SemiLEDs Corp 10-K

Item8. Financial Statements and Supplementary Data 37 Table of Contents A udit • T ax • C onsulting • F inancial A dvisory Registered with Public Company Accounting Oversight Board (PCAOB) 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 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 consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company incurred recurring losses from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description As described in Note 2 to the consolidated financial statements, the Company’s revenue is derived from the delivery of its products. The sale of products by the Company is considered complete when the products are delivered at that time the ownership and risk of loss have been transferred to the customer. 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. 38 Table of Contents The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by management in identifying and evaluating the performance obligation. Auditor judgement is involved in performing our audit procedures to evaluate whether the timing and amount of revenue recognition was appropriately stated. How the Critical Audit Matter Will Be Addressed in the Audit Our audit procedures over determining the timing and amount of revenue recognition involved, among others, evaluation of management’s assessment in regard to the identification of performance obligation of revenue. We selected customer agreements and performed the following procedures: - Evaluated the terms and conditions of each selected contract and the appropriateness of the accounting treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluated whether management’s conclusions were appropriate. - Tested the accuracy of management’s recognition of revenue for the performance obligation. /s/ KCCW Accountancy Corp. We have served as the Company’s auditor since 2019. Diamond Bar, California November 29, 2021 KCCW Accountancy Corp. 3333 South Brea Canyon Rd. #206, Diamond Bar, CA 91765, USA Tel: +1 909 348 7228 ● Fax: +1 909 895 4155 ● info@kccwcpa.com 39 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars and shares, except par value) August 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,833 $ 2,832 Restricted cash and cash equivalents 90 85 Accounts receivable (including related parties), net of allowance for doubtful accounts of $ 199 and $ 187 as of August 31, 2021 and August 31, 2020, respectively 865 1,331 Inventories 3,937 2,476 Prepaid expenses and other current assets 329 781 Total current assets 10,054 7,505 Property, plant and equipment, net 5,244 5,645 Operating lease right of use assets 1,635 203 Intangible assets, net 126 89 Investments in unconsolidated entities 1,011 952 Other assets 169 186 TOTAL ASSETS $ 18,239 $ 14,580 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current installments of long-term debt $ 5,109 $ 4,750 Accounts payable 753 536 Advance receipt toward the convertible note — 500 Accrued expenses and other current liabilities 2,783 2,654 Other payable to related parties 764 460 Operating lease liabilities, current portion 98 97 Total current liabilities 9,507 8,997 Long-term debt, excluding current installments 2,569 2,909 Operating lease liabilities, less current portion 1,537 106 Total liabilities 13,613 12,012 Commitments and contingencies (Note 6) EQUITY: SemiLEDs stockholders’ equity Common stock, $ 0.0000056 par value— 7,500 shares authorized; 4,460 shares and 4,011 shares issued and outstanding as of August 31, 2021 and August 31, 2020, respectively — — Additional paid-in capital 182,255 177,235 Accumulated other comprehensive income 3,543 3,647 Accumulated deficit ( 181,211 ) ( 178,360 ) Total SemiLEDs stockholders’ equity 4,587 2,522 Noncontrolling interests 39 46 Total equity 4,626 2,568 TOTAL LIABILITIES AND EQUITY $ 18,239 $ 14,580 See notes to consolidated financial statements. 40 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars and shares, except per share data) Years Ended August 31, 2021 2020 Revenues, net $ 4,735 $ 6,068 Cost of revenues 3,702 4,478 Gross profit 1,033 1,590 Operating expenses: Research and development 1,623 1,538 Selling, general and administrative 3,614 2,808 Gain on disposals of long-lived assets, net ( 286 ) ( 669 ) Total operating expenses 4,951 3,677 Loss from operations ( 3,918 ) ( 2,087 ) Other income (expenses): Gain on disposals of investment — 634 Interest expenses, net ( 371 ) ( 358 ) Other income, net 1,090 912 Foreign currency transaction gain, net 342 352 Total other income, net 1,061 1,540 Loss before income taxes ( 2,857 ) ( 547 ) Income tax expense — — Net loss ( 2,857 ) ( 547 ) Less: Net loss attributable to noncontrolling interests ( 6 ) ( 3 ) Net loss attributable to SemiLEDs stockholders $ ( 2,851 ) $ ( 544 ) Net loss per share attributable to SemiLEDs stockholders: Basic and diluted $ ( 0.68 ) $ ( 0.15 ) Shares used in computing net loss per share attributable to SemiLEDs stockholders: Basic and diluted 4,180 3,921 See notes to consolidated financial statements. 41 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands of U.S. dollars) Years Ended August 31, 2021 2020 Net loss $ ( 2,857 ) $ ( 547 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax of $ 0 for both periods ( 102 ) ( 103 ) Comprehensive loss ( 2,959 ) ( 650 ) Comprehensive loss attributable to noncontrolling interests ( 4 ) — Comprehensive loss attributable to SemiLEDs stockholders $ ( 2,955 ) $ ( 650 ) See notes to consolidated financial statements. 