UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
SemiLEDs Corporation
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification Number) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading |
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Name of each exchange on which registered |
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The |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
SEMILEDS CORPORATION
FORM 10-Q for the Quarter Ended May 31, 2021
INDEX
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars and shares, except par value)
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May 31, |
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August 31, |
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2021 |
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2020 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and cash equivalents |
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Accounts receivable (including related parties), net of allowance for doubtful accounts of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right of use assets |
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Intangible assets, net |
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Investments in unconsolidated entities |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Current installments of long-term debt |
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$ |
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$ |
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Accounts payable |
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Advance receipt toward convertible note |
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Accrued expenses and other current liabilities |
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Other payable to related parties |
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Operating lease liabilities, current |
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Total current liabilities |
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Long-term debt, excluding current installments |
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Operating lease liabilities, less current portion |
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Total liabilities |
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Commitments and contingencies (Note 5) |
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EQUITY: |
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SemiLEDs stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total SemiLEDs stockholders' equity |
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Noncontrolling interests |
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Total equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
1
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands of U.S. dollars and shares, except per share data)
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Three Months Ended |
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Nine Months Ended |
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May 31, 2021 |
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May 31, 2020 |
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May 31, 2021 |
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May 31, 2020 |
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Revenues, net |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Gain on disposals of long-lived assets, net |
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( |
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— |
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( |
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( |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Other income (expenses): |
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Gain on disposal of investment |
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— |
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— |
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— |
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Interest expenses, net |
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( |
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( |
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( |
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Other income, net |
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Foreign currency transaction gain, net |
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Total other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Income tax expense |
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— |
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— |
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— |
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— |
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Net loss |
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( |
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( |
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( |
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( |
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Less: Net (loss) income attributable to noncontrolling interests |
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( |
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Net loss attributable to SemiLEDs stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to SemiLEDs stockholders: |
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Basic and diluted |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Shares used in computing net loss per share attributable to SemiLEDs stockholders: |
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Basic and diluted |
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See notes to unaudited condensed consolidated financial statements.
2
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands of U.S. dollars)
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Three Months Ended |
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Nine Months Ended |
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May 31, 2021 |
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May 31, 2020 |
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May 31, 2021 |
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May 31, 2020 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive loss, net of tax: |
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Foreign currency translation adjustments, net of tax of $ |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Comprehensive loss attributable to noncontrolling interests |
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$ |
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$ |
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$ |
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$ |
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Comprehensive loss attributable to SemiLEDs stockholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements.
3
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
(In thousands of U.S. dollars and shares)
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Accumulated |
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Total |
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Additional |
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Other |
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SemiLEDs |
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Non- |
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Common Stock |
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Subscribed |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shareholders' |
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Controlling |
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Total |
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Shares |
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Amount |
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Stock |
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Capital |
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Income |
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Deficit |
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Equity |
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Interests |
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Equity |
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BALANCE—September 1, 2019 |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Issuance of common stock under equity incentive plans |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss): |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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BALANCE—November 30, 2019 |
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— |
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— |
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( |
) |
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Issuance of common stock under equity incentive plans |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for private placement |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of convertible notes |
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— |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss): |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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BALANCE—February 29, 2020 |
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— |
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( |
) |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for private placement |
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— |
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( |
) |
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— |
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— |
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— |
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Conversion of notes into common stocks |
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— |
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— |
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— |
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— |
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— |
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Change ownership in SBDI* |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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Comprehensive income (loss): |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
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Net income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
|
BALANCE—May 31, 2020 |
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|
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Accumulated |
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Total |
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Additional |
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Other |
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SemiLEDs |
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Non- |
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|||||
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Common Stock |
|
|
Subscribed |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Shareholders' |
|
|
Controlling |
|
|
Total |
|
||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Capital |
|
|
Income |
|
|
Deficit |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
|||||||||
|
BALANCE—September 1, 2020 |
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Change ownership in SBDI* |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
BALANCE—November 30, 2020 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under equity incentive plans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
BALANCE—February 28, 2021 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under equity incentive plans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
BALANCE—May 31, 2021 |
|
|
|
|
|
$ |
— |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See notes to unaudited condensed consolidated financial statements.
*SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries.
4
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
|
|
|
Nine Months Ended |
|
|||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
Provisions for inventory write-downs |
|
|
|
|
|
|
|
|
|
Gain on disposals of long-lived assets, net |
|
|
( |
) |
|
|
( |
) |
|
Gain on disposals of investments |
|
|
— |
|
|
|
( |
) |
|
Changes in : |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
( |
) |
|
Prepaid expenses and other |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sales of property, plant and equipment |
|
|
|
|
|
|
|
|
|
Payments for development of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
( |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
— |
|
|
|
|
|
|
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
Issuance of common stock for private placement |
|
|
— |
|
|
|
|
|
|
Acquisition of noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
Changes in cash balance included in deconsolidated subsidiaries |
|
|
— |
|
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
( |
) |
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—End of period |
|
$ |
|
|
|
$ |
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Accrual related to property, plant and equipment |
|
$ |
|
|
|
$ |
|
|
See notes to unaudited condensed consolidated financial statements.
5
SEMILEDS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. Business
SemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on
As of May 31, 2021, SemiLEDs had
SemiLEDs’ common stock trades on the NASDAQ Capital Market under the symbol “LEDS”.
2. Summary of Significant Accounting Policies
Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 17, 2020. The unaudited condensed consolidated balance sheet as of August 31, 2020 included herein was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2021, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2021 and 2020, the statement of changes in equity for the three and nine months ended May 31, 2021 and 2020, and the statements of cash flows for the nine months ended May 31, 2021 and 2020. The results for the three or nine months ended May 31, 2021 are not necessarily indicative of the results to be expected for the year ending August 31, 2021.
Going Concern —The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.
6
The Company suffered losses from operations of $
|
|
• |
Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing on product enhancement and developing its LED product into many other applications or devices. |
|
|
• |
Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial flexibility. |
|
|
• |
Raising additional cash through potential equity offerings, including sales through an at-the-market, or ATM, program, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities. |
While the Company’s management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of May 31, 2021 and August 31, 2020, the Company’s restricted cash equivalents at current portion amounted $
Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from
Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.
On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.
7
Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.
Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.
If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.
Use of Estimates —The preparation of unaudited interim 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 unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates.
Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.
Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.
Concentration of Credit Risk —Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.
8
The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits.
|
|
|
May 31, |
|
|
August 31, |
|
||
|
Cash and Cash Equivalents by Location |
|
2021 |
|
|
2020 |
|
||
|
United States; |
|
|
|
|
|
|
|
|
|
Denominated in U.S. dollars |
|
$ |
|
|
|
$ |
|
|
|
Taiwan; |
|
|
|
|
|
|
|
|
|
Denominated in U.S. dollars |
|
|
|
|
|
|
|
|
|
Denominated in New Taiwan dollars |
|
|
|
|
|
|
|
|
|
Denominated in other currencies |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, ages of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
Net revenues generated from sales to the top ten customers represented
The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for
Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s then wholly owned operating subsidiary, issued
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), to reduce the complexity associated with applying U.S. GAAP principles for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting models for convertible instruments and expand the existing disclosure requirements over earnings per share as it relates to convertible instruments. This ASU will be effective for the fiscal year beginning January 1, 2022 and interim periods therein. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The amendments may be
9
adopted through either a modified retrospective method, or a fully retrospective method. The Company is currently evaluating the impact of adopting ASU 2020-06.
3. Balance Sheet Components
Inventories
Inventories as of May 31, 2021 and August 31, 2020 consisted of the following (in thousands):
|
|
|
May 31, |
|
|
August 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Inventory write-downs to estimated net realizable values were $
Property, Plant and Equipment
Property, plant and equipment as of May 31, 2021 and August 31, 2020 consisted of the following (in thousands):
|
|
|
May 31, |
|
|
August 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Buildings and improvements |
|
$ |
|
|
|
$ |
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Other equipment |
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Intangible Assets
Intangible assets as of May 31, 2021 and August 31, 2020 consisted of the following (in thousands):
|
|
|
May 31, 2021 |
|
|||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
Net |
|
||||
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
|
Patents and trademarks |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
August 31, 2020 |
|
|||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
Net |
|
||||
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
|
Patents and trademarks |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10
4. Investments in Unconsolidated Entities
The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2021 and August 31, 2020 consisted of the following (in thousands, except percentages):
|
|
|
May 31, 2021 |
|
|
August 31, 2020 |
|
|
||||||
|
|
|
Percentage |
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
Ownership |
|
Amount |
|
|
Ownership |
|
Amount |
|
|
||
|
Equity investment without readily determinable fair value |
|
Various |
|
$ |
|
|
|
Various |
|
$ |
|
|
|
|
Total investments in unconsolidated entities |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
There were
Equity Investments without Readily Determinable Fair Value
Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
5. Commitments and Contingencies
Operating Lease Agreements —
Most leases do not include options to renew. The exercise of lease renewal options has to be agreed by the lessors. The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized on a straight-line basis over the term of the lease. Lease expense related to these noncancelable operating leases was $
Balance sheet information related to the Company’s leases is presented below:
|
|
|
May 31, 2021 |
|
|
|
Assets |
|
|
|
|
|
Operating lease right of use assets |
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
Operating lease liabilities, current portion |
|
$ |
|
|
|
Operating lease liabilities, less current portion |
|
|
|
|
|
Total |
|
$ |
|
|
The following provides details of the Company’s lease expenses:
|
|
|
Nine Months Ended |
|
|
|
|
|
May 31, 2021 |
|
|
|
Operating lease expenses |
|
$ |
|
|
11
Other information related to leases is presented below:
|
|
|
Nine Months Ended |
|
|
|
|
|
May 31, 2021 |
|
|
|
Cash Paid for amounts Included In Measurement of Liabilities: |
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
Weighted Average Remaining Lease Term: |
|
|
|
|
|
Operating leases |
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
Operating leases |
|
|
|
% |
As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76% based on the information available at commencement date in determining the present value of lease payments.
The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of May 31, 2021 consisted of the following (in thousands):
|
|
|
Operating |
|
|
|
Years Ending August 31, |
|
Leases |
|
|
|
Remainder of 2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future minimum lease payments, undiscounted |
|
|
|
|
|
Less: Imputed interest |
|
|
|
|
|
Present value of future minimum lease payments |
|
$ |
|
|
Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $
Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated. However, the Company cannot predict the outcome of any litigation or the potential for future litigation.
On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $
12
Except as described above, as of May 31 2021, there was no pending or threatened litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.
6. Common Stock
On January 17, 2020, the Company entered into a definitive common stock purchase agreement with XianChang Ma. Pursuant to the terms of the Agreement, Mr. Ma purchased
On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuang Zhu. Pursuant to the terms of the Agreement, Mr. Zhu purchased
On May 25, 2020, J.R. Simplot Company, the largest shareholder of the Company, and Trung Doan, the Chairman and Chief Executive Officer of the Company, each converted $
7. Stock-based Compensation
The Company currently has
Prior to SemiLEDs’ initial public offering, the Company had another stock-based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.
A total of
In November 2020, SemiLEDs granted
In November 2020, SemiLEDs granted
In January 2020, SemiLEDs granted
In September 2019, SemiLEDs granted
In September 2019, SemiLEDs granted
13
The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.
Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of
A summary of the stock-based compensation expense for the three and nine months ended May 31, 2021 and 2020 was as follows (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||||
|
Cost of revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
8. Net Loss Per Share of Common Stock
The following stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive (in thousands of shares):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||||
|
Stock units and stock options to purchase common stock |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
9. Income Taxes
The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2021 and 2020 consisted of the following (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||||
|
U.S. operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Foreign operations |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Unrecognized Tax Benefits
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to
As of both May 31 2021 and August 31, 2020, the Company had
14
10. Related Party Transactions
.
On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to each of J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with a principal sum of $
On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief Executive Officer and the largest shareholder of the Company, with aggregate amounts of $
10. Subsequent Events
The Company has analyzed its operations subsequent to May 31, 2021 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company.
On June 22, 2021, the Company issued
On July 6, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent the Company’s common stock having an aggregate offering price of up to $
Except for the above, the Company has determined that it does not have any material subsequent events to disclose in these unaudited condensed consolidated financial statements.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future results of operations of SemiLEDs Corporation, or “we,” “our” or the “Company,” and financial position, strategy and plans, and our expectations for future operations, including the execution of our restructuring plan and any resulting cost savings, are forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. The words “believe,” “may,” “should,” “plan,” “potential,” “project,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, and actual results and the timing of certain events could differ materially and adversely from those anticipated or implied in the forward-looking statements as a result of many factors. These factors include, among other things,
|
|
• |
Declining cash position. |
|
|
• |
Our ability to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations, the difficulty of which may increase if our common stock is delisted from the NASDAQ Stock Market. |
|
|
• |
Our ability to maintain compliance with the continued listing requirements to avoid our stock being delisted from the Nasdaq Capital Market. |
|
|
• |
The impact of the COVID-19 pandemic on our business and the business of our customers. |
|
|
• |
The inability of our suppliers or other contract manufacturers to produce products that satisfy our requirements. |
|
|
• |
Our ability to implement our cost reduction programs and to execute our restructuring plan effectively. |
|
|
• |
Our ability to improve our gross margins, reduce our net losses and restore our operations to profitability. |
|
|
• |
Our ability to successfully introduce new products that we can produce and that customers will purchase in such amounts as to be sufficiently profitable to cover the costs of developing and producing these products, as well as providing us additional net income from operations. |
|
|
• |
Our ability to effectively develop, maintain and expand our sales and distribution channels, especially in the niche LED markets, including the UV LED and architectural lighting that we focus on. |
|
|
• |
Our ability to successfully manage our operations in the face of the cyclicality, rapid technological change, rapid product obsolescence, declining average selling prices and wide fluctuations in supply and demand typically found in the LED market. |
|
|
• |
Competitive pressures from existing and new companies. |
|
|
• |
Our ability to grow our revenues generated from the sales of our products and to control our expenses. |
|
|
• |
Loss of any of our key personnel, or our failure to attract, assimilate and retain other highly qualified personnel. |
|
|
• |
Intellectual property infringement or misappropriation claims by third parties against us or our customers, including our distributor customers. |
|
|
• |
The failure of LEDs to achieve widespread adoption in the general lighting market, or if alternative technologies gain market acceptance. |
|
|
• |
The loss of key suppliers or contract manufacturers. |
|
|
• |
Our ability to effectively expand or upgrade our production facilities or do so in a timely or cost-effective manner. |
|
|
• |
Difficulty in managing our future growth or in responding to a need to contract operations, and the associated changes to our operations. |
16
|
|
• |
Adverse development in those selected markets, including the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India, where our revenues are concentrated, including the impact of the COVID-19 pandemic on customer demand. |
|
|
• |
Our ability to develop and execute upon a new strategy to exploit the China and India market. |
|
|
• |
Our ability to resolve pending litigation on favorable terms. |
|
|
• |
The reduction or elimination of government investment in LED lighting or the elimination of, or changes in, policies in certain countries that encourage the use of LEDs over some traditional lighting technologies. |
|
|
• |
Our ability to implement our product innovation strategy effectively, particularly in view of the prohibition against our (and/or our assisting others in) making, using, importing, selling and/or offering to sell in the United States our accused products and/or any device that includes an accused product after October 1, 2012 as a result of the injunction agreed to in connection with the Cree Inc., or Cree, litigation. |
|
|
• |
Loss of customers. |
|
|
• |
Failure of our strategy of marketing and selling our products in jurisdictions with limited intellectual property enforcement regimes. |
|
|
• |
Lack of marketing and distribution success by our third-party distributors. |
|
|
• |
Our customers’ ability to produce and sell products incorporating our LED products. |
|
|
• |
Our failure to adequately prevent disclosure of trade secrets and other proprietary information. |
|
|
• |
Ineffectiveness of our disclosure controls and procedures and our internal control over financial reporting. |
|
|
• |
Our ability to profit from future joint ventures, investments, acquisitions and other strategic alliances. |
|
|
• |
Impairment of long-lived assets or investments. |
|
|
• |
Undetected defects in our products that harm our sales and reputation and adversely affect our manufacturing yields. |
|
|
• |
The availability of adequate and timely supply of electricity and water for our manufacturing facilities. |
|
|
• |
Our ability to comply with existing and future environmental laws and the cost of such compliance. |
|
|
• |
The ability of SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, to make dividends and other payments to SemiLEDs Corporation. |
|
|
• |
Our ability to obtain necessary regulatory approvals to make further investments in Taiwan SemiLEDs. |
|
|
• |
Catastrophic events such as fires, earthquakes, floods, tornados, tsunamis, typhoons, pandemics, including the COVID-19 pandemic, wars, terrorist activities and other similar events, particularly if these events occur at or near our operations, or the operations of our suppliers, contract manufacturers and customers. |
|
|
• |
The effect of the legal system in the People’s Republic of China, or the PRC. |
|
|
• |
Labor shortages, strikes and other disturbances that affect our operations. |
|
|
• |
Deterioration in the relations between the PRC and Taiwan governments. |
|
|
• |
Fluctuations in the exchange rate among the U.S. dollar, the New Taiwan, or NT, dollar, the Japanese Yen and other currencies in which our sales, raw materials and component purchases and capital expenditures are denominated. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have not assumed any obligation to, and you should not expect us to, update or revise these statements because of new information, future events or otherwise.
For more information on the significant risks that could affect the outcome of these forward-looking statements, see Item 1A “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, or the 2020 Annual Report, and those contained in Part II, Item 1A of this Quarterly Report, and other information provided from time to time in our filings with the Securities and Exchange Commission, or the SEC.
The following discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes and other information included elsewhere in this Quarterly Report, in our 2020 Annual Report, and in other filings with the SEC.
17
Company Overview
We develop, manufacture and sell light emitting diode (LED) chips and LED components. Our products are used for general lighting applications, including street lights and commercial, industrial, system and residential lighting. Our LED chips may also be used in specialty industrial applications, such as ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications, architectural lighting and entertainment lighting.
Utilizing our patented and proprietary technology, our manufacturing process begins by growing upon the surface of a sapphire wafer, or substrate, several very thin separate semiconductive crystalline layers of gallium nitride, or GaN, a process known as epitaxial growth, on top of which a mirror-like reflective silver layer is then deposited. After the subsequent addition of a copper alloy layer and finally the removal of the sapphire substrate, we further process this multiple-layered material to create individual vertical LED chips.
We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets. We sell our LED chips to packagers or to distributors, who in turn sell to packagers. Our lighting products customers are primarily original design manufacturers, or ODMs, of lighting products and the end‑users of lighting devices. We also contract other manufacturers to produce for our sale certain LED products, and for certain aspects of our product fabrication, assembly and packaging processes, based on our design and technology requirements and under our quality control specifications and final inspection process.
We have developed advanced capabilities and proprietary know-how in:
|
|
• |
reusing sapphire substrate in subsequent production runs; |
|
|
• |
optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light; |
|
|
• |
employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance; |
|
|
• |
utilizing nanoscale surface engineering to improve usable light extraction; |
|
|
• |
manufacturing extremely small footprint LEDs with optimized yield, ideal for Mini LED applications; |
|
|
• |
developing a LED structure that generally consists of multiple epitaxial layers which are vertically-stacked on top of a copper alloy base; |
|
|
• |
developing low cost Chip Scaled Packaging (CSP) technology; and |
|
|
• |
developing multi-pixel Mini LED packages for commercial displays. |
These technical capabilities enable us to produce LED chips, LED component, LED modules and System products. We believe these capabilities and know-how should also allow us to reduce our manufacturing costs and our dependence on sapphire, a costly raw material used in the production of sapphire-based LED devices.
We were incorporated in the State of Delaware on January 4, 2005. We are a holding company for various wholly and majority owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is our wholly owned operating subsidiary, where a substantial portion of our assets are held and located, where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns an approximately 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantial portion of marketing and sale of LED products, including lighting fixtures and systems, and where most of our employees are based.
Key Factors Affecting Our Financial Condition, Results of Operations and Business
The following are key factors that we believe affect our financial condition, results of operations and business:
|
|
• |
COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures and adjusted our operational needs. Our workplaces are operating under enhanced measures to ensure the health and safety of our employees, including limiting the visitors coming into our workplace and using videoconferencing for meetings when possible. Our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. The conditions caused by the COVID-19 pandemic have adversely affected our customers’ ability or willingness to purchase our products or services, delayed prospective customers’ purchasing decisions, adversely impacted our ability to provide or deliver products and on-site services to our customers, delayed the provisioning of our offerings, or lengthened payment terms, all of which |
18
|
|
could adversely affect our future sales, operating results and overall financial performance. Our operations have also begun to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, our largest customer, Revlon, Inc., postponed its regular orders, which has decreased our sales revenue for the nine months ended May 31, 2021, and we cannot foresee any order from Revlon after the ordered products being shipped. To avoid cash shortage due to the pandemic, we applied and received subsidies from the Taiwan government. Our bank granted us a deferment period for twelve months starting from May 2020. During this period, we did not need to pay the monthly payments of the principal but only the interest. We have also devoted ourselves to new product development and expect these new products could bring in new revenue, offsetting the losses resulted from existing customers’ delayed purchasing. However, given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments which could have a material adverse effect on our financial position and results of operations. |
|
|
• |
Our ability to raise additional debt, sell additional equity securities and improve our liquidity. We need to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations. However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us, or at all. The raising of additional debt funding by us, if required and available, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict our operations. The sale of additional equity securities, if required and available, could result in dilution to our stockholders. |
|
|
• |
Our ability to get chips from other chip suppliers. Our reliance on our chip suppliers exposes us to a number of significant risks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed production capacity or product supply. If our chip suppliers are unable or unwilling to continue to supply our chips at requested quality, quantity, performance and costs, or in a timely manner, our business and reputation could be seriously harmed. Our inability to procure chips from other chip suppliers at the desired quality, quantity, performance and cost might result in unforeseen manufacturing and operations problems. In such events, our customer relationships, business, financial condition and results of operations would be adversely affected. |
|
|
• |
Industry growth and demand for products and applications using LEDs. The overall adoption of LED lighting devices to replace traditional lighting sources is expected to influence the growth and demand for LED chips and component products and impact our financial performance. We believe the potential market for LED lighting will continue to expand. LEDs for efficient generation of UV light are also starting to gain attention for various medical, germicidal and industrial applications. Since a substantial portion of our LED chips, LED components and our lighting products are used by end- users in general lighting applications and specialty industrial applications such as UV curing, medical/cosmetic, counterfeit detection, horticulture, architectural lighting and entertainment lighting the adoption of LEDs into these applications should have a strong impact on the demand of LED chips generally and, as a result, for our LED chips, LED components and LED lighting products. |
|
|
• |
Average selling price of our products. The average selling price of our products may decline for a variety of factors, including prices charged by our competitors, the efficacy of our products, our cost basis, changes in our product mix, the size of the order and our relationship with the relevant customer, as well as general market and economic conditions. Competition in the markets for LED products is intense, and we expect that competition will continue to increase, thereby creating a highly aggressive pricing environment. For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in our revenues and the gross margin of our products. When prices decline, we must also write down the value of our inventory. Furthermore, the average selling prices for our LED products have typically decreased over product life cycles. Therefore, our ability to continue to innovate and offer competitive products that meet our customers’ specifications and pricing requirements, such as higher efficacy LED products at lower costs, will have a material influence on our ability to improve our revenues and product margins, although in the near term the introduction of such higher performance LED products may further reduce the selling prices of our existing products or render them obsolete. |
19
|
|
• |
Changes in our product mix. We anticipate that our gross margins will continue to fluctuate from period to period as a result of the mix of products that we sell and the utilization of our manufacturing capacity in any given period, among other things. For example, we continue to pursue opportunities for profitable growth in areas of our business where we see the best opportunity to develop as an end-to-end LED module solution supplier by providing our customers with high quality, flexible and more complete LED system solution, customer technical support and LED module/system design, as opposed to just providing customers with individual components. As a strategic plan, we have placed greater emphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory. Steady growth of the module product and the continued commercial sales of our UV LED product are expected to improve our gross margin, operating results and cash flows. In addition, we have adjusted the lower-priced LED components strategy as appropriate. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products that have been available in the market for some time. However, as we expand and diversify our product offerings and with varying average selling prices, or execute new business initiatives, a change in the mix of products that we sell in any given period may increase volatility in our revenues and gross margin from period to period. |
|
|
• |
Our ability to reduce cost to offset lower average selling prices. Competitors may reduce average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost of production of our products. However, such cost savings currently have limited impact on our gross profit, as we currently suffer from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. While we intend to focus on managing our costs and expenses, over the long term we expect to be required to invest substantially in LED component products development and production equipment if we are to grow. |
|
|
• |
Our ability to continue to innovate. As part of our growth strategy, we plan to continue to be innovative in product design, to deliver new products and to improve our manufacturing efficiencies. Our continued success depends on our ability to develop and introduce new, technologically advanced and lower cost products, such as more efficient, better performance LED component products. If we are unable to introduce new products that are commercially viable and meet rapidly evolving customer requirements or keep pace with evolving technological standards and market developments or are otherwise unable to execute our product innovation strategy effectively, we may not be able to take advantage of market opportunities as they arise, execute our business plan or be able to compete effectively. To differentiate ourselves from other LED package manufacturers, we are putting more resources towards module and system design. Along with our technical know-how in the chip and package sectors, we are able to further integrate electrical, thermal and mechanical manufacturing resources to provide customers with one-stop system services. Services include design, prototyping, OEM and ODM. Key markets that we intend to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging light engines, horticultural lighting and high standard commercial lighting. The modules are designed for various printing, curing, and PCB exposure industrial equipments, providing uncompromised reliability and optical output. Our LED components include different sizes and wattage to accommodate different demands in the LED market. |
|
|
• |
General economic conditions and geographic concentration. Many countries including the United States and the European Union (the “E.U.”) members have instituted, or have announced plans to institute, government regulations and programs designed to encourage or mandate increased energy efficiency in lighting. These actions include in certain cases banning the sale after specified dates of certain forms of incandescent lighting, which are advancing the adoption of more energy efficient lighting solutions such as LEDs. When the global economy slows or a financial crisis occurs, consumer and government confidence declines, with levels of government grants and subsidies for LED adoption and consumer spending likely to be adversely impacted. Our revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India. Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted by general economic and political conditions in such markets. For example, the aggressive support by the Chinese government for the LED industry through significant government incentives and subsidies to encourage the use of LED lighting and to establish the LED ‑ sector companies has resulted in production overcapacity in the market and intense competition. Furthermore, due to Chinese package manufacturers increasing usage of domestic LED chips, prices are increasingly competitive, leading to Chinese manufacturers growing market share in the global LED industry. In addition, we have historically derived a significant portion of our revenues from a limited number of customers. Some of our largest customers and what we produce/have produced for them have changed from quarter to quarter primarily as a result of the timing of discrete, large project‑based purchases and broadening customer base, among other things. For the three and the nine months ended May 31, 2021, sales to our three largest customers, in the aggregate, accounted for 51% and 52% of our revenues, respectively. |
20
|
|
• |
Intellectual property issues. Competitors of ours and other third parties have in the past and will likely from time to time in the future allege that our products infringe on their intellectual property rights. Defending against any intellectual property infringement claims would likely result in costly litigation and ultimately may lead to our not being able to manufacture, use or sell products found to be infringing. In June 2012, we settled an intellectual property dispute involving Cree. We agreed to dismiss amended complaints filed against each other without prejudice. We agreed to the entry of a permanent injunction that was effective October 1, 2012 that precludes us from (and/or from assisting others in) making, using, importing, selling and/or offering to sell in the United States certain accused products and/or any device that includes such an accused product after that date and to payment of a settlement fee for past damages. All remaining claims between Cree and us were withdrawn without prejudice, with each retaining the right to assert them in the future. However, other third parties may also assert infringement claims against our customers with respect to our products, or our customers’ products that incorporate our technologies or products. Any such legal action or the threat of legal action against us, or our customers, could impair such customers’ continued demand for our products. This could prevent us from growing or even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our financial condition and results of operations. |
|
|
• |
Cash position. Our cash and cash equivalents decreased to $1.7 million as of May 31, 2021 primarily due to the net cash used in operating activities. We have implemented actions to accelerate operating cost reductions and improve operational efficiencies. The plan is further enhanced through the fabless business model in which we implemented certain workforce reductions and are exploring the opportunities to sell certain equipment related to the manufacturing of vertical LED chips, in order to reduce the idle capacity charges, minimize our research and development activities associated with chips manufacturing operation. We believe we will be able to generate positive cash inflows through the restructuring of our chip operation and the significant ongoing cost savings in the form of reduced payroll and research and development activities. The shipment of our new module product and the continued commercial sales of our UV LED product are expected to grow steadily. Based on our current financial projections, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months. Please see “Critical Accounting Policies and Estimates” for more information about our liquidity plans. |
Critical Accounting Policies and Estimates
Effective September 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. There was no material impact on our consolidated financial position, results of operations or cash flows due to the adoption.
Effective September 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. There was no material impact on our consolidated financial position, results of operations or cash flows due to the adoption.
Except as described above, there have been no material changes in the matters for which we make critical accounting policies and estimates in the preparation of our unaudited interim condensed consolidated financial statements for the three months and nine months ended May 31, 2021 as compared to those disclosed in our 2020 Annual Report.
Exchange Rate Information
We are a Delaware corporation and, under SEC requirements, must report our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. At the same time, our subsidiaries use the local currency as their functional currency. For example, the functional currency for Taiwan SemiLEDs is the NT dollar. The assets and liabilities of the subsidiaries are, therefore, translated into U.S. dollars at exchange rates in effect at each balance sheet date, and income and expense accounts are translated at average exchange rates during the period. The resulting translation adjustments are recorded to a separate component of accumulated other comprehensive income (loss) within equity. Any gains and losses from transactions denominated in currencies other than their functional currencies are recognized in the consolidated statements of operations as a separate component of other income (expense). Due to exchange rate fluctuations, such translated amounts may vary from quarter to quarter even in circumstances where such amounts have not materially changed when denominated in their functional currencies.
21
The translations from NT dollars to U.S. dollars were made at the exchange rates as set forth in the statistical release of the Bank of Taiwan. On May 31, 2021, the exchange rate was 27.64 NT dollars to one U.S. dollar. On July 6, 2021, the exchange rate was 27.91 NT dollars to one U.S. dollar.
No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.
Results of Operations
Three Months Ended May 31, 2021 Compared to the Three Months Ended May 31, 2020
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
||||||||||||||||||||||||
|
LED chips |
|
$ |
32 |
|
|
|
2 |
|
% |
|
$ |
11 |
|
|
|
1 |
|
% |
|
$ |
21 |
|
|
|
191 |
|
% |
|
LED components |
|
|
1,057 |
|
|
|
74 |
|
% |
|
|
929 |
|
|
|
59 |
|
% |
|
|
128 |
|
|
|
14 |
|
% |
|
Lighting products |
|
|
204 |
|
|
|
14 |
|
% |
|
|
153 |
|
|
|
10 |
|
% |
|
|
51 |
|
|
|
33 |
|
% |
|
Other revenues(1) |
|
|
146 |
|
|
|
10 |
|
% |
|
|
476 |
|
|
|
30 |
|
% |
|
|
(330 |
) |
|
|
(69 |
) |
% |
|
Total revenues, net |
|
|
1,439 |
|
|
|
100 |
|
% |
|
|
1,569 |
|
|
|
100 |
|
% |
|
|
(130 |
) |
|
|
(8 |
) |
% |
|
Cost of revenues |
|
|
775 |
|
|
|
54 |
|
% |
|
|
1,153 |
|
|
|
73 |
|
% |
|
|
(378 |
) |
|
|
(33 |
) |
% |
|
Gross profit |
|
$ |
664 |
|
|
|
46 |
|
% |
|
$ |
416 |
|
|
|
27 |
|
% |
|
$ |
248 |
|
|
|
60 |
|
% |
|
(1) |
Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services. |
Revenues, net
Our revenues decreased by 8% to $1.4 million for the three months ended May 31, 2021 from $1.6 million for the three months ended May 31, 2020. The decrease in revenues was driven primarily by a $330 thousand decrease in other revenues, offset in part by a $21 thousand increase in LED chips, a $128 thousand increase in sales of LED components and a $51 thousand increase in lighting products.
Revenues attributable to the sales of our LED chips were $32 thousand and $11 thousand, representing 2% and 1%, respectively, of our revenues for the three months ended May 31, 2021 and 2020, the increase was primarily due to varying volumes sold for the LED chips. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products that have been available in the market for some time and to focus on profitable products.
Revenues attributable to the sales of our LED components were $1,057 thousand and $929 thousand, representing 74% and 59%, respectively, of our revenues for the three months ended May 31, 2021 and 2020. Revenues attributable to sales of LED components were higher for the three months ended May 31, 2021 primarily due to more volumes sold.
Revenues attributable to the sales of lighting products represented 14% and 10% of our revenues for the three months ended May 31, 2021 and 2020, respectively. Revenues attributable to the sales of lighting products were slightly higher for the three months ended May 31, 2021 primarily due to higher volumes sold.
Revenues attributable to other revenues represented 10% and 30% of our revenues for the three months ended May 31, 2021 and 2020, respectively. The decrease in revenues attributable to other revenues was primarily due to decreases in the provision of services and sales of raw materials in the three months ended May 31, 2021.
Cost of Revenues
Our cost of revenues decreased by 33% from $1.2 million for the three months ended May 31, 2020 to $775 thousand for the three months ended May 31, 2021. The decrease in cost of revenues was primarily due to focusing on profitable products and services.
22
Gross Profit
Our gross profit increased from $416 thousand for the three months ended May 31, 2020 to $664 thousand for the three months ended May 31, 2021. Our gross margin percentage increased from 27% to 46% for the three months ended May 31, 2021 as a consequence of focusing on profitable products.
Operating Expenses
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
|
Research and development |
|
$ |
528 |
|
|
|
37 |
|
% |
|
$ |
375 |
|
|
|
24 |
|
% |
|
$ |
153 |
|
|
|
41 |
|
% |
|
Selling, general and administrative |
|
|
730 |
|
|
|
51 |
|
% |
|
|
782 |
|
|
|
50 |
|
% |
|
|
(52 |
) |
|
|
(7 |
) |
% |
|
Gain on disposals of long-lived assets, net |
|
|
(2 |
) |
|
|
— |
|
% |
|
|
— |
|
|
|
— |
|
% |
|
|
(2 |
) |
|
|
(100 |
) |
% |
|
Total operating expenses |
|
$ |
1,256 |
|
|
|
88 |
|
% |
|
$ |
1,157 |
|
|
|
74 |
|
% |
|
$ |
99 |
|
|
|
9 |
|
% |
Research and development Our research and development expenses were $528 thousand and $375 thousand for the three months ended May 31, 2021 and 2020, respectively. The increase was primary due to a $132 thousand increase in out-source manufacturing, an $8 thousand increase in materials and supplies used for our new products, and a $5 thousand increase in payroll and compensation plus increases in depreciation and amortization expense and various other expenses.
Selling, general and administrative Our selling, general and administrative expenses decreased from $782 thousand for the three months ended May 31, 2020 to $730 thousand for the three months ended May 31, 2021. The decrease was mainly attributable to a $111 thousand decrease in professional services fees offset partially by a $63 thousand increase in payroll and in various expenses.
Gain on disposal of long-lived assets, net We recognized a net gain of $2 thousand on the disposal of long-lived assets for the three months ended May 31, 2021. Due to the excess capacity charges that we have experienced for the last few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment.
Other Income (Expenses)
|
|
|
Three Months Ended |
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
|
(in thousands) |
|
|
||||||||||||||
|
Interest expenses, net |
|
$ |
(94 |
) |
|
|
(7 |
) |
% |
|
$ |
(95 |
) |
|
|
(6 |
) |
% |
|
Other income, net |
|
|
474 |
|
|
|
33 |
|
% |
|
|
270 |
|
|
|
17 |
|
% |
|
Foreign currency transaction gain, net |
|
|
155 |
|
|
|
11 |
|
% |
|
|
57 |
|
|
|
4 |
|
% |
|
Total other income, net |
|
$ |
535 |
|
|
|
37 |
|
% |
|
$ |
232 |
|
|
|
15 |
|
% |
Interest expenses, net The decrease in interest expenses, net was primarily due to a decrease in debt balance, resulting from the conversion of $600,000 of convertible notes into 200,000 shares of the Company’s common stock in May 2020.
Other income, net Other income, net increased from $270 thousand for the three months ended May 31, 2020 to $474 thousand for the three months ended May 31, 2021, primarily due to subsidies received from the Taiwan government for the COVID-19 pandemic.
Foreign currency transaction loss, net We recognized a net foreign currency transaction gain of $155 thousand and $57 thousand for the three months ended May 31, 2021 and 2020, respectively, primarily due to the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables.
23
Income Tax Expense
Our effective tax rate is expected to be approximately zero for fiscal 2021 and was zero for fiscal 2020, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries.
Net Income Attributable to Noncontrolling Interests
|
|
|
Three Months Ended |
|
|
|||||||||||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
||
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
|
(in thousands) |
|
|
|||||||||||||
|
Net income attributable to noncontrolling interests |
|
$ |
7 |
|
|
|
— |
|
% |
$ |
4 |
|
|
|
— |
|
% |
We recognized net income attributable to non-controlling interests of $7 thousand and $4 thousand for the three months ended May 31, 2021 and 2020, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the non-controlling holders. Non-controlling interests represented 3.05% and 3.25% equity interest in Taiwan Bandaoti Zhaoming CO., Ltd as of May 31, 2021 and 2020, respectively.
Nine months Ended May 31, 2020 Compared to the Nine months Ended May 31, 2019
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
||||||||||||||||||||||||
|
LED chips |
|
$ |
119 |
|
|
|
3 |
|
% |
|
$ |
55 |
|
|
|
1 |
|
% |
|
$ |
64 |
|
|
|
116 |
|
% |
|
LED components |
|
|
2,314 |
|
|
|
69 |
|
% |
|
|
2,810 |
|
|
|
60 |
|
% |
|
|
(496 |
) |
|
|
(18 |
) |
% |
|
Lighting products |
|
|
525 |
|
|
|
16 |
|
% |
|
|
355 |
|
|
|
8 |
|
% |
|
|
170 |
|
|
|
48 |
|
% |
|
Other revenues(1) |
|
|
406 |
|
|
|
12 |
|
% |
|
|
1,449 |
|
|
|
31 |
|
% |
|
|
(1,043 |
) |
|
|
(72 |
) |
% |
|
Total revenues, net |
|
|
3,364 |
|
|
|
100 |
|
% |
|
|
4,669 |
|
|
|
100 |
|
% |
|
|
(1,305 |
) |
|
|
(28 |
) |
% |
|
Cost of revenues |
|
|
2,481 |
|
|
|
74 |
|
% |
|
|
3,187 |
|
|
|
68 |
|
% |
|
|
(706 |
) |
|
|
(22 |
) |
% |
|
Gross profit |
|
$ |
883 |
|
|
|
26 |
|
% |
|
$ |
1,482 |
|
|
|
32 |
|
% |
|
$ |
(599 |
) |
|
|
(40 |
) |
% |
|
(1) |
Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services. |
Revenues, net
Our revenues decreased by 28% from $4.7 million for the nine months ended May 31, 2020 to $3.4 million for the nine months ended May 31, 2021. The $1.3 million decrease in revenues reflects a $496 thousand decrease in sales of LED components and a $1.0 million decrease in revenues attributable to other revenue, offset by a $64 thousand increase in sales of LED chips and a $170 thousand increase in revenues attributable to sales of lighting products.
Revenues attributable to the sales of our LED chips represented 3% and 1% of our revenues for the nine months ended May 31, 2021 and 2020, respectively. The increase in revenues attributable to sales of LED chips was a result of an increase in the volume of LED chips sold.
24
Revenues attributable to the sales of our LED components were $2.3 million and $2.8 million, representing 69% and 60%, respectively, of our revenues for the nine months ended May 31, 2021 and May 31, 2020. The decrease in revenues attributable to sales of LED components was primarily due to the impact of COVID-19 pandemic on customer demand for UV LED components products.
Revenues attributable to the sales of lighting products represented 16% and 8% of our revenues for the nine months ended May 31, 2021 and 2020, respectively. Revenues attributable to the sales of lighting products was $170 thousand higher for the nine months ended May 31, 2021 primarily due to a seasonal swing in demand on LED luminaries.
Revenues attributable to other revenues represented 12% and 31% of our revenues for the nine months ended May 31, 2021 and 2020, respectively. The decrease in revenues attributable to other revenues was primarily due to decreases in the provision of services and sales of raw materials in the nine months ended May 31, 2021.
Cost of Revenues
Our cost of revenues decreased by 22% from $3.2 million for the nine months ended May 31, 2020 to $2.5 million for the nine months ended May 31, 2021. The decrease in cost of revenues was primarily due to the decrease in the volume of products sold.
Gross Profit
Our gross profit decreased from $1.5 million for the nine months ended May 31, 2020 to a gross profit of $883 thousand for the nine months ended May 31, 2021. Our gross margin percentage was 26% for the nine months ended May 31, 2021, as compared to 32% for the nine months ended May 31, 2020 as a consequence of the COVID-19 pandemic impact on customer demand, as more fully described above.
Operating Expenses
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
|
Research and development |
|
$ |
1,162 |
|
|
|
35 |
|
% |
|
$ |
1,112 |
|
|
|
24 |
|
% |
|
$ |
50 |
|
|
|
4 |
|
% |
|
Selling, general and administrative |
|
|
2,078 |
|
|
|
62 |
|
% |
|
|
2,141 |
|
|
|
46 |
|
% |
|
|
(63 |
) |
|
|
(3 |
) |
% |
|
Gain on disposals of long-lived assets, net |
|
|
(286 |
) |
|
|
(9 |
) |
% |
|
|
(79 |
) |
|
|
(2 |
) |
% |
|
|
(207 |
) |
|
|
262 |
|
% |
|
Total operating expenses |
|
$ |
2,954 |
|
|
|
88 |
|
% |
|
$ |
3,174 |
|
|
|
68 |
|
% |
|
$ |
(220 |
) |
|
|
— |
|
% |
Research and development Our research and development expenses were $1.2 million and $1.1 million for the nine months ended May 31, 2021 and 2020, respectively. The increase was primary due to a $140 thousand increase in out-source manufacturing, a $26 thousand increase in materials and supplies used for our new products and a $9 thousand increase in depreciation and amortization expense, offset partially by decreases in payroll and compensation.
Selling, general and administrative Our selling, general and administrative expenses were $2.1 million for both the nine months ended May 31, 2021 and May 31, 2020. The slight decrease was mainly attributable to a $144 thousand decrease in professional service fee, offset partially by a $83 thousand increase in payroll and in various expenses.
Gain on disposal of long-lived assets, net
We recognized a net gain of $286 thousand and $79 thousand on the disposal of long-lived assets for the nine months ended May 31, 2021 and 2020, respectively. Due to the excess capacity charges that we have experienced for the last few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment.
25
Other Income (Expenses)
|
|
|
Nine Months Ended |
|
|
||||||||||||||
|
|
|
May 31, 2021 |
|
|
|
May 31, 2020 |
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
|
(in thousands) |
|
|
||||||||||||||
|
Gain on disposal of investment |
|
$ |
— |
|
|
|
— |
|
% |
|
$ |
634 |
|
|
|
14 |
|
% |
|
Interest expenses, net |
|
|
(278 |
) |
|
|
(8 |
) |
% |
|
|
(273 |
) |
|
|
(5 |
) |
% |
|
Other income, net |
|
|
951 |
|
|
|
28 |
|
% |
|
|
594 |
|
|
|
13 |
|
% |
|
Foreign currency transaction gain, net |
|
|
380 |
|
|
|
11 |
|
% |
|
|
256 |
|
|
|
5 |
|
% |
|
Total other income, net |
|
$ |
1,053 |
|
|
|
31 |
|
% |
|
$ |
1,211 |
|
|
|
27 |
|
% |
Gain on disposal of investment We recognized a gain of $634 thousand for the nine months ended May 31, 2020. On November 27, 2019, we entered into a stock purchase agreement to sell all of the outstanding shares of our Hong Kong Subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd for $100,000 and an additional $40,000 for the transaction cost. The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.
Interest expenses, net The increase in interest expenses, net was primarily due to the issuance of $2 million of convertible notes in December 2019, and our entry into an aggregate amount of $3.2 million of loan agreements in January 8, 2019, with each of our Chairman and Chief Executive Officer and our largest shareholder, offset by the conversion of $600,000 of convertible notes into 200,000 shares of the Company’s common stock in May 2020.
Other income, net The increase in other income for the nine months ended May 31, 2021 primarily consists of additional subsidies received from the Taiwan government for COVID-19 pandemic and rental income from the lease of spare space in our Hsinchu building, compared to the nine months ended May 31, 2020.
Foreign currency transaction gain, net We recognized net foreign currency transaction gain of $380 thousand and $256 thousand for the nine months ended May 31, 2021 and 2020, respectively, primarily due to the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.
Income Tax Expense
Our effective tax rate is expected to be approximately zero for fiscal 2021 and was zero for fiscal 2020, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
Net (Loss) Income Attributable to Noncontrolling Interests
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
||
|
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Net income (loss) attributable to noncontrolling interests |
|
$ |
(2 |
) |
|
|
— |
|
% |
$ |
1 |
|
|
|
— |
|
We recognized net loss attributable to non-controlling interests of $2 thousand and net gain of $1 thousand for the nine months ended May 31, 2021 and 2020, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the non-controlling holders. Non-controlling interests represented 3.05% and 3.25% equity interest in Taiwan Bandaoti Zhaoming CO., Ltd, as of May 31, 2021 and May 31, 2020, respectively.
26
Liquidity and Capital Resources
As of May 31, 2021 and August 31, 2020, we had cash and cash equivalents of $1.7 million and $2.8 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.
As of July 6, 2021, we had no available credit facility.
Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured promissory notes, and loans from our Chairman and our largest shareholder, totaled $7.8 million and $7.7 million as of May 31, 2021 and August 31, 2020, respectively.
Our NT dollar denominated long-term notes, totaled $3.2 million and $3.1 million as of May 31, 2021 and August 31, 2020, respectively. These long-term notes consisted of two loans which we entered into on July 5, 2019, with aggregate amounts of $3.2 million (NT$100 million). The first loan originally for $2.0 million (NT$62 million) has an annual floating interest rate equal to the NTD base lending rate plus 0.64% (or 1.440% currently), and was exclusively used to repay the existing loans. The second loan originally for $1.2 million (NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 1.820% currently) and is available for operating capital. These loans are secured by a $90 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building. Due to the impact of the COVID-19 pandemic, the bank agreed to give us a deferment period for twelve months starting from May 2020. During this period, we don’t need to pay the monthly payments of the principal but only the interest.
|
|
• |
Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $23 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of May 31, 2021, our outstanding balance on this note payable was approximately $2.0 million. |
|
|
• |
Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $14 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of May 31, 2021, our outstanding balance on this note payable was approximately $1.2 million. |
Property, plant and equipment pledged as collateral for our notes payable were both $3.6 million as of May 31, 2021 and August 31, 2020, respectively.
On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive Officer and our largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to the agreement dated December 15, 2015. We are required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively. In February 2021, the loan agreements were extended with the same principal amount and interest rate for one year, which is due on January 15, 2022. As of May 31, 2021 and August 31, 2020, these loans totaled $3.2 million. The loans are secured by a second priority security interest on our headquarters building.
On December 6, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes to each of our Chairman and Chief Executive Officer and our largest shareholder (the “Holders”), with a principal sum of $2 million and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021 (the “Maturity Date”). The outstanding principal and unpaid accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our Common stock. On May 26, 2021, the Notes were extended with the same terms and interest rate for one year, which is mature on May 30, 2021. As of May 31, 2021 and August 31, 2020, the outstanding principal of these notes totaled $1.4 million.
We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $544 thousand and $3.6 million during the years ended August 31, 2020 and 2019, respectively. Net cash used in operating activities for the year ended August 31, 2020 was $1.0 million. As of August 31, 2020, we had cash and cash equivalents of $2.8 million. We have undertaken actions to decrease losses incurred and implemented cost reduction programs in an effort to transform the Company into a profitable operation. In addition, we are planning to issue additional equity to our stockholders.
On July 6, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, we may offer and sell from time to time through the Agent our common stock having an aggregate offering price of up to $20,000,000 (the “Placement Shares”). Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay a commission to the Agent of 3.0% of the gross proceeds of the sale of the Placement Shares sold under the Agreement and reimburse the Agent for certain expenses.
27
Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months. However, there can be no assurances that our planned activities will be successful in raising additional capital, reducing losses and preserving cash. If we are not able to generate positive cash flows from operations, we may need to consider alternative financing sources and seek additional funds through public or private equity financings or from other sources, or refinance our indebtedness, to support our working capital requirements or for other purposes. There can be no assurance that additional debt or equity financing will be available to us or that, if available, such financing will be available on terms favorable to us.
