SemiLEDs Corp 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the audited consolidated financial statements and the notes included elsewhere in this Annual Report on Form 10‑K, as well as the Risk Factors contained in Part I, Item 1A of this Annual Report on Form 10‑K, and other information provided from time to time in our other filings with the SEC. Overview We develop, manufacture and sell light emitting diode (LED) chips, LED components, LED modules and systems. Our products are used for general specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications, architectural lighting and entertainment lighting. 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 Netherlands, Taiwan, the United States, and Japan. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets. 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 are a holding company for various wholly 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 and where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97.37% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantial portion of marketing and sale of LED products, and where most of our employees are based. Key Factors Affecting Our Financial Condition, Results of Operations and Business The following are key factors that we believe affect our financial condition, results of operations and business: • 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 debt when necessary for our operations. However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us, or at all. The raising of additional debt funding by us, if required and available, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict our operations. The sale of additional equity securities, if required and available, could result in dilution to our stockholders. • Our ability to source chips from other chip suppliers. Our reliance on our chip suppliers exposes us to a number of significant risks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed production capacity or product supply. If our chip suppliers are unable or unwilling to continue to supply our chips at requested quality, quantity, performance and costs, or in a timely manner, our business and reputation could be seriously harmed. Our inability to procure chips from other chip suppliers at the desired quality, quantity, performance and cost might result in unforeseen manufacturing and operations problems. In such events, our customer relationships, business, financial condition and results of operations would be adversely affected. • Industry growth and demand for products and applications using LEDs. The overall adoption of LED lighting devices to replace traditional lighting sources is expected to influence the growth and demand for LED chips and component products and impact our financial performance. We believe the potential market for LED lighting will continue to expand. LEDs for efficient generation of UV light are also starting to gain attention for various medical, germicidal and industrial applications. Since a substantial portion of our LED chips, LED components and our lighting products are used by end‑users in general lighting applications and specialty industrial applications such as UV curing, medical/cosmetic, counterfeit detection, horticulture, architectural lighting and entertainment lighting the adoption of LEDs into these applications 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. • 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 27 Table of Contents 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. • 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 the market for some time. However, as we expand and diversify our product offerings and with varying average selling prices, or execute new business initiatives, a change in the mix of products that we sell in any given period may increase volatility in our revenues and gross margin from period to period. • Our ability to reduce cost to offset lower average selling prices. Competitors may reduce average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost of production of our products. However, such cost savings currently have limited impact on our gross profit, as we currently suffer from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. While we intend to focus on managing our costs and expenses, over the long term we expect to be required to invest substantially in LED component products development and production equipment if we are to grow. • Our ability to continue to innovate. As part of our growth strategy, we plan to continue to be innovative in product design, to deliver new products and to improve our manufacturing efficiencies. Our continued success depends on our ability to develop and introduce new, technologically advanced and lower cost products, such as more efficient, better performance LED component products. If we are unable to introduce new products that are commercially viable and meet rapidly evolving customer requirements or keep pace with evolving technological standards and market developments or are otherwise unable to execute our product innovation strategy effectively, we may not be able to take advantage of market opportunities as they arise, execute our business plan or be able to compete effectively. To differentiate ourselves from other LED package manufacturers, we are putting more resources towards module and system design. Along with our technical know-how in the chip and package sectors, we are able to further integrate electrical, thermal and mechanical manufacturing resources to provide customers with one-stop system services. Services include design, prototyping, OEM and ODM. Key markets that we intend to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging light engines, horticultural lighting and high standard commercial lighting. The modules are designed for various printing, curing, and PCB exposure industrial equipment, providing uncompromised reliability and optical output. Our LED components include different sizes and wattage to accommodate different demands in the LED market. 28 Table of Contents • 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, and Japan. 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 years ended August 31, 2024 and 2023, sales to our three largest customers, in the aggregate, accounted for 61% and 53% of our revenues, respectively. • 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. However, other third parties may also assert infringement claims against our customers with respect to our products, or our customers’ products that incorporate our technologies or products. Any such legal action or the threat of legal action against us, or our customers, could impair such customers’ continued demand for our products. This could prevent us from growing or even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our financial condition and results of operations. • Cash position. Our cash and cash equivalents were $1.7 million and $2.6 million as of August 31, 2024 and 2023, respectively. 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. Based on our current financial projections and assuming our outstanding notes are converted or extended, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months. Components of Consolidated Statements of Operations Revenues, net Our core products are LED components, LED modules and systems, which are the most important part of our business, as well as LED chips and lighting products. Our revenues are affected by sales volumes of our LED chips, LED components and lighting products and our average selling prices for such products. In addition, as we expand and diversify our product offerings and with varying average selling prices, any change in the mix of products that we sell in any given period may affect our total revenues. For example, average selling prices for our LED components are generally higher than for LED chips and the average selling prices for our lighting products are higher than for our LED chips and LED components. We recognize revenue on sales of our products when persuasive evidence of an arrangement exists, the price is fixed or determinable, ownership and risk of loss has transferred and collection of the sales proceeds is probable. We obtain written purchase authorizations from our customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. We typically consider delivery to have occurred at the time of shipment, unless otherwise agreed in the applicable sales terms, as this is generally when title and risk of loss for the product passes to the customer. 29 Table of Contents Our larger customers typically provide us with non‑binding rolling forecasts of their requirements for the coming one to three months; however, recent global economic uncertainty and weakness has led to reduced spending in our target markets and made it difficult for our customers and us to accurately forecast and plan future business activities. Our customers may increase, decrease, cancel or delay purchase orders already in place, with no material consequences to the customer. As a result, we may face increased inventories and our backlog may decline as a result of any economic downturn or material change in market conditions or economic outlook. We price our products in accordance with prevailing market conditions, taking into account the technical specifications of the product being sold, the order volume, the strength and history of our relationship with the customer, our inventory levels and our capacity utilization. When average selling prices drop, as they did in recent years, inventory write‑downs to net realizable values may also result. Our customers consist primarily of packagers, ODMs and end‑customers. Our revenues attributable to our ten largest customers accounted for 91% of our revenues for the years ended August 31, 2024 and 2023. Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States and Japan. Net revenues generated from these countries, in the aggregate, accounted for 91% and 89% of our net revenues for the years ended August 31, 2024 and 2023, respectively. We expect that our revenues will continue to be substantially derived from these countries for the foreseeable future. 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. Our revenues are presented net of estimated sales returns and discounts. We estimate sales returns and discounts based on our historical discounts and return rates and our assessment of future conditions. Cost of Revenues Our cost of revenues consists primarily of cost of materials, depreciation expenses, manufacturing overhead costs, direct labor costs and utilities cost, all related to the manufacture of our LED products. Materials include raw materials, other materials such as gases and chemicals, consumables, and assembly materials. Because our products are manufactured based on customers’ orders and specifications and we purchase materials and supplies to support such orders, we generally purchase our materials at spot prices in the marketplace and do not maintain long‑term supply contracts. We purchase materials from several suppliers. Our procurement policy is to select only a small number of qualified vendors who demonstrate quality of materials and reliability on delivery time. We are subject to variations in the cost of our materials and consumables from period to period. Moreover, because we consume a significant amount of electricity in our manufacturing process, any fluctuations in electricity costs will have an impact on our cost of revenues. We also use contract manufacturers to produce for our 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. Direct labor costs consist of salary (including stock‑based compensation expenses), bonus, training, retirement and other costs related to our employees engaged in the manufacture of our products. Manufacturing overhead costs consist primarily of salaries, bonuses and other benefits (including stock‑based compensation expenses) for our administrative personnel allocated to manufacturing functions, repairs and maintenance costs for equipment and machinery maintenance costs and lease expenses. Our cost of revenues also includes excess capacity charges as a result of the underutilization of our manufacturing capacity and inventory valuation adjustments to write down our inventories to their estimated net realizable values as a result of declines in their average selling prices. Operating Expenses Research and development. Our research and development expenses, which are expensed as incurred, consist primarily of expenses related to employee salaries, bonuses and other benefits (including stock‑based compensation expenses) for our research and development personnel, engineering charges related to product design, purchases of materials and supplies, repairs and maintenance and depreciation related expenses. Selling, general and administrative. Selling, general and administrative expenses consist primarily of salaries, bonuses and other benefits (including stock‑based compensation expenses) for our administrative, sales and marketing personnel, expenses for professional services, which include fees and expenses for accounting, legal, tax and valuation services, amortization and depreciation related expenses, marketing related travel, lease expenses, entertainment expenses, allowance for doubtful accounts and general office related expenses, as well as compensation to our directors. We expect our selling, general and administrative expenses to decrease as we continue to implement cost reduction initiatives, such as spending controls, and as we continue to streamline our operations. Gain on disposal of long ‑ lived assets, net. We recognized a gain of $49 thousand and zero on the disposal of long-lived assets for the years ended August 31, 2024 and 2023, respectively. Due to the excess capacity charges that we have suffered for many years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of a certain level of our idle equipment. 