42 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands of U.S. dollars and shares) Accumulated Total Additional Other SemiLEDs Non- Common Stock Paid-in Comprehensive Accumulated Stockholders’ Controlling Total Shares Amount Capital Income Deficit Equity Interests Equity BALANCE—September 1, 2019 3,594 $ — $ 175,804 $ 3,753 $ ( 177,816 ) $ 1,741 $ 47 $ 1,788 Issuance of common stock under equity incentive plans 34 — — — — — — — Stock-based compensation — — 101 — — 101 — 101 Issuance of common stock for private placement 183 — 700 — — 700 — 700 Issuance of convertible notes — — 39 — — 39 — 39 Conversion of notes into common stocks 200 — 592 — — 592 — 592 Change ownership in SBDI* — — ( 1 ) — — ( 1 ) ( 1 ) ( 2 ) Comprehensive income (loss) Other comprehensive income (loss) — — — ( 106 ) — ( 106 ) 3 ( 103 ) Net loss — — — — ( 544 ) ( 544 ) ( 3 ) ( 547 ) BALANCE—August 31, 2020 4,011 — 177,235 3,647 ( 178,360 ) 2,522 46 2,568 Issuance of common stock under equity incentive plans 69 — — — — — — — Stock-based compensation — — 186 — — 186 — 186 Issuance of common stock for private placement 345 — 4,175 — — 4,175 — 4,175 Issuance of convertible notes — — 18 — — 18 — 18 Conversion of notes into common stocks 35 — 650 — — 650 — 650 Change ownership in SBDI* — — ( 9 ) — — ( 9 ) ( 3 ) ( 12 ) Comprehensive income (loss) Other comprehensive income (loss) — — — ( 104 ) — ( 104 ) 2 ( 102 ) Net loss — — — — ( 2,851 ) ( 2,851 ) ( 6 ) ( 2,857 ) BALANCE—August 31, 2021 4,460 $ — $ 182,255 $ 3,543 $ ( 181,211 ) $ 4,587 $ 39 $ 4,626 See notes to consolidated financial statements. * SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries. 43 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) Years Ended August 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 2,857 ) $ ( 547 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 897 843 Stock-based compensation expense 186 101 Bad debt expense 540 — Provisions for inventory write-downs 659 709 Gain on disposals of investment — ( 634 ) Gain on disposals of long-lived assets, net ( 286 ) ( 669 ) Other non-cash expenses 150 — Income recognized on patents assignment Changes in : Accounts receivable 158 15 Inventories ( 1,974 ) ( 988 ) Prepaid expenses and other assets 37 131 Accounts payable 175 ( 139 ) Accrued expenses and other current liabilities 578 177 Net cash used in operating activities ( 1,737 ) ( 1,001 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 118 ) ( 271 ) Proceeds from sales of property, plant and equipment 291 669 Proceeds from disposals of investments — 140 Payments for development of intangible assets ( 14 ) ( 20 ) Refund of cash receipt-in-advance — — Net cash provided by investing activities 159 518 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt — 2,000 Repayments of long-term debt ( 173 ) ( 283 ) Issuance of common stock 4,302 700 Payment of offering costs ( 127 ) — Acquisition of noncontrolling interests ( 12 ) ( 2 ) Net cash provided by financing activities 3,990 2,415 Changes in cash balance included in deconsolidated subsidiaries ( 61 ) Effect of exchange rate changes on cash and cash equivalents ( 396 ) ( 330 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 2,016 1,541 CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of year 3,012 1,471 CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—End of year $ 5,028 $ 3,012 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 374 $ 47 Cash paid for income taxes $ — $ — NONCASH INVESTING AND FINANCING ACTIVITIES: Accrual related to property, plant and equipment $ 17 $ 9 See notes to consolidated financial statements. 44 Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended August 31, 2021 and 2020 1. BUSINESS SemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on January 4, 2005 and is a holding company for various wholly owned subsidiaries. SemiLEDs and its subsidiaries (collectively, the “Company”) develop, manufacture and sell high performance light emitting diodes (“LEDs”). The Company’s core products are LED components, LED modules and systems, as well as LED chips and lighting products. LED components, modules and systems have become the most important part of its business. A portion of the Company’s business consists of the sale of contract manufactured LED products. The Company’s customers are concentrated in a few select markets, including Netherlands, Taiwan, the United States, Germany and India. As of August 31, 2021, 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 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. 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 trades the Nasdaq Capital Market under the symbol “LEDS”. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation —The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Going Concern —The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements. The Company has suffered losses from operations of $ 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 $ 1.0 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. The growth of the Company’s module products and the continued commercial sales of its UV LED products are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focused on product enhancement and developing its LED product into many other applications or devices; • Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent with its existing contractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial flexibility; and • 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. 45 Table of Contents While the Company's management believes that the measures described in the above liquidity plan will be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are issued , there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on its business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These consolidated financial statements and financial statement schedule do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied the following five steps to achieve the core principles of ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the customer. The Company provides its customers with limited rights of return for non‑conforming shipments and product warranty claims. Based on historical return percentages, which have not been material to date, and other relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated balance sheets. The Company also provides standard product warranties on its products, which generally range from three months to two years . Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant. Principles of Consolidation —The consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation. On September 1, 2018, the Company adopted ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). This standard allows equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investees) that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment at each reporting period. When a qualitative assessment indicates that impairment exists, the Company is required to measure the investments at fair value. Investments in which the Company has the ability to exercise significant influence over the investee but not a controlling financial interest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that are not subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participating rights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these equity‑method entities is reported in the consolidated balance sheets in investments in unconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealized intercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When net losses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment under the equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its share of the cumulative losses that have not been previously recognized during the period the equity method is suspended. Investments in entities that are not consolidated or accounted for under the equity method are recorded as investments without readily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. If the fair value of an equity investment declines below its respective carrying amount and the decline is determined to be other‑than‑temporary, the investment will be written down to its fair value. 46 Table of Contents Use of Estimates— The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization of deferred tax assets, valuation of stock‑based compensation expense, the useful lives of property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies. Management bases its estimates on historical experience and also on assumptions that it believes are reasonable. Management assesses these estimates on a regular basis; however, actual results could differ materially from those estimates. Certain Significant Risks and Uncertainties — The Company is subject to certain risks and uncertainties that could have a material and adverse effect on the Company’s future financial position or results of operations, which risks and uncertainties include, among others: it has incurred significant losses over the past few years, any inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect its intellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company to raise additional funds in the future. Concentration of Supply Risk— Some of the components and technologies used in the Company’s products are purchased and licensed from a limited number of sources and some of the Company’s products are produced by a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its 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 cashflows. Concentration of Credit Risk— Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. 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. August 31, Cash and Cash Equivalents by Location 2021 2020 United States; Denominated in U.S. dollars $ 1,162 $ 251 Taiwan; Denominated in U.S. dollars 3,405 2,514 Denominated in New Taiwan dollars 47 52 Denominated in other currencies 219 15 China (including Hong Kong); Denominated in Renminbi — — Denominated in H.K. dollars — — Total cash and cash equivalents $ 4,833 $ 2,832 47 Table of Contents 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: August 31, Customers 2021 2020 Customer A 53 % 50 % Customer B 20 % — % Customer C 0 % 29 % Customer G 8 % 5 % The customers accounted for 10% or more of the Company’s total net revenues for the years ended August 31, 2021 and 2020, as follows (in thousands, except percentages): Years Ended August 31, 2021 2020 % of % of Customers Amount Revenues Amount Revenues Customer A $ 1,260 27 % $ 1,005 17 % Customer B 721 15 % 1,828 30 % Customer C 502 11 % 237 4 % Customer D — 0 % 862 14 % Cash and Cash Equivalents —The Company considers all highly liquid investment instruments purchased with initial maturities of three months or less to be cash equivalents. As of August 31, 2021 and 2020, cash and cash equivalents of the Company consist of the following (in thousands): August 31, Cash and Cash Equivalents 2021 2020 Cash; Cash and demand deposits $ 4,833 $ 2,832 Cash equivalents; Money market funds — — Total cash and cash equivalents $ 4,833 $ 2,832 Restricted Cash Equivalents— Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of August 31, 2021 and 2020, the Company’s restricted cash equivalents at current portion amounted $ 90 thousand and $ 85 thousand, respectively. As of August 31, 2021 and 2020, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $ 105 thousand and $ 95 thousand, respectively. Foreign Currency — The Company’s subsidiaries use the local currency as their functional currency. The assets and liabilities of the subsidiaries are, therefore, translated into the U.S. dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive income (loss) within equity. Income and expense accounts are translated at average exchange rates during the period. Any gains and losses from transactions denominated in foreign currencies are recognized in the consolidated statements of operations as a separate component of other income (expense). Accounts Receivable — Accounts receivable (including related parties with zero net book value as of August 31, 2021 and 2020, respectively) are recorded at invoiced amounts, net of allowances for doubtful accounts, and do not bear interest. The allowance for doubtful accounts is based on management’s assessment of the collectability of customer 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. Bad debt expenses were recognized $ 540 thousand and $ 0 during the years ended August 31, 2021 and 2020, respectively. 