What changed in this filing

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Item 1. Financial Statements

2020-07-13 compared with 2020-04-10 · 128 added, 136 removed, 346 unchanged (43% of the section changed)

7 unchanged sentences

Restricted cash and cash equivalents

Accounts receivable (including related parties), net of allowance for doubtful accounts of $182 and $195 as of February 29, 2020 and August 31, 2019, respectively

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

Prepaid expenses and other current assets

18 unchanged sentences

Common stock, $0.0000056 par value—7,500 shares authorized;

3,623 shares and 3,594 shares issued and outstanding as of February 29, 2020 and August 31, 2019, respectively

Subscribed stock

4,006 shares and 3,594 shares issued and outstanding as of May 31, 2020 and August 31, 2019, respectively

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Nine Months Ended

Revenues, net

Cost of revenues

Gross profit (loss)

Operating expenses:

8 unchanged sentences

Other income (losses), net

Foreign currency transaction gain, net

Total other income, net

Income (loss) before income taxes

Foreign currency transaction (losses) gain, net

Total other income (expenses), net

Loss before income taxes

Income tax expense

Net income (loss)

Net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to SemiLEDs stockholders

Net income (loss) per share attributable to SemiLEDs stockholders:

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

Net gain (loss) attributable to noncontrolling interests

Net loss attributable to SemiLEDs stockholders

Net loss per share attributable to SemiLEDs stockholders:

Basic and diluted

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

Basic and diluted

See notes to unaudited condensed consolidated financial statements.

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands of U.S.

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Net income (loss)

Nine Months Ended

Other comprehensive loss, net of tax:

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

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to SemiLEDs stockholders

Comprehensive loss

Comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to SemiLEDs stockholders

See notes to unaudited condensed consolidated financial statements.

8 unchanged sentences

Stock-based compensation

Comprehensive income (loss):

Other comprehensive income

Common stock issued by SBDI*

Comprehensive loss:

Other comprehensive income (loss)

BALANCE—November 30, 2018

1 unchanged sentence

Stock-based compensation

Issuance of common stock for private placement

Issuance of convertible notes

Comprehensive loss:

1 unchanged sentence

BALANCE—February 28, 2019

Stock-based compensation

Comprehensive loss:

Other comprehensive income (loss)

BALANCE—May 31, 2019

Comprehensive

3 unchanged sentences

Stock-based compensation

Common stock issued by SBDI*

Comprehensive income (loss):

Other comprehensive income

Comprehensive loss:

Other comprehensive income (loss)

BALANCE—November 30, 2019

1 unchanged sentence

Stock-based compensation

Issuance of common stock for private placement

Issuance of convertible notes

Comprehensive loss:

1 unchanged sentence

BALANCE—February 29, 2020

Stock-based compensation

Issuance of common stock for private placement

Conversion of notes into common stocks

Change ownership in SBDI*

Comprehensive loss:

Other comprehensive loss

BALANCE—May 31, 2020

See notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(In thousands of U.S.

Six Months Ended

February 29, 2020

February 28, 2019

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

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

3 unchanged sentences

Gain on disposals of long-lived assets, net

Gain on disposals of investment

Accounts receivable

Gain on disposals of investments

Accounts receivable, net

Prepaid expenses and other

14 unchanged sentences

Net cash provided by financing activities

Changes in cash balances included in deconsolidated subsidiaries

Changes in cash balance included in deconsolidated subsidiaries

Effect of exchange rate changes on cash and cash equivalents

13 unchanged sentences

The Company’s customers are concentrated in a few select markets, including Taiwan, the United States and China.

As of February 29, 2020, SemiLEDs had two wholly owned subsidiaries.

As of May 31, 2020, SemiLEDs had two wholly owned subsidiaries.

SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion of our research, development, manufacturing and sales activities take place.

4 unchanged sentences

The Purchaser also subscribed approximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note 6).

SemiLEDs’ common stock trades on the NASDAQ Capital Market under the symbol “LEDS”.

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

Summary of Significant Accounting Policies

6 unchanged sentences

The unaudited condensed consolidated balance sheet as of August 31, 2019 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of February 29, 2020, the statements of operations and comprehensive loss for the three and six months ended February 29, 2020 and February 28, 2019, the statement of changes in equity for the three and six months ended February 29, 2020 and February 28, 2019, and the statements of cash flows for the six months ended February 29, 2020 and February 28, 2019.

The results for the three or six months ended February 29, 2020 are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2020, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2020 and 2019, the statement of changes in equity for the three and nine months ended May 31, 2020 and 2019, and the statements of cash flows for the nine months ended May 31, 2020 and 2019.

The results for the three or nine months ended May 31, 2020 are not necessarily indicative of the results to be expected for the year ending August 31, 2020.

Going Concern — The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

1 unchanged sentence

The Company suffered losses from operations of $3 .7 million and $ 3.7 million, and net cash used in operating activities of $ 3.5 million and $ 1.2 million for the years ended August 31, 201 9 and 201 8 , respectively.

Gross prof it on product sales was $ 4 52 thousand fo r the year ended August 31, 201 9 , and gross loss was $ 435 thousand fo r the year ended August 31, 201 8 .

Loss from operations for the three and six months ended February 2 9 , 20 20 were $ 392 thousand and $ 951 thousand , respectively.

N et cash used in operating activities for the six months ended February 2 9 , 20 20 was $ 194 thousand.

Gross profit on product sales was $ 4 52 thousand fo r the year ended August 31, 201 9 , and gross loss was $ 435 thousand fo r the year ended August 31, 201 8 .

Loss from operations for the three and nine months ended May 31 , 20 20 were $ 741 thousan d and $ 1 .

7 million, respectively.

N et cash used in operating activities for the nine months ended May 31 , 20 20 was $ 786 thousand .

These facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern.

However, a t February 2 9 , 20 20 , the Company’ s cash and cash equivalents increased to $ 3.2 million mainly due to issuance of convertible notes .

M anagement believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liqu idity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.

However, on May 31, 2020, the Company’s cash and cash equivalents increased to $2.5 million , mainly due to the issuance of convertible notes.

Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provi de sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business.

Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products.

3 unchanged sentences

This plan reflects its strategy of controlling capital costs and maintaining financial flexibility.

Raising additional cash through the issuance of convertible notes to our major stockholders, potential equity offerings, sales of assets, and/or issuance of debt as considered necessary and looking at other potential business opportunities.

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

While the Company’s management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented.

2 unchanged sentences

Restricted Cash Equivalents —Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan.

As of February 29, 2020 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $83 thousand and $19 thousand, respectively.

As of February 29, 2020 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $93 thousand and $89 thousand, respectively.

As of May 31, 2020 and August 31, 2019, the Company’s restricted cash equivalents at current portion amounted $85 thousand and $19 thousand, respectively.

As of May 31, 2020 and August 31, 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $93 thousand and $89 thousand, respectively.

Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method.

17 unchanged sentences

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 eithe r 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 qualitati vely 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.

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 i nvestee 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 whi ch 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 abili ty 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.

The Company’s in vestment 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.

The Company resumes account ing 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.

9 unchanged sentences

Certain Significant Risks and Uncertainties —The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others:

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

Concentration of Supply Risk —Some of the components and technologies used in the Company’s pr oducts 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 t ransition 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 cont ract 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’ o rders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.

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

Concentration of Supply Risk —Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers.

The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory.

The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customer orders.

Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business, financial position, results of operations and cash flows.

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

The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds.

The Company keeps its cash and cash equivalents in demand deposits with pro minent banks of high credit quality and invests only in money market funds.

Deposits held with banks may exceed the amount of insurance provided on such deposits.

As of February 29, 2020 and August 31, 2019, cash and cash equivalents of the Company consisted of the following (in thousands):

As of May 31 , 20 20 and August 31, 201 9 , cash and cash equivalents of the Company consisted of the following (in thousands):

Cash and Cash Equivalents by Location

5 unchanged sentences

China (including Hong Kong);

Denominated in U.S.

