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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from __________ to __________

Commission File Number: 001-36083

Applied Optoelectronics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

76-0533927

(State or other jurisdiction of incorporation or organization)

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

13139 Jess Pirtle Blvd.

Sugar Land, TX 77478

(Address of principal executive offices)

(281295-1800

(Registrant’s telephone number)

 

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

 

Title of each class

Trading Symbol(s)

Trading Name of each exchange on which registered

Common Stock, Par value $0.001

AAOI

NASDAQ Global Market

 

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

 

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

 

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

 

 

 

Large accelerated filer

☐ 

Accelerated filer

 

Non-accelerated filer

☐ 

Smaller reporting company

 

 

  

Emerging growth company

 

 

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

 

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

 

As of July 30, 2021 there were 27,141,368 shares of the registrant’s Common Stock outstanding.

 

 

 

 

Applied Optoelectronics, Inc.

Table of Contents

   

Page

Part I. Financial Information

   

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

   

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020

3

   

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2021 and 2020 (Unaudited)

4

   

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months ended June 30, 2021 and 2020 (Unaudited)

5

   

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2021 and 2020 (Unaudited)

6

   

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2021 and 2020 (Unaudited)

7

   

 

 

Notes To Condensed Consolidated Financial Statements (Unaudited)

8

   

 

Item 2.

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

25

   

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

   

 

Item 4.

Controls and Procedures

34

   

 

Part II. Other Information

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

35

 

Signatures

37

 

 

 

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

  

June 30,

  

December 31,

 

 

2021

  

2020

 

ASSETS

 

  

 

Current Assets

 

  

 

Cash and cash equivalents

 $44,013  $43,425 

Restricted cash

  6,486   6,689 

Accounts receivable - trade, net of allowance of $62 and $62, respectively

  48,404   43,042 

Notes receivable

  3,819   401 

Inventories

  100,399   110,397 

Prepaid income tax

  2   2 

Prepaid expenses and other current assets

  5,101   5,213 

Total current assets

  208,224   209,169 

Property, plant and equipment, net

  246,797   252,984 

Land use rights, net

  5,846   5,854 

Operating right of use asset

  7,503   7,729 

Financing right of use asset

  73   88 

Intangible assets, net

  3,888   3,999 

Other assets, net

  813   982 

TOTAL ASSETS

 $473,144  $480,805 

LIABILITIES AND STOCKHOLDERS' EQUITY

    

 

Current liabilities

 

    

Current portion of notes payable and long-term debt

 $41,876  $38,265 

Accounts payable

  25,593   29,482 

Bank acceptance payable

  6,469   15,860 

Current lease liability - operating

  1,020   1,012 

Current lease liability - financing

  18   18 

Accrued liabilities

  15,509   18,511 

Total current liabilities

  90,485   103,148 

Notes payable and long-term debt, less current portion

  19,360   13,904 

Convertible senior notes

  78,264   77,854 

Non-current lease liability - operating

  7,672   7,926 

Non-current lease liability - financing

  72   82 

TOTAL LIABILITIES

  195,853   202,914 

Stockholders' equity:

 

  

 

Preferred Stock; 5,000 shares authorized at $0.001 par value; no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

  -   - 

Common Stock; 45,000 shares authorized at $0.001 par value; 26,919 and 25,110 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

  27   25 

Additional paid-in capital

  375,312   354,685 

Accumulated other comprehensive income

  14,286   11,690 

Accumulated deficit

  (112,334)  (88,509)

TOTAL STOCKHOLDERS' EQUITY

  277,291   277,891 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $473,144  $480,805 

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

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2021

  

2020

  

2021

  

2020

 

Revenue, net

 $54,189  $65,222  $103,890  $105,689 

Cost of goods sold

  43,411   51,486   82,393   85,615 

Gross profit

  10,778   13,736   21,497   20,074 

Operating expenses

 

  

  

  

 

Research and development

  10,914   10,803   21,842   21,361 

Sales and marketing

  2,832   3,430   5,792   6,366 

General and administrative

  10,681   10,611   21,550   21,249 

Total operating expenses

  24,427   24,844   49,184   48,976 

Loss from operations

  (13,649)  (11,108)  (27,687)  (28,902)

Other income (expense)

 

  

  

  

 

Interest income

  16   47   32   194 

Interest expense

  (1,367)  (1,489)  (2,798)  (2,944)

Other income (expense), net

  6,797   974   6,628   1,231 

Total other income (expense), net

  5,446   (468)  3,862   (1,519)

Loss before income taxes

  (8,203)  (11,576)  (23,825)  (30,421)

Income tax expense

  -   (7,024)  -   (4,976)

Net loss

 $(8,203) $(18,600) $(23,825) $(35,397)

Net loss per share

 

  

  

  

 

Basic

 $(0.31) $(0.89) $(0.89) $(1.72)

Diluted

 $(0.31) $(0.89) $(0.89) $(1.72)

 

  

  

  

 

Weighted average shares used to compute net loss per share:

 

  

  

  

 

Basic

  26,850,032   20,858,450   26,636,755   20,533,417 

Diluted

  26,850,032   20,858,450   26,636,755   20,533,417 

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

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 

Three months ended June 30,

  

Six months ended June 30,

 

 

2021

  

2020

  

2021

  

2020

 

Net loss

 $(8,203) $(18,600) $(23,825) $(35,397)

Gain/ (Loss) on foreign currency translation adjustment

  3,630   1,454   2,596   (948)

Comprehensive loss

 $(4,573) $(17,146) $(21,229) $(36,345)

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

 

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Six Months ended June 30, 2021 and 2020

(Unaudited, in thousands)

                 Accumulated       

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

March 31, 2021

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

Public offering of common stock, net

        35      262         262 

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

        97      (144)        (144)

Share-based compensation

              3,274         3,274 

Foreign currency translation adjustment

                 3,630      3,630 

Net loss

                    (8,203)  (8,203)

June 30, 2021

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

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

March 31, 2020

    $   20,249  $20  $306,305  $(1,972) $(46,854) $257,499 

Public offering of common stock, net

        1,578   2   14,002         14,004 

Stock options exercised, net of shares withheld for employee tax

              3         3 

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

        113      (207)        (207)

Share-based compensation

              3,302         3,302 

Foreign currency translation adjustment

                 1,454      1,454 

Net loss

                    (18,600)  (18,600)

June 30, 2020

    $   21,940  $22  $323,405  $(518) $(65,454) $257,455 

 

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Accumulated

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

deficit

  

equity

 

January 1, 2021

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

Public offering of common stock, net

        1,546   2   15,228         15,230 

Stock options exercised, net of shares withheld for employee tax

        2      8         8 

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

        261      (402)        (402)

Share-based compensation

              5,793         5,793 

Foreign currency translation adjustment

                 2,596      2,596 

Net loss

                    (23,825)  (23,825)

June 30, 2021

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

 

  

  

  

  

  

  

Accumulated

  

  

 

 

Preferred Stock

  

Common Stock

  

Additional

  

other

  

  

 

 

Number

  

  

Number

  

  

paid-in

  

comprehensive

  

Retained

  

Stockholders'

 

 

of shares

  

Amount

  

of shares

  

Amount

  

capital

  

gain (loss)

  

earnings

  

equity

 

January 1, 2020

    $   20,140  $20  $303,401  $430  $(30,057) $273,794 

Public offering of common stock, net

        1,582   2   13,928         13,930 

Stock options exercised, net of shares withheld for employee tax

              3         3 

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

        218      (467)        (467)

Share-based compensation

              6,540         6,540 

Foreign currency translation adjustment

                 (948)     (948)

Net loss

                    (35,397)  (35,397)

June 30, 2020

    $   21,940  $22  $323,405  $(518) $(65,454) $257,455 

 

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

 

 

 

Applied Optoelectronics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

  

Six months ended June 30,

 

 

2021

  

2020

 

Operating activities:

 

  

 

Net loss

 $(23,825) $(35,397)

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

  

 

Provision for losses on accounts receivable

  -   1 

Lower of cost or market reserve adjustment to inventory

  2,211   2,924 

Depreciation and amortization

  12,870   12,154 

Amortization of debt issuance costs

  434   444 

Deferred income taxes, net

  -   5,147 

Loss on disposal of assets

  5   9 

Share-based compensation

  5,793   6,540 

Interest for Extinguishment of Debt

  (70)  - 

Extinguishment of Debt

  (6,229)  - 

Unrealized foreign exchange gain

  692   (134)

Changes in operating assets and liabilities:

      

Accounts receivable, trade

  (5,362)  (9,690)

Notes receivable

  (3,390)  (49)

Prepaid income tax

  -   13 

Inventories

  8,934   (15,362)

Other current assets

  72   (725)

Operating right of use asset

  381   300 

Accounts payable

  (3,889)  12,688 

Accrued liabilities

  (3,082)  (2,323)

Lease liability

  (427)  (309)

Net cash used in operating activities

  (14,882)  (23,769)

Investing activities:

 

  

 

Purchase of property, plant and equipment

  (3,582)  (6,759)

Proceeds from disposal of equipment

  110   52 

Deposits and prepaid for equipment

  (272)  (2,304)

Purchase of intangible assets

  (188)  (208)

Net cash used in investing activities

  (3,932)  (9,219)

Financing activities:

 

  

 

Proceeds from issuance of notes payable and long-term debt, net of debt issuance costs

  -   6,229 

Principal payments of long-term debt and notes payable

  (2,227)  (2,221)

Proceeds from line of credit borrowings

  66,742   52,637 

Repayments of line of credit borrowings

  (50,119)  (48,689)

Proceeds from bank acceptance payable

  10,722   14,080 

Repayments of bank acceptance payable

  (20,206)  (10,377)

Proceeds from issuance of convertible senior notes, net of debt issuance costs

  -   (16)

Principal payments of financing lease

  (9)  (8)

Exercise of stock options

  8   3 

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

  (402)  (466)

Proceeds from common stock offering, net

  15,336   13,929 

Net cash provided by financing activities

  19,845   25,101 

Effect of exchange rate changes on cash

  (646)  -232 

Net decrease in cash, cash equivalents and restricted cash

  385   (8,119)

Cash, cash equivalents and restricted cash at beginning of period

  50,114   67,028 

Cash, cash equivalents and restricted cash at end of period

 $50,499  $58,909 

Supplemental disclosure of cash flow information:

     

Cash paid (received) for:

     

Interest, net of amounts capitalized

 $2,394  $2,478 

Income taxes

  1   (192)

Non-cash investing and financing activities:

    

 

Extinguishment of Debt and interest

  (6,299)   

Purchase of property and equipment with line of credit borrowings

     941 

Net change in accounts payable related to property and equipment additions

  (2,341)  (785)

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

  35   1,327 

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

 

 

Applied Optoelectronics, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.   Description of Business​

Business Overview

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

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

Interim Financial Statements

The unaudited condensed consolidated financial statements of the Company as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and June 30, 2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes required by GAAP for annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

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

8

 
 

Note 2.  Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies for the three and six months ended June 30, 2021, as compared to the significant accounting policies described in its 2020 Annual Report, except as described below.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Yet to be Adopted

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 was further amended in January 2021 by ASU 2021-01, which clarified the applicability of certain provisions. Both ASU 2020-04 and AUC 2021-01 are currently effective prospectively for all entities through December 31, 2022 when the reference rate replacement activity is expected to have completed. The guidance in ASU 2020-04 and AUC 2021-01 is optional and may be elected over time as reference rate reform activities occur. As of June 30, 2021, the Company is evaluating the impact this standard may have on its consolidated financial statements. 

 

In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20)” and “Derivatives and Hedging - Contracts in Entities Own Equity” (Subtopic 815-40). This ASU simplifies accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that requires separating embedded conversion features from convertible instruments. The guidance is effective for fiscal years beginning after December 15, 2021. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements. 

 

In November 2020, the SEC issued a new rule that modernizes and simplifies various aspects and financial disclosure requirements in Regulation S-K, specifically related to Item 301 “Selected Financial Data”, Item 302 “Supplementary Financial Information” and Item 303 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). The intent of this new rule is to (i) eliminate duplicative disclosures, (ii) enhance and promote more principles-based MD&A disclosures with the objective of making them more meaningful for investors, all while (iii) simplifying the compliance requirements and efforts for registrants, by providing them with the flexibility to present management’s perspective on the registrant’s financial condition and results of operations. While most of the changes involve reducing or eliminating previously required information and disclosures, the rule does expand the disclosure requirements surrounding certain aspects of the various items in Regulation S-K discussed above. The final rule was published in the Federal Register on January 11, 2021, is effective thirty days after its publication date, or February 10, 2021, and registrants are required to comply with this final rule in the registrant’s first fiscal year ending on or after the date that is 210 days after the publication date. The Company plans to comply with the new disclosure requirements on schedule and currently does not anticipate any material financial impact in complying with these new requirements.

 

 

 

Note 3.  Revenue Recognition

Disaggregation of Revenue

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

9

 

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

  

Three months ended June 30,

 

     

% of

      

% of

 

 

2021

  

Revenue

  

2020

  

Revenue

 

Data Center

 $22,392   41.3% $52,533   80.5%

CATV

  27,599   50.9%  6,141   9.4%

Telecom

  3,333   6.2%  6,170   9.5%

FTTH

  298   0.5%  1   0.0%

Other

  567   1.0%  377   0.6%

Total Revenue

 $54,189   100.0% $65,222   100.0%

  

Six months ended June 30,

 

     

% of

      

% of

 

 

2021

  

Revenue

  

2020

  

Revenue

 

Data Center

 $48,331   46.5% $85,797   81.2%

CATV

  46,238   44.5%  10,364   9.8%

Telecom

  7,811   7.5%  8,730   8.3%

FTTH

  722   0.7%  1   0.0%

Other

  788   0.8%  797   0.8%

Total Revenue

 $103,890   100.0% $105,689   100.0%

 

 

 

Note 4.  Leases

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

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

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

 

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2021

  

2020

  

2021

  

2020

 

Operating lease expense

 $304  $296  $606  $591 

Financing lease expense

  8   8   16   16 

Short Term lease expense

  5   37   14   69 

Total lease expense

 $317  $341  $636  $676 

 

10

 

Maturities of lease liabilities are as follows for the future one-year periods ending  June 30, 2021 (in thousands):

   Operating   Financing 

2022

 $1,285  $22 

2023

  1,308   22 

2024

  1,274   54 

2025

  1,235    

2026

  1,233    

2027 and thereafter

  3,486    

Total lease payments

 $9,821  $98 

Less imputed interest

  (1,129)  (8)

Present value

 $8,692  $90 

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

  

Six months ended June 30,

 

 

2021

  

2020

 

Weighted Average Remaining Lease Term (Years) - operating leases

  7.84   8.65 

Weighted Average Remaining Lease Term (Years) - financing leases

  2.33   3.33 

Weighted Average Discount Rate - operating leases

  3.23%  3.16%

Weighted Average Discount Rate - financing leases

  5.00%  5.00%

 

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

 

  

Six months ended June 30,

 

 

2021

  

2020

 

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

Operating cash flows from operating leases

  653   640 

Operating cash flows from financing lease

  3   3 

Financing cash flows from financing lease

  9   8 

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

  109   261 

 

 

Note 5.  Cash, Cash Equivalents and Restricted Cash

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

 

  

June 30,

  

December 31,

 

 

2021

  

2020

 

Cash and cash equivalents

 $44,013  $43,425 

Restricted cash

  6,486   6,689 

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

 $50,499  $50,114 

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances required for certain credit facilities. As of June 30, 2021 and December 31, 2020, there was $2.2 million and $4.9 million of restricted cash required for bank acceptance notes issued to vendors, respectively. In addition, there was $2.4 million and $0.5 million certificate of deposit associated with credit facilities with a bank in China as of June 30, 2021 and December 31, 2020, respectively. There was $1.8 million and $1.0 million guarantee deposits for customs duties as of  June 30, 2021 and December 31, 2020, respectively.

11

 
 

Note 6.  Earnings (Loss) Per Share

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

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

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2021

  

2020

  

2021

  

2020

 

Numerator:

 

  

  

  

 

Net loss

 $(8,203) $(18,600) $(23,825) $(35,397)

Denominator:

 

  

  

  

 

Weighted average shares used to compute net loss per share

 

  

  

  

 

Basic

  26,850   20,858   26,637   20,533 

Diluted

  26,850   20,858   26,637   20,533 

Net loss per share

 

  

  

  

 

Basic

 $(0.31) $(0.89) $(0.89) $(1.72)

Diluted

 $(0.31) $(0.89) $(0.89) $(1.72)

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

  

Three months ended June 30,

  

Six months ended June 30,

 

 

2021

  

2020

  

2021

  

2020

 

Employee stock options

  4   11   8   13 

Restricted stock units

  9   10   14   13 

Shares for convertible senior notes

  4,587   4,587   4,587   4,587 

Total antidilutive shares

  4,600   4,608   4,609   4,613 

 

 

Note 7.  Inventories

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

 

June 30, 2021

  

December 31, 2020

 

Raw materials

 $29,085  $25,555 

Work in process and sub-assemblies

  46,558   52,544 

Finished goods

  24,756   32,298 

Total inventories

 $100,399  $110,397 

The lower of cost or market adjustment expensed for inventory for the three months ended June 30, 2021 and 2020 was each $1.3 million. The lower of cost or market adjustment expensed for inventory for the six months ended June 30, 2021 and 2020 was $2.2 million and $2.9 million, respectively. 

 

For the three months ended June 30, 2021 and 2020, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $4.8 million and $3.7 million, respectively. For the six months ended June 30, 2021 and 2020, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $10.8 million and $6.2 million, respectively. 

12

 
 

Note 8.  Property, Plant & Equipment

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

 

June 30, 2021

  

December 31, 2020

 

Land improvements

 $806  $806 

Building and improvements

  89,127   88,280 

Machinery and equipment

  259,651   253,738 

Furniture and fixtures

  5,607   5,540 

Computer equipment and software

  12,610   11,912 

Transportation equipment

  710   699 

  368,511   360,975 

Less accumulated depreciation and amortization

  (155,507)  (142,434)

  213,004   218,541 

Construction in progress

  32,692   33,342 

Land

  1,101   1,101 

Total property, plant and equipment, net

 $246,797  $252,984 

For the three months ended June 30, 2021 and 2020, the depreciation expense of property, plant and equipment was $6.3 million and $6.0 million, respectively. For the six months ended June 30, 2021 and 2020, the depreciation expense of property, plant and equipment was $12.6 million and $11.9 million, respectively. For the three months ended June 30, 2021 and 2020, the capitalized interest was $0.2 million and 0.1 million, respectively. For the six months ended June 30, 2021 and 2020, the capitalized interest was $0.3 million and $0.2 million, respectively.

 

As of June 30, 2021, the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360-10-35-21,Property, Plant, and Equipment.  The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded. 

 

 

 

Note 9.  Intangible Assets, net

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

  

June 30, 2021

 

 

Gross

  

Accumulated

  

Intangible

 

 

Amount

  

amortization

  

assets, net

 

Patents

 $8,362  $(4,480) $3,882 

Trademarks

  22   (16)  6 

Total intangible assets

 $8,384  $(4,496) $3,888 

  

December 31, 2020

 

 

Gross

  

Accumulated

  

Intangible

 

 

Amount

  

amortization

  

assets, net

 

Patents

 $8,158  $(4,165) $3,993 

Trademarks

  21   (15)  6 

Total intangible assets

 $8,179  $(4,180) $3,999 

For the three and six months ended June 30, 2021 and 2020, amortization expense for intangible assets, included in general and administrative expenses on the income statement, was each $0.1 million. The remaining weighted average amortization period for intangible assets is approximately 6 years.

 

At June 30, 2021, future amortization expense for intangible assets is estimated to be (in thousands):

 

2022

 $609 

2023

  609 

2024

  609 

2025

  609 

2026

  609 

thereafter

  843 
  $3,888 

 

13

 
 

Note 10.  Fair Value of Financial Instruments​

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

  

As of June 30, 2021

  

As of December 31, 2020

 

 

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Assets:

 

  

  

  

  

  

  

  

 

Cash and cash equivalents

 $44,013  $  $  $44,013  $43,425  $  $  $43,425 

Restricted cash

  6,486        $6,486   6,689        $6,689 

Note receivable

     3,819      3,819   -   401      401 

Total assets

 $50,499  $3,819  $  $54,318  $50,114  $401  $  $50,515 

Liabilities:

 

  

  

  

  

  

  

  

 

Bank acceptance payable

 $  $6,469  $  $6,469  $  $15,860  $   15,860 

Convertible senior notes

     70,265      70,265      70,225      70,225 

Total liabilities

 $  $76,734  $  $76,734  $  $86,085  $  $86,085 

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

 

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

 

 

Note 11.  Notes Payable and Long-Term Debt

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

  

June 30, 2021

  

December 31, 2020

 

Revolving line of credit with a U.S. bank up to $20,000 with interest at 2.25% , maturing October 15, 2022

 $19,360  $18,700 

Paycheck Protection Program Term Note with interest at fixed rate 1.0%, maturing April 16, 2022

     6,229 

Revolving line of credit with a Taiwan bank up to $3,436 with 2.2% interest, maturing April 14, 2021