48 Table of Contents Inventories — Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value. Cost is determined using a weighted average. For work in process and manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Company’s production overhead. The Company writes down excess and obsolete inventory to its estimated net realizable value based upon assumptions about future demand and market conditions. For finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write‑downs are included in cost of revenues in the consolidated statements of operations. Once written down, inventories are carried at this lower cost basis until sold or scrapped. Property, Plant and Equipment — Property, plant and equipment are stated at cost less accumulated depreciation, amortization and impairment. Depreciation on property, plant and equipment is calculated using the straight‑line method over the estimated useful lives, less estimated salvage values of the assets. Leasehold improvements are amortized using the straight‑line method over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives of property, plant and equipment are as follows: Buildings and improvements 5 to 20 years Machinery and equipment 1 to 10 years Leasehold improvements 2 to 10 years Other equipment 2 to 6 years Major Maintenance Activities — The Company incurs maintenance costs on its major equipment. Repair and maintenance costs are expensed as incurred. Intangible Assets — Intangible assets consist of patents, trademarks and acquired technology. Intangible assets are initially recognized at their respective acquisition costs. All of the Company’s intangible assets have been determined to have finite useful lives and are, therefore, amortized using the straight‑line method over their estimated useful lives: Patents and trademarks 5 to 25 years Acquired technology 5 years Impairment of Long ‑ Lived Assets — Management evaluates the Company’s long‑lived assets, excluding goodwill, that consist of property, plant and equipment and intangible assets, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying amount of the asset over the estimated fair value of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third‑party independent appraisers, as considered necessary. No impairment charge was recognized in the years ended August 31, 2021 and 2020. Recovery of Investments in Unconsolidated Entities —Management evaluates the recoverability of the carrying amount of the Company’s equity investments accounted for using the equity method and cost method when there is an indication of potential impairment. If the estimated realizable value of an equity investment falls below its carrying amount and management determines that this shortfall is other‑than‑temporary, the carrying amount of such investment is written down to its estimated realizable value. In determining whether a decline in value is other‑than‑temporary, management considers the length of time and the extent to which such value has been less than the carrying amount, the financial condition and prospects of the investee, and the Company’s ability and intent to retain the equity investment for a period of time sufficient to allow for any anticipated recovery in value. No impairment charge was recognized in the year ended August 31, 2021 and 2020. Income Taxes —The Company accounts for income taxes under the asset and liability method. As part of the process of preparing the consolidated financial statements, the Company estimates its income taxes in each of the jurisdictions in which it operates. The Company estimates actual current tax expense together with assessing temporary differences resulting from differing accounting treatment for items such as accruals and allowances that are not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities which are included in the Company’s consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s consolidated statements of operations become deductible expenses under applicable income tax laws or when operating loss or tax credit carryforwards are utilized. Accordingly, realization of the deferred tax assets is dependent on the Company’s ability to earn future taxable income against which these deductions, losses and credits can be utilized. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the Company’s deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period the change in the tax law was enacted. 49 Table of Contents Management assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and, to the extent management believes that recovery is not more likely than not, a valuation allowance is established. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Stock ‑ based Compensation —Compensation costs related to employee stock options and restricted stock units are based on the fair value of the options and stock units on the date of grant, net of estimated forfeitures. The Company determines the grant date fair value of the options using the Black‑Scholes option‑pricing model. The related stock‑based compensation expense is generally recognized on a straight‑line basis over the period in which an employee is required to provide service in exchange for the options and stock units, or the vesting period of the respective options and stock units. Research and Development Costs —Research and development costs are expensed as incurred. Research and development costs are presented as a separate line item in the consolidated statements of operations. Advertising Costs —Advertising costs are expensed as incurred. Advertising costs totaled $ 1 thousand and $ 1 thousand for the years ended August 31, 2021 and 2020, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. Segment Reporting —The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions, allocating resources and assessing performance as the source for determining the Company’s reportable segments. During the years ended August 31, 2021 and 2020, the Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief operating decision maker regularly reviews consolidated assets and consolidated operating results prepared under U.S. GAAP for the enterprise as a whole when making decisions about allocating resources and assessing performance of the Company. Consequently, management has determined that the Company does not have any operating segments as defined in the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 280‑10‑50‑1, “Segment Reporting.” Shipping and Handling Costs — The Company includes costs from shipping and handling within cost of revenues in the period in which they are incurred. Net Income (Loss) Per Share of SemiLEDs Common Stock —Basic net income (loss) per share is computed by dividing net income (loss) attributable to SemiLEDs stockholders by the weighted average number of shares of common stock outstanding during the period. Net income (loss) attributable to SemiLEDs stockholders is determined by allocating undistributed earnings as if all of the earnings for the period had been distributed. Diluted net income (loss) per share is computed by using the weighted‑average shares of common stock outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and unvested restricted stock units using the treasury stock method. Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings. On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“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 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. Legal costs incurred in connection with loss contingencies are expensed as incurred. 50 Table of Contents Fair Value Measurements — The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: • Level1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. • Level2 Inputs: Other than quoted prices included in Level1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. • Level3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. See Note12 for further details. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 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. 51 Table of Contents 3. BALANCE SHEET COMPONENTS Inventories Inventories as of August 31, 2021 and 2020 consist of the following (in thousands): August 31, 2021 2020 Raw materials $ 564 $ 433 Work in process 1,217 792 Finished goods 2,156 1,251 Total $ 3,937 $ 2,476 Inventory write‑downs to estimated net realizable values for the years ended August 31, 2021 and 2020 were $ 659 thousand and $ 709 thousand, respectively. Property, Plant and Equipment Property, plant and equipment as of August 31, 2021 and 2020 consist of the following (in thousands): August 31, 2021 2020 Buildings and improvements $ 14,997 $ 14,104 Machinery and equipment 34,421 33,977 Leasehold improvements 176 166 Other equipment 2,547 2,384 Construction in progress — 7 Total property, plant and equipment 52,141 50,638 Less: Accumulated depreciation and amortization ( 46,897 ) ( 44,993 ) Property, plant and equipment, net $ 5,244 $ 5,645 Depreciation expense was $ 879 thousand and $ 831 thousand for the years ended August 31, 2021 and 2020, respectively. Property, plant and equipment pledged as collateral for the Company’s notes payable were $ 3.5 million and $ 3.6 million as of August 31, 2021 and 2020, respectively. Intangible Assets Intangible assets as of August 31, 2021 and 2020consist of the following (in thousands): August 31, 2021 Weighted Average Gross Net Amortization Carrying Accumulated Carrying Period (Years) Amount Amortization Amount Patents and trademarks 15 $ 627 $ 501 $ 126 Acquired technology 5 367 367 — Total $ 994 $ 868 $ 126 August 31, 2020 Weighted Average Gross Net Amortization Carrying Accumulated Carrying Period (Years) Amount Amortization Amount Patents and trademarks 15 $ 550 $ 461 $ 89 Acquired technology 5 345 345 — Total $ 895 $ 806 $ 89 Amortization expense was $ 18 thousand and $ 12 thousand for the years ended August 31, 2021 and 2020, respectively. No impairment charge was recognized in the year ended August 31, 2021 and 2020. 52 Table of Contents The estimated future amortization expense for the Company’s intangible assets as of August 31, 2021 is as follows (in thousands): Accrued Expenses and Other Current Liabilities Years Ending August 31, Total 2022 $ 11 2023 11 2024 10 2025 10 2026 10 Thereafter 74 Total $ 126 Accrued expenses and other current liabilities as of August 31, 2021 and 2020 consist of the following (in thousands): August 31, 2021 2020 Accrued compensation and benefits $ 1,694 $ 1,661 Customer deposits 293 148 Accrued business expenses 200 144 Accrued professional service fees 283 133 Advance receipts Other (individually less than 5 % of total accrued expenses and other current liabilities) 313 568 Total $ 2,783 $ 2,654 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of August 31, 2021 and 2020 consist of the following (in thousands, except percentages): August 31, 2021 August 31, 2020 Percentage Percentage Ownership Amount Ownership Amount Equity investment without readily determinable fair value Various $ 1,011 Various $ 952 Total investments in unconsolidated entities $ 1,011 $ 952 There were no dividends received from unconsolidated entities through August 31, 2021. Equity Investment without Readily Determinable Fair Value Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the Company) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. All equity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The recoverable value of the investment was determined based on the Company’s best estimate of the amount that could be realized from the investment, which considered the latest financial information. During the year ended August 31, 2021 and 2020, no impairment losses were recognized for the equity investments without readily determinable fair value. 53 Table of Contents 5. INDEBTEDNESS Long ‑ term Debt Long‑term debt as of August 31, 2021 and 2020 consist of the following loans (in thousands): August 31, 2021 2020 First note payable- Mega Bank $ 1,917 $ 1,905 Second note payable- Mega Bank 1,175 1,168 Loans from Chairman and Shareholders 3,200 3,200 Convertible notes issued to Chairman and Shareholders 1,386 1,386 Total long-term debt 7,678 7,659 Less: Current installments ( 5,109 ) ( 4,750 ) Total long-term debt, excluding current installments $ 2,569 $ 2,909 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”) 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 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 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. 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, 2021 and 2020, 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, 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): Scheduled Principal Years Ending August 31, Payments 2022 $ 5,109 2023 523 2024 523 2025 523 2026 523 Thereafter 477 Total $ 7,678 54 Table of Contents 6. COMMITMENTS AND CONTINGENCIES Operating Lease Agreements — The Company has several operating leases with third parties, primarily for land, plant and office spaces in Taiwan, including cancellable and noncancelable leases that expire at various dates between December 2021 and December 2040 . Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases 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 $ 164 thousand and $ 156 thousand for the years ended August 31, 2021 and 2020, respectively. Balance sheet information related to the Company’s leases is presented below: August 31, 2021 2020 Assets Operating lease right of use assets $ 1,635 $ 203 Liabilities Operating lease liabilities, current portion $ 98 $ 97 Operating lease liabilities, less current portion 1,537 106 Total $ 1,635 $ 203 The following provides details of the Company’s lease expenses: August 31, 2021 2020 Operating lease expenses $ 164 $ 156 Other information related to leases is presented below: August 31, 2021 2020 Cash Paid for amounts Included In Measurement of Liabilities: Operating cash flows from operating leases $ 164 $ 156 Weighted Average Remaining Lease Term: Operating leases 18.74 years 2.34 years Weighted Average Discount Rate Operating leases 1.76 % 1.76 % As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-related parties of 1.76% 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, 2021 consist of the following (in thousands): 55 Table of Contents Operating Years Ending August 31, Leases 2022 $ 126 2023 105 2024 105 2025 105 2026 105 Thereafter 1,369 Total future minimum lease payments, undiscounted 1,915 Less: Imputed interest 280 Present value of future minimum lease payments $ 1,635 Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $ 101 thousand and $ 33 thousand as of August 31, 2021 and 2020, respectively. 56 Table of Contents Litigation — The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably estimated. 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 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, 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. 7. COMMON STOCK 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. 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 Feng Shuang 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, 2020. 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). 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 . 57 Table of Contents 8. STOCK ‑ BASED COMPENSATION The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010 Plan that increases the number of shares authorized for issuance under the plan by an additional 250 thousand shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023 , to remove the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period. 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 1,421 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. 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. Stock ‑ based Compensation Expense The total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stock units granted to employees, directors, nonemployees and also includes stock options to purchase SemiLEDs’ common stock as part of an employment agreement related to the Company’s acquisition of SBDI (later on renamed as TSLC Corporation). A summary of the stock-based compensation expense for the years ended August 31, 2021 and 2020is as follows (in thousands): Years Ended August 31, 2021 2020 Cost of revenues $ 51 $ 27 Research and development 43 21 Selling, general and administrative 92 53 $ 186 $ 101 Stock‑based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock‑based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock‑based awards with vesting term that is less than or equal to one year from the date of grant. There was no recognized stock-based compensation tax benefit for the years ended August 31, 2021 and 2020, as the Company recorded a full valuation allowance on net deferred tax assets as of August 31, 2021 and 2020. Stock Options Awards The grant date fair value of stock options is determined using the Black‑Scholes option‑pricing model. The Black‑Scholes option‑pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected 58 Table of Contents to be outstanding, the implied stock volatilities of several of the Company’s publicly ‑ traded peers over the expected term of stock options, risk ‑ free interest rate and expected dividend. The expected term is derived from historical data on employee exercises and post ‑ vesting employment termination behavior after taking into account the contractual life of the award. The risk ‑ free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the related options. The expected dividend has been zero for the Company’s option grants as SemiLEDs has never paid dividends and does not expect to pay dividends for the foreseeable future. Each of these inputs is subjective and generally requires significant judgment to determine. A summary of the option activity and changes for the years ended August 31, 2021 and 2020 is presented below: Weighted- Weighted- Average Number of Average Remaining Aggregate Stock Options Exercise Contractual Intrinsic Outstanding Price Life (Years) Value (In thousands) (In thousands) Outstanding—September 1, 2019 10 $ 133.82 1.4 $ — Granted — — Forfeited ( 2 ) 41.00 Exercised — — Outstanding—August 31, 2020 8 $ 159.00 0.5 $ — Granted Forfeited ( 8 ) 159.00 Exercised Outstanding—August 31, 2021 — $ — — $ — Vested and expected to vest—August 31, 2021 — $ — — $ — Exercisable—August 31, 2021 — $ — — $ — As of August 31, 2021 and 2020, unrecognized compensation costs related to unvested stock options were nil. Restricted Stock Units Awards The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term. A summary of the restricted stock unit awards outstanding and changes for the years ended August 31, 2021 and 2020 is presented below: Weighted- Number of Average Stock Units Grant Date Outstanding Fair Value (In thousands) Outstanding—September 1, 2019 29 $ 4.10 Granted 144 2.39 Vested ( 34 ) 3.86 Forfeited — — Outstanding—August 31, 2020 139 $ 2.39 Granted 48 3.00 Vested ( 69 ) 2.70 Forfeited ( 15 ) 2.51 Outstanding—August 31, 2021 103 $ 2.46 As of August 31, 2021 and 2020, unrecognized compensation cost related to unvested restricted stock unit awards of $ 205 thousand and $ 284 thousand, respectively, is expected to be recognized over a weighted average period of 2.09 years and 3.36 years, respectively, and will be adjusted for subsequent changes in estimated forfeitures. 