
|
|
Foreign sales are based on the country in which the sales originated.
Net sales to three of the Company’s major customers that exceeded 10% of the Company’s consolidated net sales for the
three months ended June 30, 2019 were $830. Net sales to two of the Company’s major customers that exceeded 10% of the
Company’s consolidated net sales for the six months ended June 30, 2019 were $1,483. Net sales to four of the Company’s
major customers that exceeded 10% of the Company’s consolidated net sales for the three months ended June 30, 2018 were
$1,401. Net sales to two of the Company’s major customers that exceeded 10% of the Company’s consolidated net sales
for the six months ended June 30, 2018 were $1,444.
Accounts receivable from two customers amounted to $2,245 as of June
30, 2019 and accounts receivable from one customer amounted to $2,051 as of December 31, 2018.
NOTE 17—RELATED PARTY TRANSACTION
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 (the “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
(unaudited)
All amounts in thousands except share amounts, per share amounts or unless otherwise noted
NOTE 17—RELATED PARTY TRANSACTION (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.
NOTE 18—SUBSEQUENT EVENT
As noted herein, on January 16, 2018, the Company entered into the
Original Agreements with the Purchaser having an aggregate transaction price of $6,000. In connection therewith, the Purchaser
paid the Company $1,750 in the first quarter of 2018, following the Company’s satisfaction of the first performance milestone
relating to the delivery of certain licensed technology to the Purchaser. The Company and the Purchaser (the “Parties”)
then progressed to the satisfaction of another key milestone, qualification of the Company’s Encapsulants within Purchaser’s
solar modules, before proceeding to the purchase of the Equipment.
In the fourth quarter of 2018, the Purchaser entered into negotiations
with the Company aimed at converting the Original Agreements into a more customary supply arrangement, such that the Company, rather
than the Purchaser, would purchase the required Equipment and produce Encapsulants for purchase by the Purchaser. During this time,
the Parties substantially suspended their obligations under the Original Agreements while negotiations over terms of a new supply
agreement took place.
On July 29, 2019, the Parties entered into new agreements (the “New
Agreements”) which included: (i) the agreement by Purchaser of $2,000 due to the Company for work performed under the Original
Agreements prior to their suspension, which was received in July 2019, (ii) the termination of the Equipment Purchase Agreement
to effectively cancel any obligation of the Company to acquire Encapsulant manufacturing equipment for resale to the Purchaser,
(iii) the modification of the Technology License Agreement to preserve certain rights for the Purchaser to use the proprietary
Encapsulant developed for Purchaser, and (iv) the execution of a Supply Agreement (the “Supply Agreement”) for the
Company’s Encapsulant.
The Supply Agreement includes a take-or-pay provision under which
(i) the Purchaser must purchase a minimum quarterly volume or if not so purchased must compensate the Company for a percentage
of the value of the volume shortfall, and (ii) the Company must provide a minimum supply quantity or if not so provided must compensate
the Purchaser for added costs if required to obtain alternate sourcing. The Supply Agreement provides for a fixed price for Encapsulants
supplied during 2020, subject to certain performance criteria, then allows price to be adjusted quarterly based on increases or
decreases in the cost of raw materials. The term of the Supply Agreement is for a period of three years from commercial commencement
of the new production capacity, to be set up at the Company’s expense. The term of the Supply Agreement renews annually for
additional one-year periods unless cancelled by either Party. Commencement of the Supply Agreement is dependent upon completion
of the qualification testing of the Encapsulant, the Company’s purchase and installation of equipment to produce the Encapsulant,
and an initial-ramp up period. Assuming the satisfaction of these conditions, the Company anticipates commencing sales under the
Supply Agreement within one year. The Company expects that the initial cost of the Equipment and its installation will be approximately
$3,000. Based upon current pricing, which is subject to adjustment, the Company anticipates that the minimum revenue it will receive
under the Supply Agreement, if the Purchaser purchases its minimum requirements under this contract, will be approximately $5,000
per quarter. The Company cannot assure that it will be able to successfully qualify its Encapsulant or timely complete the purchase
and installation of the Equipment within budget, if at all. Even if successful in doing so, the Company cannot assure that it will
be able to successfully manufacture the Encapsulant for the Purchaser. The Company’s failure to so succeed could have a material
adverse effect its business and prospects.
|
Item 2.
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of the financial condition
and results of our operations should be read together with our Condensed Consolidated Financial Statements and the related Notes
to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking
statements, based on current expectations and related to future events and our future financial performance, that involve risks
and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result
of many factors, including those set forth under Item 1A,—Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2018.
Forward
-
Looking Statements
This Quarterly Report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to inherent risks and uncertainties.