Denominated in Renminbi

6 unchanged sentences

The allowance for doubtful accounts is based on the management’s assessment of the collectability of its customer accounts.

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

Net revenues generated from sales to the top ten customers represented 88% and 84% of the Company’s total net revenues for the three and six months ended February 29, 2020 respectively, and 88% and 82% of the Company’s net revenues for the three and six months ended February 28, 2019, respectively.

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India.

Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 91% and 90% of the Company’s net revenues for the three and six months ended February 29, 2020, respectively, and 92% and 89% of the Company’s net revenues for the three and six months ended February 28, 2019, respectively.

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

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

The Company’s revenues have been concentrated in a few select markets, including the Netherlands, Ireland, Taiwan, Japan, German, the United States, and India.

Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 89% and 90% of the Company’s net revenues for the three and nine months ended May 31, 2020, respectively, and 86% and 88 % of the Company’s net revenues for the three and nine months ended May 31, 2019, respectively.

Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity.

2 unchanged sentences

On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd.

(“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its common stock issued from 12,087,715 to 12,501,715 shares.

As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been received in full amount by Taiwan Bandaoti Zhaoming Co., Ltd.

The Company did not subscribe for any newly issued common shares at the issuance date;

as a result, noncontrolling interest in SBDI increased from zero to 3.31%.

In December 2018, Taiwan SemiLEDs purchased 3,000 common shares of SBDI from non-controlling shareholders.

As of February 29, 2020, noncontrolling interest in SBDI was down to 3.29%.

(“SBDI”), the Company’s wholly owned operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 to 12,501,715.

As of the issuance date, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cash by Taiwan Bandaoti Zhaoming Co., Ltd.

The Company did not subscribe for the newly issued common shares, and, as a result, noncontrolling interest in SBDI was increased from zero to 3.31%.

In December 2018 and in March 2020, Taiwan SemiLEDs purchased 3,000 and 5,000 common shares of SBDI from non-controlling interests, respectively.

As of May 31, 2020, noncontrolling interest in SBDI was down to 3.25%.

Recent Accounting Pronouncements

4 unchanged sentences

The Company is currently evaluating the impact ASU 2018-13 will have on the disclosures included in its consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards.

The amendments in the ASU are effective for f iscal years beginning after December 15, 2020, including interim periods therein.

Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued.

The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

Balance Sheet Components

Inventories as of February 29, 2020 and August 31, 2019 consisted of the following (in thousands):

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

Raw materials

1 unchanged sentence

Finished goods

Inventory write-downs to estimated net realizable values were $201 thousand and $320 thousand for the three and six months ended February 29, 2020, respectively, and $140 thousand and $312 thousand for the three and six months ended February 28, 2019, respectively.

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

Property, Plant and Equipment

Property, plant and equipment as of February 29, 2020 and August 31, 2019 consisted of the following (in thousands):

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

Buildings and improvements

7 unchanged sentences

Intangible Assets

Intangible assets as of February 29, 2020 and August 31, 2019 consisted of the following (in thousands):

February 29, 2020

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

Period (Years)

6 unchanged sentences

Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of February 29, 2020 and August 31, 2019 consisted of the following (in thousands, except percentages):

February 29, 2020

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

August 31, 2019

Equity method investments:

Equity investment without readily determinable fair value

Total investments in unconsolidated entities

There were no dividends received from unconsolidated entities through February 29, 2020.

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

Equity Investments without Readily Determinable Fair Value

2 unchanged sentences

Commitments and Contingencies

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancellable and noncancelable and which expire at various dates between December 2021 and December 2029.

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which include cancelable and noncancelable and which expire at various dates between December 2020 and December 2029.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

5 unchanged sentences

Lease expense is recognized on a straight-line basis over the term of the lease.

Lease expense related to these noncancelable operating leases were $38 thousand and $76 thousand for three months and six months ended February 29, 2020.

Lease expense related to these noncancelable operating leases were $39 thousand and $115 thousand for three months and nine months ended May 31, 2020.

