What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-11-17 compared with 2019-11-20 · 173 added, 164 removed, 663 unchanged (34% of the section changed)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of SemiLEDs Corporation and its subsidiaries (“the Company”) as of August 31, 2019, the related consolidated statement of operations, comprehensive loss, changes in equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with the U.S.

We have audited the accompanying consolidated balance sheets of SemiLEDs Corporation and its subsidiaries (the “Company”) as of August 31, 2020 and 2019, 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 “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2020 and 2019, 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 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, on September 1, 2019, the Company has changed its method of accounting for leases due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.

Management’s plans with regard to these matters are described in Note 2.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KCCW Accountancy Corp.

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+1 909 895 4155 ● info@kccwcpa.com

REPORT 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 sheet of SemiLEDs Corporation and its subsidiaries (the "Company") as of August 31, 2018, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

Going concern uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

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 audit 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 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the 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 audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

/s/ B F Borgers CPA PC

We have served as the Company’s auditor since 2016.

Lakewood, Colorado

November 26, 2018

SEMILEDS CORPORATION AND SUBSIDIARIES

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Property, plant and equipment, net

Operating lease right of use assets

Intangible assets, net

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Accrued expenses and other current liabilities

Other payable to related parties

Operating lease liabilities, current portion

Total current liabilities

Long-term debt, excluding current installments

Operating lease liabilities, less current portion

Total liabilities

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Cost of revenues

Gross profit (loss)

Operating expenses:

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Other income (expenses):

Equity in loss from unconsolidated entities

Gain on disposals of investment

Interest expenses, net

Other income, net

Foreign currency transaction gain (loss), net

Foreign currency transaction gain, net

Total other income (expenses), net

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Stock-based compensation

Common stock issued by SBDI*

Comprehensive income (loss)

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Stock-based compensation

Common stock issued by SBDI*

Issuance of common stock for private

Issuance of convertible notes

Conversion of notes into common stocks

Change ownership in SBDI*

Comprehensive income (loss)

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Stock-based compensation expense

Bad debt expense

Provisions for inventory write-downs

Equity in loss from unconsolidated entities

Gain on disposals of investment

Gain on disposals of long-lived assets, net

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Proceeds from sales of property, plant and equipment

Proceeds from disposals of investments

Payments for development of intangible assets

Proceeds from sale of investment

Proceeds from patents assignment

Refund of cash receipt-in-advance

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Repayments of long-term debt

Issuance of common stock for private placement

Acquisition of noncontrolling interests

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Changes in cash balance included in deconsolidated subsidiaries

Effect of exchange rate changes on cash and cash equivalents

NET DECREASE IN CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of year

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

As of August 31, 2019, SemiLEDs had four wholly owned subsidiaries.

As of August 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 research, development, manufacturing and sales activities take place.

Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a substantial portion of marketing and sale of LED components, and where most of the Company’s employees are based.

On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with XianChang Ma (the “Purchaser”) pursuant to which the Purchaser agreed to purchase all of the outstanding shares of the Company’s Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd.

for $100,000 and an additional $40,000 for the transaction costs.

The Purchaser paid $140,000 to the Company, and the transaction was completed in January 2020.

The Purchaser also subscribed for approximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note 7).

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

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The Company has suffered losses from operations of $2.1 million and $3.7 million, and used net cash in operating activities of $1.0 million and $3.5 million for the years ended August 31, 2020 and 2019, respectively.

Further, at August 31, 2019, the Company’s cash and cash equivalents was down to $1.4 million.

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

However, gross profit on product sales was $452 thousand for the year ended August 31, 2019 compared to a gross loss of $435 thousand for the year ended August 31, 2018.

In addition, the Company entered into two new loan agreements to refinance its existing real estate loan and to provide for operating capital during the year ended August 31, 2019.

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 $1.6 million for the year ended August 31, 2020 compared to $452 thousand for the year ended August 31, 2019.

On August 31, 2020, the Company’s cash and cash equivalents increased to $2.8 million, mainly due to the issuance of convertible notes and common stock for private placement.

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

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3) determined the transaction price;

4) allocated the transaction price to the performan ce obligations in the contract;

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 t he transfer of promised goods or services to customers.

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.

Gene rally, 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.

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 i n the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets.

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 estimate s the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors.

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.

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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.

Significant items

subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statemen ts on the basis that the Company will continue as a going concern, the collect a bility 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 uncer tainties, 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.

however, ac tual results could differ materially from those estimates.

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

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

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

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

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China (including Hong Kong);

Denominated in U.S.

