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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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incorporation or organization) |
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Identification Number) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
SEMILEDS CORPORATION
FORM 10-Q for the Quarter Ended November 30, 2021
INDEX
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars and shares, except par value)
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November 30, |
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August 31, |
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2021 |
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2021 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and cash equivalents |
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Accounts receivable (including related parties), net of allowance for doubtful accounts of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right of use assets |
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Intangible assets, net |
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Investments in unconsolidated entities |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Current installments of long-term debt |
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$ |
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$ |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Other payable to related parties |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Long-term debt, excluding current installments |
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Operating lease liabilities, less current portion |
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Total liabilities |
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Commitments and contingencies (Note 5) |
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EQUITY: |
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SemiLEDs stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total SemiLEDs stockholders' equity |
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Noncontrolling interests |
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Total equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
1
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands of U.S. dollars and shares, except per share data)
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Three Months Ended November 30, |
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2021 |
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2020 |
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Revenues, net |
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$ |
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$ |
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Cost of revenues |
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Gross profit (loss) |
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( |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Gain on disposals of long-lived assets |
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— |
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( |
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Total operating expenses |
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Loss from operations |
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( |
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Other income (expenses): |
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Interest expenses, net |
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( |
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Other income, net |
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Foreign currency transaction (loss) gain, net |
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( |
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Total other income, net |
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Loss before income taxes |
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( |
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Income tax expense |
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— |
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— |
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Net loss |
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( |
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Less: Net loss attributable to noncontrolling interests |
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Net loss attributable to SemiLEDs stockholders |
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$ |
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$ |
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Net loss per share attributable to SemiLEDs stockholders: |
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Basic and diluted |
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$ |
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$ |
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Shares used in computing net loss per share attributable to SemiLEDs stockholders: |
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Basic and diluted |
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See notes to unaudited condensed consolidated financial statements.
2
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands of U.S. dollars)
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Three Months Ended November 30, |
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2021 |
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2020 |
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Net loss |
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$ |
( |
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$ |
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Other comprehensive gain (loss), net of tax: |
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Foreign currency translation adjustments, net of tax of $ |
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( |
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Comprehensive loss |
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( |
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( |
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Comprehensive loss attributable to noncontrolling interests |
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( |
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( |
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Comprehensive loss attributable to SemiLEDs stockholders |
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$ |
( |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements.
3
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars and shares)
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Accumulated |
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Total |
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Additional |
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Other |
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SemiLEDs |
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Non- |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shareholders' |
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Controlling |
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Total |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Equity |
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Interests |
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Equity |
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BALANCE at September 1, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Comprehensive loss: |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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BALANCE at November 30, 2021 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Accumulated |
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Total |
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Additional |
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Other |
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SemiLEDs |
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Non- |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shareholders' |
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Controlling |
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Total |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Equity |
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Interests |
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Equity |
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BALANCE at September 1, 2020 |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Change ownership in SBDI* |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Comprehensive loss: |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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( |
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BALANCE at November 30, 2020 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
*SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries.
4
SEMILEDS CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
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Three Months Ended November 30, |
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2021 |
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2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Provisions for inventory write-downs |
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Gain on disposals of long-lived assets |
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— |
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( |
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Changes in : |
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Accounts receivable |
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Inventories |
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( |
) |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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( |
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Net cash (used in) provided by operating activities |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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( |
) |
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( |
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Proceeds from sales of property, plant and equipment |
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— |
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Payments for development of intangible assets |
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— |
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( |
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Net cash (used in) provided by investing activities |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments of long-term debt |
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( |
) |
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— |
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Acquisition of noncontrolling interests |
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— |
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( |
) |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
) |
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NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
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( |
) |
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( |
) |
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CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period |
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CASH AND CASH EQUIVALENTS AND RESTRICTED CASH—End of period |
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$ |
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$ |
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Accrual related to property, plant and equipment |
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$ |
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$ |
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|
See notes to unaudited condensed consolidated financial statements.
5
SEMILEDS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. Business
SemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on
As of November 30, 2021, SemiLEDs had
SemiLEDs’ common stock trades on the NASDAQ Capital Market under the symbol “LEDS”.
