LEDS [SemiLEDs] 10-Q: Table of Contents SEMILEDS CORPORATION FORM 10-Q for

Ticker: LEDS, Company: SemiLEDs Corp, Type: 10-Q, Date: 2019-04-12, XBRL Interactive Financials
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Table of Contents SEMILEDS CORPORATION FORM 10-Q for the Quarter Ended February 28, 2018 Page No. Part I. Financial Information Item 1. Financial Statements 1 Unaudited Condensed Consolidated Balance Sheets as of February 28, 2019 and August 31, 2018 1 Unaudited Condensed Consolidated Statements of Operations for the three and six months ended February 28, 2019 and 2018 2 Unaudited



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Table of Contents

 

SEMILEDS CORPORATION

FORM 10-Q for the Quarter Ended February 28, 2018

INDEX

 

 

 

Page No.

 

 

 

 

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of February 28, 2019 and August 31, 2018

1

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended February 28, 2019 and 2018

2

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended February 28, 2019 and 2018

3

 

 

 

 

Unaudited Condensed Consolidated Statement of Changes in Equity for the six months ended February 28, 2019

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2019 and 2018

5

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

29

 

 

 

Signatures

30

 

 

 


Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

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

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,635

 

 

$

3,421

 

Accounts receivable (including related parties), net of allowance for doubtful accounts of $480 and $477 as of February 28, 2019 and August 31, 2018, respectively

 

 

736

 

 

 

282

 

Inventories

 

 

2,073

 

 

 

1,818

 

Prepaid expenses and other current assets

 

 

355

 

 

 

340

 

Total current assets

 

 

4,799

 

 

 

5,861

 

Property, plant and equipment, net

 

 

6,448

 

 

 

7,213

 

Intangible assets, net

 

 

93

 

 

 

98

 

Investments in unconsolidated entities

 

 

912

 

 

 

914

 

Other assets

 

 

176

 

 

 

164

 

TOTAL ASSETS

 

$

12,428

 

 

$

14,250

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current installments of long-term debt

 

$

337

 

 

$

335

 

Accounts payable

 

 

973

 

 

 

894

 

Advance receipt toward the convertible note

 

 

500

 

 

 

500

 

Accrued expenses and other current liabilities

 

 

2,149

 

 

 

5,505

 

Total current liabilities

 

 

3,959

 

 

 

7,234

 

Long-term debt, excluding current installments

 

 

5,040

 

 

 

2,013

 

Total liabilities

 

 

8,999

 

 

 

9,247

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

 

SemiLEDs stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0000056 par value—7,500 shares authorized; 3,589 shares and 3,559 shares issued and outstanding as of February 28, 2019 and August 31, 2018, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

175,745

 

 

 

175,527

 

Accumulated other comprehensive income

 

 

3,714

 

 

 

3,727

 

Accumulated deficit

 

 

(176,076

)

 

 

(174,251

)

Total SemiLEDs stockholders' equity

 

 

3,383

 

 

 

5,003

 

Noncontrolling interests

 

 

46

 

 

 

 

Total equity

 

 

3,429

 

 

 

5,003

 

TOTAL LIABILITIES AND EQUITY

 

$

12,428

 

 

$

14,250

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

February 28, 2019

 

 

February 28, 2018

 

 

February 28, 2019

 

 

February 28, 2018

 

Revenues, net

 

$

1,630

 

 

$

1,543

 

 

$

2,602

 

 

$

3,546

 

Cost of revenues

 

 

1,628

 

 

 

1,987

 

 

 

2,819

 

 

 

3,938

 

Gross profit (loss)

 

 

2

 

 

 

(444

)

 

 

(217

)

 

 

(392

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

298

 

 

 

223

 

 

 

632

 

 

 

407

 

Selling, general and administrative

 

 

619

 

 

 

781

 

 

 

1,376

 

 

 

1,514

 

Gain on disposals of long-lived assets, net

 

 

 

 

 

(209

)

 

 

(288

)

 

 

(209

)

Total operating expenses

 

 

917

 

 

 

795

 

 

 

1,720

 

 

 

1,712

 

Loss from operations

 

 

(915

)

 

 

(1,239

)

 

 

(1,937

)

 

 

(2,104

)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expenses, net

 

 

(36

)

 

 

(7

)

 

 

(41

)

 

 

(15

)

Other income (losses), net

 

 

(126

)

 

 

49

 

 

 

(46

)

 

 

547

 

Foreign currency transaction gain, net

 

 

233

 

 

 

65

 

 

 

197

 

 

 

48

 

Total other income, net

 

 

71

 

 

 

107

 

 

 

110

 

 

 

580

 

Loss before income taxes

 

 

(844

)

 

 

(1,132

)

 

 

(1,827

)

 

 

(1,524

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(844

)

 

 

(1,132

)

 

 

(1,827

)

 

 

(1,524

)

Less: Net gain (loss) attributable to noncontrolling interests

 

 

3

 

 

 

 

 

 

(2

)

 

 

 

Net loss attributable to SemiLEDs stockholders

 

$

(847

)

 

$

(1,132

)

 

$

(1,825

)

 

$

(1,524

)

Net loss per share attributable to SemiLEDs stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.24

)

 

$

(0.32

)

 

$

(0.51

)

 

$

(0.43

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

3,579

 

 

 

3,545

 

 

 

3,569

 

 

 

3,545

 

 

See notes to unaudited condensed consolidated financial statements.

