What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-29 compared with 2020-11-17 · 145 added, 133 removed, 703 unchanged (28% of the section changed)

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Opinion on the Financial Statements

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

We have audited the accompanying consolidated balance sheets of SemiLEDs Corporation and its subsidiaries (the “Company”) as of August 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021 and 2020, 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.

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

As described in Note 2 to the financial statements, the Company incurred recurring losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern.

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

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

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

Change in Accounting Principle

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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 audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Accordingly, we express no such opinion.

Our audits 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matter Description

As described in Note 2 to the consolidated financial statements, the Company’s revenue is derived from the delivery of its products.

The sale of products by the Company is considered complete when the products are delivered at that time the ownership and risk of loss have been transferred to the customer.

The Company considers the contracts with its customer contain one performance obligation, and the Company is entitled to the consideration when performance obligation is satisfied at a point in time.

The amount of revenue to be recognized is determined by the contracts between the Company and its customer.

The Company recognizes revenue when the product is delivered.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by management in identifying and evaluating the performance obligation.

Auditor judgement is involved in performing our audit procedures to evaluate whether the timing and amount of revenue recognition was appropriately stated.

How the Critical Audit Matter Will Be Addressed in the Audit

Our audit procedures over determining the timing and amount of revenue recognition involved, among others, evaluation of management’s assessment in regard to the identification of performance obligation of revenue.

We selected customer agreements and performed the following procedures:

Evaluated the terms and conditions of each selected contract and the appropriateness of the accounting treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluated whether management’s conclusions were appropriate.

Tested the accuracy of management’s recognition of revenue for the performance obligation.

/s/ KCCW Accountancy Corp.

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Foreign currency transaction gain, net

Total other income (expenses), net

Total other income, net

Loss before income taxes

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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

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Gain on disposals of long-lived assets, net

Other non-cash expenses

Income recognized on patents assignment

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Refund of cash receipt-in-advance

Net cash provided by (used in) investing activities

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

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Repayments of long-term debt

Issuance of common stock for private placement

Issuance of common stock

Payment of offering costs

Acquisition of noncontrolling interests

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Effect of exchange rate changes on cash and cash equivalents

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET INCREASE IN CASH AND CASH EQUIVALENTS

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

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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.

On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with Xian Chang 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.

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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.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company has suffered losses from operations of $ 3.9 million and $ 2.1 million, and used net cash in operating activities of $ 1.7 million and $ 1.0 million for the years ended August 31, 2021 and 2020, respectively.

These facts and conditions have raised substantial doubt about the Company’s ability to continue as a going concern, even though gross profit on product sales was $1.6 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.

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 $ 1.0 million for the year ended August 31, 2021 compared to $ 1.6 million for the year ended August 31, 2020.

On August 31, 2021, the Company’s cash and cash equivalents increased to $ 4.8 million, mainly due to the issuance of convertible notes and common stock from a 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.

The plan includes:

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

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

Raising additional cash through the issuance of convertible notes to the Company’s major stockholders, further equity offerings (including through as the Company’s ATM program), sales of assets and/or issuance of debt as considered necessary and looking at other potential business opportunities.

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

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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 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.

Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock‑based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies.

Management bases its estimates on historical experience and also on assumptions that it believes are reasonable.

Management assesses these estimates on a regular basis;

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

however, actual results could differ materially from those estimates.

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

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

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

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

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As of August 31, 2021 and 2020, cash and cash equivalents of the Company consisted of the following (in thousands):

The Company’s revenues are substantially derived from the sales of LED products.

A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets.

Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable.

Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period.

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

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

Cash and Cash Equivalents by Location

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Total cash and cash equivalents

The Company’s revenues are substantially derived from the sales of LED products.

A significant portion of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few select markets.

Management performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable.

Management evaluates the need to establish an allowance for doubtful accounts for estimated potential credit losses at each reporting period.

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

Customers that accounted for 10% or more of the Company’s total net accounts receivable as of August 31, 2021 and 2020 consist of the following:

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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.

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

Bad debt expenses were recognized $ 540 thousand and $ 0 during the years ended August 31, 2021 and 2020, respectively.

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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(“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 shares to 12,501,715 shares.

As of the date of this report, 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 shareholders, respectively.

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

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 was increased from zero to 3.31 %.

From January 2019 to September 2020, the Company purchased additional 33,000 common shares of SBDI from non-controlling shareholders.

Therefore, noncontrolling interest in SBDI declined to 3.05 % as of August 31, 2021.

Commitments and Contingencies — Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

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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”).

This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

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 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 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 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.

2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models.

Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components.

This modification will reduce the issue discount and result in less non-cash interest expense in financial statements.

ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares.

For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year.

The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”).

ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument.

An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification).

ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date.

Early adoption is permitted for all entities, including adoption in an interim period.

If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period.

The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.

BALANCE SHEET COMPONENTS

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The estimated future amortization expense for the Company’s intangible assets as of August 31, 2021 is as follows (in thousands):

Years Ending August 31,

Accrued Expenses and Other Current Liabilities

Years Ending August 31,

Accrued expenses and other current liabilities as of August 31, 2021 and 2020 consist of the following (in thousands):

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Accrued business expenses

Accrued professional service fees

Advance receipts

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

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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 $ 7.7 million as of August 31, 2021 and 2020, 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.

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 $ 3.39 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 was exclusively used to repay original notes with E Sun Bank.

The second note of $ 1.29 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 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 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 .

Income from renting the collateral must be deposited into a reserved account opened with Mega Bank, and only the balance of deposits exceeding $ 80 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 $ 90 thousand and $ 85 thousand as of August 31, 2021 and 2020, 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.

During this period, the Company did not need to pay the monthly payments of the principal but only the interest.

Starting from May 2021, the two notes payables to Mega Bank require monthly payments of principal in the amount of $ 27 thousand plus interest and $ 17 thousand plus interest, respectively, over the 74 -month term of the notes with final payment to occur in July 2027 .

On January 8, 2019, the Company entered into loan agreements with Trung Doan, 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 % .

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 (see Note 6).

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.

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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.

On December 6, 2019 and December 10, 2019, the Company issued two convertible unsecured promissory notes (the “Notes”) to each of 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 is 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.

On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and now mature on May 30, 2022.

As of August 31, 2021 and 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, 2021 consist of the following (in thousands):

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

August 31, 2020

Operating lease right of use assets

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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:

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There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated.

On June 21, 2017, Well Thrive filed a complaint against SemiLEDs Corporation in the United States District Court for the District of Delaware.

The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to the Purchase Agreement effective July 6, 2016 with Dr.

On June 21, 2017, Well Thrive Ltd.

(“Well Thrive”) filed a complaint against the Company in the United States District Court for the District of Delaware.

The complaint alleged that Well Thrive was entitled to return of $ 500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr.

Peter Chiou, which was assigned to Well Thrive on August 4, 2016.

Pursuant to the terms of the Purchase Agreement, the Company has retained the $500 thousand payment as liquidated damages.

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 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 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.

Pursuant to the terms of the Purchase Agreement, the Company retained the $500 thousand payment as liquidated damages.

Well Thrive alleged that the liquidated damages provision was unenforceable as an illegal penalty and did 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.

On January 2, 2019, the judge denied without prejudice the motion filed by the Company, because there remained some question as to whether Well Thrive’s former lawyers and Dr.

Chiou had authority from Well Thrive to settle this case.

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.

(“Taiwan Bandaoti”) filed a civil complaint against Taiwan Bandaoti in the Taiwan Miao-Li District Court.

The Plaintiff alleged the following causes of action under the Labor Standards Act of Taiwan:

(1) failure to pay the annual bonus;

and (2) failure to pay transportation allowance.

The Plaintiff is seeking compensation in the aggregate of approximately $9 thousand (NT$293 thousand).

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 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.

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

Both sides submitted post-trial briefs and proposed findings of fact on April 30, 2020.

On December 21, 2020, the judge, following a hearing, issued her judgment, which ordered the Company to return the $ 500 thousand to Well Thrive, and required both parties, on or before January 6, 2021, to submit information on the appropriate amount of interest to be added.

On January 6, 2021, the Company filed a brief arguing that there should not be an award of prejudgment interest and Well Thrive was arguing for the amount of $ 135,774 in pre-judgement interest.

On April 8, 2021, the judge issued a ruling requiring the Company to pay pre-judgment interest in the amount of $ 123,000 to Well Thrive.

On May 7, 2021, the Court of Appeal issued an order requiring the parties to mediate on June 28, 2021.

The Company and Well Thrive Ltd.

entered into an Agreement Regarding Satisfaction of Judgment dated June 14, 2021, as amended on June 16, 2021 and June 21, 2021 (collectively, the “Settlement Agreement”), pursuant to which the Company issued 35,365 shares (the “Shares”) of its common stock to Well Thrive Ltd.

