SemiLEDs Corp 10-Q for FY2024 Q2
SemiLEDs Corp (LEDS)
About this 10-Q
SemiLEDs Corp filed this 10-Q on April 12, 2024, covering the quarter ended February 29, 2024 (FY2024 Q2).
Headline figures
Quarter ended February 29, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $886K
- down 23.1% from $1.15M a year earlier
- Net loss
- $559K
- compared with a net loss of $541K a year earlier
- Diluted EPS
- -$0.11
- compared with -$0.11 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:
(Exact name of registrant as specified in its charter)
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incorporation or organization) |
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(Address of principal executive offices) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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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 ☐ No
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 February 29, 2024
INDEX
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Page No. |
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1 |
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Unaudited Condensed Consolidated Balance Sheets as of February 29, 2024 and August 31, 2023 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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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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February 29, |
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August 31, |
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2024 |
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2023 |
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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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Operating lease liabilities, current |
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Total current liabilities |
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Long-term debt, excluding current installments |
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Operating lease liabilities, less current portion |
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Total liabilities |
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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 |
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Six Months Ended |
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February 29, 2024 |
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February 28, 2023 |
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February 29, 2024 |
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February 28, 2023 |
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Revenues, net |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Gain on disposals of long-lived assets, net |
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— |
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— |
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Total operating expenses |
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Loss from operations |
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Other income (expenses): |
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Investment (loss) income from unconsolidated entities |
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— |
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— |
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Interest expenses, net |
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Other income, net |
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Foreign currency transaction (loss) gain, 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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— |
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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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$ |
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$ |
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Net loss per share attributable to SemiLEDs stockholders: |
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Basic |
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$ |
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Diluted |
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Shares used in computing net loss per share attributable to SemiLEDs stockholders: |
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Basic |
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Diluted |
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See notes to unaudited condensed consolidated financial statements.
2
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands of U.S. dollars)
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Three Months Ended |
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Six Months Ended |
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February 29, 2024 |
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February 28, 2023 |
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February 29, 2024 |
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February 28, 2023 |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive loss, net of tax: |
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Foreign currency translation adjustments, net of tax of $ |
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Comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income (loss) attributable to noncontrolling interests |
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$ |
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$ |
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$ |
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Comprehensive loss attributable to SemiLEDs stockholders |
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$ |
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$ |
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$ |
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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—September 1, 2023 |
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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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Comprehensive loss: |
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Other comprehensive income |
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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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BALANCE—November 30, 2023 |
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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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Conversion of convertible notes payable to common stock |
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— |
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— |
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— |
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— |
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Issuance of common stock to repay long-term loan |
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— |
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— |
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— |
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— |
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Comprehensive income: |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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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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BALANCE—February 29, 2024 |
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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—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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— |
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Comprehensive income (loss): |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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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—November 30, 2022 |
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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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Comprehensive income: |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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BALANCE—February 28, 2023 |
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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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Six Months Ended |
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February 29, 2024 |
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February 28, 2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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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 |
|
|
|
|
|
|
||
Provisions for inventory write-downs |
|
|
|
|
|
|
||
Investment income from unconsolidated entities |
|
|
( |
) |
|
|
— |
|
Gain on disposals of long-lived assets, net |
|
|
( |
) |
|
|
— |
|
Changes in : |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of property, plant and equipment |
|
|
|
|
|
— |
|
|
Payments for development of intangible assets |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
( |
) |
|
|
( |
) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period |
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—End of period |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
21 |
|
|
$ |
25 |
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Accrual related to property, plant and equipment |
|
$ |
|
|
$ |
|
||
Conversion of convertible notes payable to common stock |
|
$ |
1,609 |
|
|
$ |
— |
|
Issuance of common stock to repay long-term loan |
|
$ |
1,200 |
|
|
$ |
— |
|
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 February 29, 2024, 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 28, 2023. The unaudited condensed consolidated balance sheet as of August 31, 2023 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 February 29, 2024, the unaudited condensed statements of operations and comprehensive loss for the three and six months ended February 29, 2024 and February 28, 2023, the unaudited condensed statement of changes in equity for the three and six months ended February 29, 2024 and February 28, 2023, and the unaudited condensed statements of cash flows for the six months ended February 29, 2024 and February 28, 2023. The results for the three or six months ended February 29, 2024 are not necessarily indicative of the results to be expected for the year ending August 31, 2024.
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.
Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of February 29, 2024 and August 31, 2023, the Company’s restricted cash equivalents at current portion amounted $
Revenue Recognition —Effective September 1, 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from
Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.
7
On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.
Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.
Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.
If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.
Use of Estimates —The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates.
Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past several years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.
8
Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.
Concentration of Credit Risk —Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.
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.
|
|
February 29, |
|
|
August 31, |
|
||
Cash and Cash Equivalents by Location |
|
2024 |
|
|
2023 |
|
||
United States; |
|
|
|
|
|
|
||
Denominated in U.S. dollars |
|
$ |
|
|
$ |
|
||
Taiwan; |
|
|
|
|
|
|
||
Denominated in U.S. dollars |
|
|
|
|
|
|
||
Denominated in New Taiwan dollars |
|
|
|
|
|
|
||
Denominated in other currencies |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
|
||
The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, age 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
9
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 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 was effective for the fiscal years beginning September 1, 2022, 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. The Company concluded that the standard has no material impact on its unaudited condensed consolidated financial statements.
