Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the quarterly period ended May 31, 2020

or

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

For the transition period from             to             

Commission File Number: 001-34992

SemiLEDs Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-2735523

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

3F, No. 11 Ke Jung Rd., Chu-Nan Site,

 

 

Hsinchu Science Park, Chu-Nan 350,

 

 

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

 

350

(Address of principal executive offices)

 

(Zip Code)

+886-37-586788
(Registrant’s telephone number, including area code)

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

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0000056

 

LEDs

 

The Nasdaq Stock Market

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,006,323 shares of common stock, par value $0.0000056 per share, outstanding as of July 7, 2020.

 


Table of Contents

 

SEMILEDS CORPORATION

FORM 10-Q for the Quarter Ended May 31, 2020

INDEX

 

 

 

Page No.

 

 

 

 

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of May 31, 2020 and August 31, 2019

1

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended May 31, 2020 and 2019

2

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended May 31, 2020 and 2019

3

 

 

 

 

Unaudited Condensed Consolidated Statement of Changes in Equity for the three and nine months ended May 31, 2020 and 2019

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine months ended May 31, 2020 and 2019

5

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

Item 5.

Other Information

31

 

 

 

Item 6.

Exhibits

32

 

 

 

Signatures

33

 

 

 


Table of Contents

 

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)

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,476

 

 

$

1,363

 

Restricted cash and cash equivalents

 

 

85

 

 

 

19

 

Accounts receivable (including related parties), net of allowance for doubtful accounts of $184 and $195 as of May 31, 2020 and August 31, 2019, respectively

 

 

1,452

 

 

 

703

 

Inventories

 

 

2,680

 

 

 

2,083

 

Prepaid expenses and other current assets

 

 

788

 

 

 

460

 

Total current assets

 

 

7,481

 

 

 

4,628

 

Property, plant and equipment, net

 

 

5,733

 

 

 

5,878

 

Operating lease right of use assets

 

 

237

 

 

 

 

Intangible assets, net

 

 

89

 

 

 

93

 

Investments in unconsolidated entities

 

 

935

 

 

 

894

 

Other assets

 

 

193

 

 

 

169

 

TOTAL ASSETS

 

$

14,668

 

 

$

11,662

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current installments of long-term debt

 

$

3,240

 

 

$

398

 

Accounts payable

 

 

748

 

 

 

680

 

Advance receipt toward the convertible note

 

 

500

 

 

 

500

 

Accrued expenses and other current liabilities

 

 

2,950

 

 

 

2,342

 

Operating lease liabilities, current

 

 

116

 

 

 

 

Total current liabilities

 

 

7,554

 

 

 

3,920

 

Long-term debt, excluding current installments

 

 

4,361

 

 

 

5,954

 

Operating lease liabilities, less current portion

 

 

121

 

 

 

 

Total liabilities

 

 

12,036

 

 

 

9,874

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

SemiLEDs stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0000056 par value—7,500 shares authorized; 4,006 shares and 3,594 shares issued and outstanding as of May 31, 2020 and August 31, 2019, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

177,214

 

 

 

175,804

 

Accumulated other comprehensive income

 

 

3,667

 

 

 

3,753

 

Accumulated deficit

 

 

(178,298

)

 

 

(177,816

)

Total SemiLEDs stockholders' equity

 

 

2,583

 

 

 

1,741

 

Noncontrolling interests

 

 

49

 

 

 

47

 

Total equity

 

 

2,632

 

 

 

1,788

 

TOTAL LIABILITIES AND EQUITY

 

$

14,668

 

 

$

11,662

 

 

See notes to unaudited condensed consolidated financial statements.

1


Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(In thousands of U.S. dollars and shares, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Revenues, net

 

$

1,569

 

 

$

1,745

 

 

$

4,669

 

 

$

4,347

 

Cost of revenues

 

 

1,153

 

 

 

1,405

 

 

 

3,187

 

 

 

4,224

 

Gross profit

 

 

416

 

 

 

340

 

 

 

1,482

 

 

 

123

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

375

 

 

 

444

 

 

 

1,112

 

 

 

1,076

 

Selling, general and administrative

 

 

782

 

 

 

597

 

 

 

2,141

 

 

 

1,973

 

Gain on disposals of long-lived assets, net

 

 

 

 

 

 

 

 

(79

)

 

 

(288

)

Total operating expenses

 

 

1,157

 

 

 

1,041

 

 

 

3,174

 

 

 

2,761

 

Loss from operations

 

 

(741

)

 

 

(701

)

 

 

(1,692

)

 

 

(2,638

)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposal of investment

 

 

 

 

 

 

 

 

634

 

 

 

 

Interest expenses, net

 

 

(95

)

 

 

(74

)

 

 

(273

)

 

 

(115

)

Other income (losses), net

 

 

270

 

 

 

94

 

 

 

594

 

 

 

48

 

Foreign currency transaction (losses) gain, net

 

 

57

 

 

 

(177

)

 

 

256

 

 

 

20

 

Total other income (expenses), net

 

 

232

 

 

 

(157

)

 

 

1,211

 

 

 

(47

)

Loss before income taxes

 

 

(509

)

 

 

(858

)

 

 

(481

)

 

 

(2,685

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(509

)

 

 

(858

)

 

 

(481

)

 

 

(2,685

)

Less: Net gain (loss) attributable to noncontrolling interests

 

 

4

 

 

 

1

 

 

 

1

 

 

 

(1

)

Net loss attributable to SemiLEDs stockholders

 

$

(513

)

 

$

(859

)

 

$

(482

)

 

$

(2,684

)

Net loss per share attributable to SemiLEDs stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.14

)

 

$

(0.24

)

 

$

(0.13

)

 

$

(0.75

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

3,738

 

 

 

3,589

 

 

 

3,806

 

 

 

3,576

 

 

See notes to unaudited condensed consolidated financial statements.

2


Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands of U.S. dollars)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Net loss

 

$

(509

)

 

$

(858

)

 

$

(481

)

 

$

(2,685

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(9

)

 

 

12

 

 

 

(84

)

 

 

(1

)

Comprehensive loss

 

$

(518

)

 

$

(846

)

 

$

(565

)

 

$

(2,686

)

Comprehensive loss attributable to noncontrolling interests

 

$

4

 

 

$

(1

)

 

$

3

 

 

$

(3

)

Comprehensive loss attributable to SemiLEDs stockholders

 

$

(522

)

 

$

(845

)

 

$

(568

)

 

$

(2,683

)

 

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Equity

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

SemiLEDs

 

 

Non-

 

 

 

 

 

 

Common Stock

 

 

Subscribed

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

 

Interests

 

 

Equity

 

BALANCE—September 1, 2018

 

 

3,559

 

 

$

 

 

$

 

 

$

175,527

 

 

$

3,727

 

 

$

(174,251

)

 

$

5,003

 

 

$

 

 

$

5,003

 

Issuance of common stock under equity incentive plans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Common stock issued by SBDI*

 

 

 

 

 

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

128

 

 

 

48

 

 

 

176

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

 

 

(1

)

 

 

4

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(978

)

 

 

(978

)

 

 

(5

)

 

 

(983

)

BALANCE—November 30, 2018

 

 

3,560

 

 

 

 

 

 

 

 

 

175,698

 

 

 

3,732

 

 

 

(175,229

)

 

 

4,201

 

 

 

42

 

 

 

4,243

 

Issuance of common stock under equity incentive plans

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

47

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

 

 

1

 

 

 

(17

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(847

)

 

 

(847

)

 

 

3

 

 

 

(844

)

BALANCE—February 28, 2019

 

 

3,589

 

 

 

 

 

 

 

 

 

175,745

 

 

 

3,714

 

 

 

(176,076

)

 

 

3,383

 

 

 

46

 

 

 

3,429

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

 

 

(2

)

 

 

12

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(859

)

 

 

(859

)

 

 

1

 

 

 

(858

)

BALANCE—May 31, 2019

 

 

3,589

 

 

$

 

 

$

 

 

$

175,772

 

 

$

3,728

 

 

$

(176,935

)

 

$

2,565

 

 

$

45

 

 

$

2,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

SemiLEDs

 

 

Non-

 

 

 

 

 

 

Common Stock

 

 

Subscribed

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

 

Interests

 

 

Equity

 

BALANCE—September 1, 2019

 

 

3,594

 

 

$

 

 

$

 

 

$

175,804

 

 

$

3,753

 

 

$

(177,816

)

 

$

1,741

 

 

$

47

 

 

$

1,788

 

Issuance of common stock under equity incentive plans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

 

 

1

 

 

 

(23

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(317

)

 

 

(317

)

 

 

(5

)

 

 

(322

)

BALANCE—November 30, 2019

 

 

3,595

 

 

 

 

 

 

 

 

 

175,839

 

 

 

3,729

 

 

 

(178,133

)

 

 

1,435

 

 

 

43

 

 

 

1,478

 

Issuance of common stock under equity incentive plans

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Issuance of common stock for private placement

 

 

 

 

 

 

 

 

600

 

 

 

 

 

 

 

 

 

 

 

 

600

 

 

 

 

 

 

600

 

Issuance of convertible notes

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

 

 

 

(53

)

 

 

1

 

 

 

(52

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348

 

 

 

348

 

 

 

2

 

 

 

350

 

BALANCE—February 29, 2020

 

 

3,623

 

 

 

 

 

 

600

 

 

 

175,902

 

 

 

3,676

 

 

 

(177,785

)

 

 

2,393

 

 

 

46

 

 

 

2,439

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Issuance of common stock for private placement

 

 

183

 

 

 

 

 

 

(600

)

 

 

700

 

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

100

 

Conversion of notes into common stocks

 

 

200

 

 

 

 

 

 

 

 

 

592

 

 

 

 

 

 

 

 

 

592

 

 

 

 

 

 

592

 

Change ownership in SBDI*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

(2

)

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(513

)

 

 

(513

)

 

 

4

 

 

 

(509

)

BALANCE—May 31, 2020

 

 

4,006

 

 

$

 

 

$

-

 

 

$

177,214

 

 

$

3,667

 

 

$

(178,298

)

 

$

2,583

 

 

$

49

 

 

$

2,632

 

 

See notes to unaudited condensed consolidated financial statements.

*SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries.

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Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

 

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(481

)

 

$

(2,685

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

623

 

 

 

827

 

Stock-based compensation expense

 

 

80

 

 

 

117

 

Provisions for inventory write-downs

 

 

571

 

 

 

560

 

Gain on disposals of long-lived assets, net

 

 

(79

)

 

 

(288

)

Gain on disposals of investments

 

 

(634

)

 

 

 

Changes in :

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(131

)

 

 

(292

)

Inventories

 

 

(1,084

)

 

 

(724

)

Prepaid expenses and other

 

 

95

 

 

 

(121

)

Accounts payable

 

 

60

 

 

 

(183

)

Accrued expenses and other current liabilities

 

 

194

 

 

 

(85

)

Net cash used in operating activities

 

 

(786

)

 

 

(2,874

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(226

)

 

 

(73

)

Proceeds from sales of property, plant and equipment

 

 

79

 

 

 

505

 

Return the received-in-advance

 

 

 

 

 

(3,000

)

Payments for development of intangible assets

 

 

(14

)

 

 

(3

)

Net cash used in investing activities

 

 

(161

)

 

 

(2,571

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

2,000

 

 

 

3,200

 

Repayments of long-term debt

 

 

(279

)

 

 

(248

)

Issuance of common stock for private placement

 

 

700

 

 

 

 

Acquisition of noncontrolling interests

 

 

(2

)

 

 

(1

)

Net cash provided by financing activities

 

 

2,419

 

 

 

2,951

 

Changes in cash balance included in deconsolidated subsidiaries

 

 

(61

)

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(228

)

 

 

133

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

1,183

 

 

 

(2,361

)

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

1,471

 

 

 

3,421

 

CASH AND CASH EQUIVALENTS—End of period

 

$

2,654

 

 

$

1,060

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accrual related to property, plant and equipment

 

$

34

 

 

$

34

 

 

See notes to unaudited condensed consolidated financial statements.

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

As of May 31, 2020, SemiLEDs had two wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a substantial portion of marketing and sale of LED components, and where most of the Company’s employees are based. On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with XianChang Ma  (the “Purchaser”) pursuant to which the Purchaser agreed to purchase all of the outstanding shares of the Company’s Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd. for $100,000 and an additional $40,000 for the transaction costs.  The Purchaser paid $140,000 to the Company, and the transaction was completed in January 2020. The Purchaser also subscribed approximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note 6).

SemiLEDs’ common stock began trading on the NASDAQ Global Select Market under the symbol “LEDS”.

2. Summary of Significant Accounting Policies

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 20, 2019. The unaudited condensed consolidated balance sheet as of August 31, 2019 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2020, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2020 and 2019, the statement of changes in equity for the three and nine months ended May 31, 2020 and 2019, and the statements of cash flows for the nine months ended May 31, 2020 and 2019. The results for the three or nine months ended May 31, 2020 are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

Going Concern —The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.

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The Company suffered losses from operations of $3.7 million and $3.7 million, and net cash used in operating activities of $3.5 million and $1.2 million for the years ended August 31, 2019 and 2018, respectively. Gross profit on product sales was $452 thousand for the year ended August 31, 2019, and gross loss was $435 thousand for the year ended August 31, 2018. Loss from operations for the three and nine months ended May 31, 2020 were $741 thousand and $1.7 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2020 was $786 thousand.  These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, on May 31, 2020, the Company’s cash and cash equivalents increased to $2.5 million, mainly due to the issuance of convertible notes. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.  

 

Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing on product enhancement and developing its LED product into many other applications or devices.

 

Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial flexibility.

 

Raising additional cash through further equity offerings, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities.

While the Company’s management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $85 thousand and $19 thousand, respectively. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $93 thousand and $89 thousand, respectively.

Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.

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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 equitymethod 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 equitymethod 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 equitymethod 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 equitymethod investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.

 

Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.

If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.

Use of Estimates —The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates.

Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.

Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.

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

 

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The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. As of May 31, 2020 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2020

 

 

2019

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

496

 

 

$

52

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

1,701

 

 

 

447

 

Denominated in New Taiwan dollars

 

 

137

 

 

 

730

 

Denominated in other currencies

 

 

142

 

 

 

77

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

 

 

 

 

Denominated in Renminbi

 

 

 

 

 

49

 

Denominated in H.K. dollars

 

 

 

 

 

8

 

Total cash and cash equivalents

 

$

2,476

 

 

$

1,363

 

 

The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, ages of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.