Cash Flows
The following summary of our cash flows for the periods indicated has been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this Quarterly Report (in thousands):
|
|
|
Nine Months Ended |
|
|||||
|
|
|
May 31, 2021 |
|
|
May 31, 2020 |
|
||
|
Net cash used in operating activities |
|
$ |
(826 |
) |
|
$ |
(786 |
) |
|
Net cash provided by (used in) investing activities |
|
$ |
168 |
|
|
$ |
(161 |
) |
|
Net cash (used in) provided by financing activities |
|
$ |
(55 |
) |
|
$ |
2,419 |
|
Cash Flows Used In Operating Activities
Net cash used in operating activities for the nine months ended May 31, 2021 and May 31, 2020 was $826 thousand and $786 thousand, respectively. The $40 thousand increase in cash flows used in operating activities for the nine months ended May 31, 2021 was primary attributable to an increase in net loss
Cash Flows Provided by (Used In) Investing Activities
Net cash provided by investing activities for the nine months ended May 31, 2021 was $168 thousand, consisting primarily of $291 thousand of proceeds from the sales of machinery and equipment, offset in part by $111 thousand of purchases of machinery and equipment.
Net cash used in investing activities for the nine months ended May 31, 2020 was $161 thousand, consisting primarily of $226 thousand of the purchases of machinery and equipment and $14 thousand of payments for development of intangible assets, offset in part by $79 thousand of proceeds from sales of machinery and equipment.
Cash Flows Provided by (Used In) Financing Activities
Net cash used in financing activities for the nine months ended May 31, 2021 was $55 thousand, consisting primarily of $$43 thousand of repayments on long-term debt and $12 thousand for acquisition of noncontrolling interest.
Net cash provided by financing activities for the nine months ended May 31, 2020 was $2.4 million, consisting primarily of $2 million of proceeds from convertible notes, and $700 thousand of issuance of common stocks, offset in part by $279 thousand of repayments on long-term debt.
Capital Expenditures
We had capital expenditures of $111 thousand and $226 thousand for the nine months ended May 31, 2021 and 2020, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future as we expand our business operations and invest in such expansion of our production capacity as we deem appropriate under market conditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our management continues to monitor prices and, consistent with its existing contractual commitments, may decrease further its activity level and capital expenditures as appropriate.
Off-Balance Sheet Arrangements
As of May 31, 2021, we did not engage in any off-balance sheet arrangements. We do not have any interests in variable interest entities.
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer, or CEO, and our chief financial officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of May 31, 2021. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based upon the aforementioned evaluation, our CEO and CFO have concluded that, as of May 31, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Due to the complex technology required to compete successfully in the LED industry, participants in our industry are often engaged in significant intellectual property licensing arrangements, negotiations, disputes and litigation. We are directly or indirectly involved from time to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise.
On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleged that Well Thrive was entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we retained the $500 thousand payment as liquidated damages. Well Thrive alleged that the liquidated damages provision was unenforceable as an illegal penalty and did not reflect the amount of purported damages. On March 13, 2018, we filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice. On March 27, 2018, Well Thrive filed an answering brief in opposition to our motion on the basis that Well Thrive never consented to dismiss the case. On January 2, 2019, the judge denied without prejudice the motion filed by us, because there remains some question as to whether Well Thrive’s former lawyers and Dr. Chiou had authority from Well Thrive to settle this case. The judge’s order allowed us to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement. Based on this order, we arranged the depositions to obtain more evidence in support of a motion to enforce the settlement agreement. The Court held a trial on March 2, 2020. After the trial, the judge ordered both sides to prepare post-trial briefs and proposed findings of fact for the Court to be submitted before end of April 2020. Both sides submitted post-trial briefs and proposed findings of fact on April 30, 2020. On December 21, 2020, the judge, following a hearing, issued her judgment, which orders SemiLEDs to return the $500,000 to Well Thrive, and required both parties, on or before January 6, 2021, to submit information on the appropriate amount of interest to be added. On January 6, 2021, the Company filed a brief arguing that there should not be an award of prejudgment interest and Well Thrive is arguing for the amount of $135,774 in pre-judgment interest. On April 8, 2021, the judge issued a ruling requiring the Company to pay pre-judgment interest in the amount of $123,000 to Well Thrive. On May 7, 2021, the Court of Appeal issued an order requiring the parties to mediate on June 28, 2021. The Company and Well Thrive Ltd entered into an Agreement Regarding Satisfaction of Judgment dated June 14, 2021, as amended on June 16, 2021 and June 21, 2021 (collectively, the “Settlement Agreement”), pursuant to which the Company issued 35,365 shares (the “Shares”) of its common stock to Well Thrive Ltd. The Shares were issued to satisfy the amount payable under the Settlement Agreement and, accordingly, no cash proceeds were received by the Company from the issuance of the Shares.
Except as described above, there was no material pending legal proceedings or claims as of May 31, 2021.
Item 1A. Risk Factors
Except as set forth below, there are no material changes related to risk factors from the risk factors described in Item 1A “Risk Factors” in Part I of our 2020 Annual Report.
The market prices and trading volume of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our securities to incur substantial losses.
The market prices and trading volume of our shares of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our common stock to incur substantial losses. For example, during 2021 to date, the market price of our common stock has fluctuated from a low of $3.07 per share on April 20, 2021 to a high of $25.83 on June 8, 2021. During 2021 to date, daily trading volume ranged from approximately 20,321 to 159,231,500 shares.
We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.
30
Extreme fluctuations in the market price of our common stock may be the result of strong and substantially increased retail investor interest, including on social media and online forums. The market volatility and trading patterns we have experienced create several risks for investors, including the following:
|
|
• |
the market price of our common stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that we continue to face; |
|
|
• |
factors in the public trading market for our common stock include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other trading factors; |
|
|
• |
our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility, and to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations; |
|
|
• |
to the extent volatility in our common stock is caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our common stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated; and |
|
|
• |
if the market price of our common stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses. |
We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or trading volume of our common stock, including:
|
|
• |
overall performance of the equity markets and the economy as a whole; |
|
|
• |
changes in the financial projections we may provide to the public or our failure to meet these projections; |
|
|
• |
in our growth rate relative to that of our competitors; |
|
|
• |
changes in the anticipated future size or growth rate of our addressable markets; |
|
|
• |
announcements of new products and services, technological updates or enhancements, or of acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments, by us or by our competitors; |
|
|
• |
additions or departures of board members, management or key personnel; |
|
|
• |
failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; |
|
|
• |
rumors and market speculation involving us or other companies in our industry; |
|
|
• |
research or reports that securities analysts or others publish about us or our business; |
|
|
• |
new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
31
|
|
• |
lawsuits threatened or filed against us or investigations by governmental authorities; |
|
|
• |
other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; |
|
|
• |
health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases; and |
|
|
• |
sales of shares of our common stock by us or our stockholders. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Repurchases
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
32
Item 6. Exhibits
|
Exhibit No. |
|
Description |
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SEMILEDS CORPORATION |
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(Registrant) |
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Dated: |
July 13, 2021 |
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By: |
/s/ Christopher Lee |
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Name: |
Christopher Lee |
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Title: |
Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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