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

February 29, 2020

Operating lease right of use assets

2 unchanged sentences

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

Six Months Ended

February 29, 2020

Nine Months Ended

Operating lease expenses, net

Other information related to leases is presented below:

Six Months Ended

February 29, 2020

Nine Months Ended

Cash Paid for amounts Included In Measurement of Liabilities:

5 unchanged sentences

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

The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of February 29, 2020 consisted of the following (in thousands):

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

Years Ending August 31,

3 unchanged sentences

Present value of future minimum lease payments

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $107 thousand and $158 thousand as of February 29, 2020 and August 31, 2019, respectively.

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

Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business.

14 unchanged sentences

Based on this order, the Company arranged the depositions to obtain more evidence in support of a motion to enforce the settlement agreement.

On October 25, 2019, Well Thrive filed a motion to modify the Court’s scheduling order and to allow it to file a motion for summary judgment, and the Company filed an opposition to the motion.

On October 25, 2019, Well Thrive filed a motion to modify the

Court’s scheduling order and to allow it to file a motion for summary j udgment, and the Company filed an opposition to the motion.

On November 13, 2019, the Court denied Well Thrive’s motion.

The Court held a trial on March 2, 2020.

The judge has not rendered a verdict yet and ordered both sides to prepare post-trial briefs and proposed findings of fact.

The counsels will have three to four weeks to prepare those documents once the court transcript is received.

However, due to Coronavirus, the Court in Delaware is now closed indefinitely.

On December 28, 2018, the Company re ceived a notification from the Court in Miao-Li County, Taiwan that Epistar Corporation (the successor to Formosa Epitaxy Incorporation, the “Plaintiff”) filed a motion requesting that the Company return the $3 million prepayment plus value-added-tax for t he headquarters building sale and pay interest during this period and litigation fee.

The Plaintiff also petitioned the Court to do a provisional execution upon the Company, which would permit the Plaintiff to sell the building and/or other assets belongin g to the Company to recover the prepayment.

After the trial, judge ordered both sides to prepare post-trial briefs and proposed findings o f fact for the Court to be submitted before end of April 2020.

On April 30, 2020, both sides submitted post-trail briefs and proposed findings of fact, and as of today, the judge has not rendered a verdict on this case.

On December 28, 2018, the Company received a notification from the Court in Miao-Li County, Taiwan that Epistar Corporation (the successor to Formosa Epitaxy Incorporation, the “Plaintiff”) filed a motion requesting that the Company return the $3 million prepayment plus value-added-tax for the headquarters building sale and pay interest during this period and litigation fee.

On January 4, 2019, the Company filed a statement of defense arguing that the Plaintiff’s action and motion for provisional execution should be dismissed and the litigation fees should be borne by the Plaintiff.

On January 25, 2019, the Company and the Plaintiff entered into a settlement, agreeing that the Company would return the $3 million plus value-added-tax of $150 thousand and penalty of $200 thousand, and on February 1, 2019, the Plaintiff withdrawal the mo tion.

As of February 29, 20 20 , the Company has paid the $3.35 million in full.

As of May 31, 2020, the Company has paid the $3.35 million in full.

On March 11, 2019, a former employee (the “Plaintiff”) of Taiwan Bandaoti Zhaoming Co., Ltd.

6 unchanged sentences

On February 10, 2020, the Taiwan Hsin-Chu District made a determination in favor of the Company.

As of the date of filing this report, the term of appeal expired and the determination is affirmed.

Except as described above, as of February 29 2020, there was no pending or threatened litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.

On January 17, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with XianChang Ma.

As of May 31, 2020, the term of appeal expired and the determination is affirmed.

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

On January 17, 2020, the Company entered into a definitive common stock purchase agreement with XianChang Ma.

Pursuant to the terms of the Agreement, Mr.

Ma purchased 150,000 shares of the Company’s common stock at $4.00 per share, representing approximately 4% of the outstanding shares of the Company at the time of purchase.

The Company received the $600,000 purchase price in full and recorded it as Subscribed Stock as of February 29, 2020.