Denominated in Renminbi

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

As of August 31, 2019 and 2018, the Company’s restricted cash equivalents at current portion amounted $19 thousand and $0, respectively.

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

As of August 31, 2020 and 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $95 thousand and $89 thousand, respectively.

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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.

Charges to bad debt expense were $10 thousand during the year ended August 31, 2018.

No bad debt expenses were recognized during the year ended August 31, 2019.

No bad debt expenses were recognized during the years ended August 31, 2020 and 2019.

Inventories — Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value.

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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 f ollows:

The estimated useful lives of property, plant and equipment are as follows:

Buildings and improvements

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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 cons olidated statements of operations.

Research and development costs are presented as a separate line item in the consolidated statements of operations.

Advertising Costs —Advertising costs are expensed as incurred.

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

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

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

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

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Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).

ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements.

ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020.

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

In June 2016, the FASB issued ASU No.

2018-07, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

The amendments in ASU 2018-07 specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The amendments in ASU 2018-07 also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

This standard became effective for the Company on September 1, 2019.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU No.

2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statements of cash flows.

The Company adopted the new standard effective September 1, 2018, using the retrospective transition approach.

The reclassified restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash on the consolidated statements of cash flows were not material for all periods presented.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

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The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

ASU 2016-13 is effective for the Company for annual and interim reporting periods beginning September 1, 2020.

The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”).

The amendments in ASU 2016-02 require lessees to recognize all leases on the balance sheet by recording a right-of-use asset and a lease liability, and lessor accounting has been updated to align with the new requirements for lessees.

The new standard also provides changes to the existing sale-leaseback guidance.

ASU 2016-02 is effective for the Company for annual and interim reporting periods beginning September 1, 2019.

The FASB has also issued additional standards which provide additional clarification and implementation guidance on the previously issued ASU 2016-02 and have the same effective date as the original standard.

The Company plans to apply this guidance on a modified retrospective basis at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings, with no restatement of prior periods.

The Company plans to elect the package of practical expedients permitted under the transition guidance within the new standard.

In addition, the Company plans to elect the practical expedient to combine lease and non-lease components for all asset classes.

The Company also plans to elect the short-term lease exception to keep leases with an initial term of twelve months or less off of the balance sheet.

The Company is continuing to evaluate the impact ASU 2016-02 will have on its consolidated financial statements and does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows

ASU 2016-13 became effective for the Company for annual and interim reporting periods beginning September 1, 2020.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).

ASU 2018-13 became effective for the Company for annual and interim reporting periods beginning September 1, 2020.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No.

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

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

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

The Company is currently evaluating the impact ASU 2019-12 will have on the disclosures included in its consolidated financial statements.

BALANCE SHEET COMPONENTS

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Accrued expenses and other current liabilities as of August 31, 2020 and 2019 consist of the following (in thousands):

Advance receipts from sale of our headquarters building

Accrued compensation and benefits

Customer deposits

Accrued business expenses

Other (individually less than 5% of total accrued expenses and

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August 31, 2019

Equity method investments:

Xurui Guangdian Co., Ltd.

(“China SemiLEDs”)

Equity investment without readily determinable fair value

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There were no dividends received from unconsolidated entities through August 31, 20 20 .

Equity Method Investments

The Company owns a 49% equity interest in China SemiLEDs.

This investment has a carrying amount of zero as a result of a previously recognized impairment.

In May 2019, the Foshan (China) Court declared China SemiLEDs was bankrupt after confirming that China SemiLEDs was incapable to pay outstanding debts.

Equity Investment without Readily Determinable Fair Value

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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 year ended August 31, 2018, the Company recognized net loss of $8 thousand from equity investment without readily determinable fair value in Intematix based on the excess of the carry amount over the receivables that the investee notified after its liquidation being completed.

During the year ended August 31, 2019, no impairment losses were recognized for the equity investments without readily determinable fair value.

During the year ended August 31, 2020 and 2019, no impairment losses were recognized for the equity investments without readily determinable fair value.

Long ‑ term Debt

Long‑term debt as of August 31, 2020 and 2019 consist of the following loans (in thousands):

First note payable-E Sun Bank

Second note payable- E Sun Bank

First note payable- Mega Bank

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Loans from Chairman and Shareholders

Convertible notes issued to Chairman and Shareholders

Total long-term debt

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Total long-term debt, excluding current installments

Our long-term debt, which consisted of New Taiwan dollar (“NTD”) denominated long-term notes and loans from the Chairman and the largest shareholder of the Company, totaled $6.4 million and $2.3 million as of August 31, 2019 and 2018, respectively.