Net revenues generated from sales to the top ten customers represented 89% and 83 % of the Company’s total net revenues for the three and nine months ended May 31, 2020, respectively, and 80% and 73% of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, German, the United States, and India. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 89% and 90% of the Company’s net revenues for the three and nine months ended May 31, 2020, respectively, and 86% and 88 % of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715. As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in SBDI was increased from zero to 3.31%. In December 2018 and in March 2020, Taiwan SemiLEDs purchased 3,000 and 5,000 common shares of SBDI from non-controlling interests, respectively. As of May 31, 2020, noncontrolling interest in SBDI was down to 3.25%.     

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on the disclosures included in its consolidated financial statements.

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Table of Contents

 

In December 2019, the FASB issued ASU No. 2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

3. Balance Sheet Components

Inventories

Inventories as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

536

 

 

$

479

 

Work in process

 

 

993

 

 

 

728

 

Finished goods

 

 

1,151

 

 

 

876

 

Total

 

$

2,680

 

 

$

2,083

 

 

Inventory write-downs to estimated net realizable values were $251 thousand and $571 thousand for the three and nine months ended May 31, 2020, respectively, and $248 thousand and $560 thousand for the three and nine months ended May 31, 2019, respectively.

Property, Plant and Equipment

Property, plant and equipment as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Buildings and improvements

 

$

13,855

 

 

$

13,238

 

Machinery and equipment

 

 

39,798

 

 

 

37,988

 

Leasehold improvements

 

 

163

 

 

 

156

 

Other equipment

 

 

2,342

 

 

 

2,250

 

Construction in progress

 

 

2

 

 

 

61

 

Total property, plant and equipment

 

 

56,160

 

 

 

53,693

 

Less: Accumulated depreciation and amortization

 

 

(50,427

)

 

 

(47,815

)

Property, plant and equipment, net

 

$

5,733

 

 

$

5,878

 

 

 

Intangible Assets

Intangible assets as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31, 2020

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

541

 

 

$

452

 

 

$

89

 

Acquired technology

 

 

5

 

 

 

339

 

 

 

339

 

 

 

 

Total

 

 

 

 

 

$

880

 

 

$

791

 

 

$

89

 

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Table of Contents

 

 

 

 

August 31, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

542

 

 

$

449

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

484

 

 

 

484

 

 

 

 

Total

 

 

 

 

 

$

1,026

 

 

$

933

 

 

$

93

 

 

 

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands, except percentages):

 

 

 

May 31, 2020

 

 

August 31, 2019

 

 

 

 

Percentage

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

Ownership

 

Amount

 

 

Ownership

 

Amount

 

 

Equity investment without readily determinable fair value

 

Various

 

$

935

 

 

Various

 

$

894

 

 

Total investments in unconsolidated entities

 

 

 

$

935

 

 

 

 

$

894

 

 

 

There were no dividends received from unconsolidated entities through May 31, 2019.

 

Equity Investments without Readily Determinable Fair Value

Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

 

5. Commitments and Contingencies

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancelable and noncancelable and which expire at various dates between December 2020 and December 2029. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did not combine lease and non-lease components.

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 were $39 thousand and $115 thousand for three months and nine months ended May 31, 2020.

Balance sheet information related to the Company’s leases is presented below:

 

 

 

May 31, 2020

 

Assets

 

 

 

 

Operating lease right of use assets

 

$

237

 

Liabilities

 

 

 

 

Operating lease liabilities, current portion

 

$

116

 

Operating lease liabilities, less current portion

 

121

 

Total

 

$

237

 

 

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Table of Contents

 

The following provides details of the Company’s lease expenses:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Operating lease expenses, net

 

$

115

 

 

Other information related to leases is presented below:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Cash Paid for amounts Included In Measurement of Liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

115

 

Weighted Average Remaining Lease Term:

 

 

 

 

Operating leases

 

2.59 years

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

1.76

%

 

As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76% based on the information available at commencement date in determining the present value of lease payments.    

The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of May 31, 2020 consisted of the following (in thousands):

 

 

 

Operating

 

Years Ending August 31,

 

Leases

 

Remainder of 2020

 

$

39

 

2021

 

 

98

 

2022

 

 

30

 

2023

 

 

11

 

2024

 

 

11

 

Thereafter

 

 

58

 

Total future minimum lease payments, undiscounted

 

 

247

 

Less: Imputed interest

 

 

10

 

Present value of future minimum lease payments

 

$

237

 

 

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $83 thousand and $158 thousand as of May 31, 2020 and August 31, 2019, respectively.

Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated. However, the Company cannot predict the outcome of any litigation or the potential for future litigation.

On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we have retained the $500 thousand payment as liquidated damages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March 13, 2018, the Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice. On March 27, 2018, Well Thrive filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case. The judge’s order allowed the Company to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement. Based on this order, the Company arranged the depositions to obtain more evidence in support of a motion to enforce the settlement agreement. On October 25, 2019, Well Thrive filed a motion to modify the

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Court’s scheduling order and to allow it to file a motion for summary judgment, and the Company filed an opposition to the motion. On November 13, 2019, the Court denied Well Thrive’s motion. The Court held a trial on March 2, 2020. After the trial, judge ordered both sides to prepare post-trial briefs and proposed findings of fact for the Court to be submitted before end of April 2020.  On April 30, 2020, both sides submitted post-trail briefs and proposed findings of fact, and as of today, the judge has not rendered a verdict on this case.

On December 28, 2018, the Company received a notification from the Court in Miao-Li County, Taiwan that Epistar Corporation (the successor to Formosa Epitaxy Incorporation, the “Plaintiff”) filed a motion requesting that the Company return the $3 million prepayment plus value-added-tax for the headquarters building sale and pay interest during this period and litigation fee. The Plaintiff also petitioned the Court to do a provisional execution upon the Company, which would permit the Plaintiff to sell the building and/or other assets belonging to the Company to recover the prepayment. On January 4, 2019, the Company filed a statement of defense arguing that the Plaintiff’s action and motion for provisional execution should be dismissed and the litigation fees should be borne by the Plaintiff. On January 25, 2019, the Company and the Plaintiff entered into a settlement, agreeing that the Company would return the $3 million plus value-added-tax of $150 thousand and penalty of $200 thousand, and on February 1, 2019, the Plaintiff withdrew the motion. As of May 31, 2020, the Company has paid the $3.35 million in full. 

On March 11, 2019, a former employee (the “Plaintiff”) of Taiwan Bandaoti Zhaoming Co., Ltd. (“Taiwan Bandaoti”) filed a civil complaint against Taiwan Bandaoti in the Taiwan Miao-Li District Court. The Plaintiff alleged the following causes of action under the Labor Standards Act of Taiwan: (1) failure to pay the annual bonus; and (2) failure to pay transportation allowance. The Plaintiff is seeking compensation in the aggregate of approximately $9 thousand (NT$293 thousand). On May 24, 2019, Taiwan Miao-Li District Court determined on its own initiative to transfer the case to the Taiwan Hsin-Chu District Court due to a lack of jurisdiction over the action in whole or in part. On February 10, 2020, the Taiwan Hsin-Chu District made a determination in favor of the Company. As of May 31, 2020, the term of appeal expired and the determination is affirmed.

Except as described above, as of May 31 2020, there was no pending or threatened litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

6. Common Stock

On January 17, 2020, the Company entered into a definitive common stock purchase agreement with XianChang Ma.  Pursuant to the terms of the Agreement, Mr. Ma purchased 150,000 shares of the Company’s common stock at $4.00 per share, representing approximately 4% of the outstanding shares of the Company at the time of purchase. The Company received the $600,000 purchase price in full on January 17, 2020.

On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuang Zhu.  Pursuant to the terms of the Agreement, Mr. Zhu purchased 33,333 shares of the Company’s common stock at $3.00 per share for an aggregate purchase price of $100,000. The Company received the $100,000 purchase price in full on May 25. 2020.

On May 25, 2020, J.R. Simplot Company, the largest shareholder of the Company, and Trung Doan, the Chairman and Chief Executive Officer of the Company, each converted $300,000 of convertible unsecured promissory notes (the “Notes”) into 100,000 shares of the Company’s common stock.

 

7. Stock-based Compensation

The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010 Plan that increased the number of shares authorized for issuance under the plan by an additional 250 thousand shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023, to remove the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period. Prior to SemiLEDs’ initial public offering, the Company had another stock-based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.

 

A total of 1,021 thousand and 521 thousand shares was reserved for issuance under the 2010 Plan, respectively, as of May 31, 2020 and 2019. As of May 31, 2020 and 2019, there were 548 thousand and 191 thousand shares of common stock available for future issuance under the equity incentive plans, respectively.

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In January 2020, SemiLEDs granted 136 thousand restricted stock units to its employees, which vest 25% each year on January 10 of 2021, 2022, 2023 and 2024 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $2.39 per unit.

In September 2019, SemiLEDs granted 5 thousand restricted stock units to its directors that will vest 100% on the earlier of July 31, 2020 and the date of the 2020 annual meeting. The grant-date fair value of the restricted stock units was $2.45 per unit.

In September 2019, SemiLEDs granted 2.5 thousand restricted stock units to a director that will vest 100% on the earlier of September 5, 2020 and the date of the 2020 annual meeting. The grant-date fair value of the restricted stock units was $2.45 per unit.

 

 

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.

Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock-based awards with vesting term that is less than or equal to one year from the date of grant.

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2020 and 2019 was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Cost of revenues

 

$

5

 

 

$

10

 

 

$

22

 

 

$

34

 

Research and development

 

 

5

 

 

 

6

 

 

 

16

 

 

 

21

 

Selling, general and administrative

 

 

11

 

 

 

11

 

 

 

42

 

 

 

62

 

 

 

$

21

 

 

$

27

 

 

$

80

 

 

$

117

 

 

 

8. Net Loss Per Share of Common Stock

The following stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive (in thousands of shares):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Stock units and stock options to purchase common stock

 

 

 

 

 

7

 

 

 

157

 

 

 

13

 

 

9. Income Taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2020 and 2019 consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

U.S. operations

 

$

(324

)

 

$

(86

)

 

$

(115

)

 

$

(377

)

Foreign operations

 

 

(185

)

 

 

(772

)

 

 

(366

)

 

 

(2,308

)

Loss before income taxes

 

$

(509

)

 

$

(858

)

 

$

(481

)

 

$

(2,685

)

 

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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 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. Provisional estimate of the Company is that no tax will be due under this provision.   

As of both May 31 2020 and August 31, 2019, the Company had no unrecognized tax benefits related to tax positions taken in prior periods. The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions. The tax years 2014 through 2018 remain open in most jurisdictions. With few exceptions, as of May 31, 2020, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2014. The Company is not currently under examination by income tax authorities in federal, state or foreign jurisdictions.

10. Related Party Transactions

On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to each of J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes may be converted into the Company’s common stock based on 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.

     

10. Subsequent Events

The Company has analyzed its operations subsequent to May 31, 2020 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company.

Except for the above, the Company has determined that it does not have any material subsequent events to disclose in these unaudited condensed consolidated financial statements.

          

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future results of operations of SemiLEDs Corporation, or “we,” “our” or the “Company,” and financial position, strategy and plans, and our expectations for future operations, including the execution of our restructuring plan and any resulting cost savings, are forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. The words “believe,” “may,” “should,” “plan,” “potential,” “project,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, and actual results and the timing of certain events could differ materially and adversely from those anticipated or implied in the forward-looking statements as a result of many factors. These factors include, among other things,

 

Declining cash position.

 

The ability to retain the $500,000 partial payment of the uncompleted $1.6 million note financing as liquidated damages and the ability to pay a judgment should the court determine that we must repay some or all of the prepayment.

 

Our ability to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations, the difficulty of which may increase if our common stock is delisted from the NASDAQ Stock Market.

 

The impact of the COVID-19 pandemic on our business and the business of our customers.

 

The inability of our suppliers or other contract manufacturers to produce products that satisfy our requirements.

 

Our ability to implement our cost reduction programs and to execute our restructuring plan effectively.

 

Our ability to improve our gross margins, reduce our net losses and restore our operations to profitability.

 

Our ability to successfully introduce new products that we can produce and that customers will purchase in such amounts as to be sufficiently profitable to cover the costs of developing and producing these products, as well as providing us additional net income from operations.

 

Our ability to effectively develop, maintain and expand our sales and distribution channels, especially in the niche LED markets, including the UV LED and architectural lighting that we focus on.

 

Our ability to successfully manage our operations in the face of the cyclicality, rapid technological change, rapid product obsolescence, declining average selling prices and wide fluctuations in supply and demand typically found in the LED market.

 

Competitive pressures from existing and new companies.

 

Our ability to grow our revenues generated from the sales of our products and to control our expenses.

 

Loss of any of our key personnel, or our failure to attract, assimilate and retain other highly qualified personnel.

 

Intellectual property infringement or misappropriation claims by third parties against us or our customers, including our distributor customers.

 

The failure of LEDs to achieve widespread adoption in the general lighting market, or if alternative technologies gain market acceptance.

 

The loss of key suppliers or contract manufacturers.

 

Our ability to effectively expand or upgrade our production facilities or do so in a timely or cost-effective manner.

 

Difficulty in managing our future growth or in responding to a need to contract operations, and the associated changes to our operations.

 

Adverse development in those selected markets, including the Netherlands, Taiwan, the United States and China, where our revenues are concentrated, including the impact of the COVID-19 pandemic on customer demand.

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Our ability to develop and execute upon a new strategy to exploit the China and India market.

 

Our ability to resolve pending litigation on favorable terms.

 

 

The reduction or elimination of government investment in LED lighting or the elimination of, or changes in, policies in certain countries that encourage the use of LEDs over some traditional lighting technologies.

 

Our ability to implement our product innovation strategy effectively, particularly in view of the prohibition against our (and/or our assisting others in) making, using, importing, selling and/or offering to sell in the United States our accused products and/or any device that includes an accused product after October 1, 2012 as a result of the injunction agreed to in connection with the Cree Inc., or Cree, litigation.

 

Loss of customers.

 

Failure of our strategy of marketing and selling our products in jurisdictions with limited intellectual property enforcement regimes.

 

Lack of marketing and distribution success by our third-party distributors.

 

Our customers’ ability to produce and sell products incorporating our LED products.

 

Our failure to adequately prevent disclosure of trade secrets and other proprietary information.

 

Ineffectiveness of our disclosure controls and procedures and our internal control over financial reporting.

 

Our ability to profit from existing and future joint ventures, investments, acquisitions and other strategic alliances.

 

Impairment of long-lived assets or investments.

 

Undetected defects in our products that harm our sales and reputation and adversely affect our manufacturing yields.

 

The availability of adequate and timely supply of electricity and water for our manufacturing facilities.

 

Our ability to comply with existing and future environmental laws and the cost of such compliance.

 

The ability of SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, to make dividends and other payments to SemiLEDs Corporation.

 

Our ability to obtain necessary regulatory approvals to make further investments in Taiwan SemiLEDs.

 

Our ability to maintain the minimum stockholders’ equity required to remain in compliance with the Nasdaq continued listing requirements necessary to avert delisting of our common stock.

 

Catastrophic events such as fires, earthquakes, floods, tornados, tsunamis, typhoons, pandemics, wars, terrorist activities and other similar events, particularly if these events occur at or near our operations, or the operations of our suppliers, contract manufacturers and customers.

 

The effect of the legal system in the People’s Republic of China, or the PRC.

 

Labor shortages, strikes and other disturbances that affect our operations.

 

Deterioration in the relations between the PRC and Taiwan governments.

 

Fluctuations in the exchange rate among the U.S. dollar, the New Taiwan, or NT, dollar, the Japanese Yen and other currencies in which our sales, raw materials and component purchases and capital expenditures are denominated.

 

The effect of the disclosure requirements under the provisions of the Dodd-Frank Act relating to “conflict minerals,” which could increase our costs and limit the supply of certain metals used in our products and affect our reputation with customers and shareholders.

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, 2019, or the 2019 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.

 

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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 2019 Annual Report, and in other filings with the SEC.

Company Overview

We develop, manufacture and sell light emitting diode (LED) chips and LED components. Our products are used for general lighting applications, including street lights and commercial, industrial, system and residential lighting. Our LED chips may also be used in specialty industrial applications, such as ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications, architectural lighting and entertainment lighting.

Utilizing our patented and proprietary technology, our manufacturing process begins by growing upon the surface of a sapphire wafer, or substrate, several very thin separate semiconductive crystalline layers of gallium nitride, or GaN, a process known as epitaxial growth, on top of which a mirror-like reflective silver layer is then deposited. After the subsequent addition of a copper alloy layer and finally the removal of the sapphire substrate, we further process this multiple-layered material to create individual vertical LED chips.

We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Taiwan, the United States and China (including Hong Kong). We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets. We sell our LED chips to packagers or to distributors, who in turn sell to packagers. Our lighting products customers are primarily original design manufacturers, or ODMs, of lighting products and the end‑users of lighting devices. We also contract other manufacturers to produce for our sale certain LED products, and for certain aspects of our product fabrication, assembly and packaging processes, based on our design and technology requirements and under our quality control specifications and final inspection process.

We have developed advanced capabilities and proprietary know-how in:

 

reusing sapphire substrate in subsequent production runs;

 

optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light;

 

employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance;

 

utilizing nanoscale surface engineering to improve usable light extraction;

 

developing a LED structure that generally consists of multiple epitaxial layers which are vertically-stacked on top of a copper alloy base; and

 

developing low cost Chip Scaled Packaging (CSP) technology.

These technical capabilities enable us to produce LED chips and LED component products. We believe these capabilities, know-how and partnership 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 and sold our first LED chips in November 2005. We are a holding company for various wholly and majority owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is our wholly owned operating subsidiary, where a substantial portion of our assets are held and located, where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantial portion of marketing and sale of LED products, and where most of our employees are based.

Key Factors Affecting Our Financial Condition, Results of Operations and Business

The following are key factors that we believe affect our financial condition, results of operations and business:

 

COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures and adjusted our operational needs. Our work places are operating under enhanced measures to ensure the health and safety of our employees, including limiting the visitors coming into our work place and using videoconferencing for meetings when possible. Our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. The conditions caused by the COVID-19 pandemic have adversely affected our customers’ ability or willingness to purchase our products or services,

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delayed prospective customers’ purchasing decisions, adversely impacted our ability to provide or deliver products and on-site services to our customers, delayed the provisioning of our offerings, or lengthened payment terms, all of which could adversely affect our future sales, operating results and overall financial performance. Our operations have also begun to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many cities, counties, states, and even countries have imposed or may impose a wide range of restrictions on our employees, partners and customers physical movement to limit the spread of COVID-19. Also, some of our suppliers located in China are unable to produce as before, as a result, we have to find substitutes of some raw-materials or new suppliers in Taiwan or other place with higher price, and in the worst case we have had to postpone promised deliver dates. Several customers postponed or cancelled their order because of the delay. To avoid cash shortage due to the pandemic, we applied and received subsidies from the Taiwan government with a promise to not lay off employees or take any actions which could influence employees’ welfare, such as reducing employees’ compensation and salaries or forcing employees to take working days off without pay, until the end of a month when the last installment of subsidy is wired. Our bank also granted us a deferment period for twelve months starting from May 2020. During this period, we do not need to pay the monthly payments of the principal but only the interest. However, given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments which could have a material adverse effect on our financial position and results of operations.

 

Our ability to raise additional debt, sell additional equity securities and improve our liquidity.  We need to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations. However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us, or at all. The raising of additional debt funding by us, if required and available, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict our operations. The sale of additional equity securities, if required and available, could result in dilution to our stockholders.

 

 

Our ability to get chips from other chip suppliers. Our reliance on our chip suppliers exposes us to a number of significant risks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed production capacity or product supply. If our chip suppliers are unable or unwilling to continue to supply our chips at requested quality, quantity, performance and costs, or in a timely manner, our business and reputation could be seriously harmed. Our inability to procure chips from other chip suppliers at the desired quality, quantity, performance and cost might result in unforeseen manufacturing and operations problems. In such events, our customer relationships, business, financial condition and results of operations would be adversely affected.

 

Industry growth and demand for products and applications using LEDs.  The overall adoption of LED lighting devices to replace traditional lighting sources is expected to influence the growth and demand for LED chips and component products and impact our financial performance. We believe the potential market for LED lighting will continue to expand. LEDs for efficient generation of UV light are also starting to gain attention for various medical, germicidal and industrial applications. Since a substantial portion of our LED chips, LED components and our lighting products are used by end- users in general lighting applications and specialty industrial applications such as UV curing, medical/cosmetic, counterfeit detection, horticulture, architectural lighting and entertainment lighting the adoption of LEDs into these applications should have a strong impact on the demand of LED chips generally and, as a result, for our LED chips, LED components and LED lighting products.

 

Average selling price of our products.  The average selling price of our products may decline for a variety of factors, including prices charged by our competitors, the efficacy of our products, our cost basis, changes in our product mix, the size of the order and our relationship with the relevant customer, as well as general market and economic conditions. Competition in the markets for LED products is intense, and we expect that competition will continue to increase, thereby creating a highly aggressive pricing environment. For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in our revenues and the gross margin of our products. When prices decline, we must also write down the value of our inventory. Furthermore, the average selling prices for our LED products have typically decreased over product life cycles. Therefore, our ability to continue to innovate and offer competitive products that meet our customers’ specifications and pricing requirements, such as higher efficacy LED products at lower costs, will have a material influence on our ability to improve our revenues and product margins, although in the near term the introduction of such higher performance LED products may further reduce the selling prices of our existing products or render them obsolete.

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Changes in our product mix.  We anticipate that our gross margins will continue to fluctuate from period to period as a result of the mix of products that we sell and the utilization of our manufacturing capacity in any given period, among other things. For example, we continue to pursue opportunities for profitable growth in areas of our business where we see the best opportunity to develop as an end-to-end LED module solution supplier by providing our customers with high quality, flexible and more complete LED system solution, customer technical support and LED module/system design, as opposed to just providing customers with individual components. As a strategic plan, we have placed greater emphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory. Steady growth of the module product and the continued commercial sales of our UV LED product are expected to improve our gross margin, operating results and cash flows. In addition, we have adjusted the lower-priced LED components strategy as appropriate. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products that have been available in the market for some time. However, as we expand and diversify our product offerings and with varying average selling prices, or execute new business initiatives, a change in the mix of products that we sell in any given period may increase volatility in our revenues and gross margin from period to period.

 

Our ability to reduce cost to offset lower average selling prices. Competitors may reduce average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost of production of our products. However, such cost savings currently have limited impact on our gross profit, as we currently suffer from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. While we intend to focus on managing our costs and expenses, over the long term we expect to be required to invest substantially in LED component products development and production equipment if we are to grow.

 

Our ability to continue to innovate.  As part of our growth strategy, we plan to continue to be innovative in product design, to deliver new products and to improve our manufacturing efficiencies. Our continued success depends on our ability to develop and introduce new, technologically advanced and lower cost products, such as more efficient, better performance LED component products. If we are unable to introduce new products that are commercially viable and meet rapidly evolving customer requirements or keep pace with evolving technological standards and market developments or are otherwise unable to execute our product innovation strategy effectively, we may not be able to take advantage of market opportunities as they arise, execute our business plan or be able to compete effectively.  To differentiate ourselves from other LED package manufacturers, we are putting more resources towards module and system design. Along with our technical know-how in the chip and package sectors, we are able to further integrate electrical, thermal and mechanical manufacturing resources to provide customers with one-stop system services. Services include design, prototyping, OEM and ODM. Key markets that we intend to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging light engines, horticultural lighting and high standard commercial lighting. The modules are designed for various printing, curing, and PCB exposure industrial equipments, providing uncompromised reliability and optical output. Our LED components include different sizes and wattage to accommodate different demands in the LED market.

 

General economic conditions and geographic concentration.  Many countries including the United States and the European Union (the “E.U.”) members have instituted, or have announced plans to institute, government regulations and programs designed to encourage or mandate increased energy efficiency in lighting. These actions include in certain cases banning the sale after specified dates of certain forms of incandescent lighting, which are advancing the adoption of more energy efficient lighting solutions such as LEDs. When the global economy slows or a financial crisis occurs, consumer and government confidence declines, with levels of government grants and subsidies for LED adoption and consumer spending likely to be adversely impacted. Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States, Germany, Japan and India. Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted by general economic and political conditions in such markets. For example, the aggressive support by the Chinese government for the LED industry through significant government incentives and subsidies to encourage the use of LED lighting and to establish the LED ‑ sector companies has resulted in production overcapacity in the market and intense competition. Furthermore, due to Chinese package manufacturers increasing usage of domestic LED chips, prices are increasingly competitive, leading to Chinese manufacturers growing market share in the global LED industry. In addition, we have historically derived a significant portion of our revenues from a limited number of customers. Some of our largest customers and what we produce/have produced for them have changed from quarter to quarter primarily as a result of the timing of discrete, large project‑based purchases and broadening customer base, among other things. For the three and the nine months ended May 31, 2020, sales to our three largest customers, in the aggregate, accounted for 61% and 59% of our revenues, respectively.

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Intellectual property issues.  Competitors of ours and other third parties have in the past and will likely from time to time in the future allege that our products infringe on their intellectual property rights. Defending against any intellectual property infringement claims would likely result in costly litigation and ultimately may lead to our not being able to manufacture, use or sell products found to be infringing. In June 2012, we settled an intellectual property dispute involving Cree. We agreed to dismiss amended complaints filed against each other without prejudice. We agreed to the entry of a permanent injunction that was effective October 1, 2012 that precludes us from (and/or from assisting others in) making, using, importing, selling and/or offering to sell in the United States certain accused products and/or any device that includes such an accused product after that date and to payment of a settlement fee for past damages. All remaining claims between Cree and us were withdrawn without prejudice, with each retaining the right to assert them in the future. However, other third parties may also assert infringement claims against our customers with respect to our products, or our customers’ products that incorporate our technologies or products. Any such legal action or the threat of legal action against us, or our customers, could impair such customers’ continued demand for our products. This could prevent us from growing or even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our financial condition and results of operations.

 

Cash position.  Our cash and cash equivalents increased to $2.5 million as of May 31, 2020 primarily due to the combination of our proceeds from borrowing of long-term debt and the issuance of common stock in a private placement, offset by net cash used in operating activities. We have implemented actions to accelerate operating cost reductions and improve operational efficiencies. The plan is further enhanced through the fabless business model in which we implemented certain workforce reductions and are exploring the opportunities to sell certain equipment related to the manufacturing of vertical LED chips, in order to reduce the idle capacity charges, minimize our research and development activities associated with chips manufacturing operation. We believe we will be able to generate positive cash inflows through the restructuring of our chip operation and the significant ongoing cost savings in the form of reduced payroll and research and development activities. The shipment of our new module product and the continued commercial sales of our UV LED product are expected to grow steadily. Based on our current financial projections, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months.

 

 

Critical Accounting Policies and Estimates

On September 1, 2019, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. There was no material impact on our consolidated financial position, results of operations or cash flows due to the adoption.

On September 1, 2019, we adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. There was no material impact on our consolidated financial position, results of operations or cash flows due to the adoption.

Effective September 1, 2019, we adopted, without restating comparatives, ASC 842, Leases, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. As of September 1 2019, we recognized $307 thousand of lease right of use Asset and of lease liability; and there was no material impact on our consolidated financial results of operations or cash flows due to the adoption.

Except as described above, there have been no material changes in the matters for which we make critical accounting policies and estimates in the preparation of our unaudited interim condensed consolidated financial statements for the nine months ended May 31, 2020 as compared to those disclosed in our 2019 Annual Report.

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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 May 31, 2020, the exchange rate was 30.02 NT dollars to one U.S. dollar. On July 7, 2020, the exchange rate was 29.55 NT dollars to one U.S. dollar.

No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.

Results of Operations

Three Months Ended May 31, 2020 Compared to the Three Months Ended May 31, 2019

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

Change

 

 

Change

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

LED chips

 

$

11

 

 

 

1

 

%

 

$

7

 

 

 

 

%

 

$

4

 

 

 

57

 

%

LED components

 

 

929

 

 

 

59

 

%

 

 

1,275

 

 

 

73

 

%

 

 

(346

)

 

 

(27

)

%

Lighting products

 

 

153

 

 

 

10

 

%

 

 

152

 

 

 

9

 

%

 

 

1

 

 

 

1

 

%

Other revenues(1)

 

 

476

 

 

 

30

 

%

 

 

311

 

 

 

18

 

%

 

 

165

 

 

 

53

 

%

Total revenues, net

 

 

1,569

 

 

 

100

 

%

 

 

1,745

 

 

 

100

 

%

 

 

(176

)

 

 

(10

)

%

Cost of revenues

 

 

1,153

 

 

 

73

 

%

 

 

1,405

 

 

 

81

 

%

 

 

(252

)

 

 

(18

)

%

Gross profit

 

$

416

 

 

 

27

 

%

 

$

340

 

 

 

19

 

%

 

$

76

 

 

 

22

 

%

 

(1)

Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services.

 

 

Revenues, net

Our revenues decreased by 10% to $1.6 million for the three months ended May 31, 2020 from $1.7 million for the three months ended May 31, 2019. The $176 thousand decrease in revenues reflects a $346 thousand decrease in revenues attributable to sales of LED components, offset partially by a $165 thousand increase in other revenues.

Revenues attributable to the sales of our LED chips were $11 thousand and $7 thousand, respectively, of our revenues for the three months ended May 31, 2020 and 2019, primarily due to lower volume sold for the LED chips. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products that have been available in the market for some time and to focus on profitable products.

Revenues attributable to the sales of our LED components represented 59% and 73% of our revenues for the three months ended May 31, 2020 and 2019, respectively. The decrease in revenues attributable to sales of LED components was primarily due to the declining demand, offset in part by a higher average selling price for the UV LED product, which we particularly focus on within the niche LED markets.

Revenues attributable to the sales of lighting products represented 10% and 9% of our revenues for the three months ended May 31, 2020 and 2019, respectively. Revenues attributable to the sales of lighting products were slightly higher for the three months ended May 31, 2020 primarily due to higher volumes sold.

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Revenues attributable to other revenues represented 30% and 18% of our revenues for the three months ended May 31, 2020 and 2019, respectively. The $165 thousand increase in other revenues reflects an $88 thousand increase in the sale of raw materials, and a $77 thousand increase in the provision of services.

Cost of Revenues

Our cost of revenues decreased by 18% from $1.4 million for the three months ended May 31, 2019 to $1.2 million for the three months ended May 31, 2020. The decrease in cost of revenues was primarily due to the effort of focusing on profitable products and services.

Gross Profit

Our gross profit increased from $340 thousand for the three months ended May 31, 2019 to $416 thousand for the three months ended May 31, 2020. Our gross margin percentage increased from 19% to 27% for the three months ended May 31, 2020 as a consequence of the focusing on profitable products as more fully described above.

Operating Expenses

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

Change

 

 

Change

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

%

 

 

 

 

(in thousands)

 

 

Research and development

 

$

375

 

 

 

24

 

%

 

$

444

 

 

 

26

 

%

 

$

(69

)

 

 

(16

)

%

Selling, general and administrative

 

 

782

 

 

 

50

 

%

 

 

597

 

 

 

34

 

%

 

 

185

 

 

 

31

 

%

Total operating expenses

 

$

1,157

 

 

 

74

 

%

 

$

1,041

 

 

 

60

 

%

 

$

116

 

 

 

11

 

%

 

Research and development  Our research and development expenses were $375 thousand and $444 thousand for the three months ended May 31, 2020 and 2019, respectively. The decrease was primary due to a $79 thousand decrease in materials and supplies used for our new products, offset partially by increases in depreciation and amortization expense and various other expenses.

Selling, general and administrative  Our selling, general and administrative expenses increased from $597 thousand for the three months ended May 31, 2019 to $782 thousand for the three months ended May 31, 2020. The increase was mainly attributable to a $210 thousand increase in professional services fee and a $50 thousand increase in insurance fees, offset partially by a decrease in payroll and stock based compensation.

Other Income (Expenses)

 

 

 

Three Months Ended

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

 

(in thousands)

 

 

Interest expenses, net

 

$

(95

)

 

 

(6

)

%

 

$

(74

)

 

 

(4

)

%

Other income, net

 

 

270

 

 

 

17

 

%

 

 

94

 

 

 

5

 

%

Foreign currency transaction gain (loss), net

 

 

57

 

 

 

4

 

%

 

 

(177

)

 

 

(10

)

%

Total other income (expenses), net

 

$

232

 

 

 

15

 

%

 

$

(157

)

 

 

(9

)

%

 

Interest expenses, net The increase in interest expenses, net was primarily due to the increase in debt balance, resulting from issuance of $2 million of convertible notes in December 2019.

Other income, net Other income, net increase from $94 thousand for the three months ended May 31, 2019 to $270 thousand for the three months ended May 31, 2020, primarily due to a financial subsidy from the Taiwan government for the economic impact resulting from the COVID-19 pandemic.

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Foreign currency transaction loss, net  We recognized a net foreign currency transaction gain of $57 thousand and a loss of $177 thousand for the three months ended May 31, 2020 and 2019, respectively, primarily due to the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables.

Income Tax Expense

Our effective tax rate is expected to be approximately zero for fiscal 2020 and was zero for fiscal 2019, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries.

Net Gain Attributable to Noncontrolling Interests

 

 

 

Three Months Ended

 

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

 

$

 

 

Revenues

 

 

$

 

 

Revenues

 

 

 

 

(in thousands)

 

 

Net gain attributable to noncontrolling interests

 

$

4

 

 

 

 

%

$

1

 

 

 

 

%

 

We recognized net gain attributable to non-controlling interests of $4 thousand and $1 thousand for the three months ended May 31, 2020 and 2019, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the remaining non-controlling holders. As of May 31, 2020 and 2019, non-controlling interests represented 3.25% and 3.29% equity interest, respectively, in Taiwan Bandaoti Zhaoming CO., Ltd.

 

 

Nine months Ended May 31, 2020 Compared to the Nine months Ended May 31, 2019

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

Change

 

 

Change

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

%

 

 

 

(in thousands)

 

 

LED chips

 

$

55

 

 

 

1

 

%

 

$

91

 

 

 

2

 

%

 

$

(36

)

 

 

(40

)

%

LED components

 

 

2,810

 

 

 

60

 

%

 

 

3,392

 

 

 

78

 

%

 

 

(582

)

 

 

(17

)

%

Lighting products

 

 

355

 

 

 

8

 

%

 

 

466

 

 

 

11

 

%

 

 

(111

)

 

 

(24

)

%

Other revenues(1)

 

 

1,449

 

 

 

31

 

%

 

 

398

 

 

 

9

 

%

 

 

1,051

 

 

 

264

 

%

Total revenues, net

 

 

4,669

 

 

 

100

 

%

 

 

4,347

 

 

 

100

 

%

 

 

322

 

 

 

7

 

%

Cost of revenues

 

 

3,187

 

 

 

68

 

%

 

 

4,224

 

 

 

97

 

%

 

 

(1,037

)

 

 

(25

)

%

Gross profit

 

$

1,482

 

 

 

32

 

%

 

$

123

 

 

 

3

 

%

 

$

1,359

 

 

 

1,105

 

%

 

(1)

Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services.

Revenues, net

Our revenues increased by 7% from $4.3 million for the nine months ended May 31, 2019 to $4.7 million for the nine months ended May 31, 2020. The $322 thousand increase in revenues reflects a $1.1 million increase in revenues attributable to other revenues, offset partially by a $36 thousand decrease in revenues attributable to sales of LED chips, a $582 thousand decrease in sales of LED components, and a $111 thousand decrease in revenues attributable to sales of lighting products.

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Revenues attributable to the sales of our LED chips represented 1% and 2% of our revenues for the nine months ended May 31, 2020 and 2019, respectively. The decrease of 40% in revenues attributable to sales of LED chips was a result of a decrease in the volume of LED chips sold, offset slightly by a higher average selling price, primarily due to our strategic plan to place greater emphasis on the sales of LED components rather than the sales of LED chips.

Revenues attributable to the sales of our LED components represented 60% and 78% of our revenues for the nine months ended May 31, 2020 and 2019, respectively. The decrease in revenues attributable to sales of LED components was primarily due to lower volumes sold for the UV LED product, which we particularly focus on within the niche LED markets.

Revenues attributable to the sales of lighting products represented 8% and 11% of our revenues for the nine months ended May 31, 2020 and 2019, respectively. Revenues attributable to the sales of lighting products was $111 thousand lower for the nine months ended May 31, 2020 primarily due to a slowdown in demand on LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products compared to the nine months ended May 31, 2019.

Revenues attributable to other revenues represented 31% and 9% of our revenues for the nine months ended May 31, 2020 and 2019, respectively. The increase in revenues attributable to other revenues was primarily due to the provision of services and the sale of raw materials.

Cost of Revenues

Our cost of revenues decreased by 25% from $4.2 million for the nine months ended May 31, 2019 to $3.2 million for the nine months ended May 31, 2020. The decrease in cost of revenues was primarily due to the effort of focusing on profitable products and services.

Gross Profit

Our gross profit increased from $123 thousand for the nine months ended May 31, 2019 to a gross profit of $1.5 million for the nine months ended May 31, 2020. Our gross margin percentage was 32% for the nine months ended May 31, 2020, as compared to 3% for the nine months ended May 31, 2019 as a consequence of the effort of focusing on profitable products as more fully described above

 

 

Operating Expenses

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

Change

 

 

Change

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

%

 

 

 

 

(in thousands)

 

 

Research and development

 

$

1,112

 

 

 

24

 

%

 

$

1,076

 

 

 

25

 

%

 

$

36

 

 

 

3

 

%

Selling, general and administrative

 

 

2,141

 

 

 

46

 

%

 

 

1,973

 

 

 

45

 

%

 

 

168

 

 

 

9

 

%

Gain on disposals of long-lived assets, net

 

 

(79

)

 

 

(2

)

%

 

 

(288

)

 

 

(7

)

%

 

 

209

 

 

 

(73

)

%

Total operating expenses

 

$

3,174

 

 

 

67

 

%

 

$

2,761

 

 

 

63

 

%

 

$

413

 

 

 

 

%

 

Research and development  Our research and development expenses were $1.1 million and $1.1 million for the nine months ended May 31, 2020 and 2019, respectively. The increase was primary due to a $37 thousand increase in materials and supplies used for our new products and a $9 thousand in depreciation and amortization expense, offset partially by decreases in payroll and compensation.

Selling, general and administrative  Our selling, general and administrative expenses increased from $2.0 million for the nine months ended May 31, 2019 to $2.1 million for the nine months ended May 31, 2020. The increase was mainly attributable to a $244 thousand increase in professional service fees, offset partially by decreases in payroll and stock based compensation and in various expenses.

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Table of Contents

 

Gain on disposal of long-lived assets, net

We recognized a net gain of $79 thousand and $288 thousand on the disposal of long-lived assets for the nine months ended May 31, 2020 and 2019, respectively. Due to the excess capacity charges that we have experienced for the last few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment.

Other Income (Expenses)

 

 

 

Nine Months Ended

 

 

 

 

May 31, 2020

 

 

 

May 31, 2019

 

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

% of

 

 

 

 

$

 

 

Revenues

 

 

 

$

 

 

Revenues

 

 

 

 

(in thousands)

 

 

Gain on disposal of investment

 

$

634

 

 

 

14

 

%

 

$

 

 

 

 

%

Interest expenses, net

 

 

(273

)

 

 

(5

)

%

 

 

(115

)

 

 

(2

)

%

Other income, net

 

 

594

 

 

 

13

 

%

 

 

48

 

 

 

1

 

%

Foreign currency transaction gain, net

 

 

256

 

 

 

5

 

%

 

 

20

 

 

 

 

%

Total other income (expenses), net

 

$

1,211

 

 

 

26

 

%

 

$

(47

)

 

 

(1

)

%

 

Gain on disposal of investment We recognized a gain of $634 thousand for the nine months ended May 31, 2020. On November 27, 2019, we entered into a stock purchase agreement to sell all of the outstanding shares of our Hong Kong Subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd for $100,000 and an additional $40,000 for the transaction cost. The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.

 

Interest expenses, net  The increase in interest expenses, net was primarily due to the increase in debt balance, resulting from issuance of $2 million of convertible notes in December 2019, and our entry into an aggregate amount of $3.2 million loan of agreements in January 8, 2019, with each of our Chairman and Chief Executive Officer and our largest shareholder.

Other income, net  Other income for the nine months ended May 31, 2020 primarily consists of government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our Hsinchu building.  Other expenses for the nine months ended May 31, 2019 consists primarily of rental income from the lease of spare space in our Hsinchu building, net of related depreciation charge, and offset by the settlement of a lawsuit with Epistar.

Foreign currency transaction gain, net  We recognized net foreign currency transaction gain of $256 thousand and $20 thousand for the nine months ended May 31, 2020 and 2019, respectively, primarily due to the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.

 

 

Income Tax Expense

 

Our effective tax rate is expected to be approximately zero for fiscal 2020 and was zero for fiscal 2019, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries.

26


Table of Contents

 

Net Loss Attributable to Noncontrolling Interests

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

$

 

 

Revenues

 

 

$

 

 

Revenues

 

 

 

(in thousands)

 

Net gain (loss) attributable to noncontrolling interests

 

$

1

 

 

 

 

%

$

(1

)

 

 

 

 

We recognized net gain attributable to non-controlling interests of $1 thousand and net loss of $1 thousand for the nine months ended May 31, 2020 and 2019, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the remaining non-controlling holders. As of May 31, 2020 and 2019, non-controlling interests represented 3.25% and 3.29% equity interest, respectively, in Taiwan Bandaoti Zhaoming CO., Ltd.

Liquidity and Capital Resources

As of May 31, 2020 and August 31, 2019, we had cash and cash equivalents of $2.5 million and $1.4 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.

As of July 7, 2020, we had no available credit facility.

Our long-term debt, which consisted of NT dollar denominated long-term notes convertible unsecured promissory notes, and loans from our Chairman and our largest shareholder, totaled $7.6 million and $6.4 million as of May 31, 2020 and August 31, 2019, respectively.

Our NT dollar denominated long-term notes, totaled $3.0 million and $3.2 million as of May 31, 2020 and August 31, 2019, respectively. These long-term notes consisted of two loans which we entered into on July 5, 2019, with aggregate amounts of $3.2 million (NT$100 million).  The first loan originally for $2.0 million (NT$62 million) has an annual floating interest rate equal to the NTD base lending rate plus 0.64% (or 1.465% currently), and was exclusively used to repay the existing loans.  The second loan originally for $1.2 million (NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 1.845% currently) and is available for operating capital. These loans are secured by an $83 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building. Due to the impact of the COVID-19 pandemic, the bank agreed to give us a deferment period for twelve months starting from May 2020. During this period, we don’t need to pay the monthly payments of the principal but only the interest.

 

Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $25 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of May 31, 2020, our outstanding balance on this note payable was approximately $1.9 million.

 

Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $15 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of May 31, 2020, our outstanding balance on this note payable was approximately $1.1 million.

Property, plant and equipment pledged as collateral for our notes payable were $3.6 million and $3.7 million as of May 31, 2020 and August 31, 2019, respectively.

On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive Officer and our largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%.  All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to the agreement dated December 15, 2015.  We are required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively, unless the loans are sooner accelerated pursuant to the loan agreements.  As of May 31, 2020 and August 31, 2019, these loans totaled $3.2 million. The loans are secured by a second priority security interest on our headquarters building.

On December 6, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes to each of our Chairman and Chief Executive Officer and our largest shareholder (the “Holders”), with a principal sum of $2 million and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021 (the “Maturity Date”). The outstanding principal and unpaid accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our Common stock. As of May 31, 2020, the principal of these notes totaled $1.4 million.

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Table of Contents

 

We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $3.6 million and $3.0 million during the years ended August 31, 2019 and 2018, respectively. Net cash used in operating activities for the year ended August 31, 2019 was $3.5 million. As of August 31, 2019, we had cash and cash equivalents of $1.4 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 convertible notes to our major stockholders and may issue additional equity.

Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months. However, there can be no assurances that our planned activities will be successful in raising additional capital, reducing losses and preserving cash. If we are not able to generate positive cash flows from operations, we may need to consider alternative financing sources and seek additional funds through public or private equity financings or from other sources, or refinance our indebtedness, to support our working capital requirements or for other purposes. There can be no assurance that additional debt or equity financing will be available to us or that, if available, such financing will be available on terms favorable to us.

Cash Flows

The following summary of our cash flows for the periods indicated has been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this Quarterly Report (in thousands):

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

Net cash used in operating activities

 

$

(786

)

 

$

(2,874

)

Net cash used in investing activities

 

$

(161

)

 

$

(2,571

)

Net cash provided by financing activities

 

$

2,419

 

 

$

2,951

 

 

Cash Flows Used In Operating Activities

Net cash used in operating activities for the nine months ended May 31, 2020 was $786 thousand while net cash used in operating activities for the nine months ended May 31, 2019 was $2.9 million. Cash flows used in operating activities for the nine months ended May 31, 2020 was $2.1 million less, primary attributable to a decrease in net loss.

Cash Flows Used In Investing Activities

Net cash used in investing activities for the nine months ended May 31, 2020 was $161 thousand, consisting primarily of $226 thousand of the purchases of machinery and equipment and $14 thousand of payments for development of intangible assets, offset in part by proceeds from sales of machinery and equipment.

Net cash used in investing activities for the nine months ended May 31, 2019 was $2.6 million, consisting primarily of the return of $3 million to Epistar and $73 thousand of purchases of machinery and equipment, offset in part by $505 thousand of proceeds from sales of machinery and equipment.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the nine months ended May 31, 2020 was $2.4 million, consisting primarily of $2 million of proceeds from convertible notes, and $700 thousand of issuance of common stocks, offset in part by the repayments on long-term debt.

Net cash provided by financing activities for the nine months ended May 31, 2019 was $3.0 million, consisting primarily of $3.2 million of proceeds from Chairman and shareholder loans, offset in part by the repayments on long-term notes.

 

 

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Table of Contents

 

Capital Expenditures

We had capital expenditures of $226 thousand and $73 thousand for the nine months ended May 31, 2020 and 2019, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future as we expand our business operations and invest in such expansion of our production capacity as we deem appropriate under market conditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our management continues to monitor prices and, consistent with its existing contractual commitments, may decrease further its activity level and capital expenditures as appropriate.

Off-Balance Sheet Arrangements

As of May 31, 2020, we did not engage in any off-balance sheet arrangements. We do not have any interests in variable interest entities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our chief executive officer, or CEO, and our chief financial officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of May 31, 2020. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based upon the aforementioned evaluation, our CEO and CFO have concluded that, as of May 31, 2020, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

 

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Due to the complex technology required to compete successfully in the LED industry, participants in our industry are often engaged in significant intellectual property licensing arrangements, negotiations, disputes and litigation. We are directly or indirectly involved from time to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise.

On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive was entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we retained the $500 thousand payment as liquidated damages. Well Thrive alleged that the liquidated damages provision was unenforceable as an illegal penalty and did not reflect the amount of purported damages. On March 13, 2018, we filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice.  On March 27, 2018, Well Thrive filed an answering brief in opposition to our motion on the basis that Well Thrive never consented to dismiss the case. The judge’s order allowed us to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement. Based on this order, we arranged the depositions to obtain more evidence in support of a motion to enforce the settlement agreement. On October 25, 2019, Well Thrive filed a motion to modify the Court’s scheduling order and to allow it to file a motion for summary judgment, and we filed an opposition to the motion. On November 13, 2019, the Court denied Well Thrive’s motion. The Court held a trial on March 2, 2020. After the trial, judge ordered both sides to prepare post-trial briefs and proposed findings of fact for the Court to be submitted before end of April, 2020.  On April 30, 2020, both sides submitted post-trail briefs and proposed findings of fact, and as of today, the judge has not rendered a verdict on this case.  

On March 11, 2019, a former employee (the “Plaintiff”) of Taiwan Bandaoti Zhaoming Co., Ltd. (“Taiwan Bandaoti”) filed a civil complaint against Taiwan Bandaoti in the Taiwan Miao-Li District Court. The Plaintiff alleged the following causes of action under the Labor Standards Act of Taiwan: (1) failure to pay the annual bonus; and (2) failure to pay transportation allowance. The Plaintiff is seeking compensation in the aggregate of approximately $9 thousand (NT$293 thousand). On May 24, 2019, Taiwan Miao-Li District Court determined on its own initiative to transfer the case to the Taiwan Hsin-Chu District Court due to a lack of jurisdiction over the action in whole or in part. On February 10, 2020, the Taiwan Hsin-Chu District Court made a determination in favor of the Company. As of the date filing this report, the term of appeal expired and the determination is affirmed.

Except as described above, there was no material pending legal proceedings or claims as of May 31, 2020.

Item 1A. Risk Factors

Except as set forth below, there are no material changes related to risk factors from the risk factors described in Item 1A “Risk Factors” in Part I of our 2019 Annual Report.

The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.

The novel coronavirus disease 2019 (“COVID-19”) pandemic and related restrictions have resulted in a widespread health crisis that have adversely affected businesses, economies and financial markets worldwide, and have caused significant volatility in U.S. and international debt and equity markets.

As of the date of filing this report, we have not had to close any of our offices due to the pandemic. However, our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. The conditions caused by the COVID-19 pandemic has adversely affected our customers’ ability or willingness to purchase our products or services, delay prospective customers’ purchasing decisions, adversely impact our ability to provide or deliver products and on-site services to our customers, delay the provisioning of our offerings, or lengthen payment terms, all of which could adversely affect our future sales, operating results and overall financial performance. Our operations have also begun to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many cities, counties, states, and even countries have imposed or may impose a wide range of restrictions on our employees, partners and customers physical movement to limit the spread of COVID-19.

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Table of Contents

 

While the potential economic impact brought by the COVID-19 may be difficult to assess or predict, the pandemic has resulted in significant disruption of global financial markets, and a recession or long-term market correction resulting from the spread of COVID-19 could materially impact the value of our common stock, impact our access to capital and affect our business in the near and long-term.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.

We may fail to qualify for continued listing on NASDAQ which could make it more difficult for investors to sell their shares.

In December 2010, our common stock was initially approved for listing on the NASDAQ Global Select Market but was transferred to the NASDAQ Capital Market effective November 5, 2015. To maintain that listing, we must satisfy the continued listing requirements of NASDAQ for inclusion in the NASDAQ Capital Market. On November 25, 2019, we received a notice from The NASDAQ Stock Market indicating that we did not meet the minimum of $2,500,000 in stockholders’ equity required by Listing Rule 5550(b)(1) for continued listing.  We also did not meet the alternatives of market value of listed securities or net income from continuing operations. On May 27, 2020, NASDAQ determined, based on 8-K we filed on the same day, that we comply with the Listing Rule 5550(b)(1).

Even though our stockholders’ equity exceeded the minimum of $2,500,000 as of May 31, 2020, there can be no assurance that we will maintain compliance with the continued listing requirements if we continue to incur losses 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 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 for 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 and your ability to sell our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuang Zhu.  Pursuant to the terms of the Agreement, Mr. Zhu purchased 33,333 shares of the Company’s common stock at $3.00 per share for an aggregate purchase price of $100,000. The shares were issued in a private placement exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”).

On May 25, 2020, J.R. Simplot Company, the largest shareholder of the Company, and Trung Doan, the Chairman and Chief Executive Officer of the Company, each converted $300,000 of convertible unsecured promissory notes into 100,000 shares of the Company’s common stock.  The shares were exempt from registration in reliance on Section 3(a)(9) of the Securities Act.

Repurchases

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

31


Table of Contents

 

Item 6. Exhibits

 

Exhibit No.

 

Description

 

 

 

  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

 

 

 

  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

 

 

 

  32.1

 

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.2

 

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

    101.INS

 

XBRL Instance Document

 

 

 

    101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

    101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

    101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

    101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

    101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

32


Table of Contents

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

SEMILEDS CORPORATION

 

 

 

(Registrant)

 

 

 

 

 

Dated:

July 13, 2020

 

By:

/s/ Christopher Lee

 

 

 

Name:

Christopher Lee

 

 

 

Title:

Chief Financial Officer

 

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

33

leds-ex311_6.htm

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:

July  13, 2020

 

/s/ Trung Tri Doan

 

 

 

Name: Trung Tri Doan

 

 

 

Title: Chairman and Chief Executive Officer

 

leds-ex312_8.htm

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:

July  13, 2020

 

/s/ Christopher Lee

 

 

 

Name: Christopher Lee

 

 

 

Title: Chief Financial Officer

 

leds-ex321_9.htm

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 May 31, 2020, 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:

July  13, 2020

 

/s/ Trung Tri Doan

 

 

 

Name: Trung Tri Doan

 

 

 

Title: Chairman and Chief Executive Officer

 

leds-ex322_7.htm

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 May 31, 2020, 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:

July  13, 2020

 

/s/ Christopher Lee

 

 

 

Name: Christopher Lee

 

 

 

Title: Chief Financial Officer

 

v3.20.2
Document and Entity Information - shares
9 Months Ended
May 31, 2020
Jul. 07, 2020
Cover [Abstract]    
Entity Registrant Name SemiLEDs Corp  
Entity Central Index Key 0001333822  
Trading Symbol LEDs  
Document Type 10-Q  
Document Period End Date May 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --08-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Shell Company false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   4,006,323
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Current Reporting Status Yes  
Entity Address, Address Line One 3F, No. 11 Ke Jung Rd  
Entity Address, Address Line Two Chu-Nan Site  
Entity Address, City or Town Miao-Li County  
Entity Address, Address Line Three Hsinchu Science Park, Chu-Nan 350  
Entity Address, Country TW  
Entity Address, Postal Zip Code 350  
City Area Code 886  
Local Phone Number 37-586788  
Title of 12(b) Security Common Stock, par value $0.0000056  
Security Exchange Name NASDAQ  
Entity Incorporation, State or Country Code DE  
Entity File Number 001-34992  
Entity Tax Identification Number 20-2735523  
Document Quarterly Report true  
Document Transition Report false  
Entity Interactive Data Current Yes  
v3.20.2
Unaudited Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
May 31, 2020
Aug. 31, 2019
CURRENT ASSETS:    
Cash and cash equivalents $ 2,476 $ 1,363
Restricted cash and cash equivalents 85 19
Accounts receivable (including related parties), net of allowance for doubtful accounts of $184 and $195 as of May 31, 2020 and August 31, 2019, respectively 1,452 703
Inventories 2,680 2,083
Prepaid expenses and other current assets 788 460
Total current assets 7,481 4,628
Property, plant and equipment, net 5,733 5,878
Operating lease right of use assets 237  
Intangible assets, net 89 93
Investments in unconsolidated entities 935 894
Other assets 193 169
TOTAL ASSETS 14,668 11,662
CURRENT LIABILITIES:    
Current installments of long-term debt 3,240 398
Accounts payable 748 680
Advance receipt toward the convertible note 500 500
Accrued expenses and other current liabilities 2,950 2,342
Operating lease liabilities, current 116  
Total current liabilities 7,554 3,920
Long-term debt, excluding current installments 4,361 5,954
Operating lease liabilities, less current portion 121  
Total liabilities 12,036 9,874
Commitments and contingencies (Note 5)
SemiLEDs stockholders’ equity    
Common stock, $0.0000056 par value—7,500 shares authorized; 4,006 shares and 3,594 shares issued and outstanding as of May 31, 2020 and August 31, 2019, respectively
Additional paid-in capital 177,214 175,804
Accumulated other comprehensive income 3,667 3,753
Accumulated deficit (178,298) (177,816)
Total SemiLEDs stockholders' equity 2,583 1,741
Noncontrolling interests 49 47
Total equity 2,632 1,788
TOTAL LIABILITIES AND EQUITY $ 14,668 $ 11,662
v3.20.2
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
May 31, 2020
Aug. 31, 2019
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 184 $ 195
Common stock, par value (in dollars per share) $ 0.0000056 $ 0.0000056
Common stock, shares authorized 7,500,000 7,500,000
Common stock, shares issued 4,006,000 3,594,000
Common stock, shares outstanding 4,006,000 3,594,000
v3.20.2
Unaudited Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Income Statement [Abstract]        
Revenues, net $ 1,569 $ 1,745 $ 4,669 $ 4,347
Cost of revenues 1,153 1,405 3,187 4,224
Gross profit 416 340 1,482 123
Operating expenses:        
Research and development 375 444 1,112 1,076
Selling, general and administrative 782 597 2,141 1,973
Gain on disposals of long-lived assets, net     (79) (288)
Total operating expenses 1,157 1,041 3,174 2,761
Loss from operations (741) (701) (1,692) (2,638)
Other income (expenses):        
Gain on disposal of investment     634  
Interest expenses, net (95) (74) (273) (115)
Other income (losses), net 270 94 594 48
Foreign currency transaction (losses) gain, net 57 (177) 256 20
Total other income (expenses), net 232 (157) 1,211 (47)
Loss before income taxes (509) (858) (481) (2,685)
Net loss (509) (858) (481) (2,685)
Less: Net gain (loss) attributable to noncontrolling interests 4 1 1 (1)
Net loss attributable to SemiLEDs stockholders $ (513) $ (859) $ (482) $ (2,684)
Net loss per share attributable to SemiLEDs stockholders:        
Basic and diluted $ (0.14) $ (0.24) $ (0.13) $ (0.75)
Shares used in computing net loss per share attributable to SemiLEDs stockholders:        
Basic and diluted 3,738 3,589 3,806 3,576
v3.20.2
Unaudited Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Statement Of Income And Comprehensive Income [Abstract]        
Net loss $ (509) $ (858) $ (481) $ (2,685)
Other comprehensive loss, net of tax:        
Foreign currency translation adjustments, net of tax of $0 for all periods presented (9) 12 (84) (1)
Comprehensive loss (518) (846) (565) (2,686)
Comprehensive loss attributable to noncontrolling interests 4 (1) 3 (3)
Comprehensive loss attributable to SemiLEDs stockholders $ (522) $ (845) $ (568) $ (2,683)
v3.20.2
Unaudited Condensed Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
May 31, 2019
May 31, 2018
May 31, 2019
May 31, 2018
Statement Of Income And Comprehensive Income [Abstract]        
Foreign currency translation adjustments tax $ 0 $ 0 $ 0 $ 0
v3.20.2
Unaudited Condensed Consolidated Statement of Changes in Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Taiwan Bandaoti Zhaoming Co., Ltd.
Common Stock
Subscribed Stock
Additional Paid-in Capital
Additional Paid-in Capital
Taiwan Bandaoti Zhaoming Co., Ltd.
Accumulated Other Comprehensive Income
Accumulated Deficit
Total SemiLEDs Shareholders' Equity
Total SemiLEDs Shareholders' Equity
Taiwan Bandaoti Zhaoming Co., Ltd.
Non-Controlling Interests
Non-Controlling Interests
Taiwan Bandaoti Zhaoming Co., Ltd.
BALANCE at Aug. 31, 2018 $ 5,003       $ 175,527   $ 3,727 $ (174,251) $ 5,003      
BALANCE (in shares) at Aug. 31, 2018     3,559                  
Issuance of common stock under equity incentive plans (in shares)     1                  
Stock-based compensation 43       43       43      
Common stock issued by SBDI   $ 176       $ 128       $ 128   $ 48
Comprehensive loss:                        
Other comprehensive income (loss) 4           5   5   $ (1)  
Net loss (983)             (978) (978)   (5)  
BALANCE at Nov. 30, 2018 4,243       175,698   3,732 (175,229) 4,201   42  
BALANCE (in shares) at Nov. 30, 2018     3,560                  
BALANCE at Aug. 31, 2018 5,003       175,527   3,727 (174,251) 5,003      
BALANCE (in shares) at Aug. 31, 2018     3,559                  
Comprehensive loss:                        
Other comprehensive income (loss) (1)                      
Net loss (2,685)                      
BALANCE at May. 31, 2019 2,610       175,772   3,728 (176,935) 2,565   45  
BALANCE (in shares) at May. 31, 2019     3,589                  
BALANCE at Nov. 30, 2018 4,243       175,698   3,732 (175,229) 4,201   42  
BALANCE (in shares) at Nov. 30, 2018     3,560                  
Issuance of common stock under equity incentive plans (in shares)     29                  
Stock-based compensation 47       47       47      
Comprehensive loss:                        
Other comprehensive income (loss) (17)           (18)   (18)   1  
Net loss (844)             (847) (847)   3  
BALANCE at Feb. 28, 2019 3,429       175,745   3,714 (176,076) 3,383   46  
BALANCE (in shares) at Feb. 28, 2019     3,589                  
Stock-based compensation 27       27       27      
Comprehensive loss:                        
Other comprehensive income (loss) 12           14   14   (2)  
Net loss (858)             (859) (859)   1  
BALANCE at May. 31, 2019 2,610       175,772   3,728 (176,935) 2,565   45  
BALANCE (in shares) at May. 31, 2019     3,589                  
BALANCE at Aug. 31, 2019 1,788       175,804   3,753 (177,816) 1,741   47  
BALANCE (in shares) at Aug. 31, 2019     3,594                  
Issuance of common stock under equity incentive plans (in shares)     1                  
Stock-based compensation 35       35       35      
Comprehensive loss:                        
Other comprehensive income (loss) (23)           (24)   (24)   1  
Net loss (322)             (317) (317)   (5)  
BALANCE at Nov. 30, 2019 1,478       175,839   3,729 (178,133) 1,435   43  
BALANCE (in shares) at Nov. 30, 2019     3,595                  
BALANCE at Aug. 31, 2019 1,788       175,804   3,753 (177,816) 1,741   47  
BALANCE (in shares) at Aug. 31, 2019     3,594                  
Comprehensive loss:                        
Other comprehensive income (loss) (84)                      
Net loss (481)                      
BALANCE at May. 31, 2020 2,632       177,214   3,667 (178,298) 2,583   49  
BALANCE (in shares) at May. 31, 2020     4,006                  
BALANCE at Nov. 30, 2019 1,478       175,839   3,729 (178,133) 1,435   43  
BALANCE (in shares) at Nov. 30, 2019     3,595                  
Issuance of common stock under equity incentive plans (in shares)     28                  
Stock-based compensation 24       24       24      
Issuance of common stock for private placement 600     $ 600         600      
Issuance of convertible notes 39       39       39      
Comprehensive loss:                        
Other comprehensive income (loss) (52)           (53)   (53)   1  
Net loss 350             348 348   2  
BALANCE at Feb. 29, 2020 2,439     600 175,902   3,676 (177,785) 2,393   46  
BALANCE (in shares) at Feb. 29, 2020     3,623                  
Stock-based compensation 21       21       21      
Issuance of common stock for private placement 100     $ (600) 700       100      
Issuance of common stock for private placement (in shares)     183                  
Conversion of notes into common stocks 592       592       592      
Conversion of notes into common stocks (in shares)     200                  
Change ownership in SBDI   $ (2)       $ (1)       $ (1)   $ (1)
Comprehensive loss:                        
Other comprehensive income (loss) (9)           (9)   (9)      
Net loss (509)             (513) (513)   4  
BALANCE at May. 31, 2020 $ 2,632       $ 177,214   $ 3,667 $ (178,298) $ 2,583   $ 49  
BALANCE (in shares) at May. 31, 2020     4,006                  
v3.20.2
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
May 31, 2020
Nov. 30, 2019
May 31, 2019
Nov. 30, 2018
May 31, 2020
May 31, 2019
Aug. 31, 2019
Aug. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss $ (509) $ (322) $ (858) $ (983) $ (481) $ (2,685)    
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization         623 827    
Stock-based compensation expense         80 117    
Provisions for inventory write-downs 251   248   571 560    
Gain on disposals of long-lived assets, net         (79) (288)    
Gain on disposals of investments         (634)      
Changes in :                
Accounts receivable, net         (131) (292)    
Inventories         (1,084) (724)    
Prepaid expenses and other         95 (121)    
Accounts payable         60 (183)    
Accrued expenses and other current liabilities         194 (85)    
Net cash used in operating activities         (786) (2,874) $ (3,500) $ (1,200)
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of property, plant and equipment         (226) (73)    
Proceeds from sales of property, plant and equipment         79 505    
Return the received-in-advance           (3,000)    
Payments for development of intangible assets         (14) (3)    
Net cash used in investing activities         (161) (2,571)    
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from long-term debt         2,000 3,200    
Repayments of long-term debt         (279) (248)    
Issuance of common stock for private placement         700      
Acquisition of noncontrolling interests         (2) (1)    
Net cash provided by financing activities         2,419 2,951    
Changes in cash balance included in deconsolidated subsidiaries         (61)      
Effect of exchange rate changes on cash and cash equivalents         (228) 133    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         1,183 (2,361)    
CASH AND CASH EQUIVALENTS—Beginning of period   $ 1,471   $ 3,421 1,471 3,421 3,421  
CASH AND CASH EQUIVALENTS—End of period $ 2,654   $ 1,060   2,654 1,060 $ 1,471 $ 3,421
NONCASH INVESTING AND FINANCING ACTIVITIES:                
Accrual related to property, plant and equipment         $ 34 $ 34    
v3.20.2
Business
9 Months Ended
May 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Business

1. Business

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

As of May 31, 2020, SemiLEDs had two wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a substantial portion of marketing and sale of LED components, and where most of the Company’s employees are based. On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with XianChang Ma  (the “Purchaser”) pursuant to which the Purchaser agreed to purchase all of the outstanding shares of the Company’s Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd. for $100,000 and an additional $40,000 for the transaction costs.  The Purchaser paid $140,000 to the Company, and the transaction was completed in January 2020. The Purchaser also subscribed approximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note 6).

SemiLEDs’ common stock began trading on the NASDAQ Global Select Market under the symbol “LEDS”.

v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 20, 2019. The unaudited condensed consolidated balance sheet as of August 31, 2019 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2020, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2020 and 2019, the statement of changes in equity for the three and nine months ended May 31, 2020 and 2019, and the statements of cash flows for the nine months ended May 31, 2020 and 2019. The results for the three or nine months ended May 31, 2020 are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

Going Concern —The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.

The Company suffered losses from operations of $3.7 million and $3.7 million, and net cash used in operating activities of $3.5 million and $1.2 million for the years ended August 31, 2019 and 2018, respectively. Gross profit on product sales was $452 thousand for the year ended August 31, 2019, and gross loss was $435 thousand for the year ended August 31, 2018. Loss from operations for the three and nine months ended May 31, 2020 were $741 thousand and $1.7 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2020 was $786 thousand.  These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, on May 31, 2020, the Company’s cash and cash equivalents increased to $2.5 million, mainly due to the issuance of convertible notes. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.  

 

Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing on product enhancement and developing its LED product into many other applications or devices.

 

Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial flexibility.

 

Raising additional cash through further equity offerings, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities.

While the Company’s management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $85 thousand and $19 thousand, respectively. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $93 thousand and $89 thousand, respectively.

Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.

Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.

 

Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.

If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.

Use of Estimates —The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates.

Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.

Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.

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

 

The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. As of May 31, 2020 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2020

 

 

2019

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

496

 

 

$

52

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

1,701

 

 

 

447

 

Denominated in New Taiwan dollars

 

 

137

 

 

 

730

 

Denominated in other currencies

 

 

142

 

 

 

77

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

 

 

 

 

Denominated in Renminbi

 

 

 

 

 

49

 

Denominated in H.K. dollars

 

 

 

 

 

8

 

Total cash and cash equivalents

 

$

2,476

 

 

$

1,363

 

 

The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, ages of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.

Net revenues generated from sales to the top ten customers represented 89% and 83 % of the Company’s total net revenues for the three and nine months ended May 31, 2020, respectively, and 80% and 73% of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, German, the United States, and India. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 89% and 90% of the Company’s net revenues for the three and nine months ended May 31, 2020, respectively, and 86% and 88 % of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715. As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in SBDI was increased from zero to 3.31%. In December 2018 and in March 2020, Taiwan SemiLEDs purchased 3,000 and 5,000 common shares of SBDI from non-controlling interests, respectively. As of May 31, 2020, noncontrolling interest in SBDI was down to 3.25%.     

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on the disclosures included in its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

v3.20.2
Balance Sheet Components
9 Months Ended
May 31, 2020
Disclosure Text Block Supplement [Abstract]  
Balance Sheet Components

3. Balance Sheet Components

Inventories

Inventories as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

536

 

 

$

479

 

Work in process

 

 

993

 

 

 

728

 

Finished goods

 

 

1,151

 

 

 

876

 

Total

 

$

2,680

 

 

$

2,083

 

 

Inventory write-downs to estimated net realizable values were $251 thousand and $571 thousand for the three and nine months ended May 31, 2020, respectively, and $248 thousand and $560 thousand for the three and nine months ended May 31, 2019, respectively.

Property, Plant and Equipment

Property, plant and equipment as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Buildings and improvements

 

$

13,855

 

 

$

13,238

 

Machinery and equipment

 

 

39,798

 

 

 

37,988

 

Leasehold improvements

 

 

163

 

 

 

156

 

Other equipment

 

 

2,342

 

 

 

2,250

 

Construction in progress

 

 

2

 

 

 

61

 

Total property, plant and equipment

 

 

56,160

 

 

 

53,693

 

Less: Accumulated depreciation and amortization

 

 

(50,427

)

 

 

(47,815

)

Property, plant and equipment, net

 

$

5,733

 

 

$

5,878

 

 

 

Intangible Assets

Intangible assets as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31, 2020

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

541

 

 

$

452

 

 

$

89

 

Acquired technology

 

 

5

 

 

 

339

 

 

 

339

 

 

 

 

Total

 

 

 

 

 

$

880

 

 

$

791

 

 

$

89

 

 

 

 

August 31, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

542

 

 

$

449

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

484

 

 

 

484

 

 

 

 

Total

 

 

 

 

 

$

1,026

 

 

$

933

 

 

$

93

 

 

 

v3.20.2
Investments in Unconsolidated Entities
9 Months Ended
May 31, 2020
Investments In Unconsolidated Entities Disclosure [Abstract]  
Investments in Unconsolidated Entities

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands, except percentages):

 

 

 

May 31, 2020

 

 

August 31, 2019

 

 

 

 

Percentage

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

Ownership

 

Amount

 

 

Ownership

 

Amount

 

 

Equity investment without readily determinable fair value

 

Various

 

$

935

 

 

Various

 

$

894

 

 

Total investments in unconsolidated entities

 

 

 

$

935

 

 

 

 

$

894

 

 

 

There were no dividends received from unconsolidated entities through May 31, 2019.

 

Equity Investments without Readily Determinable Fair Value

Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

v3.20.2
Commitments and Contingencies
9 Months Ended
May 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

5. Commitments and Contingencies

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancelable and noncancelable and which expire at various dates between December 2020 and December 2029. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did not combine lease and non-lease components.

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 were $39 thousand and $115 thousand for three months and nine months ended May 31, 2020.

Balance sheet information related to the Company’s leases is presented below:

 

 

 

May 31, 2020

 

Assets

 

 

 

 

Operating lease right of use assets

 

$

237

 

Liabilities

 

 

 

 

Operating lease liabilities, current portion

 

$

116

 

Operating lease liabilities, less current portion

 

121

 

Total

 

$

237

 

 

The following provides details of the Company’s lease expenses:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Operating lease expenses, net

 

$

115

 

 

Other information related to leases is presented below:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Cash Paid for amounts Included In Measurement of Liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

115

 

Weighted Average Remaining Lease Term:

 

 

 

 

Operating leases

 

2.59 years

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

1.76

%

 

As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76% based on the information available at commencement date in determining the present value of lease payments.    

The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of May 31, 2020 consisted of the following (in thousands):

 

 

 

Operating

 

Years Ending August 31,

 

Leases

 

Remainder of 2020

 

$

39

 

2021

 

 

98

 

2022

 

 

30

 

2023

 

 

11

 

2024

 

 

11

 

Thereafter

 

 

58

 

Total future minimum lease payments, undiscounted

 

 

247

 

Less: Imputed interest

 

 

10

 

Present value of future minimum lease payments

 

$

237

 

 

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $83 thousand and $158 thousand as of May 31, 2020 and August 31, 2019, respectively.

Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated. However, the Company cannot predict the outcome of any litigation or the potential for future litigation.

On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we have retained the $500 thousand payment as liquidated damages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March 13, 2018, the Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice. On March 27, 2018, Well Thrive filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case. The judge’s order allowed the Company to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement. Based on this order, the Company arranged the depositions to obtain more evidence in support of a motion to enforce the settlement agreement. On October 25, 2019, Well Thrive filed a motion to modify the Court’s scheduling order and to allow it to file a motion for summary judgment, and the Company filed an opposition to the motion. On November 13, 2019, the Court denied Well Thrive’s motion. The Court held a trial on March 2, 2020. After the trial, judge ordered both sides to prepare post-trial briefs and proposed findings of fact for the Court to be submitted before end of April 2020.  On April 30, 2020, both sides submitted post-trail briefs and proposed findings of fact, and as of today, the judge has not rendered a verdict on this case.

On December 28, 2018, the Company received a notification from the Court in Miao-Li County, Taiwan that Epistar Corporation (the successor to Formosa Epitaxy Incorporation, the “Plaintiff”) filed a motion requesting that the Company return the $3 million prepayment plus value-added-tax for the headquarters building sale and pay interest during this period and litigation fee. The Plaintiff also petitioned the Court to do a provisional execution upon the Company, which would permit the Plaintiff to sell the building and/or other assets belonging to the Company to recover the prepayment. On January 4, 2019, the Company filed a statement of defense arguing that the Plaintiff’s action and motion for provisional execution should be dismissed and the litigation fees should be borne by the Plaintiff. On January 25, 2019, the Company and the Plaintiff entered into a settlement, agreeing that the Company would return the $3 million plus value-added-tax of $150 thousand and penalty of $200 thousand, and on February 1, 2019, the Plaintiff withdrew the motion. As of May 31, 2020, the Company has paid the $3.35 million in full. 

On March 11, 2019, a former employee (the “Plaintiff”) of Taiwan Bandaoti Zhaoming Co., Ltd. (“Taiwan Bandaoti”) filed a civil complaint against Taiwan Bandaoti in the Taiwan Miao-Li District Court. The Plaintiff alleged the following causes of action under the Labor Standards Act of Taiwan: (1) failure to pay the annual bonus; and (2) failure to pay transportation allowance. The Plaintiff is seeking compensation in the aggregate of approximately $9 thousand (NT$293 thousand). On May 24, 2019, Taiwan Miao-Li District Court determined on its own initiative to transfer the case to the Taiwan Hsin-Chu District Court due to a lack of jurisdiction over the action in whole or in part. On February 10, 2020, the Taiwan Hsin-Chu District made a determination in favor of the Company. As of May 31, 2020, the term of appeal expired and the determination is affirmed.

Except as described above, as of May 31 2020, 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.

 

 

v3.20.2
Common Stock
9 Months Ended
May 31, 2020
Common Stock [Abstract]  
Common Stock

6. Common Stock

On January 17, 2020, the Company entered into a definitive common stock purchase agreement with XianChang Ma.  Pursuant to the terms of the Agreement, Mr. Ma purchased 150,000 shares of the Company’s common stock at $4.00 per share, representing approximately 4% of the outstanding shares of the Company at the time of purchase. The Company received the $600,000 purchase price in full on January 17, 2020.

On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuang Zhu.  Pursuant to the terms of the Agreement, Mr. Zhu purchased 33,333 shares of the Company’s common stock at $3.00 per share for an aggregate purchase price of $100,000. The Company received the $100,000 purchase price in full on May 25. 2020.

On May 25, 2020, J.R. Simplot Company, the largest shareholder of the Company, and Trung Doan, the Chairman and Chief Executive Officer of the Company, each converted $300,000 of convertible unsecured promissory notes (the “Notes”) into 100,000 shares of the Company’s common stock.

v3.20.2
Stock-based Compensation
9 Months Ended
May 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-based Compensation

7. Stock-based Compensation

The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010 Plan that increased the number of shares authorized for issuance under the plan by an additional 250 thousand shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023, to remove the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period. Prior to SemiLEDs’ initial public offering, the Company had another stock-based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.

 

A total of 1,021 thousand and 521 thousand shares was reserved for issuance under the 2010 Plan, respectively, as of May 31, 2020 and 2019. As of May 31, 2020 and 2019, there were 548 thousand and 191 thousand shares of common stock available for future issuance under the equity incentive plans, respectively.

In January 2020, SemiLEDs granted 136 thousand restricted stock units to its employees, which vest 25% each year on January 10 of 2021, 2022, 2023 and 2024 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $2.39 per unit.

In September 2019, SemiLEDs granted 5 thousand restricted stock units to its directors that will vest 100% on the earlier of July 31, 2020 and the date of the 2020 annual meeting. The grant-date fair value of the restricted stock units was $2.45 per unit.

In September 2019, SemiLEDs granted 2.5 thousand restricted stock units to a director that will vest 100% on the earlier of September 5, 2020 and the date of the 2020 annual meeting. The grant-date fair value of the restricted stock units was $2.45 per unit.

 

 

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.

Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock-based awards with vesting term that is less than or equal to one year from the date of grant.

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2020 and 2019 was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Cost of revenues

 

$

5

 

 

$

10

 

 

$

22

 

 

$

34

 

Research and development

 

 

5

 

 

 

6

 

 

 

16

 

 

 

21

 

Selling, general and administrative

 

 

11

 

 

 

11

 

 

 

42

 

 

 

62

 

 

 

$

21

 

 

$

27

 

 

$

80

 

 

$

117

 

 

 

v3.20.2
Net Loss Per Share of Common Stock
9 Months Ended
May 31, 2020
Earnings Per Share [Abstract]  
Net Loss Per Share of Common Stock

8. Net Loss Per Share of Common Stock

The following stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive (in thousands of shares):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Stock units and stock options to purchase common stock

 

 

 

 

 

7

 

 

 

157

 

 

 

13

 

v3.20.2
Income Taxes
9 Months Ended
May 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2020 and 2019 consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

U.S. operations

 

$

(324

)

 

$

(86

)

 

$

(115

)

 

$

(377

)

Foreign operations

 

 

(185

)

 

 

(772

)

 

 

(366

)

 

 

(2,308

)

Loss before income taxes

 

$

(509

)

 

$

(858

)

 

$

(481

)

 

$

(2,685

)

 

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 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. Provisional estimate of the Company is that no tax will be due under this provision.   

As of both May 31 2020 and August 31, 2019, the Company had no unrecognized tax benefits related to tax positions taken in prior periods. The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions. The tax years 2014 through 2018 remain open in most jurisdictions. With few exceptions, as of May 31, 2020, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2014. The Company is not currently under examination by income tax authorities in federal, state or foreign jurisdictions.

v3.20.2
Related Party Transactions
9 Months Ended
May 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

10. Related Party Transactions

On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to each of J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes may be converted into the Company’s common stock based on 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.

     

v3.20.2
Subsequent Events
9 Months Ended
May 31, 2020
Subsequent Events [Abstract]  
Subsequent Events

10. Subsequent Events

The Company has analyzed its operations subsequent to May 31, 2020 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company.

Except for the above, the Company has determined that it does not have any material subsequent events to disclose in these unaudited condensed consolidated financial statements.

          

 

v3.20.2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 20, 2019. The unaudited condensed consolidated balance sheet as of August 31, 2019 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2020, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2020 and 2019, the statement of changes in equity for the three and nine months ended May 31, 2020 and 2019, and the statements of cash flows for the nine months ended May 31, 2020 and 2019. The results for the three or nine months ended May 31, 2020 are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

Going Concern

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.

The Company suffered losses from operations of $3.7 million and $3.7 million, and net cash used in operating activities of $3.5 million and $1.2 million for the years ended August 31, 2019 and 2018, respectively. Gross profit on product sales was $452 thousand for the year ended August 31, 2019, and gross loss was $435 thousand for the year ended August 31, 2018. Loss from operations for the three and nine months ended May 31, 2020 were $741 thousand and $1.7 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2020 was $786 thousand.  These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, on May 31, 2020, the Company’s cash and cash equivalents increased to $2.5 million, mainly due to the issuance of convertible notes. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.  

 

Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing on product enhancement and developing its LED product into many other applications or devices.

 

Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial flexibility.

 

Raising additional cash through further equity offerings, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities.

While the Company’s management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

Restricted Cash Equivalents

Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $85 thousand and $19 thousand, respectively. As of May 31, 2020 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $93 thousand and $89 thousand, respectively.

Revenue Recognition

Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.

Principles of Consolidation

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.

Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.

 

Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.

If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.

Use of Estimates

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

Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.

Concentration of Supply Risk

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

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

 

The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. As of May 31, 2020 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2020

 

 

2019

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

496

 

 

$

52

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

1,701

 

 

 

447

 

Denominated in New Taiwan dollars

 

 

137

 

 

 

730

 

Denominated in other currencies

 

 

142

 

 

 

77

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

 

 

 

 

Denominated in Renminbi

 

 

 

 

 

49

 

Denominated in H.K. dollars

 

 

 

 

 

8

 

Total cash and cash equivalents

 

$

2,476

 

 

$

1,363

 

 

The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, ages of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.

Net revenues generated from sales to the top ten customers represented 89% and 83 % of the Company’s total net revenues for the three and nine months ended May 31, 2020, respectively, and 80% and 73% of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, German, the United States, and India. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 89% and 90% of the Company’s net revenues for the three and nine months ended May 31, 2020, respectively, and 86% and 88 % of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

Noncontrolling Interests

Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715. As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in SBDI was increased from zero to 3.31%. In December 2018 and in March 2020, Taiwan SemiLEDs purchased 3,000 and 5,000 common shares of SBDI from non-controlling interests, respectively. As of May 31, 2020, noncontrolling interest in SBDI was down to 3.25%.     

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on the disclosures included in its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

v3.20.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Schedule of cash and cash equivalents by location As of May 31, 2020 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2020

 

 

2019

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

496

 

 

$

52

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

1,701

 

 

 

447

 

Denominated in New Taiwan dollars

 

 

137

 

 

 

730

 

Denominated in other currencies

 

 

142

 

 

 

77

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

 

 

 

 

Denominated in Renminbi

 

 

 

 

 

49

 

Denominated in H.K. dollars

 

 

 

 

 

8

 

Total cash and cash equivalents

 

$

2,476

 

 

$

1,363

 

v3.20.2
Balance Sheet Components (Tables)
9 Months Ended
May 31, 2020
Disclosure Text Block Supplement [Abstract]  
Schedule of inventories

Inventories as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

536

 

 

$

479

 

Work in process

 

 

993

 

 

 

728

 

Finished goods

 

 

1,151

 

 

 

876

 

Total

 

$

2,680

 

 

$

2,083

 

Schedule of property, plant and equipment

Property, plant and equipment as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31,

 

 

August 31,

 

 

 

2020

 

 

2019

 

Buildings and improvements

 

$

13,855

 

 

$

13,238

 

Machinery and equipment

 

 

39,798

 

 

 

37,988

 

Leasehold improvements

 

 

163

 

 

 

156

 

Other equipment

 

 

2,342

 

 

 

2,250

 

Construction in progress

 

 

2

 

 

 

61

 

Total property, plant and equipment

 

 

56,160

 

 

 

53,693

 

Less: Accumulated depreciation and amortization

 

 

(50,427

)

 

 

(47,815

)

Property, plant and equipment, net

 

$

5,733

 

 

$

5,878

 

Schedule of intangible assets

Intangible assets as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands):

 

 

 

May 31, 2020

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

541

 

 

$

452

 

 

$

89

 

Acquired technology

 

 

5

 

 

 

339

 

 

 

339

 

 

 

 

Total

 

 

 

 

 

$

880

 

 

$

791

 

 

$

89

 

 

 

 

August 31, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

542

 

 

$

449

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

484

 

 

 

484

 

 

 

 

Total

 

 

 

 

 

$

1,026

 

 

$

933

 

 

$

93

 

v3.20.2
Investments in Unconsolidated Entities (Tables)
9 Months Ended
May 31, 2020
Investments In Unconsolidated Entities Disclosure [Abstract]  
Schedule of ownership interest and carrying amounts of investments in unconsolidated entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2020 and August 31, 2019 consisted of the following (in thousands, except percentages):

 

 

 

May 31, 2020

 

 

August 31, 2019

 

 

 

 

Percentage

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

Ownership

 

Amount

 

 

Ownership

 

Amount

 

 

Equity investment without readily determinable fair value

 

Various

 

$

935

 

 

Various

 

$

894

 

 

Total investments in unconsolidated entities

 

 

 

$

935

 

 

 

 

$

894

 

 

v3.20.2
Commitments and Contingencies (Tables)
9 Months Ended
May 31, 2020
Commitments And Contingencies Disclosure [Abstract]  
Schedule of balance sheet information related to leases

Balance sheet information related to the Company’s leases is presented below:

 

 

 

May 31, 2020

 

Assets

 

 

 

 

Operating lease right of use assets

 

$

237

 

Liabilities

 

 

 

 

Operating lease liabilities, current portion

 

$

116

 

Operating lease liabilities, less current portion

 

121

 

Total

 

$

237

 

Schedule of lease expenses and related cash flows

The following provides details of the Company’s lease expenses:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Operating lease expenses, net

 

$

115

 

 

Other information related to leases is presented below:

 

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

Cash Paid for amounts Included In Measurement of Liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

115

 

Weighted Average Remaining Lease Term:

 

 

 

 

Operating leases

 

2.59 years

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

1.76

%

 

Schedule of aggregate future noncancelable minimum rental payments for the operating leases

The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of May 31, 2020 consisted of the following (in thousands):

 

 

 

Operating

 

Years Ending August 31,

 

Leases

 

Remainder of 2020

 

$

39

 

2021

 

 

98

 

2022

 

 

30

 

2023

 

 

11

 

2024

 

 

11

 

Thereafter

 

 

58

 

Total future minimum lease payments, undiscounted

 

 

247

 

Less: Imputed interest

 

 

10

 

Present value of future minimum lease payments

 

$

237

 

v3.20.2
Stock-based Compensation (Tables)
9 Months Ended
May 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Summary of the stock-based compensation expense

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2020 and 2019 was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Cost of revenues

 

$

5

 

 

$

10

 

 

$

22

 

 

$

34

 

Research and development

 

 

5

 

 

 

6

 

 

 

16

 

 

 

21

 

Selling, general and administrative

 

 

11

 

 

 

11

 

 

 

42

 

 

 

62

 

 

 

$

21

 

 

$

27

 

 

$

80

 

 

$

117

 

v3.20.2
Net Loss Per Share of Common Stock (Tables)
9 Months Ended
May 31, 2020
Earnings Per Share [Abstract]  
Schedule of stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock

The following stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive (in thousands of shares):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

Stock units and stock options to purchase common stock

 

 

 

 

 

7

 

 

 

157

 

 

 

13

 

v3.20.2
Income Taxes (Tables)
9 Months Ended
May 31, 2020
Income Tax Disclosure [Abstract]  
Schedule of Income (loss) before income taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2020 and 2019 consisted of the following (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 31, 2020

 

 

May 31, 2019

 

 

May 31, 2020

 

 

May 31, 2019

 

U.S. operations

 