3. Balance Sheet Components
Inventories
Inventories as of February 29, 2024 and August 31, 2023 consisted of the following (in thousands):
|
|
February 29, |
|
|
August 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Inventory write-downs to estimated net realizable values were $
10
Property, Plant and Equipment
Property, plant and equipment as of February 29, 2024 and August 31, 2023 consisted of the following (in thousands):
|
|
February 29, |
|
|
August 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Buildings and improvements |
|
$ |
|
|
$ |
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Other equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total property, plant and equipment |
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
Intangible Assets
Intangible assets as of February 29, 2024 and August 31, 2023 consisted of the following (in thousands):
|
|
February 29, 2024 |
|
|||||||||||||
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Average |
|
|
Gross |
|
|
|
|
|
Net |
|
||||
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
Patents and trademarks |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
August 31, 2023 |
|
|||||||||||||
|
|
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 February 29, 2024 and August 31, 2023 consisted of the following (in thousands):
|
|
February 29, |
|
|
August 31, |
|
|
||||
|
|
2024 |
|
|
2023 |
|
|
||||
Accrued compensation and benefits |
|
$ |
|
|
|
$ |
|
|
|
||
Customer deposits |
|
|
|
|
|
|
|
|
|
||
Accrued business expenses |
|
|
|
|
|
|
|
|
|
||
Accrued professional service fees |
|
|
|
|
|
|
|
|
|
||
Other (individually less than |
|
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
$ |
|
|
|
||
4. Investments in Unconsolidated Entities
11
The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of February 29, 2024 and August 31, 2023 consisted of the following (in thousands, except percentages):
|
|
February 29, 2024 |
|
|
August 31, 2023 |
|
|
||||||
|
|
Percentage |
|
|
|
|
Percentage |
|
|
|
|
||
|
|
Ownership |
|
Amount |
|
|
Ownership |
|
Amount |
|
|
||
Equity investment without readily determinable fair value |
|
Various |
|
$ |
|
|
Various |
|
|
|
|
||
Equity method investments, net |
|
|
$ |
|
|
|
$ |
|
|
||||
Total investments in unconsolidated entities |
|
|
|
$ |
|
|
|
|
$ |
|
|
||
There were
Equity Investments without Readily Determinable Fair Value
Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuers.
Equity Method Investment
In July 2023, TSLC Corporation, the Company’s subsidiary, approved board resolution to acquire an equity interest in Yi Yang Optoelectronics Co., Ltd. The company accounts for its equity interest using the equity method as prescribed in ASC 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Equity method adjustments include the Company’s proportionate share of investee’s income or loss and other adjustments required by the equity method. As of February 29, 2024, the Company owns
5. Commitments and Contingencies
Operating Lease Agreements —
Most leases do not include options to renew. The exercise of lease renewal options has to be agreed by the lessors. The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized on a straight-line basis over the term of the lease. Lease expense related to these noncancelable operating leases was $
Balance sheet information related to the Company’s leases is presented below:
|
|
February 29, 2024 |
|
|
August 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
||
Operating lease right of use assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Operating lease liabilities, current |
|
$ |
|
|
$ |
|
||
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
12
The following provides details of the Company’s lease expenses:
|
|
Three Months Ended February 29, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating lease expenses, net |
|
$ |
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
Six Months Ended February 29, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating lease expenses, net |
|
$ |
|
|
|
|
||
Other information related to leases is presented below:
|
|
Six Months Ended February 29, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
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 February 29, 2024 consisted of the following (in thousands):
|
|
Operating |
|
|
Years Ending August 31, |
|
Leases |
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
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 February 29, 2024, there was no pending or threatened litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.
6. Common Stock
On 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 the greater of $
13
Company's common stock held by non-affiliates (the “Placement Shares”). Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay a commission to the Agent of
On January 7, 2024, the Company issued
On February 9, 2024, the Company repaid $
On January 5, 2024, J.R. Simplot Company, the Company’s largest shareholder, and Trung Doan, Chairman and Chief Executive Officer of the Company, converted the total principal and accrued interest of the convertible unsecured promissory noteswhich was be issued in 2019, in an aggregate amount of $
7. Stock-based Compensation
The Company currently has
A total of
In July 2023, SemiLEDs granted
In April 2023, SemiLEDs granted
In March 2023, SemiLEDs granted
In November 2022, SemiLEDs granted
14
The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.
