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EX-32.2 - EX-32.2 - SemiLEDs Corpleds-ex322_9.htm
EX-32.1 - EX-32.1 - SemiLEDs Corpleds-ex321_8.htm
EX-31.2 - EX-31.2 - SemiLEDs Corpleds-ex312_6.htm
EX-31.1 - EX-31.1 - SemiLEDs Corpleds-ex311_10.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended November 30, 2019

or

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

For the transition period from            to           

Commission File Number: 001-34992

 

SemiLEDs Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-2735523

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

3F, No. 11 Ke Jung Rd., Chu-Nan Site,

 

 

Hsinchu Science Park, Chu-Nan 350,

 

 

Miao-Li County, Taiwan, R.O.C.

 

350

(Address of principal executive offices)

 

(Zip Code)

 

+886-37-586788

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0000056

 

LEDs

 

The Nasdaq Stock Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

Large accelerated filer

 

 

Accelerated filer 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,594,640 shares of common stock, par value $0.0000056 per share, outstanding as of January 7, 2020.

 

 

 


 

SEMILEDS CORPORATION

FORM 10-Q for the Quarter Ended November 30, 2019

INDEX

 

 

 

 

 

Page No

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

Unaudited Condensed Consolidated Balance Sheets as of November 30, 2019 and August 31, 2019

 

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended November 30, 2019 and 2018

 

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended November 30, 2019 and 2018

 

3

 

 

Unaudited Condensed Consolidated Statement of Changes in Equity for the three months ended November 30, 2019

 

4

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2019 and 2018

 

5

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

27

 

 

 

 

 

Item 1A.

 

Risk Factors

 

27

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

28

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

28

 

 

 

 

 

Item 5.

 

Other Information

 

28

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

 

 

 


PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

SEMILEDS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars and shares, except par value)

 

 

 

November 30,

 

 

August 31,

 

 

 

2019

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

688

 

 

$

1,363

 

Restricted cash and cash equivalents

 

 

81

 

 

 

19

 

Accounts receivable (including related parties), net of allowance for doubtful accounts of $200 and $195 as of November 30, 2019 and August 31, 2019, respectively

 

 

936

 

 

 

703

 

Inventories

 

 

2,312

 

 

 

2,083

 

Prepaid expenses and other current assets

 

 

884

 

 

 

460

 

Assets held for sale

 

 

401

 

 

 

 

Total current assets

 

 

5,302

 

 

 

4,628

 

Property, plant and equipment, net

 

 

5,935

 

 

 

5,878

 

Operating lease right of use assets

 

 

307

 

 

 

 

Intangible assets, net

 

 

93

 

 

 

93

 

Investments in unconsolidated entities

 

 

920

 

 

 

894

 

Other assets

 

 

186

 

 

 

169

 

TOTAL ASSETS

 

$

12,743

 

 

$

11,662

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current installments of long-term debt

 

$

410

 

 

$

398

 

Accounts payable

 

 

649

 

 

 

680

 

Advance receipt toward the convertible note

 

 

500

 

 

 

500

 

Accrued expenses and other current liabilities

 

 

2,677

 

 

 

2,342

 

Operating lease liabilities, current

 

 

148

 

 

 

 

Liabilities held for sale

 

 

790

 

 

 

 

Total current liabilities

 

 

5,174

 

 

 

3,920

 

Long-term debt, excluding current installments

 

 

5,932

 

 

 

5,954

 

Operating lease liabilities, less current portion

 

 

159

 

 

 

 

Total liabilities

 

 

11,265

 

 

 

9,874

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

SemiLEDs stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0000056 par value—7,500 shares authorized; 3,595 shares and 3,594 shares issued and outstanding as of November 30, 2019 and August 31, 2019, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

175,839

 

 

 

175,804

 

Accumulated other comprehensive income

 

 

3,729

 

 

 

3,753

 

Accumulated deficit

 

 

(178,133

)

 

 

(177,816

)

Total SemiLEDs stockholders' equity

 

 

1,435

 

 

 

1,741

 

Noncontrolling interests

 

 

43

 

 

 

47

 

Total equity

 

 

1,478

 

 

 

1,788

 

TOTAL LIABILITIES AND EQUITY

 

$

12,743

 

 

$

11,662

 

 

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)

 

 

 

Three Months Ended November 30,

 

 

 

2019

 

 

2018

 

Revenues, net

 

$

1,563

 

 

$

972

 

Cost of revenues

 

 

1,045

 

 

 

1,191

 

Gross profit (loss)

 

 

518

 

 

 

(219

)

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

430

 

 

 

334

 

Selling, general and administrative

 

 

726

 

 

 

757

 

Gain on disposals of long-lived assets

 

 

(79

)

 

 

(288

)

Total operating expenses

 

 

1,077

 

 

 

803

 

Loss from operations

 

 

(559

)

 

 

(1,022

)

Other income (expenses):

 

 

 

 

 

 

 

 

Interest expenses, net

 

 

(78

)

 

 

(5

)

Other income, net

 

 

157

 

 

 

80

 

Foreign currency transaction gain (loss), net

 

 

158

 

 

 

(36

)

Total other income, net

 

 

237

 

 

 

39

 

Loss before income taxes

 

 

(322

)

 

 

(983

)

Income tax expense

 

 

 

 

 

 

Net loss

 

 

(322

)

 

 

(983

)

Less: Net loss attributable to noncontrolling interests

 

 

(5

)

 

 

(5

)

Net loss attributable to SemiLEDs stockholders

 

$

(317

)

 

$

(978

)

Net loss per share attributable to SemiLEDs stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.09

)

 

$

(0.27

)

Shares used in computing net loss per share attributable to SemiLEDs stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

3,595

 

 

 

3,560

 

 

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)

 

 

 

Three Months Ended November 30,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(322

)

 

$

(983

)

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax of $0 for both periods

 

 

(23

)

 

 

4

 

Comprehensive loss

 

$

(345

)

 

$

(979

)

Comprehensive loss attributable to noncontrolling interests

 

$

(4

)

 

$

(6

)

Comprehensive loss attributable to SemiLEDs stockholders

 

$

(341

)

 

$

(973

)

 

See notes to unaudited condensed consolidated financial statements.

3


 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Equity

(In thousands of U.S. dollars and shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

SemiLEDs

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

 

Interests

 

 

Equity

 

BALANCE at September 1, 2019

 

 

3,594

 

 

$

 

 

$

175,804

 

 

$

3,753

 

 

$

(177,816

)

 

$

1,741

 

 

$

47

 

 

$

1,788

 

Issuance of common stock under equity incentive plans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

 

 

1

 

 

 

(23

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(317

)

 

 

(317

)

 

 

(5

)

 

 

(322

)

BALANCE at November 30, 2019

 

 

3,595

 

 

$

 

 

$

175,839

 

 

$

3,729

 

 

$

(178,133

)

 

$

1,435

 

 

$

43

 

 

$

1,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

SemiLEDs

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

 

Interests

 

 

Equity

 

BALANCE at September 1, 2018

 

 

3,559

 

 

$

 

 

$

175,527

 

 

$

3,727

 

 

$

(174,251

)

 

$

5,003

 

 

$

 

 

$

5,003

 

Issuance of common stock under equity incentive plans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Common stock issued by SBDI*

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

128

 

 

 

48

 

 

 

176

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

 

 

(1

)

 

 

4

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(978

)

 

 

(978

)

 

 

(5

)

 

 

(983

)

BALANCE at November 30, 2018

 

 

3,560

 

 

$

 

 

$

175,698

 

 

$

3,732

 

 

$

(175,229

)

 

$

4,201

 

 

$

42

 

 

$

4,243

 

 

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)

 

 

 

Three Months Ended November 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(322

)

 

$

(983

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

207

 

 

 

264

 

Stock-based compensation expense

 

 

35

 

 

 

43

 

Provisions for inventory write-downs

 

 

119

 

 

 

172

 

Gain on disposals of long-lived assets

 

 

(79

)

 

 

(288

)

Changes in :

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6

)

 

 

97

 

Inventories

 

 

(293

)

 

 

(583

)

Prepaid expenses and other assets

 

 

34

 

 

 

(50

)

Accounts payable

 

 

(91

)

 

 

(209

)

Accrued expenses and other current liabilities

 

 

72

 

 

 

271

 

Net cash used in operating activities

 

 

(324

)

 

 

(1,266

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(50

)

 

 

(24

)

Proceeds from sales of property, plant and equipment

 

 

79

 

 

 

511

 

Payments for development of intangible assets

 

 

(8

)

 

 

(2

)

Net cash provided by investing activities

 

 

21

 

 

 

485

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(103

)

 

 

(83

)

Net cash used in financing activities

 

 

(103

)

 

 

(83

)

Change in cash balances included in current assets held for sale

 

 

(61

)

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(143

)

 

 

17

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(610

)

 

 

(847

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

1,471

 

 

 

3,512

 

CASH AND CASH EQUIVALENTS—End of period

 

$

861

 

 

$

2,665

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accrual related to property, plant and equipment

 

$

97

 

 

$

18

 

Issuance of common shares in a subsidiary to noncontrolling interests

 

$

 

 

$

176

 

 

See notes to unaudited condensed consolidated financial statements.

5


 

SEMILEDS CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

1. Business

SemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on January 4, 2005 and is a holding company for various wholly owned subsidiaries. SemiLEDs and its subsidiaries (collectively, the “Company”) develop, manufacture and sell high performance light emitting diodes (“LEDs”). The Company’s core products are LED components, as well as LED chips and lighting products. LED components have become the most important part of its business. A portion of the Company’s business consists of the sale of contract manufactured LED products. The Company’s customers are concentrated in a few select markets, including Taiwan, the United States and China.

As of November 30, 2019, SemiLEDs had four wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a substantial portion of marketing and sale of LED components, and where most of the Company’s employees are based. On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with XianChang Ma  (the “Purchaser”), pursuant to which the Purchaser has agreed to purchase all of the outstanding shares of the Company’s Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd. The Company expects to close the transaction in January 2020, subject to satisfaction of customary closing conditions.

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 20, 2019. The unaudited condensed consolidated balance sheet as of August 31, 2019 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 unaudited condensed consolidated balance sheet as of November 30, 2019, the unaudited condensed statements of operations and comprehensive loss for the three months ended November 30, 2019 and 2018, changes in equity for the three months ended November 30, 2019, and cash flows for the three months ended November 30, 2019 and 2018. The results for the three months ended November 30, 2019are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

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 has suffered losses from operations of $3.7 million and $3.7 million, and used net cash in operating activities of $3.5 million and $1.2 million for the years ended August 31, 2019 and 2018, respectively. Gross profit on product sales was $452 thousand for the year ended August 31, 2019 and gross loss was $435 thousand for the year ended August 31, 2018. Loss from operations and net cash used in operating activities for the three months ended November 30, 2019 were $559 thousand and $324 thousand, respectively. Further, at November 30, 2019, the Company’s cash and cash equivalents was down to $688 thousand. These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.

 

 

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 focused 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 the issuance of convertible notes to our major stockholders, potential equity offerings, sales of assets, including the pending sale of our Hong Kong and China subsidiaries, 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 November 30, 2019 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $81 thousand and $19 thousand, respectively. As of November 30, 2019 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $92 thousand and $89 thousand, respectively.

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 three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.

7


 

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.

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 several 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.

8


 

Concentration of Credit Risk —Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.

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. As of November 30, 2019 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

November 30,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2019

 

 

2019

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

170

 

 

$

52

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

316

 

 

 

447

 

Denominated in New Taiwan dollars (NT$)

 

 

66

 

 

 

730

 

Denominated in other currencies

 

 

136

 

 

 

77

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

 

 

 

 

Denominated in Renminbi

 

 

 

 

 

49

 

Denominated in H.K. dollars

 

 

 

 

 

8

 

Total cash and cash equivalents

 

$

688

 

 

$

1,363

 

 

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 85% and 79% of the Company’s total net revenues for the three months ended November 30, 2019 and 2018, respectively.

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 89% and 82% of the Company’s net revenues for the three months ended November 30, 2019 and 2018, respectively.

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., the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715. As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in the Company was increased from zero to 3.31%. In December 2018, Taiwan SemiLEDs purchased 3,000 common shares of SBDI from non-controlling interests. As of November 30, 2019, noncontrolling interest in SBDI was down to 3.29%.

 

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on the disclosures included in its consolidated financial statements.

9


 

3. Balance Sheet Components

Inventories

Inventories as of November 30, 2019 and August 31, 2019 consisted of the following (in thousands):

 

 

 

November 30,

 

 

August 31,

 

 

 

2019

 

 

2019

 

Raw materials

 

$

506

 

 

$

479

 

Work in process

 

 

761

 

 

 

728

 

Finished goods

 

 

1,045

 

 

 

876

 

Total

 

$

2,312

 

 

$

2,083

 

 

Inventory write-downs to estimated net realizable values were $119 thousand and $172 thousand for the three months ended November 30, 2019 and 2018, respectively.

Property, Plant and Equipment

Property, plant and equipment as of November 30, 2019 and August 31, 2019 consisted of the following (in thousands):

 

 

 

November 30,

 

 

August 31,

 

 

 

2019

 

 

2019

 

Buildings and improvements

 

$

13,620

 

 

$

13,238

 

Machinery and equipment

 

 

38,980

 

 

 

37,988

 

Leasehold improvements

 

 

160

 

 

 

156

 

Other equipment

 

 

2,305

 

 

 

2,250

 

Construction in progress

 

 

107

 

 

 

61

 

Total property, plant and equipment

 

 

55,172

 

 

 

53,693

 

Less: Accumulated depreciation and amortization

 

 

(49,237

)

 

 

(47,815

)

Property, plant and equipment, net

 

$

5,935

 

 

$

5,878

 

 

Intangible Assets

Intangible assets as of November 30, 2019 and August 31, 2019 consisted of the following (in thousands):

 

 

 

November 30, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

533

 

 

$

440

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

334

 

 

 

334

 

 

 

 

Total

 

 

 

 

 

$

867

 

 

$

774

 

 

$

93

 

 

 

 

August 31, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

542

 

 

$

449

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

484

 

 

 

484

 

 

 

 

Total

 

 

 

 

 

$

1,026

 

 

$

933

 

 

$

93

 

   

10


 

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of November 30, 2019 and August 31, 2019 consisted of the following (in thousands, except percentages):

 

 

 

November 30, 2019

 

 

August 31, 2019

 

 

 

Percentage

 

 

 

 

 

Percentage

 

 

 

 

 

 

Ownership

 

Amount

 

 

Ownership

 

Amount

 

Equity investment without readily determinable fair value

 

Various

 

 

920

 

 

Various

 

 

894

 

Total investments in unconsolidated entities

 

 

 

$

920

 

 

 

 

$

894

 

 

There were no dividends received from unconsolidated entities through November 30, 2019.

 

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. Assets and Liabilities held for sale

In November 2019, the Company entered into a stock purchase agreement to sell all of the outstanding shares of the Company’s Hong Kong Subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd. The Company expects to close the transaction in January 2020, subject to satisfaction of customary closing conditions.

As of November 30, 2019, all the assets and liabilities relating to the Company’s Hong Kong Subsidiary have been reported as assets and liabilities held-for-sale in the consolidated balance sheets.

The following is a summary of the major classes of assets and liabilities included as assets and liabilities held for sale as of November 30, 2019.

 

 

 

November 30, 2019

 

Assets

 

 

 

 

Cash and cash equivalents

 

$

61

 

Accounts receivable, net

 

 

263

 

Inventory

 

 

4

 

Prepaid expenses and other current assets

 

 

72

 

Other assets

 

 

1

 

 

 

$

401

 

Liabilities

 

 

 

 

Accounts paya