2. Summary of Significant Accounting Policies
Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2021. The unaudited condensed consolidated balance sheet as of August 31, 2021 included herein was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s unaudited condensed consolidated balance sheet as of November 30, 2021, the unaudited condensed statements of operations and comprehensive loss for the three months ended November 30, 2021 and 2020, the statements of changes in equity for the three months ended November 30, 2021 and 2020, and the statements of cash flows for the three months ended November 30, 2021 and 2020. The results for the three months ended November 30, 2021 are not necessarily indicative of the results to be expected for the year ending August 31, 2022.
Going Concern —The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.
6
The Company suffered losses from operations of $
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• |
Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focused on product enhancement and developing its LED product into many other applications or devices. |
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|
• |
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, including sales through an at-the-market, or ATM, program, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities. |
While the Company's management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of November 30, 2021 and August 31, 2021, the Company’s restricted cash equivalents at current portion were amounted both $
Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue, when the Company satisfies a performance obligation, to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from
Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.
On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.
7
Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended.
Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities.
If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value.
Use of Estimates —The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates.
Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past several years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.
Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.
Concentration of Credit Risk —Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable.
8
The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits.
|
|
|
November 30, |
|
|
August 31, |
|
||
|
Cash and Cash Equivalents by Location |
|
2021 |
|
|
2021 |
|
||
|
United States; |
|
|
|
|
|
|
|
|
|
Denominated in U.S. dollars |
|
$ |
|
|
|
$ |
|
|
|
Taiwan; |
|
|
|
|
|
|
|
|
|
Denominated in U.S. dollars |
|
|
|
|
|
|
|
|
|
Denominated in New Taiwan dollars (NT$) |
|
|
|
|
|
|
|
|
|
Denominated in other currencies |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, ages of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
Net revenues generated from sales to the top ten customers represented
The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Japan, the United States. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for
Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd., the Company’s wholly owned operating subsidiary, issued
9
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but only if adopted as of the beginning of such fiscal year. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements
3. Balance Sheet Components
Inventories
Inventories as of November 30, 2021 and August 31, 2021 consisted of the following (in thousands):
|
|
|
November 30, |
|
|
August 31, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Inventory write-downs to estimated net realizable values were $
10
Property, Plant and Equipment
Property, plant and equipment as of November 30, 2021 and August 31, 2021 consisted of the following (in thousands):
|
|
|
November 30, |
|
|
August 31, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Buildings and improvements |
|
$ |
|
|
|
$ |
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Other equipment |
|
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Intangible Assets
Intangible assets as of November 30, 2021 and August 31, 2021 consisted of the following (in thousands):
|
|
|
November 30, 2021 |
|
|||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|||
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
|
Patents and trademarks |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
August 31, 2021 |
|
|||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|||
|
|
|
Amortization |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
|
Period (Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
|
Patents and trademarks |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
4. Investments in Unconsolidated Entities
The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of November 30, 2021 and August 31, 2021 consisted of the following (in thousands, except percentages):
|
|
|
November 30, 2021 |
|
|
August 31, 2021 |
|
||||||
|
|
|
Percentage |
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
Ownership |
|
Amount |
|
|
Ownership |
|
Amount |
|
||
|
Equity investment without readily determinable fair value |
|
Various |
|
|
|
|
|
Various |
|
|
|
|
|
Total investments in unconsolidated entities |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
There were
Equity Investments without readily determinable fair value
Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuers.
11
5. Commitments and Contingencies
Operating Lease Agreements —
Most leases do not include options to renew. The exercise of lease renewal options has to be agreed by the leasers. The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized on a straight-line basis over the term of the leases. Lease expense related to these noncancellable operating leases were $
Balance sheet information related to the Company’s leases is presented below:
|
|
|
November 30, 2021 |
|
|
August 31, 2021 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Operating lease right of use assets |
|
$ |
|
|
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current portion |
|
$ |
|
|
|
$ |
|
|
|
Operating lease liabilities, less current portion |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
The following provides details of the Company’s lease expenses:
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating lease expenses |
|
$ |
|
|
|
|
|
|
Other information related to leases is presented below:
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash Paid for amounts Included In Measurement of Liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
||
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
% |
|
|
|
% |
As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76% based on the information available at commencement date in determining the present value of lease payments.
12
The aggregate future noncancellable minimum rental payments for the Company’s operating leases as of November 30, 2021 consisted of the following (in thousands):
|
Years Ending August 31, |
|
Operating Leases |
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future minimum lease payments, undiscounted |
|
$ |
|
|
|
Less: Imputed interest |
|
|
( |
) |
|
Present value of future minimum lease payments |
|
$ |
|
|
Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $
Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated.
As of November 30, 2021, there was no pending or threatened litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.
6. Common Stock
In June 2021, the Company and Well Thrive Ltd., entered into an Agreement Regarding Satisfaction of Judgment dated June 14, 2021 (the “Settlement Agreement”) pursuant to which the Company issued
On July 6, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent the Company’s common stock having an aggregate offering price of up to $
7. Stock-based Compensation
The Company currently has
Prior to SemiLEDs’ initial public offering, the Company had another stock‑based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.
13
A total of
In November 2021, SemiLEDs granted
In November 2021, SemiLEDs granted
In November 2020, SemiLEDs granted
In November 2020, SemiLEDs granted
In January 2020, SemiLEDs granted
The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term.
Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of
A summary of the stock-based compensation expense for the three months ended November 30, 2021 and 2020 was as follows (in thousands):
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cost of revenues |
|
$ |
|
|
|
$ |
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
8. Net Loss Per Share of Common Stock
The following stock-based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive (in thousands of shares):
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Stock units and stock options to purchase common stock |
|
|
|
|
|
|
|
|
14
9. Income Taxes
The Company’s loss before income taxes for the three months ended November 30, 2021 and 2020 consisted of the following (in thousands):
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
U.S. operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
Foreign operations |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
Unrecognized Tax Benefits
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to
As of both November 30, 2021 and August 31, 2021, the Company had
10. Related Party Transactions
On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with a principal sum of $
On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief Executive Officer and the largest shareholder of the Company, with aggregate amounts of $
11. Subsequent Events
The Company has analyzed its operations subsequent to November 30, 2021 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company.
Except for the above, the Company has determined that it does not have any other material subsequent events to disclose in these unaudited condensed consolidated financial statements.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future results of operations of SemiLEDs Corporation, or “we,” “our” or the “Company,” and financial position, strategy and plans, and our expectations for future operations, including the execution of our restructuring plan and any resulting cost savings, are forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. The words “believe,” “may,” “should,” “plan,” “potential,” “project,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, and actual results and the timing of certain events could differ materially and adversely from those anticipated or implied in the forward-looking statements as a result of many factors. These factors include, among other things,
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Declining cash position. |
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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. |
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Our ability to maintain compliance with the continued listing requirements to avoid our stock being delisted from the Nasdaq Capital Market. |
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The continuing impact of the COVID-19 pandemic on our business and the business of our customers. |
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The inability of our suppliers or other contract manufacturers to produce products that satisfy our requirements. |
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Our ability to implement our cost reduction programs and to execute our restructuring plan effectively. |
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Our ability to improve our gross margins, reduce our net losses and restore our operations to profitability. |
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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. |
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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. |
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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. |
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Competitive pressures from existing and new companies. |
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Our ability to grow our revenues generated from the sales of our products and to control our expenses. |
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Loss of any of our key personnel, or our failure to attract, assimilate and retain other highly qualified personnel. |
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Intellectual property infringement or misappropriation claims by third parties against us or our customers, including our distributor customers. |
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The failure of LEDs to achieve widespread adoption in the general lighting market, or if alternative technologies gain market acceptance. |
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The loss of key suppliers or contract manufacturers. |
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Our ability to effectively expand or upgrade our production facilities or do so in a timely or cost-effective manner. |
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Difficulty in managing our future growth or in responding to a need to contract operations, and the associated changes to our operations. |
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Adverse development in those selected markets, including the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India, where our revenues are concentrated, including the impact of the COVID-19 pandemic on customer demand. |
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Our ability to develop and execute upon a new strategy to exploit the China and India market. |
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Our ability to resolve pending litigation on favorable terms. |
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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. |
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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. |
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Loss of customers. |
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Failure of our strategy of marketing and selling our products in jurisdictions with limited intellectual property enforcement regimes. |
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Lack of marketing and distribution success by our third-party distributors. |
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Our customers’ ability to produce and sell products incorporating our LED products. |
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Our failure to adequately prevent disclosure of trade secrets and other proprietary information. |
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Ineffectiveness of our disclosure controls and procedures and our internal control over financial reporting. |
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Our ability to profit from future joint ventures, investments, acquisitions and other strategic alliances. |
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Impairment of long-lived assets or investments. |
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Undetected defects in our products that harm our sales and reputation and adversely affect our manufacturing yields. |
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The availability of adequate and timely supply of electricity and water for our manufacturing facilities. |
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Our ability to comply with existing and future environmental laws and the cost of such compliance. |
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The ability of SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, to make dividends and other payments to SemiLEDs Corporation. |
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Our ability to obtain necessary regulatory approvals to make further investments in Taiwan SemiLEDs. |
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Catastrophic events such as fires, earthquakes, floods, tornados, tsunamis, typhoons, pandemics, including the COVID-19 pandemic, wars, terrorist activities and other similar events, particularly if these events occur at or near our operations, or the operations of our suppliers, contract manufacturers and customers. |
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The effect of the legal system in the People’s Republic of China, or the PRC. |
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Labor shortages, strikes and other disturbances that affect our operations. |
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Deterioration in the relations between the PRC and Taiwan governments. |
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Fluctuations in the exchange rate among the U.S. dollar, the New Taiwan, or NT, dollar, the Japanese Yen and other currencies in which our sales, raw materials and component purchases and capital expenditures are denominated. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have not assumed any obligation to, and you should not expect us to, update or revise these statements because of new information, future events or otherwise.
For more information on the significant risks that could affect the outcome of these forward-looking statements, see Item 1A “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, or the 2021 Annual Report, and those contained in Part II, Item 1A of this Quarterly Report, and other information provided from time to time in our filings with the Securities and Exchange Commission, or the SEC.
The following discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes and other information included elsewhere in this Quarterly Report, in our 2021 Annual Report, and in other filings with the SEC.
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Company Overview
We develop, manufacture and sell light emitting diode (LED) chips and LED components, LED modules and systems. Our products are used for general lighting and specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, germicidal and viricidal devices, LED lighting for horticulture applications, architectural lighting and entertainment lighting.
Utilizing our patented and proprietary technology, our manufacturing process begins by growing upon the surface of a sapphire wafer, or substrate, several very thin separate semiconductive crystalline layers of gallium nitride, or GaN, a process known as epitaxial growth, on top of which a mirror‑like reflective silver layer is then deposited. After the subsequent addition of a copper alloy layer and finally the removal of the sapphire substrate, we further process this multiple‑layered material to create individual vertical LED chips.
We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Taiwan, the United States, the Netherlands, Germany and India. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets. We sell our LED chips to packagers or to distributors, who in turn sell to packagers. Our lighting products customers are primarily original design manufacturers, or ODMs, of lighting products and the end‑users of lighting devices. We also contract other manufacturers to produce for our sale certain LED products, and for certain aspects of our product fabrication, assembly and packaging processes, based on our design and technology requirements and under our quality control specifications and final inspection process.
We have developed advanced capabilities and proprietary know-how in:
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reusing sapphire substrate in subsequent production runs; |
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optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light; |
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employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance; |
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utilizing nanoscale surface engineering to improve usable light extraction; |
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manufacturing extremely small footprint LEDs with optimized yield, ideal for Mini LED applications; |
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developing a LED structure that generally consists of multiple epitaxial layers which are vertically-stacked on top of a copper alloy base; |
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developing low cost Chip Scaled Packaging (CSP) technology; and |
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developing multi-pixel Mini LED packages for commercial displays. |
These technical capabilities enable us to produce LED chips, LED component, LED modules and System products. We believe these capabilities and know-how should also allow us to reduce our manufacturing costs and our dependence on sapphire, a costly raw material used in the production of sapphire-based LED devices.
We were incorporated in the State of Delaware on January 4, 2005. We are a holding company for various wholly and majority owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is our wholly owned operating subsidiary, where a substantial portion of our assets are held and located, where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns an approximately 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantial portion of marketing and sale of LED products, including lighting fixtures and systems, and where most of our employees are based.
Key Factors Affecting Our Financial Condition, Results of Operations and Business
The following are key factors that we believe affect our financial condition, results of operations and business:
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COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the world. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures and adjusted our operational needs. Our workplaces are operating under enhanced measures to ensure the health and safety of our employees, including limiting the visitors coming into our workplace and using videoconferencing for meetings when possible. Our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. The conditions caused by the COVID-19 pandemic have adversely affected our customers’ ability or willingness to purchase our products or services, |
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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 been negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, while operations continued in our locations, some of our non-manufacturing employees work remotely and travel remains limited; which hinders our ability to connect with customers and participate in trade shows. 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. |
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Our ability to raise additional debt funding, 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. In July 2021, we established an at-the-market equity program (“ATM”) that allows us to sell up to $20 million of common stock from time to time. However, we may not be able to obtain 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. |
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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. |
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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 will 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. |
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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 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. The growth of our module products 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 |
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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. |
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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. |
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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 equipment, providing uncompromised reliability and optical output. Our LED components include different sizes and wattage to accommodate different demands in the LED market. |
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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 months ended November 30, 2021 and 2020, sales to our three largest customers, in the aggregate, accounted for 68% and 61% 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 accused products sold before the date of settlement are released under this agreement and our customers and distributors are specifically released. 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 |
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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. |
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Cash position. Our cash and cash equivalents increased to $4.1 million as of November 30, 2021 from $2.7 million as of November 30, 2020, primarily due to the sale of 344,391 shares of common stock for net proceeds of $4.0 million under our ATM program. 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 and minimize our research and development activities associated with chips manufacturing operation. In December 2019, we issued convertible unsecured promissory notes with a principal sum of $2 million, of which, $600 thousand convertible notes were converted into 200 thousand shares of common stock in May 2020. 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. On May 26, 2021 the Notes were extended with the same terms and interest rate for one year and mature on May 30, 2022. As of November 30, 2021 and 2020, the outstanding principal of these notes totaled $1.4 million. |
Critical Accounting Policies and Estimates
We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Item 1 to the Unaudited Consolidated Financial Statements.
Revenue Recognition
The Company has revenue recognition policies for its operating projects that are appropriate to the circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements for our revenue recognition policies.
Write-down of Inventories
The net realized value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realized value is based on current market conditions and historical experience with product sales of similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.
Income taxes
The reliability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.
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 November 30, 2021, the exchange rate was 27.80 NT dollars to one U.S. dollar. On January 7, 2022, the exchange rate was 27.69 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.
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Results of Operations
Three Months Ended November 30, 2021 Compared to the Three Months Ended November 30, 2020
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Three Months Ended November 30, |
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2021 |
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2020 |
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% of |
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% of |
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Change |
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Change |
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$ |
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Revenues |
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$ |
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Revenues |
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$ |
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% |
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(in thousands) |
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LED chips |
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$ |
18 |
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1 |
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% |
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$ |
37 |
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5 |
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% |
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$ |
(19 |
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(51 |
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% |
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LED components |
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1,123 |
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77 |
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% |
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505 |
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70 |
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% |
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618 |
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122 |
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% |
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Lighting products |
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85 |
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6 |
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% |
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169 |
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24 |
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% |
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(84 |
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(50 |
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% |
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Other revenues(1) |
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239 |
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16 |
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% |
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8 |
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1 |
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% |
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231 |
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2,888 |
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% |
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Total revenues, net |
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1,465 |
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100 |
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% |
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719 |
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100 |
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% |
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746 |
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104 |
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% |
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Cost of revenues |
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1,262 |
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86 |
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% |
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741 |
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103 |
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% |
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521 |
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70 |
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% |
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Gross profit (loss) |
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$ |
203 |
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14 |
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% |
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$ |
(22 |
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(3 |
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% |
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$ |
225 |
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1,023 |
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% |
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(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 104% to $1.5 million for the three months ended November 30, 2021 from $719 thousand for the three months ended November 30, 2020. The increase in revenues was caused primarily by a $618 thousand increase in sales of LED components and 231 thousand increase in other revenue offset by a $19 thousand decrease in LED chips and $84 thousand decrease in lighting products.
Revenues attributable to the sales of our LED chips represented 1% and 5% of our revenues for the three months ended November 30, 2021 and 2020, respectively. The decrease in revenues attributable to sales of LED chips was the result of a decrease in the volume of LED chips sold, reflecting 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 77% and 70% of our revenues for the three months ended November 30, 2021 and 2020, respectively. The increase in revenues attributable to sales of LED components was primarily due to more volumes sold.