The long‑term notes payable to E Sun Commercial Bank (the “E Sun Bank”) bearing an interest rates of 1.62% as of August 31, 2018 were payable in monthly installments of principal and interest over the 15-year term of the notes with final payment to occur in May 2024 and in December 2025.

The interest rates were based on the annual time deposit rate plus a certain spread.

The notes were secured by the Company’s property, plant and equipment, and did not have prepayment penalties or balloon payments upon maturity of the notes.

In July 2019, the notes were all repaid.

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 1.62% currently), and was exclusively used to repay the mentioned-above-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% currently) and is available for operating capital.

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, totaled $7.7 million and $6.4 million as of August 31, 2020 and 2019, respectively.

On July 5, 2019, the Company and Mega International Commercial Bank (“Mega Bank”) e ntered into two NTD denominated loan agreements in an aggregate amount of $3.

3 9 million (NT$ 100 million) .

The first note of $2.

1 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 1.

465 % currently), and wa s exclusively used to repay original note s with E Sun Bank.

Th e second note of $1.2 9 million (NT$38 million) payable to Mega B ank has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 1 .845 % currently) and is available for operating capital.

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 $79 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 US$19 thousand as of August 31, 2019.

The two notes payables to Mega Bank require monthly payments of principal in the amount of $21 thousand plus interest and $13 thousand plus interest, respectively, over the 8-year 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 both 8%.

All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the cancelled proposed sale of the Company’s headquarters building pursuant to the agreement dated December 15, 2015.

The Company is required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively, unless the loans are sooner accelerated pursuant to the loan agreements.

As of August 31, 2019, these loans totaled $3.2 million.

Income from renting the collateral must be deposited into a r eserve d a ccount opened with Mega Bank, and only the balance of deposits exceeding $ 85 thous and (NT$2.5 million) after deducting the principal and interest payable for the current month (including the accumulated outstanding amount) may be transferre d outwards.

The balance of the r eserve a ccount is $85 thousand and $19 thousand as of August 31, 2 020 and 2019 , respectively .

In May 2020, due to the impact of the COVID-19 pandemic, Mega bank agreed to give us a deferment period for twelve months starting from May 2020.

During this period, the Comp a ny does n o t need to pay the monthly payments of the p rincipal but only the interest.

Starting from May 2021, t he two note s payable s to Mega Bank require monthly payments of principal in the amount of $ 2 5 thousand plus interest and $1 6 thousand plus interest, respectively, over the 74 - month term of the note s with final payment to occur in July 2027.

On January 8, 2019, the Company entered into loan agreements with Trung Daon,the Chairman and Chief Executive Officer, and J.R.

Simplot Company, the largest shareholder of the Company, with aggregate amounts of $1.7 million and $1.5 million, respectively, and an annual interest rate of both 8%.

The Company is required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, unless the loans are sooner accelerated pursuant to the loan agreements.

As of August 31, 2020 and 2019, these loans totaled $3.2 million.

The loans are secured by a second priority security interest on the headquarters building of the Company.

On December 6, 2019 and December 10, 2019, we issued two convertible unsecured promissory notes (the “Notes”) to Trung Doan, our Chairman and Chief Executive Officer, and J.R.

Simplot Company, our largest shareholder (together, the “Holders”), with a principal sum of $2 million and an annual interest rate of 3.5%.

Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021 (the “Maturity Date”).

The outstanding principal and unpaid accrued interest of the Notes may be converted into our common stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes.

On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our common stock.

As of August 31, 2020, the outstanding principal of these notes totaled $1.4 million.

The scheduled principal payments for the Company’s long-term debt as of August 31, 2020 consist of the following (in thousands):

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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 2020 and December 2029.

As of August 31, 2019 and 2018, the Company maintained outstanding deposits for these leases in the amount of $10 thousand and $85 thousand, respectively, which are included in other long‑term assets in the accompanying consolidated balance sheets.

Lease expense related to these operating leases was $151 thousand and $472 thousand for the years ended August 31, 2019 and 2018, respectively.

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

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did not combine lease and non-lease components.

Most leases do not include options to renew.

The exercise of lease renewal options has to be agreed by the lessors.

The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonably certain of exercise.

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

Lease expense related to these noncancelable operating leases were $156 thousand and $151 thousand for the years ended August 31, 2020 and 2019, respectively.