These forward-looking statements present our current expectations and projections relating to our financial condition, results
of operations, plans, objectives, future performance and business and are based on assumptions that we have made in light of our
industrial experience and perceptions of historical trends, current conditions, expected future developments and other factors
management believes are appropriate under the circumstances. However, these forward-looking statements are not guarantees of future
performance or financial or operating results. Forward-looking statements include, but are not limited to, the statements regarding
the following: (1) incurring substantial losses for the foreseeable future, ability to achieve or sustain profitability in
the future and our ability to continue as a going concern; (2) the potential impact of pursuing strategic alternatives, restructuring
our business to align with our customers’ geography and our investment in and pursuit of new market opportunities in film
packaging products; (3) our historical reliance on a single product line and our pursuit of new market opportunities; (4)
that we will be able to achieve our anticipated revenue, earnings or payback from the production of packaging products; (5) that
we will receive the required approvals to complete the sale of our facility in Johor, Malaysia on a timely basis, if at all; (6) our
securing net sales to new customers, growing net sales to existing key customers and increasing our market share; (7) customer
concentration in our business and our relationships with and dependence on key customers; (8) the outsourcing arrangements
and reliance on third parties for the manufacture of a portion of our encapsulants; (9) technological changes in the solar
energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive
or obsolete; (10) competition; (11) excess capacity in the solar supply chain; (12) demand for solar energy in general
and solar modules in particular; (13) our operations in India and our assets in India and China being subject to significant
political and economic uncertainties; (14) limited legal recourse under the laws of India and China if disputes arise; (15) our
ability to adequately protect our intellectual property, particularly during the outsource manufacturing of our products; (16) our
lack of credit facility and our inability to obtain credit; (17) a significant reduction or elimination of government subsidies
and economic incentives or a change in government policies that promote the use of solar energy; (18) volatility in commodity
costs; (19) our customers’ financial profile causing additional credit risk on our accounts receivable; (20) our
dependence on a limited number of third-party suppliers for raw materials for our encapsulants and other significant materials
used in our process; (21) potential product performance matters and product liability; (22) our substantial international
operations; (23) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution
of revenues; (24) losses of financial incentives from government bodies in certain foreign jurisdictions; (25) our ability
to perform our supply agreement and modified-technology license agreement with our client; (26) that we will be able to obtain
the funding for the loan we have been preliminary approved for from the Spain Ministry of Industry, Commerce and Tourism; and (27)
the other risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and in subsequent periodic reports on Form 10-K, 10-Q and 8-K. You
are urged to carefully review and consider the disclosure found in our filings, which are available on http://www.sec.gov or http://www.strsolar.com.
Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, actual
results may vary materially from those projected in these forward-looking statements. We undertake no obligation to publicly update
any forward-looking statement contained in this Quarterly Report, whether as a result of new information, future developments or
otherwise, except as may be required by law.
Overview
STR Holdings, Inc. and its subsidiaries (“we”, “us”,
“our” or the “Company”) commenced operations in 1944 as a plastics and industrial materials research and
development company. Based upon our expertise in polymer science, we evolved into a global provider of encapsulants to the solar
industry. Our pioneering background in plastics also served as the foundation for a number of other plastics products we have manufactured
over the years and led to our recent entrance into the high-end food packaging business.
We were the first to develop ethylene-vinyl acetate (“EVA”)
based encapsulants for use in commercial solar module manufacturing. Our initial development effort was conducted while under contract
to the predecessor of the U.S. Department of Energy in the 1970s. Since that time, we have expanded our solar encapsulant business
by investing in research and development and global production capacity.
Recent Developments
Liquidity Needs.
We continue to incur substantial losses.
We incurred net losses of $5.4 million for the six months ended June 30, 2019 and $5.8 million for the year ended December 31,
2018. As of June 30, 2019, our principal source of liquidity was $2.0 million of cash. In addition, our credit facilities
are limited to our factoring arrangement in Spain and a €2.0 million economic development loan received in March 2019 from
the regional government of Asturias, Spain. Unless and until our operating results improve, we do not expect that we will be able
to obtain traditional bank debt. Furthermore, tight credit in the solar manufacturing industry may delay or prevent our customers
from securing funding adequate to operate their businesses and purchase our products and could lead to an increase in our bad debt
levels. We have recently entered into an agreement for the sale of our Johor, Malaysia facility for RM22.5 million (approximately
$5.3 million, after realtor fees, as of June 30, 2019). The sale is subject to customary closing conditions, including the timely
approval of the sale by the Johor Port Authority, and we cannot assure that we will be able to obtain the requisite approvals or
that the sale will take place on a timely basis, if at all. Our Spanish subsidiary, Specialized Technology Resources España,
S.A.U. (“STR Spain”), has received preliminary approval for a loan of approximately €2.6 million from the Spain
Ministry of Industry, Commerce and Tourism. If funding is received STR Spain expects to use the loan proceeds to help finance the
launch and operation of its food packaging products business. However, there can be no guarantee that the funding will be received
on favorable terms, or at all.
If we do not generate sufficient cash flows from operations or obtain
alternative or additional sources of capital to fund operations, we will not have sufficient liquidity to satisfy operating expenses,
capital expenditures and other cash needs. This raises substantial doubt about our ability to continue as a going concern. If we
are unable to timely complete the sale of our Malaysia facility or execute our strategic plans described in further detail herein,
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.
Supply Agreement and Technology License Agreement.
As previously disclosed, on January 16, 2018, we entered into an Equipment Purchase Agreement and a Technology License Agreement
(together, the “Original Agreements”) with a manufacturer of solar photovoltaic modules (the “Purchaser”)
having an aggregate transaction price of $6.0 million. Under the Equipment Purchase Agreement, we agreed to purchase from a third
party specialized equipment (the “Equipment”) for the production of one of our proprietary encapsulants (the “Encapsulant”),
resell the Equipment to the Purchaser, install the Equipment at a facility of the Purchaser and train the Purchaser’s personnel
in the Equipment’s use. Under the Technology License Agreement, we granted the Purchaser the right to use the formula for
the Encapsulant and certain of our production techniques to make or have made the Encapsulant for use in photovoltaic (PV) modules
manufactured by the Purchaser. In connection therewith, the Purchaser paid us $1.8 million in the first quarter of 2018, following
our satisfaction of the first performance milestone relating to the delivery of certain licensed technology to the Purchaser. We
and the Purchaser (the “Parties”) then progressed to the satisfaction of another key milestone, qualification of our
Encapsulants within Purchaser’s solar modules, before proceeding to the purchase of the Equipment.
In the fourth quarter of 2018, the Purchaser entered into negotiations
with us aimed at converting the Original Agreements into a more customary supply arrangement, such that we, rather than the Purchaser,
would purchase the required Equipment and produce Encapsulants for purchase by the Purchaser. During this time, the Parties substantially
suspended their obligations under the Original Agreements while negotiations over terms of a new supply agreement took place.
On July 29, 2019, the Parties entered into new agreements (the “New
Agreements”) which included: (i) the agreement by Purchaser of $2.0 million due to us for work performed under the Original
Agreements prior to their suspension, which was received in July 2019, (ii) the termination of the Equipment Purchase Agreement
to effectively cancel any of our obligations to acquire Encapsulant manufacturing equipment for resale to the Purchaser, (iii)
the modification of the Technology License Agreement to preserve certain rights for the Purchaser to use the proprietary Encapsulant
developed for Purchaser, and (iv) the execution of a Supply Agreement (the “Supply Agreement”) for our Encapsulant.
The Supply Agreement includes a take-or-pay provision under which
(i) the Purchaser must purchase a minimum quarterly volume or if not so purchased must compensate us for a percentage of the value
of the volume shortfall, and (ii) we must provide a minimum supply quantity or if not so provided must compensate the Purchaser
for added costs if required to obtain alternate sourcing. The Supply Agreement provides for a fixed price for Encapsulants supplied
during 2020, subject to certain performance criteria, then allows price to be adjusted quarterly based on increases or decreases
in the cost of raw materials. The term of the Supply Agreement is for a period of three years from commercial commencement of the
new production capacity, to be set up at our expense. The term of the Supply Agreement renews annually for additional one-year
periods unless cancelled by either Party. Commencement of the Supply Agreement is dependent upon completion of the qualification
testing of the Encapsulant, our purchase and installation of equipment to produce the Encapsulant, and an initial ramp up period.
Assuming the satisfaction of these conditions, we anticipate commencing sales under the Supply Agreement within one year.
We expect that the initial cost of the Equipment and its installation
will be $3.0 million. Based upon current pricing, which is subject to adjustment, we anticipate that the minimum revenue we will
receive under the Supply Agreement, if the Purchaser purchases its minimum requirements under this contract, will be approximately
$5.0 million per quarter. We cannot assure that we will be able to successfully qualify our Encapsulant or timely complete the
purchase and installation of the Equipment within budget, if at all. Even if successful in doing so, we cannot assure that we will
be able to successfully manufacture the Encapsulant for the Purchaser. Our failure to so succeed could have a material adverse
effect our business and prospects.
India Tolling Plan
. At the beginning of 2017, our manufacturing
operations in Asia were based in China. A review of our production records in China revealed that our sales volume had been shifting
to customers in India. As a result of this shift, and a fire that affected our China operations, we decided to wind down our manufacturing
operations in China in 2017 and subsequently entered into an agreement with a tolling partner in India. By the close of 2017, we
effectively completed the wind down process in China, with only a small administrative team remaining in an office under a short-term
lease, and commenced tolling operations in India. We sold our undamaged production line from our Chinese subsidiary, Specialized
Technology Resources Solar (Suzhou) Co. Ltd. (“STR China”), to our India tolling partner, and in 2018 we sold an additional
production line to the same partner to further increase its manufacturing capacity in India. The second line became operational
at the end of the third quarter of 2018.
Our approach to the solar business in India was deliberately “capital
lite” to avoid putting STR-owned physical assets at undue risk, which is why we elected to work through a tolling partner
rather than set up our own factory in India. The Indian solar market faces intense pricing pressure from Chinese imports, as is
the case in nearly all global solar markets, and is therefore subject to the associated risk that domestic manufacturers are overrun
by foreign competition. While India recently instituted a 25% safeguard duty on Chinese and Malaysian solar imports, the benefit
to domestic manufacturers may not be enough to counteract the entrenched foreign competition.
The competitive conditions prevalent in the Indian solar market have
resulted in slow payment for STR products from Indian manufacturers and credit risk that we are presently unwilling to accept.
Along with this economic reality, and also because of our unwillingness to accept orders on uncertain credit terms, our tolling
partner has informed us that they are no longer interested in cooperating with STR and intends to pursue the local market with
their own line of solar products.
Given this backdrop, we have made the decision to unwind our tolling
partnership and business in India and are presently working with our former partner to reconcile all related accounts including
the collection of outstanding accounts receivable and the settlement of amounts owed by such former tolling partner to STR for
equipment and inventory.
We continue to reorganize our business to better align with customer
geography, to reduce the cash burn related to unprofitable locations, to convert assets to cash for potential redeployment into
more profitable endeavors and possible business opportunities and to evaluate other strategic alternatives. We cannot assure that
any of these efforts will be successful.
High-End Food Packaging
. In the fourth quarter of 2017,
we initiated a significant investment through our wholly-owned subsidiary in Spain to enter the high-end food packaging business.
This investment, which leverages our plastics expertise, includes the purchase of new, state-of-the-art plastics processing equipment
and related building improvements along with the addition of experienced staff to pursue manufacturing and sales of high-end food
packaging products. The food packaging business is highly competitive, having market participants with substantially more resources
and experience than us. We are a new entrant in this market, face challenges in loading the equipment with sufficient orders and
cannot assure that we will be successful in this new endeavor.
This project was supported in part by insurance proceeds we received
for damage to our plastic manufacturing equipment that occurred in our China manufacturing facility in 2017. These insurance proceeds
were available to the Company only if we invested in new plastics manufacturing equipment. We were advised by our insurer that
our investment qualified for reimbursement under the terms of our policy and have received from them payments totaling approximately
$2.6 million. Of this reimbursement, $0.8 million was received in October 2017 and $1.8 million was received during 2018. To further
support this project, in March 2019, we obtained a €2.0 million loan from the Regional Promotion Society (“SRP”),
an agency of the government of Asturias, Spain. In addition, and as noted above, STR Spain has received preliminary approval for
a loan of approximately €2.6 million from the Spain Ministry of Industry, Commerce and Tourism which, if funding is received,
we expect to use to help finance the launch and operation of its food packaging products business. By the close of 2018, we had
substantially completed the necessary renovations to one of our buildings in Asturias, Spain, including the construction of a tower
required to accommodate our new equipment, as well as the installation and interconnection of a new, state-of-the-art multi-layer
blown film extrusion line. This facility and equipment is now fully operational and ready for scale-up for the production of barrier
film structures for the food packaging industry. During the last quarter, we have finalized the development of multiple competitive
film products, completed and passed the compulsory food safety testing, successfully made samples of each product type for distribution
to prospective customers and manufactured our first small production orders, which have reportedly run well on our customer’s
very high-speed food packaging equipment. Since installation, we have been focused on qualifying products and marketing and we
have not received any significant orders to date.
Changes in the U.S. Solar Landscape.
We believe that
recent changes in U.S. Trade Policy, including tariffs imposed on solar panels and encapsulants, under Section 301 of the U.S.
Trade Act of 1974, in combination with a reduction of the corporate income tax rate to 21% under the Tax Cuts and Jobs Act (“TCJA”),
have resulted in a more attractive business climate for solar manufacturing in the United States. We have experienced a four-fold
increase in encapsulant sales from our CT location for the six months ending June 30, 2019, as compared to the corresponding prior-year
period. We attribute this increase to more domestic production of solar panels driven in part by tariffs on imports and the more
internationally competitive corporate tax rate. Aside from those drivers, STR has continued to work with prospective customers
to evaluate new proprietary encapsulant products and anticipates that these efforts may also translate into additional demand moving
forward if and when these new products are ultimately qualified and selected. Tariffs, and tax rates under the TCJA, may change
and disrupt the trajectory of recent gains in sales from our CT location or otherwise deteriorate current conditions.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results
of operations are based upon our interim Condensed Consolidated Financial Statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these Condensed
Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
net sales and expenses, and related disclosures of contingent assets and liabilities. We continually evaluate our estimates, including
those related to bad debts, valuation of inventory, long-lived assets, product performance matters, income taxes, stock–based
compensation and deferred tax assets and liabilities. We base our estimates on historical experience and various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The accounting policies
we believe to be most critical to understand our financial results and condition and that require complex and subjective management
judgments are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical
Accounting Policies” in our Annual Report on Form 10–K filed with the Securities and Exchange Commission on March 27,
2019, as amended on April 26, 2019.
RESULTS OF OPERATIONS
Condensed Consolidated Results of Operations
The following tables set forth our condensed consolidated results
of operations for the three and six months ended June 30, 2019 and 2018:
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
|
$
|
1,701
|
|
|
$
|
2,515
|
|
|
$
|
3,518
|
|
|
$
|
6,261
|
|
|
Cost of sales
|
|
|
2,613
|
|
|
|
3,490
|
|
|
|
5,442
|
|
|
|
5,935
|
|
|
Gross (loss) profit
|
|
|
(912
|
)
|
|
|
(975
|
)
|
|
|
(1,924
|
)
|
|
|
326
|
|
|
Selling, general and administrative expenses
|
|
|
1,225
|
|
|
|
1,380
|
|
|
|
2,562
|
|
|
|
3,072
|
|
|
Research and development expense
|
|
|
189
|
|
|
|
190
|
|
|
|
383
|
|
|
|
405
|
|
|
Provision for bad debt expense
|
|
|
486
|
|
|
|
67
|
|
|
|
790
|
|
|
|
6
|
|
|
Operating loss
|
|
|
(2,812
|
)
|
|
|
(2,612
|
)
|
|
|
(5,659
|
)
|
|
|
(3,157
|
)
|
|
Interest (expense) income, net
|
|
|
(11
|
)
|
|
|
16
|
|
|
|
(12
|
)
|
|
|
15
|
|
|
Other (expense) income, net (Note 8)
|
|
|
(44
|
)
|
|
|
183
|
|
|
|
(69
|
)
|
|
|
1,203
|
|
|
Gain (loss) on disposal of fixed assets
|
|
|
1
|
|
|
|
(383
|
)
|
|
|
1
|
|
|
|
(383
|
)
|
|
Foreign currency transaction gain (loss)
|
|
|
71
|
|
|
|
(106
|
)
|
|
|
—
|
|
|
|
(162
|
)
|
|
Loss before income tax (benefit) expense
|
|
|
(2,795
|
)
|
|
|
(2,902
|
)
|
|
|
(5,739
|
)
|
|
|
(2,484
|
)
|
|
Income tax (benefit) expense
|
|
|
(218
|
)
|
|
|
172
|
|
|
|
(306
|
)
|
|
|
271
|
|
|
Net loss
|
|
$
|
(2,577
|
)
|
|
$
|
(3,074
|
)
|
|
$
|
(5,433
|
)
|
|
$
|
(2,755
|
)
|
Net Sales
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Net sales
|
|
$
|
1,701
|
|
|
|
100.0
|
%
|
|
$
|
2,515
|
|
|
|
100.0
|
%
|
|
$
|
(814
|
)
|
|
|
(32.4
|
)%
|
|
$
|
3,518
|
|
|
|
100.0
|
%
|
|
$
|
6,261
|
|
|
|
100.0
|
%
|
|
$
|
(2,743
|
)
|
|
|
(43.8
|
)%
|
The decrease in net sales for the three months ended June 30, 2019
compared to the corresponding period in 2018 was driven by an approximate 21% decrease in sales volume combined with a 15% decrease
in our average selling price (“ASP”).