Revenues attributable to the sales of lighting products represented 6% and 24% of our revenues for the three months ended November 30, 2021 and 2020, respectively. Revenues attributable to the sales of lighting products were lower for the three months ended November 30, 2021 primarily due to less demand of the lighting products sold.
Revenues attributable to other revenues represented 16% and 1% of our revenues for the three months ended November 30, 2021 and 2020, respectively. The increase in revenues attributable to other revenues was primarily due to the non-recurring sale of raw materials in the three months ended November 30, 2021.
Cost of Revenues
Our cost of revenues increased by 70% from $741 thousand for the three months ended November 30, 2020 to $1.3 million for the three months ended November 30, 2021. The increase in cost of revenues was primarily due to the increase in the volume of products sold.
Gross Profit (loss)
Our gross profit (loss) increased from a loss of $22 thousand for the three months ended November 30, 2020 to a profit of $203 thousand for the three months ended November 30, 2021. The increase was a consequence of focusing on profitable products described above.
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Operating Expenses
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Three Months Ended November 30, |
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||||||||||||||
|
|
|
2021 |
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
Change |
|
|
Change |
|
|
|||||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
|
(in thousands) |
|
|
|||||||||||||||||||||||
|
Research and development |
|
$ |
404 |
|
|
|
28 |
|
% |
|
$ |
346 |
|
|
|
48 |
|
% |
|
$ |
58 |
|
|
|
17 |
|
% |
|
Selling, general and administrative |
|
|
777 |
|
|
|
53 |
|
% |
|
|
681 |
|
|
|
95 |
|
% |
|
|
96 |
|
|
|
14 |
|
% |
|
Gain on disposals of long-lived assets |
|
|
— |
|
|
|
— |
|
% |
|
|
(77 |
) |
|
|
(11 |
) |
% |
|
|
77 |
|
|
|
100 |
|
% |
|
Total operating expenses |
|
$ |
1,181 |
|
|
|
81 |
|
% |
|
$ |
950 |
|
|
|
132 |
|
% |
|
$ |
231 |
|
|
|
24 |
|
% |
Research and development. Our research and development expenses were $404 thousand and $346 thousand for the three months ended November 30, 2021 and 2020, respectively. The increase was mainly attributable to a $58 thousand increase in the payroll and engineering experiment materials.
Selling, general and administrative. Our selling, general and administrative expenses increased from $681 thousand for the three months ended November 30, 2020 to $777 thousand for the three months ended November 30, 2021. The increase was mainly attributable to increase in other expenses and professional service expenses.
Gain on disposal of long-lived assets. We recognized $0 and $77 thousand gain on the disposal of long-lived assets for the three months ended November 30, 2021 and 2020, respectively. Due to the excess capacity charges that we have suffered for a 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 in the three months ended November 30, 2020.
Other Income (Expenses)
|
|
|
Three Months Ended November 30, |
|
|
||||||||||||||
|
|
|
2021 |
|
|
|
2020 |
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
(in thousands) |
|
|
|||||||||||||||
|
Interest expenses, net |
|
$ |
(91 |
) |
|
|
(6 |
) |
% |
|
$ |
(92 |
) |
|
|
(13 |
) |
% |
|
Other income, net |
|
|
566 |
|
|
|
39 |
|
% |
|
|
170 |
|
|
|
24 |
|
% |
|
Foreign currency transaction (loss) gain, net |
|
|
(22 |
) |
|
|
(2 |
) |
% |
|
|
187 |
|
|
|
26 |
|
% |
|
Total other income, net |
|
$ |
453 |
|
|
|
31 |
|
% |
|
$ |
265 |
|
|
|
37 |
|
% |
Interest expenses, net. The decrease in interest expenses, net, was primarily due to the impact of a lower exchange rate of NT dollars to U.S. dollars.
Other income, net. Other income, net increased from $170 thousand for the three months ended November 30, 2020 to $566 thousand for the three months ended November 30, 2021 was primarily due to the subsidies from a government jointly developed research project.
Foreign currency transaction gain, net. We recognized a net foreign currency transaction loss of $22 thousand and a gain of $187 thousand for the three months ended November 30, 2021 and 2020, respectively, primarily due to the impact of a higher exchange rate of the U.S. dollar against the NT dollar from bank deposits.
Income Tax Expense. Our effective tax rate is expected to be approximately zero for fiscal 2021 and was zero for fiscal 2020, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
23
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 Loss Attributable to Non-controlling Interests
|
|
|
Three Months Ended November 30, |
|
|
||||||||||||||
|
|
|
2021 |
|
|
|
2020 |
|
|
||||||||||
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
||
|
|
|
$ |
|
|
Revenues |
|
|
|
$ |
|
|
Revenues |
|
|
||||
|
|
(in thousands) |
|
|
|||||||||||||||
|
Net loss attributable to noncontrolling interests |
|
$ |
(7 |
) |
|
|
— |
|
% |
|
$ |
(10 |
) |
|
|
(1 |
) |
% |
We recognized net loss attributable to non-controlling interests of $7 thousand and $10 thousand for the three months ended November 30, 2021 and 2020, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd., held by the remaining non-controlling holders. Non-controlling interests represented 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., for both of November 30, 2021 and 2020, respectively.
Liquidity and Capital Resources
As of November 30, 2021 and August 31, 2021, we had cash and cash equivalents of $4.1 million and $4.8 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.
As of January 7, 2022, 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 $7.5 million and $7.7 million as of November 30, 2021 and August 31, 2021, respectively.
Our NT dollar denominated long-term notes, totaled $3.2 million of both November 30, 2021 and August 31, 2021. 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 $85 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 did not 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 $27 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of November 30, 2021, our outstanding balance on this note payable was approximately $1.8 million. |
|
|
• |
Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $17 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of November 30, 2021, our outstanding balance on this note payable was approximately $1.1 million. |
Property, plant and equipment pledged as collateral for our notes payable were $3.4 million and $3.5 million as of November 30, 2021 and August 31, 2021, respectively.
On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive Officer and our largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to the agreement dated December 15, 2015. We were initially required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively. On January 16, 2021, the maturity date of these loans were extended with same terms and interest rate for one year to January 15, 2022. As of November 30, 2021 and August 31, 2020, these loans totaled $3.2 million, respectively. The loans are secured by a second priority security interest on our headquarters.
24
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 was due on demand by the Holders on and at any time after May 30, 2021 (the “Maturity Date”). The outstanding principal and unpaid accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our common stock. On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and now mature on May 30, 2022. As of November 30, 2021 and August 31, 2020, the outstanding principal of these notes totaled $1.4 million.
We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $518 thousand and $697 thousand during the three months ended November 30, 2021 and 2020, respectively. Net cash used in operating activities for the three months ended November 30, 2021 was $607 thousand. As of November 30, 2021, we had cash and cash equivalents of $4.1 million. We have undertaken actions to decrease losses incurred and implemented cost reduction programs in an effort to transform the Company into a profitable operation. In addition, we are planning to issue additional equity.
On July 6, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, we may offer and sell from time to time through the Agent our common stock having an aggregate offering price of up to $20,000,000 (the “Placement Shares”). Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay a commission to the Agent of 3.0% of the gross proceeds of the sale of the Placement Shares sold under the Agreement and reimburse the Agent for certain expenses. In the fourth quarter of fiscal 2021, we sold 344,391 shares of common stock for gross proceeds of $4.2 million with $125 thousand paid as placement agent fees under our ATM program. We did not sell any shares under the ATM program in the first quarter of fiscal 2022. We expect to resume sales of Placement Shares after the issuance of the first quarter Form 10-Q.
We estimate that our cash requirements to service debt and contractual obligations in fiscal 2022 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program. Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months and beyond. 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):
|
|
|
Three Months Ended November 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net cash (used in) provided by operating activities |
|
$ |
(607 |
) |
|
$ |
88 |
|
|
Net cash (used in) provided by investing activities |
|
$ |
(31 |
) |
|
$ |
30 |
|
|
Net cash used in financing activities |
|
$ |
(130 |
) |
|
$ |
(12 |
) |
Cash Flows Used In Operating Activities
Net cash used in operating activities for the three months ended November 30, 2021 was $607 thousand and net cash provided by operating activities for the three months ended November 30, 2020 was $88 thousand. The cash flows used in operating activities for the three months ended November 30, 2021 was $695 thousand more, primarily due to a decrease in accounts receivable and inventory and an increase in accrued expenses and other current liabilities.
Cash Flows Used In Investing Activities
Net cash used in investing activities for the three months ended November 30, 2021 was $31 thousand primarily for the purchase of machinery and equipment.
25
Net cash provided by investing activities for the three months ended November 30, 2020 was $30 thousand, consisting of $77 thousand in proceeds from sale of machinery and equipment, offset by a $41 thousand in purchases of machinery and equipment and $6 thousand in payments for development of intangible assets.
Cash Flows Used In Financing Activities
Net cash used in financing activities for the three months ended November 30, 2021 was primarily for the repayment of long-term debt, while the three months ended November 30, 2020 was for the acquisition of noncontrolling interests.
Capital Expenditures
We had capital expenditures of $31 thousand and $41 thousand for the three months ended November 30, 2021 and 2020, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future as we expand our business operations and invest in such expansion of our production capacity as we deem appropriate under market conditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our management is continuing to monitor prices and, consistent with the existing contractual commitments, may decrease further our activity level and capital expenditures as appropriate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer, or CEO, and our chief financial officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of November 30, 2021. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based upon the aforementioned evaluation, our CEO and CFO have concluded that, as of November 30, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Due to the complex technology required to compete successfully in the LED industry, participants in our industry are often engaged in significant intellectual property licensing arrangements, negotiations, disputes and litigation. We are directly or indirectly involved from time to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise.
There were no material pending legal proceedings or claims as of November 30, 2021.
Item 1A. Risk Factors
Except as set forth below, there are no material changes related to risk factors from the risk factors described in Item 1A “Risk Factors” in Part I of our 2021 Annual Report.
The market prices and trading volume of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our securities to incur substantial losses.
The market prices and trading volume of our shares of common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our common stock to incur substantial losses. For example, during fiscal 2022 to date, the market price of our common stock has fluctuated from a high of $10.70 per share on September 2, 2021 to a low of $6.17 per share on November 26, 2021. During fiscal 2022 to date, daily trading volume ranged from approximately 25,500 to 833,400 shares.
We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last. Under the circumstances, we caution you against investing in our common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.
Extreme fluctuations in the market price of our common stock may be the result of strong and substantially increased retail investor interest, including on social media and online forums. The market volatility and trading patterns we have experienced create several risks for investors, including the following:
|
|
• |
the market price of our common stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that we continue to face; |
|
|
• |
factors in the public trading market for our common stock include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other trading factors; |
|
|
• |
our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility, and to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations; |
|
|
• |
to the extent volatility in our common stock is caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our common stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated; and |
|
|
• |
if the market price of our common stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses. |
27
We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or trading volume of our common stock, including:
|
|
• |
overall performance of the equity markets and the economy as a whole; |
|
|
• |
changes in the financial projections we may provide to the public or our failure to meet these projections; |
|
|
• |
in our growth rate relative to that of our competitors; |
|
|
• |
changes in the anticipated future size or growth rate of our addressable markets; |
|
|
• |
announcements of new products and services, technological updates or enhancements, or of acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments, by us or by our competitors; |
|
|
• |
additions or departures of board members, management or key personnel; |
|
|
• |
failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; |
|
|
• |
rumors and market speculation involving us or other companies in our industry; |
|
|
• |
research or reports that securities analysts or others publish about us or our business; |
|
|
• |
new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
|
|
• |
lawsuits threatened or filed against us or investigations by governmental authorities; |
|
|
• |
other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; |
|
|
• |
health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases; and |
|
|
• |
sales of shares of our common stock by us or our stockholders. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Repurchases
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
28
Item 5. Other Information
None.
Item 6. Exhibits
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
SEMILEDS CORPORATION |
||
|
|
|
|
|
(Registrant) |
||
|
|
|
|
|
|
|
|
|
Dated: |
|
January 12, 2022 |
|
By: |
|
/s/ Christopher Lee |
|
|
|
|
|
Name: |
|
Christopher Lee |
|
|
|
|
|
Title: |
|
Chief Financial Officer |
|
|
|
|
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
30