As of February 29, 2020, the 150,000 shares have not been issued.

The Company received the $600,000 purchase price in full on January 17, 2020.

On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuang Zhu.

Pursuant to the terms of the Agreement, Mr.

Zhu purchased 33,333 shares of the Company’s common stock at $3.00 per share for an aggregate purchase price of $100,000.

The Company received the $100,000 purchase price in full on May 25.

On May 25, 2020, J.R.

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

Stock-based Compensation

4 unchanged sentences

Options outstanding under the 2005 Plan continue to be governed by its existing terms.

A total of 1,021 thousand and 521 thousand shares was reserved for issuance under the 2010 Plan, respectively, as of February 29, 2020 and February 28, 2019.

As of February 29, 2020 and February 28, 2019, there were 548 thousand and 189 thousand shares of common stock available for future issuance under the equity incentive plans, respectively.

In January 2020, SemiLEDs granted 136 thousand restricted stock units to its employees among which 25% will vest each year on January 10 of 2021, 2022, 2023 and 2024 and will become fully vested upon a change in control.

The grant-date fair value of the restricted stock units was $2.39 per unit.

A total of 1,021 thousand and 521 thousand shares was reserved for issuance under the 2010 Plan, respectively, as of May 31, 2020 and 2019.

As of May 31, 2020 and 2019, there were 548 thousand and 191 thousand shares of common stock available for future issuance under the equity incentive plans, respectively.

In January 2020, SemiLEDs g ranted 136 thousand restricted stock units to its employees , which vest 25% each year on January 10 of 2021, 2022, 2023 and 2024 and will become fully vested upon a change in control.

The grant-date fair value of the restricted stock units was $2.39 per un it.

In September 2019, SemiLEDs granted 5 thousand restricted stock units to its directors that will vest 100% on the earlier of July 31, 2020 and the date of the 2020 annual meeting.

2 unchanged sentences

The grant-date fair value of the restricted stock units was $2.45 per unit.

The grant date fair value of s tock 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 ou tstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend.

Each of these inputs is subjective and generally requires significant judgme nt to determine.

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend.

Each of these inputs is subjective and generally requires significant judgment to determine.

The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant.

3 unchanged sentences

A forfeiture rate of zero is estimated for stock-based awards with vesting term that is less than or equal to one year from the date of grant.

A summary of the stock-based compensation expense for the three and six months ended February 29, 2020 and 2019 was as follows (in thousands):

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

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Nine Months Ended

Cost of revenues

4 unchanged sentences

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Nine Months Ended

Stock units and stock options to purchase common stock

The Company’s income (loss) before income taxes for the three and six months ended February 29, 2020 and February 28, 2019 consisted of the following (in thousands):

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

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Nine Months Ended

Foreign operations

Income (loss) before income taxes

Loss before income taxes

Unrecognized Tax Benefits

8 unchanged sentences

Provisional estimate of the Company is that no tax will be due under this provision.

As of both February 2 9 , 20 20 and August 31, 201 9 , the Company had no unrecognized tax benefits related to tax positions taken in prior periods.

As of both May 31 2020 and August 31, 2019, the Company had no unrecognized tax benefits related to tax positions taken in prior periods.

The Company files income tax returns in the United States, various U.S.

1 unchanged sentence

The tax years 2014 through 2018 remain open in most jurisdictions.

With few exceptions, as of February 29, 2020, the Company is no longer subject to U.S.

With few exceptions, as of May 31, 2020, the Company is no longer subject to U.S.

federal, state, local, or foreign examinations by tax authorities for tax years before 2014.

5 unchanged sentences

The outstanding principal and unpaid accrued interest of the Notes may be converted into the Company’s common stock based on a conversion price of $3.00 per share, at the option of the Holders any time from the date of the Notes.

On May 25, 2020, each of the Holders converted $300,000 of the Notes into 100,000 shares of the Company’s common stock.

Subsequent Events

The Company has analyzed its operations subsequent to February 29, 2020 to the date these unaudited condensed consolidated financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy and the Company.

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

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements