Company Quick10K Filing
Dasan Zhone Solutions
Price12.60 EPS-0
Shares21 P/E-89
MCap269 P/FCF-12
Net Debt3 EBIT-2
TEV272 TEV/EBIT-140
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-24
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-12
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-04
10-Q 2017-09-30 Filed 2017-11-15
10-Q 2017-03-31 Filed 2017-09-28
10-K 2016-12-31 Filed 2017-09-27
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-23
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-06
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-05
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-15
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-16
8-K 2020-06-18
8-K 2020-05-26
8-K 2020-05-07
8-K 2020-03-26
8-K 2020-03-05
8-K 2020-03-05
8-K 2020-03-02
8-K 2020-01-06
8-K 2019-11-25
8-K 2019-11-22
8-K 2019-11-15
8-K 2019-11-12
8-K 2019-11-06
8-K 2019-10-07
8-K 2019-08-26
8-K 2019-08-13
8-K 2019-07-31
8-K 2019-06-10
8-K 2019-05-28
8-K 2019-05-15
8-K 2019-05-14
8-K 2019-05-09
8-K 2019-02-28
8-K 2019-02-28
8-K 2019-01-03
8-K 2018-11-08
8-K 2018-10-05
8-K 2018-08-13
8-K 2018-08-09
8-K 2018-07-12
8-K 2018-05-22
8-K 2018-05-10
8-K 2018-04-09
8-K 2018-03-27
8-K 2018-02-28

DZSI 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 dzsi-ex311_10.htm
EX-31.2 dzsi-ex312_6.htm
EX-32.1 dzsi-ex321_9.htm

Dasan Zhone Solutions Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2802241681125602012201420172020
Assets, Equity
8567493113-42012201420172020
Rev, G Profit, Net Income
50372411-2-152012201420172020
Ops, Inv, Fin

10-Q 1 dzsi-10q_20200331.htm 10-Q dzsi-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended March 31, 2020 

OR

 

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

 

For the transition period from              to

000-32743

(Commission File Number)

 

DASAN ZHONE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

22-3509099

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

1350 South Loop Road, Suite 130

Alameda, California

 

94502

(Address of principal executive offices)

 

(Zip code)

 

(510) 777-7000

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

Common stock, $0.001 par value

DZSI

The Nasdaq Stock Market LLC

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

 

As of May 5, 2020 there were 21,513,373 shares outstanding of the registrant’s common stock, $0.001 par value.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets

3

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss

4

 

Unaudited Condensed Consolidated Statements of Stockholders' Equity and Non-Controlling Interest

5

 

Unaudited Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 5.

Other Information

50

Item 6.

Exhibits

50

 

Signatures

52

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,437

 

 

$

28,747

 

Restricted cash

 

 

9,281

 

 

 

4,646

 

Accounts receivable - trade, net of allowance for doubtful accounts of

     $417 as of March 31, 2020 and $393 as of December 31, 2019

 

 

86,270

 

 

 

96,865

 

Other receivables

 

 

10,020

 

 

 

8,124

 

Contract assets

 

 

3,128

 

 

 

16,680

 

Inventories

 

 

39,912

 

 

 

35,439

 

Prepaid expenses and other current assets

 

 

5,974

 

 

 

4,185

 

Total current assets

 

 

181,022

 

 

 

194,686

 

Property, plant and equipment, net

 

 

6,716

 

 

 

6,769

 

Right-of-use assets from operating leases

 

 

18,778

 

 

 

20,469

 

Goodwill

 

 

3,977

 

 

 

3,977

 

Intangible assets, net

 

 

11,464

 

 

 

12,381

 

Deferred tax assets

 

 

2,364

 

 

 

1,622

 

Other assets

 

 

5,053

 

 

 

6,243

 

Total assets

 

$

229,374

 

 

$

246,147

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable - trade

 

$

35,634

 

 

$

38,427

 

Short-term debt - bank and trade facilities

 

 

12,323

 

 

 

17,484

 

Other payables

 

 

1,966

 

 

 

3,278

 

Contract liabilities - current

 