The volume decline was primarily driven by a 54% decrease in Spain
due to the further weakening of the European module manufacturing environment, a 31% decrease in India due to unwinding our partnership
with our tolling partner there and a 100% decrease in volume in China, partially offset by volume increases to customers in the
U.S.
The decrease in net sales for the six months ended June 30, 2019
compared to the corresponding period in 2018 was driven by a $1.0 million reduction in encapsulant sales combined with $1.8 million
related to completed performance obligations under the Original Agreements that was recognized in 2018. The decrease in encapsulant
sales was primarily attributable to an approximate 8% decrease in sales volume, as well as a 15% decrease in our ASP, relating
to our discontinuance of lower-priced sales in China.
The volume decline was primarily driven by a 49% volume decrease
in Spain and a 100% volume decrease in China, partially offset by sales to customers in the U.S.
Cost of Sales
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Cost of sales
|
|
$
|
2,613
|
|
|
|
153.6
|
%
|
|
$
|
3,490
|
|
|
|
138.8
|
%
|
|
$
|
(807
|
)
|
|
|
(25.1
|
)%
|
|
$
|
5,442
|
|
|
|
154.7
|
%
|
|
$
|
5,935
|
|
|
|
94.8
|
%
|
|
$
|
(493
|
)
|
|
|
(8.3
|
)%
|
The decrease in our cost of sales for the three months ended June 30,
2019 compared to the corresponding period in 2018 was primarily driven by the 21% decrease in encapsulant sales volume combined
with a 1% decrease in raw material cost per unit. The lower raw material cost per unit was primarily driven by a 8% decrease in
resin costs, as well as a 6% decrease in paperless sales mix. Direct labor decreased by $0.4 million partially attributable to
the sales volume decrease in Spain. Overhead costs decreased by $0.3 million primarily due to continued cost-reduction actions.
The decrease in our cost of sales for the six months ended June 30,
2019 compared to the corresponding period in 2018 was primarily driven by the 8% decrease in encapsulant sales volume combined
with a 3% increase in raw material cost per unit. The higher raw material cost per unit was primarily driven by a 8% decrease in
paperless sales mix. Direct labor decreased by $0.5 million attributable to the sales volume decrease in Spain. Overhead costs
decreased by $0.4 million primarily due to continued cost-reduction actions.
Gross (Loss) Profit
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Gross (loss) profit
|
|
$
|
(912
|
)
|
|
|
(53.6
|
)%
|
|
$
|
(975
|
)
|
|
|
(38.8
|
)%
|
|
$
|
63
|
|
|
|
6.5
|
%
|
|
$
|
(1,924
|
)
|
|
|
(54.7
|
)%
|
|
$
|
326
|
|
|
|
5.2
|
%
|
|
$
|
(2,250
|
)
|
|
|
(690.2
|
)%
|
Gross loss, as a percentage of net sales, declined for the three
months ended June 30, 2019 compared to the corresponding period in 2018 mainly as a result of the decrease in encapsulant
sales volume combined with a decrease in paperless sales mix.
Gross (loss) profit as a percentage of net sales declined for the
six months ended June 30, 2019 compared to the corresponding period in 2018 mainly as a result of recognition of $1.8 million
related to completed performance obligations under the Original Agreements during 2018.
Selling, General and Administrative Expenses (“SG&A”)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
SG&A
|
|
$
|
1,225
|
|
|
|
72.0
|
%
|
|
$
|
1,380
|
|
|
|
54.9
|
%
|
|
$
|
(155
|
)
|
|
|
(11.2
|
)%
|
|
$
|
2,562
|
|
|
|
72.8
|
%
|
|
$
|
3,072
|
|
|
|
49.1
|
%
|
|
$
|
(510
|
)
|
|
|
(16.6
|
)%
|
SG&A decreased by $0.2 million for the three months ended June
30, 2019 compared to 2018. This decrease was primarily driven by a $0.1 million reduction in non-cash stock compensation expense
and a $0.1 million decrease in restructuring expense
SG&A decreased by $0.5 million for the six months ended June
30, 2019 compared to 2018. This decrease was primarily driven by a $0.2 million reduction in non-cash stock compensation expense,
a $0.1 million decrease in restructuring expense and a $0.1 million decrease in professional fees.
Research and Development Expense (“R&D”)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
R&D
|
|
$
|
189
|
|
|
|
11.1
|
%
|
|
$
|
190
|
|
|
|
7.6
|
%
|
|
$
|
(1
|
)
|
|
|
(0.5
|
)%
|
|
$
|
383
|
|
|
|
10.9
|
%
|
|
$
|
405
|
|
|
|
6.5
|
%
|
|
$
|
(22
|
)
|
|
|
(5.4
|
)%
|
Research and development expense decreased by less than $0.1 million
for the three and six months ended June 30, 2019 compared to 2018, mainly due to activities related to our entrance into
the packaging business in 2018.
Provision for Bad Debt Expense
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Provision for bad debt expense
|
|
$
|
486
|
|
|
|
28.6
|
%
|
|
$
|
67
|
|
|
|
2..7
|
%
|
|
$
|
419
|
|
|
|
625.4
|
%
|
|
$
|
790
|
|
|
|
22.5
|
%
|
|
$
|
6
|
|
|
|
0.1
|
%
|
|
$
|
784
|
|
|
|
13,066.7
|
%
|
The provision for bad debt expense for the three and six months ended
June 30, 2019 primarily related to the aging of accounts receivable under our policy, primarily in the U.S and India.
The recovery for bad debt expense recorded during the three months
ended June 30, 2018 primarily related to receiving cash for previously aged accounts receivable that were reserved for under
our policy, primarily in China. The provision for bad debt expense recorded during the six months ended June 30, 2018 primarily
related the aging of accounts receivable under our policy, primarily in the U.S. The provision was partially offset by receiving
cash for previously aged accounts receivable that were reserved for under our policy, primarily in China.
Other (Expense) Income, net
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Other (expense) income,
net
|
|
$
|
(44
|
)
|
|
|
(2.6
|
)%
|
|
$
|
183
|
|
|
|
7.3
|
%
|
|
$
|
(227
|
)
|
|
|
(124.0
|
)%
|
|
$
|
(69
|
)
|
|
|
(2.0
|
)%
|
|
$
|
1,203
|
|
|
|
19.2
|
%
|
|
$
|
(1,272
|
)
|
|
|
(105.7
|
)%
|
On March 27, 2018, following the approval of the Company’s
Special Committee of Continuing Directors, STR China entered into an agreement to terminate its Huhui Supply Agreement (the “Termination
Agreement”) with Zhangjianang Huhui Segpy Co. Ltd (“Huhui”). In connection with the supply agreement, Huhui had
provided us with an approximately $1.1 million deposit during the year ended December 31, 2015. 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. As a result of the Termination Agreement, we recorded other income of $1.0 million
during the first six months of 2018.
Foreign Currency Transaction (Loss) Gain
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Foreign currency transaction (loss) gain
|
|
$
|
71
|
|
|
|
4.2
|
%
|
|
$
|
(106
|
)
|
|
|
(4.2
|
)%
|
|
$
|
177
|
|
|
|
167.0
|
%
|
|
$
|
—
|
|
|
|
(0.0
|
)%
|
|
$
|
(162
|
)
|
|
|
(2.6
|
)%
|
|
$
|
162
|
|
|
|
100.0
|
%
|
The foreign currency transaction impact was a gain of $0.1 million
for the three months ended June 30, 2019 compared to a loss of $0.1 million for the three months ended June 30, 2018. This change
was primarily the result of volatility in the Euro spot exchange rate versus the U.S. dollar.
The foreign currency transaction impact was $0.0 million for the
six months ended June 30, 2019 compared to a loss of $0.2 million for the six months ended June 30, 2018.
Our primary foreign currency exposures are intercompany loans, U.S.
dollar cash balances in foreign locations and some U.S. dollar denominated accounts receivable at our Spain and China facilities.
Income Tax (Benefit) Expense
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Income tax (benefit) expense
|
|
$
|
(218
|
)
|
|
|
(12.8
|
)%
|
|
$
|
172
|
|
|
|
6.8
|
%
|
|
$
|
(390
|
)
|
|
|
(226.7
|
)%
|
|
$
|
(306
|
)
|
|
|
(8.7
|
)%
|
|
$
|
271
|
|
|
|
4.3
|
%
|
|
$
|
(577
|
)
|
|
|
(212.9
|
)%
|
During the three and six months ended June 30, 2019, we recorded
an income tax benefit of $0.2 million and $0.3 million, respectively, resulting in an effective tax rate of 7.8% and 5.3%, respectively.
This effective tax rate for the three months ended June 30, 2019 differs from the U.S. statutory tax rate primarily due to the
effect of taxes on foreign earnings.
During the three and six months ended June 30, 2018, we recorded
an income tax expense of $0.2 million and $0.3 million, respectively, resulting in an effective tax rate of (5.9%) and (10.9%),
respectively. This effective tax rate for the three months ended June 30, 2018 differs from the U.S. statutory tax rate primarily
due to the effect of taxes on foreign earnings.
Cost-Reduction Actions
On March 7, 2017 we made the decision to wind down our China manufacturing
operations substantially by the end of the second quarter of 2017. The decision was consistent with ongoing efforts to reorganize
our 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, we recorded $0.1 million
of severance charges during the first six months of 2017 and the first six months of 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, we eliminated certain positions at our Spain facility
effective June 18, 2018. We recorded $0.6 million of severance and benefits in cost of sales and $0.1 million of severance and
benefits in selling, general and administrative expenses during 2018.
A roll-forward of the severance and other exit cost accrual activity
was as follows:
|
|
|
June 30,
2019
|
|
June 30,
2018
|
|
Balance as of beginning of year
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Additions
|
|
|
—
|
|
|
|
0.7
|
|
|
Reductions
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
Balance as of end of period
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
The restructuring accrual consisted of $0.1 million and $0.1 million
for severance and benefits as of June 30, 2019 and 2018, respectively.
Financial Condition, Liquidity and Capital Resources
We continue to incur substantial losses. We incurred net losses of
$5.4 million and $5.8 million for the six months ended June 30, 2019 and for the year ended December 31, 2018, respectively. As
of June 30, 2019, our principal source of liquidity was $2.0 million of cash, of which $0.8 million was located in jurisdictions
outside of the United States. In addition, our credit facilities are limited to our factoring arrangement in Spain and a €2.0
million economic development loan received in March 2019 from the regional government of Asturias, Spain. Unless and until our
operating results improve, we do not expect that we will be able to obtain traditional bank financing. Furthermore, tight credit
in the solar manufacturing industry may delay or prevent our customers from securing funding adequate to operate their businesses
and purchase our products and could lead to an increase in our bad debt levels. We have entered into an agreement for the sale
of our Johor, Malaysia facility for RM22.5 million (approximately $5.3 million, after realtor fees, as of June 30, 2019). The sale
is subject to customary closing conditions, including the timely approval of the sale by the Johor Port Authority, and we cannot
assure that we will be able to obtain the requisite approvals or that the sale will take place on a timely basis, if at all. 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.
Our independent auditors have indicated in their report on our December
31, 2018 financial statements that there is substantial doubt about our ability to continue as a going concern. This “going
concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern
and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or
the amounts and classification of liabilities that may result if planned events do not occur or do not occur timely and we do not
continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of
proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders,
in the event of liquidation. If we are unable to continue as a going concern we cannot assure that any funds will be available
for distribution to stockholders.
Management has evaluated whether relevant conditions or events, considered
in the aggregate, indicate that there is substantial doubt about our ability to continue as a going concern. Substantial doubt
exists when conditions and events, considered in the aggregate, indicate it is probable that we will be unable to meet our 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 we do not generate sufficient cash flows from operations, complete
the sale of our Malaysian facility or obtain alternative or additional sources of capital to fund operations, we will not have
sufficient liquidity to satisfy operating expenses, capital expenditures and other cash needs. This raises substantial doubt about
our ability to continue as a going concern.
Our wholly owned Spanish subsidiary, STR Spain, has 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 & 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 €1.5 million
(approximately $1.7 million as of June 30, 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 agreement renews annually unless
terminated by either party with 90 days prior written notice. As of June 30, 2019, €0.2 million (approximately $0.2 million
as of June 30, 2019) was outstanding, and €1.3 million (approximately $1.5 million as of June 30, 2019) was available (subject
to receivables then outstanding) under the factoring agreement.
As noted above, on January 10, 2019 we entered into a Purchase and
Sale Agreement for our Malaysia facility, pursuant to which we would sell the facility to the buyer for RM22.5 million (approximately
$5.3 million, after realtor fees, as of June 30, 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 Johor Port Authority. The agreement further provides
that if the closing does not occur within six months, either party may terminate the agreement, however the Company and the buyer
agreed to extend the closing window an additional six months to allow for potential delays in obtaining the necessary approvals.
In the fourth quarter of 2017, the Company initiated a significant
investment through STR Spain to enter the high-end food packaging business. This investment, which leverages our plastics expertise,
includes the purchase of new, state-of-the-art plastics processing equipment and related building improvements along with the addition
of experienced staff to pursue manufacturing and sales of high-end food packaging products. We have received and applied certain
conditional insurance proceeds to this project, helping to offset our net capital investment. These insurance proceeds were available
to the Company only if we invested in new plastics manufacturing equipment. We were advised by our insurer that our investment
qualified for reimbursement under the terms of our policy and, accordingly, they have paid our U.S. entity the amount of $0.8 million
in October 2017, to cover the cost of the deposit for the primary capital equipment. Our U.S. entity also received an additional
$1.8 million reimbursement during 2018 as we continued to make qualifying capital investment under the packaging project.
On March 13, 2019, STR Spain also obtained a €2.0 million ($2.3
million as of June 30, 2019) loan (the “STR Spain Loan”) from the regional government of Asturias, Spain to further
support our entry into the high-end food packaging business. STR Spain is required to use the loan proceeds to help finance the
launch and operation of its food packaging products business. The STR Spain Loan matures on December 31, 2025, with principal due
and payable in equal quarterly installments of €0.1 million 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 us, as sole shareholder, without the prior approval of the lender. In connection with the STR Spain
Loan, we have also agreed to provide STR Spain with resources to support the loan and the continuity of the packaging initiative.
In addition, STR Spain has received preliminary approval for an additional loan of approximately €2.6 million from the Spain
Ministry of Industry, Commerce and Tourism which, if funded, we expect to use to help finance the launch and operation of its food
packaging products business. However, there can be no guarantee that the funding will be received on favorable terms, or at all.
We remain open to exploring possible business opportunities, alternate
geographic markets, as well as other strategic alternatives. We cannot assure that we will be able to successfully pursue any such
potential opportunities. If we are successful in pursuing any such opportunities, we may be required to expend significant funds,
incur debt or other obligations or issue additional securities, any of which could significantly dilute our current stockholders
and may negatively affect our operating results and financial condition. We cannot assure that any such strategic opportunities
or related transactions, or any financing in connection therewith, would be available on favorable terms, if at all, or that we
will realize any anticipated benefits from any such transactions that we complete. In the event that we are not successful in restructuring
our business or pursuing other strategic opportunities, we also intend to consider alternatives, including, without limitation,
the acquisition of another business, the divestiture of all or certain of our assets, joint ventures and other transactions outside
the ordinary course of business.
Our cash and cash equivalents balance is located in the following
geographies (dollars in thousands):
|
|
|
June 30, 2019
|
|
United States
|
|
$
|
1,219
|
|
|
Spain
|
|
|
376
|
|
|
China
|
|
|
213
|
|
|
Hong Kong
|
|
|
96
|
|
|
Malaysia
|
|
|
64
|
|
|
India
|
|
|
1
|
|
|
Consolidated
|
|
$
|
1,969
|
|
As noted above, due to, among other things, the difficulty repatriating
cash to the U.S., we may have limited access to the $0.2 million of cash located in China for use outside the country.
We do not permanently re-invest our Malaysia subsidiary’s earnings.
Based upon the Malaysia subsidiary’s liabilities to us, we expect the undistributed earnings of our Malaysia subsidiary will
be repatriated to the U.S. in a tax-free manner. We do not permanently re-invest our Spain earnings, so this cash balance is available
for dividend repatriation (less any applicable withholding taxes). We have not elected to permanently re-invest our Hong Kong and
China earnings and plan to utilize our cash located in Hong Kong and China to fund working capital requirements and wind down costs.
Our goal is to achieve and maintain self-sufficiency in each of our manufacturing locations to meet local cash requirements. We
cannot assure that we will continue to fund the manufacturing operations in any location, if such operations would require investment
of additional cash from other jurisdictions.
Cash Flows
Cash Flow from Operating Activities
Net cash used in operating activities was $4.5 million for the six
months ended June 30, 2019 compared to $2.1 million for the six months ended June 30, 2018. Net loss plus and minus non-cash
adjustments (“cash loss”) declined by approximately $2.0 million for the six months ended June 30, 2019 compared to
the same period in 2018. This decline was primarily driven by the receipt of the initial payment of $1.8 million under the Original
Agreements during 2018.
Cash Flow from Investing Activities
Net cash used in investing activities was $1.2 million and net cash
provided by investing activities was $0.2 million for the six months ended June 30, 2019 and 2018, respectively. We expect remaining
2019 consolidated capital expenditures to be approximately $2.4 million, of which $0.4 million is related to the high-end food
packaging equipment as well as cost reduction products and $2.0 million is related to the New Agreements.
Cash Flow from Financing Activities
Net cash provided by financing activities was $2.1 million and net
cash used in financing activities was less than $0.1 million for the six months ended June 30, 2019 and 2018, respectively,
primarily due to funds received by STR Spain related to the STR Spain loan in 2019.
Off
-
Balance Sheet Arrangements
We have no significant off-balance sheet financing arrangements.
Effects of Inflation
Inflation generally affects us by increasing costs of raw materials,
labor and equipment. During the first six months of 2019, we were not materially affected by inflation.
Recently Issued Accounting Standards
There are no new accounting pronouncements that we believe may have
an impact on our consolidated financial statements.
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We are not required to provide this Item 3 because we are a smaller
reporting company.
|
|
Item 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports to the Securities Exchange Act of 1934, as amended (“Exchange
Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and
that such information is accumulated and communicated to our management, including our Chairman, President and Chief Executive
Officer and our Vice President, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives.
As of June 30, 2019, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chairman, President and Chief Executive Officer and our
Vice President, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation,
our Chairman, President and Chief Executive Officer and our Vice President, Chief Financial Officer and Chief Accounting Officer
concluded that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second fiscal quarter of
our fiscal year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
From time to time, we are and have been a party to litigation that
arises in the ordinary course of our business.
In 2016, the Company filed suit against CEEG (Nanjing) Renewable
Energy Co., Ltd. (“NRE”), the parent company of our former customer CSUN in Nanjing Jiangning District People’s
Court, China (the “Nanjing Court”). In a hearing held on August 10, 2016, the Nanjing Court found NRE delinquent in
making payment against bona fide invoices dating back to April 2015 and ordered NRE to pay the Company the amount of RMB8.8 million
for encapsulant sold to CSUN, court fees, interest and attorney fees. Following the subsequent failure of NRE to pay according
to the order of the Nanjing Court, the Company initiated enforcement proceedings in the enforcement department of Nanjing Court
and ultimately agreed to accept installment payments managed through the Nanjing Court, the first of which came due on February
28, 2018 and remains unpaid. The Company has since filed an application for the resumption of enforcement, for which the Nanjing
Court has acknowledged receipt. The Nanjing Court has informed the Company that it will schedule another hearing to take further
actions against NRE and its Chairman, Mr. Lu Tingxiu, to compel NRE to pay the Company according to the court order currently in
force. The Company has been advised that it is highly unlikely that the Company will recover any of the funds due.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you
should carefully consider the factors discussed in Part I, “
Item 1A. Risk Factor
s” in our Annual Report on Form
10-K for the year ended December 31, 2018, as amended, which could materially affect our business, financial position and results
of operations. There have been no material changes to the risk factors as disclosed in Part I, “
Item 1A. Risk
Factors”
in our Annual Report on Form 10-K for the year ended December 31, 2018, as amended.
|
|
Item 5.
|
Other Information
|
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
STR HOLDINGS, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date: August 14, 2019
|
/s/
thomas d. vitro
|
|
|
Name:
|
Thomas D. Vitro
|
|
|
Title:
|
Vice President, Chief Financial Officer and Chief Accounting Officer
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
|
|
|
|
|
28
STR (CE) (USOTC:STRI)
Historical Stock Chart
From May 2024 to Jun 2024
STR (CE) (USOTC:STRI)
Historical Stock Chart
From Jun 2023 to Jun 2024