30 Table of Contents Other Income (Expense) Interest expenses, net. Interest expenses, net consist of interest income and interest expense. Interest income represents interest earned from our cash and cash equivalents deposited with commercial banks in the United States and Taiwan. As of August 31, 2024 and 2023, we had cash and cash equivalents of $1.7 million and $2.6 million, respectively, which consisted of time deposits with initial maturity of greater than three months but less than one year. Interest expense consists primarily of interest on our convertible notes and long‑term borrowings and/or short‑term lines of credit with certain banks in Taiwan as well as with our Chairman and largest stockholder. We had long‑term debt totaling $3.7 million and $6.4 million as of August 31, 2024 and 2023, respectively. Other income, net. Other income for the years ended August 31, 2024 and 2023 primarily consists of rental income from the lease of spare space in our Hsinchu building. Foreign currency transaction gain (loss), net. We recognized foreign currency transaction loss of $13 thousand and $52 thousand for the years ended August 31, 2024 and 2023, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payable held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries. Provision for Income Taxes United States tax treatment. We and one of our subsidiaries, Helios Crew, are United States corporations and are therefore required to file federal income tax returns with the Internal Revenue Service as well as with certain applicable state tax authorities. As our operations in the United States have been minimal, we have not to date recorded nor paid any significant federal or state corporate income tax. We have investments in controlled foreign corporations and affiliates, which under Subpart F of the United States Internal Revenue Code, or Subpart F, may under certain circumstances subject our investments in controlled foreign corporations and affiliates to taxation in the United States. Subpart F provides that United States corporations may be required to include in their income certain undistributed earnings of the foreign corporations and affiliates as though such earnings had been distributed currently. Subpart F applies only to United States shareholders (such as us) who hold an interest in a foreign corporation and affiliates that meet the definition of a “controlled foreign corporation.” Under Section 957(a) of the United States Internal Revenue Code, a “controlled foreign corporation” means any foreign corporation if more than 50% of either (i) the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) the total value of the stock of such corporation, is owned by “United States Shareholders” on any day during the foreign corporation’s taxable year. Subpart F does not apply, however, to the income of a controlled foreign corporation generated from the sale of goods that are manufactured in its country of incorporation. Also, any income attributable to a controlled foreign corporation and its affiliates that is not engaged in a United States trade or business is generally not subject to United States taxation until its earnings are distributed, or the stock of the foreign corporation is disposed. All of our products are manufactured in Taiwan by Taiwan SemiLEDs, our wholly owned foreign subsidiary. Because Taiwan SemiLEDs conducts its manufacturing activities in Taiwan, the income or loss of Taiwan SemiLEDs is included in our consolidated financial statements, but is not considered taxable income for United States taxation purposes pursuant to Section 954(d)(1)(A) of the United States Internal Revenue Code. This generally enables a United States taxpayer, such as us, to indefinitely defer United States taxation on the profits earned by its controlled foreign corporations and affiliates by retaining the earnings in such entities. We do not currently have any plans to repatriate any of our retained earnings from any of our controlled foreign subsidiaries or affiliates and we do not currently have any plans to declare or pay any dividends from such entities. 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. Our provisional estimate is that no tax will be due under this provision. The current presidential administration in the United States modified the rules governing taxation of controlled foreign corporations and affiliates and any such changes were not expected to result in our having to pay applicable taxes in the United States on income earned by such entities. 31 Table of Contents Taiwan tax treatment. The corporate income tax rate in Taiwan is 20% for the year ended August 31, 2024 and 2023. Corporate income taxes payable, however, are subject to an alternative minimum tax. The Taiwan government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006. Under the AMT Act, a taxpayer must pay the higher of its taxable income multiplied by the corporate income tax rate or the alternative minimum tax, or AMT. In calculating the AMT amount, the taxpayer must include income that would otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain exemptions or tax credits that have been grandfathered for the purposes of calculating AMT. The AMT rate for business entities is 12%. In addition to the statutory corporate taxes payable, or the AMT, corporate taxpayers in Taiwan are subject to an additional tax on distributable retained earnings (after statutory legal reserves) to the extent that such earnings are not distributed prior to the end of the subsequent year. This undistributed earnings surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prior year is approved by a company’s stockholders and is payable in the subsequent year. The surtax rate has been reduced from 10% to 5%, starting applicable to the undistributed retained earnings of the year ended August 31, 2019. Because most of our subsidiaries in Taiwan incurred losses before income tax for both our fiscal year 2024 and 2023, we do not expect to pay such taxes on undistributed earnings. In addition, in accordance with the Taiwan Income Tax Act, dividends distributed by companies incorporated in accordance with the Taiwan Company Act shall be deemed as income derived from sources in Taiwan and income taxes shall be levied on the shareholders receiving such dividends. In the event that a Taiwan incorporated company distributes dividends to its foreign shareholders, it will be required to withhold tax payable by the foreign shareholders at the time of payment at a rate of 20% or a lower tax treaty rate if applicable. Therefore, dividends received from our subsidiaries in Taiwan, if any, will be subjected to withholding tax under Taiwan law. As of August 31, 2024, we had total foreign net operating loss carryforwards of $37 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan, which will expire in various amounts in future years. Pursuant to the Taiwan Income Tax Act, as amended in January 2009, net operating loss carryforwards can be carried forward for a period of ten years. Income Taxes We are subject to income taxes in both the United States and foreign jurisdictions. Significant management judgment is required in determining our income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Our deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of operations become deductible expenses under applicable income tax laws or when loss or credit carryforwards are utilized. Realization of these deferred tax assets is dependent on our ability to earn future taxable income against which these deductions, losses and credits can be utilized. Therefore, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not, a valuation allowance is established. These estimates and judgments about our future taxable income are based on assumptions that are consistent with our future plans. A net cumulative loss in recent years is a significant piece of negative evidence in determining the realization of the benefits of deferred tax assets. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We have provided a full valuation allowance on our deferred tax assets because our cumulative losses in recent years causes us to believe that realization of our deferred tax assets is not more likely than not. Inventory Valuation Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value. We determine cost using a weighted average. For work in process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of our production overhead. At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence, and we write down our inventory to its estimated net realizable value based upon assumptions about future demand and market conditions. Our estimation of future demand is primarily based on the backlog of customer orders as of the balance sheet date and projections based on our actual historical sales trends and customers’ demand forecast. We evaluated our inventories on an individual item basis. For our finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Market for raw materials is based on replacement cost. We also write down items that are considered obsolete based upon changes in customer demand, manufacturing process changes or new product introductions that may eliminate demand for the product. Once written down, inventories are carried at this lower amount until sold or scrapped. Provisions for inventory write‑downs are included in our costs of revenues in the consolidated statements of operations. There is significant judgment involved with the estimates of excess and obsolescence and if our estimates regarding customer demand or other factors are inaccurate or actual market conditions or technological changes are less favorable than those estimated by management, additional future inventory write‑downs may be required that could adversely affect our operating results. Inventory write‑downs totaled $411 thousand and $627 thousand for the years ended August 31, 2024 and 2023, respectively. A majority of our inventory write‑downs during the years ended August 31, 2024 and 2023 was related to finished goods and work in process, primarily as a result of obsolescence. 32 Table of Contents Useful Life of Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on property, plant and equipment is calculated using the straight‑line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight‑line method over the shorter of the lease term or the estimated useful life of the asset. We make estimates of the useful life of our property, plant and equipment in order to determine depreciation expense to be recorded each reporting period based on similar assets purchased in the past and our historical experience with such similar assets, as well anticipated technological or market changes. The estimated useful life of our property, plant and equipment directly impacts the timing of when our depreciation expense is recognized. There is significant judgment involved with estimating the useful lives of our property, plant and equipment, and a change in the estimates of such useful lives could cause our depreciation expense in future periods to increase significantly. Impairment of Long ‑ lived Assets In assessing the recoverability of our long‑lived assets, we first, determine whether indicators of impairment are present. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product, changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review. Second, if we determine that indicators of impairment are present, we determine whether the estimated undiscounted cash flows expected to be generated from the use and eventual disposal of the potentially impaired assets (or asset group) are less than the carrying amount. Third, if such estimated undiscounted cash flows do not exceed the carrying amount, we estimate the fair value of the asset (or asset group) and recognize an impairment charge if the carrying amount is greater than the fair value of the asset (or asset group). Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third‑party independent appraisers, as considered necessary. We group our long‑lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated, or an asset group. We determined that we have two asset groups for impairment testing purposes, one of which is associated with the manufacture and sale of LED chips and LED components, and the other is associated with our Ning Xiang subsidiary, which is engaged in the manufacture and sale of lighting fixtures and systems. The estimates of future cash flows involve subjective judgments and represent our best estimate at each date of assessment about future developments, determined based on reasonable and supportable assumptions and projections taking into account past experience, as well as market data obtained from independent external sources. The use of different assumptions could increase or decrease the estimates of expected future cash flows and consequently, increase or decrease the related impairment charges. For example, if the average selling prices continue to decline beyond the assumptions used in our forecast of future cash flows expected to be generated by the asset groups, or if demand for our LED products does not grow as we anticipate, or if utilization rates are lower than anticipated, it is reasonably possible that the estimate of expected future cash flows may change in the near term resulting in the need to adjust our determination of fair value. For the year ended August 31, 2024, lower than projected sales of our LED products and lower market capitalization compared to our consolidated net book values again indicated potential impairment of our long‑lived assets. We projected undiscounted future cash flows to analyze potential impairment, based upon a variety of factors, including primarily our continuous efforts to suppress gross loss from chip sales and the cooperation model discussed with other parties, considering all known trends and uncertainties. The significant assumptions used in determining the estimated undiscounted cash flows for the LED chips and components asset group were revised to reflect the new operation status. Based on the assessment, the expected undiscounted cash flows to be generated by this asset group exceeded its carrying value. Consequently, no asset impairment was recognized during the year ended August 31, 2024. 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 Note 2 to the Consolidated Financial Statements. Revenue Recognition The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, 33 Table of Contents based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant. Refer to Note 2 to the Consolidated Financial Statements for our revenue recognition policies. Accounts Receivable The allowance for doubtful accounts is based on management’s assessment of the collectability of customer accounts. Management regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. No bad debt expenses were recognized during the years ended August 31, 2024 and 2023. Write-down of Inventories The Company writes down excess and obsolete inventory to its estimated net realizable value. The net realized value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realized value is based on current market conditions and historical experience with product sales of similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value. For finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write downs are included in cost of revenues in the consolidated statements of operations. Once written down, inventories are carried at this lower cost basis until sold or scrapped. Inventory write‑downs to estimated net realizable values for the years ended August 31, 2024 and 2023 were $411 thousand and $627 thousand, respectively. Exchange Rate Information We are a Delaware corporation and, under SEC requirements, must report our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. At the same time, our subsidiaries use the local currency as their functional currency. For example, the functional currency for Taiwan SemiLEDs is the NT dollar. The assets and liabilities of the subsidiaries are, therefore, translated into U.S. dollars at exchange rates in effect at each balance sheet date, and income and expense accounts are translated at average exchange rates during the period. The resulting translation adjustments are recorded to a separate component of accumulated other comprehensive income (loss) within equity. Any gains and losses from transactions denominated in currencies other than their functional currencies are recognized in the consolidated statements of operations as a separate component of other income (expense). Due to exchange rate fluctuations, such translated amounts may vary from quarter to quarter even in circumstances where such amounts have not materially changed when denominated in their functional currencies. The translations from NT dollars to U.S. dollars were made at the exchange rates set forth in the statistical release of the Bank of Taiwan. On August 31, 2024 the exchange rate was 31.94 NT dollars to one U.S. dollar. On November 20, 2024, the exchange rate was 32.5 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. 