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

August 31, 2020

Operating lease right of use assets

Operating lease liabilities, current portion

Operating lease liabilities, less current portion

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

August 31, 2020

Operating lease expenses

Other information related to leases is presented below:

August 31, 2020

Cash Paid for amounts Included In Measurement of Liabilities:

Operating cash flows from operating leases

Weighted Average Remaining Lease Term:

Operating leases

Weighted Average Discount Rate

Operating leases

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

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

Years Ending August 31,

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $158 thousand and $1.6 million as of August 31, 2019 and 2018, respectively.

Total future minimum lease payments, undiscounted

Imputed interest

Present value of future minimum lease payments

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $33 thousand and $158 thousand as of August 31, 2020 and 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.

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Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages.

On March 13, 2018, the Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice.

On March 27, 2018, Well Thrive filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case.

The judge’s order allows the Company to conduct depositions of Well Thrive’s former lawyer, Dr.

On March 13, 2018, the

Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice.

On March 27, 2018, Well Thriv e filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case.

The judge’s order allow ed the Company to conduct depositions of Well Thrive’s former lawyer, Dr.

Chiou, and Mr.

Chang Sheng- Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement.

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

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

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

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

The Court set a trial date of March 2, 2020, if needed.

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

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

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

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

As of August 31, 2019, the Company has paid the $3.35 million in full.

The Court held a trial on March 2, 2020.

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

Both sides submitted post-trail briefs and proposed findings of fact on April 30, 2020, and the judge set a hearing for November 18 , 2020 .

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

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On May 24, 2019, Taiwan Miao-Li District Court determined on its own initiative to transfer the case to the Taiwan Hsin-Chu District Court due to a lack of jurisdiction over the action in whole or in part.

On August 16, 2019, the Taiwan Hsin-Chu District Court held the first mediation proceeding, and on September 27, 2019, the Plaintiff and Taiwan Bandaoti Zhaoming had the first oral argument.

The next oral argument will be held on December 6, 2019.

Except as described above, as of August 31, 201 9 , there was no pending litigation that could have a material impact on the Company’s financial position, results of operations o r cash flows.

At its Annual Meeting held on June 29, 2018 (Taiwan time), the Company’s stockholders approved an amendment to its Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), to reduce the number of authorized shares of common stock from 75,000,000 to 7,500,000.

The amendment did not change any of the rights and privileges of the Company’s common stock or its par value, and did not affect the number of shares of the Company’s common stock currently outstanding.

Accordingly, the authorized common shares disclosures for all periods presented have been retrospectively adjusted to reflect this amendment of its Restated Certificate of Incorporation.

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

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

Except as described above, as of August 31, 2020, there was no pending 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 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 into 100,000 shares of the Company’s common stock (see Note 5).

STOCK ‑ BASED COMPENSATION

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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 to 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 July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023, to remove the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period.

Prior to SemiLEDs’ initial public offering, the Company had another stock‑based compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering.

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

A total of 1,021 thousand and 521 thousand shares were reserved for issuance under the 2010 Plan as of August 31, 2019 and 2018, respectively.

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

As of August 31, 2020 and 2019, there were 548 thousand and 691 thousand shares of common stock available for future issuance under the 2010 Plan.

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

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

In September 2019, SemiLEDs granted 5 thousand restricted stock units to its directors, which vested 100% on July 31, 2020.

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

In September 2019, SemiLEDs granted 2.5 thousand restricted stock units to a director, which vested 100% on September 5, 2020.

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

In July 2018, SemiLEDs granted 7.5 thousand restricted stock units to its directors.

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The grant-date fair value of the restricted stock units was $4.75 per unit.

In January 2018, SemiLEDs granted 56.7 thousand restricted stock units to its employees, of which 50% vested on January 1, 2019 and 50% will be vested on January 1, 2020 or will become fully vested upon a change in control.

In January 2018, SemiLEDs granted 56.7 thousand restricted stock units to its employees, of which 50% vested on January 1, 2019 and 50% vested on January 1, 2020.

The grant-date fair value of the restricted stock units was $4.10 per unit.

In November 2017, SemiLEDs granted 2.5 thousand restricted stock units to its directors that vested 100% on June 29, 2018.

The grant-date fair value of the restricted stock units was $4.15 per unit, respectively.

Stock ‑ based Compensation Expense

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Outstanding—August 31, 2020

As of August 31, 201 9 and 201 8 , unrecognized compensation cost related to unvested restricted stock unit awards of $ 41 thousand and $ 202 thousand , respectively, is expected to be recognized over a weighted average period of 0.34 years and 1.24 years, respectively, and will be adjusted for subsequent changes in es timated forfeitures.

As of August 31, 2020 and 2019, unrecognized compensation cost related to unvested restricted stock unit awards of $284 thousand and $41 thousand, respectively, is expected to be recognized over a weighted average period of 3.36 years and 0.34 years, respectively, and will be adjusted for subsequent changes in estimated forfeitures.

NET LOSS PER SHARE OF COMMON STOCK

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Stock units and stock options to purchase common stock

Convertible notes to convert into common stock

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.

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The Company’s loss before income taxes is primarily derived from the operations in Taiwan and income tax expense is primarily incurred in Taiwan.

A s a result of amendments to the “Taiwan Income Tax Act” enacted by the O ffice of the President of Taiwan on February 7, 2018, the statutory income tax rate increased from 17% to 20% and the undistributed earnin g tax, or a surtax, decreased from 10% to 5% effective from January 1, 2018.

As a result, t he statutory income tax rate in Taiwan is 20% and 17% for t he year s ended August 31, 2019 and 2018, respectively .

An additional surtax, of which rate was reduce d 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 follow ing year.

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, 2020 and 2019.

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.

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Income tax expense differed from the amounts computed by applying the statutory U.S.

federal income tax rate of 21% and 34% to loss before income taxes for the years ended August 31, 2019 and 2018, respectively, as a result of the following (in thousands):

federal income tax rate of 21% to loss before income taxes for the years ended August 31, 20 20 and 201 9 , as a result of the following (in thousands):

Years Ended August 31,

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Stock-based compensation

Investments in unconsolidated entities

Net operating loss carryforwards

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NOLs generated after August 31, 2018 can be carryforward indefinitely.

The unused net operating los s carryforwards were as follows (in thousands):

The unused net operating loss carryforwards were as follows (in thousands):

federal net operating loss carryforwards

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(expiring in more than 5 years)

Foreign net operating loss carryforwards (indefinite life)

Total unused net operating loss carryforwards and income tax

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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.

During the year ended August 31, 2018, the Company recognized net loss of $8 thousand from cost method investment in Intematix based on the excess of the carry amount over the receivables that the investee notified after its liquidation being completed.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

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Cost of revenues

Gross profit (loss)

Operating expenses

Loss from operations

Net loss attributable to SemiLEDs stockholders

Net loss per share attributable to SemiLEDs stockholders,

Net income (loss) attributable to SemiLEDs stockholders

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

basic and diluted

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Cost of revenues

Gross profit (loss)

Operating expenses

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Accrued expenses and other current liabilities

Long-term debt, current portion

Total current liabilities

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Other income (expenses):

Gain on disposal of investments

Equity in losses from subsidiaries, net

Interest expenses

Other income (expenses), net

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RELATED PARTY TRANSACTIONS

On January 8, 2019, the Company entered into loan agreements with each of its Chairman and Chief Executive Officer and its largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%.

All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the canceled sale of the Company’s headquarters building pursuant to the agreement dated December 15, 2015.

The Company is required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively, unless the loans are accelerated pursuant to the loan agreements.

As of August 31, 2019, these loans totaled $3.2 million.

The loans are secured by a second priority security interest on the Company’s headquarters building

On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to J.R.

Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%.

Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021.

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

On May 25, 2020, each of the Holders converted $300,000 of the Notes into 100,000 shares of the Company’s common stock (see Note 5).

As of August 31, 2020 and 2019, these loans totaled $3.2 million.

The loans are secured by a second priority security interest on the headquarters building of the Company.

SUBSEQUENT EVENT

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.

On September 25, 2020, stockholders of SemiLEDs approved, at the annual meeting, the amended 2010 Equity Incentive Plan to increase the authorized share reserve by an additional 400,000 shares.

In November 2020, SemiLEDs granted 7.5 thousand restricted stock units to its directors that will vest 25% every three months on February 12, 2021, May 12, 2021, August 12, 2021 and November 12, 2021.

In the event that the 2021 annual meeting falls before November 12, 2021, 100% of the stock units shall immediately vest on the date of the 2021 annual meeting.

The grant-date fair value of the restricted stock units was $3.00 per unit.

In September 2019, SemiLEDs granted 2.5 thousand restricted stock units to a director that will vest 100% on the earlier of September 5, 2020 and the date of the 2020 annual meeting.

In November 2020, SemiLEDs granted 33 thousand restricted stock units to its employees, which will vest 25% every three months on February 12, 2021, May 12, 2021, August 12, 2021 and November 12, 2021 and will become fully vested upon a change in control.

The grant-date fair value of the restricted stock units was $3.00 per unit.

The Company has analyzed its operations subsequent to August 31, 2019 to the date these consolidated financial statements were issued, and has determined that it does not have any other material subsequent events to disclose in these consolidated financial statements.

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

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

Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data