59 Table of Contents 9. NET LOSS PER SHARE OF COMMON STOCK The following stock‑based compensation plan awards were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have an antidilutive effect on the net loss per share (in thousands of shares): Years Ended August 31, 2021 2020 Stock units and stock options to purchase common stock 70 182 Convertible notes to convert into common stock 235 431 10. INCOME TAXES Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. United States SemiLEDs Corporation is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the period. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the U.S. corporate income tax system including, among other things, lowering the U.S. statutory federal tax rate to 21%. The reduction of the U.S. corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to the lower federal rate of 21 % in the fiscal year ended August 31, 2019. The Tax Act also added many new provisions, including a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries (“transition tax”), changes to bonus depreciation, limits on deductions for executive compensation and interest expense, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign-derived intangible income. The Company has elected to account for the tax on GILTI and BEAT as a period cost and thus has not adjusted any net deferred tax assets of its foreign subsidiaries for the new tax. However, the Company has considered the potential impact of GILTI and BEAT on its U.S. federal net operating loss (“NOL”) carryforward and determined that the projected tax benefit to be received from its NOL carryforward may be reduced due to these provisions. The changes included in the Tax Act are broad and complex. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118), as amended by ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company’s accounting for the tax effects of the Tax Act were completed in fiscal 2019. Although the Company believes the effects of the Tax Act have been appropriately recorded, it will continue to monitor, among other things, changes in interpretations of the Tax Act, any legislative action arising because of the Tax Act and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. The Company intends to assess the impact of any such changes in legislative interpretations or standards and adjust its provision as new information becomes available. In accordance with SAB 118, the Company has made reasonable estimates related to (1) the remeasurement of its U.S. deferred tax balances for the reduction in the statutory tax rate, (2) the liability for the transition tax and (3) the partial valuation allowance recorded against its federal NOL carryforward due to the impact of the GILTI and BEAT provisions. In fiscal 2021, the Company determined that there were no material changes to the provisional amounts recorded as of August 31, 2021. Taiwan The Company’s loss before income taxes is primarily derived from the operations in Taiwan and income tax expense is primarily incurred in Taiwan. As a result of amendments to the “Taiwan Income Tax Act” enacted by the Office of the President of Taiwan on February 7, 2018, the statutory income tax rate increased from 17 % to 20 % and the undistributed earning tax, or a surtax, decreased from 10 % to 5 % effective from January 1, 2018. As a result, the statutory income tax rate in Taiwan is 20 % for the years ended August 31, 2021 and 2020. 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. 60 Table of Contents The Company’s loss before income taxes for the years ended August 31, 2021 and 2020was attributable to the following jurisdictions (in thousands): Years Ended August 31, 2021 2020 U.S. operations $ ( 1,156 ) $ ( 310 ) Foreign operations ( 1,701 ) ( 237 ) Loss before income taxes $ ( 2,857 ) $ ( 547 ) Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21 % to loss before income taxes for the years ended August 31, 2021 and 2020, as a result of the following (in thousands): Years Ended August 31, 2021 2020 Computed “expected” income tax benefit $ ( 115 ) $ ( 115 ) Foreign tax rate differential 19 3 Valuation allowance ( 239 ) ( 286 ) Other 335 398 Income tax expense $ — $ — Net deferred tax assets (liabilities) as of August 31, 2021 and 2020 consist of the following (in thousands): August 31, 2021 2020 Deferred tax assets: Inventories, primarily due to inventory obsolescence and lower of cost or market provisions $ 1,848 $ 1,719 Allowance for doubtful accounts 38 35 Accruals and other ( 159 ) ( 60 ) Property, plant and equipment 738 871 Stock-based compensation 392 388 Net operating loss carryforwards 30,924 29,302 Total gross deferred tax assets 33,781 32,255 Less: Valuation allowance ( 33,781 ) ( 32,255 ) Deferred tax assets, net of valuation allowance $ — $ — A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and operating loss carryforwards utilizable. Management considers the scheduled reversal of deferred tax liabilities, carryback availability, projected future income, and tax-planning strategies in making this assessment. The Company established full valuation allowances to offset all of its deferred tax assets due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. 61 Table of Contents As of August 31, 2021 the Company had the U.S. net operating losses (the “U.S. NOLs”) of approximately $ 29,889 thousand, which begins to expire in 2025 . The U.S. NOLs generated in tax years prior to August 31, 2018, can be carryforward for twenty years, whereas U.S. NOLs generated after August 31, 2018 can be carryforward indefinitely. The unused net operating loss carryforwards were as follows (in thousands): August 31, Expiration 2021 Year U.S. federal net operating loss carryforwards (prior to August 31, 2018) $ 12,892 2025-2037 U.S. federal net operating loss carryforwards (after August 31, 2018) 16,997 — Foreign net operating loss carryforwards (expiring over the next 5 years) 98,088 2021-2025 Foreign net operating loss carryforwards (expiring in more than 5 years) 23,992 2026-2030 Total unused net operating loss carryforwards and income tax credits $ 151,969 Unrecognized Tax Benefits On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporate income tax rate to 21% from 34 % (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s deductions for payments to the subsidiaries. Provisional estimate of the Company is that no tax will be due under this provision. As of August 31, 2021 and 2020, the Company had no unrecognized tax benefits. The Company is subject to taxation in the United States and various states and certain foreign jurisdictions. As of August 31, 2021, the 2016 through 2019 tax years remain subject to examination by the U.S. tax authorities. With few exceptions, as of August 31, 2021, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2016. Below is a summary of open tax years by major tax jurisdiction: Open Tax Year U.S. federal 2017-2020 U.S. state 2017-2020 Foreign—Taiwan 2020 The Company is not currently under examination by income tax authorities in any federal, state or foreign jurisdictions. The Company does not expect that the total amount of unrecognized tax benefits will change significantly within the next 12 months. 11 . PRODUCT AND GEOGRAPHIC INFORMATION Revenues by products for the years ended August 31, 2021 and 2020 are as follows (in thousands): Years Ended August 31, 2021 2020 LED chips $ 171 $ 69 LED components 3,259 3,977 Lighting products 730 548 Other (1) 575 1,474 Total $ 4,735 $ 6,068 (1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services. 62 Table of Contents Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic area for the years ended August 31, 2021 and 2020 (in thousands): Years Ended August 31, 2021 2020 United States $ 1,550 $ 2,429 Netherlands 1,274 1,009 Ireland 8 862 Japan 504 477 Taiwan 155 366 Germany 380 238 China 256 105 Other (individually less than 5% of total net revenues) 608 582 Total $ 4,735 $ 6,068 Tangible Long ‑ Lived Assets Substantially all of the Company’s tangible long‑lived assets are located in Taiwan. 1 2 . FAIR VALUE MEASUREMENTS The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of August 31, 2021 and 2020 (in thousands): August 31, 2021 August 31, 2020 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and cash equivalents and restricted cash $ 4,923 $ 4,923 $ 2,917 $ 2,917 Receivables (including related parties) 865 865 1,331 1,331 Other assets (non-derivatives) 248 248 809 809 Financial liabilities: Payables (including related parties) $ 4,300 $ 4,300 $ 4,150 $ 4,150 Long-term debt (including current installments) 7,678 7,678 7,659 7,659 The fair values of the financial instruments shown in the above table as of August 31, 2021 and 2020 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based on the best information available in the circumstances, including expected cash flows and appropriately risk‑adjusted discount rates, available observable and unobservable inputs. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: • Cash, cash equivalents, restricted cash, receivables and payables (including related parties) and notes payable to banks: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments. • Other assets (non‑derivatives) include primarily value‑added tax (“VAT”) refund receivables, refundable deposits, and restricted time deposits. The fair value of VAT refund receivables approximates the carrying amount because of the short maturity. The fair value of refundable deposits and restricted time deposits with no fixed maturity is based on the carrying amount. • Long‑term debt: The fair value of the Company’s variable rate long‑term debt is estimated based on the prevailing market rate adjusted by the Company’s credit spread. 63 Table of Contents 1 3 . CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS As a holding company, dividends received from SemiLEDs’ subsidiaries in Taiwan, if any, will be subject to withholding tax under Taiwan law, as well as statutory and other legal restrictions. The condensed parent company only financial information for SemiLEDs is presented below (in thousands): August 31, Condensed Balance Sheets 2021 2020 ASSETS Cash and cash equivalents $ 1,162 $ 251 Prepaid expenses and other current assets 11,995 9,078 Total current assets 13,157 9,329 Intangible assets, net 1 1 Investments in subsidiaries ( 2,841 ) ( 1,072 ) TOTAL ASSETS $ 10,317 $ 8,258 LIABILITIES AND EQUITY Advance receipt toward the convertible note $ - $ 500 Accrued expenses and other current liabilities 1,104 650 Long-term debt, current portion 4,587 4,586 Total current liabilities 5,691 5,736 Total non-current liabilities — — Total equity 4,626 2,522 TOTAL LIABILITIES AND EQUITY $ 10,317 $ 8,258 SemiLEDs had no contingencies, long‑term obligations and guarantees as of August 31, 2021 or August 31, 2020. Years Ended August 31, Condensed Statements of Operations 2021 2020 Operating expenses: Selling, general and administrative $ 694 $ 641 Loss from operations ( 694 ) ( 641 ) Other income (expenses): Gain on disposal of investments — 634 Equity in losses from subsidiaries, net ( 1,697 ) ( 230 ) Interest expenses ( 322 ) ( 320 ) Other income, net ( 138 ) 13 Total other (expenses) income, net ( 2,157 ) 97 Net loss $ ( 2,851 ) $ ( 544 ) Years Ended August 31, Condensed Statements of Cash Flows 2021 2020 Net cash provided by (used in): Operating activities $ ( 3,264 ) $ ( 2,641 ) Investing activities — 140 Financing activities 4,175 2,700 Net increase (decrease) in cash and cash equivalents 911 199 Cash and cash equivalents at beginning of year 251 52 Cash and cash equivalents at end of year $ 1,162 $ 251 64 Table of Contents 1 4 . RELATED PARTY TRANSACTIONS 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). 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 %. 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, 2021 and 2020, these loans totaled $ 3.2 million. The loans are secured by a second priority security interest on the headquarters building of the Company. 15 . 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. In the event that the 2022 annual meeting falls before November 12, 2022, 100 % of the stock units shall immediately vest on the date of the 2022 annual meeting. The grant-date fair value of the restricted stock units was $ 7.11 per unit. 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. The Company has analyzed its operations subsequent to August 31, 2021 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. 65 Table of Contents Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.