34 Table of Contents Results of Operations The following table sets forth, for the periods presented, our consolidated statements of operations information. In the table below and throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following consolidated statement of operations data for the years ended August 31, 2024 and 2023 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10‑K. The information contained in the table below should be read in conjunction with our consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10‑K. The historical results presented below are not necessarily indicative of the results that may be expected for any future period: Years Ended August 31, 2024 2023 % of % of $ Revenues $ Revenues (in thousands) Consolidated Statement of Operations Data: Revenues, net $ 5,183 100 % $ 5,979 100 % Cost of revenues 4,130 80 % 4,972 83 % Gross profit 1,053 20 % 1,007 17 % Operating expenses: Research and development 1,160 22 % 1,353 23 % Selling, general and administrative 2,891 56 % 3,058 51 % Gain on disposals of long-lived assets, net (49 ) (1 ) % - — % Total operating expenses 4,002 77 % 4,411 74 % Loss from operations (2,949 ) (57 ) % (3,404 ) (57 ) % Other income (expenses): Investments loss (3 ) — % (1 ) — % Interest expenses, net (247 ) (5 ) % (287 ) (5 ) % Other income, net 1,181 23 % 1,054 18 % Foreign currency transaction loss, net (13 ) — % (52 ) (1 ) % Total other income, net 918 18 % 714 12 % Loss before income taxes (2,031 ) (39 ) % (2,690 ) (45 ) % Income tax expense — — — — Net loss (2,031 ) (39 ) % (2,690 ) (45 ) % Less: Net income attributable to noncontrolling interests 5 — % — — % Net loss attributable to SemiLEDs stockholders $ (2,036 ) (39 ) % $ (2,690 ) (45 ) % Year Ended August 31, 2024 Compared to Year Ended August 31, 2023 Years Ended August 31, 2024 2023 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) LED chips $ 93 2 % $ 111 2 % $ (18 ) (16 ) % LED components 2,656 51 % 3,345 56 % (689 ) (21 ) % Lighting products 212 4 % 321 5 % (109 ) (34 ) % Other revenues (1) 2,222 43 % 2,202 37 % 20 1 % Total revenues, net 5,183 100 % 5,979 100 % (796 ) (13 ) % Cost of revenues 4,130 80 % 4,972 83 % (842 ) (17 ) % Gross profit $ 1,053 20 % $ 1,007 17 % $ 46 5 % (1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services and the lease of manufacturing as well as research and development facilities. 35 Table of Contents Revenues, net Our revenues decreased by 13% from $6.0 million for the year ended August 31, 2023 to $5.2 million for the year ended August 31, 2024. The decrease in revenues was driven primarily by a $689 thousand decrease in sales of LED components, a $109 thousand decrease in sales of LED lighting products and a $18 thousand decrease in sales of LED chips, offset by a $20 thousand increase in other revenues. Revenues attributable to the sales of our LED components were $2.7 million and $3.3 million, representing 51% and 56% of our revenues for the years ended August 31, 2024 and 2023, respectively. The decrease in sales of LED components was primarily due to less volumes sold. Revenues attributable to the sales of lighting products were $212 thousand and $321 thousand, representing 4% and 5% of our revenues for the years ended August 31, 2024 and 2023, respectively. The decrease in sales of lighting products was mainly due to less demand for LED lighting products. Revenues attributable to the sales of our LED chips were $93 thousand and $111 thousand, representing 2% of our revenues for both the years ended August 31, 2024 and 2023. The slight decrease was primarily due to a lower volumes of LED chips sold in the fiscal year ended August 31, 2024. Revenues attributable to other revenues represented 43% and 37% of our revenues for the years ended August 31, 2024 and 2023, respectively. The increase in other revenues was primarily due to the provision of services and the sale of raw materials. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products that have been available in the market for some time and to focus on the profitable products. Cost of Revenues Our cost of revenues decreased by 17% from $5.0 million for the year ended August 31, 2023 to $4.1 million for the year ended August 31, 2024. The decrease in cost of revenues was primarily due to a decrease in the volume of products sold. Inventory write‑downs totaled $411 thousand and $627 thousand for the years ended August 31, 2024 and 2023, respectively. A majority of our inventory write-downs during the years ended August 31, 2024 and 2023 was related to finished goods and work in process, primarily as a result of obsolescence. Gross Profit Our gross profit increased from $1.0 million for the year ended August 31, 2023 to $1.1 million for the year ended August 31, 2024. Our gross margin percentage was 20% for the year ended August 31, 2024, as compared to 17% for the year ended August 31, 2023 as a result of an increase in other revenues. Operating Expenses Years Ended August 31, 2024 2023 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) Research and development $ 1,160 22 % $ 1,353 23 % $ (193 ) (14 ) % Selling, general and administrative 2,891 56 % 3,058 51 % (167 ) (5 ) % Gain on disposals of long-lived assets, net (49 ) (1 ) % — — % (49 ) — % Total operating expenses $ 4,002 77 % $ 4,411 74 % $ (409 ) (9 ) % Research and development. Our research and development expenses were $1.2 million and $1.4 million for the year ended August 31, 2024 and 2023, respectively. The decrease was primarily due to a $124 thousand decrease in payroll expense and a $64 thousand decrease in materials and supplies. Selling, general and administrative. Our selling, general and administrative expenses were $2.9 million and $3.1 million for the years ended August 31, 2024 and 2023, respectively. The decrease was mainly attributable to a $116 thousand decrease in payroll expense, a $15 thousand decrease in insurance expenses, a $10 thousand decrease in repair and maintenance expense and a $8 thousand decrease in employee benefit. 36 Table of Contents Gain on disposal of long ‑ lived assets, net. We recognized a gain of $49 thousand and zero on the disposal of long-lived assets for the years ended August 31, 2024 and 2023, respectively. Due to the excess capacity charges that we have suffered for many years, and considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment. Other Income (Expenses) Years Ended August 31, 2024 2023 % of % of $ Revenues $ Revenues (in thousands) Investment loss from unconsolidated entities $ (3 ) — % $ (1 ) — % Interest expenses, net (247 ) (5 ) % (287 ) (5 ) % Other income, net 1,181 23 % 1,054 18 % Foreign currency transaction loss, net (13 ) — % (52 ) (1 ) % Total other income, net $ 918 18 % $ 714 12 % Investment loss from unconsolidated entities. Investment loss from unconsolidated entities increased from $1 thousand for the year ended August 31, 2023 to $3 thousand for the year ended August 31, 2024, primarily due to the increased losses of the unconsolidated entities. Interest expenses, net. Interest expenses, net primarily consisted of accrued interest payments on convertible notes, NT dollar denominated long-term notes and $2.4 million of loans with our Chairman and Chief Executive Officer and our largest shareholder. The decrease in interest expense, net was primarily due to lower outstanding debt. Other income, net. Other income, net increased from $1.1 million for the year ended August 31, 2023 to $1.2 million for the year ended August 31, 2024. Foreign currency transaction loss, net. We recognized a net foreign currency transaction loss of $13 thousand and a net foreign currency transaction loss of $52 thousand for the years ended August 31, 2024 and 2023, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries. Income Tax Expense (Benefit) Our effective tax rate is expected to be approximately zero for both fiscal year 2024 and 2023, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss. As of August 31, 2024 and 2023, we recognized full valuation allowances of $13.6 million and $23.8 million, respectively, on our net deferred tax assets to reflect uncertainties related to our ability to utilize these deferred tax assets, which consist primarily of certain net operating loss carryforwards and foreign investment loss. We considered both positive and negative evidence, including forecasts of future taxable income and our cumulative loss position, and continued to report a full valuation allowance against our deferred tax assets as of both August 31, 2024 and 2023. We continue to review all available positive and negative evidence in each jurisdiction and our valuation allowance may need to be adjusted in the future as a result of this ongoing review. Given the magnitude of our valuation allowance, future adjustments to this allowance based on actual results could result in a significant adjustment to our results of operations. As of August 31, 2024, we had U.S. federal net operating loss (“NOLs”) carryforwards of $4.3 million, which will expire in various amounts beginning in our fiscal 2025. NOLs generated in tax years prior to August 31, 2018 can be carried forward for twenty years, whereas NOLs generated after August 31, 2018 can be carried forward indefinitely. Utilization of these net operating losses carryforwards may be subject to an annual limitation due to applicable provisions of the Internal Revenue Code and local tax laws if we have experienced an “ownership change” in the past, or if an ownership change occurs in the future. 37 Table of Contents As of August 31, 2024, we had total foreign net operating loss carryforwards of $37 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan. Pursuant to the Taiwan Income TaxAct, as amended in January 2009, net operating losses carryforwards can be carried forward for a period of ten years. Net Income Attributable to Noncontrolling Interests Years Ended August 31, 2024 2023 % of % of $ Revenues $ Revenues (in thousands) Net Income attributable to noncontrolling interests $ 5 — % $ — — % We recognized $5 thousand net income attributable to non-controlling interests and zero net loss attributable to non-controlling interests for the year ended August 31, 2024 and 2023, respectively, which was attributable to the share of the net income of Taiwan Bandaoti Zhaoming Co., Ltd. held by the non-controlling holders. Non-controlling interests represented 2.63% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd. for both the years ended August 31, 2024 and 2023. Liquidity and Capital Resources This section includes a discussion and analysis of our cash requirements, contingencies, sources and uses of cash, operations, working capital and long-term assets and liabilities. Contingencies We have several operating leases with third parties, primarily for land, plant and office spaces in Taiwan, including cancellable and noncancelable leases that expire at various dates between December 2024 and December 2040. See Note 6, "Commitments and Contingencies" in the notes to our audited consolidated financial statements in this Form 10-K. Sources and Uses of Cash As of August 31, 2024 and 2023, we had cash and cash equivalents of $1.7 million and $2.6 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds. We require cash to fund our operating expenses, working capital requirements and service our debts, including principal and interest. Long-term assets and liabilities Our long-term assets consist primarily of property, plant and equipment, intangible assets, operating lease assets and investments in unconsolidated entities. Our manufacturing rationalization plans have included efforts to utilize our existing manufacturing assets and supply arrangements more efficiently. We believe that near-term access to additional manufacturing capacity, should it be required, could be readily obtained on reasonable terms through manufacturing agreements with third parties. We will continue to look for opportunities to make strategic manufacturing in the future for additional capacity. Our long-term liabilities consist primarily long-term debt and operating lease liabilities. Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured promissory notes, and loans from our Chairman and our largest shareholder, totaled $3.7 million and $6.4 million as of August 31, 2024 and 2023, respectively. Our NT dollar denominated long-term notes, totaled $1.3 million and $1.8 million as of August 31, 2024 and 2023, respectively. These long-term notes consisted of two loans which we entered into on July 5, 2019, with aggregate amounts of $3.2 million (NT$100 million). The first loan originally for $2.0 million (NT$62 million) has an annual floating interest rate equal to the NTD base lending rate plus 0.64% (or 2.415% currently), and was exclusively used to repay the existing loans. The second loan originally for $1.2 million (NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 2.795% currently) and is available for operating capital. These loans are secured by an $78 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building. • Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $25 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2024, our outstanding balance on this note payable was approximately $820 thousand. 38 Table of Contents • Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $15 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2024, our outstanding balance on this note payable was approximately $503 thousand . Property, plant and equipment pledged as collateral for our notes payable were $2.0 million and $2.3 million as of August 31, 2024 and 2023, respectively. On January 8, 2019, we entered into loan agreements with each of the Chairman and Chief Executive Officer and the largest shareholder of the Company, with aggregate amounts of $1.7 million and $1.5 million, respectively, and an annual interest rate of 8%. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to the agreement dated December 15, 2015. We were initially required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively. On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022, and on January 14, 2022, the maturity date of these loans was extended again with same terms and interest rate for one more year to January 15, 2023. On January 13, 2023, the maturity date of these loans was further extended with same terms and interest rate for one year to January 15, 2024. On January 7, 2024, J.R. Simplot Company assigned and transferred all of its right, title and interest in and to the loan agreement to Simplot Taiwan Inc., in accordance with and subject to the terms and conditions of the loan agreement. On January 7, 2024, we entered into the Fourth Amendment to the loan agreements with each of Simplot Taiwan Inc. and Trung Doan (each, a “Fourth Amendment”). The Fourth Amendment with Simplot Taiwan Inc. (i) extended the maturity date of its loan agreement to January 15, 2025, and (ii) upon mutual agreement of we and Simplot Taiwan Inc., permitted us to repay any principal amount or accrued interest, in an amount not to exceed $400,000, by issuing shares of our common stock in the name of Simplot Taiwan Inc. as partial repayment of the loan agreement at a price per share equal to the closing price of our common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement with Simplot Taiwan Inc. remained the same. On January 7, 2024, we issued 305,343 shares of our common stock at a price of $1.31 per share to repay $400,000 of accrued interest on the Loan Agreement with Simplot Taiwan Inc. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended. The Fourth Amendment to the loan agreement with Trung Doan amends the loan agreement’s maturity date with same terms and interest rate to January 15, 2025. All other terms and conditions of the loan agreement with Trung Doan remained the same. On February 9, 2024, we and Trung Doan entered into the Fifth Amendment to the loan agreement (the “Fifth Amendment”). The Fifth Amendment, upon the mutual agreement of we and Trung Doan, permitted us to repay any principal amount or accrued interest, in an amount not to exceed $800,000, by issuing shares of our common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of our common stock immediately preceding the business day of the payment notice date. On February 9, 2024, we repaid $800,000 of loan principal by delivering 629,921 shares of our common stock to Mr. Doan, based on the closing price of $1.27 per share on February 8, 2024. The shares of common stock were issued on February 9, 2024 in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. On July 3, 2024, we and Trung Doan entered into the Sixth Amendment to the loan agreement (the “Sixth Amendment”). The Sixth Amendment amended the loan agreement to permit, upon the mutual agreement of we and Trung Doan, us to repay a portion of the principal amount or accrued interest under the loan agreement, by issuing shares of our common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of our common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement, as amended by the Sixth Amendment, remained the same. As of August 31, 2024 and 2023, these loans totaled $2.4 million and $3.2 million, respectively. The loans are secured by a second priority security interest on our headquarters building. On November 25, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest is due on demand by the Holders on and at any time after May 30, 2021. On February 7, 2020, J.R. Simplot Company assigned all of its right, title and interest in the Notes to Simplot Taiwan Inc. The outstanding principal and unpaid accrued interest of the Notes may be converted into shares of our common stock at a conversion price of $3.00 per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $300,000 of the Notes into 100,000 shares of our common stock. On May 26, 2021, the Notes were extended with the 39 Table of Contents same terms and interest rate for one year and a maturity date of May 30, 2022. On May 26, 2022, the Notes were second extended with the same terms and interest rate for one year and a maturity date of May 30, 2023. On June 6, 2023, we entered into the Third Amendment to the Notes (the “Third Amendments”) to amend the Notes to (i) extend the maturity date from May 30, 2023 to May 30, 2024, and (ii) change the conversion price from $3.00 to $2.046 per share. All other terms and conditions of the Notes remained the same. After the close of market on January 5, 2024, we entered into the Fourth Amendment to the Notes (the “Note Fourth Amendments”) to amend the Notes to (i) convert the total principal and accrued interest on the Notes to our common stock to be issued in the names of the Holders, and (ii) change the conversion price of the Notes from $2.046 per share to the closing price immediately preceding the signing of the Note Fourth Amendments, or $1.31 per share. All other terms and conditions of the Notes remained the same. On January 5, 2024, the Holders converted the total principal and accrued interest of the Notes, in an aggregate amount of $1,608,848, to 1,228,128 shares of our common stock at a conversion price of $1.31 per share. As of August 31, 2024 and 2023, the outstanding principal of these notes totaled zero and $1.4 million, respectively. Working Capital We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $2.0 million and $2.7 million during the years ended August 31, 2024 and 2023. Net cash used in operating activities for the year ended August 31, 2024 was $365 thousand. As of August 31, 2024, we had cash and cash equivalents of $1.7 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 to our stockholders. We estimate that our cash requirements to service debt and contractual obligations in fiscal 2025 is approximately $3.4 million, which we expect to fund through the issuance of additional equity to repay principal and accrued interest and through loan extensions. Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months and beyond. The remaining loans with each of our Chairman and Chief Executive Officer and our largest shareholder are expected to be extended upon maturity. However, there can be no assurances that our planned activities will be successful in raising additional capital, reducing losses and preserving cash. If we are not able to generate positive cash flows from operations, we may need to consider alternative financing sources and seek additional funds through public or private equity financings or from other sources, or refinance our indebtedness, to support our working capital requirements or for other purposes. There can be no assurance that additional debt or equity financing will be available to us or that, if available, such financing will be available on terms favorable to us. We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial conditions, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our common stock. Cash Flows The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10‑K (in thousands): Years Ended August 31, 2024 2023 Net cash used in operating activities $ (365 ) $ (984 ) Net cash used in investing activities $ (101 ) $ (321 ) Net cash used in financing activities $ (449 ) $ (456 ) Cash Flows Used in Operating Activities Net cash used in operating activities for the years ended August 31, 2024 and 2023 was $365 thousand and $984 thousand, respectively. The decrease in cash flows used in operating activities was primary attributable to a decrease in net loss of $659 thousand and a decrease in inventory of $1.0 million, partially offset by an increase in depreciation and amortization of $396 thousand, stock-based compensation expense of $236 thousand and accounts payable of $447 thousand. 40 Table of Contents Cash Flows Used in Investing Activities Net cash used in investing activities for the years ended August 31, 2024 and 2023 was $101 thousand and $321 thousand, respectively. The decrease in cash flows used in investing activities was primary attributable to a decrease in cash used in the purchase of machinery and equipment of $78 thousand and a decrease in cash used in proceeds from sales of property, plant and equipment of $51 thousand. Cash Flows Used in Financing Activities Net cash used in financing activities for the years ended August 31, 2024 and 2023 was $449 thousand and $456 thousand, respectively. The decrease in cash flows used in financing activities was primary attributable to a decrease in cash used in repayment of long-term debt of $7 thousand. Capital Expenditures We had capital expenditures of $123 thousand and $200 thousand for the years ended August 31, 2024 and 2023, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future as we expand our business operations and invest in such expansion of our production capacity as we deem appropriate under market conditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our management continues to monitor prices and, consistent with its existing contractual commitments, may decrease its activity level and capital expenditures as appropriate. Accounting Pronouncements Not Yet Adopted Please refer to ‘Summary of Significant Accounting Policies Recent Accounting Pronouncements’ for more details. Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Not applicable. Item 8. Financial Statemen ts and Supplementary Data Pages 41-42 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 2851 ) Page 43 CONSOLIDATED BALANCE SHEETS AS OF AUGUST 31, 2024 AND 2023 Page 44 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 2024 AND 2023 Page 45 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED AUGUST 31, 2024 AND 2023 Page 46 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED AUGUST 31, 2024 AND 2023 Page 47 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2024 AND 202 3 Pages 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41 Table of Contents A udit • T ax • C onsulting • F inancial A dvisory Registered with Public Company Accounting Oversight Board (PCAOB) REPO RT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the board of directors of SemiLEDs Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SemiLEDs Corporation and its subsidiaries (the “Company”) as of August 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with the U.S. generally accepted accounting principles. Consideration of the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company incurred recurring losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description As described in Note 2 to the consolidated financial statements, the Company’s revenue is derived from the delivery of its products. The sale of products by the Company is considered complete when the products are delivered at that time the ownership and risk of loss have been transferred to the customer. 42 Table of Contents The Company considers the contracts with its customer contain one performance obligation, and the Company is entitled to the consideration when performance obligation is satisfied at a point in time. The amount of revenue to be recognized is determined by the contracts between the Company and its customer. The Company recognizes revenue when the product is delivered. The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by management in identifying and evaluating the performance obligation. Auditor judgement is involved in performing our audit procedures to evaluate whether the timing and amount of revenue recognition was appropriately stated. How the Critical Audit Matter Will Be Addressed in the Audit Our audit procedures over determining the timing and amount of revenue recognition involved, among others, evaluation of management’s assessment in regard to the identification of performance obligation of revenue. We selected customer agreements and performed the following procedures: - Evaluated the terms and conditions of each selected contract and the appropriateness of the accounting treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluated whether management’s conclusions were appropriate. - Tested the accuracy of management’s recognition of revenue for the performance obligation. /s/ KCCW Accountancy Corp. We have served as the Company’s auditor since 2019. Diamond Bar, California November 26, 2024 KCCW Accountancy Corp. 3333 South Brea Canyon Rd. #206, Diamond Bar, CA 91765, USA Tel: +1 909 348 7228 ● Fax: +1 909 895 4155 ● info@kccwcpa.com 43 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS (In thousands of U.S. dollars and shares, except par value) August 31, 2024 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,671 $ 2,572 Restricted cash and cash equivalents 78 78 Accounts receivable (including related parties), net of allowance for doubtful accounts of $ 173 as of both August 31, 2024 and 2023) 416 793 Inventories, net 3,574 4,022 Prepaid expenses and other current assets 223 129 Total current assets 5,962 7,594 Property, plant and equipment, net 2,798 3,233 Operating lease right of use assets 1,091 1,371 Intangible assets, net 90 97 Investments in unconsolidated entities 969 974 Other assets 228 186 TOTAL ASSETS $ 11,138 $ 13,455 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current installments of long-term debt $ 2,854 $ 5,042 Accounts payable 137 436 Accrued expenses and other current liabilities 2,936 2,711 Other payable to related parties 1,001 1,374 Operating lease liabilities, current portion 94 139 Total current liabilities 7,022 9,702 Long-term debt, excluding current installments 870 1,327 Operating lease liabilities, less current portion 997 1,232 Total liabilities 8,889 12,261 Commitments and contingencies (Note 6) EQUITY: SemiLEDs stockholders’ equity Common stock, $ 0.0000056 par value— 7,500 shares authorized; 7,212 shares and 4,941 shares issued and outstanding as of August 31, 2024 and 2023, respectively — — Additional paid-in capital 187,337 184,246 Accumulated other comprehensive income 3,545 3,550 Accumulated deficit ( 188,681 ) ( 186,645 ) Total SemiLEDs stockholders’ equity 2,201 1,151 Noncontrolling interests 48 43 Total equity 2,249 1,194 TOTAL LIABILITIES AND EQUITY $ 11,138 $ 13,455 See notes to consolidated financial statements. 44 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLID ATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars and shares, except per share data) Years Ended August 31, 2024 2023 Revenues, net $ 5,183 $ 5,979 Cost of revenues 4,130 4,972 Gross profit 1,053 1,007 Operating expenses: Research and development 1,160 1,353 Selling, general and administrative 2,891 3,058 Gain on disposals of long-lived assets, net ( 49 ) — Total operating expenses 4,002 4,411 Loss from operations ( 2,949 ) ( 3,404 ) Other income (expenses): Investments loss ( 3 ) ( 1 ) Interest expenses, net ( 247 ) ( 287 ) Other income, net 1,181 1,054 Foreign currency transaction loss, net ( 13 ) ( 52 ) Total other income, net 918 714 Loss before income taxes ( 2,031 ) ( 2,690 ) Income tax expense — — Net loss ( 2,031 ) ( 2,690 ) Less: Net income attributable to noncontrolling interests 5 — Net loss attributable to SemiLEDs stockholders $ ( 2,036 ) $ ( 2,690 ) Net loss per share attributable to SemiLEDs stockholders: Basic and diluted $ ( 0.32 ) $ ( 0.55 ) Shares used in computing net loss per share attributable to SemiLEDs stockholders: Basic and diluted 6,320 4,881 See notes to consolidated financial statements. 45 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATE D STATEMENTS OF COMPREHENSIVE LOSS (In thousands of U.S. dollars) Years Ended August 31, 2024 2023 Net loss $ ( 2,031 ) $ ( 2,690 ) Other comprehensive loss, net of tax: Foreign currency translation adjustments, net of tax of $ 0 for both periods ( 5 ) ( 149 ) Comprehensive loss ( 2,036 ) ( 2,839 ) Comprehensive income (loss) attributable to noncontrolling interests 5 ( 2 ) Comprehensive loss attributable to SemiLEDs stockholders $ ( 2,041 ) $ ( 2,837 ) See notes to consolidated financial statements. 46 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT S OF CHANGES IN EQUITY (In thousands of U.S. dollars and shares) Accumulated Total Additional Other SemiLEDs Non- Common Stock Paid-in Comprehensive Accumulated Stockholders’ Controlling Total Shares Amount Capital Income Deficit Equity Interests Equity BALANCE—September 1, 2022 4,832 $ — $ 183,711 $ 3,697 $ ( 183,955 ) $ 3,453 $ 45 $ 3,498 Issuance of common stock under equity incentive plans 109 — — — — — — — Stock-based compensation — — 518 — — 518 — 518 Convertible notes equity component — — 17 — — 17 — 17 Comprehensive loss — Other comprehensive loss — — — ( 147 ) — ( 147 ) ( 2 ) ( 149 ) Net loss — — — — ( 2,690 ) ( 2,690 ) — ( 2,690 ) BALANCE—August 31, 2023 4,941 — 184,246 3,550 ( 186,645 ) 1,151 43 1,194 Issuance of common stock under equity incentive plans 108 — — — — — — — Stock-based compensation — — 282 — — 282 — 282 Conversion of convertible notes payable to common stock 1,228 — 1,609 — — 1,609 — 1,609 Issuance of common stock to repay long-term loan 935 — 1,200 — — 1,200 — 1,200 Comprehensive loss Other comprehensive loss — — — ( 5 ) — ( 5 ) — ( 5 ) Net (loss) income — — — — ( 2,036 ) ( 2,036 ) 5 ( 2,031 ) BALANCE—August 31, 2024 7,212 $ — $ 187,337 $ 3,545 $ ( 188,681 ) $ 2,201 $ 48 $ 2,249 See notes to consolidated financial statements. 47 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS (In thousands of U.S. dollars) Years Ended August 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 2,031 ) $ ( 2,690 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 612 1,003 Stock-based compensation expense 282 518 Provisions for inventory write-downs 411 627 Loss on disposal of patents — 3 Loss from unconsolidated entities 3 — Gain on disposals of long-lived assets, net ( 49 ) — Changes in : Accounts receivable 460 ( 147 ) Inventories 28 ( 1,008 ) Prepaid expenses and other assets 14 155 Accounts payable ( 289 ) 157 Accrued expenses and other current liabilities 194 398 Net cash used in operating activities ( 365 ) ( 984 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 123 ) ( 200 ) Proceeds from sales of property, plant and equipment 51 — Payments to acquire equity method investments — ( 93 ) Payments for development of intangible assets ( 29 ) ( 28 ) Net cash used in investing activities ( 101 ) ( 321 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt ( 449 ) ( 456 ) Net cash used in financing activities ( 449 ) ( 456 ) Changes in cash balance included in deconsolidated subsidiaries Effect of exchange rate changes on cash and cash equivalents 14 50 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 901 ) ( 1,711 ) CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of year 2,741 4,452 CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—End of year $ 1,840 $ 2,741 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 288 $ 371 Cash paid for income taxes $ — $ — NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible notes payable to common stock $ 1,609 $ — Issuance of common stock to repay long-term loan $ 1,200 $ — See notes to consolidated financial statements. 48 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES NOT ES TO 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, LED modules and systems, as well as LED chips and lighting products. LED components, modules and systems have become the most important part of its business. A portion of the Company’s business c onsists of the sale of contract manufactured LED products. The Company’s customers are concentrated in a few select markets, including the United States, Japan, Taiwan and Netherlands. As of August 31, 2024, SemiLEDs had two wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97.37 % equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, 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 trades on the NASDAQ Capital Market under the symbol “LEDS”. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation — The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Going Concern — The accompanying 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 has suffered losses from operations of $ 2.9 million and $ 3.4 million, and used net cash in operating activities of $ 365 thousand and $ 984 thousand for the years ended August 31, 2024 and 2023, respectively. These facts and conditions have raised substantial doubt about the Company’s ability to continue as a going concern, even though gross profit on product sales was $ 1.1 million for the year ended August 31, 2024 compared to $ 1.0 million for the year ended August 31, 2023. On August 31, 2024, the Company’s cash and cash equivalents decreased to $ 1.7 million mainly due to operating losses. 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 o bligations as they become due for a reasonable period of time, and allow the development of its core business. The plan includes: • Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing on product enhancement and developing its LED product into many other applications or devices. • Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, 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 potential equity offerings, sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities. 49 Table of Contents 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 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 consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation. On September 1, 2018, the Company adopted ASC 825-10, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended. Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value. 50 Table of Contents Use of Estimates — The preparation of 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 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. 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. Cash accounts at each institution are insured by the Federal Deposit Insurance Corporation in the U.S.A or Central Deposit Insurance Corporation in Taiwan up to certain limits. At times, such deposits may be in excess of the insurance limit. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 . As of August 31, 2024 and 2023, the Company had no cash in excess of FDIC insured limits. The Company maintains cash in state-owned banks in Taiwan. In Taiwan, the insurance coverage of each bank is NTD$ 3,000,000 (approximately USD$ 94,000 ). As of August 31, 2024 and 2023, the Company had $ 1,268 thousand and $ 2,168 thousand cash in excess of the insured amount, respectively. The Company has not experienced any losses in such accounts. As of August 31, 2024 and 2023, cash and cash equivalents of the Company consisted of the following (in thousands): August 31, Cash and Cash Equivalents by Location 2024 2023 United States; Denominated in U.S. dollars $ 187 $ 190 Taiwan; Denominated in U.S. dollars 1,357 2,192 Denominated in New Taiwan dollars 82 174 Denominated in other currencies 45 16 Total cash and cash equivalents $ 1,671 $ 2,572 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. 51 Table of Contents Customers that accounted for 10% or more of the Company’s total net accounts receivable as of August 31, 2024 and 2023 consist of the following: August 31, Customers 2024 2023 Customer A 36 % 14 % Customer B 18 % 12 % Customer C 16 % 10 % Customer D — 45 % The customers accounted for 10% or more of the Company’s total net revenues for the years ended August 31, 2024 and 2023, as follows (in thousands, except percentages): Years Ended August 31, 2024 2023 % of % of Customers Amount Revenues Amount Revenues Customer A $ 1,621 31 % $ 968 16 % Customer B 919 18 % 1,222 20 % Customer C 598 12 % 1,007 17 % Customer D 503 10 % 212 4 % Customer E 495 10 % 578 9 % Customer F 101 2 % 881 15 % Cash and Cash Equivalents — The Company considers all highly liquid investment instruments purchased with initial maturities of three months or less to be cash equivalents. As of August 31, 2024 and 2023, cash and cash equivalents of the Company consist of the following (in thousands): August 31, Cash and Cash Equivalents 2024 2023 Cash; Cash and demand deposits $ 1,671 $ 2,572 Total cash and cash equivalents $ 1,671 $ 2,572 Restricted Cash Equivalents — Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of August 31, 2024 and 2023, the Company’s restricted cash equivalents at current portion amounted $ 78 thousand. As of August 31, 2024 and 2023, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $ 91 thousand. Foreign Currency — The Company’s subsidiaries use the local currency as their functional currency. The asset s and liabilities of the subsidiaries are, therefore, translated into the U.S. dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive income (loss) within equity. Income and expense accounts are translated at average exchange rates during the period. Any gains and losses from transactions denominated in foreign currencies are recognized in the consolidated statements of operations as a separate component of other income (expense). Accounts Receivable — Accounts receivable (including related parties with zero net book value as of August 31, 2024 and 2023, respectively) are recorded at invoiced amounts, net of allowances for doubtful accounts, and do not bear interest. The allowance for doubtful accounts is based on management’s assessment of the collectability of customer acc ounts. Management regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. No bad debt expenses was recognized during both the years ended August 31, 2024 and 2023. 52 Table of Contents Inventories — Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value. Cost is determined using a weighted average. For work in process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Company’s production overhead. The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions about future demand and market conditions. For finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write‑downs are included in cost of revenues in the consolidated statements of operations. Once written down, inventories are carried at this lower cost basis until sold or scrapped. Property, Plant and Equipment — Property, plant and equipment are stated at cost less accumulated depreciation, amortization and impairment. Depreciation on property, plant and equipment is calculated using the straight‑line method over the estimated useful lives, less estimated salvage values of the assets. Leasehold improvements are amortized using the straight‑line method over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives of property, plant and equipment are as follows: Buildings and improvements 5 to 20 years Machinery and equipment 1 to 10 years Leasehold improvements 2 to 15 years Other equipment 2 to 6 years Major Maintenance Activities — The Company incurs maintenance costs on its major equipment. Repair and maintenance costs are expensed as incurred. Intangible Assets — Intangible assets consist of patents, trademarks and acquired technology. Intangible assets are initially recognized at their respective acquisition costs. All of the Company’s intangible assets have been determined to have finite useful lives and are, therefore, amortized using the straight‑line method over their estimated useful lives: Patents and trademarks 5 to 25 years Acquired technology 5 years Impairment of Long ‑ Lived Assets — Management evaluates the Company’s long‑lived assets, excluding goodwill, that consist of property, plant and equipment and intangible assets, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying amount of the asset over the estimated fair value of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third‑party independent appraisers, as considered necessary. No impairment charge was recognized in the years ended August 31, 2024 and 2023. Recovery of Investments in Unconsolidated Entities — Management evaluates the recoverability of the carrying amount of the Company’s equity investments accounted for using the equity method and cost method when there is an indication of potential impairment. If the estimated realizable value of an equity investment falls below its carrying amount and management determines that this shortfall is other‑than‑temporary, the carrying amount of such investment is written down to its estimated realizable value. In determining whether a decline in value is other‑than‑temporary, management considers the length of time and the extent to which such value has been less than the carrying amount, the financial condition and prospects of the investee, and the Company’s ability and intent to retain the equity investment for a period of time sufficient to allow for any anticipated recovery in value. No impairment charge was recognized in the years ended August 31, 2024 and 2023. Income Taxes — The Company accounts for income taxes under the asset and liability method. As part of the process of preparing the consolidated financial statements, the Company estimates its income taxes in each of the jurisdictions in which it operates. The Company estimates actual current tax expense together with assessing temporary differences resulting from differing accounting treatment for items such as accruals and allowances that are not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities which are included in the Company’s consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s consolidated statements of operations become deductible expenses under applicable income tax laws or when operating loss or tax credit carryforwards are utilized. Accordingly, realization of the deferred tax assets 53 Table of Contents is dependent on the Company’s ability to earn future taxable income against which these deductions, losses and credits can be utilized. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the Company’s deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period the change in the tax law was enacted. Management assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and, to the extent management believes that recovery is not more likely than not, a valuation allowance is established. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Stock ‑ based Compensation — Compensation costs related to employee stock options and restricted stock units are based on the fair value of the options and stock units on the date of grant, net of estimated forfeitures. The Company determines the grant date fair value of the options using the Black‑Scholes option‑pricing model. The related stock‑based compensation expense is generally recognized on a straight‑line basis over the period in which an employee is required to provide service in exchange for the options and stock units, or the vesting period of the respective options and stock units. Research and Development Costs — Research and development costs are expensed as incurred. Research and development costs are presented as a separate line item in the consolidated statements of operatio ns. Advertising Costs — Advertising costs are expensed as incurred. Advertising costs totaled $ 3 thousand and $ 2 thousand for the years ended August 31, 2024 and 2023, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. Segment Reporting — The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions, allocating resources and assessing performance as the source for determining the Company’s reportable segments. During the years ended August 31, 2024 and 2023, the Chief Executive Officer has been identified as the chief operating de cision maker. The Company’s chief operating decision maker regularly reviews consolidated assets and consolidated operating results prepared under U.S. GAAP for the enterprise as a whole when making decisions about allocating resources and assessing performance of the Company. Consequently, management has determined that the Company does not have any operating segments as defined in the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 280‑10‑50‑1, “Segment Reporting.” Shipping and Handling Costs — The Company includes costs from shipping and handling within cost of revenues in the period in which they are incurred. Net Income (Loss) Per Share of SemiLEDs Common Stock — Basic net income (loss) per share is computed by dividing net income (loss) attributable to SemiLEDs stockholders by the weighted average number of shares of common stock outstanding during the period. Net income (loss) attributable to SemiLEDs stockholders is determined by allocating undistributed earnings as if all of the earnings for the period had been distributed. Diluted net income (loss) per share is computed by using the weighted‑average shares of common stock outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and unvested restricted stock units using the treasury stock method. 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 414,000 common shares and amended its certificate of incorporation to increase its common stock issued from 12,087,715 shares to 12,501,715 shares. 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 any newly issued common shares, and, as a result, the noncontrolling interest in the Company increased from zero to 3.31 %. From January 2019 to September 2020, the Company purchased an additional 33,000 common shares of SBDI from non-controlling shareholders. From March 2022 to May 2022, the Company purchased an additional 52,000 common shares of SBDI from non-controlling shareholders. The noncontrolling interest in SBDI were 2.63 % as of both August 31, 2024 and 2023. Commitments and Contingencies — Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. 54 Table of Contents Fair Value Measurements — The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: • Level1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. • Level2 Inputs: Other than quoted prices included in Level1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. • Level3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. See Note12 for further details. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and e mbedded 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. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishme nts (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 was effective for the fiscal years beginning September 1, 2022, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company concluded that the standard will have no material impact on its consolidated financial statements. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments in ASU 2023-07 improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (CODM). In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 will be effective for annual reporting periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its consolidated financial statements. 55 Table of Contents 3. BALANCE SHEET COMPONENTS Inventories Inventories as of August 31, 2024 and 2023 consist of the following (in thousands): August 31, 2024 2023 Raw materials $ 349 $ 491 Work in process 727 1,216 Finished goods 2,498 2,315 Total $ 3,574 $ 4,022 Inventory write‑downs to estimated net realizable values for the years ended August 31, 2024 and 2023 were $ 411 thousand and $ 627 thousand, respectively. Property, Plant and Equipment Property, plant and equipment as of August 31, 2024 and 2023 consist of the following (in thousands): August 31, 2024 2023 Buildings and improvements $ 13,262 $ 13,136 Machinery and equipment 26,355 26,606 Leasehold improvements 153 154 Other equipment 2,249 2,165 Construction in progress — 118 Total property, plant and equipment 42,019 42,179 Less: Accumulated depreciation and amortization ( 39,221 ) ( 38,946 ) Property, plant and equipment, net $ 2,798 $ 3,233 Depreciation expense was $ 595 thousand and $ 991 thousand for the years ended August 31, 2024 and 2023, respectively. Property, plant and equipment pledged as collateral for the Company’s notes payable were $ 2.0 million and $ 2.3 millio n as of August 31, 2024 and 2023, respectively. Intangible Assets Intangible assets as of August 31, 2024 and 2023 consist of the following (in thousands): August 31, 2024 Weighted Average Gross Net Amortization Carrying Accumulated Carrying Period (Years) Amount Amortization Amount Patents and trademarks 15 $ 570 $ 480 $ 90 Acquired technology 5 319 319 — Total $ 889 $ 799 $ 90 August 31, 2023 Weighted Average Gross Net Amortization Carrying Accumulated Carrying Period (Years) Amount Amortization Amount Patents and trademarks 15 $ 568 $ 471 $ 97 Acquired technology 5 320 320 — Total $ 888 $ 791 $ 97 Amortization expense was $ 17 tho usand and $ 12 thousand for the years ended August 31, 2024 and 2023, respectively. 56 Table of Contents No impairment charge was recognized in the years ended August 31, 2024 and 2023. The estimated future amortization expense for the Company’s intangible assets as of August 31, 2024 is as follows (in thousands): Years Ending August 31, Total 2025 $ 9 2026 9 2027 9 2028 9 2029 9 Thereafter 45 Total $ 90 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of August 31, 2024 and 2023 consist of the following (in thousands): August 31, 2024 2023 Accrued compensation and benefits $ 1,886 $ 1,766 Customer deposits 344 346 Accrued business expenses 287 163 Accrued professional service fees 102 102 Other (individually less than 5 % of total accrued expenses and other current liabilities) 317 334 Total $ 2,936 $ 2,711 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of August 31, 2024 and 2023 consist of the following (in thousands, except percentages): August 31, 2024 August 31, 2023 Percentage Percentage Ownership Amount Ownership Amount Equity investment without readily determinable fair value Various $ 876 Various $ 881 Equity method investments, net 47.62 $ 93 47.62 $ 93 Total investments in unconsolidated entities $ 969 $ 974 There were no dividends received from unconsolidated entities through August 31, 2024. Equity Investment without Readily Determinable Fair Value Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The recoverable value of the investment was determined based on the Company’s best estimate of the amount that could be realized from the investment, which considered the latest financial information. During the years ended August 31, 2024 and 2023, no impairment losses were recognized for the equity investments without readily determinable fair value. Equity Method Investments In July 2023, TSLC Corporation, the Company’s subsidiary, had a board resolution to hold an equity interest in Yi Yang Optoelectronics Co., Ltd., accounting for its equity interest using the equity method to accounts for its equity investment as prescribed in ASC 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Equity method adjustments include the Company’s proportionate share of investee’s income or loss and other adjustments required by the equity method. As of August 31, 2024 and 2023, the Company owns 47.62 % common stock shares of Yi Yang Optoelectronics Co., Ltd. 57 Table of Contents 5. INDEBTEDNESS Long ‑ term Debt Long‑term debt as of August 31, 2024 and 2023 consist of the following loans (in thousands): August 31, 2024 2023 First note payable- Mega Bank $ 821 $ 1,106 Second note payable- Mega Bank 503 677 Loans from Chairman and Shareholders 2,400 3,200 Convertible notes issued to Chairman and Shareholders — 1,386 Total long-term debt 3,724 6,369 Less: Current installments ( 2,854 ) ( 5,042 ) Total long-term debt, excluding current installments $ 870 $ 1,327 Our long-term debt, which consisted of New Taiwan dollar (“NTD”) denominated long-term notes, convertible unsecured promissory notes and loans from the Chairman and the largest shareholder of the Company, total ed $ 3.7 million and $ 6.4 million as of August 31, 2024 and 2023, respectively. On July 5, 2019, the Company and Mega International Commercial Bank (“Mega Bank”) entered into two NTD denominated loan agreements in an aggregate amount of $ 3.2 million (NT$ 100 million). The first note of $ 2.0 million (NT$ 62 million) payable to Mega Bank has an annual floating interest rate equal to the NTD base lending rate plus 0.64 % (or 2.415 % currently), and was exclusively used to repay original notes with E Sun Bank. The second note of $ 1.2 million (NT$ 38 million) payable to Mega Bank has an annual floating interest rate equal to the NTD base lending rate plus 1.02 % (or 2.795 % currently) and is available for operating capital. Both note payables are secured by a first priority security interest on the Company’s headquarters building. Income from renting the collateral must be deposited into a reserved account opened with Mega Bank, and only the balance of deposits exceeding $ 78 thousand (NT$ 2.5 million) after deducting the principal and interest payable for the current month (including the accumulated outstanding amount) may be transferred outwards. The balance of the reserve account is $ 78 thousand as of August 31, 2024 and 2023. Due to the impact of the COVID-19 pandemic, Mega bank agreed to give the Company a deferment period for twelve months starting from May 2020 until April 2021. During this period, the Company did not need to pay the monthly payments of the principal but only the interest. Starting from May 2021, the two notes payables to Mega Bank require monthly payments of principal in the amount of $ 24 thousand plus interest and $ 14 thousand plus interest, respectively, over the 74 -month term of the notes with final payment to occur in July 2027 . On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief Executive Officer and the largest shareholder of the Company, with aggregate amounts of $ 1.7 million and $ 1.5 million, respectively, and an annual interest rate of 8 %. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of the Company's headquarters building pursuant to the agreement dated December 15, 2015. The Company were initially required to repay the loans of $ 1.5 million on January 14, 2021 and $ 1.7 million on January 22, 2021, respectively. On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022 , and on January 14, 2022, the maturity date of these loans was extended again with same terms and interest rate for one more year to January 15, 2023 . On January 13, 2023, the maturity date of these loans was further extended with same terms and interest rate for one year to January 15, 2024 . On January 7, 2024, J.R. Simplot Company assigned and transferred all of its right, title and interest in and to the loan agreement to Simplot Taiwan Inc., in accordance with and subject to the terms and conditions of the loan agreement. On January 7, 2024, the Company entered into the Fourth Amendment to the loan agreements with each of Simplot Taiwan Inc. and Trung Doan (each, a “Fourth Amendment”). The Fourth Amendment with Simplot Taiwan Inc. (i) extended the maturity date of its loan agreement to January 15, 2025 , and (ii) upon mutual agreement of the Company and Simplot Taiwan Inc., permitted the Company to repay any principal amount or accrued interest, in an amount not to exceed $ 400,000 , by issuing shares of the Company’s common stock in the name of Simplot Taiwan Inc. as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement with Simplot Taiwan Inc. remained the same. On January 7, 2024, the Company issued 305,343 shares of its common stock at a price of $ 1.31 per share to repay $ 400,000 of accrued interest on the Loan Agreement with Simplot Taiwan Inc. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended. The Fourth Amendment to the loan agreement with Trung Doan amends the loan agreement’s maturity date with same terms and interest rate to January 15, 2025 . All other terms and conditions of the loan agreement with Trung Doan remained the same. 58 Table of Contents On February 9, 2024, the Company and Trung Doan entered into the Fifth Amendment to the loan agreement (the “Fifth Amendment”). The Fifth Amendment, upon the mutual agreement of the Company and Trung Doan, permitted the Company to repay any principal amount or accrued interest, in an amount not to exceed $ 800,000 , by issuing shares of the Company’s common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. On February 9, 2024, the Company repaid $ 800,000 of loan principal by delivering 629,921 shares of the Company’s common stock to Mr. Doan, based on the closing price of $ 1.27 per share on February 8, 2024. The shares of common stock were issued on February 9, 2024 in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. On July 3, 2024, the Company and Trung Doan entered into the Sixth Amendment to the loan agreement (the “Sixth Amendment”). The Sixth Amendment amended the loan agreement to permit, upon the mutual agreement of the Company and Trung Doan, the Company to repay a portion of the principal amount or accrued interest under the loan agreement, by issuing shares of the Company’s common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement, as amended by the Sixth Amendment, remained the same. As of August 31, 2024 and 2023, these loans totaled $ 2.4 million and $ 3.2 million, respectively. The loans are secured by a second priority security interest on the Company's headquarters building. On November 25, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $ 1.5 million and $ 500 thousand, respectively, and an annual interest rate of 3.5 %. Principal and accrued interest is due on demand by the Holders on and at any time after May 30, 2021 . On February 7, 2020, J.R. Simplot Company assigned all of its right, title and interest in the Notes to Simplot Taiwan Inc. The outstanding principal and unpaid accrued interest of the Notes may be converted into shares of the Company’s common stock at a conversion price of $ 3.00 per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $ 300,000 of the Notes into 100,000 shares of the Company’s common stock. On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and a maturity date of May 30, 2022 . On May 26, 2022, the Notes were second extended with the same terms and interest rate for one year and a maturity date of May 30, 2023 . On June 6, 2023, the Company entered into the Third Amendment to the Notes (the “Third Amendments”) to amend the Notes to (i) extend the maturity date from May 30, 2023 to May 30, 2024 , and (ii) change the conversion price from $ 3.00 to $ 2.046 per share. All other terms and conditions of the Notes remained the same. After the close of market on January 5, 2024, the Company entered into the Fourth Amendment to the Notes (the “Note Fourth Amendments”) to amend the Notes to (i) convert the total principal and accrued interest on the Notes to common stock of the Company to be issued in the names of the Holders, and (ii) change the conversion price of the Notes from $ 2.046 per share to the closing price immediately preceding the signing of the Note Fourth Amendments, or $ 1.31 per share. All other terms and conditions of the Notes remained the same. On January 5, 2024, the Holders converted the total principal and accrued interest of the Notes, in an aggregate amount of $ 1,608,848 , to 1,228,128 shares of its common stock at a conversion price of $ 1.31 per share. As of August 31, 2024 and 2023, the outstanding principal of these notes totaled zero and $ 1.4 million, respectively. The scheduled principal payments for the Company’s long-term debt as of August 31, 2024 consist of the following (in thousands): Scheduled Principal Years Ending August 31, Payments 2025 $ 2,854 2026 454 2027 416 Total $ 3,724 6. COMMITMENTS AND CONTINGENCIES Operating Lease Agreements — The Company has several operating leases with third parties, primarily for land, plant and office spaces in Taiwan, including cancellable and noncancelable leases that expire at various dates between December 2024 and December 2040 . Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases 59 Table of Contents on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did not combine lease and non-lease components. Most leases do not include options to renew. The exercise of lease renewal options has to be agreed by the lessors. The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized on a straight-line basis over the term of the lease. Lease expense related to these noncancelable operating leases were $ 155 thousand and $ 166 thousand for the years ended August 31, 2024 and 2023, respectively. Balance sheet information related to the Company’s leases is presented below: August 31, 2024 2023 Assets Operating lease right of use assets $ 1,091 $ 1,371 Liabilities Operating lease liabilities, current portion $ 94 $ 139 Operating lease liabilities, less current portion 997 1,232 Total $ 1,091 $ 1,371 The following provides details of the Company’s lease expenses: August 31, 2024 2023 Operating lease expenses $ 155 $ 166 Other information related to leases is presented below: August 31, 2024 2023 Cash Paid for amounts Included In Measurement of Liabilities: Operating cash flows from operating leases $ 155 $ 166 Weighted Average Remaining Lease Term: Operating leases 15.55 years 15.9 years Weighted Average Discount Rate Operating leases 1.76 % 1.76 % As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76 % bas ed on the information available at commencement date in determining the present value of lease payments. The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of August 31, 2024 consist of the following (in thousands): Operating Years Ending August 31, Leases 2025 $ 113 2026 81 2027 81 2028 81 2029 82 Thereafter 807 Total future minimum lease payments, undiscounted 1,245 Less: Imputed interest 154 Present value of future minimum lease payments $ 1,091 Purchase Obligations — The Company had purchase commitments for inventory, property, plant and equipment in the amount of $ 521 th ousand and $ 116 thousand as of August 31, 2024 and 2023, respectively. 60 Table of Contents 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 August 31, 2024, there was no pending litigation that could have a material impact on the Company’s financial position, results of operations or cash flows. 7. COMMON STOCK On July 6, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company could offer and sell from time to time through the Agent the Company’s common stock having an aggregate offering price of up to $ 20,000,000 (the “Placement Shares”). Sales of the Placement Shares were 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 paid a commission to the Agent of 3.0 % of the gross proceeds of the sale of the Placement Shares sold under the Agreement and reimbursed the Agent for certain expenses. During the year ended August 31, 2022, the Company sold 286,328 shares of common stock for gross proceeds of $ 995 thousand with $ 31 thousand paid as placement agent fees under our ATM program. During the year ended August 31, 2024 and 2023, the C ompany did no t sell any shares of its common stock under its ATM program. The ATM program expired in July 2024 . 8. STOCK ‑ BASED COMPENSATION The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010 Plan that increases the number of shares authorized for issuance under the plan by an additional 250 thousand shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023 , to remove the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period. On September 25, 2020, the stockholders approved an amendment to the 2010 Equity Incentive Plan to increase the authorized shares reserve by an additional 400 thousand shares. On March 17, 2023, the Board approved the amendment of the 2010 Plan to extend the term to March 17, 2033 , which was approved by the Company's stockholders at the annual meeting held on May 18, 2023. A total of 1,421 thousand and 1,421 thousand shares were reserved for issuance under the 2010 Plan as of August 31, 2024 and 2023, respectively. As of August 31, 2024 and 2023, there were 544 tho usand and 541 thousand shares of common stock available for future issuance under the 2010 Plan, respectively. In July 2023, SemiLEDs granted 10 thousand restricted stock units to its employees, which will vest 25 % every three months from the vesting commencement date of July 7, 2023 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $ 2.44 per unit. In April 2023, SemiLEDs granted 110.5 thousand restricted stock units to its employees, which will vest 12.5 % every three months from the vesting commencement date of April 25, 2023 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $ 1.87 per unit. In March 2023, SemiLEDs granted 20 thousand restricted stock units to its employee, which will vest 25 % every anniversary starting from the vesting commencement date of March 8, 2023 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $ 2.30 per unit. In November 2022, SemiLEDs granted 15 thousand restricted stock units to its directors that vest 25 % every three months on February 7, 2023, May 7, 2023, August 7, 2023 and November 7, 2023. 100% of the unvested stock units was immediately vested on May 18, 2023, the date of the 2023 annual meeting. The grant-date fair value of the restricted stock units was $ 2.33 per unit. In November 2021, SemiLEDs granted 15 thousand restricted stock units to its directors that vest in quarterly installments on February 12, 2022, May 12, 2022, August 12, 2022 and November 12, 2022. Because the 2022 annual meeting was held on September 13, 2022, 100% of the stock units immediately vested on the date of the 2022 annual meeting. The grant-date fair value of the restricted stock units was $ 7.10 per unit. In November 2021, SemiLEDs granted 98.5 thousand restricted stock units to its employees, which vest in eight quarterly installments commencing November 2021 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $ 7.10 per unit. 61 Table of Contents Stock ‑ based Compensation Expense The total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stock units granted to employees, directors, nonemployees and also includes stock options to purchase SemiLEDs’ common stock as part of an employment agreement related to the Company’s acquisition of SBDI (later on renamed as TSLC Corporation). A summary of the stock-based compensation expense for the years ended August 31, 2024 and 2023 is as follows (in thousands): Years Ended August 31, 2024 2023 Cost of revenues $ 86 $ 152 Research and development 88 157 Selling, general and administrative 108 209 $ 282 $ 518 Stock‑based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock‑based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock‑based awards with vesting term that is less than or equal to one year from the date of grant. There was no recognized stock-based compensation tax benefit for the years ended August 31, 2024 and 2023, as the Company recorded a full valuation allowance on net deferred tax assets as of August 31, 2024 and 2023. Stock Options Awards 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. The expected term is derived from historical data on employee exercises and post‑vesting employment termination behavior after taking into account the contractual life of the award. The risk‑free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the related options. The expected dividend has been zero for the Company’s option grants as SemiLEDs has never paid dividends and does not expect to pay dividends for the foreseeable future. Each of these inputs is subjective and generally requires significant judgment to determine. During the years ended August 31, 2024 and 2023, the Company has no options granted, forfeited, or exercised. As of August 31, 2024 and 2023, the Company has no unvested stock options and the unrecognized compensation costs related to unvested stock options were nil . 62 Table of Contents Restricted Stock Units Awards 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. A summary of the restricted stock unit awards outstanding and changes for the years ended August 31, 2024 and 2023 is presented below: Weighted- Number of Average Stock Units Grant Date Outstanding Fair Value (In thousands) Outstanding—September 1, 2022 120 $ 4.96 Granted 156 2.00 Vested ( 109 ) 4.61 Forfeited ( 8 ) 2.55 Outstanding—August 31, 2023 159 $ 2.13 Granted — — Vested ( 107 ) 1.99 Forfeited ( 3 ) 1.87 Outstanding—August 31, 2024 49 $ 2.07 As of August 31, 2024 and 2023, unrecognized compensation cost related to unvested restricted stock unit awards o f $ 109 thousand and $ 325 thousand, respectively, is expected to be recognized over a weighted average period of 1.35 years and 0.19 years, respectiv ely, and will be adjusted for subsequent changes in estimated forfeitures . 9. 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 an antidilutive effect on the net loss per share (in thousands of shares): Years Ended August 31, 2024 2023 Stock units and stock options to purchase common stock 49 99 Convertible notes to convert into common stock — 684 10. INCOME TAXES Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. United States SemiLEDs Corporation is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the period. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the U.S. corporate income tax system including, among other things, lowering the U.S. statutory federal tax rate to 21%. The reduction of the U.S. corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to the lower federal rate of 21 % in the fiscal year ended August 31, 2019. The Tax Act also added many new provisions, including a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries (“transition tax”), changes to bonus depreciation, limits on deductions for executive compensation and interest expense, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign-derived intangible income. The Company has elected to account for the tax on GILTI and BEAT as a period cost and thus has not adjusted any net deferred tax assets of its foreign subsidiaries for the new tax. However, the Company has considered the potential impact of GILTI and BEAT on its U.S. federal net operating 63 Table of Contents loss (“NOL”) carryforward and determined that the projected tax benefit to be received from its NOL carryforward may be reduced due to these provisions. The changes included in the Tax Act are broad and complex. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118), as amended by ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company’s accounting for the tax effects of the Tax Act were completed in fiscal 2019. Although the Company believes the effects of the Tax Act have been appropriately recorded, it will continue to monitor, among other things, changes in interpretations of the Tax Act, any legislative action arising because of the Tax Act and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. The Company intends to assess the impact of any such changes in legislative interpretations or standards and adjust its provision as new information becomes available. In accordance with SAB 118, the Company has made reasonable estimates related to (1) the remeasurement of its U.S. deferred tax balances for the reduction in the statutory tax rate, (2) the liability for the transition tax and (3) the partial valuation allowance recorded against its federal NOL carryforward due to the impact of the GILTI and BEAT provisions. In fiscal 2024, the Company determined that there were no material changes to the provisional amounts recorded as of August 31, 2024. Taiwan The Company’s loss before income taxes is primarily derived from the operations in Taiwan and income tax expense is primarily incurred in Taiwan. As a result of amendments to the “Taiwan Income Tax Act” enacted by the Office of the President of Taiwan on February 7, 2018, the statutory income tax rate increased from 17 % to 20 % and the undistributed earning tax, or a surtax, decreased from 10 % to 5 % effective from January 1, 2018. As a result, the statutory income tax rate in Taiwan is 20 % for the years ended August 31, 2024 and 2023. An additional surtax, of which rate was reduced from 10 % to 5 % being applied to the Company starting from September 1, 2018, is assessed on undistributed income for the entities in Taiwan, but only to the extent such income is not distributed or set aside as a legal reserve before the end of the following year. The 5 % surtax is recorded in the period the income is earned, and the reduction in the surtax liability is recognized in the period the distribution to stockholders or the setting aside of legal reserve is finalized in the following year. The Company’s loss before income taxes for the years ended August 31, 2024 and 2023 was attributable to the following jurisdictions (in thousands): Years Ended August 31, 2024 2023 U.S. operations $ ( 578 ) $ ( 793 ) Foreign operations ( 1,453 ) ( 1,897 ) Loss before income taxes $ ( 2,031 ) $ ( 2,690 ) Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21 % to loss before income taxes for the years ended August 31, 2024 and 2023, as a result of the following (in thousands): Years Ended August 31, 2024 2023 Computed “expected” income tax benefit $ ( 427 ) $ ( 565 ) Foreign tax rate differential 13 18 Valuation allowance ( 2,191 ) ( 3,525 ) Other 2,605 4,072 Income tax expense $ — $ — Net deferred tax assets (liabilities) as of August 31, 2024 and 2023 consist of the following (in thousands): 64 Table of Contents August 31, 2024 2023 Deferred tax assets: Inventories, primarily due to inventory obsolescence and lower of cost or market provisions $ 1,691 $ 1,684 Allowance for doubtful accounts 33 33 Accruals and other 4 ( 5 ) Property, plant and equipment 435 458 Stock-based compensation 387 397 Net operating loss carryforwards 11,064 21,210 Total gross deferred tax assets 13,614 23,777 Less: Valuation allowance ( 13,614 ) ( 23,777 ) Deferred tax assets, net of valuation allowance $ — $ — A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and operating loss carryforwards utilizable. Management considers the scheduled reversal of deferred tax liabilities, carryback availability, projected future income, and tax-planning strategies in making this assessment. The Company established full valuation allowances to offset all of its deferred tax assets due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. As of August 31, 2024 the Company had the U.S. net operating losses (the “U.S. NOLs”) of approximately $ 4,319 thousand, which begins to expire in 2025 . The U.S. NOLs generated in tax years prior to August 31, 2018, can be carryforward for twenty years , whereas U.S. NOLs generated after August 31, 2018 can be carryforward indefinitely. The unused net operating loss carryforwards were as follows (in thousands): August 31, Expiration 2024 Year U.S. federal net operating loss carryforwards (after August 31, 2018) $ 4,319 — Foreign net operating loss carryforwards (expiring over the next 5 years) 28,977 2025 - 2029 Foreign net operating loss carryforwards (expiring in more than 5 years) 8,162 2030 - 2033 Total unused net operating loss carryforwards and income tax credits $ 41,458 Unrecognized Tax Benefits On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to 21 % from 34 % (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years , makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. Provisional estimate of the Company is that no tax will be due under this provision. As of August 31, 2024 and 2023, the Company had no unrecognized tax benefits. The Company is subject to taxation in the United States and various states and certain foreign jurisdictions. As of August 31, 2024, the 2020 through 2023 tax years remain subject to examination by the U.S. tax authorities . With few exceptions, as of August 31, 2024, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2019. Below is a summary of open tax years by major tax jurisdiction: Open Tax Year U.S. federal 2020-2023 U.S. state 2020-2023 Foreign—Taiwan 2023 The Company is not currently under examination by income tax authorities in any federal, state or foreign jurisdictions. The Company does not expect that the total amount of unrecognized tax benefits will change significantly within the next 12 months. 65 Table of Contents 11. PRODUCT AND GEOGRAPHIC INFORMATION Revenues by products for the years ended August 31, 2024 and 2023 are as follows (in thousands): Years Ended August 31, 2024 2023 LED chips $ 93 $ 111 LED components 2,656 3,345 Lighting products 212 321 Other (1) 2,222 2,202 Total $ 5,183 $ 5,979 (1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services and the lease of manufacturing as well as research and development facilities. Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic area for the years ended August 31, 2024 and 2023 (in thousands): Years Ended August 31, 2024 2023 Japan $ 1,647 $ 1,001 United States 1,450 1,952 Netherlands 924 1,224 Taiwan 696 1,150 Other (individually less than 5 % of total net revenues) 466 652 Total $ 5,183 $ 5,979 Tangible Long ‑ Lived Assets Substantially all of the Company’s tangible long‑lived assets are located in Taiwan. 12. FAIR VALUE MEASUREMENTS The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of August 31, 2024 and 2023 (in thousands): August 31, 2024 August 31, 2023 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and cash equivalents and restricted cash $ 1,749 $ 1,749 $ 2,650 $ 2,650 Receivables (including related parties) 416 416 793 793 Other assets (non-derivatives) 298 298 194 194 Financial liabilities: Payables (including related parties) $ 4,073 $ 4,073 $ 4,521 $ 4,521 Long-term debt (including current installments) 3,724 3,724 6,369 6,369 The fair values of the financial instruments shown in the above table as of August 31, 2024 and 2023 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based on the best information available in the circumstances, including expected cash flows and appropriately risk‑adjusted discount rates, available observable and unobservable inputs. 66 Table of Contents The following methods and assumptions were used to estimate the fair value of each class of financial instruments: • Cash, cash equivalents, restricted cash, receivables and payables (including related parties) and notes payable to banks: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments. • Other assets (non‑derivatives) include primarily value‑added tax (“VAT”) refund receivables, refundable deposits, and restricted time deposits. The fair value of VAT refund receivables approximates the carrying amount because of the short maturity. The fair value of refundable deposits and restricted time deposits with no fixed maturity is based on the carrying amount. • Long‑term debt: The fair value of the Company’s variable rate long‑term debt is estimated based on the prevailing market rate adjusted by the Company’s credit spread. 13. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS As a holding company, dividends received from SemiLEDs’ subsidiaries in Taiwan, if any, will be subject to withholding tax under Taiwan law, as well as statutory and other legal restrictions. The condensed parent company only financial information for SemiLEDs is presented below (in thousands): August 31, Condensed Balance Sheets 2024 2023 ASSETS Cash and cash equivalents $ 187 $ 190 Prepaid expenses and other current assets 4,396 4,442 Total current assets 4,583 4,632 Intangible assets, net 1 1 Investments in subsidiaries 1,229 2,687 TOTAL ASSETS $ 5,813 $ 7,320 LIABILITIES AND EQUITY Accrued expenses and other current liabilities $ 1,164 $ 1,539 Long-term debt, current portion 2,400 4,586 Total current liabilities 3,564 6,125 Total equity 2,249 1,195 TOTAL LIABILITIES AND EQUITY $ 5,813 $ 7,320 SemiLEDs had no contingencies, long‑term obligations and guarantees as of August 31, 2024 or August 31, 2023. Years Ended August 31, Condensed Statements of Operations 2024 2023 Operating expenses: Selling, general and administrative $ 452 $ 452 Loss from operations ( 452 ) ( 452 ) Other expenses: Equity in losses from subsidiaries, net ( 1,350 ) ( 1,897 ) Interest expenses ( 244 ) ( 323 ) Other income (expense), net 10 ( 18 ) Total other expenses, net ( 1,584 ) ( 2,238 ) Net loss $ ( 2,036 ) $ ( 2,690 ) Years Ended August 31, Condensed Statements of Cash Flows 2024 2023 Net cash provided by (used in): Operating activities $ ( 3 ) $ 7,275 Investing activities — ( 9,300 ) Financing activities — — Net decrease in cash and cash equivalents ( 3 ) ( 2,025 ) Cash and cash equivalents at beginning of year 190 2,215 Cash and cash equivalents at end of year $ 187 $ 190 67 Table of Contents 14. RELATED PARTY TRANSACTIONS On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief Executive Officer and the largest shareholder of the Company, with aggregate amounts of $ 1.7 million and $ 1.5 million, respectively, and an annual interest rate of 8 %. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of the Company's headquarters building pursuant to the agreement dated December 15, 2015. The Company were initially required to repay the loans of $ 1.5 million on January 14, 2021 and $ 1.7 million on January 22, 2021 , respectively. On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022 , and on January 14, 2022, the maturity date of these loans was extended again with same terms and interest rate for one more year to January 15, 2023 . On January 13, 2023, the maturity date of these loans was further extended with same terms and interest rate for one year to January 15, 2024 . On January 7, 2024, J.R. Simplot Company assigned and transferred all of its right, title and interest in and to the loan agreement to Simplot Taiwan Inc., in accordance with and subject to the terms and conditions of the loan agreement. On January 7, 2024, the Company entered into the Fourth Amendment to the loan agreements with each of Simplot Taiwan Inc. and Trung Doan (each, a “Fourth Amendment”). The Fourth Amendment with Simplot Taiwan Inc. (i) extended the maturity date of its loan agreement to January 15, 2025 , and (ii) upon mutual agreement of the Company and Simplot Taiwan Inc., permitted the Company to repay any principal amount or accrued interest, in an amount not to exceed $ 400,000 , by issuing shares of the Company’s common stock in the name of Simplot Taiwan Inc. as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement with Simplot Taiwan Inc. remained the same. On January 7, 2024, the Company issued 305,343 shares of its common stock at a price of $ 1.31 per share to repay $ 400,000 of accrued interest on the loan agreement with Simplot Taiwan Inc. The shares of common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended. The Fourth Amendment to the loan agreement with Trung Doan amends the loan agreement’s maturity date with same terms and interest rate to January 15, 2025 . All other terms and conditions of the loan agreement with Trung Doan remained the same. On February 9, 2024, the Company and Trung Doan entered into the Fifth Amendment to the loan agreement (the “Fifth Amendment”). The Fifth Amendment, upon the mutual agreement of the Company and Trung Doan, permitted the Company to repay any principal amount or accrued interest, in an amount not to exceed $ 800,000 , by issuing shares of the Company’s common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. On February 9, 2024, the Company repaid $ 800,000 of loan principal by delivering 629,921 shares of the Company’s common stock to Mr. Doan, based on the closing price of $ 1.27 per share on February 8, 2024. The shares of common stock were issued on February 9, 2024 in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. On July 3, 2024, the Company and Trung Doan entered into the Sixth Amendment to the loan agreement (the “Sixth Amendment”). The Sixth Amendment amended the loan agreement to permit, upon the mutual agreement of the Company and Trung Doan, the Company to repay a portion of the principal amount or accrued interest under the loan agreement, by issuing shares of the Company’s common stock to Trung Doan as partial repayment of the loan agreement at a price per share equal to the closing price of the Company’s common stock immediately preceding the business day of the payment notice date. All other terms and conditions of the loan agreement, as amended by the Sixth Amendment, remained the same. As of August 31, 2024 and 2023, these loans totaled $ 2.4 million and $ 3.2 million, respectively. The loans are secured by a second priority security interest on the Company's headquarters building. On November 25, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $ 1.5 million and $ 500 thousand, respectively, and an annual interest rate of 3.5 %. Principal and accrued interest is due on demand by the Holders on and at any time after May 30, 2021 . On February 7, 2020, J.R. Simplot Company assigned all of its right, title and interest in the Notes to Simplot Taiwan Inc. The outstanding principal and unpaid accrued interest of the Notes may be converted into shares of the Company’s common stock at a conversion price of $ 3.00 per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $ 300,000 of the Notes into 100,000 shares of the Company’s common stock. On May 26, 68 Table of Contents 2021, the Notes were extended with the same terms and interest rate for one year and a maturity date of May 30, 2022 . On May 26, 2022, the Notes were second extended with the same terms and interest rate for one year and a maturity date of May 30, 2023 . On June 6, 2023, the Company entered into the Third Amendment to the Notes (the “Third Amendments”) to amend the Notes to (i) extend the maturity date from May 30, 2023 to May 30, 2024 , and (ii) change the conversion price from $ 3.00 to $ 2.046 per share. All other terms and conditions of the Notes remained the same. After the close of market on January 5, 2024, the Company entered into the Fourth Amendment to the Notes (the “ Note Fourth Amendments”) to amend the Notes to (i) convert the total principal and accrued interest on the Notes to common stock of the Company to be issued in the names of the Holders, and (ii) change the conversion price of the Notes from $ 2.046 per share to the closing price immediately preceding the signing of the Note Fourth Amendments, or $ 1.31 per share. All other terms and conditions of the Notes remained the same. On January 5, 2024, the Holders converted the total principal and accrued interest of the Notes, in an aggregate amount of $ 1,608,848 , to 1,228,128 shares of its common stock at a conversion price of $ 1.31 per share. As of August 31, 2024 and 2023, the outstanding principal of these notes totaled zero and $ 1.4 million, respectively. 15. SUBSEQUENT EVENTS The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. On September 1, 2024, Taiwan SemiLEDs entered into several share purchase agreements to purchase the additional 2.63 % of the outstanding shares of Taiwan Bandaoti Zhaoming Co., Ltd from non-controlling shareholders. As a result, Taiwan SemiLEDs owns 100 % common stock shares of Taiwan Bandaoti Zhaoming Co., Ltd. 69 Table of Contents Item 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure Not applicable.