TIDMPPIX
RNS Number : 3976T
ProPhotonix Limited
25 March 2021
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014. Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain.
March 25, 2021
ProPhotonix Limited
("ProPhotonix" or the "Company")
RESULTS FOR THE YEARED DECEMBER 31, 2020 and
NOTICE OF POSTING 2020 ANNUAL REPORT
ProPhotonix Limited (London Stock Exchange - AIM: PPIX, OTC:
STKR), a leading technology designer and manufacturer of LED
illumination systems and laser diode modules, today announces its
2020 financial results and notice of availability on the Company's
web site.
2020 Summary Results
Revenue for 2020 was $13.6 million (2019: $15.0 million) and
operating income was $0.6 million (2019: $1.1 million). Operating
income for 2019 includes a benefit of stock option compensation of
$1.2 million whereas operating income for 2020 includes a stock
option compensation charge of $58,000. Operating income and net
income for 2020 include the benefit of $0.5 million relating to
cost offsets from local government wage subsidy schemes in effect
as a result of Covid-19 whereas no such benefit existed in
2019.
Cash and cash equivalents at December 31, 2020 was $2.6 million
(2019: $1.5 million). The Company generated $2.1 million of cash
from its operating activities for the year ended December 31, 2020;
repaid net debt of $0.9 million; and increased the cash position by
$1.1 million from December 31, 2019. Detailed financial results and
notes follow.
Key metrics
-- Order bookings of $13.4 million (2019: $16.5 million)
-- Book-to-Bill ratio of 0.99 (2019: 1.09)
-- Percentage revenue by market sectors: 81% industrial, 18%
medical and 1% security & defense
(2019: 75% industrial, 23% medical and 2% security &
defense)
-- Percentage revenue by geography: 44% Europe, 54% North
America and 2% Rest of World
(2019: 37% Europe, 61% North America and 2% Rest of World)
Tim Losik, President & CEO, commented:
Financial
"Overall, we are pleased with the year 2020. Though our revenue
declined by 9%, largely from Covid-19, we were able to mitigate the
reduction with an outstanding result. Most importantly, cash ended
the year at $2.6 million, representing an increase of $1.1 million.
The balance sheet strengthened not only from the increase in cash
but also from a significant reduction in debt of $0.9 million. A
measure of this improvement is the current ratio which improved to
2.0 from 1.7. We look forward to the opportunity that the future
holds as we come through the pandemic to more prosperous times.
Product Development
"During 2020, we developed and announced new products including:
several variants of the MultiSpec product family addressing the
multispectral and hyperspectral industrial markets; a deep UV (UVC,
265 nanometer) FX product targeted to the biomedical and curing
markets; several variants of the Prodigii laser product family
(from UV to Near Infrared wavelengths) addressing the industrial
markets. Additionally, numerous OEM specific projects have been
undertaken to address specific applications and use cases for
existing and new customers. Product development, accomplished by
our experts at ProPhotonix, is focused on applications in growing
markets and OEM projects requiring unique attributes that are not
attainable in the general market. Specific use cases include
applications such as: Algae growth, eye health, railway inspection,
and 3D printing."
Covid-19
The outbreak of the COVID-19 pandemic and the measures adopted
by local governments to mitigate its spread impacted the Company
from March 2020 onwards. The outbreak of the pandemic caused the
Company to shut down its facilities for brief periods in 2020.
Risks in the supply chain became evident though to-date there have
been no substantial delays or negative consequences to the business
relating to the supply chain.
Posting of Results
The Company will publish and post its final audited results for
the year ended December 31, 2020 on or before June 30, 2021. The
Annual Report and Accounts will be available on the Company's
website on or before March 31, 2021, at www.prophotonix.com.
Trading update
Given the inherent uncertainties surrounding COVID-19, the Board
continues to believe it is inappropriate to provide forward looking
guidance to investors and analysts at the current time.
For further information:
ProPhotonix Limited
Tim Losik President and CEO
Tel: +1 603 893 8778
Email: ir@prophotonix.xom
WH Ireland Limited
Katy Mitchell Nominated Adviser and Broker
Matthew Chan Tel: +44 (0) 20 7220 1666
Cautionary Statement
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements
other than statements of historical fact, including without
limitation, those with respect to ProPhotonix's goals, plans and
strategies set forth herein are forward-looking statements. The
following important factors and uncertainties, among others, could
cause actual results to differ materially from those described in
these forward-looking statements: uncertainty that cash balances
may not be sufficient to allow ProPhotonix to meet all of its
business goals; uncertainty that ProPhotonix's new products will
gain market acceptance; the risk that delays and unanticipated
expenses in developing new products could delay the commercial
release of those products and affect revenue estimates; the risk
that one of our competitors could develop and bring to market a
technology that is superior to those products that we are currently
developing; and ProPhotonix's ability to capitalize on its
significant research and development efforts by successfully
marketing those products that the Company develops. Forward-looking
statements represent management's current expectations and are
inherently uncertain. All Company, brand, and product names are
trademarks or registered trademarks of their respective holders.
ProPhotonix undertakes no duty to update any of these
forward-looking statements.
Chief Executive Officer and Non-Executive Chairman
Statement:
Our business was not untouched by the outbreak of the COVID-19
pandemic in 2020 with our manufacturing plants in U.K. and Ireland
closed for several weeks during the year, our customers' operations
slowed as well and our revenue declined. As the breadth of the
pandemic became apparent, we took a series of measures to mitigate
the downside effect on our business. We cut back on operating costs
through temporary pay reductions and, in some cases, elimination of
certain personnel. We participated in government job retention
schemes and took advantage of other government support measures and
we deferred lease and loan payments where possible. These efforts
led to generating cash from operating activities and put us in a
position to make further investments in the business so that we may
achieve our objectives.
We operate a subsidiary in the United Kingdom (UK) with
implications relating to Brexit. In December 2020, the UK and the
European Union entered into a trade and cooperation agreement. The
agreement settles the uncertainty of trading between the two
geographies though still leaves considerable uncertainty regarding
the logistics and ease of movement of goods. During the period of
transition, January 1, 2020 to December 31, 2020, and early in the
first quarter of 2021 we have not experienced any substantive
operational issues relating to Brexit.
Financial Summary:
Revenue decreased by $1.4 million, or 9%, for the year ended
December 31, 2020 compared to the same period in 2019 and operating
income decreased by $0.5 million over the same two periods. The
decline in revenue was offset by significant reductions in
operating costs and the benefit of $0.5 million of local government
Covid-19 related support. Operating income for the year ended
December 31, 2019 includes a benefit of stock option compensation
of $1.2 million whereas operating income for the year ended
December 31, 2020 includes a charge of stock option compensation of
$58,000.
We generated $2.1 million of cash from our operating activities
for the year ended December 31, 2020; repaid net debt of $0.9
million; and increased the cash position by $1.1 million compared
to December 31, 2019. The net cash position (cash minus term debt
and capital leases) was positive $1.9 million at December 31, 2020
compared to negative $0.1 million at December 31 2019. We ended the
year with $2.6 million of cash and a current ratio of 2.0 compared
to 1.7 for the prior year.
Strategy:
The first part of our strategy relates to getting our operations
back up to the point where we can meet what we expect to be more
buying demand from our customers in 2021 and beyond. Our customer
relationships are vitally important and we provide solutions to
them to achieve their own market success. Their success fuels our
success and provides us the opportunity to develop new products and
market solutions for other customers and applications. The second
part of our strategy remains established in our OEM heritage as
well as the development of products directed at specific markets.
We have made and will continue to make investments in commercially
attractive OEM opportunities and product development including UV,
multi-wavelength devices and laser technology advances, in the
fulfillment of our strategies. We continue to concentrate our
engineering capacity in defined projects and areas that we believe
are poised for fast market expansion.
Respectfully submitted,
Tim Losik Ray Oglethorpe
President and Chief Executive Officer Non-Executive Chairman
PROPHOTONIX LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31 2020 2019
------------------------------------------------------------ ----------------- ---------
Assets
Current assets:
Cash and cash equivalents $ 2,641 $ 1,477
Accounts receivable, less allowances of $9 in 2020
and $10 in 2019 (Note 2) 2,216 2,801
Inventories, less allowances of $873 in 2020 and
$782 in 2019 (Note 3) 2,651 2,584
Prepaid expenses and other current assets 484 678
----------------- ---------
Total current assets 7,992 7,540
Net property, plant and equipment (Note 4) 512 573
Operating lease right-of-use asset (Note 13) 190 312
Goodwill (Note 5) 432 397
Intangible assets, net (Note 6) 458 377
Other long-term assets 129 166
----------------- ---------
Total assets $ 9,713 $ 9,365
================= =========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility (Note 7) $ - $ 912
Current portion of long-term debt (Note 7) 329 220
Accounts payable 1,460 1,941
Accrued payroll, benefits and incentive compensation 419 283
Deferred revenue (Note 15) 553 553
Accrued warranty expenses (Note 2) 168 164
Other accrued expenses 562 276
Operating lease liabilities, current (Note 13) 117 119
Current portion of finance lease obligations (Note
13) 43 58
----------------- ---------
Total current liabilities 3,651 4,526
Deferred revenue, noncurrent (Note 15) 409 227
Operating lease liabilities, noncurrent (Note 13) 73 193
Long term debt obligations, net of current portion
(Note 7) 346 387
Long term finance lease obligations, net of current
portion (Note 13) 23 40
----------------- ---------
Total liabilities 4,502 5,373
----------------- ---------
Stockholders' Equity:
Common stock, par value $0.001; shares authorized
250,000,000 at December 31, 2020 and 2019; 93,300,402
shares issued and outstanding at December 31, 2020
and 93,150,402 shares issued and outstanding at
December 31, 2019 93 93
Additional paid-in capital 112,894 112,838
Deferred compensation - (2)
Accumulated deficit (108,658) (109,750)
Accumulated other comprehensive income 882 813
----------------- ---------
Total stockholders' equity 5,211 3,992
----------------- ---------
Total liabilities and stockholders' equity $ 9,713 $ 9,365
================= =========
See the notes to consolidated financial statements.
PROPHOTONIX LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
(In thousands except share and per share data)
Years Ended December 31, 2020 2019
------------------------------------------------ ------------- -------------
Revenue $ 13,558 $ 14,976
Cost of revenue (7,862) (8,969)
------------- -------------
Gross profit 5,696 6,007
------------- -------------
Research & development expenses (980) (1,226)
Selling, general & administrative expenses (4,126) (3,686)
------------- -------------
Operating income 590 1,095
Other income, net 1 53
Foreign currency exchange gains 161 25
Warrant & debt acquisition expense (10) (14)
Interest expense (71) (106)
------------- -------------
Income before taxes 671 1,053
Income tax benefit/(expense) 421 (57)
------------- -------------
Net income $ 1,092 $ 996
Other comprehensive income:
Foreign currency translation 69 (69)
------------- -------------
Total comprehensive income $ 1,161 $ 927
============= =============
Net income per share: basic and diluted:
------------- -------------
Basic net income per share $0.012 $0.011
------------- -------------
Diluted net income per share $0.011 $0.011
Shares used in per share calculations - basic 93,225,402 93,150,402
------------- -------------
Shares used in per share calculations - diluted 101,480,402 93,150,402
------------- -------------
See the notes to consolidated financial statements.
PROPHOTONIX LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Other Total
Par Paid in Deferred Accumulated Comprehensive Stockholders'
Shares $0.001 Capital Compensation Deficit Income Equity
-------- -------- --------- -------------- ------------- ----------------- -----------------
Balance December
31,
2018 93,000 $ 93 $ 114,067 $ (19) $ (110,746) $ 882 $ 4,277
Net income - - - - 996 - 996
Translation
adjustment - - - - - (69) (69)
Deferred
compensation 150 - (17) 17 - - -
Share based
compensation - - (1,212) - - - (1,212)
Balance December
31,
2019 93,150 93 112,838 (2) (109,750) 813 3,992
======== ======== ========= ============== ============= ================= =================
Net income - - - - 1,092 - 1,092
Translation
adjustment - - - - - 69 69
Deferred
compensation 150 - (2) 2 - - -
Share based
compensation - - 58 - - - 58
-------- -------- --------- -------------- ------------- ----------------- -----------------
Balance December
31,
2020 93,300 $ 93 $112,894 $ - $ (108,658) $ 882 $ 5,211
======== ======== ========= ============== ============= ================= =================
See the notes to consolidated financial statements.
PROPHOTONIX LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31 2020 2019
------------------------------------------------------- ------- -------
Operating activities
Net income $ 1,092 $ 996
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock-based compensation (benefit) / expense 58 (1,229)
Depreciation 230 189
Foreign exchange loss (157) 214
Amortization of debt discount and financing costs 10 7
Allowance for inventories 41 180
Allowance for bad debt (1) 9
Other changes in assets and liabilities:
Accounts receivable 664 (23)
Inventories 58 (471)
Prepaid expenses and other current assets 210 (447)
Intangible assets, net (48) (82)
Deferred tax asset - 454
Accounts payable (536) 211
Deferred revenue 104 282
Accrued expenses 366 (45)
Other assets and liabilities 49 (42)
------- -------
Net cash provided by operating activities 2,140 203
------- -------
Investing activities
Purchase of property, plant and equipment (76) (175)
------- -------
Net cash used in investing activities (76) (175)
------- -------
Financing activities
Net proceeds from issuance of debt 152 -
Payments of revolving credit facilities, net (887) (163)
Payments for finance leases (38) (56)
Principal repayment of long-term debt (131) (93)
------- -------
Net cash (used in) financing activities (904) (312)
------- -------
Effect of exchange rate on cash 4 (178)
------- -------
Net change in cash and equivalents 1,164 (462)
Cash and equivalents at beginning of period 1,477 1,939
------- -------
Cash and equivalents at end of period $ 2,641 $ 1,477
======= =======
Supplemental cash flow information:
Cash paid for interest $ 71 $ 106
See the notes to consolidated financial statements .
PROPHOTONIX LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
ProPhotonix Limited (Parent Company) and its subsidiaries
(referenced in this document collectively as "ProPhotonix", "we",
or the "Company") operates in two segments: as an independent
designer and manufacturer of LED systems through ProPhotonix (IRL)
Limited; and as a manufacturer of laser modules and a distributor
of laser diodes through ProPhotonix Limited, a U.K. subsidiary. The
operating units are ProPhotonix (IRL) Limited based in Cork,
Ireland, ProPhotonix Limited, a U.K. subsidiary based near
Stansted, United Kingdom and ProPhotonix Limited, based in Salem,
New Hampshire, U.S.A. The Company's products serve a wide range of
applications and industries including machine vision and industrial
inspection, biomedical, healthcare, defense and security, and other
commercial applications.
ProPhotonix Limited was incorporated on March 27, 1951 in the
Commonwealth of Massachusetts and is currently incorporated in the
state of Delaware. The Company's common stock, $.001 par value per
share (the "Common Stock"), now trades on the OTC Market in the
U.S. under the trading symbol "STKR" and is also traded on the
London Stock Exchange, plc (AIM listing), under the trading symbol
"PPIX".
The outbreak of the COVID-19 pandemic and the measures adopted
by the government in the U.K. and Ireland to mitigate its spread
have impacted the Company from March 2020 onwards. The outbreak of
the pandemic caused the Company to shut down its U.K. manufacturing
plant for a period of three weeks and its Ireland plant for a
period of two weeks during 2020. Revenue decreased by $1.4 million,
or 9%, for the year ended December 31, 2020 compared to the same
period in 2019 due to the impact of the pandemic.
Management acted to mitigate the revenue decline brought by
COVID-19 by reducing costs, deferring property rent payments and
loan payments, participating in government job retention schemes
and availing itself of other government support measures. As a
result, the Company's operating income decreased by $0.5 million
for the year ended December 31, 2020 compared to the same period in
2019 despite the $1.4 million decrease in revenue over the same
periods. Operating income for the year ended December 31, 2019
includes a benefit of stock option compensation of $1.2 million
whereas operating income for the year ended December 31, 2020
includes a charge of stock option compensation of $0.1 million. The
Company generated $2.1 million of cash from its operating
activities for the year ended December 31, 2020; repaid net debt of
$0.9 million; and increased the cash position by $1.1 million from
December 31, 2019.
The Company is subject to a financial covenant in relation to
its loan facility, being that the historic annual debt service
cover ratio shall not be less than 1.30:1. The covenant is tested
annually at December 31. The Company complied with this covenant at
December 31, 2020. The loan facility is due to be repaid in full on
December 31, 2022.
There is still uncertainty over how the future development of
the pandemic will impact the Company's business and customer demand
for its products. Therefore, in assessing the going concern
position of the Company, the directors have modelled a number of
different cash flow forecast scenarios which cover the period until
December 31, 2022 (the going concern assessment period). These
forecasts take into consideration the anticipated impact of
COVID-19 on the cash flow and liquidity of the Company. The
Company's base case scenario forecasts a positive cash position
throughout the forecast period with no covenant breaches. In the
severe but plausible downside scenario that includes a revenue
reduction of 20%, assuming in this scenario that gross profit
margins remain consistent when compared to the prior year, variable
costs decrease in line with revenue and that mitigating actions are
taken such as reducing discretionary capex spend and restricting
payroll increases the Company is forecast to breach its loan
covenant and therefore may need to repay the outstanding loan
balance at that time. However, the Company is still forecast to
have sufficient cash in this scenario to repay the outstanding loan
balance at this date and to continue its operations. The forecast
cash position in this scenario at December 31, 2021 is $1.7 million
with an outstanding loan balance of $0.3 million.
Consequently, the directors are confident that the Company will
have sufficient funds to continue to meet its liabilities
(1) ORGANIZATION AND BASIS OF PRESENTATION (cont.)
as they fall due for the going concern assessment period and
therefore have prepared the financial statements on a going concern
basis.
Information about judgements made in applying accounting
policies that have the most significant effects on the amounts
recognized in the financial statements is included in the following
notes:
-- Note 1 - going concern: whether there are material
uncertainties that may cast significant doubt on the entity's
ability to continue as a going concern;
-- Note 5 - impairment test of goodwill: key assumptions
underlying recoverable amounts;
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared
in conformity with U.S. Generally Accepted Accounting Principles
("U.S. GAAP") and reflect the application of the Company's most
significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and
notes. In preparing these consolidated financial statements,
management has made judgments, estimates, and assumptions that
affect the reported amounts of assets, liabilities, income, and
expenses. Actual results may differ from those estimates. Estimates
and underlying assumptions are reviewed on an on-going basis for
items such as revenue recognition where long term contracts are
entered into, recognition of deferred tax assets, inventory
allowances, warranty provisions and accruals. Revisions to
estimates are recognized prospectively.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries,
ProPhotonix (IRL) Limited, StockerYale (UK) Ltd., which owns 100%
of ProPhotonix Limited, a U.K. subsidiary. All intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of original three months or less when purchased to be cash
equivalents .
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Accounts receivable are recorded at the invoiced amount and do
not bear interest. Amounts collected on trade receivables are
included in net cash provided by operating activities in the
consolidated statements of cash flows. The Company's exposure to
credit risk is influenced mainly by the individual characteristics
of each customer. Each new customer is analyzed individually for
creditworthiness before the Company's standard payment and delivery
terms and conditions are offered. The Company's review includes
external ratings, if they are available, financial statements,
credit agency information, industry information and in some cases
bank references. After completing the credit review, the Company
establishes a credit line for each customer. Periodically, the
Company reviews the credit line for major customers and adjusts the
credit limit based upon an updated financial condition of the
customer, historical sales and payment information and expected
future sales.
The Company periodically reviews the collectability of its
accounts receivable. Allowance for doubtful accounts are
established for accounts that are deemed uncollectible. The Company
also has accounts receivables insurance at its U.K. subsidiary,
ProPhotonix Limited, which allows the Company to submit a claim on
overdue accounts receivables in excess
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
of 60 days past invoice due date. The Company has not made any
claims in either 2020 or 2019. Determining adequate allowances for
accounts receivable requires management's judgment in combination
with Company policies and procedures. Management's assessment
includes customer payment trends, as well as discussions with
customers over any past due amounts. Conditions impacting the
collectability of the Company's receivables could change causing
actual write-offs to be materially different than the reserved
balances .
Changes in the allowance for doubtful accounts were as
follows:
In thousands
Years Ended December 31 2020 2019
----------------------------------------------- ---- ----
Balance at beginning of period $ 10 $ 49
Benefits from or charges to costs and expenses (1) (38)
Account write-offs and other deductions - (1)
---- ----
Balance at end of period $ 9 $ 10
==== ====
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the
Company's receivables from customers. The carrying amounts of
financial assets and contract assets represent the maximum credit
exposure.
The Company limits its exposure to credit risk from trade
receivables by establishing typical and maximum payment periods of
30 days and 90 days, respectively, for its customers. Credit risk
is further limited due to the relatively large number of customers
composing the Company's customer base and their dispersion across
many industries and geographic areas within the United States,
Canada, United Kingdom, Europe and Asia. The Company had one
customer accounting for 10% or more of consolidated revenues in
each of the years ended December 31, 2020 and 2019. The Company had
one customer that accounted for 10% or more of the outstanding
accounts receivable balance at December 31, 2020 and two such
customers at December 31, 2019.
The Company maintains its cash and cash equivalents in bank
deposit accounts, which at times may exceed insured limits. At
December 31, 2020 and 2019, the amount in excess of governmental
insurance protection was $1.6 million and $1.0 million,
respectively. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
INVENTORY
The Company values inventories at the lower of cost or net
realizable value using the first in, first-out ("FIFO") method.
Manufacturing overhead costs are applied to inventory at period end
based upon the estimated added value of overhead in inventory. The
Company periodically reviews the quantities of inventory on hand
and compares these amounts to the expected usage for each
particular product or product line. The Company records as a charge
to cost of sales any amounts required to reduce the carrying value
amount of the inventory to net realizable value. Actual results
could be different from management's estimates and assumptions.
CAPITALIZATION OF SOFTWARE DEVELOPMENT FOR SALE
The Company capitalizes software development for sale in
accordance with ASC 350-40. All costs associated with establishing
technical feasibility are expensed. Once technical feasibility has
been established, the costs of coding the software are capitalized
and amortized over the expected life of the product. Once the
product is release to production, all future software de-bug costs
are expensed in the period incurred.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
INTANGIBLE ASSETS
The Company's intangible assets consist of capitalized software
development costs and goodwill. Capitalized software development
costs are being amortized over their useful lives and are assessed
for impairment when triggering events occur. Goodwill is tested for
impairment on an annual basis, and between annual tests when
indicators of impairment are present and written down when and if
impaired. The Company has elected the end of the fourth quarter to
complete its annual goodwill impairment test.
LONG-LIVED ASSETS
The Company reviews the recoverability of its long-lived assets
including property, plant and equipment and amortizing intangible
assets when events or changes in circumstances occur that indicate
that the carrying value of the assets may not be recoverable. This
review is based on the Company's ability to recover the carrying
value of the assets from expected undiscounted future cash flows.
If impairment is indicated, the Company measures the loss based on
the difference between the carrying value and fair value of the
asset using various valuation techniques including discounted cash
flows. If the asset is determined not to be recoverable, the amount
of the loss will be recorded in the consolidated statements of
operations. It is possible that future events or circumstances
could cause these estimates to change.
LEASES
The Company determines if an arrangement is a lease at
inception. This determination includes the review of contracts with
third parties to identify the existence of potential embedded
leases. Operating leases are included in operating lease
right-of-use ("ROU") assets, operating lease liabilities, current
and noncurrent operating lease liabilities on the Company's
consolidated balance sheets. Finance leases are included in current
and long-term capital lease obligations on the Company's
consolidated balance sheets.
ROU assets represent the Company's right to use an underlying
asset for the lease term and the corresponding lease liabilities
represent its obligation to make lease payments arising from the
lease. Lease ROU assets and lease liabilities are recognized based
on the present value of the future minimum lease payments over the
lease term at commencement date. The lease ROU asset is reduced for
tenant incentives and excludes any initial direct costs incurred.
As the Company's leases do not provide an implicit rate, the net
present value of future minimum lease payments is determined using
the Company's incremental borrowing rate. The Company's lease terms
may include options to extend or terminate the lease when it is
reasonably certain the Company will exercise that option. Lease
expense for minimum lease payments is recognized on a straight-line
basis over the lease term.
The Company negotiated concessions in the form of rent payment
deferrals for several of its leases as a result of the impact of
the COVID-19 pandemic. These concessions affect only the timing,
but not the amount, of total lease consideration over the term of
the lease and they had no significant effect on the Company's
results of operations for the year ended December 31, 2020. Thus,
the Company elected to apply the lease modification guidance from
ASC Topic 842, Leases, for the concessions which resulted in no
change to its operating lease or capital lease liabilities and it
classified the payment deferrals as part of other accrued expenses
on its consolidated balance sheet.
INCOME (LOSS) PER SHARE
The Company calculates basic and diluted net income (loss) per
common share by dividing the net income applicable to common
stockholders by the weighted average number of common shares
outstanding.
As of December 31, 2020, 15,204,198 shares underlying options
could potentially have been included in the calculation of diluted
shares. However, as the exercise price at December 31, 2020 was
$0.07 per share, only 8,180,000 exercisable
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
options were included in the calculation of earnings per share.
All other options' exercise price exceeded the market price.
As of December 31, 2019, 17,350,044 shares underlying options
could potentially have been included in the calculation of diluted
shares. However, the exercise price for all of the underlying
options and warrants exceeded the market price or were unvested,
thus none of those shares were included in the calculation of
earnings per share.
REVENUE RECOGNITION
The Company only has revenue from customers. The Company
recognizes revenue when it satisfies performance obligations under
the terms of its contracts, and control of its products is
transferred to its customers in an amount that reflects the
consideration the Company expects to receive from its customers in
exchange for those products. This process involves identifying the
customer contract, determining the performance obligations in the
contract, determining the contract price, allocating the contract
price to the distinct performance obligations in the contract, and
recognizing revenue when the performance obligations have been
satisfied. A performance obligation is considered distinct from
other obligations in a contract when it (a) provides a benefit to
the customer either on its own or together with other resources
that are readily available to the customer and (b) is separately
identified in the contract. The Company considers a performance
obligation satisfied once it has transferred control of a good or
product to a customer, meaning the customer has the ability to use
and obtain the benefit of the product.
Shipping and handling costs associated with outbound freight,
after control over a product has transferred to a customer, are
accounted for as a fulfillment cost and are included in cost of
goods sold as incurred.
For a small number of contracts revenue is recognized over time,
as the manufacturing process progresses, because of the Company's
enforceable right to payment for performance completed on
customized products for which the Company has no alternative use.
Revenue is measured by the costs incurred to date relative to the
estimated total direct costs to fulfill each contract (cost-to-cost
method). Incurred costs represent work performed, which corresponds
with, and thereby best depicts, the transfer of control to the
customer. Contract costs include labor, materials and overhead.
Taxes assessed by a government authority that are both imposed
on and concurrent with a specific revenue-producing transaction,
that are collected by the Company from a customer, are excluded
from sales.
The Company's primary source of revenue is from sales of its LED
and Laser diodes products. It also generates revenue from
Non-recurring Engineering ("NRE") services that it provides to its
customers. The Company does not act as an agent in any of its
revenue arrangements. Contracts with customers generally state the
terms of the sale, including the quantity and price of each product
purchased. Payment terms and conditions may vary by contract,
although terms generally include a requirement of payment within a
range of 30 to 60 days after the performance obligation has been
satisfied. As a result, the contracts do not include a significant
financing component. In addition, contacts typically do not contain
variable consideration as the contracts include stated prices. The
Company provides assurance type warranties on all of its products,
which are not separate performance obligations and are outside the
scope of Topic 606. See below for further details on the Company's
product warranties.
WARRANTY
The Company provides standard warranties for most products for
periods up to one year. The warranty is limited to the cost of the
product and the Company will repair or replace the product as
required. The Company monitors the actual warranty repair costs and
trends in relation to the reserve as a percent of sales. The
Company adjusts annually the warranty provision based on actual
experience and for any particular known instances.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Changes in the warranty reserves were as follows:
In thousands
Years Ended December 31 2020 2019
------------------------------------------ ----- -----
Balance at beginning of period $ 164 $ 170
Charges to costs and expenses (10) (3)
Account write-offs and other deductions 14 (3)
----- -----
Balance at end of period $ 168 $ 164
===== =====
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising
expenses for the years ended December 31, 2020 and 2019 were
$44,000 and $12,000, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company
provides for depreciation on a straight-line basis over the assets
estimated useful lives. Plant and equipment held under finance
leases are amortized on a straight-line basis over the shorter of
the lease term or estimated useful life of the asset. Finance
leases are initially stated at the present value of minimum lease
payments. The following table summarizes the estimated useful lives
by asset classification:
Asset Classification Estimated Useful Life
---------------------------------- ------------------------------
Building and building improvements Term of the lease or
10-40 years
Computer equipment 3 to 5 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 3 to 10 years
Maintenance and repairs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the asset and
liability method. Under this method the Company recognizes deferred
tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the financial statements or
tax returns. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that is more likely than
not to be realized. The Company recognizes the tax benefit of tax
positions to the extent that the benefit will more likely than not
be realized. The determination as to whether the tax benefit will
more likely than not be realized is based upon the technical merits
of the tax position as well as consideration of the available facts
and circumstances. With respect to any uncertain tax positions, the
Company records interest and penalties, if any, as a component of
income tax expense. The Company did not have any interest and
penalties related to uncertain tax positions during the years ended
December 31, 2020 or 2019.
CARES Act and CAA - On March 27, 2020 and December 27, 2020, the
President of the United States signed and enacted into law the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and
the Consolidated Appropriations Act, 2021 (CAA). Among other
provisions, the CARES Act and the CAA provide relief to U.S.
federal corporate taxpayers through temporary adjustments to net
operating loss rules, changes to limitations on interest expense
deductibility, and the acceleration of available refunds for
minimum tax credit carryforwards. The CARES Act and the CAA did not
have a material effect on the Company's taxes for the year ended
December 31, 2020.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
STOCK-BASED COMPENSATION
The Company has stock-based compensation plans for its
employees, officers, and directors. The plans permit the grant of a
variety of awards with various terms and prices as determined by
the Remuneration Committee of the Company's Board of Directors.
Generally, the grants vest over terms of one to four years and are
priced at fair market value, or in certain circumstances 110% of
the fair market value, of the Common Stock on the date of the
grant. The options are generally exercisable after the period or
periods specified in the option agreement, but no option may be
exercised after 10 years from the date of grant.
Additionally, in the case of incentive stock options, the
exercise price may not be less than 100% of the fair market value
of the Company's Common Stock on the date of grant, except in the
case of a grant to an employee who owns or controls more than 10%
of the combined voting power of all classes of the Company's stock
or the stock of any parent or subsidiary. In that case, the
exercise price shall not be less than 110% of the fair market value
on the date of grant. In the case of non-qualified stock options,
the exercise price shall not be less than 85% of the fair market
value of the Company's Common Stock on the date of grant, except in
the case of a grant to an independent director; in which case the
exercise price shall be equal to fair market value determined by
reference to market quotations on the date of grant.
During 2020 the Company recognized an expense of $0.1 million of
stock-based compensation related to the options and fully vested
shares issued to the directors and employees as compensation (See
Note 10), all of which were charged to selling, general and
administrative expense. During 2019 the Company reversed $1.2
million of stock compensation expense to selling, general and
administrative expense related to the expiration of
performance-based stock options that were cancelled due to
non-achievement of the performance criteria.
Stock Option Awards-The fair value of each option grant is
estimated using the Black-Scholes option pricing model. The fair
value is then expensed ratably over the requisite service periods
of the awards, which is generally the vesting period. Use of a
valuation model requires management to make certain assumptions
with respect to selected model inputs. Expected volatility is
calculated based on the historical volatility of the Company's
stock at the time of the award. The average expected option term is
based on historical trends. The risk-free interest rate is based on
U.S. Treasury zero-coupon issues assumed at the date of grant and
generally no dividends are assumed in the calculation. The
compensation expense recognized for all equity-based awards is net
of estimated forfeitures. Forfeitures are estimated based on the
historical trends.
TRANSLATION OF FOREIGN CURRENCIES
The Company's operating results are affected by fluctuations in
the value of the U.S. dollar as compared to currencies in foreign
countries, as a result of our transactions in these foreign
markets. For foreign subsidiaries, whose functional currency is not
the U.S. dollar, assets and liabilities are translated using the
foreign exchange rates prevailing at the balance sheet date, and
income and expense accounts using average exchange rates for the
period. Cumulative transaction gains or losses from the translation
into the Company's reporting currency are included as accumulated
other comprehensive income a separate component of stockholders'
equity in the accompanying consolidated balance sheets.
Management determined the functional currency of ProPhotonix
Limited, a U.K. subsidiary, is the British pound sterling, the
functional currency of ProPhotonix (IRL) Limited is the euro, and
the functional currency of ProPhotonix Limited U.S.A. is the U.S.
dollar.
FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
December 31, 2020 and 2019. Fair value is defined as the amount
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
Years Ended December 31 2020 2019
------------------------------------------ -------------------- --------------------
Carrying Carrying
amount Fair Value amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents $2,641 $2,641 $1,477 $1,477
Trade accounts receivable 2,216 2,216 2,801 2,801
Financial liabilities
Revolving credit facility - - 912 912
Trade accounts payable 1,460 1,460 1,941 1,941
Current portion of long-term
debt 329 329 220 220
Current portion of finance lease
obligations 43 43 58 58
Long-term debt obligations, net
of current portion 346 346 387 387
Long-term finance lease obligations,
net of current portion 23 23 40 40
The fair values of the financial instruments shown in the above
table as of December 31, 2020 and 2019 represent the amounts that
would be received to sell those assets or that would be paid to
transfer those liabilities in an orderly transaction between market
participants at that date. Those fair value measurements maximize
the use of observable inputs. However, in situations where there is
little, if any, market activity for the asset or liability at the
measurement date, the fair value measurement reflects the Company's
own judgments about the assumptions that market participants would
use in pricing the asset or liability. Those judgments are
developed by the Company based on the best information available in
the circumstances, including expected cash flows and appropriately
risk-adjusted discount rates, available observable and unobservable
inputs.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
-- Cash and cash equivalents, trade accounts receivable,
revolving credit facility, trade accounts payable, current portion
of debt and current portion of finance lease obligations: The
carrying amounts, at face value or cost plus accrued interest,
approximate fair value because of the short maturity of these
instruments.
-- Long-term debt obligations and long-term finance lease
obligations: The fair value of the Company's long-term debt and
finance lease obligations are determined by discounting the future
cash flows of each instrument at rates that reflect rates currently
observed in publicly traded debt markets for debt of similar terms
to companies with comparable credit risk.
Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Company's objective when managing liquidity is
to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when they are due, under both
normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Company's reputation.
The Company aims to maintain the level of its cash and cash
equivalents at an amount in excess of expected cash outflows on
financial liabilities, excluding accounts payable, over the next 60
days. The company has $2.6 million of cash and $0.7 million of debt
and capital lease obligations as of December 31, 2020 as compared
to $1.4 million of cash and $1.6
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
million of debt and capital lease obligations as of December 31,
2019. Additionally, its current ratio improved from 1.7 as of
December 31, 2019 to 2.0 as of December 31, 2020. The Company also
monitors the level of expected cash inflows on trade and other
receivables together with expected cash outflows on trade and other
payables.
At December 31, 2020 and 2019, the company's trade and other
receivables maturing within three months was $2.1 million and $2.3
million, respectively, and the expected cash outflows from trade
and other payables due within three months at December 31, 2020 and
2019 were $1.4 million and $1.9 million, respectively. This
estimate excludes the potential impact of extreme circumstances
that cannot reasonably be predicted, such as natural disasters. The
decrease in expected cash inflows from trade receivables compared
with the prior year is largely attributable to the overall decrease
in revenue the Company experienced as a result of the COVID-19
pandemic.
The Company availed itself of Government loans relating to
liquidity constraints arising from the COVID-19 pandemic. The
impact of those steps on the consolidated financial statements is
described in the Government Grants section of this footnote.
GOVERNMENT GRANTS
United States PPP Loan - On May 5, 2020, the Company received
loan proceeds in the amount of $0.1 million under the Paycheck
Protection Program ("PPP). The PPP, established as part of the
Coronavirus Aid, Relief and Economic Security Act ("CARES Act"),
provides for loans to qualifying businesses. The Company determined
it qualified for the PPP loan as its business was negatively
impacted by the coronavirus pandemic. The PPP loan and accrued
interest are forgivable to the extent the proceeds of the loan are
used for eligible expenditures such as payroll and other expenses
as described in the CARES Act.
The Company has accounted for the PPP loan in accordance with
ASC 450-30, Contingencies: Gain Contingencies. The loan amount of
$0.1 million is included in short term debt in the accompanying
consolidated balance sheet as of December 31, 2020. This loan was
forgiven by the U.S. Small Business Association on January 25,
2021, on which date the Company's obligation to repay the loan was
effectively eliminated.
Wage Subsidy Schemes - The Company's ProPhotonix (IRL) Limited
and ProPhotonix Limited U.K. subsidiaries each received grants
related to wage subsidy programs introduced in the United Kingdom
and Ireland in response to the COVID-19 coronavirus pandemic. In
the United Kingdom, the Company was entitled to the wage subsidy
for furloughed or reduced employee hours from March 2020 to
December 2020. In Ireland, the Company qualified for the grant due
to a reduction in 2020 revenue compared to 2019 resulting from a
decline in sales orders and delays in the Company's supply chain.
From March to December 2020, the Company received $0.3 million and
$0.2 million from the wage subsidy program in Ireland and the
United Kingdom, respectively. These grants were recorded as a
reduction in cost of revenue and operating expenses of $0.3 and
$0.2 respectively for the twelve months ended December 31, 2020.
There is no outstanding amount receivable from governments related
to these grants as of December 31, 2020. The Company believes the
receipt of funds under the schemes meets the qualifications and use
requirements of the programs.
Horizon Research In November 2018, the Company entered into a
European Union (EU) funded Horizon 2020 Research to Innovation
Grant to partner with other participants in the development of a
high quality water enhancement system. During 2019, the Company
received advanced funding of $0.4 million. During the years ended
December 31, 2020 and 2019, the Company used $0.2 million and
$27,000, respectively, of the grant and recorded it as a reduction
in its operating expenses. At December 31, 2020, the Company held
$0.2 million of unspent grant cash recorded as a concurrent
liability on its consolidated balance sheet.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
USE OF ESTIMATES
In preparing these consolidated financial statements in
accordance with generally accepted accounting policies, management
has made judgments, estimates, and assumptions that affect the
reported amounts of assets, liabilities, income, and expenses.
Actual results may differ from those estimates. Estimates and
underlying assumptions are reviewed on an on- going basis.
Revisions to estimates are recognized prospectively.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842), which requires lessees to recognize leases on-balance sheet
and disclose key information about leasing arrangements. Topic 842
establishes a ROU model that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with
a term longer than 12 months. Leases are classified as finance or
operating, with classification affecting the pattern and
classification of expense recognition in the income statement.
Additionally, in 2018 through 2020, the FASB issued the
following Topic 842-related ASUs:
-- 2018-01, Land Easement Practical Expedient for Transition to
Topic 842, which clarifies the applicability of Topic 842 to land
easements and provides an optional transition practical expedient
for existing land easements.
-- 2018-10, Codification Improvements to Topic 842, Leases,
which makes certain technical corrections to Topic 842.
-- 2018-11, Leases (Topic 842): Targeted Improvements, which
allows companies to adopt Topic 842 without revising comparative
period reporting or disclosures and provides an optional practical
expedient to lessors to not separate lease and non-lease components
of a contract if certain criteria are met.
-- 2019-01, Leases (Topic 842): Codification Improvements, which
provides guidance for certain lessors on determining the fair value
of an underlying asset in a lease and on the cash flow statement
presentation of lease payments received. ASU 2019-01 also clarifies
disclosures required in interim periods after adoption of ASU
2016-02 in the year of adoption.
-- 2019-10, Financial Instruments - Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842),
Effective Dates, which defers the effective date of ASU 2016-02 and
all related Topic 842 ASUs by one year to January 1, 2021, with
early adoption permitted.
The ASUs issued in 2018 and 2019 for Topic 842 are effective for
the Company at the same time as it adopts ASU 2016-02. However, ASU
2018-01 and the amendments related to lessors in ASU 2018-11 and
ASU 2019-01 did not have a material effect on the Company's 2020
and 2019 consolidated financial statements because the Company does
not enter into land easement arrangements and it is not a lessor.
The Company adopted ASU 2016-02 on January 1, 2019 using a modified
retrospective transition approach as of the effective date as
permitted by the amendments in ASU 2018-11. As a result, the
Company was not required to adjust its comparative period financial
information for effects of the standard or make the new required
lease disclosures for periods before the date of adoption (i.e.
January 1, 2019). The Company has elected to adopt the package of
transition practical expedients and, therefore, has not reassessed
(1) whether existing or expired contracts contain a lease, (2)
lease classification for existing or expired leases or (3) the
accounting for initial direct costs that were previously
capitalized. The Company did not elect the practical expedient to
use hindsight for leases existing at the adoption date.
The adoption of ASU 2016-02 had a material effect on the
Company's consolidated balance sheet but did not materially affect
the consolidated statement of income. The most significant changes
to the consolidated balance sheet relate to the recognition of new
ROU assets and lease liabilities for operating leases. The
Company's accounting for finance leases remains substantially
unchanged. The adoption of ASU 2016-02 also had no material effect
on operating, investing, or financing cash flows in the
consolidated statement of cash flows. However, ASU 2016-02 has
significantly affected the Company's disclosures about noncash
investing and financing activities. Additionally, the Company's
lease-related disclosures have significantly increased as of and
for the year ended December 31, 2020 as compared to prior years.
See Note 13.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
As a result of adopting ASU 2016-02, the Company recognized
additional operating liabilities of $0.3 million (of which $0.1
million was current and $0.2 million was noncurrent) with
corresponding ROU assets of the same amount as of January 1,
2019.
In January 2017, the FASB issued ASU 2017-04, Intangibles -
Goodwill and Other (Topic 350) ("ASU 2017-04") related to
measurements of goodwill. ASU 2017-04 eliminates the requirement to
calculate the implied fair value of goodwill (i.e., Step 2 of
today's goodwill impairment test) to measure a goodwill impairment
charge. Instead, entities record an impairment charge based on the
excess of a reporting unit's carrying value over its fair value
(i.e. measure the charge based on today's Step 1). The adoption of
ASU 2017-04 did not have a material effect on the Company's
consolidated financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2019, the FASB issued ASU 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes, which
removes certain exceptions for recognizing deferred taxes for
investments, performing intraperiod allocation and calculating
income taxes in interim periods. The ASU also adds guidance to
reduce complexity in certain areas, including recognizing deferred
taxes for tax goodwill and allocating taxes to members of a
consolidated group. ASU 2019-12 is effective for the Company's
annual periods beginning after December 15, 2021. Early adoption is
permitted. The Company is currently evaluating the effect the
adoption of ASU 2019-12 will have on its consolidated financial
statements.
(3) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
basis) or net realizable value when applicable and include
materials, labor and overhead. Inventories are as follows:
In thousands
Years Ended December 31 2020 2019
-------------------------- ------- -------
Finished goods $ 459 $ 722
Work-in-process 607 456
Raw materials 2,458 2,188
------- -------
Gross inventories $ 3,524 $ 3,366
Inventory reserves (873) (782)
------- -------
Net inventories $ 2,651 $ 2,584
======= =======
Management performs quarterly reviews of inventory and either
reserves or disposes of items not required by their manufacturing
plan, as well as reduces the carrying cost of inventory to the
lower of cost or net realizable value.
(4) PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment were as
follows:
In thousands
Years Ended December 31 2020 2019
------------------------------------ -------------------- --------------------
Buildings and building improvements $ 263 $ 249
Computer equipment 513 477
Machinery and equipment 2,472 2,257
Furniture and fixtures 549 488
-------------------- --------------------
Property, plant and equipment $ 3,797 $ 3,471
Less accumulated depreciation (3,285) (2,898)
-------------------- --------------------
Net property, plant and equipment $ 512 $ 573
==================== ====================
Depreciation expense from operations was $0.2 million for each
of the years ended December 31, 2020 and 2019.
(5) GOODWILL
The Company adopted ASU 2017-04, Intangibles -- Goodwill and
Other (Topic 350) ("ASU 2017-04") related to measurements of
goodwill during the year ended December 31, 2020. ASU 2017-04
eliminates the requirement to calculate the implied fair value of
goodwill and instead allows entities to record an impairment charge
based on the excess of a reporting unit's carrying value over its
fair value.
The Company operates in two reporting units: LED's (light
emitting diode systems) and Laser & Diodes. Goodwill as of
December 31, 2020 and 2019 relates to the LED reporting unit. The
forecasts of discounted cash flows used in estimating the fair
value of the LED reporting unit requires that certain assumptions
and estimates be made regarding industry economic factors and
future profitability of the reporting unit to assess the need for
an impairment charge. This approach used multiple cash flow
projections taking into consideration assumed probabilities of
different future events and/or scenarios instead of a single cash
flow scenario. While many scenarios and probabilities may exist,
management ultimately believes that the three scenarios detailed
below (downside, base case and upside) reflect a representative
sample of possible outcomes.
The calculations use cash flow projections that are based on
financial budgets and business plans prepared by management and
approved by the board of directors. The budgets and business plans
are updated to reflect the most recent developments as at the
reporting date. Management's expectations reflect performance to
date and are based on its experience in times of recession and
consistent with the assumptions that a market participant would
make.
For each scenario, management has assigned probability weights.
The recoverable amount was estimated by calculating the present
value of the probability-weighted expected cash flows. The fair
value measurement was categorized as a Level 3 fair value based on
the inputs and the valuation technique used.
In 2020, the Company changed its valuation technique used to
estimate the recoverable amount from the traditional approach (the
discount rate adjustment method), which uses a single cash flow
scenario, to the expected cash flow approach, which uses multiple,
probability-weighted cash flow scenarios. The change in valuation
technique is due to the significantly higher degree of estimation
uncertainty and wider range of possible cash flow projections
following the impact of the COVID-19 pandemic.
The upside scenario reflects a 22% revenue increase in 2021 and
then that growth rate decreases over the ensuing three years such
that the average growth rate over the period from 2021 to 2024 is
10%. The 22% increase in revenue for 2021 is based on a statistical
forecast of the LED reporting unit's revenue from the periods
before the COVID-19 pandemic. The budgeted operating profit margin
for these scenarios are 10% (2020: 5%) due to the increase in
revenue.
The base case scenario reflects an 11% increase in 2021 revenue
and a 6% average growth rate in revenue from 2021 to 2024. This
reflects a return to the pre-crisis levels of revenue. The budgeted
operating profit margins for these scenarios are 3% due to the flat
revenue compared to pre-crisis revenue levels.
The downside scenario reflects a continuing negative impact of
COVID-19 on the LED reporting unit's revenue wherein 2021 revenue
decreases by a further 6% as compared to the already crisis reduced
revenue of 2020 resulting in an average revenue from 2021 to 2024
that is below the pre-crisis revenue. The budgeted operating profit
margin is 0% due to the decrease in revenue.
The cash flow projections for the upside, base case and downside
scenarios included specific estimates for four years and a terminal
growth rate thereafter. The key assumptions used in estimating the
estimated fair value at December 31, 2020 are set out on the
following page.
(5) GOODWILL (cont.)
Downside Base case Upside
-------- --------- ----------
Probability Weights 20% 70% 10%
Discount rate (post-tax) 16.6% 16.6% 16.6%
Average operating profit margin
(2021-22) -2% 1% 9%
Average operating profit margin
(2023-24) 3% 5% 12%
Terminal value growth rate 1.5% 1.5% 2.0%
The key assumptions in the table above are based on the
following:
-- Probability weights: Management has subjectively assigned
probability weights to each scenario based on its experience in
times of recession and its expectations for the economy under and
following the COVID-19 pandemic. Management believes that the
probability weight assignment presents a reasonable assessment of
the likelihood of the scenarios, taking into account the potential
for a more robust recovery on the upside and the risk of bankruptcy
on the downside.
-- Discount rate: The discount rate used is the weighted-average
cost of capital (WACC). The discount rate does not reflect risks
for which the estimated cash flows have been adjusted. The discount
rate is a post-tax measure based on the rate of 20-year government
bonds issued by the most creditworthy government in the relevant
market and in the same currency as the cash flows, adjusted for a
risk premium to reflect both the increased risk of investing in
equities generally and the risk of the LED reporting unit.
-- Average operating profit margin (2021-22): The average
operating profit margins were estimated taking into account
potential further reductions in operating expenses in 2021 under
the downside scenario. The average operating profit margins are
based on the revenue growth rates in 2021-23, which have been
determined considering the expected economic conditions in 2021-23
under each scenario.
-- Average operating profit margin (2023-24): The average
operating profit margins reflect the expected revenue growth rates
in 2023-24. The pre-crisis operating profit margin is -1% for the
LED reporting unit.
-- Terminal value growth rate: The long-term growth rate into
perpetuity has been determined as the compound annual EBITDA growth
rate estimated by management. The terminal growth rate for the base
case and downside scenarios of 1.5% has been reduced to reflect
potential long-term effects of the crisis on GDP.
The assumptions used in estimating the recoverable amount are
consistent with the assumptions that a market participant would
make.
The estimated fair value of the LED reporting unit exceeded its
carrying amount by $0.1 million in the downside scenario. Further
reduction in revenue from that which was used in the downside
scenario would eventually lead to impairment. However, the
estimated fair value exceeded its carrying amount by $1.2 million
in the base case scenario, which management believes to be most
likely, so no adjustment is required for impairment.
The changes in the carrying amount of goodwill for the years
ended December 31, 2020 and 2019 were as follows:
In thousands
Years Ended December 31 2020 2019
--------------------------------------------------------------------------------------------------- ----- -----
Balance at beginning of period
........................................................................... $ 397 $ 405
Effect of exchange rate ............................................................ 35 (8)
----- -----
Balance at end of
period...................................................................................... $ 432 $ 397
===== =====
(6) INTANGIBLE ASSETS
Intangible assets consists of capitalized software development
costs. The Company capitalizes these costs in accordance with
ASC-350; all costs associated with establishing technical
feasibility are expensed. Once technical feasibility has been
established, the costs of coding the software are capitalized and
amortized over the expected life of the product. Once the product
is released to production, all future software de-bug costs are
expensed in the period incurred. There are no intangible assets
with indefinite lives. Intangible assets and their respective
useful lives are as follows:
Useful Life
--------------
Capitalized software development costs 5 Years
Gross carrying amounts and accumulated amortization of
intangible assets were as follows as of December 31, 2020 and 2019.
The gross carrying values and the accumulated amortization values
are impacted by the foreign currency translation adjustment.
In thousands
Years Ended December 31 2020 2019
---------------------------------------------------------- ----- -----
Gross carrying amount of capitalized software development
costs $ 585 $ 439
Accumulated amortization (127) (62)
----- -----
Net balance $ 458 $ 377
===== =====
(7) DEBT
In thousands
Years Ended December 31 2020 2019
------------------------------------------------- ---------------------- ----- -----
Senior Fixed Rate Secured Term Note with
KKV ("KKV Note"), maturing on December 31, Total debt less
2022 with an interest rate of 10%, at December unamortized debt
31, 2020. issuance costs $ 519 $ 607
PPP loan with Enterprise Bank and Trust Company
maturing on May 5, 2025 with an interest
rate of 1% at December 31, 2020 Total debt 86
----- -----
Bounce Back Loan with HSBC UK Bank plc maturing
on May 5, 2026 with an interest rate of 2.5%
at December 31, 2020 Total debt 68 -
----- -----
Borrowings under Revolving Credit facility
with Barclays Bank Sales Financing with an
interest rate of 2.0% above Barclays' base
rate at December 31, 2020 (2.25% as of December
31, 2019). Principal Amount - 912
----- -----
673 1,519
----- -----
Less: Revolving
Credit Facility (912)
Less: current
portion of long-term
debt (338) (220)
===== =====
Long-term debt
less unamortized
discount and
debt issuance
costs $ 335 $ 387
===== =====
The Company made $0.1 million in interest payments during 2020
and is expected to make $45,000 in interest payments during the
year ended December 31, 2021. Scheduled future maturities of debt,
excluding interest payments and the effect of unamortized debt
issuance costs, for the next five years are as follows:
In thousands
Due by period 2021 2022 2023 2024 2025+ Total
------------------------------------------- ----- ------- ----- -------- --------- ------
Debt obligations ......................... $ 344 $ 289 $ 14 $ 14 $ 18 $ 679
----- ------- ----- -------- --------- ------
(7) DEBT (cont.)
BORROWING AGREEMENTS
Term Notes:
ProPhotonix (IRL) Limited Senior Fixed Rate Term Note
On June 14, 2018 ProPhotonix (IRL) Limited was issued a
four-year 10% Senior Fixed Rate Term Note, from KKV Investment
Management Ltd., formerly SQN Secured Income Fund PLC, ("KKV Note")
in the original principal amount of GBP0.7 million ($0.9 million at
June 14, 2018) secured by certain assets of ProPhotonix (IRL)
Limited.
The Company received a six-month deferral of loan principal
payments during the year ended December 31, 2020 which extended the
loan maturity to December 31, 2022. During the six-month deferral
period, the Company continued to
make interest payments totaling $26,000 as scheduled. The
Company has determined that the loan modification does not meet the
criteria for troubled debt restructuring under ASC 470-50,
Debt-Modifications and Extinguishments, and that the terms of the
modified loan are not substantially different from the original
terms of the loan. Therefore, the Company accounted for the loan
modification as a continuation of the loan and there was no
material impact to its consolidated financial statements.
The company did not breach its debt covenant ratio as of
December 31, 2020 or 2019.
PPP loan
On May 5, 2020, the Company received loan proceeds in the amount
of $0.1 million under the Paycheck Protection Program ("PPP). The
PPP, established as part of the Coronavirus Aid, Relief and
Economic Security Act ("CARES Act"), provides for loans to
qualifying businesses. The Company determined it qualified for the
PPP loan as its business was negatively impacted by the coronavirus
pandemic.
The loan bears interest at a rate of 1% and is payable in
monthly installments of principal and interest over two years,
beginning six months from the date of the note. The loan may be
repaid at any time with no prepayment penalty. On June 3, 2020, the
Paycheck Protection Program Flexibility Act of 2020, was enacted
which extended the repayment period from two years to five years
and the deferral payment period from six months to ten months.
The Company has accounted for the PPP loan in accordance with
ASC 450-30, Contingencies: Gain Contingencies. The loan amount of
$0.1 million is included in short term debt in the accompanying
consolidated balance sheet as of December 31, 2020. This loan was
forgiven by the U.S. Small Business Association on January 25,
2021, on which date the Company's obligation to repay the loan was
effectively eliminated.
ProPhotonix Limited Bounce Back Loan
On May 6, 2020, the Company received loan proceeds in the amount
of $0.1 million under the U.K. government's Bounce Back Loan Scheme
(BBL Scheme) which provides loans to small and medium sized
business who have been negatively affected by the coronavirus
pandemic. The loan bears interest at a rate of 2.5% and is payable
in 60 monthly installments beginning 13 months from the date of the
loan. $0.1 million of the loan amount is included in long-term debt
obligations and $8,000 is included in short-term debt obligations
in the accompanying consolidated balance sheet as of December 31,
2020.
Barclays Bank, PLC:
On February 6, 2008, ProPhotonix Limited, a U.K. subsidiary,
entered into a Confidential Invoice Discounting Agreement, as
amended at various times, with Barclays Bank Sales Financing
("Barclays"). Under the Discounting Agreement, a three-year
revolving line of credit was established. The facility requires the
maintenance of certain financial covenants including a minimum
tangible net worth.
(7) DEBT (cont.)
The most recent amendment of February 10, 2017, included (i)
increased the line from GBP1.4 million to GBP1.5 million; (ii)
reduced service charges and the discount rate from 2.50% plus
Barclays base rate to 2.00% plus Barclays base rate (iii) increased
the early payment ceiling from 80% to 85% and extended the minimum
period of this amendment to 12 months through February 10, 2018
with a rolling evergreen provision which extended through April 22,
2020. The Company chose not to renew the facility with Barclays and
fully paid the outstanding balance during 2020.
(8) TAXES
The Company is required to determine whether its tax positions
are "more-likely-than-not" to be sustained upon examination by the
applicable taxing authority, based on the technical merits of the
position. Tax positions not deemed to meet a "more-likely-than-not"
threshold would be recorded as a tax expense in the current year.
Based on its analysis, the Company has determined that it has not
incurred any liability for unrecognized tax benefits as of December
31, 2020. The Company had deferred tax assets, before considering
the full valuation allowance, totaling $13.1 million and $14.4
million as of December 31, 2020 and 2019, respectively.
Realization of the deferred tax assets is dependent upon the
Company's ability to generate sufficient future taxable income and,
if necessary, execution of tax planning strategies.
Based on the size of the Company's historical operating losses,
there is some doubt as to when, if ever, any of the deferred tax
assets related to its operations will be realized. As a result,
management has provided a valuation allowance for the net deferred
tax assets. In the event management determines that sufficient
future taxable income may be generated in subsequent periods and
the previously recorded valuation allowance is no longer needed,
the Company will decrease the valuation allowance by providing an
income tax benefit in the period that such a determination is made.
As it relates to a deferred tax impact relative to stock
compensation, the Company believes the deferred tax asset being
disclosed in the footnote table below reflects the book
compensation previously recognized and adjusted for reversals of
compensation expense for grants outstanding as of the end of the
year (fully or partially vested) times the appropriate tax rate.
Because of its historical operating losses, the Company has not
been subject to income taxes since 1996.
The Company is subject to taxation in the U.S., the United
Kingdom, Ireland and various states and local jurisdictions. As a
result of the Company's tax loss position, the tax years 2002
through 2020 remain open to examination by the federal and most
state tax authorities in the U.S. In addition, the tax years 2013
through 2020 are open to examination in foreign jurisdictions.
For the years ended December 31, 2020 and 2019, income from
continuing operations before taxes consists of the following:
In thousands
Years Ended December 31 2020 2019
--------------------------------------------- ----- -------
U.S. operations $ 120 $ 1,405
Foreign operations 551 (352)
----- -------
Net income before provision for income taxes $ 671 $ 1,053
===== =======
Income tax benefit attributable to income from continuing
operations was $0.4 million for the year ended December 31, 2020
and income tax expense attributable to income from continuing
operations was $0.1 million for the year ended December 31, 2019,
and differed from the amounts computed by applying the statutory
income tax rate of 21%, to pretax income from continuing operations
as a result of the following:
(8) TAXES (cont.)
In thousands
Years Ended December 31 2020 2019
----------------------------------------------------- ------- -------
Computed "expected" tax expense $ (142) $ (222)
Increase (reduction) in income taxes resulting from:
Change in valuation allowance 737 231
Foreign tax rate differential 39 (33)
Adjustments in respect of prior periods 164 (2)
Non-deductible items (377) (31)
------- -------
Income tax benefit (expense) $ 421 $ (57)
======= =======
The significant items comprising the deferred tax asset and
liability at December 31, 2020 and 2019 are as follows:
In thousands
Years Ended December 31 2020 2019
------------- -------------
Domestic net operating loss carry forwards $ 12,631 $ 12,649
Foreign net operating loss carry forwards 1,023 1,194
R&D tax credit 525 525
Other 44 589
Valuation allowance (14,223) (14,957)
------------- -------------
Deferred tax asset $ - $ -
============= =============
As of December 31, 2020, the Company had United States federal
net operating loss carry forwards (NOLs) of $60.1 million (2019:
$60.2 million) available to offset future taxable income, if any.
These carry forwards expire through 2035 and are subject to review
and possible adjustment by the Internal Revenue Service. The
Company may be subject to limitations under Section 382 of the
Internal Revenue Service Code as a result of changes in
ownership.
At December 31, 2019, the Company had Canadian federal NOLs of
$1.1 million available to offset future taxable income, if any. The
Canadian entities were dissolved in April 2020 and accordingly no
Canadian NOLs exist from that date. At December 31, 2020, the
Company has United Kingdom NOLs of $4.0 million (2019: $4.0
million). At December 31, 2020, the Company has an Ireland NOL of
$2.5 million (2019: $2.9 million).
The Company's historical operating losses raise considerable
doubt as to when, if ever, any of the deferred tax assets will be
realized for its operations, even though there have been limited
operating profits in each of the last three years. As a result,
management has provided a full valuation allowance for the net
deferred tax assets. The total valuation allowance against deferred
tax assets decreased by $0.7 million for the year ended December
31, 2020 (2019: increased by $0.5 million).
(9) UNREGISTERED SALES OF EQUITY SECURITIES AND WARRANTS OUTSTANDING
WARRANTS
There were no warrants exercised in 2020 or 2019. As of December
31, 2019, there were 500,000 common shares outstanding warrants
with the following exercise prices and expiration dates:
Number of Common Shares
Warrants
Exercise Price Expiration Date
--------------------------------- --------------------------- ------------------------------
500,000 $0.10 2020
As of December 31, 2020, there were no warrants outstanding.
(10) STOCK OPTION PLANS
On June 9, 2014, the Company implemented its 2014 Stock
Incentive Plan (the "2014 Plan"). Under the 2014 Plan, the Company
may issue options, restricted stock, restricted stock units and
other stock-based awards to its employees, officers, directors,
consultants and advisors. An aggregate of 10,200,000 shares of the
Company's Common Stock were initially reserved for issuance under
the 2014 Plan, which was increased to 24,200,000 on June 5, 2017.
In addition, from 2018 to 2025 there is an automatic annual
increase to the number of shares reserved for issuance under the
2014 Plan equal to the lesser of (i) 2,000,000 shares of Common
Stock, (ii) 5% of the outstanding shares of Common Stock of the
Company, or (iii) an amount determined by the Board of Directors of
the Company.
As of December 31, 2020, there were 17,900,000 shares available
to be issued from this plan.
On December 16, 2016, but effective January 1, 2017, the Board
of Directors approved the Eighth Amended and Restated Policy
Regarding Compensation of Independent Directors, (i) cash
compensation is $30,000 per annum paid in arrears each quarter in
installments of $7,500; and (ii) a grant of 75,000 fully vested
shares of the Company's Common Stock, be automatically issued on
the day after the annual meeting to each Independent Director who
is serving as director of the Company immediately following the
date of each annual meeting of stockholders (or special meeting in
lieu thereof) beginning with the 2017 annual meeting. These shares
are pursuant to the 2014 Plan terms and conditions. The Independent
Directors voluntarily refused one of their quarterly fee payments
during the year ended December 31, 2020 in light of the negative
impact that the COVID-19 crisis had on the Company. During the
years ended December 31, 2020 and 2019 the Independent Directors
each received $22,500 and $30,000 per annum of fees. On November 9,
2020 and May 16, 2019 each Independent Director received a grant of
75,000 fully vested shares of the Company's Common Stock with a
total value of $4,500 and $7,200, respectively. Total directors'
compensation including other benefits are disclosed on pages 17 and
18 of this Annual Report and that information forms part of the
audited financial statements.
In May 2007, the Company adopted the 2007 Stock Option and
Incentive Plan (the 2007 Option Plan) for the purpose of issuing
both Incentive Options and Nonqualified Options to officers,
employees and directors of the company. No further grants are
allowed under this plan.
The following table summarizes information about the stock
options outstanding as of December 31, 2020. There was an intrinsic
value on the options outstanding, and exercisable, at December 31,
2020 of $0.2 million. There was no intrinsic value of the options
outstanding or exercisable as of December 31, 2029 since the fair
market value was below the exercise price for all options
outstanding as of that date.
(10) STOCK OPTION PLANS (cont.)
There were no options granted during the year ended December 31,
2020 or 2019. The following table summarizes information related to
the outstanding and exercisable options during the years ended
December 31, 2020 and 2019:
Weighted
Average
Weighted Remaining
Options Average Contractual
Outstanding Exercise Term
Price per (in Years)
Share ($)
----------------- ------------ -----------------
Balance at December 31, 2018
................................... 30,064,867 0.15 6.68
Granted - -
...................................
...........................
Exercised.......................... - -
..................................
Cancelled
..................................
......................... (12,764,823) 0.22
----------------- ------------ -----------------
Balance at December 31, 2019
................................... 17,300,044 0.09 3.68
================= ============ =================
Vested and Exercisable at December
31, 2019 .......... 16,907,594 0.08 3.68
================= ============ =================
Balance at December 31, 2019
................................... 17,300,044 0.09 3.68
Granted - -
...................................
...........................
Exercised.......................... - -
..................................
Cancelled
..................................
......................... (2,095,846) 0.15
----------------- ------------ -----------------
Balance at December 31, 2020
................................... 15,204,198 0.08 2.78
================= ============ =================
Vested and Exercisable at December
31, 2020 .......... 15,204,198 0.08 2.78
================= ============ =================
Vested and Expected to Vest at December
31, 2020 15,204,198 0.08 2.78
================= ============ =================
Weighted Weighted Weighted
Average Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Outstanding Life (years) Price Exercisable Price
Prices
------------ ---------------------------- ----------------- ------------ ----------------- -----------
$ 0.03 - 0.24 15,204,198 2.78 $ 0.08 15,204,198 $ 0.08
Total stock option expense recorded in 2020 was $58,000. At
December 31, 2020, there was no unrecognized compensation cost
related to stock options granted. During 2019 the Company reversed
$1.2 million of stock compensation expense to selling, general and
administrative expense related to the expiration of
performance-based stock options that were cancelled due to
non-achievement of the performance criteria. There were no options
exercised in either 2020 or 2019.
(11) EMPLOYEE STOCK PURCHASE PLAN
In May 2000, the Company adopted the 2000 Employee Stock
Purchase Plan (the Stock Purchase Plan). During the year ended 2019
there were no shares issued under the Stock Purchase Plan and it
was ended on April 4, 2019 by the Board of Directors.
(12) EMPLOYEE DEFINED CONTRIBUTION PLANS
On January 17, 1994, the Company established the ProPhotonix
Limited 401(k) Plan (the Plan). Under the Plan, employees are
allowed to make pre-tax retirement contributions. In addition, the
Company may make matching contributions, not to exceed 100% of the
employee contributions, and profit-sharing contributions at its
discretion. The
(12) EMPLOYEE DEFINED CONTRIBUTION PLANS (cont.)
Company made matching contributions of $18,000 in the year ended
December 31, 2020 and $23,000 in the year ended December 31, 2019.
The Company incurred costs of $2,200 in 2020 and $1,500 in 2019 to
administer the Plan. The Company also has voluntary contribution
pension plans in Ireland and in the United Kingdom. In the United
Kingdom, the Company contributes a maximum of 3% of the
participating employee salaries, with one exception, where the
maximum contribution is 10%. The plan is voluntary, with plan
administration costs coming out of the plan itself. The Company
made contributions of $96,000 and $98,000 in the years ended
December 31, 2020 and 2019. In Ireland, the Company also has a
voluntary plan that matches contributions for those participating
employees with minimum of 6 months of service. After two years of
service, the Company will match up to a maximum of 5% of salary.
The Company made contributions of $57,000 and $45,000 in the years
ended December 31, 2020 and 2019, respectively. Plan administration
costs come out of the plan itself.
(13) LEASES, OTHER OBLIGATIONS AND CONTINGENT LIABILITIES
The Company negotiated concessions in the form of rent payment
deferrals for several of its leases as a result of the impact of
the COVID-19 pandemic. These concessions affect only the timing,
but not the amount of, total lease consideration over the term of
the lease and they had no significant effect on the Company's
results of operations for the year ended December 31, 2020. Thus,
the Company elected to apply the lease modification guidance from
ASC Topic 842, Leases, for the concessions and accounted for the
deferred payments as increases to its operating lease liability and
its capital lease liability.
Operating Leases
The Company leases office space under operating leases that
expire during 2022. Rent expense on these operating leases is
recognized over the term of the lease on a straight-line basis.
ProPhotonix Limited U.K. received a six-month rent deferral from
April through September 2020, totaling $50,000 of which $42,000 is
included in the Company's other accrued expense account as the
Company has taken the practical expedient approach of ASC 842. The
rent deferral resulted in an increase in the monthly lease payment
from $8,000 to $10,000 beginning on October 1, 2020 through the end
of the lease term.
Finance Leases
The Company utilizes, or has assumed, finance leases to finance
purchases of equipment. The Company records depreciation expense on
assets acquired under a finance lease in the consolidated statement
of income. The current and long-term portion of finance lease
obligations are recorded in current and long-term capital lease
obligations on the balance sheet, respectively.
Prophotonix (IRL) Limited received a six-month deferral of rent
payments on its capital leases, totaling $24,000 beginning in April
2020. The monthly payment amounts remain unchanged on these leases
as the maturity date of each lease has been extended by six
months.
Total office rent expense for the years ended December 31, 2020
and 2019 was $0.1 million.
(13) LEASES, OTHER OBLIGATIONS AND CONTINGENT LIABILITIES
(cont.)
The components of lease expense were as follows:
In thousands
Years Ended December 31 2020 2019
----------------------------------------- ------------------ ------------------
Operating lease cost $ 145 $ 78
Finance lease cost:
Amortization of right-of-use assets 86 92
Interest on lease liabilities 3 9
------------------ ------------------
Total lease costs $ 234 $ 179
================== ==================
Other information related to leases was as follows:
In thousands
Years Ended December 31 2020 2019
-------------------------------------------------- ----------------- -----------------
Cash paid for amounts included in the measurement
of lease liabilities
Operating cash flows from operating leases $ 142 $ 142
Operating cash flows from finance leases 41 60
Financing cash flows from finance leases 3 9
Weighted average remaining lease term (in years):
Operating leases 1.7 2.6
Finance leases 1.4 2.1
Weighted average discount rate:
Operating leases 10.0% 10.0%
Finance leases 6.3% 6.5%
Future minimum payments for operating and finance lease
obligations and purchase commitments are as follows:
In thousands
Finance Leases Operating Leases
----------------- ------------------
2021 $ 46 $ 163
2022 13 110
2023 11 -
2024 - -
Thereafter - -
----------------- ------------------
Total minimum lease payments 70 273
Less amount representing interest (4) (41)
Present value of lease liabilities 66 232
================= ==================
Current portion of finance lease obligations 43 -
Operating lease liabilities, current - 117
Operating lease liabilities, noncurrent - 73
Deferred rent - 42
Long term finance lease obligations, net of current
portion 23 -
----------------- ------------------
Total lease liabilities $ 66 $ 232
================= ==================
(14) LEGAL PROCEEDINGS
The Company is at times party to various legal proceedings
generally incidental to its business. Although the disposition of
any legal proceedings cannot be determined with certainty, it is
the Company's opinion that any pending or threatened litigation
will not have a material adverse effect on the Company's results of
operations, cash flow or financial condition.
(15) DEFERRED REVENUE
At December 31, 2020 and 2019, the Company had a total of $1.0
million and $0.8 million in deferred revenue, respectively.
Recognition of this revenue is subject to performance obligations
that exist under the customer contracts associated with this
deferred revenue balance. The Company expects to meet the
performance obligations and recognize the associated revenue over
the period from 2021 through 2022.
(16) SEGMENT INFORMATION
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the Company's chief operating decision-maker. The
Company's chief decision-maker is the Chief Executive Officer. The
Company's accounting policies and method of presentation for
segments is consistent with that used throughout the consolidated
financial statements.
The chief operating decision maker and the board of directors of
each operating segment review operating profit (loss) to evaluate
segment performance and allocate resources to the overall business.
They also review revenue, which is included withing operating
profit (loss).
The Company operates in two segments: LED's (light emitting
diode systems) and Laser & Diodes. In the LED segment, the
Company designs and manufactures LED systems for the inspection,
machine vision, medical and military markets. The Laser &
Diodes segment distributes laser diodes and designs and
manufactures custom laser diodes modules for industrial,
commercial, defense and medical applications. The policies relating
to segments are the same as the Company's corporate policies.
The operating profit / (loss) for each segment includes selling,
research and development and expenses directly attributable to the
segment. Certain of the Company's indirect overhead costs, which
include corporate general and administrative expenses, are
allocated between the segments based upon an estimate of costs
associated with each segment. Segment assets include accounts
receivable, inventory, machinery and equipment, goodwill and
intangible assets directly associated with the product line
segment.
The Company had one customer account for $1.6 million, or 12%,
of its total consolidated revenues in 2020 and the same customer
accounted for $2.1 million, or 14%, of its total consolidated
revenues in 2019. All of this customer's revenues were generated in
the Company's Laser & diodes segment.
In thousands
Years Ended December 31 2020 2019
------------ ----------
Revenues:
LEDs
.......................................................................................
.......... $ 6,909 $ 7,699
Laser & diodes
.................................................................................. 6,649 7,277
------------ ----------
Total revenues
................................................................................... $ 13,558 $ 14,976
============ ==========
Gross profit:
LEDs
.......................................................................................
.......... $ 2,936 $ 3,133
Laser & diodes
.................................................................................. 2,760 2,874
------------ ----------
Total gross profit
............................................................................... $ 5,696 $ 6,007
============ ==========
Operating profit (loss):
LEDs
.......................................................................................
.......... $ 386 $ 594
Laser & diodes
.................................................................................. 204 501
------------ ----------
Total operating profit
(loss)............................................................... $ 590 $ 1,095
============ ==========
(16) SEGMENT INFORMATION (cont.)
In thousands
2020 2019
--------- ----------
Years Ended December 31
Current assets:
LEDs
..........................................................................................
....... $ 2,793 $ 2,358
Laser & diodes
.................................................................................. 2,416 3,581
Corporate
.......................................................................................... 2,783 1,601
--------- ----------
Total current assets
........................................................................... $ 7,992 $ 7,540
========= ==========
Property, plant & equipment:
LEDs
..........................................................................................
....... $ 251 $ 289
Laser & diodes
.................................................................................. 254 271
Corporate
.......................................................................................... 7 13
--------- ----------
Total property, plant & equipment ................................................... $ 512 $ 573
========= ==========
Goodwill:
LEDs
..........................................................................................
....... $ 432 $ 397
Laser & diodes -
.................................................................................. -
Corporate -
.......................................................................................... -
--------- ----------
Total
goodwill..................................................................................
. $ 432 $ 397
========= ==========
Other assets:
LEDs
..........................................................................................
....... $ 524 $ 457
Laser & diodes
.................................................................................. 199 307
Corporate
.......................................................................................... 54 91
--------- ----------
Total other assets
.............................................................................. $ 777 $ 855
========= ==========
Total assets:
LEDs
..........................................................................................
....... 4,000 3,501
Laser & diodes
.................................................................................. 2,869 4,159
Corporate
.......................................................................................... 2,844 1,705
--------- ----------
Total
assets....................................................................................
.... $ 9,713 $ 9,365
========= ==========
Revenues by geographic area are as follows:
In thousands
Years Ended December 31 2020 2019
--------------------------------- --------------------- ---------------------
United States $ 6,847 $ 5,550
Canada, Mexico and South America 116 323
Europe 4,837 8,962
Asia and rest of world 1,758 1,566
--------------------- ---------------------
Total $ 13,558 $ 16,401
===================== =====================
The Company's long-lived assets consist of property, plant and
equipment, goodwill and intangible assets located in the following
geographic locations:
In thousands
Years Ended December 31 2020 2019
-------------------------------- ------------ ------------
United States and North America $ 7 $ 13
Europe 683 686
United Kingdom 254 271
------------ ------------
Total $ 944 $ 970
============ ============
(17) SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 24,
2021, the date which the financial statements were available to be
issued. On February 18, 2021, the Company secured a second PPP loan
from the U.S. Small Business Administration in the amount of $0.1
million. The loan bears interest at a rate of 1% and is payable in
monthly installments of principal and interest over five years,
beginning ten months from the date of the note. The loan may be
repaid at any time with no prepayment penalty. The loan and accrued
interest are forgivable to the extent the proceeds of the loan are
used for eligible expenditures such as payroll and other expenses
as described in the CARES Act.
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END
FR SESFMLEFSEID
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