SemiLEDs Corp 10-Q for FY2023 Q1
SemiLEDs Corp (LEDS)
About this 10-Q
SemiLEDs Corp filed this 10-Q on January 6, 2023, covering the quarter ended November 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended November 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.7M
- up 15.7% from $1.47M a year earlier
- Net loss
- $512K
- compared with a net loss of $518K a year earlier
- Diluted EPS
- -$0.11
- compared with -$0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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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.
Large accelerated filer |
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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
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 November 30, 2022
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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November 30, |
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August 31, |
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2022 |
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2022 |
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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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Accrued expenses and other current liabilities |
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Other payable to related parties |
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Operating lease liabilities, current portion |
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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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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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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 November 30, |
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2022 |
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2021 |
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Revenues, net |
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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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Total operating expenses |
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Loss from operations |
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Other income (expenses): |
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Interest expenses, net |
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Other income, net |
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Foreign currency transaction loss, net |
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Total other income, net |
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Loss before income taxes |
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Income tax expense |
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— |
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— |
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Net loss |
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Less: Net income (loss) attributable to noncontrolling interests |
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Net loss attributable to SemiLEDs stockholders |
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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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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 November 30, |
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2022 |
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2021 |
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Net loss |
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$ |
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$ |
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Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustments, net of tax of $ |
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Comprehensive loss |
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Comprehensive income (loss) attributable to noncontrolling interests |
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Comprehensive loss attributable to SemiLEDs stockholders |
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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 Statements 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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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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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 at September 1, 2022 |
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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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Comprehensive 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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Net loss |
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— |
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— |
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— |
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— |
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BALANCE at November 30, 2022 |
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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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Common Stock |
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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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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 at September 1, 2021 |
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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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Comprehensive 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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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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BALANCE at November 30, 2021 |
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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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See notes to unaudited condensed consolidated financial statements.
4
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
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Three Months Ended November 30, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Provisions for inventory write-downs |
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Changes in: |
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Accounts receivable |
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Inventories |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Net cash provided by (used in) operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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( |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments of long-term debt |
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( |
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Net cash used in financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
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CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period |
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CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—End of period |
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$ |
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$ |
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Accrual related to property, plant and equipment |
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$ |
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$ |
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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 November 30, 2022, 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 8, 2022. The unaudited condensed consolidated balance sheet as of August 31, 2022 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, 2022, the unaudited condensed statements of operations and comprehensive loss for the three months ended November 30, 2022 and 2021, the statements of changes in equity for the three months ended November 30, 2022 and 2021, and the statements of cash flows for the three months ended November 30, 2022 and 2021. The results for the three months ended November 30, 2022 are not necessarily indicative of the results to be expected for the year ending August 31, 2023.
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 $
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.
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 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 cashflows.
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.
|
|
November 30, |
|
|
August 31, |
|
||
Cash and Cash Equivalents by Location |
|
2022 |
|
|
2022 |
|
||
United States; |
|
|
|
|
|
|
||
Denominated in U.S. dollars |
|
$ |
|
|
$ |
|
||
Taiwan; |
|
|
|
|
|
|
||
Denominated in U.S. dollars |
|
|
|
|
|
|
||
Denominated in New Taiwan dollars (NT$) |
|
|
|
|
|
|
||
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 United States, Japan, Taiwan and Netherlands. 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., the Company’s wholly owned operating subsidiary, issued
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but only if adopted as of the beginning of such fiscal year. The Company is currently evaluating the impact that the standard will have on its unaudited condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own
9
Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. The Company concluded that the standard will have no material impact on its unaudited condensed consolidated financial statements.
3. Balance Sheet Components
Inventories
Inventories as of November 30, 2022 and August 31, 2022 consisted of the following (in thousands):
|
|
November 30, |
|
|
August 31, |
|
||
|
|
2022 |
|
|
2022 |
|
||
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 November 30, 2022 and August 31, 2022 consisted of the following (in thousands):
|
|
November 30, |
|
|
August 31, |
|
||
|
|
2022 |
|
|
2022 |
|
||
Buildings and improvements |
|
$ |
|
|
$ |
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
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|
||
Other equipment |
|
|
|
|
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|
||
Construction in progress |
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|
|
|
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|
||
Total property, plant and equipment |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
Intangible Assets
Intangible assets as of November 30, 2022 and August 31, 2022 consisted of the following (in thousands):
|
|
November 30, 2022 |
|
|||||||||||||
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Weighted |
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|
|
|
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|
||||
|
|
Average |
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Gross |
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Net |
|
||||
|
|
Amortization |
|
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Carrying |
|
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Accumulated |
|
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Carrying |
|
||||
|
|
Period (Years) |
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|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
Patents and trademarks |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
|
|
August 31, 2022 |
|
|||||||||||||
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Average |
|
|
Gross |
|
|
|
|
|
Net |
|
||||
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
Patents and trademarks |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of November 30, 2022 and August 31, 2022 consisted of the following (in thousands):
|
|
November 30, |
|
|
August 31, |
|
|
||||
|
|
2022 |
|
|
2022 |
|
|
||||
Accrued compensation and benefits |
|
$ |
|
|
|
$ |
|
|
|
||
Customer deposits |
|
|
|
|
|
|
|
|
|
||
Accrued business expenses |
|
|
|
|
|
|
|
|
|
||
Other (individually less than |
|
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
$ |
|
|
|
||
4. Investments in Unconsolidated Entities
The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of November 30, 2022 and August 31, 2022 consisted of the following (in thousands, except percentages):
|
|
November 30, 2022 |
|
|
August 31, 2022 |
|
||||||
|
|
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
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 leases. Lease expense related to these
11
noncancelable operating leases were $
Balance sheet information related to the Company’s leases is presented below:
|
|
November 30, 2022 |
|
|
August 31, 2022 |
|
||
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:
|
|
Three Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating lease expenses |
|
$ |
|
|
$ |
|
||
Other information related to leases is presented below:
|
|
Three Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
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
The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of November 30, 2022 consisted of the following (in thousands):
Years Ending August 31, |
|
Operating Leases |
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
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.
As of November 30, 2022, 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.
12
6. Common Stock
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 $
7. Stock-based Compensation
The Company currently has
A total of
In November 2022, SemiLEDs granted
In November 2021, SemiLEDs granted
In November 2021, SemiLEDs granted
In November 2020, SemiLEDs granted
In November 2020, SemiLEDs granted
In January 2020, SemiLEDs granted
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
13
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 months ended November 30, 2022 and 2021 was as follows (in thousands):
|
|
Three Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
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 November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Stock units and stock options to purchase common stock |
|
|
|
|
|
|
||
9. Income Taxes
The Company’s loss before income taxes for the three months ended November 30, 2022 and 2021 consisted of the following (in thousands):
|
|
Three Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
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 November 30, 2022 and August 31, 2022, the Company had
10. Related Party Transactions
On November 25, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $
14
shall be due on demand by the Holders on and at any time after
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 $
11. Subsequent Events
The Company has analyzed its operations subsequent to November 30, 2022 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 and subsequent variants 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 December 20, 2022, the Company made a prepayment of investment of $
Except for the above, the Company has determined that it does not have any other 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,
16
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, 2022, or the 2022 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 2022 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, LED modules and systems. Our products are used for general lighting and specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, germicidal and viricidal devices, 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 Taiwan, the United States, the Netherlands, 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:
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 97.37% 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:
18
19
20
Critical Accounting Policies and Estimates
We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Item 1 to the Unaudited Consolidated Financial Statements.
Revenue Recognition
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. Refer to Note 2 to the Unaudited Condensed Consolidated Financial Statements for our revenue recognition policies.
Accounts Receivable
The allowance for doubtful accounts is based on management’s assessment of the collectability of customer accounts. Management regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. No bad debt expenses were recognized during the three months ended November 30, 2022 and 2021.
Write-down of Inventories
The Company writes down excess and obsolete inventory to its estimated net realizable value. The net realized value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realized value is based on current market conditions and historical experience with product sales of similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value. For finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write downs are included in cost of revenues in the consolidated statements of operations. Once written down, inventories are carried at this lower cost basis until sold or scrapped. Inventory write‑downs to estimated net realizable values were $178 thousand and $231 thousand for the three months ended November 30, 2022 and 2021, respectively.
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
21
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.
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 November 30, 2022, the exchange rate was 30.89 NT dollars to one U.S. dollar. On December 30, 2022, the exchange rate was 30.71 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 November 30, 2022 Compared to the Three Months Ended November 30, 2021
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Change |
|
|
Change |
|
|
|||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
LED chips |
|
$ |
49 |
|
|
|
3 |
|
% |
|
$ |
18 |
|
|
|
1 |
|
% |
|
$ |
31 |
|
|
|
172 |
|
% |
LED components |
|
|
835 |
|
|
|
49 |
|
% |
|
|
1,123 |
|
|
|
77 |
|
% |
|
|
(288 |
) |
|
|
(26 |
) |
% |
Lighting products |
|
|
155 |
|
|
|
9 |
|
% |
|
|
85 |
|
|
|
6 |
|
% |
|
|
70 |
|
|
|
82 |
|
% |
Other operating revenues (1) |
|
|
656 |
|
|
|
39 |
|
% |
|
|
239 |
|
|
|
16 |
|
% |
|
|
417 |
|
|
|
174 |
|
% |
Total revenues, net |
|
|
1,695 |
|
|
|
100 |
|
% |
|
|
1,465 |
|
|
|
100 |
|
% |
|
|
230 |
|
|
|
16 |
|
% |
Cost of revenues |
|
|
1,232 |
|
|
|
73 |
|
% |
|
|
1,262 |
|
|
|
86 |
|
% |
|
|
(30 |
) |
|
|
(2 |
) |
% |
Gross profit |
|
$ |
463 |
|
|
|
27 |
|
% |
|
$ |
203 |
|
|
|
14 |
|
% |
|
$ |
260 |
|
|
|
128 |
|
% |
(1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services and a joint development project with CrayoNano AS.
Revenues, net
Our revenues increased by 16% to $1.7 million for the three months ended November 30, 2022 from $1.5 million for the three months ended November 30, 2021. The increase in revenues was caused primarily by a $31 thousand increase in sales of LED chips, a $70 thousand increase in Lighting products and a $417 thousand increase in other operating revenue offset by a $288 thousand decrease in LED components.
Revenues attributable to the sales of our LED chips represented 3% and 1% of our revenues for the three months ended November 30, 2022 and 2021, respectively. The increase in revenues attributable to sales of LED chips 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 represented 49% and 77% of our revenues for the three months ended November 30, 2022 and 2021, respectively. The decrease in revenues attributable to sales of LED components was primarily due to less volumes sold.
Revenues attributable to the sales of lighting products represented 9% and 6% of our revenues for the three months ended November 30, 2022 and 2021, respectively. Revenues attributable to the sales of lighting products were higher for the three months ended November 30, 2022 primarily due to more demand for the lighting products sold.
Revenues attributable to other operating revenues represented 39% and 16% of our revenues for the three months ended November 30, 2022 and 2021, respectively. The increase in revenues attributable to other revenues was primarily due to the non-recurring sale of raw materials and a joint development project with CrayoNano AS beginning in January 2022.
22
Cost of Revenues
Our cost of revenues decreased by 2% from $1.3 million for the three months ended November 30, 2021 to $1.2 million for the three months ended November 30, 2022. The decrease in cost of revenues was primarily due to the decrease in the volume of products sold.
Gross Profit
Our gross profit increased from $203 thousand for the three months ended November 30, 2021 to $463 thousand for the three months ended November 30, 2022. The increase was a result of focusing on profitable products described above.
Operating Expenses
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Change |
|
|
Change |
|
|
|||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
Research and development |
|
$ |
365 |
|
|
|
22 |
|
% |
|
$ |
404 |
|
|
|
28 |
|
% |
|
$ |
(39 |
) |
|
|
(10 |
) |
% |
Selling, general and administrative |
|
|
752 |
|
|
|
44 |
|
% |
|
|
777 |
|
|
|
53 |
|
% |
|
|
(25 |
) |
|
|
(3 |
) |
% |
Total operating expenses |
|
$ |
1,117 |
|
|
|
66 |
|
% |
|
$ |
1,181 |
|
|
|
81 |
|
% |
|
$ |
(64 |
) |
|
|
(5 |
) |
% |
Research and development. Our research and development expenses were $365 thousand and $404 thousand for the three months ended November 30, 2022 and 2021, respectively. The decrease was mainly attributable to a $39 thousand decrease in engineering experiment materials.
Selling, general and administrative. Our selling, general and administrative expenses decreased from $777 thousand for the three months ended November 30, 2021 to $752 thousand for the three months ended November 30, 2022. The decrease was mainly attributable to decreases in insurance expenses.
Other Income (Expenses)
|
|
Three Months Ended November 30, |
|
|
||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
(in thousands) |
|
|
|||||||||||||||
Interest expenses, net |
|
$ |
(87 |
) |
|
|
(5 |
) |
% |
|
$ |
(91 |
) |
|
|
(6 |
) |
% |
Other income, net |
|
|
242 |
|
|
|
14 |
|
% |
|
|
566 |
|
|
|
39 |
|
% |
Foreign currency transaction loss, net |
|
|
(10 |
) |
|
|
(1 |
) |
% |
|
|
(22 |
) |
|
|
(2 |
) |
% |
Total other income, net |
|
$ |
145 |
|
|
|
8 |
|
% |
|
$ |
453 |
|
|
|
31 |
|
% |
Interest expenses, net. Interest expenses, net which primarily consisted of accrued interest on convertible notes, NT dollar denominated long-term notes and $3.2 million of loans with our Chairman and Chief Executive Officer and our largest shareholder. The decrease in interest expenses, net for the three months ended November 30, 2022 and 2021 was insignificant.
Other income, net. Other income, net decreased from $566 thousand for the three months ended November 30, 2021 to $242 thousand for the three months ended November 30, 2022 was primarily due to the subsidies from a government jointly developed research project received in October 2021.
Foreign currency transaction loss, net. We recognized a net foreign currency transaction loss of $10 thousand and $22 thousand for the three months ended November 30, 2022 and 2021, respectively, primarily due to the impact of a higher exchange rate of the U.S. dollar against the NT dollar from bank deposits and accounts receivable.
Income Tax Expense. Our effective tax rate is expected to be approximately zero for fiscal 2023 and 2022, 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.
23
Net Income (Loss) Attributable to Non-controlling Interests
|
|
Three Months Ended November 30, |
|
|
||||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
(in thousands) |
|
|
|||||||||||||||
Net income (loss) attributable to noncontrolling interests |
|
$ |
3 |
|
|
|
— |
|
% |
|
$ |
(7 |
) |
|
|
— |
|
% |
We recognized net income attributable to non-controlling interests of $3 thousand and a net loss of $7 thousand for the three months ended November 30, 2022 and 2021, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd., held by the remaining non-controlling holders. Non-controlling interests represented 2.63% and 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., as of November 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
This section includes a discussion and analysis of our cash requirements, contingencies, sources and uses of cash, operations, working capital and long-term assets and liabilities.
Contingencies
We have several operating leases with third parties, primarily for land, plant and office spaces in Taiwan, including cancellable and noncancelable leases that expire at various dates between December 2024 and December 2040. See Note 5, "Commitments and Contingencies" in the notes to our unaudited condensed consolidated financial statements in this Form 10-Q.
Sources and Uses of Cash
As of November 30, 2022 and August 31, 2022, we had cash and cash equivalents of $4.5 million and $4.3 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.
As of December 30, 2022, we had no available credit facility.
Long-term assets and liabilities
Our long-term assets consist primarily of property, plant and equipment, intangible assets, operating lease assets and investments in unconsolidated entities. Our manufacturing rationalization plans have included efforts to utilize our existing manufacturing assets and supply arrangements more efficiently. We believe that near-term access to additional manufacturing capacity, should it be required, could be readily obtained on reasonable terms through manufacturing agreements with third parties. We will continue to look for opportunities to make strategic manufacturing in the future for additional capacity.
Our long-term liabilities consist primarily long-term debt and operating lease liabilities.
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 $6.8 million and $6.9 million as of November 30, 2022 and August 31, 2022, respectively.
Our NT dollar denominated long-term notes, totaled $3.2 million of both November 30, 2022 and August 31, 2022. 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 2.04% 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 2.42% currently) and is available for operating capital. These loans are secured by an $81 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building.
24
Property, plant and equipment pledged as collateral for our notes payable were $2.7 million and $2.8 million as of November 30, 2022 and August 31, 2022, 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 were initially required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively. On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022, and on January 14, 2022, the maturity date of these loans was further extended with same terms and interest rate for one more year to January 15, 2023. As of November 30, 2022 and August 31, 2022, these loans totaled $3.2 million, respectively. The loans are secured by a second priority security interest on our headquarters.
On November 25, 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 was 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 and were scheduled to mature on May 30, 2022, and on May 26, 2022, the Notes were further extended with the same terms and interest rate for one year and now mature on May 30, 2023. As of November 30, 2022 and August 31, 2022, the outstanding principal of these notes totaled $1.4 million.
Working Capital
We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $512 thousand and $518 thousand during the three months ended November 30, 2022 and 2021, respectively. Net cash provided by operating activities for the three months ended November 30, 2022 was $396 thousand. As of November 30, 2022, we had cash and cash equivalents of $4.5 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.
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 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, or the Securities Act. We agreed to 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. During the year ended August 31, 2022, we sold 286,328 shares of common stocks for gross proceeds of $995 thousand with $31 thousand paid as placement agent fees under our ATM program. We did not sell any shares under the ATM program in the first quarter of fiscal 2023. We expect to resume sales of Placement Shares after the issuance of the first quarter Form 10-Q.
We estimate that our cash requirements to service debt and contractual obligations in fiscal 2023 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program. 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 and beyond. The loans with each of our Chairman and Chief Executive Officer and our largest shareholder are expected to be extended upon maturity. 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.
25
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial conditions, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our common stock.
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):
|
|
Three Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
396 |
|
|
$ |
(607 |
) |
Net cash used in investing activities |
|
$ |
(63 |
) |
|
$ |
(31 |
) |
Net cash used in financing activities |
|
$ |
(115 |
) |
|
$ |
(130 |
) |
Cash Flows Provided by (Used In) Operating Activities
Net cash provided by operating activities for the three months ended November 30, 2022 was $396 thousand, and net cash used in operating activities for the three months ended November 30, 2021 was $607 thousand. The increase in cash flows provided by operating activities for the three months ended November 30, 2022 was $1.0 million, primarily due to an increase in accrued expenses and other current liabilities and less cash outflow in inventories.
Cash Flows Used In Investing Activities
Net cash used in investing activities for the three months ended November 30, 2022 was $63 thousand primarily for the purchase of machinery and equipment.
Net cash used in investing activities for the three months ended November 30, 2021 was $31 thousand primarily for the purchase of machinery and equipment.
Cash Flows Used In Financing Activities
Net cash used in financing activities for the three months ended November 30, 2022 and 2021 was $115 thousand and $130 thousand, respectively, which amounts were primarily for the repayment of long-term debt.
Capital Expenditures
We had capital expenditures of $63 thousand and $31 thousand for the three months ended November 30, 2022 and 2021, 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 is continuing to monitor prices and, consistent with the existing contractual commitments, may decrease further our activity level and capital expenditures as appropriate.
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 November 30, 2022. 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
26
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 November 30, 2022, 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 November 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
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.
There were no material pending legal proceedings or claims as of November 30, 2022.
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 2022 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 fiscal 2023 to date, the market price of our common stock has fluctuated from a high of $2.88 per share on September 9, 2022 to a low of $1.54 per share on December 28, 2022. During fiscal 2023 to date, daily trading volume ranged from approximately 1,000 to 88,500 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.
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:
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
28
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:
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.
29
Item 5. Other Information
None.
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). |
30
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.
|
|
|
|
SEMILEDS CORPORATION |
||
|
|
|
|
(Registrant) |
||
|
|
|
|
|
|
|
Dated: |
|
January 6, 2023 |
|
By: |
|
/s/ Christopher Lee |
|
|
|
|
Name: |
|
Christopher Lee |
|
|
|
|
Title: |
|
Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
31
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Trung Tri Doan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SemiLEDs Corporation (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: |
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January 6, 2023 |
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/s/ Trung Tri Doan |
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Name: Trung Tri Doan |
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Title: Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher Lee, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SemiLEDs Corporation (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Dated: |
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January 6, 2023 |
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/s/ Christopher Lee |
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Name: Christopher Lee |
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Title: Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of SemiLEDs Corporation (the “Registrant”) on Form 10-Q for the quarter ended November 30, 2022, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Trung Tri Doan, Chairman and Chief Executive Officer of the Registrant, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: |
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January 6, 2023 |
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/s/ Trung Tri Doan |
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Name: Trung Tri Doan |
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Title: Chairman and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of SemiLEDs Corporation (the “Registrant”) on Form 10-Q for the quarter ended November 30, 2022, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Christopher Lee, Chief Financial Officer of the Registrant, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: |
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January 6, 2023 |
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/s/ Christopher Lee |
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Name: Christopher Lee |
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Title: Chief Financial Officer |