The Shares were issued to satisfy the amount payable under the Settlement Agreement and, accordingly, no cash proceeds were received by the Company from the issuance of the Shares.

Except as described above, as of August 31, 2021, 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.

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

Pursuant to the terms of the Agreement, Mr.

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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.

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

Pursuant to the terms of the Agreement, Mr.

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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).

In June 2021, the Company and Well Thrive Ltd., entered into an Agreement Regarding Satisfaction of Judgement dated June 14, 2021 (collectively, the “Settlement Agreement”) pursuant to which the Company issued 35,365 shares (the “Shares”) of the common stock to Well Thrive Ltd, valued at $ 650,000 .

The Shares were issued to satisfy the amount payable under the Settlement Agreement and, accordingly, no cash proceeds were received by the Company from the issuance of the Shares.

On July 6, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”).

In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent the Company’s common stock having an aggregate offering price of up to $ 20,000,000 (the “Placement Shares”).

Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended.

The Company will pay a commission to the Agent of 3.0 % of the gross proceeds of the sale of the Placement Shares sold under the Agreement and reimburse the Agent for certain expenses.

In July 2021, 344,391 shares of the Company’s common stock were issued for gross proceeds of $ 4,175,225 , before placement agent fees and legal fees of $ 126,576 .

STOCK ‑ BASED COMPENSATION

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

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.

A total of 1,421 thousand and 1,021 thousand shares were reserved for issuance under the 2010 Plans of August 31, 2021 and 2020, respectively.

As of August 31, 2021 and 2020, there were 1026 thousand and 548 thousand shares of common stock available for future issuance under the 2010 Plan, respectively.

In November 2020, SemiLEDs granted 15,000 restricted stock units to its directors, which vested 25% on each of February 12, 2021, May 12, 2021 and August 12, 2021 and will vest 25 % on November 12, 2021.

If the 2021 annual meeting is held 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 November 2020, SemiLEDs granted 33,000 restricted stock units to its employees, which vested 25% on each of February 12, 2021, May 12, 2021 and August 12, 2021 and will vest 25 % on 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.

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.

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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.

Among which, 5 thousand restricted stock units vested 100% on June 29, 2019, and 2.5 thousand restricted stock units were cancelled because of resignation of a director.

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% vested on January 1, 2020.

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

Stock ‑ based Compensation Expense

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

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

The Black‑Scholes option‑pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected

to be outstanding, the implied stock volatilities of several of the Company’s publicly ‑ traded peers over the expected term of stock options, risk ‑ free interest rate and expected dividend.

The expected term is derived from historical data on employee exercises and post ‑ vesting employment termination behavior after taking into account the contractual life of the award.

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In accordance with SAB 118, the Company has made reasonable estimates related to (1) the remeasurement of its U.S.

deferred tax balances for the reduction in the statutory tax rate, (2) the liability for the transition tax and (3) the partial valuation allowance recorded against its federal NOL carryforward due to the impact of the GILTIand BEAT provisions.

In fiscal 2021, the Company determined that there were no material changes to the provisional amounts recorded as of August 31, 2021.

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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.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables set forth selected quarterly statement of operations data for each of the years ended August 31, 2020 and 2019 (in thousands, except per share data):

Three Months Ended

Revenues, net

Cost of revenues

Operating expenses

Loss from operations

Net income (loss) attributable to SemiLEDs stockholders

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

basic and diluted

Three Months Ended

Revenues, net

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,

basic and diluted

CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

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Interest expenses

Other income (expenses), net

Total other expenses, net

Other income, net

Total other (expenses) income, net

Years Ended August 31,

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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).

On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and now mature on May 30, 2022 .

As of August 31, 2021 and 2020, the outstanding principal of these notes totaled $ 1.4 million.

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 %.

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.

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

SUBSEQUENT EVENT

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.

SUBSEQUENT EVENTS

In November 2021, SemiLEDs granted 15 thousand restricted stock units to its directors that will vest 25 % every three months on February 12, 2022, May 12, 2022, August 12, 2022 and November 12, 2022.

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The grant-date fair value of the restricted stock units was $ 7.11 per unit.

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.

In November 2021, SemiLEDs granted 98.5 thousand restricted stock units to its employees, which will vest 12.5 % every three months on the vesting commencement date of November 2021 and will become fully vested upon a change in control.

The grant-date fair value of the restricted stock units was $ 7.11 per unit.

1 unchanged sentence

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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