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Related Party Transactions | 3 Months Ended
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Sep. 30, 2024
Related Party Transactions [Abstract] |
Related Party Transactions | Related Party Transactions The Company has a variety of business relationships with Ablecom and Compuware. Ablecom and Compuware are both Taiwan corporations. Ablecom is one of the Company’s major contract manufacturers; Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company. Ablecom’s Chief Executive Officer, Steve Liang, is the brother of Charles Liang, the Company’s President, Chief Executive Officer and Chairman of the Board. Steve Liang and his family members owned approximately 35.0% of Ablecom’s stock and Charles Liang and his spouse, Sara Liu, who is also an officer and director of the Company, collectively owned approximately 10.5% of Ablecom’s capital stock as of September 30, 2024. Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom. Bill Liang is also the Chief Executive Officer of Compuware, Chairman of Compuware’s Board of Directors and a holder of equity interest in Compuware. Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware. Neither Charles Liang nor Sara Liu own any capital stock of Compuware and the Company does not own any of Ablecom or Compuware’s capital stock. In addition, a sibling of Yih-Shyan (Wally) Liaw, who is the Company's Senior Vice President, Business Development and a director of the Company, owns approximately 11.7% of Ablecom’s capital stock and 8.7% of Compuware’s capital stock. In October 2018, the Company's Chief Executive Officer, Charles Liang, personally borrowed approximately $12.9 million from Chien-Tsun Chang, the spouse of Steve Liang. The loan is unsecured, has no maturity date and bore interest at 0.8% per month for the first six months, increased to 0.85% per month through February 28, 2020, and reduced to 0.25% effective March 1, 2020. The loan was originally made at Mr. Liang's request to provide funds to repay margin loans to two financial institutions, which loans had been secured by shares of the Company's common stock that he held. The lenders called the loans in October 2018, following the suspension of the Company's common stock from trading on NASDAQ in August 2018 and the decline in the market price of the Company's common stock in October 2018. As of September 30, 2024 and June 30, 2024, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.5 million and $16.4 million respectively. Dealings with Ablecom The Company has entered into a series of agreements with Ablecom, including multiple product development, production and service agreements, credit agreements, product manufacturing agreements, manufacturing services agreements and lease agreements for warehouse space. Under these agreements, the Company outsources to Ablecom a portion of its design activities and a significant part of its server chassis manufacturing as well as an immaterial portion of other components. Ablecom manufactured approximately 96.8% and 85.5% of the chassis included in the products sold by the Company during the three months ended September 30, 2024 and 2023, respectively. With respect to design activities, Ablecom generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Ablecom for the design and engineering services, and further agrees to pay Ablecom for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. With respect to the manufacturing aspects of the relationship, Ablecom purchases most of the materials needed to manufacture the chassis from third parties and the Company provides certain components used in the manufacturing process (such as power supplies) to Ablecom through consignment or sales transactions. Ablecom uses these materials and components to manufacture the completed chassis and then sell them back to the Company. For the components purchased from the Company, Ablecom sells the components back to the Company at a price equal to the price at which the Company sold the components to Ablecom. There is no revenue recognized by the Company from these transactions. The Company and Ablecom frequently review and negotiate the prices of the chassis the Company purchases from Ablecom. In addition to inventory purchases, the Company also incurs other costs associated with design services, tooling and other miscellaneous costs from Ablecom. The Company’s exposure to financial loss as a result of its involvement with Ablecom is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding cancelable and non-cancelable purchase orders from the Company to Ablecom on September 30, 2024 were $24.8 million and $48.4 million, respectively, and outstanding cancelable and non-cancelable purchase orders from the Company to Ablecom on June 30, 2024 were $99.0 million and $58.8 million, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Ablecom, or any losses that the equity holders of Ablecom may suffer. Since Ablecom manufactures substantially all the chassis that the Company incorporates into its products, if Ablecom were to suddenly be unable to manufacture chassis for the Company, the Company’s business could suffer if the Company is unable to quickly qualify substitute suppliers who can supply high-quality chassis to the Company in volume and at acceptable prices. The Company has extended a $10.0 million trade credit line with a net 30 days payment terms to Ablecom through a credit agreement that outlines the terms and conditions governing their business dealings. Dealings with Compuware The Company appointed Compuware as a non-exclusive authorized distributor of the Company’s products in Taiwan, China and Australia. Compuware assumes the responsibility of installing the Company's products at the site of the end customer, if required, and administers customer support in exchange for a discount from the Company's standard price for its purchases. The Company also has entered into a series of agreements with Compuware, including multiple product development, production and service agreements, product manufacturing agreements, and lease agreements for office space. The Company has extended a $65.0 million trade credit line with a net 60 days payment terms to Compuware through a credit agreement that outlines the terms and conditions governing their business dealings. Under these agreements, the Company outsources to Compuware a portion of its design activities and a significant part of its power supplies manufacturing as well as an immaterial portion of other components. With respect to design activities, Compuware generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products. The Company pays Compuware for the design and engineering services, and further agrees to pay Compuware for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. With respect to the manufacturing aspects of the relationship, Compuware purchases most of materials needed to manufacture the power supplies from outside markets and uses these materials to manufacture the products and then sell those products to the Company. The Company and Compuware frequently review and negotiate the prices of the power supplies the Company purchases from Compuware. Compuware also manufactures motherboards, backplanes and other components used on printed circuit boards for the Company. The Company sells to Compuware most of the components needed to manufacture the above products. Compuware uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous material charges and costs, including overhead and labor. There is no revenue recognized by the Company from these transactions. The Company and Compuware frequently review and negotiate the amount of the “manufacturing value added” fee that will be included in the price of the products the Company purchases from Compuware. In addition to the inventory purchases, the Company also incurs costs associated with design services, tooling assets, and miscellaneous costs. The Company’s exposure to financial loss as a result of its involvement with Compuware is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products. Outstanding cancelable and non-cancelable purchase orders from the Company to Compuware on September 30, 2024 were $117.2 million and $88.3 million, respectively, and outstanding cancelable and non-cancelable purchase orders from the Company to Compuware on June 30, 2024 were $129.7 million and $93.5 million, respectively, effectively representing the exposure to financial loss. The Company does not directly or indirectly guarantee any obligations of Compuware, or any losses that the equity holders of Compuware may suffer. Dealings with Leadtek Research Inc. In October 2023, Ablecom and Compuware acquired an approximately 30% interest in Leadtek Research Inc. (“Leadtek”), a Taiwan company specializing in providing professional graphics cards and workstation solutions (the “Leadtek Investment”). Prior to the Leadtek Investment, none of the Company’s related parties had direct or indirect material interests in any transactions in which the Company was a participant with Leadtek. Commencing with the closing of the Leadtek Investment, Steve Liang and Bill Liang have served as two of the seven members of the Leadtek board of directors. At the time of Leadtek Investment, Leadtek was, and it continues to be, an authorized reseller of the Company. During the three months ended September 30, 2024, the Company engaged in transactions in which it sold $0.1 million of servers to Leadtek and purchased $0.4 million of graphics cards from Leadtek. Dealings with Investment in a Corporate Venture In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in a privately-held company (the “Corporate Venture”) located in China to expand the Company’s presence in China. The Corporate Venture is 30% owned by the Company and 70% owned by another company in China. The transaction was closed in the third quarter of the fiscal year ended June 30, 2017, and the investment is accounted for using the equity method. As such, the Corporate Venture is also a related party. The Company monitors the investment for events or circumstances indicative of potential impairment and makes appropriate reductions in carrying values if it determines that an impairment charge is required. The carrying value of the equity investment in the corporate venture was $5.0 million and $4.6 million as of September 30, 2024 and June 30, 2024, respectively, recorded in Other assets on the condensed consolidated balance sheets. The Company performed its impairment analysis on this investment and concluded the carrying value is not impaired as of September 30, 2024 and June 30, 2024. No impairment charge was recorded for the three months ended September 30, 2024 and 2023. The Company sold products worth $4.8 million and $0.8 million to the Corporate Venture during the three months ended September 30, 2024 and 2023, respectively. The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of September 30, 2024 and June 30, 2024 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture. To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities. The Company had $0.9 million and $5.1 million due from the Corporate Venture in accounts receivable, net as of September 30, 2024 and June 30, 2024, respectively. Other Transactions For the three months ended September 30, 2024, the Company had immaterial chargebacks from Green Earth Liang’s Inc. (“Green Earth”), an entity affiliated with the Company’s Chief Executive Officer. As of September 30, 2024, the amounts due from Green Earth are immaterial. As of June 30, 2024, the amounts due to and from Green Earth are immaterial. The Company had the following balances related to transactions with its related parties as of September 30, 2024 and June 30, 2024 (in thousands):
| Ablecom |  | Compuware |  | Corporate Venture | Leadtek |  | Total
| September 30, 2024 |  | June 30, 2024 |  | September 30, 2024 |  | June 30, 2024 |  | September 30, 2024 |  | June 30, 2024 | September 30, 2024 | June 30, 2024 |  | September 30, 2024 |  | June 30, 2024
Accounts receivable | $ | 2 |  |  | $ | 1 |  |  | $ | 7,037 |  |  | $ | 142 |  |  | $ | 933 |  |  | $ | 5,075 |  | $ | 19 |  | $ | 976 |  |  | $ | 7,991 |  |  | $ | 6,194 |
Other receivable (1) | $ | 2,393 |  |  | $ | 1,927 |  |  | $ | 12,681 |  |  | $ | 10,012 |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 15,074 |  |  | $ | 11,939 |
Accounts payable | $ | 128,628 |  |  | $ | 98,629 |  |  | $ | 73,220 |  |  | $ | 66,436 |  |  | $ | — |  |  | $ | — |  | $ | 171 |  | $ | 230 |  |  | $ | 202,019 |  |  | $ | 165,295 |
Accrued liabilities (2) | $ | 300 |  |  | $ | — |  |  | $ | 100 |  |  | $ | 170 |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 400 |  |  | $ | 170 |
(1) Other receivables include receivables from vendors included in prepaid and other current assets.
(2) Includes current portion of operating lease liabilities included in other current liabilities.
The Company’s results from transactions with its related parties for each of the three months ended September 30, 2024 and 2023, are as follows (in thousands):
| Ablecom |  | Compuware |  | Corporate Venture | Leadtek |  | Total
| Three months ended September 30, |  | Three months ended September 30, |  | Three months ended September 30, | Three months ended September 30, | Three months ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023 |  | 2024 |  | 2023 | 2024 |  | 2023 |  | 2024 |  | 2023
Net sales | $ | 2 |  |  | $ | 2 |  |  | $ | 9,975 |  |  | $ | 16,606 |  |  | $ | 4,827 |  |  | $ | 788 |  | $ | 71 |  |  | $ | — |  |  | $ | 14,875 |  |  | $ | 17,396 |
Purchases - inventory | $ | 137,507 |  |  | $ | 46,614 |  |  | $ | 102,117 |  |  | $ | 66,493 |  |  | $ | — |  |  | $ | — |  | $ | 427 |  |  | $ | — |  |  | $ | 240,051 |  |  | $ | 113,107 |
Purchases - other miscellaneous items | $ | 6,354 |  |  | $ | 4,759 |  |  | $ | 737 |  |  | $ | 417 |  |  | $ | — |  |  | $ | — |  | $ | — |  |  | $ | — |  |  | $ | 7,091 |  |  | $ | 5,176 |
The Company’s cash flow impact from transactions with its related parties for each of the three months ended September 30, 2024 and 2023, are as follows (in thousands):
| Ablecom |  | Compuware |  | Corporate Venture | Leadtek |  | Total
| Three months ended September 30, |  | Three months ended September 30, |  | Three months ended September 30, | Three months ended September 30, | Three months ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023 |  | 2024 |  | 2023 | 2024 | 2023 |  | 2024 |  | 2023
Changes in accounts receivable | $ | (2) |  |  | $ | (2) |  |  | $ | (6,895) |  |  | $ | 2,436 |  |  | $ | 4,142 |  |  | $ | 1,704 |  | $ | 958 |  | $ | — |  |  | $ | (1,797) |  |  | $ | 4,138 |
Changes in other receivable | $ | (466) |  |  | $ | 558 |  |  | $ | (2,669) |  |  | $ | 2,269 |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | (3,135) |  |  | $ | 2,827 |
Changes in accounts payable | $ | 29,999 |  |  | $ | 8,765 |  |  | $ | 6,784 |  |  | $ | (5,784) |  |  | $ | — |  |  | $ | — |  | $ | (59) |  | $ | — |  |  | $ | 36,724 |  |  | $ | 2,981 |
Changes in accrued liabilities | $ | 300 |  |  | $ | (745) |  |  | $ | (70) |  |  | $ | 3,232 |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 230 |  |  | $ | 2,487 |
Changes in other long-term liabilities | $ | 237 |  |  | $ | — |  |  | $ | — |  |  | $ | (80) |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 237 |  |  | $ | (80) |
Purchases of property, plant and equipment | $ | 2,925 |  |  | $ | 782 |  |  | $ | 204 |  |  | $ | 44 |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 3,129 |  |  | $ | 826 |
Unpaid property, plant and equipment | $ | 3,906 |  |  | $ | 3,672 |  |  | $ | 153 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 4,059 |  |  | $ | 3,672 |

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org/1943274/2147480990/946-20-50-2 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Publisher FASB -URI https://asc.fasb.org/1943274/2147480990/946-20-50-5 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Publisher FASB -URI https://asc.fasb.org/1943274/2147480990/946-20-50-6 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 235 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c) -Publisher FASB -URI https://asc.fasb.org/1943274/2147477968/946-235-50-2 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 235 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147477968/946-235-50-2 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 850 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147483326/850-10-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 220 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-07(2)(g)(3)) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479134/946-220-S99-1 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 220 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-07(2)(c)) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479134/946-220-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 220 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-07(2)(e)) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479134/946-220-S99-1 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 850 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/850/tableOfContent Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 850 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Publisher FASB -URI https://asc.fasb.org/1943274/2147483326/850-10-50-6 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 850 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147483326/850-10-50-1 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Topic 850 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147483326/850-10-50-1 + Details
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