$

(324

)

 

$

(86

)

 

$

(115

)

 

$

(377

)

Foreign operations

 

 

(185

)

 

 

(772

)

 

 

(366

)

 

 

(2,308

)

Loss before income taxes

 

$

(509

)

 

$

(858

)

 

$

(481

)

 

$

(2,685

)

v3.20.2
Business (Details)
1 Months Ended 9 Months Ended
Jan. 17, 2020
Jan. 31, 2020
USD ($)
May 31, 2020
subsidiary
Nov. 27, 2019
USD ($)
Business        
Date of entity incorporation     Jan. 04, 2005  
Number of wholly owned subsidiaries | subsidiary     2  
XianChang Ma        
Business        
Aggregate amount of stock       $ 100,000
Business acquisition , transaction costs       $ 40,000
Total amount paid to the company   $ 140,000    
Percentage of common stock sold in outstanding shares 4.00%      
Taiwan SemiLEDs | Taiwan Bandaoti Zhaoming Co., Ltd.        
Business        
Ownership interest (as a percent)     97.00%  
v3.20.2
Summary of Significant Accounting Policies - Basis of Presentation and Use of Estimates (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Aug. 31, 2019
Aug. 31, 2018
Accounting Policies [Abstract]            
Losses from operations $ 741 $ 701 $ 1,692 $ 2,638 $ 3,700 $ 3,700
Gross profits (losses) on product sales 416 $ 340 1,482 123 452 (435)
Net cash used in operating activities     786 $ 2,874 3,500 $ 1,200
Cash and cash equivalents $ 2,476   $ 2,476   $ 1,363  
v3.20.2
Summary of Significant Accounting Policies - Others (Details) - USD ($)
$ in Thousands
9 Months Ended
May 31, 2020
Aug. 31, 2019
Restricted Cash and Cash Equivalents    
Restricted Cash Equivalents, Current $ 85 $ 19
Restricted Cash, Noncurrent $ 93 $ 89
Revenues Recognition    
Minimum warranty period 3 months  
Maximum warranty period 2 years  
v3.20.2
Summary of Significant Accounting Policies - Concentration of Credit Risk (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Aug. 31, 2019
Concentration Risk [Line Items]          
Cash and cash equivalents $ 2,476   $ 2,476   $ 1,363
Net revenues | Customer concentration          
Concentration Risk [Line Items]          
Concentration risk (as a percent) 89.00% 80.00% 83.00% 73.00%  
Net revenues | Geographic concentration          
Concentration Risk [Line Items]          
Concentration risk (as a percent) 89.00% 86.00% 90.00% 88.00%  
United States | U.S. Dollars          
Concentration Risk [Line Items]          
Cash and cash equivalents $ 496   $ 496   52
Taiwan | U.S. Dollars          
Concentration Risk [Line Items]          
Cash and cash equivalents 1,701   1,701   447
Taiwan | New Taiwan Dollars          
Concentration Risk [Line Items]          
Cash and cash equivalents 137   137   730
Taiwan | Other currencies          
Concentration Risk [Line Items]          
Cash and cash equivalents $ 142   $ 142   77
China (including Hong Kong) | Renminbi          
Concentration Risk [Line Items]          
Cash and cash equivalents         49
China (including Hong Kong) | H.K. dollars          
Concentration Risk [Line Items]          
Cash and cash equivalents         $ 8
v3.20.2
Summary of Significant Accounting Policies - Noncontrolling Interests (Details)
$ in Thousands, $ in Millions
1 Months Ended 3 Months Ended
Sep. 01, 2018
USD ($)
shares
Sep. 01, 2018
TWD ($)
shares
Mar. 31, 2020
shares
Dec. 31, 2018
shares
Nov. 30, 2018
USD ($)
May 31, 2020
shares
Aug. 31, 2019
shares
Aug. 31, 2018
shares
Minority Interest [Line Items]                
Common stock, shares issued           4,006,000 3,594,000  
Taiwan Bandaoti Zhaoming Co., Ltd.                
Minority Interest [Line Items]                
Noncontrolling interest (as percentage) 3.31% 3.31%       3.25%   0.00%
Taiwan Bandaoti Zhaoming Co., Ltd.                
Minority Interest [Line Items]                
Common stock issued during period, shares 414,000 414,000            
Common stock, shares issued 12,501,715 12,501,715           12,087,715
Common stock issued during period, value $ 176 $ 5.4     $ 176      
Taiwan SemiLEDs | Taiwan Bandaoti Zhaoming Co., Ltd.                
Minority Interest [Line Items]                
Common shares purchased form non-controlling interests     5,000 3,000        
v3.20.2
Balance Sheet Components - Inventories (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Aug. 31, 2019
Disclosure Text Block Supplement [Abstract]          
Raw materials $ 536   $ 536   $ 479
Work in process 993   993   728
Finished goods 1,151   1,151   876
Total 2,680   2,680   $ 2,083
Inventory write-downs $ 251 $ 248 $ 571 $ 560  
v3.20.2
Balance Sheet Components - Property, Plant and Equipment (Details) - USD ($)
$ in Thousands
May 31, 2020
Aug. 31, 2019
Property Plant And Equipment [Line Items]    
Total property, plant and equipment $ 56,160 $ 53,693
Less: Accumulated depreciation and amortization (50,427) (47,815)
Property, plant and equipment, net 5,733 5,878
Buildings and improvements    
Property Plant And Equipment [Line Items]    
Total property, plant and equipment 13,855 13,238
Machinery and equipment    
Property Plant And Equipment [Line Items]    
Total property, plant and equipment 39,798 37,988
Leasehold improvements    
Property Plant And Equipment [Line Items]    
Total property, plant and equipment 163 156
Other equipment    
Property Plant And Equipment [Line Items]    
Total property, plant and equipment 2,342 2,250
Construction in progress    
Property Plant And Equipment [Line Items]    
Total property, plant and equipment $ 2 $ 61
v3.20.2
Balance Sheet Components - Intangible Assets (Details) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
May 31, 2020
Aug. 31, 2019
Finite Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 880 $ 1,026
Accumulated Amortization 791 933
Total $ 89 $ 93
Patents and trademarks    
Finite Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period (Years) 15 years 15 years
Gross Carrying Amount $ 541 $ 542
Accumulated Amortization 452 449
Total $ 89 $ 93
Acquired technology    
Finite Lived Intangible Assets [Line Items]    
Weighted Average Amortization Period (Years) 5 years 5 years
Gross Carrying Amount $ 339 $ 484
Accumulated Amortization $ 339 $ 484
v3.20.2
Investments in Unconsolidated Entities (Details) - USD ($)
$ in Thousands
9 Months Ended
May 31, 2019
May 31, 2020
Aug. 31, 2019
Investments in unconsolidated entities      
Equity investment without readily determinable fair value   $ 935 $ 894
Total investments in unconsolidated entities   $ 935 $ 894
Unconsolidated Entities      
Investments in unconsolidated entities      
Dividend received from unconsolidated entities $ 0    
v3.20.2
Commitments and Contingencies (Details)
$ in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Jan. 25, 2019
USD ($)
Dec. 28, 2018
USD ($)
May 31, 2020
USD ($)
May 31, 2020
USD ($)
May 31, 2020
TWD ($)
Aug. 31, 2019
USD ($)
Commitments and Contingencies            
Operating lease agreements, description       The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancelable and noncancelable and which expire at various dates between December 2020 and December 2029. The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancelable and noncancelable and which expire at various dates between December 2020 and December 2029.  
Lease expense related to noncancelable operating leases     $ 39 $ 115    
ASSETS            
Operating lease right of use assets     237 237    
Liabilities            
Operating lease liabilities, current portion     116 116    
Operating lease liabilities, less current portion     121 121    
Total     $ 237 237    
Operating lease expenses, net       115    
Cash Paid for amounts Included In Measurement of Liabilities:            
Operating cash flows from operating leases       $ 115    
Operating leases     2 years 7 months 2 days 2 years 7 months 2 days    
Operating leases     1.76% 1.76%    
Remainder of 2020     $ 39 $ 39    
2021     98 98    
2022     30 30    
2023     11 11    
2024     11 11    
Thereafter     58 58    
Total future minimum lease payments, undiscounted     247 247    
Less: Imputed interest     10 10    
Present value of future minimum lease payments     237 237    
Purchase Obligations            
Purchase commitments for inventory, property, plant and equipment     83 83   $ 158
Litigation            
Advance receipt toward the convertible note     500 500   $ 500
Settlement agreement, date January 25, 2019          
Value-added-tax $ 150          
Penalty amount $ 200          
Loss contingency paid       3,350    
Claims From Well Thrive Ltd.            
Litigation            
Advance receipt toward the convertible note     $ 500 500    
Epistar Corporation            
Litigation            
Loss contingency, return of prepayment value   $ 3,000        
Former Employee            
Litigation            
Loss contingency, return of prepayment value       $ 9 $ 293  
First mediation proceeding       February 10, 2020 February 10, 2020  
Minimum            
Commitments and Contingencies            
Cancellable and noncancellable operating lease expiration       2020-12 2020-12  
Maximum            
Commitments and Contingencies            
Cancellable and noncancellable operating lease expiration       2029-12 2029-12  
v3.20.2
Common Stock (Details) - USD ($)
3 Months Ended
May 25, 2020
Jan. 17, 2020
May 31, 2020
Aug. 31, 2019
Class Of Stock [Line Items]        
Common stock, par value (in dollars per share)     $ 0.0000056 $ 0.0000056
Conversion of notes into common stocks     $ 592,000  
J.R. Simplot Company | Trung Doan        
Class Of Stock [Line Items]        
Convertible unsecured promissory notes $ 300,000      
Conversion of notes into common stocks $ 100,000      
XianChang Ma        
Class Of Stock [Line Items]        
Common stock purchased under private placement, share   150,000    
Common stock, par value (in dollars per share)   $ 4.00    
Percentage of common stock sold in outstanding shares   4.00%    
Common stock purchase price   $ 600,000    
FengShuang Zhu.        
Class Of Stock [Line Items]        
Common stock purchased under private placement, share 33,333      
Common stock, par value (in dollars per share) $ 3.00      
Common stock purchase price $ 100,000      
v3.20.2
Stock-based Compensation (Details)
$ / shares in Units, $ in Thousands
1 Months Ended 3 Months Ended 9 Months Ended
Jul. 31, 2019
shares
Jan. 31, 2020
$ / shares
shares
Sep. 30, 2019
$ / shares
shares
Apr. 30, 2014
shares
May 31, 2020
USD ($)
shares
May 31, 2019
USD ($)
item
shares
May 31, 2020
USD ($)
shares
May 31, 2019
USD ($)
item
shares
Stock-based Compensation                
Number of share-based compensation plans | item           1   1
Additional number of shares authorized for issuance 500,000     250,000        
Plan expiration date Nov. 03, 2023              
Maximum grant limit per employee per one year period 35,000              
Shares of common stock reserved for issuance         1,021,000 521,000 1,021,000 521,000
Common stock available for future issuance (in shares)         548,000 191,000 548,000 191,000
Share-based Compensation, Forfeiture Method [Fixed List]             Estimating expected forfeitures  
Estimated forfeiture rate (as a percent)         0.00%   0.00%  
Stock-based compensation expense | $         $ 21 $ 27 $ 80 $ 117
Cost of revenues                
Stock-based Compensation                
Stock-based compensation expense | $         5 10 22 34
Research and development                
Stock-based Compensation                
Stock-based compensation expense | $         5 6 16 21
Selling, general and administrative                
Stock-based Compensation                
Stock-based compensation expense | $         $ 11 $ 11 $ 42 $ 62
Maximum                
Stock-based Compensation                
Vesting period             1 year  
Officer and Employees | Restricted stock unit                
Stock-based Compensation                
Stock units granted (in shares)   136,000            
Vesting percentage   25.00%            
Grant-date fair value (in dollars per share) | $ / shares   $ 2.39            
Directors | Restricted stock unit | July Thirty One Two Thousand Twenty Member                
Stock-based Compensation                
Stock units granted (in shares)     5,000          
Vesting percentage     100.00%          
Grant-date fair value (in dollars per share) | $ / shares     $ 2.45          
Directors | Restricted stock unit | Earlier of September 5, 2020 and the date of 2020 annual meeting                
Stock-based Compensation                
Stock units granted (in shares)     2,500          
Vesting percentage     100.00%          
Grant-date fair value (in dollars per share) | $ / shares     $ 2.45          
v3.20.2
Net Loss Per Share of Common Stock (Details) - shares
shares in Thousands
3 Months Ended 9 Months Ended
May 31, 2019
May 31, 2020
May 31, 2019
Stock units and stock options to purchase common stock      
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]      
Antidilutive securities (in shares) 7 157 13
v3.20.2
Income Taxes (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Aug. 31, 2017
Aug. 31, 2019
Income Taxes [Line Items]            
U.S. operations $ (324,000) $ (86,000) $ (115,000) $ (377,000)    
Foreign operations (185,000) (772,000) (366,000) (2,308,000)    
Loss before income taxes (509,000) $ (858,000) $ (481,000) $ (2,685,000)    
U.S. federal corporate income tax rate     21.00%   34.00%  
One-time transition tax payable period on certain unrepatriated earnings from non-U.S. subsidiaries     8 years      
Unrecognized tax benefits $ 0   $ 0     $ 0
Earliest Tax Year            
Income Taxes [Line Items]            
Tax year remain open     2014      
Latest Tax Year            
Income Taxes [Line Items]            
Tax year remain open     2018      
v3.20.2
Related Party Transactions (Details) - USD ($)
9 Months Ended
May 25, 2020
Dec. 10, 2019
Dec. 06, 2019
May 31, 2020
Related Party Transaction [Line Items]        
Debt instrument , maturity date       May 30, 2021
Debt instrument, convertible conversion price       $ 3.00
Unsecured Convertible Promissory Notes Payable | Trung Doan        
Related Party Transaction [Line Items]        
Principal amount of unsecured convertible promissory notes   $ 500,000    
Interest rate on promissory notes payable   3.50%    
Unsecured Convertible Promissory Notes Payable | Trung Doan        
Related Party Transaction [Line Items]        
Amount of unsecured convertible promissory notes converted $ 300,000      
Conversion of notes into common stocks (in shares) 100,000      
Unsecured Convertible Promissory Notes Payable | Simplot        
Related Party Transaction [Line Items]        
Amount of unsecured convertible promissory notes converted $ 300,000      
Conversion of notes into common stocks (in shares) 100,000      
Unsecured Convertible Promissory Notes Payable | J.R. Simplot Company        
Related Party Transaction [Line Items]        
Principal amount of unsecured convertible promissory notes     $ 1,500,000  
Interest rate on promissory notes payable     3.50%