Stock-based compensation expense is recorded net of such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of
A summary of the stock-based compensation expense for the three and six months ended February 29, 2024 and February 28, 2023 was as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
||||
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
||||
Stock units and stock options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
9. Income Taxes
The Company’s loss before income taxes for the three and six months ended February 29, 2024 and February 28, 2023 consisted of the following (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
||||
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 February 29, 2024 and August 31, 2023, the Company had
15
10. Related Party Transactions
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 $
On January 7, 2024, J.R. Simplot Company and the Company entered into an assignment agreement pursuant to which J.R. Simplot assigned and transferred all of its right, title and interest in and to the loan agreement to Simplot Taiwan Inc., in accordance with and subject to the terms and conditions of the loan agreement.
On January 7, 2024, the Company entered into the Fourth Amendment to the loan agreements with each of Simplot Taiwan Inc. and Trung Doan (each, a “Fourth Amendment”).
The Fourth Amendment with Simplot Taiwan Inc. (i) extends the maturity date of its loan agreement to
On January 7, 2024, the Company issued
The Fourth Amendment to the loan agreement with Trung Doan amends the loan agreement’s maturity date with same terms and interest rate to
On February 9, 2024, the Company and Trung Doan entered into the Fifth Amendment to the loan agreement (the “Fifth Amendment”). The Fifth Amendment, upon the mutual agreement of the Company and Trung Doan, permits the Company to repay any principal amount or accrued interest, in an amount not to exceed $
On February 9, 2024, the Company repaid $
As of February 29, 2024 and August 31, 2023, these loans totaled $
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, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $
16
per share. The change in conversion price is subject to stockholder approval. All other terms and conditions of the Notes remain the same.
After the close of market on January 5, 2024, the Company entered into the Fourth Amendment to the Notes (the “ Note Fourth Amendments”) to amend the Notes to (i) convert the total principal and accrued interest on the Notes to common stock of the Company to be issued in the names of the Holders, and (ii) change the conversion price of the Notes from $
On January 5, 2024, the Holders converted the total principal and accrued interest of the Notes, in an aggregate amount of $
As of February 29, 2024 and August 31, 2023, the outstanding principal of these notes totaled
11. Subsequent Events
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company has analyzed its operations subsequent to February 29, 2024 to the date these consolidated financial statements were issued, finding that no material subsequent events need to be disclosed.
17
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:
18
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, 2023, or the 2023 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 2023 Annual Report, and in other filings with the SEC.
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
19
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, Taiwan and Japan. 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 two 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 a 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 a 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:
20
21
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,
22
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 February 29, 2024 and February 28, 2023.
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 $77 thousand and $196 thousand for the three months ended February 29, 2024 and February 28, 2023, 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 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 February 29, 2024, the exchange rate was 31.58 NT dollars to one U.S. dollar. On April 3, 2024, the exchange rate was 32.06 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 February 29, 2024 Compared to the Three Months Ended February 28, 2023
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
(in thousands) |
|
|
||||||||||||||||||||||||
LED chips |
|
$ |
1 |
|
|
|
— |
|
% |
|
$ |
22 |
|
|
|
2 |
|
% |
|
$ |
(21 |
) |
|
|
(95 |
) |
% |
LED components |
|
|
545 |
|
|
|
62 |
|
% |
|
|
380 |
|
|
|
33 |
|
% |
|
|
165 |
|
|
|
43 |
|
% |
Lighting products |
|
|
48 |
|
|
|
5 |
|
% |
|
|
56 |
|
|
|
5 |
|
% |
|
|
(8 |
) |
|
|
(14 |
) |
% |
Other revenues (1) |
|
|
292 |
|
|
|
33 |
|
% |
|
|
694 |
|
|
|
60 |
|
% |
|
|
(402 |
) |
|
|
(58 |
) |
% |
Total revenues, net |
|
|
886 |
|
|
|
100 |
|
% |
|
|
1,152 |
|
|
|
100 |
|
% |
|
|
(266 |
) |
|
|
(23 |
) |
% |
Cost of revenues |
|
|
774 |
|
|
|
87 |
|
% |
|
|
890 |
|
|
|
77 |
|
% |
|
|
(116 |
) |
|
|
(13 |
) |
% |
Gross profit |
|
$ |
112 |
|
|
|
13 |
|
% |
|
$ |
262 |
|
|
|
23 |
|
% |
|
$ |
(150 |
) |
|
|
(57 |
) |
% |
____________________
(1) Other revenues includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services and a joint development project with CrayoNano AS.
Revenues, net
Our revenues decreased by 23% to $886 thousand for the three months ended February 29, 2024 from $1.2 million for the three months ended February 28, 2023. The decrease in revenues was driven primarily by a $402 thousand decrease in sales of other revenues
23
and a $21 thousand decrease in sales of LED chips and a $8 thousand decrease in lighting products, offset by a $165 thousand increase in LED components.
Revenues attributable to the sales of our LED chips were $1 thousand and $22 thousand, representing 0.1% and 2% of our revenues for each of the three months ended February 29, 2024 and February 28, 2023, respectively. The decrease was primarily due to varying volumes sold for the LED chips.
Revenues attributable to the sales of our LED components represented 62% and 33% of our revenues for the three months ended February 29, 2024 and February 28, 2023, respectively. The increase in revenues attributable to sales of LED components was primarily due to higher volumes sold.
Revenues attributable to the sales of lighting products represented 5% of our revenues for the three months ended February 29, 2024 and February 28, 2023. Revenues attributable to the sales of lighting products were lower for the three months ended February 29, 2024 primarily due to less demand for the LED lighting products.
Revenues attributable to other operating revenues represented 33% and 60% of our revenues for the three months ended February 29, 2024 and February 28, 2023, respectively. The decrease in revenues attributable to other operating revenues was primarily due to the provision of service and the sale of raw materials.
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.
Cost of Revenues
Our cost of revenues decreased by 13% from $890 thousand for the three months ended February 28, 2023 to $774 thousand for the three months ended February 29, 2024. The decrease in cost of revenues was due to the decrease in the volume of products sold.
Gross Profit
Our gross profit decreased by 57% from $262 thousand for the three months ended February 28, 2023 to $112 thousand for the three months ended February 29, 2024 as a consequence of a decrease in the sales of products with higher margins.
Operating Expenses
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
Research and development |
|
$ |
251 |
|
|
|
28 |
|
% |
|
$ |
295 |
|
|
|
26 |
|
% |
|
$ |
(44 |
) |
|
|
(15 |
) |
% |
Selling, general and administrative |
|
|
693 |
|
|
|
78 |
|
% |
|
|
669 |
|
|
|
58 |
|
% |
|
|
24 |
|
|
|
4 |
|
% |
Total operating expenses |
|
$ |
944 |
|
|
|
107 |
|
% |
|
$ |
964 |
|
|
|
83 |
|
% |
|
$ |
(20 |
) |
|
|
(2 |
) |
% |
Research and development
Our research and development expenses decrease from $295 thousand for the three months ended February 28, 2023 to $251 thousand for the three months ended February 29, 2024. The decrease was primarily due to a $36 thousand decrease in payroll expense and a $9 thousand decrease in materials and supplies used in research and development.
Selling, general and administrative
Our selling, general and administrative expenses increased from $669 thousand for the three months ended February 28, 2023 to $693 thousand for the three months ended February 29, 2024. The increase was mainly attributable to increases in insurance expense, professional service fees and in various other expenses.
24
Other Income (Expenses)
|
|
Three Months Ended |
|
|
||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
(in thousands) |
|
|
||||||||||||||
Investment loss from unconsolidated entities |
|
$ |
(5 |
) |
|
|
— |
|
% |
|
|
— |
|
|
|
— |
|
% |
Interest expenses, net |
|
|
(65 |
) |
|
|
(7 |
) |
|
|
|
(65 |
) |
|
|
(6 |
) |
% |
Other income, net |
|
|
377 |
|
|
|
43 |
|
% |
|
|
229 |
|
|
|
20 |
|
% |
Foreign currency transaction loss, net |
|
|
(32 |
) |
|
|
(4 |
) |
% |
|
|
(7 |
) |
|
|
(1 |
) |
% |
Total other income, net |
|
$ |
275 |
|
|
|
31 |
|
% |
|
$ |
157 |
|
|
|
13 |
|
% |
Investment loss from unconsolidated entities Investment loss from unconsolidated entities, net increased from zero for the three months ended February 28, 2023 to $5 thousand for the three months ended February 29, 2024, primarily due to the decrease in equity method investments.
Interest expenses, net Interest expenses, net, which primarily consisted of accrued interest payment on convertible notes, NT dollar denominated long-term notes and $2.4 million of loans with our Chairman and Chief Executive Officer and our largest shareholder, remained flat.
Other income, net Other income, net increase from $229 thousand for the three months ended February 28, 2023, to $377 thousand for the three months ended February 29, 2024, primarily due to an increase in rental income and revenue under the Patent Cross-License Agreement with CrayoNano AS.
Foreign currency transaction loss, net We recognized a net foreign currency transaction loss of $32 thousand and $7 thousand for the three months ended February 29, 2024 and February 28, 2023, respectively, primarily due to the impact of a lower exchange rate of the U.S. dollar against the NT dollar from bank deposits and accounts payables.
Income Tax Expense
Our effective tax rate is expected to be approximately zero for fiscal 2024 and 2023, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
Net Income (Loss) Attributable to Noncontrolling Interests
|
|
Three Months Ended |
|
|
|||||||||||||
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
|
||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
||||
|
|
$ |
|
|
Revenues |
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
(in thousands) |
|
|
|||||||||||||
Net income (loss) attributable to noncontrolling interests |
|
$ |
2 |
|
|
|
1 |
|
% |
$ |
(4 |
) |
|
|
1 |
|
% |
We recognized net income attributable to non-controlling interests of $2 thousand and a net loss of $4 thousand for the three months ended February 29, 2024 and February 28, 2023, respectively, which was attributable to the share of the net gain (loss) of Taiwan Bandaoti Zhaoming Co., Ltd held by the remaining non-controlling holders. Non-controlling interests represented 2.63% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., as of February 29, 2024 and February 28, 2023.
25
Six Months Ended February 29, 2024 Compared to the Six Months Ended February 28, 2023
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
(in thousands) |
|
|
||||||||||||||||||||||||
LED chips |
|
$ |
59 |
|
|
|
3 |
|
% |
|
$ |
71 |
|
|
|
3 |
|
% |
|
$ |
(12 |
) |
|
|
(17 |
) |
% |
LED components |
|
|
1,620 |
|
|
|
64 |
|
% |
|
|
1,215 |
|
|
|
43 |
|
% |
|
|
405 |
|
|
|
33 |
|
% |
Lighting products |
|
|
97 |
|
|
|
4 |
|
% |
|
|
211 |
|
|
|
7 |
|
% |
|
|
(114 |
) |
|
|
(54 |
) |
% |
Other revenues (1) |
|
|
760 |
|
|
|
30 |
|
% |
|
|
1,350 |
|
|
|
47 |
|
% |
|
|
(590 |
) |
|
|
(44 |
) |
% |
Total revenues, net |
|
|
2,536 |
|
|
|
101 |
|
% |
|
|
2,847 |
|
|
|
100 |
|
% |
|
|
(311 |
) |
|
|
(11 |
) |
% |
Cost of revenues |
|
|
2,179 |
|
|
|
86 |
|
% |
|
|
2,122 |
|
|
|
75 |
|
% |
|
|
57 |
|
|
|
3 |
|
% |
Gross profit |
|
$ |
357 |
|
|
|
15 |
|
% |
|
$ |
725 |
|
|
|
25 |
|
% |
|
$ |
(368 |
) |
|
|
(51 |
) |
% |
_____________________
(1) Other revenues 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 decreased by 11% from $2.8 million for the six months ended February 28, 2023 to $2.5 million for the six months ended February 29, 2024. The $311 thousand decrease in revenues reflects a $590 thousand decrease in sales of other revenues, a $114 thousand decrease in sales of lighting products and a $12 thousand decrease in sales of LED chips, offset by a $405 thousand increase in LED components.
Revenues attributable to the sales of our LED chips represented 3% of our revenues for six months ended February 29, 2024 and February 28, 2023. The decrease in revenues attributable to sales of LED chips was a result of a decrease in the volume of LED chips sold.
Revenues attributable to the sales of our LED components represented 64% and 43% of our revenues for the six months ended February 29, 2024 and February 28, 2023, respectively. The increase in revenues attributable to sales of LED components was primarily due to higher volumes sold.
Revenues attributable to the sales of lighting products were represented 4% and 7% of our revenues for the six months ended February 29, 2024 and February 28, 2023, respectively. Revenues attributable to the sales of lighting products were lower for the six months ended February 29, 2024 primarily due to less demand for the lighting products sold.
Revenues attributable to other operating revenues represented 30% and 47% of our revenues for the six months ended February 29, 2024 and February 28, 2023, respectively. The decrease in revenues attributable to other operating revenues was primarily due to the provision of service and the sale of raw materials.
Cost of Revenues
Our cost of revenues were $2.2 million and $2.1 million for the six months ended February 29, 2024 and February 28, 2023, respectively. The slight increase in cost of revenues attributable to a decrease in the sales of products with higher margin.
Gross Profit
Our gross profit decreased from $725 thousand for the six months ended February 28, 2023 to $357 thousand for the six months ended February 29, 2024. Our gross margin percentage was 15% for the six months ended February 29, 2024, as compared to 25% for the six months ended February 28, 2023 as a consequence of a decrease in the sales of products with higher margins.
26
Operating Expenses
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Change |
|
|
Change |
|
|
||||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
Research and development |
|
$ |
623 |
|
|
|
25 |
|
% |
|
$ |
660 |
|
|
|
23 |
|
% |
|
$ |
(37 |
) |
|
|
(6 |
) |
% |
Selling, general and administrative |
|
|
1,435 |
|
|
|
57 |
|
% |
|
|
1,421 |
|
|
|
50 |
|
% |
|
|
14 |
|
|
|
1 |
|
% |
Gain on disposals of long-lived assets, net |
|
|
(50 |
) |
|
|
(2 |
) |
% |
|
|
— |
|
|
|
— |
|
% |
|
|
(50 |
) |
|
|
— |
|
% |
Total operating expenses |
|
$ |
2,008 |
|
|
|
79 |
|
% |
|
$ |
2,081 |
|
|
|
73 |
|
% |
|
$ |
(73 |
) |
|
|
(4 |
) |
% |
Research and development
Our research and development expenses were $623 thousand and $660 thousand for the six months ended February 29, 2024 and February 28, 2023, respectively. The decrease was primary due to a $35 thousand decrease in payroll expense as a result of a headcount reduction completed at our subsidiary, TSLC Corporation.
Selling, general and administrative
Our selling, general and administrative expenses were $1.4 million for the six months ended February 29, 2024 and February 28, 2023. The slight increase was mainly attributable to an increase of $33 thousand in professional service fees, partially offset by a $21 thousand decrease in other various expenses.
Gain on disposal of long-lived assets, net
We recognized a net gain of $50 thousand and zero on the disposal of long-lived assets for the six months ended February 29, 2024 and February 28, 2023, respectively. Due to the excess capacity charges that we have suffered for the last few years, and considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment.
Other Income (Expenses)
|
|
Six Months Ended |
|
|
||||||||||||||
|
|
February 29, 2024 |
|
|
|
February 28, 2023 |
|
|
||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
||||
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
(in thousands) |
|
|
||||||||||||||
Investment income |
|
$ |
3 |
|
|
|
— |
|
% |
|
$ |
— |
|
|
|
— |
|
% |
Interest expenses, net |
|
|
(153 |
) |
|
|
(6 |
) |
% |
|
|
(152 |
) |
|
|
(5 |
) |
% |
Other income, net |
|
|
636 |
|
|
|
25 |
|
% |
|
|
471 |
|
|
|
17 |
|
% |
Foreign currency transaction loss , net |
|
|
12 |
|
|
|
— |
|
% |
|
|
(17 |
) |
|
|
(1 |
) |
% |
Total other income, net |
|
$ |
498 |
|
|
|
20 |
|
% |
|
$ |
302 |
|
|
|
12 |
|
% |
Investment income Investment income, net increased from zero for the six months ended February 28, 2023 to $3 thousand for the six months ended February 29, 2024, primarily due to the increase in equity method investments.
Interest expenses, net Interest expenses, net which primarily consisted of accrued interest payment on convertible notes, NT dollar denominated long-term notes and $2.4 million of loans with our Chairman and Chief Executive Officer and our largest shareholder. The slight increase in interest expense, net was primarily due to lower interest income for the six months ended February 29, 2024.
Other income, net Other income, net increased from $471 thousand for the six months ended February 28, 2023, to $636 thousand for the six months ended February 29, 2024, primarily due to an increase in rental income and revenue under the Patent Cross-License Agreement with CrayoNano AS.
27
Foreign currency transaction gain (loss), net We recognized a net foreign currency transaction gain of $12 thousand and a net foreign currency transaction loss of $17 thousand for the six months ended February 29, 2024 and February 28, 2023, 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 payable.
Income Tax Expense
Our effective tax rate is expected to be approximately zero for fiscal 2024 and was zero for fiscal 2023, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
Net Income (Loss) Attributable to Noncontrolling Interests
|
|
Six Months Ended |
|
|||||||||||
|
|
February 29, 2024 |
|
February 28, 2023 |
|
|||||||||
|
|
|
|
|
% of |
|
|
|
|
% of |
|
|||
|
|
$ |
|
|
Revenues |
|
$ |
|
|
Revenues |
|
|||
|
|
(in thousands) |
|
|||||||||||
Net income (loss) attributable to noncontrolling interests |
|
$ |
4 |
|
|
1 |
% |
$ |
(1 |
) |
|
|
— |
|
We recognized net income of attributable to non-controlling interests of $4 thousand and a net loss of $1 thousand for the six months ended February 29, 2024 and February 28, 2023, respectively, which was attributable to the share of the net gain (loss) of Taiwan Bandaoti Zhaoming Co., Ltd., held by the remaining non-controlling holders. Non-controlling interests represented 2.63% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., as of February 29, 2024 and February 28, 2023.
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 consolidated financial statements in this Quarterly Report.
Sources and Uses of Cash
As of February 29, 2024 and August 31, 2023, we had cash and cash equivalents of $1.6 million and $2.6 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.
As of April 3, 2024, 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 $4.0 million and $6.4 million as of February 29, 2024 and August 31, 2023, respectively. In January 2024, the convertible unsecured promissory notes were all converted.
Our NT dollar denominated long-term notes, totaled $2.4 million of February 29, 2024 and $3.2 million of August 31, 2023. 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 2.29% 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 2.67% currently) and is available for
28
operating capital. These loans are secured by an $79 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building.
Property, plant and equipment pledged as collateral for our notes payable were $2.2 million and $2.3 million as of February 29, 2024 and August 31, 2023, respectively.
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 $1.7 million and $1.5 million, respectively, 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 the Company's headquarters building pursuant to the agreement dated December 15, 2015. The Company 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 extended again with same terms and interest rate for one more year to January 15, 2023. On January 13, 2023, the maturity date of these loans was further extended with same terms and interest rate for one year to January 15, 2024.
On January 7, 2024, J.R. Simplot Company and the Company entered into an assignment agreement pursuant to which J.R. Simplot assigned and transferred all of its right, title and interest in and to the loan agreement to Simplot Taiwan Inc., in accordance with and subject to the terms and conditions of the loan agreement.
On January 7, 2024, the Company entered into the Fourth Amendment to the loan agreements with each of Simplot Taiwan Inc. and Trung Doan (each, a “Fourth Amendment”).
The Fourth Amendment with Simplot Taiwan Inc. (i) extends the maturity date of its loan agreement to January 15, 2025, and (ii) upon mutual agreement of the Company and Simplot Taiwan Inc., permits the Company to repay any principal amount or accrued interest, in an amount not to exceed $400,000, by issuing shares of the Company’s common stock in the name of Simplot Taiwan Inc. as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement with Simplot Taiwan Inc. remain the same. The Fourth Amendment to the loan agreement with Trung Doan to amend the loans maturity date with same terms and interest rate to January 15, 2025. All other terms and conditions of the loan agreement with Trung Doan remain the same.
On January 7, 2024, the Company issued 305,343 shares of its common stock at a price of $1.31 per share to repay $400,000 of accrued interest on the Loan Agreement with Simplot Taiwan Inc. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.
The Fourth Amendment to the loan agreement with Trung Doan amends the loan agreement’s maturity date with same terms and interest rate to January 15, 2025. All other terms and conditions of the loan agreement with Trung Doan remain the same.
On February 9, 2024, the Company and Trung Doan entered into the Fifth Amendment to the loan agreement (the “Fifth Amendment”). The Fifth Amendment, upon the mutual agreement of the Company and Trung Doan, permits the Company to repay any principal amount or accrued interest, in an amount not to exceed $800,000, by issuing shares of the Company’s common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date.
On February 9, 2024, the Company repaid $800,000 of loan principal by delivering 629,921 shares of the Company’s common stock to Mr. Doan, based on the closing price of $1.27 per share on February 8, 2024. The shares of common stock were issued on February 9, 2024 in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.
As of February 29, 2024 and August 31, 2023, these loans totaled $2.4 million and $3.2 million, respectively. The loans are secured by a second priority security interest on the Company's headquarters building.
29
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, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest is due on demand by the Holders on and at any time after May 30, 2021. On February 7, 2020, J.R. Simplot Company assigned all of its right, title and interest in the Notes to Simplot Taiwan Inc. The outstanding principal and unpaid accrued interest of the Notes may be converted into shares of the Company’s common stock at a conversion price of $3.00 per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $300,000 of the Notes into 100,000 shares of the Company’s common stock. On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and a maturity date of May 30, 2022. On May 26, 2022, the Notes were second extended with the same terms and interest rate for one year and a maturity date of May 30, 2023. On June 6, 2023, the Company entered into the Third Amendment to the Notes (the “Third Amendments”) to amend the Notes to (i) extend the maturity date from May 30, 2023 to May 30, 2024, and (ii) change the conversion price from $3.00 to $2.046 per share. The change in conversion price is subject to stockholder approval. All other terms and conditions of the Notes remain the same.
After the close of market on January 5, 2024, the Company entered into the Fourth Amendment to the Notes (the “Note Fourth Amendments”) to amend the Notes to (i) convert the total principal and accrued interest on the Notes to common stock of the Company to be issued in the names of the Holders, and (ii) change the conversion price of the Notes from $2.046 per share to the closing price immediately preceding the signing of the Note Fourth Amendments, or $1.31 per share. All other terms and conditions of the Notes remain the same.
On January 5, 2024, the Holders converted the total principal and accrued interest of the Notes, in an aggregate amount of $1,608,848, to 1,228,128 shares of its common stock at a conversion price of $1.31 per share.
As of February 29, 2024 and August 31, 2023, the outstanding principal of these notes totaled zero and $1.4 million, respectively.
Working Capital
We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $559 thousand and $541 thousand during the three months ended February 29, 2024 and February 28, 2023, respectively. Net cash used in operating activities for the six months ended February 29, 2024 was $679 thousand. As of February 29, 2024, we had cash and cash equivalents of $1.6 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. We did not sell any shares of common stock under our ATM program in fiscal year 2023 and in the second quarter of fiscal 2024.
We estimate that our cash requirements to service debt and contractual obligations in fiscal 2024 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program and through loan extensions. 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
30
requirements or for other purposes. There can be no assurance that additional debt or equity financing will be available to us or that, if available, such financing will be available on terms favorable to us.
Cash Flows
The following summary of our cash flows for the periods indicated has been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this Quarterly Report (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
February 29, 2024 |
|
|
February 28, 2023 |
|
||
Net cash used in operating activities |
|
$ |
(679 |
) |
|
$ |
(85 |
) |
Net cash used in investing activities |
|
$ |
(35 |
) |
|
$ |
(92 |
) |
Net cash used in financing activities |
|
$ |
(231 |
) |
|
$ |
(240 |
) |
Cash Flows Used In Operating Activities
Net cash used in operating activities for the six months ended February 29, 2024 and February 28, 2023 was $679 thousand and $85 thousand, respectively. The increase in cash flows used in operating activities for the six months ended February 29, 2024 was primary attributable to an increase of $99 thousand of net loss and $315 thousand decrease of depreciation and amortization and $193 thousand decrease of inventory write downs and $466 thousand decrease of accounts payable and $161 thousand decrease in accrued expenses and other current liabilities and an increase of $50 thousand in gain on disposal of long-lived assets and $292 thousand decrease in accounts receivable, offset partially a $989 thousand increase in inventory.
Cash Flows Used In Investing Activities
Net cash used in investing activities for the six months ended February 29, 2024 and February 28, 2023 was $35 thousand and $92, respectively, primarily for the purchases of property, plant and equipment during each period.
Cash Flows Used In Financing Activities
Net cash used in financing activities for the six months ended February 29, 2024 and February 28, 2023 was $231 thousand and $240 thousand, respectively. The decrease was primary attributable to the repayments of long-term debt.
Capital Expenditures
We had capital expenditures of $69 thousand and $83 thousand for the six months ended February 29, 2024 and February 28, 2023, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future as we expand our business operations and invest in such expansion of our production capacity as we deem appropriate under market conditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our management continues to monitor prices and, consistent with its existing contractual commitments, may decrease its 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 February 29, 2024. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
31
Based upon the aforementioned evaluation, our CEO and CFO have concluded that, as of February 29, 2024, 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 February 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
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 February 29, 2024.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our 2023 Annual Report, other than as described below:
We may fail to qualify for continued listing on Nasdaq which could make it more difficult for investors to sell their shares.
Our common stock is listed on the Nasdaq Capital Market. To maintain that listing, we must satisfy the continued listing requirements of Nasdaq for inclusion in the Nasdaq Capital Market, including among other things, a minimum stockholders’ equity of $2.5 million and a minimum bid price for our common stock of $1.00 per share, that a majority of the members of our board of directors are independent under the Nasdaq Listing Rules and that our audit committee consist of three independent directors who satisfy additional requirements under the Exchange Act.
On July 10, 2023, Roger Lee resigned from our Board of Directors effective immediately, which resulted in one vacancy on our audit committee. In accordance with Nasdaq Listing Rule 5605(c)(4)(B), we have been provided a cure period until the earlier of our next annual meeting of stockholders or July 10, 2024, or if the next annual stockholders’ meeting is held before January 8, 2024, then we must evidence compliance no later than January 8, 2024 to regain compliance with the audit committee requirements. If we do not regain compliance with the audit committee requirements by the period provided, Nasdaq will notify us that our common stock will be delisted. We intend to appoint a replacement director for the vacancy on our audit committee.
Additionally, on July 11, 2023, we received a notice from NASDAQ indicating that we did not meet the minimum of $2,500,000 in stockholders’ equity required by Nasdaq Listing Rule 5550(b)(1) for continued listing or the alternatives of market value of listed securities or net income from continuing operations. Pursuant to the Nasdaq listing rule, we submitted a plan to regain compliance. Nasdaq accepted our plan and granted us an extension to January 8, 2024.
In January 2024, we converted the total principal and accrued interest of our outstanding convertible unsecured promissory notes, in an aggregate amount of $1,608,848, to 1,228,128 shares of our common stock at a conversion price of $1.31 per share. We also issued 305,343 shares of our common stock at a price of $1.31 per share in January 2024 to repay $400,000 of (1) accrued interest and, once repaid in full, (2) principal, on our existing Loan Agreement with Simplot Taiwan Inc. In February 2024, we prepaid $800,000 of principal on our existing Loan Agreement with Trung Doan by delivering 629,921 shares of our common stock to Mr. Doan, based on the closing price of $1.27 per share on February 8, 2024. Based on these transactions, Nasdaq issued a conditional compliance letter on January 18, 2024.
There can be no assurance that we will be able to appoint an additional independent director timely or that we will regain and maintain compliance with Nasdaq’s continued listing requirements or that our common stock will not be delisted from Nasdaq in the future.
If our common stock is delisted by Nasdaq, we expect prices for our common stock to be quoted on one of the OTC Markets or the OTC Bulletin Board. Under such circumstances, stockholders may find it more difficult to sell, or to obtain accurate quotations, for our common stock, and our common stock would become substantially less attractive to certain purchasers such as financial institutions, hedge funds and other similar investors. There is no assurance, however, that prices of our common stock would be quoted on one of these other trading systems or that an active trading market for our common stock would thereafter exist, which would materially and adversely impact the market value of our common stock.
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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
On January 7, 2024, the Company issued 305,343 shares of its common stock at a price of $1.31 per share to repay $400,000 of (1) accrued interest and, once repaid in full, (2) principal, on the Loan Agreement with Simplot Taiwan Inc. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.
On February 9, 2024, the Company delivered a payment notice indicating its intent to prepay $800,000 of loan principal by delivering 629,921 shares of the Company’s common stock to Mr. Doan, based on the closing price of $1.27 per share on February 8, 2024. The shares of common stock were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.
Repurchases
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended February 29, 2024, no director or officer of the Company
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Item 6. Exhibits
Exhibit No. |
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Description |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.1 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SEMILEDS CORPORATION |
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(Registrant) |
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Dated: |
April 12, 2024 |
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By: |
/s/ Christopher Lee |
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Name: |
Christopher Lee |
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Title: |
Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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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: |
April 12, 2024 |
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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: |
April 12, 2024 |
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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 February 29, 2024, 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: |
April 12, 2024 |
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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 February 29, 2024, 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: |
April 12, 2024 |
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/s/ Christopher Lee |
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Name: Christopher Lee |
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Title: Chief Financial Officer |