 

3,305

 

 

 

3,567

 

Operating lease liabilities - current

 

 

4,005

 

 

 

4,201

 

Accrued and other liabilities

 

 

10,203

 

 

 

12,844

 

Total current liabilities

 

 

67,436

 

 

 

79,801

 

Long-term debt

 

 

 

 

 

 

 

 

Bank and trade facilities

 

 

 

 

 

9,937

 

Related party

 

 

27,348

 

 

 

9,096

 

Contract liabilities - non-current

 

 

3,152

 

 

 

3,230

 

Operating lease liabilities - non-current

 

 

16,667

 

 

 

18,154

 

Pension liabilities

 

 

15,768

 

 

 

17,671

 

Other long-term liabilities

 

 

1,714

 

 

 

1,710

 

Total liabilities

 

 

132,085

 

 

 

139,599

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, authorized 36,000 shares, 21,513 and 21,419 shares outstanding as

   of March 31, 2020 and December 31, 2019, respectively, at $0.001 par value

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

141,191

 

 

 

139,700

 

Accumulated other comprehensive loss

 

 

(5,918

)

 

 

(3,939

)

Accumulated deficit

 

 

(38,005

)

 

 

(29,234

)

Total stockholders’ equity

 

 

97,289

 

 

 

106,548

 

Total liabilities and stockholders’ equity

 

$

229,374

 

 

$

246,147

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net revenue:

 

 

 

 

 

 

 

 

Third parties

 

$

47,318

 

 

$

73,234

 

Related parties

 

 

162

 

 

 

855

 

Total net revenue

 

 

47,480

 

 

 

74,089

 

Cost of revenue:

 

 

 

 

 

 

 

 

Products and services - third parties

 

 

30,956

 

 

 

48,172

 

Products and services - related parties

 

 

133

 

 

 

639

 

Amortization of intangible assets

 

 

396

 

 

 

408

 

Total cost of revenue

 

 

31,485

 

 

 

49,219

 

Gross profit

 

 

15,995

 

 

 

24,870

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and product development

 

 

9,600

 

 

 

10,184

 

Selling, marketing, general and administrative

 

 

13,617

 

 

 

15,039

 

Amortization of intangible assets

 

 

372

 

 

 

472

 

Total operating expenses

 

 

23,589

 

 

 

25,695

 

Operating loss

 

 

(7,594

)

 

 

(825

)

Interest income

 

 

70

 

 

 

88

 

Interest expense

 

 

(643

)

 

 

(871

)

Loss on extinguishment of debt

 

 

(1,369

)

 

 

 

Other income, net

 

 

760

 

 

 

228

 

Loss before income taxes

 

 

(8,776

)

 

 

(1,380

)

Income tax (benefit) provision

 

 

(5

)

 

 

77

 

Net loss

 

 

(8,771

)

 

 

(1,457

)

Net income attributable to non-controlling interest

 

 

 

 

 

181

 

Net loss attributable to DASAN

   Zhone Solutions, Inc.

 

 

(8,771

)

 

 

(1,638

)

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,435

)

 

 

(1,124

)

Actuarial gain

 

 

1,456

 

 

 

 

Comprehensive loss

 

 

(10,750

)

 

 

(2,581

)

Comprehensive loss attributable to non-

   controlling interest

 

 

 

 

 

180

 

Comprehensive loss attributable to DASAN

   Zhone Solutions, Inc.

 

$

(10,750

)

 

$

(2,761

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to DASAN

   Zhone Solutions, Inc.

 

 

 

 

 

 

 

 

Basic

 

$

(0.41

)

 

$

(0.10

)

Diluted

 

$

(0.41

)

 

$

(0.10

)

Weighted average shares outstanding used to compute

   basic net loss per share

 

 

21,474

 

 

 

16,593

 

Weighted average shares outstanding used to compute

   diluted net loss per share

 

 

21,474

 

 

 

16,593

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity and Non-Controlling Interest

(In thousands, except per share data)

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

stockholders'

 

 

Non-

controlling

 

 

Total

stockholders'

equity and

non-

controlling

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

 

interest

 

 

interest

 

For the Three-Month

   Period Ended

   March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2019

 

 

21,419

 

 

$

21

 

 

$

139,700

 

 

$

(3,939

)

 

$

(29,234

)

 

$

106,548

 

 

$

 

 

$

106,548

 

Exercise of stock options

   and restricted stock

   grant

 

 

94

 

 

 

 

 

 

709

 

 

 

 

 

 

 

 

 

709

 

 

 

 

 

 

709

 

Stock-based compensation

 

 

 

 

 

 

 

 

782

 

 

 

 

 

 

 

 

 

782

 

 

 

 

 

 

782

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,771

)

 

 

(8,771

)

 

 

 

 

 

(8,771

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,979

)

 

 

 

 

 

(1,979

)

 

 

 

 

 

(1,979

)

Balance as of

   March 31, 2020

 

 

21,513

 

 

$

21

 

 

$

141,191

 

 

$

(5,918

)

 

$

(38,005

)

 

$

97,289

 

 

$

 

 

$

97,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three-Month

   Period Ended

   March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2018

 

 

16,587

 

 

$

16

 

 

$

93,192

 

 

$

(192

)

 

$

(15,777

)

 

$

77,239

 

 

$

615

 

 

$

77,854

 

Stock-based compensation

 

 

9

 

 

 

 

 

 

825

 

 

 

 

 

 

 

 

 

825

 

 

 

 

 

 

825

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,638

)

 

 

(1,638

)

 

 

181

 

 

 

(1,457

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,124

)

 

 

 

 

 

(1,124

)

 

 

(1

)

 

 

(1,125

)

Balance as of

   March 31, 2019

 

 

16,596

 

 

$

16

 

 

$

94,017

 

 

$

(1,316

)

 

$

(17,415

)

 

$

75,302

 

 

$

795

 

 

$

76,097

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

5


 

DASAN ZHONE SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,771

)

 

$

(1,457

)

Adjustments to reconcile net loss to net cash

   Provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,256

 

 

 

1,417

 

Loss on extinguishment of debt

 

 

1,343

 

 

 

 

Amortization of deferred financing costs

 

 

141

 

 

 

73

 

Bargain purchase gain on acquisition

 

 

 

 

 

(334

)

Stock-based compensation

 

 

782

 

 

 

825

 

Provision for inventory write-down

 

 

1,421

 

 

 

14

 

Allowance for doubtful accounts

 

 

24

 

 

 

223

 

Provision for sales returns

 

 

(231

)

 

 

218

 

Unrealized gain on foreign currency transactions

 

 

(1,983

)

 

 

(95

)

Deferred taxes

 

 

(820

)

 

 

19

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

9,109

 

 

 

7,930

 

Contract assets

 

 

14,129

 

 

 

(6,967

)

Inventories

 

 

(7,048

)

 

 

3,828

 

Prepaid expenses and other assets

 

 

(3,285

)

 

 

(207

)

Accounts payable

 

 

(1,261

)

 

 

(3,966

)

Contract liabilities

 

 

(275

)

 

 

(5,166

)

Accrued and other liabilities

 

 

(3,937

)

 

 

(1,331

)

Net cash provided by (used in) operating activities

 

 

594

 

 

 

(4,976

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(560

)

 

 

(109

)

Acquisition of business, net of cash acquired

 

 

 

 

 

(4,697

)

Net cash used in investing activities

 

 

(560

)

 

 

(4,806

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from short-term borrowings and line of credit

 

 

1,307

 

 

 

4,324

 

Repayments of short-term borrowings and line of credit

 

 

(4,167

)

 

 

 

Proceeds from long-term borrowings

 

 

 

 

 

25,000

 

Repayments of borrowings

 

 

(13,125

)

 

 

(17,052

)

Proceeds from related party term loan

 

 

18,361

 

 

 

 

Repayments of related party term loan

 

 

 

 

 

(5,000

)

Deferred financing costs

 

 

 

 

 

(2,184

)

Proceeds from exercise of stock options

 

 

709

 

 

 

 

Net cash provided by financing activities

 

 

3,085

 

 

 

5,088

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(873

)

 

 

(306

)

Net increase in cash, cash equivalents and restricted cash

 

 

2,246

 

 

 

(5,000

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

33,635

 

 

 

35,648

 

Cash, cash equivalents and restricted cash at end of period

 

$

35,881

 

 

$

30,648

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash to statement of

   financial position

 

$

26,437

 

 

$

20,872

 

Cash and cash equivalents

 

 

9,281

 

 

 

9,165

 

Restricted cash

 

 

163

 

 

 

611

 

Long-term restricted cash

 

$

35,881

 

 

$

30,648

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Shares of the Company's common stock held in escrow

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest - bank and trade facilities

 

$

424

 

 

$

642

 

Interest - related party

 

$

152

 

 

$

173

 

Income taxes

 

$

1,504

 

 

$

589

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

Notes to Unaudited Condensed Consolidated Financial Statements

 

(1)

Organization and Summary of Significant Accounting Policies

 

 

(a)

Description of Business

DASAN Zhone Solutions, Inc. (referred to, collectively with its subsidiaries, as “DZS” or the “Company”) is a global provider of ultra-broadband network access solutions and communications platforms deployed by advanced Tier 1, 2 and 3 service providers and enterprise customers. The Company provides a wide array of reliable, cost-effective networking technologies, including broadband access, Ethernet switching, mobile backhaul, Passive Optical LAN and software-defined networks, to a diverse customer base that includes more than 1,200 customers in more than 120 countries worldwide.

DZS was incorporated under the laws of the state of Delaware in June 1999, under the name Zhone Technologies, Inc. The Company is headquartered in Alameda, California with flexible in-house production facilities in Seminole, Florida and Hannover, Germany, and contract manufacturers located in China, India, Korea and Vietnam. The Company also maintains offices to provide sales and customer support at global locations. On March 2, 2020, the Company announced its plans to relocate its corporate headquarters from Alameda, California to Plano, Texas and to establish a new U.S.-based Engineering Center of Excellence in Plano.

 

(b)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements include the accounts of the Company, its wholly owned subsidiaries and a subsidiary in which it had a controlling interest. All inter-company transactions and balances have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on March 24, 2020. For a complete description of what the Company believes to be the critical accounting policies and estimates used in the preparation of its unaudited condensed consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

(c)

Risks and Uncertainties

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, assuming the Company will continue as a going concern.

The Company had net loss of $8.8 million for the three months ended March 31, 2020, and a net loss of $13.3 million for the year ended December 31, 2019. Additionally, the Company incurred significant losses in years prior to 2019. As of March 31, 2020, the Company had an accumulated deficit of $38.0 million and working capital of $113.5 million. As of March 31, 2020, the Company had $26.4 million in cash and cash equivalents, which included $8.7 million in cash balances held by its international subsidiaries, and $39.7 million in aggregate principal debt of which $12.3 million was reflected in current liabilities. 

The Company’s liquidity could be impacted by:

 

its vulnerability to adverse economic conditions in its industry or the economy in general;

 

debt servicing requiring substantial amounts of cash, rather than being available for other purposes, including operations;

 

its ability to plan for, or react to, changes in its business and industry; and

 

investor and customer perceptions about its financial stability and limiting its ability to obtain financing or acquire customers.

7


 

The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next twelve (12) months will depend on its ability to (i) achieve forecasted results of operations, (ii) access funds approved under existing or new credit facilities and/or raise additional capital through sale of the Company’s common stock to the public, and (iii) effectively manage working capital requirements. If the Company cannot raise additional funds when it needs or wants them, its operations and prospects could be negatively affected. Management’s belief that it will achieve forecasted results of operations assumes that, among other things, the Company will continue to be successful in implementing its business strategy. If one or more of these factors do not occur as expected, it could cause the Company to fail to meet its obligations as they come due.

In December 2019, a strain of coronavirus, now known as COVID-19, was reported to have surfaced in Wuhan, China. Since that time, the widespread and sustained transmission of the virus has reached global pandemic status. In response to the pandemic, many national and international health agencies have recommended, and many countries and state, provincial and local governments have implemented, various measures, including travel bans and restrictions, limitations on public and private gatherings, business closures or operating restrictions, social distancing, and shelter-in-place orders. The health effects of the pandemic and the above measures taken in response thereto have had an effect on the global economy in general and has materially impacted and will likely continue to impact the Company’s financial condition, results of operations and cash flows. Given the ongoing and dynamic nature of the virus and the worldwide response related thereto, it is difficult to predict the full impact of the COVID-19 outbreak on our business. Due to the uncertainty around the future economic impact of the pandemic, the fair value measurements used in the Company’s impairment assessments could be negatively impacted and could result in future impairments of goodwill, intangibles and other long-lived assets. During the quarter ended March 31, 2020, the Company’s revenues declined relative to its prior expectations, in part due to the COVID-19 pandemic. The impact of a continued COVID-19 outbreak or sustained measures taken to limit or contain the outbreak could continue to have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Based on the Company's current plans and current business conditions, as of the date of this Quarterly Report on Form 10-Q, the Company believes that its existing cash, cash equivalents and available credit facilities will be sufficient to satisfy its anticipated cash requirements for at least the next twelve months from the date of this Quarterly Report on Form 10-Q.

 

(d)

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

 

(e)

Revenue Disaggregation Information

The following table presents the revenues by source (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue by source:

 

 

 

 

 

 

 

 

Products

 

$

40,644

 

 

$

69,582

 

Services

 

 

6,836

 

 

 

4,507

 

Total

 

$

47,480

 

 

$

74,089

 

 

8


 

The following summarizes required disclosures about geographical concentrations (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue by geography:

 

 

 

 

 

 

 

 

United States

 

$

7,598

 

 

$

9,578

 

Canada

 

 

767

 

 

 

923

 

Total North America

 

 

8,365

 

 

 

10,501

 

Latin America

 

 

2,241

 

 

 

6,585

 

Europe, Middle East, Africa

 

 

12,447

 

 

 

18,414

 

Korea

 

 

9,624

 

 

 

15,851

 

Other Asia Pacific

 

 

14,803

 

 

 

22,738

 

Total International

 

 

39,115

 

 

 

63,588

 

Total

 

$

47,480

 

 

$

74,089

 

 

Contract Balances

 

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations.

 

The opening and closing balances of contract assets and contract liabilities related to contracts with customers are as follows:

 

 

 

Contract

Assets

 

 

Contract

Liabilities

 

December 31, 2019

 

$

16,680

 

 

$

6,797

 

March 31, 2020

 

 

3,128

 

 

 

6,457

 

Decrease

 

$

(13,552

)

 

$

(340

)

 

The decrease in contract liabilities during the three months ended March 31, 2020 was primarily due to the revenue recognition criteria being met for previously deferred revenue, partially offset by invoiced amounts that did not yet meet the revenue recognition criteria. The amount of revenue recognized in the three months ended March 31, 2020 that was included in the prior period contract liability balance was $1.7 million. This revenue consists of services provided to customers who had been invoiced prior to the current year.

 

The decrease in contract assets during the three months ended March 31, 2020 was primarily due to billed products and services during the period.

 

(f)

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and restricted cash which totaled $35.9 million at March 31, 2020, including $12.9 million held by its international subsidiaries.  Cash and cash equivalents consist of financial deposits and money market accounts that are principally held with various domestic and international financial institutions with high credit standing.

The Company’s customers include competitive and incumbent local exchange carriers, competitive access providers, internet service providers, wireless carriers and resellers serving these markets. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Allowances are maintained for potential doubtful accounts.  

For the three months ended March 31, 2020, two customer accounted for 14% and 10% of net revenue, respectively. For the three months ended March 31, 2019, no customer accounted for 10% of net revenue.

9


 

As of March 31, 2020, two customers each represented 19% of net accounts receivable. As of December 31, 2019, two customers represented 18% and 11% of net accounts receivable, respectively, of net accounts receivable.

As of March 31, 2020 and December 31, 2019, receivables from customers in countries other than the United States represented 96% and 94%, respectively, of net accounts receivable.

 

(g)

Business Combinations

The Company allocates the fair value of purchase consideration to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and certain tangible assets such as inventory.

Critical estimates in valuing certain tangible and intangible assets include but are not limited to future expected cash flows from the underlying assets and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

 

(h)

Defined Benefit Plans and Plan Assumptions

The Company provides certain defined benefit pension plans to employees in Germany and Japan. Pension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to the Company based on the terms of the plans and investment and funding decisions. To estimate the impact of these future payments and the Company’s decisions concerning funding of these obligations, the Company is required to make assumptions using actuarial concepts within the framework of U.S. GAAP. The critical assumption is the discount rate. Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates and portfolio composition. The Company evaluates these assumptions at least annually, or more frequently when certain qualifying events occur.

 

(i)

Recent Accounting Pronouncements

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which provided additional implementation guidance on the previously issued ASU. The updated guidance is effective for the Company on January 1, 2022, and requires a modified retrospective adoption method. Early adoption is permitted.  The Company is currently assessing the potential impact of adopting this new guidance on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The updated guidance is effective for the Company on January 1, 2021, with early adoption permitted. The Company is currently assessing the potential impact of adopting this new guidance on its condensed consolidated financial statements.

 

(2)

Business Combinations

Keymile Acquisition

On January 3, 2019, ZTI Merger Subsidiary III Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“ZTI”), acquired all of the outstanding shares of Keymile GmbH (“Keymile”), a limited liability company organized under the laws of Germany, from Riverside KM Beteiligung GmbH (“Riverside”), a limited liability company organized under the laws of Germany, pursuant to a share purchase agreement (the “Keymile Acquisition”) for a final adjusted acquisition price of $9.3 million.  Following the closing of the acquisition, Keymile became a wholly owned subsidiary of the Company. The purchase price allocation resulted in the recognition of goodwill of approximately $1.0 million and the results of operations of Keymile are consolidated with the Company subsequent to the date of acquisition.  During the fourth quarter of 2019, the Company recognized an impairment charge for the full amount of the goodwill recognized in the Keymile Acquisition.

10


 

(3)

Fair Value Measurement

The Company utilizes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

 

Level 1 

Inputs are quoted prices in active markets for identical assets or liabilities.

 

Level 2 

Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

 

Level 3 

Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following financial instruments are not measured at fair value on the Company’s condensed consolidated balance sheet as of March 31, 2020 and December 31, 2019, but require disclosure of their fair values: cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable, accrued liabilities, lease liabilities and debt.  The carrying values of financial instruments such as cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The carrying value of the Company's lease liabilities and debt approximates their fair values based on the current rates available to the Company for debt of similar terms and maturities.

(4)

Cash, Cash Equivalents and Restricted Cash

As of March 31, 2020 and December 31, 2019, the Company's cash and cash equivalents consisted of financial deposits. Restricted cash consisted primarily of cash restricted for performance bonds, warranty bonds and collateral for borrowings, and Long term restricted cash is included in other assets. Long term restricted cash was $0.2 million as of March 31, 2020 and December 31, 2019, respectively.

(5)

Balance Sheet Details

 

Balance sheet detail as of March 31, 2020 and December 31, 2019 is as follows (in thousands):

 

Inventories consisted of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Raw materials

 

$

18,695

 

 

$

15,774

 

Work in process

 

 

1,890

 

 

 

1,458

 

Finished goods

 

 

19,327

 

 

 

18,207

 

Total inventories

 

$

39,912

 

 

$

35,439

 

 

Inventories provided as collateral for borrowings from Export-Import Bank of Korea amounted to $6.4 million and $6.7 million as of March 31, 2020 and December 31, 2019, respectively.

 

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Furniture and fixtures

 

$

10,370

 

 

$

10,803

 

Machinery and equipment

 

 

2,846

 

 

 

2,550

 

Leasehold improvements