 

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SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands of U.S. dollars)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

February 28, 2019

 

 

February 28, 2018

 

 

February 28, 2019

 

 

February 28, 2018

 

Net loss

 

$

(844

)

 

$

(1,132

)

 

$

(1,827

)

 

$

(1,524

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(17

)

 

 

109

 

 

 

(13

)

 

 

135

 

Comprehensive loss

 

$

(861

)

 

$

(1,023

)

 

$

(1,840

)

 

$

(1,389

)

Comprehensive loss attributable to noncontrolling interests

 

$

4

 

 

$

 

 

$

(2

)

 

$

 

Comprehensive loss attributable to SemiLEDs stockholders

 

$

(865

)

 

$

(1,023

)

 

$

(1,838

)

 

$

(1,389

)

 

See notes to unaudited condensed consolidated financial statements.

 

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SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Equity

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

SemiLEDs

 

 

Non-

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Controlling

 

 

Total

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

 

Interests

 

 

Equity

 

 

BALANCE—September 1, 2018

 

 

3,559

 

 

$

 

 

$

175,527

 

 

$

3,727

 

 

$

(174,251

)

 

$

5,003

 

 

$

 

 

$

5,003

 

 

Issuance of common stock under equity incentive plans

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

90

 

 

 

 

 

 

 

 

 

90

 

 

 

 

 

 

90

 

 

Common stock issued by SBDI*

 

 

 

 

 

 

 

 

128

 

 

 

 

 

 

 

 

 

128

 

 

 

48

 

 

 

176

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,825

)

 

 

(1,825

)

 

 

(2

)

 

 

(1,827

)

 

BALANCE—February 28, 2019

 

 

3,589

 

 

$

 

 

$

175,745

 

 

$

3,714

 

 

$

(176,076

)

 

$

3,383

 

 

$

46

 

 

$

3,429

 

 

 

See notes to unaudited condensed consolidated financial statements.

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

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SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

 

 

 

Six Months Ended

 

 

 

February 28, 2019

 

 

February 28, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,827

)

 

$

(1,524

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

545

 

 

 

520

 

Stock-based compensation expense

 

 

90

 

 

 

48

 

Provisions for inventory write-downs

 

 

312

 

 

 

413

 

Gain on disposals of long-lived assets, net

 

 

(288

)

 

 

(209

)

Changes in :

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(455

)

 

 

811

 

Inventories

 

 

(559

)

 

 

103

 

Prepaid expenses and other

 

 

(26

)

 

 

61

 

Accounts payable

 

 

391

 

 

 

(191

)

Accrued expenses and other current liabilities

 

 

(161

)

 

 

130

 

Net cash provided by (used in) operating activities

 

 

(1,978

)

 

 

162

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(64

)

 

 

(131

)

Proceeds from sales of property, plant and equipment

 

 

512

 

 

 

327

 

Return the received-in-advance

 

 

(3,000

)

 

 

 

Payments for development of intangible assets

 

 

(2

)

 

 

(1

)

Proceeds from patents assignment

 

 

 

 

 

1

 

Net cash provided by (used in) investing activities

 

 

(2,554

)

 

 

196

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

3,200

 

 

 

 

Repayments of long-term debt

 

 

(167

)

 

 

(173

)

Acquisition of noncontrolling interests

 

 

(1

)

 

 

 

Net cash provided by (used in) financing activities

 

 

3,032

 

 

 

(173

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(286

)

 

 

90

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(1,786

)

 

 

275

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

3,421

 

 

 

3,582

 

CASH AND CASH EQUIVALENTS—End of period

 

$

1,635

 

 

$

3,857

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accrual related to property, plant and equipment

 

$

13

 

 

$

114

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

 

SEMILEDS CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Business

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

As of February 28, 2019, SemiLEDs had four wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a substantial portion of marketing and sale of LED components, and where most of the Company’s employees are based.

SemiLEDs’ common stock began trading on the NASDAQ Global Select Market under the symbol “LEDS” on December 8, 2010 and was transferred to the NASDAQ Capital Market effective November 5, 2015 where it continues to trade under the same symbol.

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 26, 2018. The unaudited condensed consolidated balance sheet as of August 31, 2018 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of February 28, 2019, the statements of operations and comprehensive loss for the three and six months ended February 28, 2019 and 2018, the statement of changes in equity for the six months ended February 28, 2019, and the statements of cash flows for the six months ended February 28, 2019 and 2018. The results for the three or six months ended February 28, 2019 are not necessarily indicative of the results to be expected for the year ending August 31, 2019.

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

The Company suffered losses from operations of $3.7 million and $4.3 million, and net cash used in operating activities of $1.2 million and $2.1 million for the years ended August 31, 2018 and 2017, respectively. Gross loss on product sales was $435 thousand for the year ended August 31, 2018, and gross profit was $82 thousand for the year ended August 31, 2017. Loss from operations for the three and six months ended February 28, 2019 were $915 thousand and $1.9 million, respectively. Net cash used in operating activities for the six months ended February 28, 2019 was $2.0 million. Further, at February 28, 2019, the Company’s cash and cash equivalents was down to $1.6 million. These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.

 

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

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

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

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

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

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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 collectibility 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 few years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future.

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

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

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The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. As of February 28, 2019 and August 31, 2018, cash and cash equivalents of the Company consisted of the following (in thousands):

 

 

 

February 28,

 

 

August 31,

 

Cash and Cash Equivalents  by Location

 

2019

 

 

2018

 

United States;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

$

53

 

 

$

194

 

Taiwan;

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

364

 

 

 

2,220

 

Denominated in New Taiwan dollars

 

 

28

 

 

 

55

 

Denominated in other currencies

 

 

1,142

 

 

 

910

 

China (including Hong Kong);

 

 

 

 

 

 

 

 

Denominated in U.S. dollars

 

 

4

 

 

 

7

 

Denominated in Renminbi

 

 

36

 

 

 

29

 

Denominated in H.K. dollars

 

 

8

 

 

 

6

 

Total cash and cash equivalents

 

$

1,635

 

 

$

3,421

 

 

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 collectibility of its customer accounts. Management regularly reviews the allowance by considering certain factors, such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.

Net revenues generated from sales to the top ten customers represented 88% and 82% of the Company’s total net revenues for the three and six months ended February 28, 2019 respectively, and 73% and 64% of the Company’s net revenues for the three and six months ended February 28, 2018, respectively.

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States, and China (including Hong Kong). Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 72% and 70% of the Company’s net revenues for the three and six months ended February 28, 2019, respectively, and 68% and 74% of the Company’s net revenues for the three and six months ended February 28, 2018, respectively.

Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715. As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in SBDI was increased from zero to 3.31%. In December 2018, Taiwan SemiLEDs purchased 3,000 common shares of SBDI from non-controlling interests. As of February 28 2019, noncontrolling interest in SBDI was down to 3.29%.     

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement. The amendments in this Update modify the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

3. Balance Sheet Components

Inventories

Inventories as of February 28, 2019 and August 31, 2018 consisted of the following (in thousands):

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Raw materials

 

$

473

 

 

$

577

 

Work in process

 

 

744

 

 

 

505

 

Finished goods

 

 

856

 

 

 

736

 

Total

 

$

2,073

 

 

$

1,818

 

 

Inventory write-downs to estimated net realizable values were $140 thousand and $312 thousand for the three and six months ended February 28, 2019, respectively, and $207 thousand and $413 thousand for the three and six months ended February 28, 2018, respectively.

Property, Plant and Equipment

Property, plant and equipment as of February 28, 2019 and August 31, 2018 consisted of the following (in thousands):

 

 

 

February 28,

 

 

August 31,

 

 

 

2019

 

 

2018

 

Buildings and improvements

 

$

13,497

 

 

$

13,558

 

Machinery and equipment

 

 

38,702

 

 

 

39,391

 

Leasehold improvements

 

 

150

 

 

 

150

 

Other equipment

 

 

2,304

 

 

 

2,312

 

Total property, plant and equipment

 

 

54,653

 

 

 

55,411

 

Less: Accumulated depreciation and amortization

 

 

(48,217

)

 

 

(48,487

)

Construction in progress

 

 

12

 

 

 

289

 

Property, plant and equipment, net

 

$

6,448

 

 

$

7,213

 

 

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Intangible Assets

Intangible assets as of February 28, 2019 and August 31, 2018 consisted of the following (in thousands):

 

 

 

February 28, 2019

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

543

 

 

$

450

 

 

$

93

 

Acquired technology

 

 

5

 

 

 

493

 

 

 

493

 

 

 

 

Total

 

 

 

 

 

$

1,036

 

 

$

943

 

 

$

93

 

 

 

 

August 31, 2018

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Gross

 

 

 

 

 

Net

 

 

 

Amortization

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Period (Years)

 

 

Amount

 

 

Amortization

 

 

Amount

 

Patents and trademarks

 

 

15

 

 

$

544

 

 

$

446

 

 

$

98

 

Acquired technology

 

 

5

 

 

 

494

 

 

 

494

 

 

 

 

Total

 

 

 

 

 

$

1,038

 

 

$

940

 

 

$

98

 

 

  

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of February 28, 2019 and August 31, 2018 consisted of the following (in thousands, except percentages):

 

 

 

February 28, 2019

 

 

August 31, 2018

 

 

 

 

Percentage

 

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

Ownership

 

 

Amount

 

 

Ownership

 

 

Amount

 

 

Equity method investments: