SemiLEDS Corporation Annual Report 2020

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10‑K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended August 31, 2020OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission File Number: 001-34992 SemiLEDs Corporation(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization) 20‑2735523(I.R.S. EmployerIdentification Number) 3F, No.11 Ke Jung Rd., Chu‑Nan Site,Hsinchu Science Park, Chu‑Nan 350,Miao‑Li County, Taiwan, R.O.C.(Address of principal executive offices) 350(Zip Code) Registrant’s telephone number including area code: +886‑37‑586788Securities registered pursuant to Section 12(b) of the Act: Title of each class TradingSymbol(s) Name of each exchange on which registeredCommon Stock, par value $0.0000056 LEDs The Nasdaq Stock MarketSecurities registered pursuant to Section12(g) of the Act:None Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles).Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”in Rule 12b-2 of the Exchange Act. Large accelerated filer☐ Accelerated filer☐Non-accelerated filer☐ Smaller reporting company☒ Emerging growth company☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of itsinternal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm thatprepared or issued its audit report. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of voting stock held by non‑affiliates of the registrant as of February 28, 2020 (the last business day of the registrant’smost recently completed second fiscal quarter), based upon the closing price of the common stock reported by the NASDAQ Capital Market on suchdate, was approximately $4.9 million. Shares of common stock held by each executive officer and director of the registrant and by each person who owns10% or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination ofaffiliate status is not necessarily a conclusive determination for other purposes.Number of shares outstanding of the registrant’s Common Stock, par value $0.0000056 per share, as of November 13, 2020: 4,011,323. Table of Contents SemiLEDs CorporationTable of Contents PageNo.PART IItem 1. Business 1Item 1A. Risk Factors 7Item 1B. Unresolved Staff Comments 22Item 2. Properties 22Item 3. Legal Proceedings 22Item 4. Mine Safety Disclosures 22PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23Item 6. Selected Financial Data 23Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36Item 8. Financial Statements and Supplementary Data 36Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 63Item 9A. Controls and Procedures 63Item 9B. Other Information 63PART IIIItem 10. Directors, Executive Officers and Corporate Governance 64Item 11. Executive Compensation 68Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70Item 13. Certain Relationships and Related Transactions, and Director Independence 71Item 14. Principal Accountant Fees and Services 73PART IVItem 15. Exhibits and Financial Statement Schedules 74Item 16. Form 10-K Summary 75Signatures 76 Smaller Reporting Company— Scaled DisclosurePursuant to Item 10(f) of Regulation S‑K promulgated under the Securities Act of 1933, as amended, as indicated herein, we haveelected to comply with the scaled disclosure requirements applicable to “smaller reporting companies.” Table of Contents PART I.Forward‑looking StatementsThis Annual Report on Form 10‑K contains forward‑looking statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Form10‑K, including statements regarding the future results of operations of SemiLEDs Corporation, or “we,” “our” or the “Company,” andfinancial position, strategy and plans, and our expectations for future operations, are forward‑looking statements. Any statementscontained herein that are not statements of historical facts may be deemed to be forward‑looking statements. The words “believe,” “may,”“should,” “plan,” “potential,” “project,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” and similarexpressions are intended to identify forward‑looking statements. We have based these forward‑looking statements largely on our currentexpectations and projections about future events and trends that we believe may affect our financial condition, results of operations,strategy, short‑term and long‑term business operations and objectives, and financial needs. These forward‑looking statements are subjectto a number of risks, uncertainties and assumptions, including those described in Item 1A, Risk Factors. In light of these risks,uncertainties and assumptions, the forward‑looking events and circumstances discussed in this Form 10‑K may not occur, and actualresults and the timing of certain events could differ materially and adversely from those anticipated or implied in the forward‑lookingstatements as a result of many factors.Although we believe that the expectations reflected in the forward‑looking statements are reasonable, we cannot guarantee futureresults, levels of activity, performance or achievements. We have not assumed any obligation to, and you should not expect us to, updateor revise these statements because of new information, future events or otherwise.Item 1. BusinessCompany OverviewWe develop, manufacture and sell light emitting diode (LED) chips and LED components, LED modules and systems. Our productsare used for general lighting and specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy inmedical/cosmetic applications, counterfeit detection, germicidal and viricidal devices LED lighting for horticulture applications, architecturallighting and entertainment lighting.Utilizing our patented and proprietary technology, our manufacturing process begins by growing upon the surface of a sapphirewafer, or substrate, several very thin separate semiconductive crystalline layers of gallium nitride, or GaN, a process known as epitaxialgrowth, on top of which a mirror‑like reflective silver layer is then deposited. After the subsequent addition of a copper alloy layer andfinally the removal of the sapphire substrate, we further process this multiple‑layered material to create individual vertical LED chips.We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in afew select markets, including Taiwan, the United States, the Netherlands, Germany and India. We also sell our “Enhanced Vertical,” or EV,LED product series in blue, white, green and UV in selected markets. We sell our LED chips to packagers or to distributors, who in turn sellto packagers. Our lighting products customers are primarily original design manufacturers, or ODMs, of lighting products and the end‑usersof lighting devices. We also contract other manufacturers to produce for our sale certain LED products, and for certain aspects of ourproduct fabrication, assembly and packaging processes, based on our design and technology requirements and under our quality controlspecifications and final inspection process.We have developed advanced capabilities and proprietary know‑how in: •reusing sapphire substrate in subsequent production runs; •optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light; •employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance; •utilizing nanoscale surface engineering to improve usable light extraction; •manufacturing extremely small footprint LEDs with optimized yield, ideal for Mini LED applications; •developing a LED structure that generally consists of multiple epitaxial layers which are vertically‑stacked on top of a copperalloy base; •developing low cost Chip Scaled Packaging (CSP) technology; and •developing multi-pixel Mini LED packages for commercial displays.These technical capabilities enable us to produce LED chips, LED component, LED modules and System products. We believe thesecapabilities and know-how should also allow us to reduce our manufacturing costs and our dependence on sapphire, a costly raw materialused in the production of sapphire-based LED devices.1Table of Contents We were incorporated in the State of Delaware on January 4, 2005. We are a holding company for various wholly owned subsidiaries.SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is our wholly owned operating subsidiary, where a substantial portion of ourassets are held and located, where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDsowns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged inthe research, development, manufacture, and substantial portion of marketing and sale of LED products, including lighting fixtures andsystems, and where most of our employees are based.Our TechnologyOur proprietary technology integrates copper alloy in a vertical LED structure. We first grow epitaxial layers on a sapphire wafer. Theepitaxial layers are multiple doped GaN layers. At this point in the process, our structure has the following order: (i)sapphire; (ii)n‑dopedGaN (N‑GaN); (iii)multi‑quantum well layers (MQWs); and (iv)p‑doped GaN (P‑GaN). Next, we deposit and define (by patterning andetching) multiple metal layers on the P‑GaN layer. These metal layers consist of several different mirror layers and copper alloy layers, whichare deposited on top of the mirror layers by electroplating. The copper alloy metal layers, which are collectively called the P‑Contact MetalLayer, create low resistance contact with the P‑GaN layer.We then remove the sapphire wafer from the N‑GaN layer through laser radiation, and the sapphire wafer is removed from theproduction line and recycled. The remaining device structure—consisting of the P‑Contact Metal Layer on top of the epitaxial layers— isthen ready for further processing. To complete our LED device structure, we then deposit and define additional metal layers on top of theN‑GaN layers to achieve low resistance contact with the N‑GaN layers. These additional metal layers are collectively called the N‑ContactMetal Layer. After this process, our final LED chip structure is: (i)copper alloy metal layer; (ii)P‑GaN; (iii)MQWs; (iv)N‑GaN; and(v)N‑contact Metal layer. Our final LED chip structure is diced into individual LED chips and then separated, tested and binned according tocustomer specifications, such as wavelength (color) and brightness. When a constant electrical current flows from our P‑Contact MetalLayer to our N‑contact Metal layer, light is generated in the MQWs and emitted through the surface of the N‑GaN.We believe that most conventional GaN LEDs grown on sapphire wafers are based on a lateral design. However, we believe a superiorcombination of both light output efficiency and heat removal is realized in a vertical LED chip design with a copper alloy metalstructure. Among pure metals at room temperature, copper has the second highest electrical and thermal conductivity, after silver. Heat isgenerated by passing electrical current through resistive materials. In our vertical LED chips, electrical current flows from the low resistancecopper alloy base to the epitaxial layers also with low electrical resistance, thereby resulting in lower heat generation. Furthermore, due tothe high thermal conductivity of the copper alloy layer, the heat generated in our device is effectively conducted to the packaging materials,where it can be dissipated through a heat sink. The resulting lower operating temperature helps to maintain LED device performance andreliability.Once light is generated in the MQWs of our LED chips, the light is emitted out of the N‑GaN surface. Our chip uses a high reflectivitymetal between the copper alloy layer and the P‑GaN surface that acts as a mirror to reflect light more effectively out of the internal structureof the device. In contrast, in conventional sapphire‑based LED devices, leakage can occur when light escapes through the sides of thesubstrate or is converted to heat due to the higher internal resistance of the device. Furthermore, by optimizing the internal structure andsurface of our epitaxial layers through our proprietary nanosurface engineering, a greater portion of light is extracted after generation withinthe device, whereas conventional sapphire‑based LED devices have a semi‑transparent contact layer (STCL) which absorbs and reducesthe amount of light that can be emitted vertically from the chip. We are also developing various packaging technologies, such as componentcost reducing Advanced Packaging Technology called CSP, Multi‑Channel Emitters (MCE) and Chip‑On‑Board (COB).Our ProductsLED ChipsWe produce and purchase a wide variety of blue, white, green and UV LED chips, including our EV LED product series, currentlyranging from chip sizes of 380 microns, or µm, by 380µm to 1520µm by 1520µm. We sell our LED chips to packaging customers or todistributors, who in turn sell to packagers. Our LED chips are used primarily for applications in the specialty lighting market, includingcommercial, and industrial sectors. Our LED chips may be used in specialty industrial applications, such as UV curing of polymers, LEDlight therapy in medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications, and architectural lighting.Currently, we focus mostly on UVLED applications.LED ComponentsWe currently package a portion of our LED chips into LED components for sale to distributors and end-customers in selected markets.The majority of our LED components use chips that are greater than 860μm by 860μm, focusing on high wattage (>3W) applications. Ourpackaged products can be categorized into three different groups: UV, Multi-Channel Emitter (MCE), and Specialty lighting. Besides thestandard products, we provide customization service for all market segments. Our UV LED product portfolio ranges from two to 260electrical watts, and are designed for industrial applications such as printing, coating, curing, and medical/cosmetic uses. The MCEpackages target entertainment, architectural, aquarium and horticultural lighting sectors. Variations of four, seven, 12, 16 channel LEDs allowusers to control each LEDs separately to produce all colors in the visible light spectrum. We use specialized chip bonding technology toensure minimal chip-to-chip distance in order to deliver optimized color mixing capability in compact packages. Specialty lighting is mainly inthe infrared spectrum with options of 30, 60, 90 and 120 degree view angles. These are used in surveillance, IP cameras and night visionapplications.2Table of Contents To differentiate ourselves from other LED package manufacturers, we are putting more resources towards module and system design.Along with our technical know-how in the chip and package sectors, we are able to further integrate electrical, thermal and mechanicalmanufacturing resources to provide customers with one-stop system services. Services include design, prototyping, OEM and ODM. Keymarkets that we set to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications,niche imaging light engines, horticultural lighting and high standard commercial lighting. Recently, we introduced multi-pixel Mini-LEDpackage (16 RGB pixels in one package) for fine pitch Mini-LED display market. In 2019, we expanded our UVC portfolio for disinfectionmarkets.Our packaging process includes chip bonding, wire bonding, phosphor coating, encapsulation, scribing, dicing and testing. We may,from time to time, establish packaging operations in selected markets for sale to distributors and end-customers in such markets. We alsocontract with other manufacturers to produce for our LED components based on our design and technology requirements and under ourquality control specifications and final inspection process.Lighting ProductsWe design, assemble and sell lighting fixtures and systems for general lighting applications, including commercial, residential andindustrial lighting. Our lighting products consist primarily of LED luminaries and LED retrofits. Our lighting product customers are primarilyODMs of lighting products and the end-users of lighting devices. Revenues from sales of our lighting products represented 9% and 11% ofour revenues for the years ended August 31, 2020 and 2019, respectively.OEM/ODM ServicesWe provide design and manufacturing services at the modular and system level. Currently, most of the design projects involve highpower UVLED lamps to be incorporated/retrofitted into large scale press equipment. Besides hardware, we also provide softwaredevelopment to lamp control and equipment-to-lamp signal communication.ManufacturingOur manufacturing operations are located in Taiwan. Since late fiscal 2011, we have suffered from the underutilization of ourmanufacturing capacity, primarily for our LED chips. Consequently, a portion of our manufacturing equipment was idled, resulting insignificant excess capacity charges. We also use contract manufacturers to produce certain LED products, and for certain aspects of ourproduct fabrication, assembly and packaging processes, based on our design and technology requirements and under our quality controlspecifications and final inspection process. We are moving toward a fabless business model in which we would utilize foundry fabs to ODMour chips using our developed technology. As part of the restructuring, we continue to explore opportunities to sell our chip manufacturingequipment, which will help us to reduce the idle capacity costs. As part of our cost reduction efforts, we moved and consolidated our LEDpackaging facility to our headquarters in Chunan, Taiwan in February 2018. While we intend to focus on managing our costs and expenses,over the long term we expect to be required to invest substantially in LED component products development and production equipment ifwe are to grow.Raw Materials and ComponentsWe use the following raw materials in our LED chip manufacturing: metal organics, sapphire, copper alloy, gold slugs, sodium goldsulfite, aluminum granules and electrolytic nickel, among others. We use the following assembly materials in the production of our LEDcomponent products: gold bond wire, lead frame, ceramic substrate, phosphor, silicon zener-diode, silicone rubber, eutectic (AuSn) bondingmaterial and silver paste, among others. We also purchase industrial and general chemicals and gases for the manufacture of both our LEDchips and LED components. We do not manufacture our lighting products from the raw materials, but we assemble our lighting productsfrom individual components, such as LED emitters, electronic components, printed circuit boards, heat-sink, lenses and other metal andplastic components.We purchase raw materials and components from a wide range of suppliers around the world. The raw materials and components weuse are readily available. We have two or more suppliers for a majority of the raw materials we use. Historically, we have never experiencedany significant delay or shortage in the supply of our raw materials and components.Quality ManagementWe have implemented quality control measures at each stage of our operations, including obtaining supplier qualifications, inspectingincoming raw materials and random testing during our production process, to ensure consistent product yield and reliability. We test all newprocesses and new products prior to commercial production. We also inspect all final products prior to delivery to our customers to ensurethat production standards are met. If we encounter defects, we conduct an analysis in an effort to identify the cause of the defect and takeappropriate corrective and preventative measures. We provide standard product warranties on our products, which generally range fromthree months to two years. Our manufacturing facility located in Hsinchu Science Park, Taiwan, are certified in compliance withISO9001:2015. The facility is subject to periodic inspection by the relevant governmental authorities for safety, environmental and otherregulatory compliance.3Table of Contents We require all of our employees involved in the manufacturing and engineering process to receive quality control training, accordingto a certification system depending on the level of skills and knowledge required. The training program is designed to ensure consistent andeffective application of our quality control procedures.Sales and MarketingWe market and sell our products through both our direct sales force and distributors. We primarily sell our LED components todistributors and end-customers in selected markets. Our packaging customers package our LED chips and sell the packaged product todistributors or end-customers. Our distributors resell our LED chips either to packagers or to end-customers. We sell our LED chips topackagers and distributors. Our lighting product customers consist primarily of ODMs of lighting products and the end-users of lightingdevices with the sales made by our direct sales force. For modules and systems, we mainly deal with end-customers directly.Our direct sales force is primarily based in Taiwan. We assign our sales personnel to different geographic regions so that they cankeep abreast of trends in specific markets. We plan to continue expanding our sales coverage in Asia as we grow our business. In addition,we may enter into strategic relationships with companies in Taiwan or other countries that we believe may provide strategic value to us.We focus our marketing efforts on brand awareness, product advantages and qualified lead generation. We rely on a variety ofmarketing strategies, including participation in industry conferences and trade shows, to share our technical message with customers, aswell as public relations, industry research and online advertising.Starting in 2020, we have plans to approach B2C markets by launching our first consumer handheld UVCLED sterilization device. Weplan to launch more UVCLED consumer devices in the next years.CustomersWe package our LED chips into LED components, which we sell to distributors and end-customers in selected markets. In addition,we sell a portion of our LED chips products to packaging customers and LED chip distributors. Sales to distributors represented 2% and 1%of our revenues for the years ended August 31, 2020 and 2019, respectively.We have historically derived a significant portion of our revenues from a limited number of customers. For the years ended August 31,2020 and 2019, our top ten customers collectively accounted for 83% and 73%, respectively, of our revenues. Some of our largest customersand what we produce, or have produced, for them have changed from quarter to quarter primarily as a result of the timing of discrete, largeproject-based purchases and broadening customer base, among other things. For the years ended August 31, 2020 and 2019, sales to ourthree largest customers, in the aggregate, accounted for 61% and 45% of our revenues, respectively. For the year ended August 31, 2020,sales to Revlon, Inc. and INDEL Distribution BV accounted for 30% and 17% of our total revenues, respectively. For the year ended August31, 2019, sales to Revlon, Inc. and Oreon Holding B.V. accounted for 18% and 16% of our total revenues, respectively.Our revenues are concentrated in a few select markets, including Netherlands, Taiwan, the United States and India. We expect that ourrevenues will continue to be substantially derived from these countries for the foreseeable future. Given that we are operating in a rapidlychanging industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted bygeneral economic and political conditions in these markets.Intellectual PropertyOur ability to compete successfully depends upon our ability to protect our proprietary technologies and other confidentialinformation. We rely, and expect to continue to rely, on a combination of confidentiality and license agreements with our employees,licensees and third parties with whom we have relationships, and trademark, copyright, patent and trade secret protection laws, to protectour intellectual property, including our proprietary technologies and trade secrets.As of August 31, 2020, we had 122 patents issued and nine patents pending with the United States Patent and Trademark Officecovering various aspects of our core technologies. As of August 31, 2020, we also had 124 patents issued and two patents pending beforepatent and trademark offices outside the United States. Of these 246 issued patents, 96 expire between 2021 and 2025, 100 expire between2026and 2030, 50 expire between 2031 and 2037, and none expire after 2037. Sixty-two of our issued patents are design patents and one ofour pending patents is a design patent. We believe that factors such as the technological and innovative abilities of our personnel, thesuccess of our ongoing product development efforts and our efforts to maintain trade secret protection are more important than patents inmaintaining our competitive position. We pursue the registration of certain of our trademarks in the United States, Taiwan and China andhave been granted trademarks with respect to “SemiLEDs” in the United States and China, and “MvpLED” in China.Our industry is characterized by frequent intellectual property litigation involving patents, trade secrets, copyrights, mask designs,among others. From time to time, third parties may allege that our products infringe on their intellectual property rights. Defending againstany intellectual property infringement claims would likely result in costly litigation and ultimately may lead to our not being able tomanufacture, use or sell products found to be infringing. Furthermore, other third parties may also assert infringement claims against ourcustomers with respect to our products, or our customers’ products that incorporate our technologies or products. Any such legal action orthe threat of legal action against us, or our customers, could impair such customers’ continued demand for our products. This could preventus from growing or4Table of Contents even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our financial condition and resultsof operations. See “Risk Factors— Risks Related to Our Business— Intellectual property claims against us or our customers could subjectus to significant costs and materially damage our business and reputation.”Research and DevelopmentWe focus our research and development efforts on our design methodology and process technology for our LED products. We alsofocus on improving our production yields and increasing wafer sizes to lower our production costs. Our research and development teamwork closely with our manufacturing team. We conduct our research and development activities at our manufacturing facilities in Taiwan.Our future research and development strategy will primarily focus on developing new products in collaboration with our ODM partnersutilizing our vertical technology and our expertise in the manufacturing of LED components. We expect to be continually engineering newproducts and systems, as well as enhancements to existing products, to meet the needs of our customers. By leveraging the fablessbusiness model, we expect to be able to minimize our own research and development costs associated with chip products, increase the scaleof our business without increasing overhead and diversify our business risk among many sales channels.CompetitionWe believe that our advanced technology helps us to compete in the innovative, intensely competitive and rapidly changing marketof LED design and manufacturing. To succeed, however, we must continue to manufacture products that meet the demanding requirementsof high performance at low costs. We do not account for a significant percentage of the total market volume today, and we face significantcompetition from other more established providers of similar products as well as from new entrants into our markets.We compete with many LED chip manufacturers and LED packaging manufacturers. With respect to our LED chips and LEDcomponents, we primarily compete with Cree, Seoul Viosys Co., Ltd. or SVC, Everlight, LiteOn, LED Engin, Nichia Corporation, or Nichia,Philips (Lumileds), Osram-OS GmbH and Edison Opto Corporation, or Edison. We have a number of competitors that compete directly withus and are much larger than us, including, among others, Cree, Nichia, Philips (Lumileds) and Osram-OS GmbH. Several substantially largercompanies, such as Philips (Lumileds) and Osram-OS GmbH, compete against us with a relatively small segment of their overall business. Inaddition, several large and well-capitalized semiconductor companies, such as Samsung Electronics Co., Ltd., or Samsung, LG Innotek Co.,Ltd., or LG Innotek, have entered into the LED chip and UV market. These potential competitors have extensive experience in developingsemiconductor chips, which is similar to the manufacturing process for LED chips and LED packaging. We are also aware of a number ofwell-funded private companies that are developing competing products. We will also compete with numerous smaller companies enteringthe market, some of whom may receive significant government incentives and subsidies pursuant to government programs designed toencourage the use of LED lighting and to establish LED-sector companies.Some of our existing and potential competitors possess significant advantages, including longer operating histories, greater financial,technical, managerial, marketing, distribution and other resources, more long-standing and established relationships with our existing andpotential customers, greater name recognition, larger customer bases and greater government incentives and support.We believe that the key competitive factors in our markets are: •consistently producing high-quality LED chips with high efficacy; •providing a low total cost of ownership (i.e., cost, efficacy and lifespan) for end-customers; •producing UVA LED for niche markets where customers value quality and performance more than cost; •providing unique and high performance UVLED systems to replace mercury lamp; and •our sales channels.Competition in the markets for LED products is intense, and we expect that competition will continue to increase, thereby creating ahighly aggressive pricing environment. Some of our competitors have in the past reduced their average selling prices, and the resultingcompetitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in the gross margin of our products.When prices decline, we must also write down the value of our inventory.Environmental RegulationIn our research and development and manufacturing processes, we use a variety of hazardous materials and industrial chemicals. Ineach of the jurisdictions in which we operate, we are subject to a variety of laws and regulations governing the exposure to and storage,handling, emission, discharge and disposal of these materials or otherwise relating to the protection of the environment. Environmental lawsand regulations are complex and subject to constant change, with a tendency to become more stringent over time. Failure to comply withany new or existing laws, whether intentional or inadvertent, could subject us to fines, penalties and other material liabilities to thegovernment or third5Table of Contents parties, injunctions requiring the suspension of operations, redemption costs or other remedies, and the need for additional capital,equipment or other process requirements, any of which could have a material adverse effect on our business and reputation.Working CapitalFor a discussion of our working capital practices, see “Liquidity and Capital Resources” in Item 7, Management’s Discussion andAnalysis of Financial Condition and Results of Operations, of this Annual Report.EmployeesTalent is the catalyst for our success. We are fortunate to have great talent and outstanding employees. As we approach a big turningpoint in the development of our company, employee retention and motivation is a critical issue in 2020. To retain talented people who shareour goals and interests, we work hard to foster a dynamic and enjoyable work environment. For many of our employees, participating in achallenging and enjoyable working environment full of opportunities to learn new skills is even more important than monetary rewards.At the same time, creating open communication between employees and management fosters a sense of community and a sharedpurpose. We stress teamwork. High-performance teams are crucial for our company when it comes to achieving success. Different ideas aregenerated to help achieve the goal. These ideas are then processed and combined, resulting in the best ones being selected. Team memberscan generate ideas that are different while feeling comfortable bringing these up and discussing them.We link individual employee rewards with the different types of contributions that employees make. We use performance-basedrewards, including cash and equity such as stock options and restricted share units. Equity creates a sense of ownership for the employeeand employee commitment to the company’s long-term vision, while helping to retain high potential employees.As of August 31, 2020, we had approximately 130 employees. All of these employees were based in Taiwan. None of our employees isrepresented by a labor union. We consider relations with our employees to be good.Financial Information about Geographic AreasWe derive a substantial portion of our revenue from product sales to international customers. For information concerning geographicareas of our customers and geographic information concerning our long‑lived assets, see Note 12, “Product and Geographic Information,”of the Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report.International operations expose us to risks that are different from operating in the United States, including foreign currency translation andtransaction risk, risk of changes in tax laws, application of import/export laws and regulations and other risks described further in Item 1A,Risk Factors, of this Annual Report.Available InformationOur website is www.semileds.com. We make available free‑of‑charge through our website our Annual Report on Form 10‑K, quarterlyreports on Form 10‑Q, current reports on Form 8‑K and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after such materials areelectronically filed with or furnished to the SEC. Our SEC reports can be accessed through the “Investors” section of our website. Theinformation found on our website is not part of this or any other report we file with or furnish to the SEC. A copy of our Annual Report onForm 10‑K is available without charge to stockholders upon written request to: Investor Relations, SemiLEDs Corporation, 3F, No.11 KeJung Rd., Chu‑Nan Site, Hsinchu Science Park, Chu‑Nan 350, Miao‑Li County, Taiwan, R.O.C. 6Table of Contents Item 1A. Risk FactorsA wide range of factors could materially affect our performance. The following factors and other information included in thisAnnual Report should be carefully considered. Although the risk factors described below are the ones management deems significant,additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our businessoperations. If any of the following risks actually occur, our business, operating results, and financial condition could be adverselyaffected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment.Risks Related to Our BusinessIf we are ordered to return a $500 thousand payment, we may not be able to continue as a going concern.On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Courtfor the District of Delaware. The complaint alleges that Well Thrive is entitled to a return of $500 thousand paid toward a note purchasepursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to WellThrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we have retained the $500 thousand payment as liquidateddamages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount ofpurported damages. On March 13, 2018, we filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit withprejudice. On March 27, 2018, Well Thrive filed an answering brief in opposition to our motion on the basis that Well Thrive neverconsented to dismiss the case. On January 2, 2019, the judge denied without prejudice the motion filed by us, because there remains somequestion as to whether Well Thrive’s former lawyers and Dr. Chiou had authority from Well Thrive to settle this case. The judge’s orderallowed us to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and torequest documents relating to the issues surrounding the settlement. Based on this order, we arranged the depositions to obtain moreevidence in support of a motion to enforce the settlement agreement. On October 25, 2019, Well Thrive filed a motion to modify the Court’sscheduling order and to allow it to file a motion for summary judgment, and we filed an opposition to the motion. On November 13, 2019, theCourt denied Well Thrive’s motion. The Court held a trial on March 2, 2020. After the trial, the judge ordered both sides to prepare post-trialbriefs and proposed findings of fact for the Court to be submitted before end of April 2020. Both sides submitted post-trail briefs andproposed findings of fact on April 30, 2020, and then the judge set a hearing for November 18, 2020. If we are ordered to return the $500thousand payment, we may not be able to continue as a going concern.The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and theduration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.The novel coronavirus disease 2019 (“COVID-19”) pandemic and related restrictions have resulted in a widespread health crisis thathave adversely affected businesses, economies and financial markets worldwide, and have caused significant volatility in U.S. andinternational debt and equity markets.As of the date of filing this report, we have not had to close any of our offices due to the pandemic. However, our business, financialcondition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. Theconditions caused by the COVID-19 pandemic has adversely affected our customers’ ability or willingness to purchase our products orservices, delay prospective customers’ purchasing decisions, adversely impact our ability to provide or deliver products and on-siteservices to our customers, delay the provisioning of our offerings, or lengthen payment terms, all of which could adversely affect our futuresales, operating results and overall financial performance. Our operations have also begun to be negatively affected by a range of externalfactors related to the COVID-19 pandemic that are not within our control. For example, our largest customer, Revlon, Inc., postponed itsregular orders, which is expected to decrease our sales revenue for the first quarter ended November 30, 2020, and even for the quarters afterthat if the COVID-19 pandemic continues.While the potential economic impact brought by the COVID-19 may be difficult to assess or predict, the pandemic has resulted insignificant disruption of global financial markets, and a recession or long-term market correction resulting from the spread of COVID-19could materially impact the value of our common stock, impact our access to capital and affect our business in the near and long-term.The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accuratelypredicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and theimpact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage theimpact of such events effectively, our business will be harmed.We have incurred net losses in recent periods and may require additional financing. If financing is not available, we may be required tofurther downsize or discontinue operations.We incurred net losses attributable to SemiLEDs stockholders of $544 thousand and $3.6 million for the years ended August 31, 2020and 2019, respectively. We can give no assurance that we will not continue to incur net losses in future periods. Our revenue and operatingresults may continue to decline for a variety of reasons, some of which are described elsewhere in this “Risk Factors” section and arebeyond our control. As of August 31, 2020, we had an accumulated deficit of $178.4 million. Even though at August 31, 2020, our cash andcash equivalents had increased to $2.8 million, these facts and conditions raise substantial doubt about our ability to continue as a goingconcern, and our independent registered public accounting firm has included an explanatory paragraph regarding going concernqualification in its audit report. However, our management believes it has liquidity plan, as further described in elsewhere in this annualreport that if executed successfully should provide sufficient liquidity to meet our obligations as they become due for a reasonable period oftime. While we believe that these liquidity plan measures will be adequate to satisfy our liquidity requirements for the twelve months endingAugust 31, 2021, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement theliquidity plan, including issuing convertible notes to certain of our directors, may have a material adverse effect on our business, results ofoperations and financial position, and may adversely affect our ability to continue as a going concern. If we do not become consistentlyprofitable, our accumulated deficit will grow larger and our cash balances will decline further, and we will require additional financing tocontinue operations. Any such financing may not7Table of Contents be accessible on acceptable terms, if at all. If we cannot generate sufficient cash or obtain additional financing, we may be required todownsize our business further or discontinue our operations altogether.We depend on contract manufacturing for portions of our supply chain. The inability of our contract manufacturers to produceproducts that satisfy our requirements may have a material adverse effect on our business.From time to time, we may use contract manufacturers to produce products or some parts of our products. Our reliance on suchcontract manufacturers exposes us to a number of significant risks, including: •reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; •lack of guaranteed production capacity or product supply; and •the possible breach of the manufacturing agreement by the contract manufacturers because of factors beyond our control.If these contract manufacturers fail to deliver products on time and at a satisfactory level of quality, we could have difficulties fulfillingour customer orders and our net revenues could decline. If our contract manufacturers were to become unable or unwilling to continue tomanufacture our products at requested quality, quantity, yields and costs, or in a timely manner, our business and reputation could beseriously harmed. As a result, we would have to attempt to identify and qualify substitute manufacturers, which could be time consumingand difficult, and might result in unforeseen manufacturing and operations problems. In such events, our customer relationships, business,financial condition and results of operations would be adversely affected.Our success depends on the successful development, introduction, commercialization and acceptance of new generations of productsand enhancements to existing product lines.Rapid change and technical innovation characterize the LED chips and components market. Our success depends on the successfuldevelopment, introduction, commercialization and acceptance of new generations of products and enhancements to existing product lines.We have made and continue to make significant investments in growth initiatives. For example, beginning in fiscal 2017, we moved down thesupply chain, supplying customers with full UVLED lamp systems. We expect to continue our efforts at further research and development ofinnovative products. We may need to spend more time and money than we expect or have to develop and introduce new products orenhancements and, even if we succeed, they may not be sufficiently profitable for us to recover all or a meaningful part of our investment.In addition, our new products or enhancements may need certifications or require qualifications by our customers or potential customers.However, both of the certification and qualification processes are lengthy and uncertain and may negatively impact our sales and marketingefforts to sell or transition our customers to such new products or enhancements. Furthermore, once introduced, new products mayadversely impact sales of our older generation products, or make them less desirable or even obsolete, and could adversely impact ourrevenues and operating results.Our ability to successfully develop and introduce new products and product enhancements, and the revenues and costs associatedwith these efforts, are affected by our ability to (i)properly identify customer needs, (ii)prove the feasibility of new products, (iii)price ourproducts competitively and profitably, (iv)accurately predict and control costs and yields associated with manufacturing the products,(v)manufacture and deliver new products timely and in sufficient volume, (vi)assist the customers in qualifying or adopting the newproducts in a timely manner and (vii)anticipate and compete successfully with competitors. Even if we are successful, if a customer requirescertain certifications for or new qualification process of our new products, the time when that customer will actually purchase our productsand we will be able to receive revenue from that customer will be significantly delayed.We may not be able to effectively develop, maintain and expand our sales and distribution channels, which could negatively affect ourability to expand our sales and business and damage our brand reputation.As part of our strategy, we market and sell our products through third-party distributors in certain markets. We rely on thesedistributors to service end-customers, and our failure to maintain strong working relationships with such distributors could have a materialadverse impact on our operating results and revenues from such jurisdictions and damage our brand reputation. If we are unable toeffectively develop and expand our distribution channels, or do so in a timely manner, to ensure our products are reaching the appropriatecustomer base, our sales and results of operations may be adversely impacted. In addition, if we successfully develop these channels, wecannot guarantee that customers will accept our products or that we will be able to manufacture and deliver products in the timelineestablished by our customers. We have attempted to direct our efforts to areas of business where we see the best opportunity for the mostprofitable sales of our LED products, which includes primarily a focus on the UV LED market segment and placing a greater emphasis on thesale of LED components in selected markets where pricing pressure is significant, and pursuing new market opportunities that leverage ourcore competencies. We are now focused on developing as an end-to-end LED module solution supplier by providing our customers withhigh quality, flexible and more complete LED system solution, customer technical support and LED module/system design, as opposed tojust providing customers with individual components. Continual introductions of new products and solutions, services, and enhancementof existing products and services, and effective servicing of customers are key to our competitive strategy. We also work to developrelationships with a select number of our customers to develop relationships which would continue to enhance our component productgrowth and profitability to complement our strategic focus. Our primary business objective is to provide our customers with a convenient,full-service, one-stop shopping solution for their needs by offering customized design services and high-quality products at good value.These strategies may negatively impact our revenues as we may not be able to develop and expand our customer base and distributionchannels in a timely manner, among other reasons.We do not control the activities of our distributors with respect to the marketing and sales of and customer service support for ourproducts. Therefore, the reputation and performance of our distributors and the ability and willingness of our distributors to sell ourproducts, uphold our brand reputation for quality, by providing, for example, high quality service and pre- and post-sales support, and theirability to expand their businesses and their sales channels are essential to the future growth of our business and has a direct and materialimpact on our sales and profitability in such jurisdictions. Also, as with our individual customers, we do not have long-term purchasecommitments from our distributor customers, and they can therefore generally cancel, modify or reduce orders with little or no advancenotice to us. As a result, any reductions or delays in, or cancellations of, orders from any of our distributors may have a negative impact onour sales and budgeting process.8Table of Contents In addition, we have entered and may from time to time enter into exclusivity or other restrictions or arrangements of a similar natureas part of our agreements with our distributors. Such restrictions or arrangements may significantly hinder our ability to sell additionalproducts, or enter into agreements with new or existing customers or distributors that plan to sell our products, in certain markets, whichmay have a material adverse effect on our business, financial condition and results of operations.Moreover, we may not be able to compete successfully against those of our competitors who have greater financial resources and areable to provide better incentives to distributors, which may result in reduced sales of our products or the loss of our distributors. The lossof any key distributor may force us to seek replacement distributors, and any resulting delay may be disruptive and costly.We operate in highly competitive markets that are characterized by rapid technological changes and declining average selling prices.Competitive pressures from existing and new companies and/or damage to our brand may harm our business and operating results.Competition in the markets for LED products is intense, and we expect that competition will continue to increase. Increasedcompetition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure toincrease, or the loss of, market share, any of which would likely seriously harm our business, operating results and financial condition.Competitors may reduce average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate therate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yieldsto reduce the per-unit cost of production for our products. However, such cost savings currently have a limited impact on our gross profit,as we have suffered from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation.We compete with many LED chip manufacturers and LED packaging manufacturers. With respect to our LED chips and LEDcomponents, we primarily compete with Cree, SVC, Everlight, LiteOn, LED Engin, Nichia, Philips (Lumileds), Osram-OS GmbH and Edison.We have a number of competitors that compete directly with us and are much larger than us, including, among others, Cree, Nichia, Philips(Lumileds) and Osram-OS GmbH. Several substantially larger companies, such as Philips (Lumileds) and Osram-OS GmbH, compete againstus with a relatively small segment of their overall business. In addition, several large and well-capitalized semiconductor companies, such asSamsung and LG Innotek, have entered into the LED chip and UV market. These potential competitors have extensive experience indeveloping semiconductor chips, which is similar to the manufacturing process for LED chips and LED packaging. We are also aware of anumber of well-funded private companies that are developing competing products. We will also compete with numerous smaller companiesentering the market, some of whom may receive significant government incentives and subsidies pursuant to government programsdesigned to encourage the use of LED lighting and to establish LED-sector companies. For example, the Chinese government subsidizesequipment costs, which enables manufacturers in China to remain price competitive and make it very difficult for foreign companies tocompete.Our existing and potential competitors may have a number of significant advantages over us, including greater financial, technical,managerial, marketing, distribution and other resources, more long-standing and established relationships with our existing and potentialcustomers, greater name recognition, larger customer bases and greater government incentives and support. In addition, some of ourcompetitors have been in operation much longer than we have and therefore may have more long-standing and established relationshipswith our current and potential customers.We compete primarily on the basis of our products’ performance, price, quality, and reliability and on our ability to customize productsto meet customer needs. However, our competitors may be able to develop more competitive products, respond more quickly to new oremerging technologies, offer comparable products at more competitive prices or bring new products to the market earlier. Any failure torespond to increased competition in a timely or cost-effective manner could have a material adverse effect on our business, financialcondition, results of operations and prospects. Furthermore, intellectual property claims against us, including pending claims and litigation,regardless of the outcome, could be used by our competitors to damage our brand reputation and our relationships with existing andpotential customers.We derive our revenues mainly from the sales of our LED components. Our inability to grow our revenues generated from the sales ofLED components would have a negative impact on our financial condition and results of operation.LED components are the core products from which we derive our revenues. Revenues attributable to the sales of our LEDcomponents represented 65% and 75% of our revenues for the years ended August 31, 2020 and 2019, respectively. Revenues attributableto the sale of LED lighting products accounted for 9% and 11% of our revenues for the years ended August 31, 2020 and 2019. We expect tocontinue to generate our revenues mainly from the sales of LED components for the foreseeable future. As such, the continued marketacceptance of our LED components is critical to our continued success. Our inability to grow our revenues generated from the sales of LEDcomponents would have a negative impact on our business, financial condition and results of operations.The market for LEDs has historically been, and we expect will continue to be, highly volatile, which could harm our business and resultin significant fluctuations in the market price of our common stock.Fluctuations in supply and demand for LEDs pose serious risks to our prospects, business, financial condition and results ofoperations. Our industry, akin to the semiconductor industry, is highly cyclical and characterized by rapid technological change, rapidproduct obsolescence, declining average selling prices and wide fluctuations in supply and demand. Our industry’s cyclicality results froma complex set of factors, including, but not limited to: •fluctuations in demand for end-products that incorporate LED chips and LED components; •ongoing reductions in the number of LED chips and LED components required per application due to performanceimprovements; and •fluctuations in the unutilized manufacturing capacity available to produce LED chips and LED components.If market demand increases and we are not able to increase our capacity or if we experience delays or unforeseen costs in increasingour capacity levels, we may not be able to achieve our financial targets. Alternatively, as market demand decreases or as market supplysurpasses9Table of Contents demand, we may not be able to reduce manufacturing expenses or overhead costs proportionately. If an increase in supply outpaces theincrease in market demand, or if demand decreases, the resulting oversupply could adversely impact our sales and result in theunderutilization of manufacturing capacity, high inventory levels, changes in revenue mix and rapid price erosion, which would lower ourmargins and adversely impact our financial results. For example, over the past few years, we recorded significant excess capacity charges aswe suffered from underutilization of our manufacturing capacity as a result of a decrease in customer demand, and significant write-downsof inventories as a result of a decline in their average selling prices. We may experience similar problems in the future, and we cannot predictwhen they may occur or the severity of such difficulties and the impact on our margins and operating results.Our restructuring plan and ongoing cost and capital expenditure reduction efforts may not be effective, might have unintendedconsequences, and could negatively impact our business.We have implemented certain actions to accelerate operating cost reductions and improve operational efficiencies in response tochanges in the economic environment, our industry and demand. In connection with the implementation of our cost and capital expenditurereduction programs, we developed a strategic plan to address areas of business where we see the best opportunity for the most profitablesales of our LED products, which includes primarily a focus on the UV LED market segment and placing a greater emphasis on the sale ofLED components in selected markets where pricing pressure is less significant, and pursuing new market opportunities that leverage ourcore competencies. We continue to monitor prices and, consistent with our existing contractual commitments, may decrease our activitylevel and capital expenditures further. This plan reflects our strategy of controlling capital costs and maintaining financial flexibility. We alsodisposed of a certain level of our idle equipment to reduce the excess capacity charges that we have suffered for a few years. In addition, toprovide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, we reduced our capital expendituresas appropriate. The cost reduction plan is further enhanced through the fabless business model in which we implemented certain workforcereductions and have sold certain patents that we were no longer actively developing and are exploring the opportunities to consign or sellcertain equipment related to the manufacturing of vertical LED chips, in order to reduce the idle capacity charges, minimize our research anddevelopment activities associated with chips manufacturing operation.Despite our planning, some cost-cutting and capital expenditure reduction measures could have unexpected negative consequences.As part of our ongoing cost reduction efforts, we may reduce our work force further and experience additional attrition, which may exposeus to legal claims against us and loss of necessary human resources. If we face costly employee or contract termination claims, ouroperations and prospects could be harmed. Furthermore, capital expenditure reduction could adversely impact our future sales. While ourcost and capital expenditure reduction efforts reduced, or are expected to reduce, our operating costs as well as capital expenditure, wecannot be certain that all efforts will be successful or that we will not be required to implement additional actions to structure our businessto operate in a cost-effective manner in the future.If we are unable to implement our product innovation strategy effectively, our business and financial results could be materially andadversely affected.As part of our growth strategy, we plan to continue to be innovative in product design, to deliver new products and improve ourmanufacturing efficiencies. In particular, as the LED industry develops and technical specifications and market standards change, we mustcontinue to innovate and develop competitive products that are accepted by the marketplace. Our existing or potential customers coulddevelop, or acquire companies that develop, products or technologies that may render our products or technologies obsolete ornoncompetitive. Our future success depends on our ability to develop and introduce new, technologically advanced and lower costproducts, such as high quality, flexible and more complete LED system solution. If we are unable to achieve technological breakthroughs,introduce new products that are commercially viable and meet rapidly evolving customer requirements, and keep pace with evolvingtechnological standards and market development, we may experience reduced market share and our ability to compete may be adverselyimpacted. If we are unable to execute our product innovation strategy effectively, we may not be able to take advantage of marketopportunities as they arise, execute our business plan or respond to competition.If LEDs fail to achieve widespread adoption in the general lighting market, or if alternative technologies gain market acceptance, ourprospects will be materially and adversely impacted and we may be unable to achieve and maintain our profitability.SemiLEDs had moved away from general lighting markets due to extreme price erosion led by companies in China. We have moved onto focus on industrial UV applications. If LED lighting does not achieve widespread acceptance and adoption, or if demand for LEDproducts does not grow as we anticipate, our revenues may decline and our prospects for growth and profitability will be limited. Moreover,if existing sources of light other than LED devices, such as organic light emitting diodes (OLEDs), achieve adoption, or if new sources oflight are developed, our current products and technologies could become less competitive or obsolete.Potential customers for LED general lighting systems may not adopt LED lighting as an alternative to traditional lighting technologybecause of LEDs’ higher upfront cost. In addition, manufacturers of general lighting systems may have substantial investments and know-how related to their existing lighting technologies, such as traditional incandescent, fluorescent, halogen and high intensity discharge, orHID, lighting devices, and may perceive risks relating to the complexity, reliability, quality, usefulness and cost-effectiveness of LEDproducts. Even if LED lighting continues to achieve performance improvements and cost reductions, limited customer awareness of thebenefits of LEDs, lack of widely accepted standards governing LED lighting and customer unwillingness to adopt LEDs in favor ofentrenched solutions could significantly limit the demand for LED products. Additional factors that may limit the adoption of LEDs forgeneral lighting include, among others: •a significant reduction in or discontinuation of government regulations and economic incentives to promote the development ofthe LED industry or government regulations that discourage the use of some traditional lighting technologies; •changes in economic and market conditions that affect the viability of some traditional lighting technologies, for exampledeclining energy prices that favor existing lighting technologies; and •capital expenditures for new and replacement lighting systems by end-users of LED products, which may decline duringeconomic downturns.10Table of Contents Our gross margins could fluctuate as a result of changes in our product mix, decreases in the average selling prices of our products,underutilization of our manufacturing capacity, and other factors, which may adversely impact our operating results.Our gross margins have fluctuated and may continue to fluctuate from period to period as a result of the mix of products that we selland the utilization of our manufacturing capacity in any given period, among other things. For example, as a strategic plan, we placed greateremphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory.The sales of our UV LED embedded components product successfully improved our gross margin, operating results and cash flows in fiscal2017, but slightly dropped in fiscal 2018. In fiscal 2019, sales continued to decrease but sales contributed by LED components increased,compared to fiscal 2018, which resulted in an increase in gross margin. In fiscal 2020, sales and gross margin both increased due to otherrevenues rather than LED components. We intend to continue to pursue opportunities for profitable growth in areas of business where wesee the best opportunity for our UV market, focus on product enhancement and developing our UV LED into many other applications ordevices. As we expand and diversify our product offerings and with varying average selling prices, or execute new business initiatives, achange in the mix of products that we sell in any given period may increase volatility in our revenues and gross margin from period toperiod.Increased competition and the adoption of alternatives to our products, more complex engineering requirements, lower demand, over-capacity in the market and other factors has led to price erosion and, as a result, lower product margins and lower revenues. For example,some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have causedus to similarly reduce our prices, accelerating the decline in the gross margin of our products. We anticipate our competitors will continue toimplement such competitive strategies from time to time in the future. Our introduction of new LED component products, such as the LEDcomponents that incorporate EV or UV LED chips may further reduce the selling prices of our older generation products or render themobsolete.We rely on a limited number of key suppliers for certain key raw materials and equipment. The loss of key suppliers may have amaterial adverse effect on our business.There are a limited number of companies which supply certain of the specialized raw materials that are important to the manufacture ofour products as well as a very limited number of manufacturers of equipment that are critical to our operations. We generally enter into spotpurchase orders with our suppliers and do not have long-term or guaranteed supply arrangements with any of them. For example, wepurchase Red or IR LED chips, the key material used in the manufacture of our LED components, from a limited number of suppliers. A majorshortage of these key raw materials would impair our ability to meet our production needs resulting in increased costs.We also purchase gases, photo chemicals and other materials from various suppliers on the spot market. Although supply constraintsdo not currently have an impact on our ability to procure supply, supply constraints have occurred in the past and may occur again fromtime to time in the future. Additionally, we use metals such as copper alloy and other commodities in our manufacturing process. The pricevolatility of such materials may make our procurement planning challenging. If the prices of materials increase it may adversely affect ouroperating margins. Although these materials are generally available and are not considered to be specialty chemicals, our inability toprocure such materials in volumes and at commercially reasonable prices could result in a material adverse effect on our business, financialcondition and results of operations.If any of our key raw material suppliers fails to meet our needs on time or at all, we may not be able to procure replacement suppliesfrom other sources on a timely basis or on commercially reasonable terms and our production may be delayed or interrupted, which couldimpair our ability to meet our customers’ needs and damage our customer relationships.We may not be able to effectively expand our production capacity or upgrade our production facilities or do so in a timely or cost-effective manner, which could prevent us from growing our sales, margins and market share.While we intend to focus on managing our costs and expenses in the short term, over the long term we expect to be required to investsubstantially if we are to grow. This will mean having to continually expand our production capacity or upgrade our production facilities aswe deem appropriate under future market conditions and future customer demand. Such investment could take time to become fullyoperational, and could otherwise increase our costs, and we may not be able to execute quickly to take advantage of market opportunities asthey arise.Upgrading or expanding existing facilities could result in manufacturing problems that may reduce our yields and utilization ratesbelow our target levels. For example, we have experienced difficulties in the past in achieving acceptable yields when we moved ourmanufacturing facilities to a new location and when we introduced new products or new manufacturing processes, which has adverselyaffected our operating results.Upgrading or expanding production facilities or capacity requires a significant amount of fixed cost since it requires us to add andpurchase manufacturing lines, equipment and additional raw materials and other supplies. If we are not able to recoup these costs throughincreased sales and profits, our business, financial condition and results of operations could be materially and adversely affected.Sales of our products are concentrated in a few select markets. Adverse developments in these markets could have a material anddisproportionate impact on us.Our revenues are highly concentrated in a few select markets, including the Netherlands, Taiwan, the United States, Germany, Japanand India. Net revenues generated from sales to customers in the Netherlands, Taiwan, the United States, Germany, Japan and India, in theaggregate, accounted for 90% and 85% of the Company’s net revenues for the years ended August 31, 2020 and 2019, respectively. As aresult of the concentration of our revenues in these markets, economic downturns, changes in governmental policies and increasedcompetition in these markets could have a material and disproportionate impact on our revenues, operating results, business and prospects.Any unfavorable economic or market conditions in such jurisdictions could have a negative impact on our sales and profitability.11Table of Contents Variations in our production yields and limitations in the amount of process improvements we can implement could impact our abilityto reduce costs and could cause our margins to decline and our operating results could suffer.Our products are manufactured using technologies that are highly complex. The number of saleable products, or yield, from ourproduction processes may fluctuate as a result of many factors, including but not limited to the following: •variability in our process repeatability and control; •contamination of the manufacturing environment; •equipment failure, variations in the manufacturing process, or power outages; •lack of consistency and adequate quality and quantity of components and raw materials; •losses from broken wafers, inventory damage or human errors; •defects in packaging either within our facilities or at our subcontractors; and •any transitions or changes in our production process, planned or unplanned.Introduction of new products and manufacturing processes are often characterized by lower yields in the initial commercializationstage. LED chip and component manufacturing is complicated and consists of many layers of complex materials that must interact with eachother. In addition, when we introduce new products and processes we often use new chemical solutions and chemical compounds withwhich we have less experience. We must analyze how the various solutions, compounds and layers of materials interact with each other andperform as parts of the LED chip structure. It takes time for us to analyze the data from our initial manufacturing runs and optimize ourprocesses, and over time we generally achieve higher yield rates as we gain more experience with the product or processes. We havecontinuously improved and increased our production yields to reduce the per-unit cost of production for our new LED components thatincorporate EV or UV LED chips; however, such cost savings currently have limited impact on our gross profit, as we currently suffer fromthe underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. In the past, we haveexperienced difficulties in achieving acceptable yields when introducing new products or new manufacturing processes, which hasadversely affected our operating results. We may experience similar problems in the future, and we cannot predict when they may occur orthe severity of such difficulties and the impact on our business.In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased costefficiencies from other production advances. Failure to achieve these planned improvements or advances could significantly affect ourmargins and operating results.We may face challenges further expanding our LED components business. In addition, our strategy of marketing our LED componentsin jurisdictions with limited intellectual property enforcement regimes may limit the markets where we can sell our LED componentsand may subject our intellectual property rights to infringement.We face challenges in further expanding our LED components business, which has been our core product now and onward, becauseit involves processes and technologies that are significantly different from our manufacturing processes for LED chips. For example, we aredeveloping advanced-level LED component manufacturing techniques, such as processes that allow us to manufacture wafer-levelpackaging. If we are not able to further develop our LED components business or if competitors create or adopt more advanced packagingtechnologies than ours, then our business, financial condition and results of operations could be materially and adversely affected.Our distribution strategy limits the sales of our LED components as we are selling only in countries that may not necessarily have thehighest demand or market potential. The intellectual property rights related to LED components are particularly complex and characterizedby aggressive enforcement of those rights. To minimize the likelihood that one of our competitors or another third party will assert a claimrelated to our LED components, we have sought to market these products only in countries in which we believe enforcement of intellectualproperty rights has historically been more limited as identified below and to ensure the new line of LED products are not subject to anyeffective injunction in the United States, because we believe that it is important for us to consciously manage our exposure to litigation.Any such litigation, whether with or without merit, could divert our management, financial and other resources away from our business andthereby have a negative impact on our continued development and growth. We do not currently sell our LED components in all countriesthat meet, what we believe to be, an acceptable litigation risk profile. We review profiles of different countries and may determine from timeto time that we should sell our products in one or more additional countries that meet our litigation risk profile for sale of our LEDcomponents. However, we may not be able to identify additional countries that we find to be suitable markets for these products. We haveconsidered the potential loss of revenues and income that we may suffer as a result of our strategy to sell only in certain select countriesand have concluded that, on balance, the potential loss of such revenues and income is not outweighed by the potential litigation risks.Also, there can be no guarantee that, by selling our LED components in these countries, we have not exposed our intellectual propertyrights, including our patents, to infringement by others. With respect to any potential infringement of our patents and other intellectualproperty rights by others in countries where we currently sell our LED components, we have considered the potential loss of revenues andincome that we may suffer associated with such sales and have made a business judgment that the benefits outweigh any potential loss. Inaddition, if the countries in which we currently sell our LED components increase their enforcement of intellectual property rights, the risk oflitigation would materially increase and our ability to continue to sell our LED components in these markets may be materially and adverselyaffected. Sales of our LED components and our other products may also be limited in the event that they are subsequently shipped orotherwise resold in a country and a claim is brought against us or our customer pursuant to the intellectual property laws of the country offinal destination.As we continue to operate in the lighting fixtures market, we may face additional competition and our existing customers may reduceorders.As we continue to operate in the lighting fixtures market and seek to increase our sales of lighting products in the future, we may facecompetition from fixtures and bulbs manufactured and marketed by other LED lighting fixture companies and from lighting productsincorporating incandescent, fluorescent, halogen, ceramic metal halide or other lighting technology. In addition, many of our existingcustomers who purchase our LED chips and LED components develop and manufacture lighting fixtures using those chips andcomponents. As12Table of Contents we continue to operate in that market, our customers may respond by reducing or discontinuing their orders for our products. This couldprevent us from growing or even maintaining our revenues from the sale of LED chips and LED components, which would negatively impactour business, financial condition and results of operations.As with our LED components, to minimize the likelihood that one of our lighting fixture competitors or another third party will assertan intellectual property right related to our lighting fixtures, we have sought to market these products only in countries in which we believeenforcement of intellectual property rights has been more limited. Our sales of lighting products to customers in the United States decreasedsignificantly in recent years. This distribution strategy may limit our sales to countries that do not have the highest demand or marketpotential, and raise similar issues and risks to those raised with respect to our use of this strategy in connection with marketing our LEDcomponents.We derive a significant portion of our revenues from a limited number of customers, including distributor customers, and generally donot enter into long-term customer contracts. The loss of, or a significant reduction in purchases by, one or more of these customers, orthe failure by one of these customers to pay, could adversely affect our operating results and financial condition.We have historically derived a significant portion of our revenues from a limited number of customers, including distributorcustomers. For the years ended August 31, 2020 and 2019, our top ten customers collectively accounted for 83% and 73%, respectively, ofour revenues. Some of our largest customers and what we produce/have produced for them have changed from quarter to quarter primarilyas a result of the timing of discrete, large project-based purchases and broadening customer base, among other things. For the years endedAugust 31, 2020 and 2019, sales to our three largest customers, in the aggregate, accounted for 61% and 45% of our revenues, respectively.The sales cycle from initial contact to confirmed orders with our customers is typically long and unpredictable. We typically enter intoindividual purchase orders with large customers, which can be altered, reduced or cancelled with little or no notice to us. We do notgenerally enter into long-term commitment contracts with our customers. As such, these customers may alter their purchasing behavior andreduce or cancel orders with little or no notice to us. Consequently, any one of the following events may cause material fluctuations ordeclines in our revenues: •reduction, delay or cancellation of orders from one or more of our major customers; •loss of one or more of our major customers and our failure to identify additional or replacement customers; and •failure of any of our major customers to make timely payment for our products.We are highly dependent on our customers’ ability to produce and sell products incorporating our LED products. If our customers arenot successful, our operating results could be materially and adversely affected.Our customers incorporate our LED products into their products. As such, demand for our products is dependent on demand for ourcustomers’ end-products that incorporate our LED products and our customers’ ability to sell these products. The general lighting markethas only recently begun to develop and adopt standards for fixtures that incorporate LED devices. If the end-customers for our productsare unable to manufacture fixtures that meet these standards, our customers’ sales, and consequently our sales, will suffer.With respect to the sale of our LED components, a substantial portion of which is used in specialty industrial applications, such asUV curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications,and architectural lighting. A majority of our sales are to such end-customers in selected markets. Sales by end-customers of our productsare generally dependent on their ability to develop high quality and highly efficient lighting products and require complex designs andprocesses, including thermal design, optical design and power conversion. We are making a transition to develop as an end-to-end LEDmodule solution supplier by providing our customers with high quality, flexible and more complete LED system solution, customer technicalsupport and LED module/system design, as opposed to just providing customers with individual components. Our customer’s timely andsuccessful product development, the success of our customers’ new product introductions and market acceptance could be materially andadversely affected our operating results.Any undetected defects in our products may harm our sales and reputation and adversely affect our manufacturing yields.The manufacture of LED chips and components is highly complex, requiring precise processes in a highly controlled and sterileenvironment using specialized equipment. We manufacture our LED products to meet customer requirements with respect to quality,performance and reliability. Although we utilize quality control procedures at each stage of our manufacturing process, our products maystill contain defects that are undetected until after they are shipped or inspected by our customers, or on operation of the device. Forexample, there could be sub-micron defects that would not be detected by our quality control procedures; such sub-micron defects mayincrease the current leakage in the device and could negatively affect the product performance over time. Unsatisfactory performance of ordefects in our products may cause us to incur additional expenses, including costs in relation to product warranties, cancellation andrescheduling of orders and shipments, and product returns or recalls. Failure to detect and rectify defects in our products before deliverycould subject us to product liability claims and harm our credibility and market reputation, which could materially adversely affect ourbusiness and results of operations.In addition, we do not currently have fully automated manufacturing processes, which could potentially introduce contaminants tothe production processes through human error. Defects or other difficulties in the manufacturing process can prevent us from achievingmaximum capacity utilization, which is the actual number of wafers that we are able to produce in relation to our capacity, and also canprevent acceptable yields of quality LED chips from those wafers.13Table of Contents Risks Relating to Intellectual PropertyWe may be exposed to intellectual property infringement or misappropriation claims by third parties, which could adversely affect ourfinancial condition and results of operations.Trademark, patent, copyright and other intellectual property rights are critical to our business and the business of our competitors.Our industry is characterized by frequent intellectual property litigation involving patents, trade secrets, copyrights, and mask designsamong others. Competitors of ours and other third parties have in the past and will likely from time to time in the future allege that ourproducts infringe on their intellectual property rights.Litigation to determine the validity and scope of any claim against us for infringement, misappropriation, misuse or other violation ofthird-party intellectual property rights can be highly uncertain because of the complex scientific, legal and factual questions and analysesinvolved. Defending against any intellectual property infringement claims would likely result in costly litigation, diversion of the attentionand efforts of our technical and management personnel and ultimately may lead to our not being able to manufacture, use or sell productsfound to be infringing. As a result of any such dispute, we may be required to develop non-infringing technology, pay substantial damages,enter into royalty or licensing agreements to use third-party technology, cease selling certain products, adjust our marketing andadvertising activities or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptableto us. If we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices ona timely basis, our business and competitive position may be adversely affected. For example, although we and Cree executed a settlementagreement providing for dismissal of our amended complaints against each other without prejudice, we agreed to the entry of a permanentinjunction that was effective October 1, 2012 that precludes us from (and/or from assisting others in) making, using, importing, sellingand/or offering to sell in the United States certain accused products and/or any device that includes such an accused product after thatdate and to payment of a settlement fee for past damages.The intellectual property rights related to packaging LEDs with phosphors to make white light LED components are particularlycomplex and characterized by aggressive enforcement of those rights. Many of our competitors and other third parties hold patents orlicenses or cross-licenses that relate to phosphors and the use of phosphors in LED packages to make white light LED components. Wehave sought to minimize the risk that one of our competitors or another third party will assert a claim related to our packaged LEDcomponents by marketing these products only in certain countries in which we believe enforcement of intellectual property rights hashistorically been more limited. We cannot assure you that our belief with respect to the enforcement of rights within those markets isaccurate. In addition, if the products we sell in a particular country are subsequently shipped or resold to another country, the intellectualproperty laws of the country of final destination may also apply to our products. Further, we may be subject to claims if our packagingcustomers for our LED chips lack sufficient intellectual property rights with respect to their packaging process and related packagingmaterials. We cannot assure you that our competitors or others will not claim that our LED chips or our LED components infringe theirintellectual property rights or that, if such claims are made, we will be able to successfully dispute such claims.Intellectual property claims against us, or our customers, including our distributor customers, could subject us to significant costs andmaterially damage our business and reputation.From time to time, third parties may assert infringement claims against us, or our customers with respect to our products, or ourcustomers’ products that incorporate our technologies or products, and any such legal action or the threat of legal action against us, or ourcustomers, could impair such customers’ continued demand for our products.Furthermore, we agree to defend and indemnify our customers in the event that they are sued by third parties for intellectual propertyinfringement claims involving the sale or use of our products. There can be no assurance that we will be successful in defending theseclaims. Our indemnification obligations could increase the cost to us of an adverse ruling in any such action.If our intellectual property, including our proprietary technologies and trade secrets, are not adequately protected to prevent misuse ormisappropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may bematerially and adversely affected. In addition, the sale of certain patents increases our business risk.Our future success and competitive position depends in part on our ability to protect our intellectual property, including proprietarytechnologies and trade secrets. In particular, we have developed advanced capabilities and proprietary know-how in sapphire reclamation,gallium nitride, or GaN, epitaxial growth, copper alloy technology, nanoscale surface engineering and vertical LED structure technology thatare critical to our business. We rely, and expect to continue to rely, on a combination of confidentiality and license agreements with ouremployees, licensees, partner and third parties with whom we have relationships, and trademark, copyright, patent and trade secretprotection laws, to protect our intellectual property, including our proprietary technologies and trade secrets.There can be no assurance that the steps we have taken or plan to take in the future are adequate to protect our intellectual property,including our proprietary technologies and trade secrets. We expect to continue to seek patent and trademark protection for ourtechnologies and know-how. However, we will only be able to protect such technologies and know-how from unauthorized use by thirdparties to the extent that valid, protectable and enforceable rights cover them. We cannot be certain that our patent and trademarkapplications will lead to patents being issued and registered trademarks being granted in a timely manner, or at all. Even if we are successfulin obtaining such rights, the intellectual property laws of other countries in which our products are sold or may in the future be sold maynot protect our products and intellectual property rights to the same extent as the laws of the United States. For example, China currently isthought to afford less protection to intellectual property rights generally than some other jurisdictions. As such, the lack of strong patentand other intellectual property protection in China may significantly increase our vulnerability as regards unauthorized disclosure or use ofour intellectual property and undermine our competitive position. The legal standards relating to the validity, enforceability and scope ofprotection of intellectual property rights in LED-related industries are uncertain and still evolving, both in the United States and in othercountries. Moreover, the contractual agreements that we enter into with employees, licensees and third parties to protect our intellectualproperty and proprietary rights afford only limited protection and may not been enforceable.14Table of Contents We also expect that the more successful we are, the more likely it will be that competitors will try to develop or patent similar orsuperior technologies, products and services. In the event that our competitors or others are able to obtain knowledge of our know-how,trade secrets and technologies through independent development, our failure to protect such know-how, trade secrets and technologiesand/or our other intellectual property and proprietary rights may undermine our competitive position. In addition, third parties mayknowingly or unknowingly infringe our trademarks and other intellectual property rights, and litigation may be necessary to protect andenforce our intellectual property rights or determine the validity and scope of our proprietary rights. Any such litigation could be verycostly and could divert management attention and resources away from our business, and the outcome of such litigation may not be in ourfavor. If the protection of our intellectual property, including our proprietary technologies and trade secrets, is inadequate to prevent use orappropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to moreeffectively mimic our products and methods of operation. Any of these events may have a material adverse effect on our business, financialcondition, reputation and competitive position.We have also sold certain patents, generally for technology that we are no longer actively developing. While we plan to continue tomonetize our patent portfolio through sales of non-core patents, we may not be able to realize adequate interest or prices for those patents.Accordingly, we cannot provide assurance that we will be able to generate revenue from these sales. In addition, although we seek to bestrategic in our decisions to sell patents, we might incur reputational harm if a purchaser of our patents sues one of our customers forinfringement of the purchased patent, and we might later decide to enter a space that requires the use of one or more of the patents we sold.Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietaryinformation.To protect a substantial amount of our technologies, we have chosen to rely primarily on trade secrets law rather than seekingprotection through patents. Trade secrets are inherently difficult to protect. In order to protect our intellectual property rights, including ourproprietary technologies and trade secrets, we rely in part on security measures, as well as confidentiality agreements with our employees,licensees and other third parties. These measures and agreements may not effectively prevent disclosure of confidential information,including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Whilewe believe we use reasonable efforts to protect our trade secrets, we could potentially lose future trade secret protection if anyunintentional or willful disclosure by our directors, employees, consultants or contractors of such information occurs, including disclosureby employees during or after the termination of their employment with us, in particular if they were to join one of our competitors. Lawsregarding trade secret rights in certain markets in which we operate may afford little or no protection. The loss of trade secret protectioncould make it easier for third parties to compete with our products by copying functionality. Costly and time-consuming litigation could benecessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection couldadversely affect our business, revenue, reputation and competitive position.The reduction or elimination of government investment in LED lighting or the elimination of, or changes in, policies in certaincountries that encourage the use of LEDs over some traditional lighting technologies could cause demand for our products to decline,which could materially and adversely affect our revenues, profits and margins.We believe the near-term growth of the LED market will be driven in part by government policies in certain countries that eitherdirectly promote the use of LEDs or discourage the use of some traditional lighting technologies. Today, the upfront cost of LED lightingexceeds the upfront cost for some traditional lighting technologies that provide similar lumen output in many applications. However, forenvironmental reasons, among others, some governments around the world have used policy initiatives to accelerate the development andadoption of LED lighting and other non-traditional lighting technologies that are seen as more environmentally-friendly compared to sometraditional lighting technologies. Reductions in, or eliminations of, government investment and favorable energy policies could result indecreased demand for our products and decrease our revenues, profits, margins and prospects.General RisksOur operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and couldcause our operating results for a particular period to fall below expectations, resulting in a severe decline in the price of our commonstock.Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal andquarterly fluctuations in the past. As such, our past quarterly operating results may not be good indicators of future performance.The following factors could cause our operating results to fluctuate: •our ability to retain existing customers, attract new customers and successfully enter new geographic markets; •changes in supply and demand and other competitive market conditions, including pricing actions by our competitors and ourcustomers’ competitors; •timing of orders from and shipments to major customers and end-customers, including as part of LED project-based orders, andour ability to forecast demand and manage lead times for the manufacturing of our products; and •seasonal fluctuations in our customers’ purchasing patterns.For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our futureperformance, and our actual revenue and operating results in future quarters may fall short of the expectations of investors and financialanalysts, which could have a severe adverse effect on the trading price of our common stock.15Table of Contents We rely on certain key personnel. The loss of any of our key personnel, or our failure to attract, assimilate and retain other highlyqualified personnel in the future, could harm our business.Our future success depends on the continued service and performance of our key personnel, including in particular Trung T. Doan,our chief executive officer, and members of our executive team. We do not maintain key man insurance on any of our officers or keyemployees.If Mr. Doan or other key personnel were unable or unwilling to continue in their present positions, we may not be able to replace themreadily or on terms that are reasonable, if at all. As such, the loss of Mr. Doan or other key personnel, including other key members of ourmanagement team and certain of our key marketing, sales, product development or technology personnel, could significantly disrupt ouroperations and prevent the timely achievement of our development strategies and growth, which would likely have an adverse effect on ourfinancial condition, operating results and prospects. Moreover, we may lose some of our customers if any of our officers or key employeeswere to join a competitor or forma competing company. The loss of the services of our senior management for any reason could adverselyaffect our business, operating results and financial condition.In addition, competition for experienced employees in our industry can be intense, and we may not be successful in recruiting,motivating or retaining sufficiently qualified personnel on terms that are reasonable, or at all. Cyclical volatility in our industry and in ourbusiness may aggravate this problem. For example, the challenges we faced in recent years relating to loss of market share and a sustaineddecrease in the market price of our common stock, among others, could impact our ability to attract and retain employees. When consumerdemand for our products is reduced or delayed, we expect lower net revenue and reduced profitability. When our stock price declines, ourequity incentive awards may lose retention value. In response to such downturns, we may further implement cost reduction actions,including spending controls, forced holidays and company shutdowns, employee layoffs, shortened workweeks and involuntary salaryreductions. Layoffs during an industry downturn could make it more difficult for us to retain key talent and staff members, or to rehireemployees should business improve.We may be exposed to litigation, which could adversely affect our financial condition and results of operations.In the ordinary course of our business, we may be exposed to general commercial claims related to the conduct of our business, classaction lawsuits, employment claims and other litigation claims. Any such litigation, whether with or without merit, could result in significantcosts. In addition, members of our senior management may be required to divert significant attention and resources to these matters,reducing the time, attention and resources they have available to devote to managing our business. These additional expenses anddiversion of attention and resources, along with any reputational issues raised by these lawsuits, may have a material negative impact onour business, financial condition and results of operations.We are required to assess our internal control over financial reporting on an annual basis and any future adverse findings from suchassessment could result in a loss of investor confidence in our financial reports, significant expenses to remediate any internal controldeficiencies and ultimately have an adverse effect on our share price.Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a management report that assesses the effectiveness of ourinternal control over financial reporting in our annual report on Form 10-K. Our testing may reveal deficiencies in our internal controls overfinancial reporting that are deemed to be material weaknesses, which we will be required to disclose. Our compliance with Section 404requires that we incur substantial accounting expenses and expend significant management resources and time on compliance relatedissues. If we are unable to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internalcontrols over financial reporting that are deemed to be material weaknesses, we may be subject to sanctions or investigations by regulatoryagencies such as the SEC. In addition, failure to meet the requirements of Section 404 or to disclose any material weakness may causeinvestors to lose confidence in our financial statements and the trading price of our common stock may decline. Moreover, if we fail toremedy any material weakness, our financial statements may be inaccurate, our ability to report our financial results on a timely and accuratebasis may be adversely affected, our access to the capital markets may be restricted, we may be subject to sanctions or investigation byregulatory authorities, including the SEC and The Nasdaq Stock Market, or Nasdaq, and our stated results of operations and reputation maybe materially and adversely affected.Impairment of our long-lived assets, cost-method investments could reduce our earnings.As part of our business strategy, we have and may continue to pursue acquisitions of businesses and assets, strategic alliances andjoint ventures. Long-lived assets, including property, plant and equipment and intangible assets with finite useful lives, are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable.In addition, some of our investments are accounted for under the equity method of accounting, which we record our proportionateshare of their net income or loss, or using the cost method. However, they must also be tested for impairment. For the investments weaccount for under the equity method or the cost method, the impairment test considers whether the fair value of the equity investment as awhole, not the underlying net assets, has declined and whether that decline is other than temporary. If we determine that impairment isindicated, we would be required to take an immediate non-cash charge to earnings, which could adversely impact our operating results.We may undertake joint ventures, investments, acquisitions, joint projects, and other strategic alliances and such undertakings, as wellas our existing joint ventures, may be unsuccessful and may have an adverse effect on our business.We have grown our business in part through strategic alliances and acquisitions. We continually evaluate and explore strategicopportunities as they arise, including product, technology, business or asset transactions, such as acquisitions or divestitures. Suchundertakings may not be successful or may take a substantially longer period than initially expected to become successful, and we maynever recover our investments or achieve desired synergies or economies from these undertakings.16Table of Contents This notwithstanding, we may in the future continue to seek to grow our operations in part by entering into joint ventures,undertaking acquisitions or establishing other strategic alliances with third parties in the LED and LED-related industries. These activitiesinvolve challenges and risks in negotiation, execution, valuation and integration, and closing of the transactions could be delayed orprevented by regulatory approval requirements, including antitrust review, or other conditions.Any future agreements that we may enter into also could expose us to new operational, regulatory, market, litigation and geographicalrisks as well as risks associated with significant capital requirements, the diversion of management and financial resources, unforeseenoperating difficulties and expenditures, sharing of proprietary information, loss of control over day-to-day operations, non-performance bya counterparty and potential competition and conflicts of interest. In addition, we may not be successful in finding suitable targets on termsthat are favorable to us, or at all. Even if successfully negotiated and closed, expected synergies from a joint venture, acquisition or otherstrategic alliance may not materialize or may not advance our business strategy, may fall short of expected return-on-investment targets ormay not prove successful or effective for our business. We may also encounter difficulty integrating the operations, personnel and financialand operating systems of an acquired business into our current business.We may need to raise additional debt funding or sell additional equity securities to enter into such joint ventures or make suchacquisitions. However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us, or at all.The raising of additional debt funding by us, if required and available, would result in increased debt service obligations and could result inadditional operating and financing covenants, or liens on our assets, that would restrict our operations. The sale of additional equitysecurities, if required and available, could result in dilution to our stockholders.We are also exposed to liquidity risk in the event of non-performance by the counterparty to the convertible note in the purchaseagreement.Our operations depend on an adequate and timely supply of electricity and water.We consume significant amounts of electricity and water in our manufacturing process. We may experience future disruptions orshortages in our electricity or water supply, which could result in a drop in or loss of throughput and product yield or even the loss of anentire production run, depending on the duration of disruption or shortage. Although we maintain generators and other backup sources ofelectricity, these replacement sources are only capable of providing effective backup supplies for limited periods of time. We do notcurrently have any alternative sources of water nor do we maintain backup tanks. We cannot assure you that we will not experiencedisruptions or shortages in our electricity or water supply or that there will be sufficient electricity and water available to us to meet ourfuture requirements. Any material disruption could significantly impact our normal business operations, cause us to incur additional costsand adversely affect our financial condition and results of operations.Our operations involve the use of hazardous materials and we must comply with environmental laws, which can result in significantcosts, and may affect our business and operating results.Our research and development and manufacturing activities involve the use of hazardous materials, including acids, adhesives andother industrial chemicals. As a result, we are subject to a variety of environmental, health and safety laws and regulations governing theuse, storage, handling, transportation, emission, discharge, exposure to, and disposal of such hazardous materials. Compliance withapplicable environmental laws and regulations in each of the jurisdictions in which we operate can be costly, and there can be no assurancethat violations of these laws will not occur in the future as a result of human error, accident, equipment failure, or other causes. Liabilityunder environmental and health and safety laws can be joint and several, and without regard to fault or negligence. The failure to complywith past, present, or future laws could subject us to increased costs and significant fines and penalties, damages, legal liabilities,suspension of production or operations, alteration of our manufacturing facilities or processes, curtailment of our sales and adversepublicity. Any of these events could harm our business and financial condition.Furthermore, environmental protection and workplace safety regulations may become more stringent in the future, and although wecannot predict the ultimate impact of any such new laws, they may impose greater compliance costs or result in increased risks or penalties,which could harm our business. Existing and future environmental laws and regulations could also require us to acquire pollution abatementor remediation equipment, modify our product designs or incur other expenses associated with such laws and regulations. As our industrycontinues to evolve, we may be required to evaluate and use new materials in our manufacturing process that may be subject to regulationunder existing or future environmental laws and regulations, and our use of such new materials may be restricted. Any such restrictioncould require us to alter our manufacturing processes or increase our expenses. If we fail to comply with current and future environmentallaws and regulations, whether intentional or inadvertent, we may be required to pay fines and other liabilities to the government or thirdparties, suspend production or even cease operation.We have operations and sales in various jurisdictions globally, which may subject us to increasingly complex taxation laws andregulations.As a multinational organization with operations and sales in various jurisdictions, we may be subject to taxation in such jurisdictions.The various tax laws and regulations are becoming increasingly complex, with the interpretation and application of such laws andregulations becoming more challenging and uncertain. We may be subject to additional taxes, fines and penalties to the extent we are notcorrect in our interpretation and the amount of taxes we declare and pay. In addition, given the continuing global economic slowdown, aswell as high government debt levels of many countries, there is an increasing likelihood that the amount of taxes we pay in thesejurisdictions could increase substantially. Any such events would have a material impact on our reputation, financial condition and resultsof our operations.Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.We conduct operations through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between oursubsidiaries. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally willrequire that transfer prices be the same as those between unrelated companies dealing at arms’ length and that contemporaneousdocumentation is maintained to17Table of Contents support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue todo so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were tosuccessfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices andthereby reallocate our income to reflect these revised transfer prices, which would result in a higher tax liability to us. In addition, if thecountry from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting indouble taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interestand penalties, it would increase our consolidated tax liability, which could adversely affect our financial condition, results of operations andcash flows.The non-U.S. activities of our non-U.S. subsidiaries may be subject to U.S. taxation.On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporateincome tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certainunrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income ofnon-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 theparent’s deductions for payments to the subsidiaries. Our provisional estimate is that no tax will be due under this provision. However, therecan be no assurance as to accuracy of the estimation. If the ultimate determination of the Company’s taxes owed is for an amount in excessof amounts previously accrued, the Company’s financial condition, operating results and cash flows could be materially adversely affected.Risks Relating to Our Holding Company StructureOur ability to receive dividends and other payments from Taiwan SemiLEDs may be restricted by commercial and legal restrictions,which may materially and adversely affect our ability to grow, fund investments, make acquisitions, pay dividends and otherwise fundand conduct our business.We are a holding company with one material asset, which is our ownership interest in Taiwan SemiLEDs.Dividends and interest on intercompany loans we receive from our subsidiaries in Taiwan, if any, will be subject to withholding taxunder Taiwan law. The ability of our subsidiaries in Taiwan to pay dividends, repay intercompany loans from us or make other distributionsto us is restricted by, among other things, the availability of funds, the terms of various credit arrangements entered into by oursubsidiaries, as well as statutory and other legal restrictions. In addition, although there are currently no foreign exchange controlregulations that restrict the ability of our subsidiaries located in Taiwan to distribute dividends to us, we cannot assure you that therelevant regulations will not be changed and that the ability of our subsidiaries to distribute dividends to us will not be restricted in thefuture. A Taiwan company is generally not permitted to distribute dividends or to make any other distributions to stockholders for any yearin which it did not have either earnings or retained earnings (excluding reserves). In addition, before distributing a dividend to stockholdersfollowing the end of a fiscal year, the company must recover any past losses, pay all outstanding taxes and set aside 5% of its annual netincome (less prior years’ losses and outstanding taxes) as a legal reserve until the accumulated legal reserve equals its paid-in capital, andmay set aside a special reserve.Our ability to operate our holding company in the US is dependent on Taiwan SemiLEDs’ ability to repay its obligations to SemiLEDsCorporation.Our cash position in SemiLEDs Corporation’s bank account has declined significantly. SemiLEDs Corporation has substantialintercompany receivables from Taiwan SemiLEDs. However, we are dependent on Taiwan SemiLEDs’ ability to raise money through the saleof a portion of its subsidiary and the restructuring of its chip operation to pay back SemiLEDs Corporation. On July 5, 2019, TaiwanSemiLEDs entered into two new loan agreements to refinance existing real estate loans of Taiwan SemiLEDs and provide for operatingcapital.Our ability to make further investments in Taiwan SemiLEDs may be dependent on regulatory approvals in Taiwan.Taiwan SemiLEDs depends on us to meet its equity financing requirements. Any capital contribution by us to Taiwan SemiLEDsrequires the approval of the relevant Taiwan authorities, such as the Hsinchu Science Park Administration. We may not be able to obtainany such approval in the future in a timely manner, or at all. We cannot assure you that we will be able to complete these governmentregistrations or obtain the government approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to oursubsidiaries or any of their respective subsidiaries. If we fail to complete these registrations or obtain the approvals, our ability to capitalizeTaiwan SemiLEDs may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expandour business.The rights of stockholders may be limited as we conduct a substantial portion of our operations in Taiwan and a substantial portion ofour assets and substantially all of our directors and officers reside outside the United States.Although we are incorporated in Delaware, a substantial portion of our operations are conducted in Taiwan through TaiwanSemiLEDs and its subsidiaries. As such, a substantial portion of our assets are located in Taiwan. In addition, substantially all of ourdirectors and officers reside outside the United States, and a substantial portion of the assets of those persons are located outside of theUnited States. Therefore, it may be difficult or impossible for you to bring an action against us or against these individuals in the UnitedStates in the event that you believe that your rights have been infringed under applicable securities laws or otherwise. Even if you aresuccessful in bringing an action, the laws of Taiwan may render you unable to enforce a United States judgment against our assets or theassets of our directors and officers.For judgments obtained in courts outside of Taiwan to be recognized and enforceable in Taiwan without review of the merits, theTaiwan court in which the enforcement is sought must be satisfied that: the foreign court rendering such judgment has jurisdiction over thesubject matter in accordance with the Taiwan law; the judgment and the court procedure resulting in the judgment are not contrary to thepublic order or good morals of Taiwan; the judgment is a final judgment for which the period for appeal has expired or from which no appealcan be taken; if the judgment was rendered by default by the foreign court, the defendant was duly served in the jurisdiction of such courtwithin a reasonable period of time in accordance with the laws and regulations of such jurisdiction, or process was served on the defendantwith the Taiwan judicial assistance; and judgment of Taiwan courts is recognized and enforceable in the foreign court rendering thejudgment on a reciprocal basis.18Table of Contents Political, Geographical and Economic RisksDue to the location of our operations, we are vulnerable to natural disasters and other events, which may seriously disrupt ouroperations.Most of our operations are located in Taiwan, and the operations of many of our LED manufacturing service providers, suppliers andcustomers are located in Taiwan and the PRC. For the both years ended August 31, 2020 and 2019, 10% of our revenues were derived fromcustomers located in Taiwan and China (including Hong Kong). Our operations and the operations of our customers and suppliers arevulnerable to earthquakes, tsunamis, floods, droughts, typhoons, fires, power losses and other major catastrophic events, including theoutbreak, or threatened outbreak, of any widespread communicable diseases. Disruption of operations due to any of these events mayrequire us to evacuate personnel or suspend operations, which could reduce our productivity. Such disasters may also damage our facilitiesand equipment and cause us to incur additional costs to repair our facilities or procure new equipment, or result in personal injuries orfatalities or result in the termination of our leases and land use agreements. Any resulting delays in shipments of our products could alsocause our customers to obtain products from other sources. Although we maintain property insurance for such risks, there is no guaranteethat future damages or business losses from earthquakes and catastrophic other events will be covered by such insurance, that we will beable to collect from our insurance carriers, should we choose to claim under our insurance policies, or that such coverage will be sufficient.In addition, natural disasters, such as earthquakes, tsunamis, floods and typhoons, may also disrupt or seriously affect the operations ofour customers and suppliers, resulting in reduced orders or shipments or the inability to perform contractual obligations. The occurrence ofany of these events could have a material adverse effect on our business, financial condition and results of operations.Strained relations between the PRC and Taiwan could negatively affect our business and the market price of our common stock.Taiwan has a unique international political status. Since 1949, Taiwan and the PRC have been separately governed. The PRCgovernment claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and culturalrelations have been established during recent years between Taiwan and the PRC, the PRC government has refused to renounce thepossibility that it may at some point use force to gain control over Taiwan. Furthermore, the PRC government adopted an anti-secession lawrelating to Taiwan. Relations between Taiwan and the PRC governments have been strained in recent years for a variety of reasons,including the PRC government’s position on the “One China” policy and tensions concerning arms sales to Taiwan by the United Statesgovernment. Any tension between the Taiwan government and the PRC government, or between the United States and China, couldmaterially and adversely affect the market prices of our common stock.If the U.S. dollar or other currencies in which our sales, raw materials, component purchases and capital expenditures are denominatedfluctuate significantly against the New Taiwan, or NT, dollar and other currencies, our profitability may be seriously affected.We have significant foreign currency exposure, and are primarily affected by fluctuations in exchange rates among the U.S. dollar, theNT dollar and other currencies. A portion of our revenues and expenses are denominated in currencies other than NT dollars, primarily U.S.dollars. We do not hedge our net foreign exchange positions through the use of forward exchange contracts or otherwise and as a result weare affected by fluctuations in exchange rates among the U.S. dollar, the NT dollar and other currencies. For example, the announcement ofBrexit caused severe volatility in global currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar againstforeign currencies in which we conduct business. Any significant fluctuation in exchange rates may be harmful to our financial conditionand results of operations.The PRC government’s control of currency conversion and changes in the exchange rate between the Renminbi and other currenciescould negatively affect our financial condition and our ability to pay dividends.The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, theremittance of currency out of China. Under existing PRC foreign exchange regulations, payments of current account items, including profitdistributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approvalfrom State Administration of Foreign Exchange in China, or SAFE, provided that we satisfy certain procedural requirements. However,approval from SAFE or its local counterpart is required where Renminbi is to be converted into foreign currency and remitted out of China topay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretionrestrict access in the future to foreign currencies for current account transactions. Our revenue from sales in China (including Hong Kong)accounted for 4% and 3% of our revenues for the years ended August 31, 2020 and 2019, respectively.Failure to comply with the U.S. Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies from engaging in briberyor making other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required tomaintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreigncompanies, including some that may compete with us, may not be subject to these prohibitions, and therefore may have a competitiveadvantage. In the past, there have been instances of corruption, extortion, bribery, pay-offs, theft and other fraudulent practices in Taiwanand China, as well as other Asian countries and Russia. We cannot assure that our employees or other agents will not engage in suchconduct and render us responsible under the FCPA. If our employees or other agents are found to have engaged in corrupt or fraudulentbusiness practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business,financial condition and results of operations.Risks Related to Owning Our Common StockWe may fail to qualify for continued listing on Nasdaq which could make it more difficult for investors to sell their shares.In December 2010, our common stock was initially approved for listing on the Nasdaq Global Select Market but was transferred to theNasdaq Capital Market effective November 5, 2015. To maintain that listing, we must satisfy the continued listing requirements of Nasdaqfor inclusion in the Nasdaq Capital Market, including among other things, a minimum stockholders’ equity of $2.5 million and a minimum bidprice for our common stock of $1.00 per share, that a majority of the members of our board of directors are independent under the Nasdaq19Table of Contents Listing Rules and that our audit committee consist of three independent directors who satisfy additional requirements under the ExchangeAct. On November 25, 2019, we received a notice from The Nasdaq Stock Market indicating that we did not meet the minimum of $2,500,000in stockholders’ equity required by Listing Rule 5550(b)(1) for continued listing. We also did not meet the alternatives of market value oflisted securities or net income from continuing operations. On May 27, 2020, Nasdaq determined, based on 8-K we filed on the same day,that we comply with the Listing Rule 5550(b)(1).Even though our stockholders’ equity exceeded the minimum of $2,500,000 as of August 31, 2020, there can be no assurance that wewill maintain compliance with the continued listing requirements if we continue to incur losses or that our common stock will not be delistedfrom Nasdaq in the future. If our common stock is delisted by Nasdaq, we expect prices for our common stock to be quoted one of the OTCMarkets or the OTC Bulletin Board. Under such circumstances, stockholders may find it more difficult to sell, or to obtain accuratequotations, for our common stock, and our common stock would become substantially less attractive to certain purchasers such as financialinstitutions, hedge funds and other similar investors. There is no assurance, however, that prices for our common stock would be quoted onone of these other trading systems or that an active trading market for our common stock would thereafter exist, which would materially andadversely impact the market value of our common stock and your ability to sell our common stock.We may seek additional capital that may result in stockholder dilution.We may require additional capital due to continuing losses, deteriorating business conditions or other future developments. If ourcurrent sources of capital are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtainbank loans and credit facilities. The sale of convertible debt securities or additional equity securities could result in dilution to ourstockholders. The incurrence of further indebtedness, whether in the form of public debt or bonds or bank financing, would result inincreased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.Our ability to obtain external financing is subject to a number of uncertainties, including: •our future financial condition, results of operations and cash flows and the trading price of our common stock; •the state of global credit markets and our creditworthiness; •general market conditions for financing activities by companies in our industry; and •economic, political and other conditions in Taiwan, China and elsewhere.We cannot assure you that financing, if needed, would be available in amounts or on terms acceptable to us, if at all.Our stock price has been and may continue to be volatile and you may be unable to resell shares of our common stock at or above theprice you paid.The trading price of our common stock has been and may continue to be subject to broad fluctuations. The market price of shares ofour common stock could be subject to wide fluctuations in response to various risk factors listed in this section and others beyond ourcontrol, including: •actual or anticipated fluctuations in our key operating metrics, financial condition and operating results; •changes in the composition of and the orders received from our customers; •actual or anticipated changes in our growth rate; •issuance of new or updated research or reports by securities analysts that have a change in outlook regarding the performanceof our business or the future trading price of our common stock; •our announcement of actual results for a fiscal period that are higher or lower than projected or expected results or ourannouncement of revenue or earnings guidance that is higher or lower than expected; •fluctuations in the valuation of companies perceived by investors to be comparable to us; •share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; •sales or expected sales of additional common stock; •announcements from, or operating results of, our competitors; and •general economic and market conditions.Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect themarket prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operatingperformance of those companies. These broad market and industry fluctuations, as well as general economic, political and marketconditions, such as recessions, interest rate changes or international currency fluctuations, may cause the market price of shares of ourcommon stock to decline. In the past, companies that have experienced volatility in the market price of their stock have been subject tosecurities class action litigation. We had ever been a defendant in two filed actions and may be the target of this type of litigation in thefuture. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns,which could seriously harm our business.20Table of Contents Future sales of shares of our common stock by existing stockholders could cause our stock price to fall.Sales of substantial amounts of our common stock in the public market, or the perception that these sales might occur, could depressthe market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.As of November 13, 2020, 4.0 million shares of common stock were issued and outstanding, which are freely tradable withoutrestriction by non-affiliates. As of November 13, 2020, $1.4 million convertible notes were outstanding which can be converted into 467thousand shares of common stock. Certain stockholders, including stockholders owning a majority of our outstanding shares as well ascurrent and former employees, are eligible to resell shares of common stock in the public market under Rule 144, which, in the case of ouraffiliate and persons who have been affiliates in the last three months, would be subject to volume limitations and certain other restrictionsunder Rule 144, including that we are current in our SEC filings. In general, Rule 144 provides that any of our non-affiliates, who have heldrestricted common stock for at least six-months, are entitled to sell their restricted stock freely, provided that we are current in our SECfilings. After one year, a non-affiliate may sell without any restrictions.We have also filed registration statements on Form S-8 under the Securities Act to register approximately 565 thousand shares forissuance pursuant to options or other rights to purchase common stock under our equity incentive plans. These shares can be freely sold inthe public market upon issuance and once vested, subject to the applicable plan and/or the agreements entered into with holders of optionsor other rights to purchase common stock in connection with the issuance of such options or other rights to purchase common stock.Our directors, executive officers and principal stockholders have substantial control over us and will be able to influence corporatematters.As of November 13, 2020, our directors and executive officers, together with their affiliates, beneficially owned, in the aggregate,approximately 53% of our outstanding common stock. As a result, certain of these stockholders acting alone or these stockholders, actingtogether, would have the ability to practically control the outcome of matters submitted to our stockholders for approval, including theelection of our directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, actingtogether, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership mightharm the market price of our common stock by: •limiting stockholders’ ability to influence corporate matters; •delaying, deferring or preventing a change in corporate control; •impeding a merger, consolidation, takeover or other business combination involving us; or •discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.There can be no assurance that our interests will not conflict with those of these stockholders, who may also take actions that are notin line, or may conflict, with our other stockholders’ best interests.We do not anticipate paying any cash dividends on our common stock and, consequently, your ability to achieve a return on yourinvestment will depend on appreciation in the price of our common stock.We have never declared or paid any cash dividends on our common stock or convertible preferred stock and do not intend to do sofor the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely toreceive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stockwill depend upon future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value ormaintain the price at which our stockholders purchased their shares.Delaware law and our certificate of incorporation and bylaws will contain anti-takeover provisions that could delay or discouragetakeover attempts that stockholders may consider favorable.Certain provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control orchanges in our management. As long as our major stockholder, Simplot Taiwan, Inc., which is beneficially owned by Scott R. Simplot, one ofour directors, continues to hold 25% or more of the total voting power of all outstanding shares of our stock entitled to vote generally in theelection of directors, shareholders holding at least 25% of the total voting power of all outstanding shares of our stock entitled to votegenerally in the election of directors are able to call a special meeting in accordance with our bylaws; provided, however, at such time whenthe ownership interest of Simplot Taiwan, Inc. first falls below 25% of our total voting power, our amended and restated certificate ofincorporation requires that a special meeting may be called only by a majority of our board of directors. Our amended and restated certificateof incorporation precludes stockholder action by written consent. In addition, our amended and restated bylaws require that anystockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures,which may make it more difficult for our stockholders to make proposals or director nominations. In addition, the authorization ofundesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferencesthat could impede the success of any attempt to change our control.Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware GeneralCorporation Law. These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstandingvoting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware lawcould discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our commonstock in the future and result in our market price being lower than it would be without these provisions.21Table of Contents Item 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesThe following are significant manufacturing and office facilities that we own or lease as of August 31, 2020: •We own a four-story building located in Hsinchu Science Park, Taiwan. We occupy approximately 183 thousand square feet ofthe building, and we lease approximately 55 thousand square feet of space to a third-party tenant. Approximately 32% of ouroccupied space in the building is devoted to our manufacturing operations. We lease the land on which the building is situatedfrom the Science Park Administration in Hsinchu.Item 3. Legal ProceedingsDue to the complex technology required to compete successfully in the LED industry, participants in our industry are often engagedin significant intellectual property licensing arrangements, negotiations, disputes and litigation. We are directly or indirectly involved fromtime to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise.On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against SemiLEDs Corporation in the United States District Courtfor the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchasepursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to WellThrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, we have retained the $500 thousand payment as liquidateddamages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount ofpurported damages. On March 13, 2018, we filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit withprejudice. On March 27, 2018, Well Thrive filed an answering brief in opposition to our motion on the basis that Well Thrive neverconsented to dismiss the case. On January 2, 2019, the judge denied without prejudice the motion filed by us, because there remains somequestion as to whether Well Thrive’s former lawyers and Dr. Chiou had authority from Well Thrive to settle this case. The judge’s orderallowed us to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and torequest documents relating to the issues surrounding the settlement. Based on this order, we arranged the depositions to obtain moreevidence in support of a motion to enforce the settlement agreement. On October 25, 2019, Well Thrive filed a motion to modify the Court’sscheduling order and to allow it to file a motion for summary judgment, and we filed an opposition to the motion. On November 13, 2019, theCourt denied Well Thrive’s motion. The Court held a trial on March 2, 2020. After the trial, the judge ordered both sides to prepare post-trialbriefs and proposed findings of fact for the Court to be submitted before end of April 2020. Both sides submitted post-trail briefs andproposed findings of fact on April 30, 2020, and the judge set a hearing for November 18, 2020.Item 4. Mine Safety DisclosuresNot applicable.22Table of Contents PART II.Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket Price Information for our Common StockOur common stock began trading on the NASDAQ Global Select Market under the symbol “LEDS” on December 8, 2010 and wastransferred to the NASDAQ Capital Market effective November 5, 2015 where it continues to trade under the same symbol.There were 64 holders of record of our common stock as of November 13, 2020.Recent Sales of Unregistered SecuritiesNot applicable.Purchases of Equity Securities by the Issuer and Affiliated PurchasersWe did not make any repurchases of our common stock and no purchases of common stock were made on our behalf during thefourth quarter of our fiscal 2020.Item 6. Selected Financial DataNot applicable. 23Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations is based upon and should be read inconjunction with the audited consolidated financial statements and the notes included elsewhere in this Annual Report on Form 10‑K, aswell as the Risk Factors contained in Part I, Item 1A of this Annual Report on Form 10‑K, and other information provided from time to time inour other filings with the SEC.OverviewWe develop, manufacture and sell light emitting diode (LED) chips, LED components, LED modules and systems. Our products areused for general specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmeticapplications, counterfeit detection, LED lighting for horticulture applications, architectural lighting and entertainment lighting.We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in afew select markets, including Netherlands, Taiwan, the United States, Germany and India. We also sell our “Enhanced Vertical,” or EV, LEDproduct series in blue, white, green and UV in selected markets. Our lighting products customers are primarily original design manufacturers,or ODMs, of lighting products and the end users of lighting devices. We also contract other manufacturers to produce for our sale certainLED products, and for certain aspects of our product fabrication, assembly and packaging processes, based on our design and technologyrequirements and under our quality control specifications and final inspection process.We are a holding company for various wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, is ourwholly owned operating subsidiary, where a substantial portion of our assets are held and located and where a portion of our research,development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti ZhaomingCo., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantialportion of marketing and sale of LED products, and where most of our employees are based.Key Factors Affecting Our Financial Condition, Results of Operations and BusinessThe following are key factors that we believe affect our financial condition, results of operations and business: •COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, whichcontinues to spread throughout the world. As a result, and in consideration of the health and well-being of our employees,customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionarymeasures and adjusted our operational needs. Our workplaces are operating under enhanced measures to ensure the health andsafety of our employees, including limiting the visitors coming into our workplace and using videoconferencing for meetingswhen possible. Our business, financial condition, liquidity and operating results have been, and will continue to be, adverselyaffected by COVID-19 and related restrictions. The conditions caused by the COVID-19 pandemic have adversely affected ourcustomers’ ability or willingness to purchase our products or services, delayed prospective customers’ purchasing decisions,adversely impacted our ability to provide or deliver products and on-site services to our customers, delayed the provisioning ofour offerings, or lengthened payment terms, all of which could adversely affect our future sales, operating results and overallfinancial performance. Our operations have also begun to be negatively affected by a range of external factors related to theCOVID-19 pandemic that are not within our control. For example, our largest customer, Revlon, Inc., postponed its regularorders, which is expected to decrease our sales revenue for the first quarter ended November 30, 2020, and even for the quartersafter that if the COVID-19 pandemic continues. To avoid cash shortage due to the pandemic, we applied and received subsidiesfrom the Taiwan government. Our bank granted us a deferment period for twelve months starting from May 2020. During thisperiod, we do not need to pay the monthly payments of the principal but only the interest. We have also devoted ourselves tonew product development and expect these new products could bring in new revenue, offsetting the losses resulted fromexisting customers’ delayed purchasing. However, given the ongoing and evolving economic and business impact of theCOVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments, which could have amaterial adverse effect on our financial position and results of operations. •Our ability to raise additional debt funding, sell additional equity securities and improve our liquidity. We need to improveour liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for ouroperations. However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us,or at all. The raising of additional debt funding by us, if required and available, would result in increased debt serviceobligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict ouroperations. The sale of additional equity securities, if required and available, could result in dilution to our stockholders. •Our ability to source chips from other chip suppliers. Our reliance on our chip suppliers exposes us to a number of significantrisks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed productioncapacity or product supply. If our chip suppliers are unable or unwilling to continue to supply our chips at requested quality,quantity, performance and costs, or in a timely manner, our business and reputation could be seriously harmed. Our inability toprocure chips from other chip suppliers at the desired quality, quantity, performance and cost might result in unforeseenmanufacturing and operations problems. In such events, our customer relationships, business, financial condition and results ofoperations would be adversely affected. •Industry growth and demand for products and applications using LEDs. The overall adoption of LED lighting devices toreplace traditional lighting sources is expected to influence the growth and demand for LED chips and component products andimpact our24Table of Contents financial performance. We believe the potential market for LED lighting will continue to expand. LEDs for efficient generation ofUV light are also starting to gain attention for various medical, germicidal and industrial applications. Since a substantial portionof our LED chips, LED components and our lighting products are used by end‑users in general lighting applications andspecialty industrial applications such as UV curing, medical/cosmetic, counterfeit detection, horticulture, architectural lightingand entertainment lighting the adoption of LEDs into these applications will have a strong impact on the demand of LED chipsgenerally and, as a result, for our LED chips, LED components and LED lighting products. •Average selling price of our products. The average selling price of our products may decline for a variety of factors, includingprices charged by our competitors, the efficacy of our products, our cost basis, changes in our product mix, the size of the orderand our relationship with the relevant customer, as well as general market and economic conditions. Competition in the marketsfor LED products is intense, and we expect that competition will continue to increase, thereby creating a highly aggressivepricing environment. For example, some of our competitors have in the past reduced their average selling prices, and theresulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in our revenuesand the gross margin of our products. When prices decline, we must also write down the value of our inventory. Furthermore,the average selling prices for our LED products have typically decreased over product life cycles. Therefore, our ability tocontinue to innovate and offer competitive products that meet our customers’ specifications and pricing requirements, such ashigher efficacy LED products at lower costs, will have a material influence on our ability to improve our revenues and productmargins, although in the near term the introduction of such higher performance LED products may further reduce the sellingprices of our existing products or render them obsolete. •Changes in our product mix. We anticipate that our gross margins will continue to fluctuate from period to period as a result ofthe mix of products that we sell and the utilization of our manufacturing capacity in any given period, among other things. Forexample, we continue to pursue opportunities for profitable growth in areas of business where we see the best opportunity todevelop as an end-to-end LED module solution supplier by providing our customers with high quality, flexible and morecomplete LED system solution, customer technical support and LED module/system design, as opposed to just providingcustomers with individual components. As a strategic plan, we have placed greater emphasis on the sales of LED componentsrather than the sales of LED chips where we have been forced to cut prices on older inventory. The growth of our moduleproducts and the continued commercial sales of our UV LED product are expected to improve our gross margin, operatingresults and cash flows. In addition, we have adjusted the lower-priced LED components strategy as appropriate. We haveadopted a strategy to adjust our product mix by exiting certain high volume but low unit selling price product lines in responseto the general trend of lower average selling prices for products that have been available in the market for some time. However,as we expand and diversify our product offerings and with varying average selling prices, or execute new business initiatives, achange in the mix of products that we sell in any given period may increase volatility in our revenues and gross margin fromperiod to period. •Our ability to reduce cost to offset lower average selling prices. Competitors may reduce average selling prices faster than ourability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. Toaddress increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost ofproduction of our products. However, such cost savings currently have limited impact on our gross profit, as we currently sufferfrom the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. While weintend to focus on managing our costs and expenses, over the long term we expect to be required to invest substantially in LEDcomponent products development and production equipment if we are to grow. •Our ability to continue to innovate. As part of our growth strategy, we plan to continue to be innovative in product design, todeliver new products and to improve our manufacturing efficiencies. Our continued success depends on our ability to developand introduce new, technologically advanced and lower cost products, such as more efficient, better performance LEDcomponent products. If we are unable to introduce new products that are commercially viable and meet rapidly evolvingcustomer requirements or keep pace with evolving technological standards and market developments or are otherwise unable toexecute our product innovation strategy effectively, we may not be able to take advantage of market opportunities as they arise,execute our business plan or be able to compete effectively. In December 2018, we announced sampling of ultraviolet C (UVC)product lines and launched our first product in the tri-color multi pixel series, a 16-pixel RGB array component, to reduce totalproduction costs through increased SMT throughput. To differentiate ourselves from other LED package manufacturers, we areputting more resources towards module and system design. Along with our technical know-how in the chip and packagesectors, we are able to further integrate electrical, thermal and mechanical manufacturing resources to provide customers withone-stop system services. Services include design, prototyping, OEM and ODM. Key markets that we intend to target at thesystem end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging lightengines, horticultural lighting and high standard commercial lighting. The modules are designed for various printing, curing, andPCB exposure industrial equipment, providing uncompromised reliability and optical output. Our LED components includedifferent sizes and wattage to accommodate different demands in the LED market.25Table of Contents •General economic conditions and geographic concentration. Many countries including the United States and the EuropeanUnion (the “E.U.”) members have instituted, or have announced plans to institute, government regulations and programsdesigned to encourage or mandate increased energy efficiency in lighting. These actions include in certain cases banning thesale after specified dates of certain forms of incandescent lighting, which are advancing the adoption of more energy efficientlighting solutions such as LEDs. When the global economy slows or a financial crisis occurs, consumer and governmentconfidence declines, with levels of government grants and subsidies for LED adoption and consumer spending likely to beadversely impacted. Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, theUnited States, Germany, Japan and India. Given that we are operating in a rapidly changing industry, our sales in specificmarkets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted by general economic and politicalconditions in such markets. For example, the aggressive support by the Chinese government for the LED industry throughsignificant government incentives and subsidies to encourage the use of LED lighting and to establish the LED‑sectorcompanies has resulted in production overcapacity in the market and intense competition. Furthermore, due to Chinese packagemanufacturers increasing usage of domestic LED chips, prices are increasingly competitive, leading to Chinese manufacturersgrowing market share in the global LED industry. In addition, we have historically derived a significant portion of our revenuesfrom a limited number of customers. Some of our largest customers and what we produce/have produced for them have changedfrom quarter to quarter primarily as a result of the timing of discrete, large project‑based purchases and broadening customerbase, among other things. For the years ended August 31, 2020 and 2019, sales to our three largest customers, in the aggregate,accounted for 61% and 45% of our revenues, respectively. •Intellectual property issues. Competitors of ours and other third parties have in the past and will likely from time to time in thefuture allege that our products infringe on their intellectual property rights. Defending against any intellectual propertyinfringement claims would likely result in costly litigation and ultimately may lead to our not being able to manufacture, use orsell products found to be infringing. In June 2012, we settled an intellectual property dispute involving Cree. We agreed todismiss amended complaints filed against each other without prejudice. We agreed to the entry of a permanent injunction thatwas effective October 1, 2012 that precludes us from (and/or from assisting others in) making, using, importing, selling and/oroffering to sell in the United States certain accused products and/or any device that includes such an accused product after thatdate and to payment of a settlement fee for past damages. All accused products sold before the date of settlement are releasedunder this agreement and our customers and distributors are specifically released. All remaining claims between Cree and uswere withdrawn without prejudice, with each retaining the right to assert them in the future. However, other third parties mayalso assert infringement claims against our customers with respect to our products, or our customers’ products that incorporateour technologies or products. Any such legal action or the threat of legal action against us, or our customers, could impair suchcustomers’ continued demand for our products. This could prevent us from growing or even maintaining our revenues, or causeus to incur additional costs and expenses, and adversely affect our financial condition and results of operations. •Cash position. Our cash and cash equivalents increased to $2.8 million as of August 31, 2020 primarily due to the combinationof our net cash provided by financing activities offset by net cash used in operating activities. We have implemented actions toaccelerate operating cost reductions and improve operational efficiencies. The plan is further enhanced through the fablessbusiness model in which we implemented certain workforce reductions and are exploring the opportunities to sell certainequipment related to the manufacturing of vertical LED chips, in order to reduce the idle capacity charges and minimize ourresearch and development activities associated with chips manufacturing operation. In December 2019, we issued convertibleunsecured promissory notes with a principal sum of $2 million. Among which, $600 thousand convertible notes were convertedinto 200 thousand shares of common stock in May 2020. Based on our current financial projections, we believe that we will havesufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months.Components of Consolidated Statements of OperationsRevenues, netOur core products are LED components, LED modules and systems, which are the most important part of our business, as well as LEDchips and lighting products.Our revenues are affected by sales volumes of our LED chips, LED components and lighting products and our average selling pricesfor such products. In addition, as we expand and diversify our product offerings and with varying average selling prices, any change in themix of products that we sell in any given period may affect our total revenues. For example, average selling prices for our LED componentsare generally higher than for LED chips and the average selling prices for our lighting products are higher than for our LED chips and LEDcomponents.We recognize revenue on sales of our products when persuasive evidence of an arrangement exists, the price is fixed or determinable,ownership and risk of loss has transferred and collection of the sales proceeds is probable. We obtain written purchase authorizations fromour customers as evidence of an arrangement and these authorizations generally provide for a specified amount of product at a fixed price.We typically consider delivery to have occurred at the time of shipment, unless otherwise agreed in the applicable sales terms, as this isgenerally when title and risk of loss for the product passes to the customer.26Table of Contents Our larger customers typically provide us with non‑binding rolling forecasts of their requirements for the coming one to three months;however, recent global economic uncertainty and weakness has led to reduced spending in our target markets and made it difficult for ourcustomers and us to accurately forecast and plan future business activities. Our customers may increase, decrease, cancel or delaypurchase orders already in place, with no material consequences to the customer. As a result, we may face increased inventories and ourbacklog may decline as a result of any economic downturn or material change in market conditions or economic outlook. We price ourproducts in accordance with prevailing market conditions, taking into account the technical specifications of the product being sold, theorder volume, the strength and history of our relationship with the customer, our inventory levels and our capacity utilization. Whenaverage selling prices drop, as they did in recent years, inventory write‑downs to net realizable values may also result.Our customers consist primarily of packagers, ODMs and end‑customers. Our revenues attributable to our ten largest customersaccounted for 83% and 73% of our revenues for the years ended August 31, 2020 and 2019, respectively.Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States, Germany, Japanand India. Net revenues generated from these countries, in the aggregate, accounted for 90% and 85% of our net revenues for the yearsended August 31, 2020 and 2019, respectively. We expect that our revenues will continue to be substantially derived from these countriesfor the foreseeable future. Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate fromquarter to quarter. Therefore, our financial results will be impacted by general economic and political conditions in such markets.Our revenues are presented net of estimated sales returns and discounts. We estimate sales returns and discounts based on ourhistorical discounts and return rates and our assessment of future conditions.Cost of RevenuesOur cost of revenues consists primarily of cost of materials, depreciation expenses, manufacturing overhead costs, direct labor costsand utilities cost, all related to the manufacture of our LED products. Materials include raw materials, other materials such as gases andchemicals, consumables, and assembly materials. Because our products are manufactured based on customers’ orders and specificationsand we purchase materials and supplies to support such orders, we generally purchase our materials at spot prices in the marketplace anddo not maintain long‑term supply contracts. We purchase materials from several suppliers. Our procurement policy is to select only a smallnumber of qualified vendors who demonstrate quality of materials and reliability on delivery time. We are subject to variations in the cost ofour materials and consumables from period to period. Moreover, because we consume a significant amount of electricity in ourmanufacturing process, any fluctuations in electricity costs will have an impact on our cost of revenues. We also use contractmanufacturers to produce for our certain LED products, and for certain aspects of our product fabrication, assembly and packagingprocesses, based on our design and technology requirements and under our quality control specifications and final inspection process.Direct labor costs consist of salary (including stock‑based compensation expenses), bonus, training, retirement and other costsrelated to our employees engaged in the manufacture of our products. Manufacturing overhead costs consist primarily of salaries, bonusesand other benefits (including stock‑based compensation expenses) for our administrative personnel allocated to manufacturing functions,repairs and maintenance costs for equipment and machinery maintenance costs and lease expenses.Our cost of revenues also includes excess capacity charges as a result of the underutilization of our manufacturing capacity andinventory valuation adjustments to write down our inventories to their estimated net realizable values as a result of declines in their averageselling prices.Operating ExpensesResearch and development. Our research and development expenses, which are expensed as incurred, consist primarily of expensesrelated to employee salaries, bonuses and other benefits (including stock‑based compensation expenses) for our research and developmentpersonnel, engineering charges related to product design, purchases of materials and supplies, repairs and maintenance and depreciationrelated expenses.Selling, general and administrative. Selling, general and administrative expenses consist primarily of salaries, bonuses and otherbenefits (including stock‑based compensation expenses) for our administrative, sales and marketing personnel, expenses for professionalservices, which include fees and expenses for accounting, legal, tax and valuation services, amortization and depreciation related expenses,marketing related travel, lease expenses, entertainment expenses, allowance for doubtful accounts and general office related expenses, aswell as compensation to our directors. We expect our selling, general and administrative expenses to decrease as we continue to implementcost reduction initiatives, such as spending controls, and as we continue to streamline our operations.Gain on disposal of long‑lived assets, net. We recognized a gain of $669 thousand and $288 thousand on the disposal of long-livedassets for the years ended August 31, 2020 and 2019, respectively. Due to the excess capacity charges that we have suffered for a few years,considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of acertain level of our idle equipment.27Table of Contents Other Income (Expense)Gain on disposal of investment. We recognized a gain of $634 thousand for the year ended August 31, 2020. On November 27, 2019,we entered into a stock purchase agreement to sell all of the outstanding shares of our Hong Kong Subsidiary, Semileds InternationalCorporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd for $100,000 and an additional $40,000 for the transactioncost. The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.Interest expenses, net. Interest expenses, net consist of interest income and interest expense. Interest income represents interestearned from our cash and cash equivalents deposited with commercial banks in the United States and Taiwan. As of August 31, 2020 and2019, we had cash and cash equivalents of $2.8 million and $1.4 million, respectively, which consisted of time deposits with initial maturity ofgreater than three months but less than one year. Interest expense consists primarily of interest on our convertible notes and long‑termborrowings and/or short‑term lines of credit with certain banks in Taiwan as well as with our Chairman and largest stockholder. We hadlong‑term debt totaling $7.7 million and $6.4 million as of August 31, 2020 and 2019, respectively.Other income, net. Other income for the year ended August 31, 2020 primarily consists of government subsidy for the COVID-19pandemic impact and rental income from the lease of spare space in our Hsinchu building. Other income for the year ended August 31, 2019consists primarily of rental income from the lease of spare space in our Hsinchu building, offset by the settlement of a lawsuit with Epistar.Foreign currency transaction gain (loss), net. We recognized a net foreign currency transaction gain of $352 thousand and $40thousand for the years ended August 31, 2020 and 2019, respectively, primarily due to the depreciation of the U.S. dollar against the NTdollar from bank deposits and accounts receivables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency otherthan the functional currency of such subsidiaries.Provision for Income TaxesUnited States tax treatment. We and one of our subsidiaries, Helios Crew, are United States corporations and are therefore requiredto file federal income tax returns with the Internal Revenue Service as well as with certain applicable state tax authorities. As our operationsin the United States have been minimal, we have not to date recorded nor paid any significant federal or state corporate income tax.We have investments in controlled foreign corporations and affiliates, which under Subpart F of the United States Internal RevenueCode, or Subpart F, may under certain circumstances subject our investments in controlled foreign corporations and affiliates to taxation inthe United States. Subpart F provides that United States corporations may be required to include in their income certain undistributedearnings of the foreign corporations and affiliates as though such earnings had been distributed currently. Subpart F applies only to UnitedStates shareholders (such as us) who hold an interest in a foreign corporation and affiliates that meet the definition of a “controlled foreigncorporation.” Under Section 957(a) of the United States Internal Revenue Code, a “controlled foreign corporation” means any foreigncorporation if more than 50% of either (i) the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii)the total value of the stock of such corporation, is owned by “United States Shareholders” on any day during the foreign corporation’staxable year.Subpart F does not apply, however, to the income of a controlled foreign corporation generated from the sale of goods that aremanufactured in its country of incorporation. Also, any income attributable to a controlled foreign corporation and its affiliates that is notengaged in a United States trade or business is generally not subject to United States taxation until its earnings are distributed, or the stockof the foreign corporation is disposed. All of our products are manufactured in Taiwan by Taiwan SemiLEDs, our wholly owned foreignsubsidiary. Because Taiwan SemiLEDs conducts its manufacturing activities in Taiwan, the income or loss of Taiwan SemiLEDs is includedin our consolidated financial statements, but is not considered taxable income for United States taxation purposes pursuant to Section954(d)(1)(A) of the United States Internal Revenue Code. This generally enables a United States taxpayer, such as us, to indefinitely deferUnited States taxation on the profits earned by its controlled foreign corporations and affiliates by retaining the earnings in such entities.We do not currently have any plans to repatriate any of our retained earnings from any of our controlled foreign subsidiaries or affiliatesand we do not currently have any plans to declare or pay any dividends from such entities.On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporateincome tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certainunrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income ofnon-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 theparent’s deductions for payments to the subsidiaries. Our provisional estimate is that no tax will be due under this provision.The current presidential administration in the United States modified the rules governing taxation of controlled foreign corporationsand affiliates and any such changes were not expected to result in our having to pay applicable taxes in the United States on income earnedby such entities.28Table of Contents Taiwan tax treatment. The corporate income tax rate in Taiwan is 20% for the year ended August 31, 2020 and 2019. Corporate incometaxes payable, however, are subject to an alternative minimum tax. The Taiwan government enacted the Taiwan Alternative Minimum TaxAct, or the AMT Act, on January 1, 2006. Under the AMT Act, a taxpayer must pay the higher of its taxable income multiplied by thecorporate income tax rate or the alternative minimum tax, or AMT. In calculating the AMT amount, the taxpayer must include income thatwould otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain exemptions or taxcredits that have been grandfathered for the purposes of calculating AMT. The AMT rate for business entities is 12%. In addition to thestatutory corporate taxes payable, or the AMT, corporate taxpayers in Taiwan are subject to an additional tax on distributable retainedearnings (after statutory legal reserves) to the extent that such earnings are not distributed prior to the end of the subsequent year. Thisundistributed earnings surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prioryear is approved by a company’s stockholders and is payable in the subsequent year. The surtax rate has been reduced from 10% to 5%,starting applicable to the undistributed retained earnings of the year ended August 31, 2019. Because most of our subsidiaries in Taiwanincurred losses before income tax for both our fiscal year 2020 and 2019, we do not expect to pay such taxes on undistributed earnings.In addition, in accordance with the Taiwan Income Tax Act, dividends distributed by companies incorporated in accordance with theTaiwan Company Act shall be deemed as income derived from sources in Taiwan and income taxes shall be levied on the shareholdersreceiving such dividends. In the event that a Taiwan incorporated company distributes dividends to its foreign shareholders, it will berequired to withhold tax payable by the foreign shareholders at the time of payment at a rate of 20% or a lower tax treaty rate if applicable.Therefore, dividends received from our subsidiaries in Taiwan, if any, will be subjected to withholding tax under Taiwan law.As of August 31, 2020, we had total foreign net operating loss carryforwards of $115.1 million, arising primarily from certain of ourconsolidated and majority owned subsidiaries in Taiwan, which will expire in various amounts in future years. Pursuant to the TaiwanIncome Tax Act, as amended in January 2009, net operating loss carryforwards can be carried forward for a period of ten years.Income TaxesWe are subject to income taxes in both the United States and foreign jurisdictions. Significant management judgment is required indetermining our income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred taxassets. Our deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidatedstatements of operations become deductible expenses under applicable income tax laws or when loss or credit carryforwards are utilized.Realization of these deferred tax assets is dependent on our ability to earn future taxable income against which these deductions, losses andcredits can be utilized. Therefore, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and, tothe extent we believe that recovery is not more likely than not, a valuation allowance is established. These estimates and judgments aboutour future taxable income are based on assumptions that are consistent with our future plans. A net cumulative loss in recent years is asignificant piece of negative evidence in determining the realization of the benefits of deferred tax assets. Changes in recognition ormeasurement are reflected in the period in which the change in judgment occurs. We have provided a full valuation allowance on ourdeferred tax assets because our cumulative losses in recent years causes us to believe that realization of our deferred tax assets is not morelikely than not.Inventory ValuationInventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value. Wedetermine cost using a weighted average. For work in process and manufactured inventories, cost consists of raw materials, direct labor andan allocated portion of our production overhead. At each balance sheet date, we evaluate our ending inventories for excess quantities andobsolescence, and we write down our inventory to its estimated net realizable value based upon assumptions about future demand andmarket conditions. Our estimation of future demand is primarily based on the backlog of customer orders as of the balance sheet date andprojections based on our actual historical sales trends and customers’ demand forecast. We evaluated our inventories on an individual itembasis. For our finished goods and work in process, if the estimated net realizable value for an inventory item, which is the estimated sellingprice in the ordinary course of business, less reasonably predictable costs to completion and disposal, is lower than its cost, the specificinventory item is written down to its estimated net realizable value. Market for raw materials is based on replacement cost. We also writedown items that are considered obsolete based upon changes in customer demand, manufacturing process changes or new productintroductions that may eliminate demand for the product. Once written down, inventories are carried at this lower amount until sold orscrapped. Provisions for inventory write‑downs are included in our costs of revenues in the consolidated statements of operations. There issignificant judgment involved with the estimates of excess and obsolescence and if our estimates regarding customer demand or otherfactors are inaccurate or actual market conditions or technological changes are less favorable than those estimated by management,additional future inventory write‑downs may be required that could adversely affect our operating results. Inventory write‑downs totaled$709 thousand and $743 thousand for the years ended August 31, 2020 and 2019, respectively. A majority of our inventory write‑downsduring the years ended August 31, 2020 and 2019 was related to finished goods and work in process, primarily as a result of obsolescence.29Table of Contents Useful Life of Property, Plant and EquipmentProperty, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on property, plant andequipment is calculated using the straight‑line method over the estimated useful lives of the assets. Leasehold improvements are amortizedusing the straight‑line method over the shorter of the lease term or the estimated useful life of the asset. We make estimates of the useful lifeof our property, plant and equipment in order to determine depreciation expense to be recorded each reporting period based on similarassets purchased in the past and our historical experience with such similar assets, as well anticipated technological or market changes. Theestimated useful life of our property, plant and equipment directly impacts the timing of when our depreciation expense is recognized. Thereis significant judgment involved with estimating the useful lives of our property, plant and equipment, and a change in the estimates of suchuseful lives could cause our depreciation expense in future periods to increase significantly.Impairment of Long‑lived AssetsIn assessing the recoverability of our long‑lived assets, we first, determine whether indicators of impairment are present.Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product,changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factorsor in the business climate, among others, may trigger an impairment review. Second, if we determine that indicators of impairment arepresent, we determine whether the estimated undiscounted cash flows expected to be generated from the use and eventual disposal of thepotentially impaired assets (or asset group) are less than the carrying amount. Third, if such estimated undiscounted cash flows do notexceed the carrying amount, we estimate the fair value of the asset (or asset group) and recognize an impairment charge if the carryingamount is greater than the fair value of the asset (or asset group). Fair value is determined through various valuation techniques, includingdiscounted cash flow models, quoted market values and third‑party independent appraisers, as considered necessary. We group ourlong‑lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated, or an asset group. Wedetermined that we have two asset groups for impairment testing purposes, one of which is associated with the manufacture and sale ofLED chips and LED components, and the other is associated with our Ning Xiang subsidiary, which is engaged in the manufacture and saleof lighting fixtures and systems.The estimates of future cash flows involve subjective judgments and represent our best estimate at each date of assessment aboutfuture developments, determined based on reasonable and supportable assumptions and projections taking into account past experience, aswell as market data obtained from independent external sources. The use of different assumptions could increase or decrease the estimatesof expected future cash flows and consequently, increase or decrease the related impairment charges. For example, if the average sellingprices continue to decline beyond the assumptions used in our forecast of future cash flows expected to be generated by the asset groups,or if demand for our LED products does not grow as we anticipate, or if utilization rates are lower than anticipated, it is reasonably possiblethat the estimate of expected future cash flows may change in the near term resulting in the need to adjust our determination of fair value.For the year ended August 31, 2020, lower than projected sales of our LED products and lower market capitalization compared to ourconsolidated net book values again indicated potential impairment of our long‑lived assets. We projected undiscounted future cash flows toanalyze potential impairment, based upon a variety of factors, including primarily our continuous efforts to suppress gross loss from chipsales and the cooperation model discussed with other parties, considering all known trends and uncertainties. The significant assumptionsused in determining the estimated undiscounted cash flows for the LED chips and components asset group were revised to reflect the newoperation status. Based on the assessment, the expected undiscounted cash flows to be generated by this asset group exceeded itscarrying value. Consequently, no asset impairment was recognized during the year ended August 31, 2020.Critical Accounting Policies and EstimatesOn September 1, 2019, we adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements toNonemployee Share-Based Payment Accounting. The amendments specify that Topic 718 applies to all share-based payment transactionsin which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based paymentawards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to theissuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606,Revenue from Contracts with Customers. There was no material impact on our consolidated financial position, results of operations or cashflows due to the adoption.Effective September 1, 2019, we adopted, without restating comparatives, ASC 842, Leases, which is intended to improve financialreporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights andobligations created by lease terms of more than 12 months. As of September 1, 2019, we recognized $307 thousand of lease right of useAsset and of lease liability; and there was no material impact on our consolidated financial results of operations or cash flows due to theadoption.Except as described above, there have been no material changes in the matters for which we make critical accounting policies andestimates in the preparation of our condensed consolidated financial statements for the year ended August 31, 2020 as compared to thosedisclosed in our 2019 Annual Report.30Table of Contents Exchange Rate InformationWe are a Delaware corporation and, under SEC requirements, must report our financial position, results of operations and cash flowsin accordance with U.S. GAAP. At the same time, our subsidiaries use the local currency as their functional currency. For example, thefunctional currency for Taiwan SemiLEDs is the NT dollar. The assets and liabilities of the subsidiaries are, therefore, translated into U.S.dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate componentof accumulated other comprehensive income (loss) within equity. Income and expense accounts are translated at average exchange ratesduring the period. Any gains and losses from transactions denominated in currencies other than their functional currencies are recognizedin the consolidated statements of operations as a separate component of other income (expense). Due to exchange rate fluctuations, suchtranslated amounts may vary from quarter to quarter even in circumstances where such amounts have not materially changed whendenominated in their functional currencies.The translations from NT dollars to U.S. dollars were made at the exchange rates set forth in the statistical release of the Bank ofTaiwan. On August 31, 2020 the exchange rate was 29.49 NT dollars to one U.S. dollar. On November 13, 2020, the exchange rate was 28.82NT dollars to one U.S. dollar.No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S.dollars or NT dollars, as the case may be, at any particular rate or at all.Results of OperationsThe following table sets forth, for the periods presented, our consolidated statements of operations information. In the table belowand throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the followingconsolidated statement of operations data for the years ended August 31, 2020 and 2019 has been derived from our audited consolidatedfinancial statements included elsewhere in this Annual Report on Form 10‑K. The information contained in the table below should be read inconjunction with our consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data,of this Annual Report on Form 10‑K. The historical results presented below are not necessarily indicative of the results that may beexpected for any future period: Years Ended August 31, 2020 2019 % of % of $ Revenues $ Revenues (in thousands) Consolidated Statement of Operations Data: Revenues, net $6,068 100 % $5,902 100 %Cost of revenues 4,478 74 % 5,450 92 %Gross profit 1,590 26 % 452 8 %Operating expenses: Research and development 1,538 25 % 1,613 27 %Selling, general and administrative 2,808 46 % 2,792 47 %Gain on disposals of long-lived assets, net (669) (11)% (288) (5)%Total operating expenses 3,677 60 % 4,117 69 %Loss from operations (2,087) (34)% (3,665) (61)%Other income (expenses): Other income (expenses): Gain on disposals of investment 634 10 % — — %Interest expenses, net (358) (6)% (190) (3)%Other income, net 912 15 % 250 4 %Foreign currency transaction gain, net 352 6 % 40 1 %Total other income (expenses), net 1,540 25 % 100 2 %Loss before income taxes (547) (9)% (3,565) (59)%Income tax expense — — — — Net loss (547) (9)% (3,565) (59)%Less: Net loss attributable to noncontrolling interests (3) — % — — %Net loss attributable to SemiLEDs stockholders $(544) (9)% $(3,565) (59)% 31Table of Contents Year Ended August 31, 2020 Compared to Year Ended August 31, 2019 Years Ended August 31, 2020 2019 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) LED chips $69 1 % $93 2 % $(24) (26)%LED components 3,977 66 % 4,430 75 % (453) (10)%Lighting products 548 9 % 632 11 % (84) (13)%Other revenues(1) 1,474 24 % 747 12 % 727 97 %Total revenues, net 6,068 100 % 5,902 100 % 166 3 %Cost of revenues 4,478 74 % 5,450 92 % (972) (18)%Gross profit $1,590 26 % $452 8 % $1,138 252 % (1)Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services andthe lease of manufacturing as well as research and development facilities.Revenues, netTotal revenues increased by 3% from $5.9 million for the year ended August 31, 2019 to $6.1 million for the year ended August 31,2020. The $166 thousand increase in revenues reflects a $727 thousand increase in other revenues, offset by a $24 thousand decrease inrevenues attributable to sales of LED chips, a $453 thousand decrease in revenues attributable to sales of LED components, and an $84thousand decrease in revenues attributable to the sales of lighting products.Revenues attributable to the sales of our LED chips represented 1% and 2% of our revenues for the years ended August 31, 2020 and2019, respectively. The decrease in revenues attributable to sales of LED chips was as a result of a decrease in the volume of LED chipssold, primarily due to our strategic decision to place greater emphasis on the sales of LED components rather than the sales of LED chips.Revenues attributable to the sales of our LED components represented 66% and 75% of our revenues for the years ended August 31,2020 and 2019, respectively. The decrease in revenues attributable to sales of LED components was primarily due to a result of lower volumesold of LED components products with a lower average selling price. We have adopted a strategy to adjust our product mix by exitingcertain high volume but low unit selling price product lines in response to the general trend of lower average selling prices for products thathave been available in the market for some time and to focus on the profitable products.Revenues attributable to the sales of lighting products represented 9% and 11% of our revenues for the years ended August 31, 2020and 2019, respectively. The decrease in revenues attributable to the sales of lighting products was mainly due to a slowdown in demand onLED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products.Revenues attributable to other revenues represented 24% and 12% of our revenues for the year ended August 31, 2020 and 2019,respectively. The increase in revenues attributable to other revenues was primarily due to the provision of services and the sale of rawmaterials.Cost of RevenuesOur cost of revenues decreased by 18% from $5.5 million for the year ended August 31, 2019 to $4.5 million for the year ended August31, 2020. The decrease in cost of revenues was primarily due to our ongoing cost reduction efforts, a decrease in volume sold and adecrease in depreciation expense and idle capacity charges associated with property, plant and equipment. Inventory write‑downs totaled$709 thousand and $743 thousand for the years ended August 31, 2020 and 2019, respectively. A majority of our inventory write-downsduring the years ended August 31, 2020 and 2019 was related to finished goods and work in process, primarily as a result of obsolescence.Gross ProfitOur gross profit increased from $452 thousand for the year ended August 31, 2019 to $1.6 million for the year ended August 31, 2020.Our gross margin percentage was 26% for the year ended August 31, 2020, as compared to 8% for the year ended August 31, 2019 as aconsequence of an increase in the sales of products with higher margin.32Table of Contents Operating Expenses Years Ended August 31, 2020 2019 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) Research and development $1,538 25 % $1,613 27 % $(75) (5)%Selling, general and administrative 2,808 46 % 2,792 47 % 16 1 %Gain on disposals of long-lived assets, net (669) (11)% (288) (5)% (381) 132 %Total operating expenses $3,677 60 % $4,117 69 % $(440) (11)% Research and development. Our research and development expenses decreased from $1.6 million for the year ended August 31, 2019to $1.5 million for the year ended August 31, 2020. The slight decrease was primarily due to an $87 thousand decrease in materials andsupplies used in research and development, offset partially by an increase in payroll expense and other operating expenses.Selling, general and administrative. Our selling, general and administrative expenses increased slightly from $2.8 million for the yearended August 31, 2019 to $2.8 million for the year ended August 31, 2020. The increase was mainly attributable to a $278 thousand increasein professional fees, offset partially by a decrease in payroll expense, shipping and freight fee, and other various expenses.Gain on disposal of long‑lived assets, net. We recognized a gain of $669 thousand and $288 thousand, net on the disposal of long-lived assets for the years ended August 31, 2020 and 2019, respectively. Primarily due to the excess capacity charges that we have sufferedfor a few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast,we disposed of a certain level of our idle equipment.Other Income (Expenses) Years Ended August 31, 2020 2019 % of % of $ Revenues $ Revenues (in thousands) Gain on disposals of investment $634 10 % $— — %Interest expenses, net (358) (6)% (190) — %Other income, net 912 15 % 250 10 %Foreign currency transaction gain, net 352 6 % 40 (1)%Total other income (expenses), net $1,540 25 % $100 9 % Gain on disposal of investment. We recognized a gain of $634 thousand for the year ended August 31, 2020. On November 27, 2019,we entered into a stock purchase agreement to sell all of the outstanding shares of our Hong Kong Subsidiary, Semileds InternationalCorporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd for $100,000 and an additional $40,000 for the transactioncosts. The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.Interest expenses, net. The increase in interest expenses, net was primarily due to the increase in debt balance, resulting fromissuance of $2 million of convertible notes in December 2019, and our entry into an aggregate amount of $3.2 million loan of agreements inJanuary 8, 2019, with each of our Chairman and Chief Executive Officer and our largest shareholder.Other income, net. Other income for the year ended August 31, 2020 primarily consists of government subsidy for the COVID-19pandemic impact and rental income from the lease of spare space in our Hsinchu building. Other expenses for the year ended August 31,2019 consists primarily of rental income from the lease of spare space in our Hsinchu building, net of related depreciation charge, offset bythe settlement of a lawsuit with Epistar.Foreign currency transaction gain (loss), net. We recognized a net foreign currency transaction gain of $352 thousand and $40thousand for the years ended August 31, 2020 and 2019, respectively, primarily due to the depreciation of the U.S. dollar against the NTdollar from bank deposits and accounts receivables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency otherthan the functional currency of such subsidiaries.33Table of Contents Income Tax Expense (Benefit)We did not recognize any income tax expense for both the years ended August 31, 2020 and 2019. Although we incurred losses beforeincome tax for most of our subsidiaries for the fiscal year, we provided a full valuation allowance on all deferred tax assets.As of August 31, 2020 and 2019, we recognized full valuation allowances of $32.3 million and $31.0 million, respectively, on our netdeferred tax assets to reflect uncertainties related to our ability to utilize these deferred tax assets, which consist primarily of certain netoperating loss carryforwards and foreign investment loss. We considered both positive and negative evidence, including forecasts of futuretaxable income and our cumulative loss position, and continued to report a full valuation allowance against our deferred tax assets as ofboth August 31, 2020 and 2019. We continue to review all available positive and negative evidence in each jurisdiction and our valuationallowance may need to be adjusted in the future as a result of this ongoing review. Given the magnitude of our valuation allowance, futureadjustments to this allowance based on actual results could result in a significant adjustment to our results of operations.As of August 31, 2020, we had U.S. federal net operating loss (“NOLs”) carryforwards of $29.9 million, which will expire in variousamounts beginning in our fiscal 2026. NOLs generated in tax years prior to August 31, 2018 can be carried forward for twenty years, whereasNOLs generated after August 31, 2018 can be carried forward indefinitely. Utilization of these net operating losses carryforwards may besubject to an annual limitation due to applicable provisions of the Internal Revenue Code of 1986, as amended, and local tax laws if we haveexperienced an “ownership change” in the past, or if an ownership change occurs in the future.As of August 31, 2020, we had total foreign net operating loss carryforwards of $115 million, arising primarily from certain of ourconsolidated and majority owned subsidiaries in Taiwan. Pursuant to the Taiwan Income Tax Act, as amended in January 2009, net operatinglosses carryforwards can be carried forward for a period of ten years.Net Loss Attributable to Noncontrolling Interests Years Ended August 31, 2020 2019 % of % of $ Revenues $ Revenues (in thousands) Net loss attributable to noncontrolling interests $(3) — % $— — % We recognized net loss attributable to non-controlling interests of $3 thousand and a net gain of approximately $0 thousand for theyear ended August 31, 2020 and 2019, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co.,Ltd held by the remaining non-controlling holders. As of August 31, 2020 and 2019, non-controlling interests represented 3.25% and 3.29%equity interest, respectively, in Taiwan Bandaoti Zhaoming CO., Ltd.Liquidity and Capital ResourcesAs of August 31, 2020 and 2019, we had cash and cash equivalents of $2.8 million and $1.4 million, respectively, which werepredominately held in U.S. dollar denominated demand deposits and/or money market funds.As of November 13, 2020, we had no available credit facility.Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured promissory notes, and loansfrom our Chairman and our largest shareholder, totaled $7.7 million and $6.4 million as of August 31, 2020 and 2019, respectively.Our NT dollar denominated long-term notes, totaled $3.1 million and $3.2 million as of August 31, 2020 and August 31, 2019,respectively. These long-term notes consisted of two loans which we entered into on July 5, 2019, with aggregate amounts of $3.2 million(NT$100 million). The first loan originally for $2.0 million (NT$62 million) has an annual floating interest rate equal to the NTD base lendingrate plus 0.64% (or 1.465% currently), and was exclusively used to repay the existing loans. The second loan originally for $1.2 million(NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 1.845% currently) and is available foroperating capital. These loans are secured by an $85 thousand (NT$2.5 million) security deposit and a first priority security interest on theCompany’s headquarters building. Due to the impact of the COVID-19 pandemic, the bank agreed to give us a deferment period for twelvemonths starting from May 2020. During this period, we don’t need to pay the monthly payments of the principal but only the interest. •Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $25 thousand plusinterest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2020, our outstandingbalance on this note payable was approximately $1.9 million.34Table of Contents •Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $16 thousand plusinterest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2020, our outstandingbalance on this note payable was approximately $1.2 million.Property, plant and equipment pledged as collateral for our notes payable were $3.6 million and $3.7 million as of August 31, 2020 and2019, respectively.On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive Officer and our largestshareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%. All proceeds of the loans were exclusively used toreturn the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to theagreement dated December 15, 2015. We are 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, 2020 and 2019, these loanstotaled $3.2 million. The loans are secured by a second priority security interest on our headquarters building.On December 6, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes to each of our Chairman andChief Executive Officer and our largest shareholder (the “Holders”), with a principal sum of $2 million and an annual interest rate of 3.5%.Principal and accrued interest shall be due on demand by the Holders on and at any time after May 30, 2021 (the “Maturity Date”). Theoutstanding principal and unpaid accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3dollars per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each converted $300thousand of notes into 100,000 shares of our Common stock. As of August 31, 2020, the outstanding principal of these notes totaled $1.4million.We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $544 thousand and$3.6 million during the years ended August 31, 2020 and 2019, respectively. Net cash used in operating activities for the year ended August31, 2020 was $1.0 million. As of August 31, 2020, we had cash and cash equivalents of $2.8 million. We have undertaken actions to decreaselosses incurred and implemented cost reduction programs in an effort to transform the Company into a profitable operation. In addition, weare planning to issue convertible notes to our major stockholders and may issue additional equity.Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we willhave sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months. However, there can be noassurances that our planned activities will be successful in reducing losses and preserving cash. If we are not able to generate positive cashflows from operations, we may need to consider alternative financing sources and seek additional funds through public or private equityfinancings or from other sources, or refinance our indebtedness, to support our working capital requirements or for other purposes. Therecan be no assurance that additional debt or equity financing will be available to us or that, if available, such financing will be available onterms favorable to us.Cash FlowsThe following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements,which are included elsewhere in this Annual Report on Form 10‑K (in thousands): Years Ended August 31, 2020 2019 Net cash used in operating activities $(1,001) $(3,546)Net cash provided by (used in) investing activities $518 $(2,628)Net cash provided by financing activities $2,415 $4,054 Cash Flows Used in Operating ActivitiesNet cash used in operating activities was $1.0 million and $3.5 million for the years ended August 31, 2020 and 2019, respectively.Cash used in operating activities for the year ended August 31, 2020 was $2.5 million lower, primary attributable to a decrease of $3.0 millionin net loss, an increase of $442 thousand in cash collected from customers, and a decrease of $111 thousand in cash paid out for accruedexpenses and other current liabilities, partially offset by various non-cash adjustments during the year ended August 31, 2020 compared tothe year ended August 31, 2019.Cash Flows Provided By (Used in) Investing ActivitiesNet cash provided by investing activities was $518 thousand for the year ended August 31, 2020, consisting primarily of the proceedsfrom the sales of property, plant and equipment of $669 thousand as a result of the disposal of idle machinery, and the proceeds of $140thousand from the sales of our Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary XuheGuangdian Co Ltd., partially offset by a $271 thousand in cash used in the purchase of machinery and equipment and a $20 thousand fordevelopment of intangible assets.35Table of Contents Net cash used in investing activities was $2.6 million for the year ended August 31, 2019, consisting primarily of the return of $3million to Epistar and $127 thousand of purchases of machinery and equipment, partially offset by $502 thousand of proceeds from sales ofmachinery and equipment.Cash Flows Provided by Financing ActivitiesNet cash provided by financing activities for the year ended August 31, 2020 was $2.4 million, consisting primarily of $2 million ofproceeds from convertible notes and $700 thousand of issuance of common stocks, offset in part by the repayments on long-term debt.Net cash provided by financing activities was $4.1 million for the year ended August 31, 2019, consisting primarily of $3.2 million ofproceeds from Chairman and shareholder loans, and $3.2 million of proceeds from the new bank loans, partially offset by $2.3 million ofrepayments on long-term notes.Capital ExpendituresWe had capital expenditures of $271 thousand and $127 thousand for the years ended August 31, 2020 and 2019, respectively. Ourcapital expenditures consisted primarily of the purchases of machinery and equipment, construction in progress, prepayments for ourmanufacturing facilities and prepayments for equipment purchases. We expect to continue investing in capital expenditures in the future aswe expand our business operations and invest in such expansion of our production capacity as we deem appropriate under marketconditions and customer demand. However, in response to controlling capital costs and maintaining financial flexibility, our managementcontinues to monitor prices and, consistent with its existing contractual commitments, may decrease its activity level and capitalexpenditures as appropriate.Off‑Balance Sheet ArrangementsAs of August 31, 2020, we did not engage in any off‑balance sheet arrangements. We do not have any interests in variable interestentities.Accounting Pronouncements Not Yet AdoptedPlease refer to ‘Summary of Significant Accounting Policies_ Recent Accounting Pronouncements’ for more details.Item 7A. Quantitative and Qualitative Disclosures about Market RiskNot applicable.Item 8. Financial Statements and Supplementary Data36Table of Contents Audit • Tax • Consulting • Financial AdvisoryRegistered 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 ofAugust 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for theyears then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of August 31, 2020 and 2019, and the results of its operationsand its cash flows for the years then ended, in conformity with the U.S. generally accepted accounting principles. Consideration of the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As described in Note2 to the financial statements, the Company incurred recurring losses from operations and has an accumulated deficit, which raisessubstantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters are described in Note2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Change in Accounting Principle As discussed in Note 6 to the consolidated financial statements, on September 1, 2019, the Company has changed its method of accountingfor leases due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight 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 toobtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of ouraudits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing anopinion 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 financial statements, whether due to error orfraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding theamounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our auditsprovide a reasonable basis for our opinion. /s/ KCCW Accountancy Corp. We have served as the Company’s auditor since 2019.Diamond Bar, CaliforniaNovember 17, 2020 KCCW Accountancy Corp.3333 South Brea Canyon Rd. #206, Diamond Bar, CA 91765, USATel: +1 909 348 7228 ● Fax: +1 909 895 4155 ● info@kccwcpa.com37Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars and shares, except par value) August 31, 2020 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $2,832 $1,363 Restricted cash and cash equivalents 85 19 Accounts receivable (including related parties), net of allowance for doubtful accounts of $187 and $195 as of August 31, 2020 and August 31, 2019, respectively 1,331 703 Inventories 2,476 2,083 Prepaid expenses and other current assets 781 460 Total current assets 7,505 4,628 Property, plant and equipment, net 5,645 5,878 Operating lease right of use assets 203 — Intangible assets, net 89 93 Investments in unconsolidated entities 952 894 Other assets 186 169 TOTAL ASSETS $14,580 $11,662 LIABILITIES AND EQUITY CURRENT LIABILITIES: Current installments of long-term debt $4,750 $398 Accounts payable 536 680 Advance receipt toward the convertible note 500 500 Accrued expenses and other current liabilities 2,654 2,342 Other payable to related parties 460 — Operating lease liabilities, current portion 97 — Total current liabilities 8,997 3,920 Long-term debt, excluding current installments 2,909 5,954 Operating lease liabilities, less current portion 106 — Total liabilities 12,012 9,874 Commitments and contingencies (Note 6) EQUITY: SemiLEDs stockholders’ equity Common stock, $0.0000056 par value—7,500 shares authorized; 4,011 shares and 3,594 shares issued and outstanding as of August 31, 2020 and August 31, 2019, respectively — — Additional paid-in capital 177,235 175,804 Accumulated other comprehensive income 3,647 3,753 Accumulated deficit (178,360) (177,816)Total SemiLEDs stockholders’ equity 2,522 1,741 Noncontrolling interests 46 47 Total equity 2,568 1,788 TOTAL LIABILITIES AND EQUITY $14,580 $11,662 See notes to consolidated financial statements.38Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of U.S. dollars and shares, except per share data) Years Ended August 31, 2020 2019 Revenues, net $6,068 $5,902 Cost of revenues 4,478 5,450 Gross profit 1,590 452 Operating expenses: Research and development 1,538 1,613 Selling, general and administrative 2,808 2,792 Gain on disposals of long-lived assets, net (669) (288)Total operating expenses 3,677 4,117 Loss from operations (2,087) (3,665)Other income (expenses): Gain on disposals of investment 634 — Interest expenses, net (358) (190)Other income, net 912 250 Foreign currency transaction gain, net 352 40 Total other income (expenses), net 1,540 100 Loss before income taxes (547) (3,565)Income tax expense — — Net loss (547) (3,565)Less: Net loss attributable to noncontrolling interests (3) — Net loss attributable to SemiLEDs stockholders $(544) $(3,565)Net loss per share attributable to SemiLEDs stockholders: Basic and diluted $(0.15) $(1.00)Shares used in computing net loss per share attributable to SemiLEDs stockholders: Basic and diluted 3,921 3,580 See notes to consolidated financial statements.39Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands of U.S. dollars) Years Ended August 31, 2020 2019 Net loss $(547) $(3,565)Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax of $0 for both periods (103) 25 Comprehensive loss (650) (3,540)Comprehensive loss attributable to noncontrolling interests — (1)Comprehensive loss attributable to SemiLEDs stockholders $(650) $(3,539) See notes to consolidated financial statements.40Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESCONSOLIDATED 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, 2018 3,559 $— $175,527 $3,727 $(174,251) $5,003 $— $5,003 Issuance of common stock underequity incentive plans 35 — — — — — — — Stock-based compensation — — 149 — — 149 — 149 Common stock issued by SBDI* — — 128 — — 128 48 176 Comprehensive income (loss) Other comprehensive income(loss) — — — 26 — 26 (1) 25 Net loss — — — — (3,565) (3,565) — (3,565)BALANCE—August 31, 2019 3,594 — 175,804 3,753 (177,816) 1,741 47 1,788 Issuance of common stock underequity incentive plans 34 — — — — — — — Stock-based compensation — — 101 — — 101 — 101 Issuance of common stock forprivate placement 183 — 700 — — 700 — 700 Issuance of convertible notes — — 39 — — 39 — 39 Conversion of notes intocommon 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 See notes to consolidated financial statements.*SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries.41Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of U.S. dollars) Years Ended August 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(547) $(3,565)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 843 1,093 Stock-based compensation expense 101 149 Provisions for inventory write-downs 709 743 Gain on disposals of investment (634) — Gain on disposals of long-lived assets, net (669) (288)Income recognized on patents assignment — Changes in : Accounts receivable 15 (427)Inventories (988) (987)Prepaid expenses and other assets 131 (145)Accounts payable (139) (185)Accrued expenses and other current liabilities 177 66 Net cash used in operating activities (1,001) (3,546)CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (271) (127)Proceeds from sales of property, plant and equipment 669 502 Proceeds from disposals of investments 140 — Payments for development of intangible assets (20) (3)Refund of cash receipt-in-advance — (3,000)Net cash provided by (used in) investing activities 518 (2,628)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 2,000 6,385 Repayments of long-term debt (283) (2,330)Issuance of common stock for private placement 700 — Acquisition of noncontrolling interests (2) (1)Net cash provided by financing activities 2,415 4,054 Changes in cash balance included in deconsolidated subsidiaries (61) — Effect of exchange rate changes on cash and cash equivalents (330) 79 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,541 (2,041)CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of year 1,471 3,512 CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—End of year $3,012 $1,471 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $47 $39 Cash paid for income taxes $— $— NONCASH INVESTING AND FINANCING ACTIVITIES: Accrual related to property, plant and equipment $9 $56 See notes to consolidated financial statements.42Table of Contents SEMILEDS CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ended August 31, 2020 and 20191.BUSINESSSemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on January 4, 2005 and is a holdingcompany for various wholly owned subsidiaries. SemiLEDs and its subsidiaries (collectively, the “Company”) develop, manufacture and sellhigh performance light emitting diodes (“LEDs”). The Company’s core products are LED components, LED modules and systems, as well asLED chips and lighting products. LED components, modules and systems have become the most important part of its business. A portion ofthe Company’s business consists of the sale of contract manufactured LED products. The Company’s customers are concentrated in a fewselect markets, including Netherlands, Taiwan, the United States, Germany and India.As of August 31, 2020, SemiLEDs had two wholly owned subsidiaries. SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, isthe Company’s wholly owned operating subsidiary, where a substantial portion of the assets is held and located, and where a portion ofresearch, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan BandaotiZhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and asubstantial portion of marketing and sale of LED components, and where most of the Company’s employees are based. On November 27,2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with XianChang Ma (the “Purchaser”) pursuant to which thePurchaser agreed to purchase all of the outstanding shares of the Company’s Hong Kong subsidiary, Semileds International CorporationLimited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd. for $100,000 and an additional $40,000 for the transaction costs. ThePurchaser paid $140,000 to the Company, and the transaction was completed in January 2020. The Purchaser also subscribed forapproximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note 7).SemiLEDs’ common stock began trading on the Nasdaq Global Select Market under the symbol “LEDS” on December 8, 2010 and wastransferred to the Nasdaq Capital Market effective November 5, 2015 where it continues to trade under the same symbol.2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation —The Company’s consolidated financial statements have been prepared in conformity with accountingprinciples 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, whichcontemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and thesatisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably,to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.The Company has suffered losses from operations of $2.1 million and $3.7 million, and used net cash in operating activities of $1.0million and $3.5 million for the years ended August 31, 2020 and 2019, respectively. These facts and conditions have raised substantialdoubt about the Company’s ability to continue as a going concern, even though gross profit on product sales was $1.6 million for the yearended August 31, 2020 compared to $452 thousand for the year ended August 31, 2019. On August 31, 2020, the Company’s cash and cashequivalents increased to $2.8 million, mainly due to the issuance of convertible notes and common stock for private placement. Managementbelieves that it has developed a liquidity plan, as summarized below, that, if executed successfully, should provide sufficient liquidity tomeet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business. •Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher marginproducts. The growth of the Company’s module products and the continued commercial sales of its UV LED products areexpected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting nichemarkets 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 existingcontractual commitments, may possibly decrease its activity level and capital expenditures further. This plan reflects its strategyof controlling capital costs and maintaining financial flexibility. •Raising additional cash through the issuance of convertible notes to our major stockholders, further equity offerings, sales ofassets and/or issuance of debt as considered necessary and looking at other potential business opportunities.43Table of Contents While the Company's management believes that the measures described in the above liquidity plan will be adequate to satisfy itsliquidity requirements for the twelve months after the date that the financial statements are issued, there is no assurance that the liquidityplan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on itsbusiness, results of operations and financial position, and may adversely affect its ability to continue as a going concern. Theseconsolidated financial statements and financial statement schedule do not include any adjustments related to the recoverability andclassification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should theCompany be unable to continue as a going concern.Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified retrospective transitionmethod. 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 tothe performance obligations in the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. TheCompany recognizes the amount of revenue when the Company satisfies a performance obligation to which it expects to be entitled for thetransfer of promised goods or services to customers. The Company obtains written purchase authorizations from its customers as evidenceof an arrangement and these authorizations generally provide for a specified amount of product at a fixed price. Generally, the Companyconsiders 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 thecustomer. 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 itspotential future exposure on recorded product sales, which reduces product revenues in the consolidated statements of operations andreduces 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 ofrevenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisionshave been insignificant.Principles of Consolidation —The consolidated financial statements include the accounts of SemiLEDs and its consolidatedsubsidiaries. 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 andMeasurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). This standard allows equity investments (except thoseaccounted for under the equity method of accounting or those that result in consolidation of the investees) that do not have readilydeterminable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification ofimpairment. The standard also simplifies the impairment assessment of equity investments without readily determinable fair values byrequiring a qualitative assessment to identify impairment at each reporting period. When a qualitative assessment indicates that impairmentexists, 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 financialinterest, are accounted for using the equity method of accounting and are not consolidated. These investments are in joint ventures that arenot subject to consolidation under the variable interest model, and for which the Company: (i) does not have a majority voting interest thatwould allow it to control the investee, or (ii) has a majority voting interest but for which other shareholders have significant participatingrights, but for which the Company has the ability to exercise significant influence over operating and financial policies. Under the equitymethod, 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 inunconsolidated entities, and the Company’s share of the income or loss of these equity‑method entities, after the elimination of unrealizedintercompany profits, is reported in the consolidated statements of operations in equity in losses from unconsolidated entities. When netlosses from an equity‑method investee exceed its carrying amount, the carrying amount of the investment is reduced to zero. The Companythen suspends using the equity method to provide for additional losses unless the Company has guaranteed obligations or is otherwisecommitted to provide further financial support to the equity‑method investee. The Company resumes accounting for the investment underthe equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s income exceeds its shareof 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 withoutreadily determinable fair values. Investments without readily determinable fair values are reported on the consolidated balance sheets ininvestments in unconsolidated entities, at cost minus impairment, if any, plus or minus changes resulting from observable price changes inorderly transactions for an identical or similar investment of the same issuer. Dividend income, if any, received is reported in theconsolidated 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 beother‑than‑temporary, the investment will be written down to its fair value.Use of Estimates— The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significantitems44Table of Contents subject to such estimates and assumptions include the preparation of the Company’s consolidated financial statements on the basis thatthe Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable values, realization ofdeferred 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 othercontingencies. 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 materialand 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 torespond quickly and effectively to changing market requirements, any inability of the Company to grow its revenue and/or maintain orincrease its margins, it may experience fluctuations in its revenues and operating results, any inability of the Company to protect itsintellectual property rights, claims by others that the Company infringes their proprietary technology, and any inability of the Company toraise additional funds in the future.Concentration of Supply Risk— Some of the components and technologies used in the Company’s products are purchased andlicensed from a limited number of sources and some of the Company’s products are produced by a limited number of contractmanufacturers. The loss of any of these suppliers and contract manufacturers may cause the Company to incur transition costs to anothersupplier or contract manufacturer, result in delays in the manufacturing and delivery of the Company’s products, or cause it to carry excessor obsolete inventory. The Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of itscustomers’ orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the Company’sreputation and its ability to distribute its products or satisfy customers’ orders, which could adversely affect the Company’s business,financial position, results of operations and cash flows.Concentration of Credit Risk— Financial instruments that subject the Company to concentrations of credit risk consist primarily ofcash, 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 onlyin money market funds. Deposits held with banks may exceed the amount of insurance provided on such deposits. As of August 31, 2020and 2019, cash and cash equivalents of the Company consisted of the following (in thousands): August 31, Cash and Cash Equivalents by Location 2020 2019 United States; Denominated in U.S. dollars $251 $52 Taiwan; Denominated in U.S. dollars 2,514 447 Denominated in New Taiwan dollars 52 730 Denominated in other currencies 15 77 China (including Hong Kong); Denominated in Renminbi — 49 Denominated in H.K. dollars — 8 Total cash and cash equivalents $2,832 $1,363 The Company’s revenues are substantially derived from the sales of LED products. A significant portion of the Company’s revenuesare derived from a limited number of customers and sales are concentrated in a few select markets. Management performs ongoing creditevaluations of its customers and generally does not require collateral on accounts receivable. Management evaluates the need to establishan allowance for doubtful accounts for estimated potential credit losses at each reporting period. The allowance for doubtful accounts isbased on the management’s assessment of the collectability of its customer accounts. Management regularly reviews the allowance byconsidering certain factors, such as historical experience, industry data, credit quality, age of accounts receivable balances and currenteconomic conditions that may affect a customer’s ability to pay.Customers that accounted for 10% or more of the Company’s total net accounts receivable as of August 31, 2020 and 2019 consist ofthe following: August 31, Customers 2020 2019 Customer A 50% 61%Customer B —% 10%Customer C 29% —%Customer G 5% 10%45Table of Contents The customers accounted for 10% or more of the Company’s total net revenues for the years ended August 31, 2020 and 2019, asfollows (in thousands, except percentages): Years Ended August 31, 2020 2019 % of % of Customers Amount Revenues Amount Revenues Customer A $1,828 30% $1,093 18%Customer B 1,005 17% 922 16%Customer C — —% 625 11%Customer D 862 14% 195 3% Cash and Cash Equivalents—The Company considers all highly liquid investment instruments purchased with initial maturities ofthree months or less to be cash equivalents.As of August 31, 2020 and 2019, cash and cash equivalents of the Company consist of the following (in thousands): August 31, Cash and Cash Equivalents 2020 2019 Cash; Cash and demand deposits $2,832 $1,363 Cash equivalents; Money market funds — — Total cash and cash equivalents $2,832 $1,363 Restricted Cash Equivalents— Restricted cash primarily consists of cash held in reserved bank accounts in Taiwan. As of August 31,2020 and 2019, the Company’s restricted cash equivalents at current portion amounted $85 thousand and $19 thousand, respectively. As ofAugust 31, 2020 and 2019, the Company’s restricted cash at noncurrent portion, which was recorded as other assets, amounted to $95thousand and $89 thousand, respectively. Foreign Currency— The Company’s subsidiaries use the local currency as their functional currency. The assets and liabilities of thesubsidiaries are, therefore, translated into the U.S. dollars at exchange rates in effect at each balance sheet date, with the resultingtranslation adjustments recorded to a separate component of accumulated other comprehensive income (loss) within equity. Income andexpense accounts are translated at average exchange rates during the period. Any gains and losses from transactions denominated inforeign 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, 2020 and 2019,respectively) are recorded at invoiced amounts, net of allowances for doubtful accounts, and do not bear interest. The allowance fordoubtful accounts is based on management’s assessment of the collectability of customer accounts. Management regularly reviews theallowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances andcurrent economic conditions that may affect a customer’s ability to pay. No bad debt expenses were recognized during the years endedAugust 31, 2020 and 2019.Inventories— Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or netrealizable value. Cost is determined using a weighted average. For work in process and manufactured inventories, cost consists of rawmaterials, direct labor and an allocated portion of the Company’s production overhead. The Company writes down excess and obsoleteinventory to its estimated net realizable value based upon assumptions about future demand and market conditions. For finished goods andwork in process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the ordinary course ofbusiness, less reasonably predicable costs to completion and disposal, is lower than its cost, the specific inventory item is written down toits estimated net realizable value. Net realizable value for raw materials is based on replacement cost. Provisions for inventory write‑downsare included in cost of revenues in the consolidated statements of operations. Once written down, inventories are carried at this lower costbasis until sold or scrapped.Property, Plant and Equipment— Property, plant and equipment are stated at cost less accumulated depreciation, amortization andimpairment. Depreciation on property, plant and equipment is calculated using the straight‑line method over the estimated useful lives, lessestimated salvage values of the assets. Leasehold improvements are amortized using the straight‑line method over the shorter of the leaseterm or estimated useful life of the asset.46Table of Contents The estimated useful lives of property, plant and equipment are as follows: Buildings and improvements 5 to 20yearsMachinery and equipment 1 to 10yearsLeasehold improvements 2 to 10yearsOther equipment 2 to 6years Major Maintenance Activities— The Company incurs maintenance costs on its major equipment. Repair and maintenance costs areexpensed as incurred.Intangible Assets— Intangible assets consist of patents, trademarks and acquired technology. Intangible assets are initiallyrecognized at their respective acquisition costs. All of the Company’s intangible assets have been determined to have finite useful lives andare, therefore, amortized using the straight‑line method over their estimated useful lives: Patents and trademarks 5 to 25yearsAcquired technology 5years Impairment of Long‑Lived Assets— Management evaluates the Company’s long‑lived assets, excluding goodwill, that consist ofproperty, plant and equipment and intangible assets, for indicators of possible impairment when events or changes in circumstancesindicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed theestimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment losswould be measured based on the excess carrying amount of the asset over the estimated fair value of the asset. Fair value is determinedthrough various valuation techniques, including discounted cash flow models, quoted market values and third‑party independentappraisers, as considered necessary.No impairment charge was recognized in the years ended August 31, 2020 and 2019.Recovery of Investments in Unconsolidated Entities —Management evaluates the recoverability of the carrying amount of theCompany’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 isother‑than‑temporary, the carrying amount of such investment is written down to its estimated realizable value. In determining whether adecline in value is other‑than‑temporary, management considers the length of time and the extent to which such value has been less thanthe carrying amount, the financial condition and prospects of the investee, and the Company’s ability and intent to retain the equityinvestment 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, 2020 and 2019.Income Taxes —The Company accounts for income taxes under the asset and liability method. As part of the process of preparing theconsolidated financial statements, the Company estimates its income taxes in each of the jurisdictions in which it operates. The Companyestimates actual current tax expense together with assessing temporary differences resulting from differing accounting treatment for itemssuch as accruals and allowances that are not currently deductible for tax purposes. These differences result in deferred tax assets andliabilities which are included in the Company’s consolidated balance sheets. In general, deferred tax assets represent future tax benefits tobe received when certain expenses previously recognized in the Company’s consolidated statements of operations become deductibleexpenses under applicable income tax laws or when operating loss or tax credit carryforwards are utilized. Accordingly, realization of thedeferred tax assets is dependent on the Company’s ability to earn future taxable income against which these deductions, losses and creditscan be utilized. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable to the taxable income in theyears in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the Company’sdeferred tax assets and liabilities is recognized in the consolidated statements of operations in the period the change in the tax law wasenacted.Management assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and, to theextent management believes that recovery is not more likely than not, a valuation allowance is established. The Company recognizes theeffect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions aremeasured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflectedin the period in which the change in judgment occurs. The Company records interest and penalties, if any, related to unrecognized taxbenefits in income tax expense.Stock‑based Compensation —Compensation costs related to employee stock options and restricted stock units are based on the fairvalue of the options and stock units on the date of grant, net of estimated forfeitures. The Company determines the grant date fair value ofthe options using the Black‑Scholes option‑pricing model. The related stock‑based compensation expense is generally recognized on astraight‑line basis over the period in which an employee is required to provide service in exchange for the options and stock units, or thevesting period of the respective options and stock units.47Table of Contents Research and Development Costs —Research and development costs are expensed as incurred. Research and development costs arepresented 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 $2 thousand for theyears ended August 31, 2020 and 2019, respectively, and are included in selling, general and administrative expenses in the consolidatedstatements of operations.Segment Reporting —The Company uses the management approach in determining reportable operating segments. The managementapproach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operatingdecisions, allocating resources and assessing performance as the source for determining the Company’s reportable segments. During theyears ended August 31, 2020 and 2019, the Chief Executive Officer has been identified as the chief operating decision maker. The Company’schief operating decision maker regularly reviews consolidated assets and consolidated operating results prepared under U.S. GAAP for theenterprise 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 StandardsBoard (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 inwhich 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 theperiod had been distributed. Diluted net income (loss) per share is computed by using the weighted‑average shares of common stockoutstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding stock options and unvestedrestricted stock units using the treasury stock method.Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of operations as part ofconsolidated 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 areremeasured 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, issued414,000 common shares and amended its certificate of incorporation to increase its issued common stock from 12,087,715 shares to12,501,715 shares. As of the date of this report, the increased capital of $176 thousand (NT$5.4 million) has been completely received in cashby Taiwan Bandaoti Zhaoming Co., Ltd. The Company did not subscribe for the newly issued common shares, and, as a result,noncontrolling interest in SBDI was increased from zero to 3.31%. In December 2018 and in March 2020, Taiwan SemiLEDs purchased 3,000and 5,000 common shares of SBDI from non-controlling shareholders, respectively. As of August 31, 2020, noncontrolling interest in SBDIwas down to 3.25%. Commitments and Contingencies — Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penaltiesand other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legalcosts incurred in connection with loss contingencies are expensed as incurred.Fair Value Measurements — The Company utilizes valuation techniques that maximize the use of observable inputs and minimize theuse of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants woulduse in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fairvalue measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized inone of the following levels: •Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity atthe measurement date. •Level 2 Inputs: Other than quoted prices included in Level1 inputs that are observable for the asset or liability, either directly orindirectly, for substantially the full term of the asset or liability. •Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs arenot available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability atmeasurement date.See Note 12 for further details.48Table of Contents Recent Accounting PronouncementsIn June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses onFinancial Instruments (“ASU 2016-13”). This standard requires a financial asset (or group of financial assets) measured at amortized costbasis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deductedfrom the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on thefinancial asset. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis tobe presented at the net amount expected to be collected. ASU 2016-13 became effective for the Company for annual and interim reportingperiods beginning September 1, 2020. The Company does not expect the adoption of this standard to have a material impact on itsconsolidated financial position, results of operations or cash flows.In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13,Fair Value Measurement (Topic 820) Disclosure Framework – Change to the Disclosure Requirements for Fair Value Measurement (“ASU2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820, “Fair Value Measurement.” ASU 2018-13eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based onnet asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements.ASU 2018-13 became effective for the Company for annual and interim reporting periods beginning September 1, 2020. The Company doesnot expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.In December 2019, the FASB issued ASU No. 2019-12, simplifying the Accounting for Income Taxes, as part of its initiative to reducecomplexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, includinginterim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financialstatements have not yet been issued. The Company is currently evaluating the impact ASU 2019-12 will have on the disclosures included inits consolidated financial statements. 3.BALANCE SHEET COMPONENTSInventoriesInventories as of August 31, 2020 and 2019 consist of the following (in thousands): August 31, 2020 2019 Raw materials $433 $479 Work in process 792 728 Finished goods 1,251 876 Total $2,476 $2,083 Inventory write‑downs to estimated net realizable values for the years ended August 31, 2020 and 2019 were $709 thousand and $743thousand, respectively.Property, Plant and EquipmentProperty, plant and equipment as of August 31, 2020 and 2019 consist of the following (in thousands): August 31, 2020 2019 Buildings and improvements $14,104 $13,238 Machinery and equipment 33,977 37,988 Leasehold improvements 166 156 Other equipment 2,384 2,250 Construction in progress 7 61 Total property, plant and equipment 50,638 53,693 Less: Accumulated depreciation and amortization (44,993) (47,815)Property, plant and equipment, net $5,645 $5,878 Depreciation expense was $831 thousand and $1,079 thousand for the years ended August 31, 2020 and 2019, respectively.Property, plant and equipment pledged as collateral for the Company’s notes payable were $3.6 million and $3.7 million as of August31, 2020 and 2019, respectively.49Table of Contents Intangible AssetsIntangible assets as of August 31, 2020 and 2019 consist of the following (in thousands): 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 August 31, 2019 Weighted Average Gross Net Amortization Carrying Accumulated Carrying Period (Years) Amount Amortization Amount Patents and trademarks 15 $542 $449 $93 Acquired technology 5 484 484 — Total $1,026 $933 $93 Amortization expense was $12 thousand and $14 thousand for the years ended August 31, 2020 and 2019, respectively.No impairment charge was recognized in the year ended August 31, 2020 and 2019. The estimated future amortization expense for the Company’s intangible assets as of August 31, 2020 is as follows (in thousands): Years Ending August 31, Total 2021 $ 10 2022 10 2023 10 2024 10 2025 10 Thereafter 39 Total $ 89 Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities as of August 31, 2020 and 2019 consist of the following (in thousands): August 31, 2020 2019 Accrued compensation and benefits $1,661 $1,357 Customer deposits 148 180 Accrued business expenses 144 193 Other (individually less than 5% of total accrued expenses and other current liabilities) 701 612 Total $2,654 $2,342 4.INVESTMENTS IN UNCONSOLIDATED ENTITIESThe Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of August 31, 2020 and 2019consist of the following (in thousands, except percentages): August 31, 2020 August 31, 2019 Percentage Percentage Ownership Amount Ownership Amount Equity investment without readily determinable fair value Various $952 Various $894 Total investments in unconsolidated entities $952 $894 50Table of Contents There were no dividends received from unconsolidated entities through August 31, 2020. Equity Investment without Readily Determinable Fair ValueEquity investments (except those accounted for under the equity method of accounting or those that result in consolidation of theCompany) which do not have readily determinable fair values are recorded as equity investment without readily determinable fair value. Allequity investments without readily determinable fair value are assessed for impairment when events or changes in circumstances indicatethat the carrying amounts may not be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting fromobservable price changes in orderly transactions for an identical or similar investment of the same issuer. The recoverable value of theinvestment was determined based on the Company’s best estimate of the amount that could be realized from the investment, whichconsidered the latest financial information. During the year ended August 31, 2020 and 2019, no impairment losses were recognized for theequity investments without readily determinable fair value. 5.INDEBTEDNESSLong‑term DebtLong‑term debt as of August 31, 2020 and 2019 consist of the following loans (in thousands): August 31, 2020 2019 First note payable- Mega Bank $1,905 $1,954 Second note payable- Mega Bank 1,168 1,198 Loans from Chairman and Shareholders 3,200 3,200 Convertible notes issued to Chairman and Shareholders 1,386 — Total long-term debt 7,659 6,352 Less: Current installments (4,750) (398)Total long-term debt, excluding current installments $2,909 $5,954 Our long-term debt, which consisted of New Taiwan dollar (“NTD”) denominated long-term notes, convertible unsecured promissorynotes and loans from the Chairman and the largest shareholder of the Company, totaled $7.7 million and $6.4 million as of August 31, 2020and 2019, respectively. 51Table of Contents On July 5, 2019, the Company and Mega International Commercial Bank (“Mega Bank”) entered into two NTD denominated loanagreements 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 hasan annual floating interest rate equal to the NTD base lending rate plus 0.64% (or 1.465% currently), and was exclusively used to repayoriginal notes with E Sun Bank. The second note of $1.29 million (NT$38 million) payable to Mega Bank has an annual floating interest rateequal to the NTD base lending rate plus 1.02% (or 1.845% currently) and is available for operating capital. Both note payables are securedby a first priority security interest on the Company’s headquarters building. Income from renting the collateral must be deposited into areserved account opened with Mega Bank, and only the balance of deposits exceeding $85 thousand (NT$2.5 million) after deducting theprincipal and interest payable for the current month (including the accumulated outstanding amount) may be transferred outwards. Thebalance of the reserve account is $85 thousand and $19 thousand as of August 31, 2020 and 2019, respectively. In May 2020, due to theimpact of the COVID-19 pandemic, Mega bank agreed to give us a deferment period for twelve months starting from May 2020. During thisperiod, the Company does not need to pay the monthly payments of the principal but only the interest. Starting from May 2021, the twonotes payables to Mega Bank require monthly payments of principal in the amount of $25 thousand plus interest and $16 thousand plusinterest, 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 Daon,the Chairman and Chief Executive Officer, and J.R.Simplot Company, the largest shareholder of the Company, with aggregate amounts of $1.7 million and $1.5 million, respectively, and anannual interest rate of both 8%. All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation inconnection with the cancelled proposed sale of the Company’s headquarters building pursuant to the agreement dated December 15, 2015(see Note 6). The Company is required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, unless theloans are sooner accelerated pursuant to the loan agreements. As of August 31, 2020 and 2019, these loans totaled $3.2 million. The loansare secured by a second priority security interest on the headquarters building of the Company.On December 6, 2019 and December 10, 2019, we issued two convertible unsecured promissory notes (the “Notes”) to Trung Doan,our Chairman and Chief Executive Officer, and J.R. Simplot Company, our largest shareholder (together, the “Holders”), with a principal sumof $2 million and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and at any timeafter May 30, 2021 (the “Maturity Date”). The outstanding principal and unpaid accrued interest of the Notes may be converted into ourcommon stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes. On May25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our common stock. As of August 31, 2020, theoutstanding principal of these notes totaled $1.4 million.The scheduled principal payments for the Company’s long-term debt as of August 31, 2020 consist of the following (in thousands): Scheduled Principal Years Ending August 31, Payments 2021 $4,750 2022 492 2023 492 2024 492 2025 491 Thereafter 942 Total $7,659 6.COMMITMENTS AND CONTINGENCIESOperating Lease Agreements —The Company has several operating leases with third parties, primarily for land, plant and officespaces in Taiwan, including cancellable and noncancelable leases that expire at various dates between December 2020 and December 2029.Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for theseleases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, theCompany 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 depreciablelife of assets and leasehold improvements are limited by the term of leases, unless there is a transfer of title or purchase option reasonablycertain of exercise. Lease expense is recognized on a straight-line basis over the term of the lease. Lease expense related to thesenoncancelable operating leases were $156 thousand and $151 thousand for the years ended August 31, 2020 and 2019, respectively.52Table of Contents Balance sheet information related to the Company’s leases is presented below: August 31, 2020 Assets Operating lease right of use assets $203 Liabilities Operating lease liabilities, current portion $97 Operating lease liabilities, less current portion 106 Total $203 The following provides details of the Company’s lease expenses: Years Ended August 31, 2020 Operating lease expenses $156 Other information related to leases is presented below: Years Ended August 31, 2020 Cash Paid for amounts Included In Measurement of Liabilities: Operating cash flows from operating leases $156 Weighted Average Remaining Lease Term: Operating leases 2.34 Weighted Average Discount Rate Operating leases 1.76% As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing rate from non-relatedparties of 1.76% based on the information available at commencement date in determining the present value of lease payments. The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of August 31, 2020 consist ofthe following (in thousands): Operating Years Ending August 31, Leases 2021 $100 2022 31 2023 12 2024 12 2025 12 Thereafter 50 Total future minimum lease payments, undiscounted 217 Less: Imputed interest 14 Present value of future minimum lease payments $203 Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $33thousand and $158 thousand as of August 31, 2020 and 2019, respectively.Litigation — The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in theordinary course of business. The Company recognizes a liability when it is probable that a loss has been incurred and the amount isreasonably estimable. There is significant judgment required in assessing both the likelihood of an unfavorable outcome and whether theamount of loss, if any, can be reasonably estimated.On June 21, 2017, Well Thrive filed a complaint against SemiLEDs Corporation in the United States District Court for the District ofDelaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to thePurchase Agreement effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to theterms of the Purchase Agreement, the Company has retained the $500 thousand payment as liquidated damages. Well Thrive alleges thatthe liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March13, 2018, the53Table of Contents 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 thecase. The judge’s order allowed the Company to conduct depositions of Well Thrive’s former lawyer, Dr. Chiou, and Mr. Chang Sheng-Chun, Well Thrive’s director, and to request documents relating to the issues surrounding the settlement. Based on this order, the Companyintends to arrange the depositions to obtain more evidence in support of a motion to enforce the settlement agreement. On October 25, 2019,Well Thrive filed a motion to modify the Court’s scheduling order and to allow it to file a motion for summary judgment, and the Companyfiled an opposition to the motion. On November 13, 2019, the Court denied Well Thrive’s motion. The Court held a trial on March 2, 2020.After the trial, judge ordered both sides to prepare post-trial briefs and proposed findings of fact for the Court to be submitted before theend of April 2020. Both sides submitted post-trail briefs and proposed findings of fact on April 30, 2020, and the judge set a hearing forNovember 18, 2020.On March 11, 2019, a former employee (the “Plaintiff”) of Taiwan Bandaoti Zhaoming Co., Ltd. (“Taiwan Bandaoti”) filed a civilcomplaint against Taiwan Bandaoti in the Taiwan Miao-Li District Court. The Plaintiff alleged the following causes of action under the LaborStandards Act of Taiwan: (1) failure to pay the annual bonus; and (2) failure to pay transportation allowance. The Plaintiff is seekingcompensation in the aggregate of approximately $9 thousand (NT$293 thousand). On May 24, 2019, Taiwan Miao-Li District Courtdetermined on its own initiative to transfer the case to the Taiwan Hsin-Chu District Court due to a lack of jurisdiction over the action inwhole or in part. On February 10, 2020, the Taiwan Hsin-Chu District Court made a determination in favor of the Company. As of the datefiling this report, the term of appeal expired and the determination is affirmed. Except as described above, as of August 31, 2020, there was no pending litigation that could have a material impact on the Company’sfinancial position, results of operations or cash flows.7.COMMON STOCKOn January 17, 2020, the Company entered into a definitive common stock purchase agreement with XianChang Ma. Pursuant to theterms of the Agreement, Mr. Ma purchased 150,000 shares of the Company’s common stock at $4.00 per share, representing approximately4% of the outstanding shares of the Company at the time of purchase. The Company received the $600,000 purchase price in full on January17, 2020.On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the “Agreement”) with FengShuangZhu. 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 anaggregate 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 ExecutiveOfficer of the Company, each converted $300,000 of convertible unsecured promissory notes into 100,000 shares of the Company’s commonstock (see Note 5). 8.STOCK‑BASED COMPENSATIONThe 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 theplan by an additional 250 thousand shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve underthe 2010 plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023, to remove the IRS Codesection 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one person in a one year period. Prior toSemiLEDs’ initial public offering, the Company had another stock‑based compensation plan (the “2005 Plan”), but awards are made from the2010 Plan after the initial public offering. Options outstanding under the 2005 Plan continue to be governed by its existing terms.A total of 1,021 thousand shares were reserved for issuance under the 2010 Plan as of August 31, 2020 and 2019, respectively. As ofAugust 31, 2020 and 2019, there were 548 thousand and 691 thousand shares of common stock available for future issuance under the 2010Plan.54Table of Contents In January 2020, SemiLEDs granted 136 thousand restricted stock units to its employees, which vest 25% each year on January 10 of2021, 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. Thegrant-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. Thegrant-date fair value of the restricted stock units was $2.45 per unit.In July 2018, SemiLEDs granted 7.5 thousand restricted stock units to its directors. Among which, 5 thousand restricted stock unitsvested 100% on June 29, 2019, and 2.5 thousand restricted stock units were cancelled because of resignation of a director. The grant-datefair value of the restricted stock units was $4.75 per unit.In January 2018, SemiLEDs granted 56.7 thousand restricted stock units to its employees, of which 50% vested on January 1, 2019 and50% vested on January 1, 2020. The grant-date fair value of the restricted stock units was $4.10 per unit. Stock‑based Compensation ExpenseThe total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stockunits granted to employees, directors, nonemployees and also includes stock options to purchase SemiLEDs’ common stock as part of anemployment 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, 2020 and 2019 is as follows (in thousands): Years Ended August 31, 2020 2019 Cost of revenues $27 $44 Research and development 21 27 Selling, general and administrative 53 78 $101 $149 Stock‑based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock‑basedawards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actualforfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock‑based awards with vesting term that is less than orequal to one year from the date of grant.There was no recognized stock-based compensation tax benefit for the years ended August 31, 2020 and 2019, as the Companyrecorded a full valuation allowance on net deferred tax assets as of August 31, 2020 and 2019.Stock Options AwardsThe grant date fair value of stock options is determined using the Black‑Scholes option‑pricing model. The Black‑Scholesoption‑pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stockoptions are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly‑traded peers over the expectedterm of stock options, risk‑free interest rate and expected dividend. The expected term is derived from historical data on employee exercisesand post‑vesting employment termination behavior after taking into account the contractual life of the award. The risk‑free interest rate isbased on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equalto the expected term of the related options. The expected dividend has been zero for the Company’s option grants as SemiLEDs has neverpaid dividends and does not expect to pay dividends for the foreseeable future. Each of these inputs is subjective and generally requiressignificant judgment to determine.55Table of Contents A summary of the option activity and changes for the years ended August 31, 2020 and 2019 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, 2018 10 $132.66 2.3 $— Granted — — Forfeited — 103.00 Exercised — — Outstanding—August 31, 2019 10 $133.82 1.4 $— Granted — — Forfeited (2) 41.00 Exercised — — Outstanding—August 31, 2020 8 $159.00 0.5 $— Vested and expected to vest—August 31, 2020 8 $159.00 0.5 $— Exercisable—August 31, 2020 8 $159.00 0.5 $— As of August 31, 2020 and 2019, unrecognized compensation costs related to unvested stock options were nil.Restricted Stock Units AwardsThe grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the date of the grant. This fairvalue 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, 2020 and 2019 is presentedbelow: Weighted- Number of Average Stock Units Grant Date Outstanding Fair Value (In thousands) Outstanding—September 1, 2018 66 $4.25 Granted — — Vested (35) 4.34 Forfeited (2) 4.75 Outstanding—August 31, 2019 29 $4.10 Granted 144 2.39 Vested (34) 3.86 Forfeited — — Outstanding—August 31, 2020 139 $2.39 As of August 31, 2020 and 2019, unrecognized compensation cost related to unvested restricted stock unit awards of $284 thousandand $41 thousand, respectively, is expected to be recognized over a weighted average period of 3.36 years and 0.34 years, respectively, andwill be adjusted for subsequent changes in estimated forfeitures.9.NET LOSS PER SHARE OF COMMON STOCKThe following stock‑based compensation plan awards were excluded from the computation of diluted net loss per share of commonstock 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, 2020 2019 Stock units and stock options to purchase common stock 182 11 Convertible notes to convert into common stock 431 — 56Table of Contents 10.INCOME TAXESIncome taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets andliabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for taxpurposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in suchrates in the period of change.United StatesSemiLEDs Corporation is incorporated in the United States of America and is subject to United States federal taxation. No provisionsfor 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, loweringthe 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 taxassets 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 tobonus 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 toaccount 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 forthe 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 theseprovisions.The changes included in the Tax Act are broad and complex. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118), asamended by ASU 2018-05, which provides guidance for companies related to the Tax Act. ASU 2018-05 allows for a measurement period ofup 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 thetax effects of the Tax Act were completed in fiscal 2019. Although the Company believes the effects of the Tax Act have been appropriatelyrecorded, it will continue to monitor, among other things, changes in interpretations of the Tax Act, any legislative action arising because ofthe Tax Act and any changes in accounting standards for income taxes or related interpretations in response to the Tax Act. The Companyintends to assess the impact of any such changes in legislative interpretations or standards and adjust its provision as new informationbecomes available.In accordance with SAB 118, the Company has made reasonable estimates related to (1) the remeasurement of its U.S. deferred taxbalances for the reduction in the statutory tax rate, (2) the liability for the transition tax and (3) the partial valuation allowance recordedagainst its federal NOL carryforward due to the impact of the GILTIand BEAT provisions. In fiscal 2020, the Company determined that therewere no material changes to the provisional amounts recorded as of August 31, 2020.TaiwanThe Company’s loss before income taxes is primarily derived from the operations in Taiwan and income tax expense is primarilyincurred 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, thestatutory income tax rate increased from 17% to 20% and the undistributed earning tax, or a surtax, decreased from 10% to 5% effective fromJanuary 1, 2018. As a result, the statutory income tax rate in Taiwan is 20% for the years ended August 31, 2020 and 2019. An additionalsurtax, of which rate was reduced from 10% to 5% being applied to the Company starting from September 1, 2018, is assessed onundistributed income for the entities in Taiwan, but only to the extent such income is not distributed or set aside as a legal reserve beforethe end of the following year. The 5% surtax is recorded in the period the income is earned, and the reduction in the surtax liability isrecognized in the period the distribution to stockholders or the setting aside of legal reserve is finalized in the following year. The Company’s loss before income taxes for the years ended August 31, 2020 and 2019 was attributable to the following jurisdictions(in thousands): Years Ended August 31, 2020 2019 U.S. operations $(310) $(568)Foreign operations (237) (2,997)Loss before income taxes $(547) $(3,565) 57Table of Contents Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to loss beforeincome taxes for the years ended August 31, 2020 and 2019, as a result of the following (in thousands): Years Ended August 31, 2020 2019 Computed “expected” income tax benefit $(115) $(748)Foreign tax rate differential 3 25 Valuation allowance (286) (3,908)Other 398 4,631 Income tax expense $— $— Net deferred tax assets (liabilities) as of August 31, 2020 and 2019 consist of the following (in thousands): August 31, 2020 2019 Deferred tax assets: Inventories, primarily due to inventory obsolescence and lower of cost or market provisions $1,719 $1,599 Allowance for doubtful accounts 35 33 Accruals and other (60) 79 Property, plant and equipment 871 1,035 Stock-based compensation 388 388 Net operating loss carryforwards 29,302 27,849 Total gross deferred tax assets 32,255 30,983 Less: Valuation allowance (32,255) (30,983)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 ultimaterealization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences become deductible and operating loss carryforwards utilizable. Management considers the scheduled reversal of deferred taxliabilities, carryback availability, projected future income, and tax-planning strategies in making this assessment. The Company establishedfull valuation allowances to offset all of its deferred tax assets due to the uncertainty of realizing future tax benefits from its net operatingloss carryforwards and other deferred tax assets.As of August 31, 2020 the Company had the U.S. net operating losses (the “U.S. NOLs”) of approximately $29,889 thousand, whichbegins 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 (inthousands): August 31, Expiration 2020 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) 83,724 2021-2025 Foreign net operating loss carryforwards (expiring in more than 5 years) 31,404 2026-2030 Total unused net operating loss carryforwards and income tax credits $145,017 58Table of Contents Unrecognized Tax BenefitsOn December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced the U.S. federal corporateincome tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires companies to pay a one-time transition tax on certainunrepatriated earnings from non-U.S. subsidiaries that is payable over eight years, makes the receipt of future non-U.S. sourced income ofnon-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 theparent’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, 2020 and 2019, 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, 2020,the 2016 through 2019 tax years remain subject to examination by the U.S. tax authorities. With few exceptions, as of August 31, 2020, theCompany is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for tax years before 2015. Below is asummary of open tax years by major tax jurisdiction: Open Tax YearU.S. federal 2016-2019U.S. state 2016-2019Foreign—Taiwan 2019 The Company is not currently under examination by income tax authorities in any federal, state or foreign jurisdictions. The Companydoes not expect that the total amount of unrecognized tax benefits will change significantly within the next 12 months. 11.PRODUCT AND GEOGRAPHIC INFORMATIONRevenues by products for the years ended August 31, 2020 and 2019 are as follows (in thousands): Years Ended August 31, 2020 2019 LED chips $69 $93 LED components 3,977 4,430 Lighting products 548 632 Other(1) 1,474 747 Total $6,068 $5,902 (1)Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services.Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic areafor the years ended August 31, 2020 and 2019 (in thousands): Years Ended August 31, 2020 2019 United States $2,429 $1,883 Netherlands 1,009 1,573 Ireland 862 195 Japan 477 389 Taiwan 366 426 Germany 238 400 Other (individually less than 5% of total net revenues) 687 1,036 Total $6,068 $5,902 Tangible Long‑Lived AssetsSubstantially all of the Company’s tangible long‑lived assets are located in Taiwan.59Table of Contents 12.FAIR VALUE MEASUREMENTSThe following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of August 31,2020 and 2019 (in thousands): August 31, 2020 August 31, 2019 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and cash equivalents and restricted cash $2,917 $2,917 $1,382 $1,382 Receivables (including related parties) 1,331 1,331 703 703 Other assets (non-derivatives) 809 809 539 539 Financial liabilities: Payables (including related parties) $4,150 $4,150 $3,522 $3,522 Long-term debt (including current installments) 7,659 7,659 6,352 6,352 The fair values of the financial instruments shown in the above table as of August 31, 2020 and 2019 represent the amounts thatwould be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participantsat that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, marketactivity for the asset or liability at the measurement date, the fair value measurement reflects management’s own judgments about theassumptions that market participants would use in pricing the asset or liability. Those judgments are developed by management based onthe best information available in the circumstances, including expected cash flows and appropriately risk‑adjusted discount rates, availableobservable 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: Thecarrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of theseinstruments. •Other assets (non‑derivatives) include primarily value‑added tax (“VAT”) refund receivables, refundable deposits, and restrictedtime deposits. The fair value of VAT refund receivables approximates the carrying amount because of the short maturity. The fairvalue 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 rateadjusted by the Company’s credit spread. 13.QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)The following tables set forth selected quarterly statement of operations data for each of the years ended August 31, 2020 and 2019(in thousands, except per share data): Three Months Ended November30, February 28, May 31, August 31, Fiscal 2019 2020 2020 2020 2020 Revenues, net $1,563 $1,537 $1,569 $1,399 $6,068 Cost of revenues 1,045 989 1,153 1,291 4,478 Gross profit 518 548 416 108 1,590 Operating expenses 1,077 940 1,157 503 3,677 Loss from operations (559) (392) (741) (395) (2,087)Net income (loss) attributable to SemiLEDs stockholders $(317) $348 $(513) $(62) $(544)Net income (loss) per share attributable to SemiLEDsstockholders, basic and diluted $(0.09) $0.10 $(0.14) $(0.02) $(0.15)60Table of Contents Three Months Ended November30, February 28, May 31, August 31, Fiscal 2018 2019 2018 2019 2019 Revenues, net $972 $1,630 $1,745 $1,555 $5,902 Cost of revenues 1,191 1,628 1,405 1,226 5,450 Gross profit (loss) (219) 2 340 329 452 Operating expenses 803 917 1,041 1,356 4,117 Loss from operations (1,022) (915) (701) (1,027) (3,665)Net loss attributable to SemiLEDs stockholders $(978) $(847) $(859) $(881) $(3,565)Net loss per share attributable to SemiLEDs stockholders, basic and diluted $(0.27) $(0.24) $(0.24) $(0.25) $(1.00) 14.CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTSAs a holding company, dividends received from SemiLEDs’ subsidiaries in Taiwan, if any, will be subject to withholding tax underTaiwan law, as well as statutory and other legal restrictions. The condensed parent company only financial information for SemiLEDs ispresented below (in thousands): August 31, Condensed Balance Sheets 2020 2019 ASSETS Cash and cash equivalents $251 $52 Prepaid expenses and other current assets 9,078 7,085 Total current assets 9,329 7,137 Intangible assets, net 1 1 Investments in subsidiaries (1,072) (1,169)TOTAL ASSETS $8,258 $5,969 LIABILITIES AND EQUITY Advance receipt toward the convertible note $500 $500 Accrued expenses and other current liabilities 650 528 Long-term debt, current portion 4,586 — Total current liabilities 5,736 1,028 Total non-current liabilities — 3,200 Total equity 2,522 1,741 TOTAL LIABILITIES AND EQUITY $8,258 $5,969 SemiLEDs had no contingencies, long‑term obligations and guarantees as of August 31, 2020 or August 31, 2019. Years Ended August 31, Condensed Statements of Operations 2020 2019 Operating expenses: Selling, general and administrative $641 $398 Loss from operations (641) (398)Other income (expenses): Gain on disposal of investments 634 — Equity in losses from subsidiaries, net (230) (2,997)Interest expenses (320) — Other income (expenses), net 13 (170)Total other expenses, net 97 (3,167)Net loss $(544) $(3,565)61Table of Contents Years Ended August 31, Condensed Statements of Cash Flows 2020 2019 Net cash provided by (used in): Operating activities $(2,641) $(3,342)Investing activities 140 — Financing activities 2,700 3,200 Net increase (decrease) in cash and cash equivalents 199 (142)Cash and cash equivalents at beginning of year 52 194 Cash and cash equivalents at end of year $251 $52 15.RELATED PARTY TRANSACTIONSOn 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 aprincipal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest shall be dueon demand by the Holders on and at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes maybe 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 fromthe 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 commonstock (see Note 5).On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief Executive Officer and the largestshareholder 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 cancelledproposed sale of the Company’s headquarters building pursuant to the agreement dated December 15, 2015 (see Note 6). The Company isrequired 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 sooneraccelerated pursuant to the loan agreements. As of August 31, 2020 and 2019, these loans totaled $3.2 million. The loans are secured by asecond priority security interest on the headquarters building of the Company.16.SUBSEQUENT EVENT On September 25, 2020, stockholders of SemiLEDs approved, at the annual meeting, the amended 2010 Equity Incentive Plan toincrease the authorized share reserve by an additional 400,000 shares.In November 2020, SemiLEDs granted 7.5 thousand restricted stock units to its directors that will vest 25% every three months onFebruary 12, 2021, May 12, 2021, August 12, 2021 and November 12, 2021. In the event that the 2021 annual meeting falls before November12, 2021, 100% of the stock units shall immediately vest on the date of the 2021 annual meeting. The grant-date fair value of the restrictedstock units was $3.00 per unit.In November 2020, SemiLEDs granted 33 thousand restricted stock units to its employees, which will vest 25% every three months onFebruary 12, 2021, May 12, 2021, August 12, 2021 and November 12, 2021 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $3.00 per unit.The Company has analyzed its operations subsequent to August 31, 2020 to the date these consolidated financial statements wereissued, finding that the impact of COVID-19 on the Company is unknown at this time and the financial consequences of this situation causeuncertainty 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 theseconsolidated financial statements. 62Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our chief executive officer, or CEO, and our chief financial officer, or CFO, has evaluated theeffectiveness of our disclosure controls and procedures as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act as of August31, 2020. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, thedesign of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required toapply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.Based upon the aforementioned evaluation, our CEO and CFO have concluded that, as of August 31, 2020, our disclosure controlsand procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information required tobe disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rulesand forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate toallow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Under thesupervision and with the participation of our management, including our CEO and CFO, we assessed the effectiveness of our internalcontrol over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control— IntegratedFramework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEOand CFO concluded that our internal control over financial reporting is effective to provide reasonable assurance regarding the reliability ofour financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP, as of August 31,2020.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2020 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNot applicable. 63Table of Contents PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceOur Board of DirectorsTrung T. Doan, 62, has served as a director, Chairman of our Board and as our CEO since January 2005, and as our President sinceAugust 2012. Prior to joining us, Mr. Doan served as Corporate Vice President of Applied Global Services (AGS) Product Group at AppliedMaterials, Inc. and also served as President and Chief Executive Officer of Jusung Engineering, Inc., a semiconductor/LCD equipmentcompany in Korea. In addition, Mr. Doan served as Vice President of Process Development at Micron Technology Inc. Mr. Doan previouslyserved as a director of Advanced Energy Industries, a publicly traded manufacturer of power conversion and control systems within thepast five years. Mr. Doan also previously served as a director of Dolsoft Corporation, a privately held software company, as a director of NuTool Inc., a semiconductor technology company, and as a director of EMCO, a publicly traded manufacturer of advanced flow controldevices and systems. Mr. Doan holds a bachelor of science degree in nuclear engineering from the University of California, Santa Barbara,where he graduated with honors, and a master of science degree in chemical engineering from the University of California, Santa Barbara.Our Board has determined that Mr. Doan should serve on our Board and as our Chairman based on his in‑depth knowledge of our businessand industry and his experience serving on the boards of directors of several major technology companies, as well as in management rolesin the technology industry.Dr. Edward Kuan Hsiung Hsieh, 68, has served as a director since February 2012. Dr. Hsieh has been Chairman, Chief ExecutiveOfficer and a director of Eton Intelligent Technologies, a media and publications company, since April 2000 and Chairman, Chief ExecutiveOfficer and a director of VR Networks, a VoIP and Internet networks company, since January 2000. He has also served as an AdjunctProfessor at National Taiwan University since February 2009. From February 2007 to February 2010, Dr. Hsieh was Chief Executive Officer ofAsia Pacific Telecom, a 3G mobile and fixed line telecommunications company, as well as Executive Director of APOL, an Internet serviceprovider. He also served as Chairman of International Christian Goodwill within the past five years. Dr. Hsieh holds a bachelor of sciencedegree in electrical engineering from National Taiwan University, a master of science degree in electrical engineering from the University ofCalifornia, Santa Barbara and a doctor of philosophy degree in electrical engineering from Cornell University. He also studied accounting atthe University of California, Los Angeles. Our Board has determined that Dr. Hsieh should serve as a director based on his experienceteaching master of business administration classes at National Taiwan University, his service as an International Financial Adviser withMerrill Lynch, Pierce, Fenner & Smith and his management roles at several start‑up companies.Scott R. Simplot, 73, has served as a director since March 2005. Mr. Simplot has been Chairman of the board of directors and adirector of J.R. Simplot Company since May 2001 and August 1970, respectively. Mr. Simplot holds a bachelor of science degree in businessfrom the University of Idaho and a master of business administration degree from the University of Pennsylvania. Mr. Simplot became adirector on our Board as part of his duties as the Chairman of the board of J.R. Simplot Company, the 100% owner of Simplot Taiwan, Inc.,which was entitled to designate two members of our board of directors in connection with J.R. Simplot Company’s investment in our SeriesA convertible preferred stock. Our Board has determined that Mr. Simplot should serve as a director based on the extensive knowledge andinsight he brings to our Board from his experience serving as Chairman and holding a variety of management positions at a large privatecompany and serving on the boards of directors of companies in a variety of industries.Walter Michael Gough, 66, has served as a director since April 2016. Mr. Gough has led Gough and Associates, a firm that specializesin financial consulting for domestic and international companies since 2005. He is also a tenured faculty member in Accounting andBusiness at DeAnza College in Cupertino, California where he has taught since 1985. From June 2000 to June 2004, he was Chief FinancialOfficer and Financial Consultant at Nu Tool Inc., a semiconductor equipment manufacturer. From 1995 through 1999, he was a foundingmember and Chief Financial Officer of Invest In Yourself, LLC; an organization that provided consulting for professional sports franchises.Prior to teaching and consulting, Mr. Gough was a financial analyst and contracts manager at Watkins-Johnson Company, a hightechnology electronics firm. Before Watkins-Johnson, Mr. Gough worked for Kidder Peabody, an investment banking firm. He holds MBAand BA degrees (cum laude) from Santa Clara University, and a Masters in English from Notre Dame de Namur University. Our Board hasdetermined that Mr. Gough should serve on our Board based on his experience as a consultant to technology companies in both the UnitedStates and Taiwan, his prior experience as a chief financial officer of several companies, and his expertise in accounting and finance.Roger Lee, 62, has served as a director since September 2019. Mr. Lee previously served as a director and an Audit Committeemember of SemiLEDs from August 2017 to March 2019. Mr. Lee has more than 30 years of semiconductor experience and leadership. He hasbeen the President and CEO of TF Semiconductor Solutions (TFSS) since August 2014. Prior to becoming the CEO of TFSS, Mr. Lee servedas world-wide COO and Interim President & CEO of Telefunken Semiconductors located in Roseville, California and Heilbronn, Germanyfrom May 2011 to July 2014. Mr. Lee began his career as an engineer for Texas Instruments. During his career, Mr. Lee has served onnumerous boards and held a variety of executive and senior-level positions for several companies, including senior vice president of SMIC.Previously, he co-founded the SMIC-Toppan JV (TSES) where he served as its vice chairman of its Board of Directors, and had held severalsenior management positions, including senior fellow and head of flash memory at Micron Technology and was instrumental to thedevelopment of Micron’s flash memory program. More recently, he was COO and a board member of Founder Microelectronics, Inc. inShenzhen, China where he was responsible for overall company operations, including fab manufacturing, sales and marketing, facilities, andR&D operations. Mr. Lee earned his Bachelor’s degree and Master’s degree in Electrical Engineering from Iowa State University. Our Boardhas determined that Mr. Lee should serve on our Board based on his experience with technology companies and other organizations in boththe United States and China.64Table of Contents Executive OfficersIn addition to Mr. Doan, our CEO, who also serves as a director, our executive officers as of November 13, 2020 consisted of thefollowing:Christopher Lee, 49, has served as our Chief Financial Officer since September 2015. From November 21, 2014 until his appointment asChief Financial Officer, Mr. Lee was the interim Chief Financial Officer of the Company. Mr. Lee joined SemiLEDs in September 2014. Mr. Leehas over 20 years of experience in accounting and finance, including US GAAP, PCAOB standards and SEC rules and regulations. Prior tojoining us, Mr. Lee was a partner of KEDP CPA Group from August 2009 to June 2011 and a self‑employed accountant from July 2011 toAugust 2014. Mr. Lee holds a BS degree in accounting from Ohio State University and a MS degree in business taxation from Golden GateUniversity and is licensed as a Certified Public Accountant (CPA) in the United States.CORPORATE GOVERNANCEBoard CompositionOur Nominating and Corporate Governance Committee is charged with identifying and evaluating individuals qualified to serve asmembers of the Board and recommending to the full Board nominees for election as directors. We seek directors with experience in areasrelevant to the strategy and operations of the Company. We seek a Board that collectively has a range and diversity of skills, experience,age, industry knowledge and other factors in the context of the needs of the Board. The biographies of each of the directors above containsinformation regarding the person’s service as a director, business experience, director positions held currently or at any time during the lastfive years and the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee todetermine that the person should serve as a director of our Company. In addition to the information presented above regarding eachdirector’s specific experience, qualifications, attributes and skills that led our Nominating and Corporate Governance Committee and Boardto the conclusion that he should serve as a director, we also believe that each of our directors has a reputation for integrity, honesty andadherence to high ethical standards. Each of our directors has demonstrated business acumen and an ability to exercise sound judgment, aswell as a commitment of service to our Company and our Board.Board Responsibilities and StructureThe Board oversees, counsels, and directs management in the long‑term interests of the Company and our stockholders. The Board’sresponsibilities include: •selecting, evaluating the performance of, and determining the compensation of the CEO and other executive officers; •overseeing the risks that the Company faces; •reviewing and approving our major financial objectives and strategic and operating plans, and other significant actions; •overseeing the conduct of our business and the assessment of our business and other enterprise risks to evaluate whether thebusiness is being properly managed; and •overseeing the processes for maintaining our integrity with regard to our financial statements and other public disclosures, andcompliance with law and ethics.The Board and its committees met throughout the year on a set schedule, held special meetings, and acted by written consent fromtime to time as appropriate. During fiscal year 2020, the Board held executive sessions for the independent directors to meet without Mr.Doan present at the end of every Board meeting.Our Bylaws do not dictate a particular Board structure and the Board is free to determine whether or not to have a Chairman and, if so,to select that Chairman and our CEO in the manner it considers our best interest. Currently, the Board has selected Mr. Doan to hold theto select that Chairman and our CEO in the manner it considers our best interest. Currently, the Board has selected Mr. Doan to hold theposition of both Chairman of the Board and CEO. Mr. Doan’s experience at the Company has afforded him intimate knowledge of the issues,challenges and opportunities facing each of the Company’s businesses. Accordingly, he is well positioned to focus the Board’s attentionon the most pressing issues facing the Company. The Board has not appointed a lead independent director. The Board believes itsadministration of its risk oversight function has not affected the Board’s leadership structure.65Table of Contents Board Committees and ChartersThe Board delegates various responsibilities and authority to different Board committees. Committees regularly report on theiractivities and actions to the full Board. The Board currently has, and appoints the members of, a standing Audit Committee, CompensationCommittee, and Nominating and Corporate Governance Committee. Each of the Board committees has a written charter approved by theBoard, and we post each charter on our web site at http://investors.semileds.com/governance.cfm. Each committee can engage outsideexperts, advisors and counsel to assist the committee in its work. The following table identifies the current committee members. Nominating and CorporateName Audit Compensation GovernanceDr. Edward Kuan Hsiung Hsieh Chair ˅ Walter Michael Gough ˅ Roger Lee ˅ Scott R. Simplot Chair ChairNumber of Committee Meetings Held in Fiscal Year 2020 4 3 3Audit CommitteeOur Audit Committee is responsible for, among other things: •reviewing and approving the selection of our independent auditors, and approving the audit and non‑audit services to beperformed by our independent auditors; •monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate tofinancial statements or accounting matters; •reviewing the adequacy and effectiveness of our internal control policies and procedures; •discussing the scope and results of the audit with the independent auditors and reviewing with management and theindependent auditors our interim and year‑end operating results; and •preparing the Audit Committee Report that the SEC requires in our annual proxy statement.The Board believes that each current member of our Audit Committee is an independent director under the NASDAQ rules and meetsthe additional SEC independence requirements for audit committee members. It has also determined that Dr. Hsieh and Mr. Gough meet therequirements of an “audit committee financial expert,” as defined in Regulation S‑K.Compensation CommitteeOur Compensation Committee is responsible for, among other things: •overseeing our compensation policies, plans and benefit programs; •reviewing and approving for our executive officers: the annual base salary, the annual incentive bonus, including the specificgoals and amount, equity compensation, employment agreements, severance arrangements and change in control arrangements,and any other benefits, compensation or arrangements; •reviewing and determining our equity‑based compensation plans; and •administering our equity‑based compensation plans.Although the Compensation Committee has the authority to determine the compensation paid to executive officers, other officers,employees, consultants and advisors, it can delegate its responsibility for setting compensation for individuals other than the CEO to asubcommittee, in the case of other officers, or to officers, in the case of employees and consultants. It may also delegate to officers theauthority to grant options or other equity or equity‑based awards to employees who are not executive officers or members of the Board. Itmay also generally take into account the recommendations of the CEO, other than with respect to his own compensation.66Table of Contents Nominating and Corporate Governance CommitteeOur Nominating and Corporate Governance Committee is responsible for, among other things: •identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to the Board; •reviewing developments in corporate governance practices and developing and recommending governance principles applicableto our Board; •overseeing the evaluation of our Board and management; and •recommending members for each Board committee to our Board.Our Nominating and Corporate Governance Committee has not established any minimum qualifications for directors although inassessing the skills and characteristics of individual members, it must give due regard for independence and financial literacyconsiderations dictated by the NASDAQ rules. The Nominating and Corporate Governance Committee does not at this time have a policyregarding its consideration of director candidates recommended by stockholders, as it has not yet received any such recommendations. Itmay adopt a policy if such recommendations are received.Attendance at Board, Committee and Annual Stockholders’ MeetingsThe Board held four meetings in fiscal year 2020. We expect each director to attend every meeting of the Board and the committees onwhich he serves, and encourage them to attend the annual stockholders’ meeting. All directors attended at least 75% of the aggregatemeetings of the Board and the committees on which they served in fiscal year 2020 and all continuing directors attended the 2020 annualmeeting of stockholders.Risk ManagementThe Board is involved in the oversight of risks that could affect the Company. The Board also monitors cyber threat trends, regulatorydevelopments, and major threats to the Company, including setting expectations and accountability for management, as well as assessingthe adequacy of resources, funding, and focus on cyber risk management activities. This oversight is conducted primarily through theAudit Committee which, on behalf of the Board, is charged with overseeing the principal risk exposures we face and our mitigation efforts inrespect of these risks. The Audit Committee is responsible for interfacing with management and discussing with management theCompany’s principal risk exposures and the steps management has taken to monitor and control risk exposures, including risk assessmentand risk management policies. The Compensation Committee also plays a role in that it is charged, in overseeing the Company’s overallcompensation structure, with assessing whether that compensation structure creates risks that are reasonably likely to have a materialadverse effect on us.Code of Business Conduct and EthicsWe have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including thoseofficers responsible for financial reporting. These standards are designed to deter wrongdoing and to promote honest and ethical conduct.The Code of Business Conduct and Ethics is available at our website at http://investors.semileds.com/governance.cfm. Any amendments tothe Code, or any waivers of its requirements required to be disclosed pursuant to SEC or NASDAQ requirements, will be disclosed on thewebsite.Communications from Stockholders and Other Interested Parties to DirectorsThe Board recommends that stockholders and other interested parties initiate communications with the Board, any committee of theBoard or any individual director in writing to the attention of our Corporate Secretary at our principal executive office at 3F, No.11 Ke JungRd., Chu‑Nan Site, Hsinchu Science Park, Chu‑Nan 350, Miao‑Li County, Taiwan, R.O.C. This process will assist the Board in reviewing andresponding to stockholder communications in an appropriate manner. The Board has instructed our Corporate Secretary to review suchcorrespondence and, at his discretion, not to forward items if he deems them to be of a commercial or frivolous nature or otherwiseinappropriate for the Board’s consideration.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our commonstock to file with the SEC an initial report of ownership of our stock on Form 3 and reports of changes in ownership on Form 4 or Form 5.Persons subject to Section 16 are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. As a matterof practice, our administrative staff assists our executive officers and directors in preparing initial ownership reports and reportingownership changes, and typically files those reports on their behalf. Based solely on a review of the copies of such forms in our possessionand on written representations from reporting persons, we believe that during fiscal year 2020 all of our executive officers, directors and 10%beneficial owners filed the required reports on a timely basis under Section 16(a).67Table of Contents Item 11. Executive CompensationCOMPENSATION OF THE NAMED EXECUTIVE OFFICERS AND DIRECTORSExecutive CompensationThis executive compensation section discloses the compensation awarded to or earned by our “named executive officers” duringfiscal years 2020 and 2019.We held our last non‑binding advisory vote regarding compensation of our named executive officers at 2018 Annual Meeting ofStockholders and expect to hold our next vote at our 2021 Annual Meeting of Stockholders.Summary Compensation TableThe following table sets forth all of the compensation earned by named executive officers(1) during the relevant fiscal years. Stock Option All Other Name and Principal Position FiscalYear Salary($) Bonus($) Awards($)(1) Awards($) Compensation($) Total($) Trung T. Doan 2020 151,875 — — — — 151,875 Chief Executive Officer 2019 303,750 — — — — 303,750 (1)Mr. Christopher Lee’s compensation did not exceed $100 thousand for the fiscal years ended August 31, 2020 and 2019.Outstanding Equity Awards at Fiscal Year‑EndThere was no outstanding equity award held by Mr. Doan as of the fiscal year ended August 31, 2020.Pension BenefitsWe do not maintain any defined benefit pension plans.Nonqualified Deferred CompensationWe do not maintain any nonqualified deferred compensation plans.Severance and Change in Control BenefitsMr. Doan entered into an employment agreement in 2005, which provides that if he is terminated by us without cause or resigns due toa constructive termination, he will receive as severance an amount equal to six months of his then‑current salary plus his current medicalinsurance for six months following his termination date. We offered such severance to motivate Mr. Doan to continue as our executiveofficer by providing severance protection in the event that he is terminated by us without having committed any egregious act constitutingcause or if we adversely change his position such that he resigns. Cause is defined as (a) the conviction of a felony or of any criminaloffense involving moral turpitude; (b) the repeated failure to satisfactorily perform duties reasonably required by us; (c) material breach ofthe proprietary information and invention agreement, our written policies established by our Board or any term of his employmentagreement; or (d) misappropriation of our property or unlawful appropriation of our corporate opportunity or our business. If we determinecause exists, we will provide Mr. Doan with written notice alleging cause and his failure to remedy the alleged cause within 30 days mayresult in a termination for cause. Constructive termination is defined as one of the following events when we have not received Mr. Doan’swritten consent for such event: (a) a significant reduction of his duties, position or responsibilities relative to his duties, position orresponsibilities in effect immediately prior to such reduction or his removal from such position, duties and responsibilities, provided that areduction in duties, position or responsibilities solely by virtue of us being acquired and made part of a larger entity will not constitute aconstructive termination; (b) a substantial reduction, without good business reasons, of the facilities and perquisites available to himimmediately prior to such reduction; (c) a reduction of his base salary unless such reduction is a part of a Company‑wide reduction forsimilarly situated persons; or (d)a material reduction in the kind or level of employee benefits to which he is entitled immediately prior tosuch reduction, with the result that his overall benefits package is significantly reduced, unless such reductions are part of a Company‑widereduction for similarly situated persons.68Table of Contents Employment AgreementsMr. Doan entered into an employment agreement in 2005, which provides for the severance payments and benefits described under“Severance and Change in Control Benefits” above.Director CompensationOur Board has adopted a director compensation policy pursuant to which non‑employee members of the Board will receive thefollowing compensation for their board and committee services: •an annual cash retainer for general Board service of $25,000 paid in quarterly installments; •no cash payments for attendance at general Board meetings; •an annual cash retainer of $15,000 for serving as chairman of the Audit Committee, $9,000 for serving as the chairman of theCompensation Committee and $6,000 for serving as the chairman of the Nominating and Governance Committee, with eachretainer paid in quarterly installments; •an annual cash retainer of $8,000 per non‑chairman member serving on the Audit Committee, $5,000 per non‑chairman memberserving on the Compensation Committee and $3,000 per non‑chairman member serving on the Nominating and CorporateGovernance Committee; and •each year shortly following the annual stockholder meeting an annual grant of 2,500 shares of RSUs, which fully vests on theearlier of the next annual meeting or the one‑year anniversary of the grant date, subject to continued service through the vestingdate, provided that the RSUs will fully vest if we are subject to a change in control during their service.The director compensation policy requires directors to attend at least 75% of the meetings each year in order to be renominated. Thepolicy also includes an equity ownership guideline whereby our directors will be expected to own and hold shares of our common stockuntil retirement from their Board service. We also reimburse non‑employee directors for travel, lodging and other expenses incurred inconnection with their attendance at Board or committee meetings.Director Compensation TableThe following table sets forth the total compensation for our non‑employee directors for the year ended August 31, 2020: Fees Earned or All Other Name Paid in Cash($) Stock Awards($) Compensation($) Total($) Dr. Edward Kuan Hsiung Hsieh 45,000 19,120 — 64,120 Walter Michael Gough 33,000 6,125 — 39,125 Roger Lee — 6,125 — 6,125 Scott R. Simplot(1) — — — — (1)Mr. Simplot waived any right to compensation.69Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersPRINCIPAL STOCKHOLDERSThe following table sets forth information regarding the beneficial ownership of our common stock as of November 13, 2020 withrespect to: •each person, or group of affiliated persons, who is known by us to own beneficially 5% or more of our common stock; •each of our directors; •each of our named executive officers; and •all directors and executive officers as a group.Beneficial ownership is determined in accordance with the rules of the SEC. All shares of our common stock subject to optionscurrently exercisable or exercisable within 60 days of November 13, 2020 and RSUs that will vest within 60 days of November 13, 2020, aredeemed to be outstanding for the purpose of computing the percentage ownership of the person or group holding options and RSUs, butare not deemed to be outstanding for computing the percentage of ownership of any other person.Unless otherwise indicated by the footnotes below, we believe, based on the information furnished to us, that each stockholdernamed in the table has sole voting and investment power with respect to all shares beneficially owned, subject to applicable communityproperty laws.Percentage of ownership is based on 4,011,323 shares of common stock outstanding as of November 13, 2020.Unless otherwise indicated in the footnotes to the table, the address of each individual listed in the table is c/o SemiLEDsCorporation, 3F, No.11Ke Jung Rd., Chu‑Nan Site, Hsinchu Science Park, Chu‑Nan 350, Miao‑Li County, Taiwan, R.O.C. Shares Beneficially Owned Name and Address of Beneficial Owner Number Percent 5% Stockholders: Simplot Taiwan, Inc. 1,489,934 (1) 37.1 %J.R. Simplot Company 999 Main Street, Suite 1300 Boise, ID 83702 Trung Tri Doan 536,639 (2) 13.4 % Executive Officers and Directors: Trung Tri Doan 536,639 (2) 13.4 %Walter Michael Gough 11,068 * Roger Lee 2,500 (4)* Dr. Edward Kuan Hsiung Hsieh 23,571 * Scott R. Simplot 1,520,970 (1)(3) 37.9 %Christopher Lee 13,500 (5)* All executive officers and directors as a group (6 persons) 2,108,248 (4)(5) 52.5 % *Indicates beneficial ownership of less than 1%.(1)Based on a Schedule13D/A filed June 10, 2020, Simplot Taiwan, Inc., a wholly owned subsidiary of J.R. Simplot Company, and J.R.Simplot Company share voting and investment power over all such shares. Scott Simplot is the Chairman of J.R. Simplot Company. Mr.Simplot may be deemed to have shared voting and investment power over the shares held by Simplot Taiwan, Inc. Mr. Simplotdisclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. Includes 400,000 shares issuableupon exercise of outstanding convertible promissory notes.(2)Includes 127,141shares held by The Trung Tri Doan 2010 GRAT, of which Trung Tri Doan is the sole trustee. Includes 66,667 sharesissuable upon exercise of outstanding convertible promissory notes.(3)Includes 31,036 shares held by JRS Properties III L.P. JRS Management L.L.C. is the sole general partner of JRS Properties III L.P. ScottSimplot and Stephen A. Beebe are the managers of JRS Management L.L.C. As managers of JRS Management L.L.C., Mr. Simplot andMr. Beebe share voting and investment power over the securities held by JRS Properties III L.P. Mr. Simplot may be deemed to haveshared voting and investment power over the shares held by JRS Properties III L.P. Mr. Simplot disclaims beneficial ownership of suchshares, except to the extent of his pecuniary interest therein.(4)Includes 2,500 RSUs that vested on September 5, 2020.(5)Includes 2,000 RSUs that will vest within 60 days. 70Table of Contents Equity Compensation Plan InformationThe following table summarizes information about our equity compensation plans as of August 31, 2020. All outstanding awardsrelate to our common stock. Plan category Number of securitiesto be issued uponexercise of outstandingoptions, warrantsand rights(a) Weighted-averageexercise price ofoutstandingoptions,warrantsand rights(2)(b) Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))(c) (in thousands) (in thousands) Equity compensation plans approved bysecurity holders 147 (1)$159.00 401 Equity compensation plans not approvedby security holders — — — Total 147 401 (1)Consists of stock options granted under the 2005 Equity Incentive Plan and the 2010 Equity Incentive Plan, and restricted stock unitsgranted under the 2010 Equity Incentive Plan. No additional grants could be made under the 2005 Equity Incentive Plan afterDecember 8, 2010. In April 2014 and July 2019, SemiLEDs’ stockholders approved amendments to the 2010 Plan that increased thenumber of shares authorized for issuance under the plan by an additional 250 thousand shares and 500 thousand shares, respectively.On September 25, 2020, stockholders of SemiLEDs approved an increase in the authorized share reserve under the 2010 plan by anadditional 400 thousand shares.(2)The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock unitawards, which have no exercise price. The information required by this Item with respect to the securities ownership of directors,officers and certain beneficial owners is set forth under the heading “Principal Stockholders” above.Item 13. Certain Relationships and Related Transactions, and Director IndependenceCERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSOn December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory notes (the “Notes”) to eachof J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief Executive Officer (together, the “Holders”), with aprincipal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%. Principal and accrued interest shall be dueon demand by the Holders on and at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes maybe 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 fromthe 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 commonstock.On January 8, 2019, the Company entered into loan agreements with each of its Chairman and Chief Executive Officer and its largestshareholder, with aggregate amounts of $1.7 million and 1.5 million, respectively, and an annual interest rate of both 8%. As of August 31,2019, these loans totaled $3.2 million. For more detail information, see Note3 to Consolidated Financial Statements in “Part II Item 8.Financial Statements and Supplementary Data”.Except for the above, since September 1, 2017, there has not been any transaction or series of similar transactions to which we were orare a party in which the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets atyear-end for the last two completed fiscal years, and in which any of our directors or executive officers, any holder of more than 5% of anyclass of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirectmaterial interest, other than the transactions described below, some of which represent continuing transactions from prior periods.Employment AgreementsSee “Compensation of the Named Executive Officers and Directors—Employment Agreements.”71Table of Contents Policies and Procedures for Related Party TransactionsOur Board has adopted a formal, written related party transactions policy pursuant to which, our executive officers, directors,beneficial owners of more than 5% of our common stock, and any member of the immediate family of and any firm, corporation or otherentity at which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such personhas a 5% or greater beneficial interest, are not permitted to enter into a related party transaction with us without prior consent and approvalof our Audit Committee. This policy covers any transaction, arrangement or relationship, or any series of similar transactions, arrangementsor relationships in which we are a participant, the aggregate amount involved will or may be expected to exceed $120,000 in any year and arelated person has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10%beneficial owner of another entity), including, without limitation, purchases of goods or services by or from the related person or entities inwhich the related person has a material interest, indebtedness, guarantees of indebtedness or employment by us of a related person.The Audit Committee has determined that a related person does not have a direct or indirect material interest in the followingcategories of transactions and that each will be deemed to be preapproved: •any transaction with another company at which a related person’s only relationship is as an employee (other than an executiveofficer), director, or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does notexceed the greater of $1 million or 2% of that company’s total annual revenue.Director IndependenceThe published listing requirements of NASDAQ dictate that a majority of the Board be comprised of independent directors whom ourBoard has determined have no material relationship with our Company and who are otherwise “independent” directors under those listingrequirements. Our current Board consists of the five persons listed above. The Board has determined that each of our current directors,other than Mr. Doan, our CEO, qualifies as an independent director, such that more than a majority of our directors are independentdirectors under the NASDAQ rules.The NASDAQ rules have objective tests and a subjective test for determining who is an “independent director.” Under the objectivetests, a director cannot be considered independent if: •the director is, or at any time during the past three years was, an employee of the company; •the director or a family member of the director accepted any compensation from the company in excess of $120,000 during anyperiod of 12 consecutive months within the three years preceding the independence determination (subject to certainexclusions, including, among other things, compensation for board or board committee service); •a family member of the director is, or at any time during the past three years was, an executive officer of the company; •the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity towhich the company made, or from which the company received, payments in the current or any of the past three fiscal years thatexceeded 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever was greater (subject to certainexclusions); •the director or a family member of the director is employed as an executive officer of an entity where, at any time during the pastthree years, any of the executive officers of the company served on the compensation committee of such other entity; or •the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during thepast three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board,would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not establishedcategorical standards or guidelines to make these subjective determinations but considers all relevant facts and circumstances.In addition to the Board‑level standards for director independence, the NASDAQ rules provide that directors, of whom there must bethree, who serve on the Audit Committee must each satisfy standards established by the SEC that require that members of audit committeesmust not be affiliated persons of the issuer and may not accept directly or indirectly any consulting, advisory, or other compensatory feefrom the issuer other than their director compensation.Transactions Considered in Independence DeterminationsIn making its independence determinations, the Board considered transactions that occurred since the beginning of fiscal year 2016between the Company and entities associated with the independent directors or members of their immediate family. All identifiedtransactions that appeared to relate to the Company and a family member of, or entity with a known connection to, a director were presentedto the Board for consideration.72Table of Contents None of the non‑employee directors was disqualified from “independent” status under the objective tests. In making its subjectivedetermination that each of our Company’s non‑employee director is independent, the Board reviewed and discussed additional informationprovided by the directors and the Company with regard to each director’s business and personal activities as they may relate to theCompany and the Company’s management. The Board considered the transactions in the context of the NASDAQ objective standards, thespecial standards established by the SEC for members of audit committees, and the SEC and U.S. Internal Revenue Service (“IRS”)standards for compensation committee members. Based on all of the foregoing, as required by the NASDAQ rules, the Board made asubjective determination that, because of the nature of the director’s relationship with the entity and/or the amount involved, norelationships exist that, in the opinion of the Board, would impair the director’s independence.Item 14. Principal Accountant Fees and ServicesFees Billed by Independent Registered Public Accounting FirmThe following table shows the fees and related expenses for audit and other services provided by KCCW Accountancy Corp billedfor fiscal year 2020 and 2019. The services described in the following fee table were approved in conformity with the Audit Committee’spre‑approval process. KCCW Accountancy Corp 2020 Fees 2019 Fees Audit Services $173,000 $104,000 Audit-Related Services — — Tax Services 7,000 7,000 All Other Services — — Total $180,000 $111,000 Audit Services. This category includes the audit of our annual consolidated financial statements, review of our quarterly condensedconsolidated financial statements and services that are normally provided by our independent auditors in connection with statutory andregulatory filings or engagements. This category also includes statutory audits required by the Tax Bureau of Taiwan for certain of oursubsidiaries in Taiwan.Tax Services. The services for the fees disclosed in this category include tax return preparation and technical tax advice. 73Table of Contents PART IVItem 15. Exhibits and Financial Statement Schedules(2) Exhibits: Exhibit FiledNo Exhibit Title Form File No. Exhibit Filing Date Herewith 3.1 Amended and Restated Certification of Incorporation ofRegistrant, and amendments thereto S-1/A 333‑168624 3.1(c) November 22, 2010 3.2 Certificate of Amendment of Amended and RestatedCertificate of Incorporation 8‑K 333‑168624 3.1 April 15, 2016 3.3 Certificate of Amendment of Amended and RestatedCertificate of Incorporation 8-K 333‑168624 3.1 July 3, 2018 3.4 Amended and Restated Bylaws of Registrant S‑1/A 333‑168624 3.2(b) November 22, 2010 4.1 Form of Common Stock Certificate S‑1/A 333‑168624 4.1 November 22, 2010 4.2(d) Description of the Registrant’s Securities Under Section 12of the Securities Exchange Act of 1934 10-K 001-34992 4.2(d) November 20, 2019 10.1† 2005 Equity Incentive Plan (amended March 1, 2010) S‑1 333‑168624 10.1 August 6, 2010 10.2† 2010 Equity Incentive Plan, as amended September 25, 2020 X 10.3† Amended and Restated Employment Agreement with TrungT. Doan, dated March 15, 2005 S‑1 333‑168624 10.3 August 6, 2010 10.4† SemiLEDs Corporation 2010 Equity Incentive Plan, StockUnit Grant Agreement (Director Form) 8‑K 001‑34992 99.1 February 9, 2012 10.5† SemiLEDs Corporation 2010 Equity Incentive Plan, Form ofStock Unit Agreement (Officer Form) 8‑K 001‑34992 99.1 February 24, 2012 10.6 Form of Proprietary Information and Inventions Agreement S‑1/A 333‑168624 10.8 September 14, 2010 10.7 Form of Non‑competition Agreement S‑1/A 333‑168624 10.9 September 14, 2010 10.8† Form of Option Agreement for the 2010 Equity IncentivePlan S‑1/A 333‑168624 10.10 November 16, 2010 10.9† Form of Indemnification Agreement with directors andofficers S‑1/A 333‑168624 10.11 October 26, 2010 10.10 Loan Agreement dated January 8, 2019 between SemiLEDsCorporation and Trung Doan. 10-Q 001-34992 10.1 January 11, 2019 10.11 Loan Agreement dated January 8, 2019 between SemiLEDsCorporation and J. R. Simplot Company. 10-Q 001-34992 10.2 January 11, 2019 10.12 The First Loan Agreement between Mega InternationalCommercial Bank and SemiLEDs Optoelectronics Co., Ltd.dated July 5, 2019 (translation) 10-K 001-34992 10.12 November 20, 2019 10.13 The Second Loan Agreement between Mega InternationalCommercial Bank and SemiLEDs Optoelectronics Co., Ltd.dated July 5, 2019 (translation) 10-K 001-34992 10.13 November 20, 2019 16.1 Letter from BF Borgers CPA PC to the SEC dated September2, 2019 8-K 001-34992 16.1 September 3, 2019 21.1 List of Subsidiaries X 23.1 Consent of KCCW Accountancy Corp, IndependentRegistered Public Accounting Firm X 74Table of Contents Exhibit FiledNo Exhibit Title Form File No. Exhibit Filing Date Herewith 31.1 Certification of Chief Executive Officer Pursuant to ExchangeAct Rule 13a‑14(a)/15d‑14(a) X 31.2 Certification of Chief Financial Officer Pursuant to ExchangeAct Rule 13a‑14(a)/15d‑14(a) X 32.1 Certification Pursuant to 18 U.S.C. Section 1350 X 32.2 Certification Pursuant to 18 U.S.C. Section 1350 X 101.INS* XBRL Instance Document X 101.SCH* XBRL Taxonomy Extension Schema Document X 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB* XBRL Taxonomy Extension Label Linkbase Document X 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document X †Management contract or compensatory arrangement Item 16. Form 10-K SummaryNone.75Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 17, 2020SemiLEDs Corporation By:/s/ TRUNG TRI DOAN Trung Tri DoanChairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ TRUNG TRI DOAN Chairman and Chief Executive Officer(Principal Executive Officer) November 17, 2020Trung Tri Doan /s/ CHRISTOPHER LEE Chief Financial Officer(Principal Financial Officer and Principal Accounting Officer) November 17, 2020Christopher Lee /s/ SCOTT R. SIMPLOT Director November 17, 2020Scott R. Simplot /s/ DR. EDWARD KUAN HSIUNG HSIEH Director November 17, 2020Dr. Edward Kuan Hsiung Hsieh /s/ GOUGH WALTER MICHAEL Director November 17, 2020Gough Walter Michael /s/ ROGER LEE Director November 17, 2020Roger Lee 76Table of Contents SEMILEDS CORPORATIONSCHEDULE II— VALUATION AND QUALIFYING ACCOUNTS Years Ended August 31, 2020 2019 (In thousands) Allowance for Doubtful Accounts (Including Related Parties): Beginning balance $195 $477 Charged to bad debt expense — — Write-downs charged against the allowance (277)Effect of exchange rate changes (8) (5)Ending balance $187 $195 Years Ended August 31, 2020 2019 (In thousands) Valuation Allowance for Deferred Tax Assets: Beginning balance $30,983 $35,414 Charged to income tax expense (285) (3,908)Net operating loss carryforward expired (136) (194)Effect of exchange rate changes 1,692 (329)Ending balance $32,254 $30,983 77 Exhibit 10.2SEMILEDS CORPORATION 2010 EQUITY INCENTIVE PLAN (AS ADOPTED NOVEMBER 2, 2010 AND EFFECTIVE DECEMBER 8, 2010)(AS AMENDED JANUARY 9, 2014 AND APPROVED BY STOCKHOLDERS ON APRIL 10, 2014)(AS AMENDED JUNE 14, 2019 AND APPROVED BY STOCKHOLDERS ON JULY 31, 2019)(AS AMENDED JULY 10, 2020 AND APPROVED BY STOCKHOLDERS ON SEPTEMBER 25, 2020) TABLE OF CONTENTS Page ARTICLE 1. INTRODUCTION 1 ARTICLE 2. ADMINISTRATION 1 2.1 Committee Composition 12.2 Committee Responsibilities 12.3 Non-Officer Grants 1 ARTICLE 3. SHARES AVAILABLE FOR GRANTS 2 3.1 Basic Limitation 23.2 Shares Returned to Reserve 23.3 Dividend Equivalents 2 ARTICLE 4. GENERAL 2 4.1 Eligibility 24.2 Incentive Stock Options 24.3 Other Grants 24.4 Restrictions on Shares 24.5 Beneficiaries 34.6 Performance Conditions 3 ARTICLE 5. OPTIONS 3 5.1 Stock Option Agreement 35.2 Number of Shares 35.3 Exercise Price 35.4 Exercisability and Term 35.5 Modification or Assumption of Options 45.6 Buyout Provisions 45.7 Assignment or Transfer of Options 4 i TABLE OF CONTENTS(continued) Page ARTICLE 6. PAYMENT FOR OPTION SHARES 4 6.1 General Rule 46.2 Surrender of Stock 46.3 Exercise/Sale 46.4 Other Forms of Payment 4 ARTICLE 7. STOCK APPRECIATION RIGHTS 5 7.1 SAR Agreement 57.2 Number of Shares 57.3 Exercise Price 57.4 Exercisability and Term 57.5 Exercise of SARs 57.6 Modification or Assumption of SARs 5 ARTICLE 8. RESTRICTED SHARES 5 8.1 Restricted Stock Agreement 58.2 Payment for Awards 68.3 Vesting Conditions 68.4 Voting and Dividend Rights 6 ARTICLE 9. STOCK UNITS 6 9.1 Stock Unit Agreement 69.2 Payment for Awards 69.3 Vesting Conditions 69.4 Voting and Dividend Rights 79.5 Form and Time of Settlement of Stock Units 79.6 Death of Recipient 79.7 Creditors’ Rights 7 ARTICLE 10. PROTECTION AGAINST DILUTION 7 10.1 Adjustments 710.2 Dissolution or Liquidation 810.3 Change in Control 8 ARTICLE 11. AWARDS UNDER OTHER PLANS 9 ii TABLE OF CONTENTS(continued) Page ARTICLE 12. PAYMENT OF DIRECTOR’S FEES IN SECURITIES 9 12.1 Effective Date 912.2 Elections to Receive NSOs, Restricted Shares or Stock Units 912.3 Number and Terms of NSOs, Restricted Shares or Stock Units 9 ARTICLE 13. LIMITATION ON RIGHTS 913.1 Retention Rights 913.2 Stockholders’ Rights 1013.3 Regulatory Requirements 10 ARTICLE 14. WITHHOLDING TAXES 10 14.1 General 1014.2 Share Withholding 10 ARTICLE 15. FUTURE OF THE PLAN 10 15.1 Term of the Plan 1015.2 Amendment or Termination 1015.3 Stockholder Approval 10 ARTICLE 16. DEFINITIONS 11 iii SEMILEDS CORPORATION2010 EQUITY INCENTIVE PLAN ARTICLE 1. INTRODUCTION. The Plan was adopted by the Board effective as of the IPO Date. The purpose of the Plan is to promote the long-termsuccess of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focuson critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants withexceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increasedstock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options(which may constitute ISOs or NSOs) or stock appreciation rights. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except theirchoice-of-law provisions). ARTICLE 2. ADMINISTRATION 2.1 Committee Composition. The Compensation Committee of the Board shall administer the Plan. TheCommittee shall consist exclusively of members of the Board, who shall be appointed by the Board. In addition, each member of theCommittee shall meet the following requirements: (a) Any listing standards prescribed by the principal securities market on which the Company’s equitysecurities are traded; (b) Such requirements as the Securities and Exchange Commission may establish for administratorsacting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (c) Any other requirements imposed by applicable law, regulations or rules. 2.2 Committee Responsibilities. The Committee shall (a) select the Employees, Outside Directors andConsultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features andconditions of such Awards, (c) amend any outstanding Awards, (d) accelerate the vesting or extend the post-termination exercise term ofAwards at any time and under such terms and conditions as it deems appropriate, (e) correct any defect, supplying any omission orreconciling any inconsistency in the Plan or any agreement evidencing an Award, (f) interpret the Plan, (g) make all other decisions relatingto the operation of the Plan, (h) adopt such plans or subplans as may be deemed necessary or appropriate to provide for the participationby service providers of the Company, its Parent, Subsidiaries and Affiliates who reside outside of the U.S., which plans and/or subplansshall be attached hereto as Appendices and (i) carry out any other duties delegated to it by the Board under the Plan. The Committee mayadopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be finaland binding on all persons. 2.3 Non-Officer Grants. The Board may also appoint additional committees of the Board composed of one ormore directors of the Company. The additional committees need not satisfy the requirements of Section 2.1. Such committees may (a)administer the Plan with respect to Employees and Consultants who are not Outside Directors and are not considered executive officers ofthe Company under section 16 of the Exchange Act, (b) grant Awards under the Plan to such Employees and Consultants and (c) determineall features and conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shallinclude these additional committees to whom the Board has delegated the required authority under this Section 2.3. ARTICLE 3. SHARES AVAILABLE FOR GRANTS. 3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares ortreasury shares. The aggregate number of Common Shares issued under the Plan shall not exceed (a) one million four-hundred-and-twenty-one thousand four hundred twenty-eight (1,421,428) (1) Common Shares plus (b) the additional Common Shares described in Sections 3.2. The number of Common Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of CommonShares that then remain available for issuance under the Plan. All Common Shares available under the Plan may be issued upon the exerciseof ISOs. The limitation of this Section 3.1 shall be subject to adjustment pursuant to Article 10. 3.2 Shares Returned to Reserve. If Options, SARs or Stock Units are forfeited or terminate for any other reasonbefore being exercised or settled, then the Common Shares subject to such Options, SARs or Stock Units shall again become available forissuance under the Plan. If SARs are exercised, then only the number of Common Shares (if any) actually issued in settlement of such SARsshall reduce the number available under Section 3.1 and the balance shall again become available for issuance under the Plan. If Stock Unitsare settled, then only the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the numberavailable under Section 3.1 and the balance shall again become available for issuance under the Plan. If Restricted Shares or CommonShares issued upon the exercise of Options are reacquired by the Company pursuant to a forfeiture provision or for any other reason, thensuch Common Shares shall again become available for issuance under the Plan. 3.3 Dividend Equivalents. Any dividend equivalents paid or credited under the Plan shall not be applied againstthe number of Common Shares that may be issued under the Plan, whether or not such dividend equivalents are converted into Stock Units. ARTICLE 4. GENERAL. 4.1 Eligibility. Only Employees, Outside Directors, and Consultants shall be eligible to participate in the Plan. 4.2 Incentive Stock Options. Only Employees who are common-law employees of the Company, a Parent or aSubsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power ofall classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless theadditional requirements set forth in section 422(c)(5) of the Code are satisfied. 4.3 Other Grants. Only Employees, Outside Directors and Consultants shall be eligible for the grant ofRestricted Shares, Stock Units, NSOs or SARs. 4.4 Restrictions on Shares. Any Shares issued pursuant to an Award shall be subject to such rights ofrepurchase and other transfer restrictions as the Committee may determine, in its sole discretion. Such restrictions shall apply in addition toany restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. In no eventshall the Company be required to issue fractional Shares under this Plan. (1) Such amount as well as all other share numbers in this Plan have been adjusted to reflect the one-for-fourteen reverse stock spliteffective as of the IPO date. 4.5 Beneficiaries. Unless stated otherwise in an agreement evidencing an Award and then only to the extentpermitted by applicable law, a Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribedform with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before theParticipant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then after a Participant’s deathany vested Award(s) shall be transferred or distributed to the Participant’s estate. 4.6 Performance Conditions. The Committee may, in its discretion, include performance conditions in an Award. If performance conditions are included in Awards, then such Awards will be subject to the achievement of Performance Goals with respectto a Performance Period established by the Committee. Before any Shares underlying an Award or any Award payments are released withrespect to a Performance Period, the Committee shall certify in writing that the Performance Goals for such Performance Period have beensatisfied. ARTICLE 5. OPTIONS. 5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock OptionAgreement between the Optionee and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject toany other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Subject toan Optionee’s consent, Options may be granted in consideration of a reduction in the Optionee’s other compensation. 5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares subject to theOption, which shall be subject to adjustment in accordance with Article 10. Options granted to an Optionee in a single fiscal year of theCompany shall not cover more than 35,000 Common Shares. The limitations set forth in the preceding sentence shall be subject toadjustment in accordance with Article 10. 5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. In the case of an ISO(a) granted to an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of theCompany or any of its Parents or Subsidiaries, the Exercise Price shall be no less than 110% of the Fair Market Value on the date of grant;and (b) granted to any other Employee, the Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant. 5.4 Exercisability and Term. Each Stock Option Agreement shall specify the date or event when all or anyinstallment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that theterm of an ISO shall in no event exceed 10 years from the date of grant, except that the term of an ISO granted to an Employee who ownsmore than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiariesshall in no event exceed 5 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the event ofthe Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of thetermination of the Optionee’s Service. Options may be awarded in combination with SARs, and such an Award may provide that theOptions will not be exercisable unless the related SARs are forfeited. 5.5 Modification or Assumption of Options. Within the limitations of the Plan, the Committee may modify,reprice, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company orby another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exerciseprice. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or herrights or obligations under such Option. 5.6 Buyout Provisions. The Committee may at any time (a) offer to buy out for a payment in cash or cashequivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case atsuch time and based upon such terms and conditions as the Committee shall establish. 5.7 Assignment or Transfer of Options. No Option or interest therein shall be transferred, assigned, pledged orhypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution,attachment or similar process, other than (i) by will or by the laws of descent and distribution, or (ii) in the case of an NSO, as otherwiseexpressly permitted by the Committee including, if so permitted, pursuant to a transfer to such Optionee’s Immediate Family. An Option maybe exercised, subject to the terms of the Plan and the applicable Stock Option Agreement, only by the Optionee, the guardian or legalrepresentative of the Optionee, a beneficiary designated pursuant to Section 4.5, or any person to whom such Option is transferredpursuant to this paragraph. ARTICLE 6. PAYMENT FOR OPTION SHARES. 6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payablein cash or cash equivalents at the time when such Common Shares are purchased, except that the Committee at its sole discretion mayaccept payment of the Exercise Price in any other form(s) described in this Article 6. However, if the Optionee is an Outside Director orexecutive officer of the Company, he or she may pay the Exercise Price in a form other than cash or cash equivalents only to the extentpermitted by section 13(k) of the Exchange Act. 6.2 Surrender of Stock. With the Committee’s consent, all or any part of the Exercise Price may be paid bysurrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall bevalued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. 6.3 Exercise/Sale. With the Committee’s consent, all or any part of the Exercise Price and any withholding taxesmay be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Companyto sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company. 6.4 Other Forms of Payment. With the Committee’s consent, all or any part of the Exercise Price and anywithholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules. ARTICLE 7. STOCK APPRECIATION RIGHTS. 7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement betweenthe Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that arenot inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. Subjectto an Optionee’s consent, SARs may be granted in consideration of a reduction in the Optionee’s other compensation. 7.2 Number of Shares. Each SAR Agreement shall specify the number of Common Shares to which the SARpertains and shall be subject to adjustment in accordance with Article 10. SARs granted to an Optionee in a single fiscal year shall in noevent pertain to more than 35,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment inaccordance with Article 10. 7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price. 7.4 Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SARis to become exercisable and/or may include time-based vesting or performance-based vesting (including Performance Goals pursuant toSection 4.6). The SAR Agreement shall also specify the term of the SAR, which shall not exceed ten (10) years from the date of grant. AnSAR Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability or retirement or other events andmay provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. SARs may be awarded incombination with Options or Restricted Shares, and such an Award may provide that the SARs will not be exercisable unless the relatedOptions or Restricted Shares are forfeited. An SAR may be included in an ISO only at the time of grant but may be included in an NSO atthe time of grant or thereafter. Notwithstanding any other provision of the Plan or the SAR Agreement, no SAR can be exercised after theexpiration date provided in the applicable SAR Agreement. 7.5 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any person having the right to exercise theSAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash,as the Committee shall determine. The amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARsshall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject tothe SARs exceeds the Exercise Price. If, on the date when an SAR expires, the Exercise Price is less than the Fair Market Value on such datebut any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as ofsuch date with respect to such portion. An SAR Agreement may also provide for an automatic exercise of the SAR on an earlier date. 7.6 Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, reprice,extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by anotherissuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price. Theforegoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights orobligations under such SAR. ARTICLE 8. RESTRICTED SHARES. 8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by aRestricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of thePlan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted StockAgreements entered into under the Plan need not be identical. 8.2 Payment for Awards. Restricted Shares may be sold or awarded under the Plan for such consideration as theCommittee may determine, including (without limitation) cash, cash equivalents, property, past services and future services. 8.3 Vesting Conditions. Each Award of Restricted Shares may or may not be subject to vesting. Vesting shalloccur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. The Committee may includeamong such conditions the requirement that the performance of the Company or a business unit of the Company for a specified period ofone or more fiscal years equal or exceed a target determined in advance by the Committee. The Committee shall determine suchperformance. Such target may be based on one or more of the criteria set forth in the Performance Goals. The Committee shall identify suchtarget not later than the 90th day of such period. In no event shall more than 35,000 Restricted Shares that are subject to performance-basedvesting conditions be granted to any Participant in a single fiscal year of the Company. The limitations set forth in the preceding sentenceshall be subject to adjustment in accordance with Article 10. A Restricted Stock Agreement may provide for accelerated vesting in theevent of the Participant’s death, disability or retirement or other events. 8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall have the samevoting, dividend and other rights as the Company’s other stockholders. A Restricted Stock Agreement, however, may require that any cashdividends paid on Restricted Shares (a) be accumulated and paid when such Restricted Shares vest or (b) be invested in additionalRestricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect towhich the dividends were paid. ARTICLE 9. STOCK UNITS. 9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a Stock UnitAgreement between the recipient and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subjectto any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Planneed not be identical. Subject to a recipient’s consent, Stock Units may be granted in consideration of a reduction in the recipient’s othercompensation. 9.2 Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cashconsideration shall be required of the Award recipients. 9.3 Vesting Conditions. Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur, infull or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. The Committee may include among suchconditions the requirement that the performance of the Company or a business unit of the Company for a specified period of one or morefiscal years equal or exceed a target determined in advance by the Committee. The Committee shall determine such performance. Suchtarget may be based on one or more of the criteria set forth in the Performance Goals. The Committee shall identify such target not later thanthe 90th day of such period. In no event shall more than 35,000 Stock Units that are subject to performance-based vesting conditions begranted to any Participant in a single fiscal year of the Company, except that up to 35,000 Stock Units subject to performance-based vestingconditions may be granted to a new Employee in the fiscal year of the Company in which his or her Service commences. The limitations setforth in the preceding sentence shall be subject to adjustment in accordance with Article 10. A Stock Unit Agreement may provide foraccelerated vesting in the event of the Participant’s death, disability or retirement or other events. 9.4Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement orforfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Suchright entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit isoutstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in theform of cash, in the form of Common Shares, or in a combination of both. Prior to distribution, any dividend equivalents that are not paidshall be subject to the same conditions and restrictions as the Stock Units to which they attach. 9.5 Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of(a) cash, (b) Common Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible forsettlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methodsof converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Sharesover a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commencewhen all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. Theamount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units issettled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10. 9.6 Death of Recipient. Any Stock Units Award that becomes payable after the recipient’s death shall bedistributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or morebeneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing theprescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designatedbeneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient’s death shall be distributedto the recipient’s estate. 9.7 Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a general creditor of theCompany. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of theapplicable Stock Unit Agreement. ARTICLE 10. PROTECTION AGAINST DILUTION. 10.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a stock split, a reverse stocksplit, a declaration of a dividend payable in Common Shares or a combination or consolidation of the outstanding Common Shares (byreclassification or otherwise) into a lesser number of Common Shares, or any other increase or decrease in the number of issued CommonShares effected without receipt of consideration by the Company, corresponding adjustments shall automatically be made in each of thefollowing: (a) The number of Options, SARs, Restricted Shares and Stock Units available for future Awardsunder Article 3; (b) The limitations set forth in Sections 5.2, 7.2, 8.3 and 9.3; (c) The number of Common Shares covered by each outstanding Option and SAR; (d) The Exercise Price under each outstanding Option and SAR; and (e) The number of Stock Units included in any prior Award that has not yet been settled. In the event of a declaration of an extraordinary dividend with respect to the Common Shares payable in a form other than Common Sharesin an amount that has a material effect on the price of Common Shares, a recapitalization, a rights offering, a reorganization, a merger, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of theforegoing, and its determination shall be final, binding and conclusive. Except as provided in this Article 10, a Participant shall have norights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision orconsolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of sharesof stock of any class. 10.2 Dissolution or Liquidation. To the extent not previously exercised or settled, Options, SARs and Stock Unitsshall terminate immediately prior to the dissolution or liquidation of the Company. 10.3 Change in Control. Individual agreements evidencing Awards may provide for vesting acceleration if theCompany is subject to a Change in Control. In addition, in the event that the Company is subject to a Change in Control, outstandingOptions, SARs, Stock Units and Restricted Shares acquired under the Plan shall be subject to the agreement evidencing the Change inControl, which need not treat all outstanding Options, SARs or Stock Units (or portion thereof) in an identical manner. Such agreement,without each Participant’s consent, may dispose of Options, SARs or Stock Units (or portions thereof) that are not vested as of theeffective date of such Change in Control in any manner permitted by applicable law, including (without limitation) the cancellation of suchOptions, SARs or Stock Units (or portions thereof) without the payment of any consideration. Such agreement, without each Participant’sconsent, may provide for one or more of the following with respect to Options, SARs or Stock Units (or portions thereof) granted to eachParticipant that are vested and exercisable as of the closing date of such Change in Control: (a) The continuation of such outstanding Awards (or portion thereof) by the Company (if theCompany is the surviving corporation). (b) The assumption of such outstanding Awards (or portion thereof) by the surviving corporation orits parent, provided that the assumption of Options or SARs shall comply with section 424(a) of the Code (whether or not theOptions are ISOs). (c) The substitution by the surviving corporation or its parent of new awards for such outstandingAwards (or portion thereof), provided that the substitution of Options or SARs shall comply with section 424(a) of the Code(whether or not the Options are ISOs). (d) The cancellation of outstanding Options and SARs (or portion thereof) and a payment to theParticipants equal to the excess of (i) the Fair Market Value of the Common Shares subject to such Options and SARs as of theclosing date of such Change in Control over (ii) their Exercise Price. Such payment shall be made in the form of cash, cashequivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount or anycombination of the foregoing consideration. If the Exercise Price of the Common Shares subject to such Options and SARsexceeds the Fair Market Value of such Common Shares, then such Options and SARs may be cancelled without making apayment to the Optionees. For purposes of this Subsection (d), the Fair Market Value of any security shall be determinedwithout regard to any vesting conditions that may apply to such security. (e) The cancellation of outstanding Stock Units (or portion thereof) and a payment to the Participantsequal to the Fair Market Value of the Common Shares subject to such Stock Units as of the closing date of such Change inControl. Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or itsparent with a Fair Market Value equal to the required amount or any combination of the foregoing consideration. For purposes ofthis Subsection (e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that mayapply to such security. (f) The cancellation of outstanding Options and SARs (or portion thereof) for no consideration. Immediately following a Change in Control, all outstanding Options, SARs and Stock Units shall terminate and cease to be outstanding,except to the extent such Options, SARs and Stock Units (or portion thereof) have been continued or assumed, as described in Sections10.3(a) and/or 10.3(b). ARTICLE 11. AWARDS UNDER OTHER PLANS. The Company may grant awards under other plans or programs. Such awards may be settled in the form of CommonShares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued insettlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3. ARTICLE 12. PAYMENT OF DIRECTOR’S FEES IN SECURITIES. 12.1 Effective Date. No provision of this Article 12 shall be effective unless and until the Board has determined toimplement such provision. 12.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside Director may elect to receive hisor her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, Restricted Shares or Stock Units, or acombination thereof, as determined by the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. Anelection under this Article 12 shall be filed with the Company on the prescribed form. 12.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number of NSOs, Restricted Shares orStock Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall becalculated in a manner determined by the Board. The Board shall also determine the terms of such NSOs, Restricted Shares or Stock Units. ARTICLE 13. LIMITATION ON RIGHTS. 13.1 Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give anyindividual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reservethe right to terminate the Service of any Employee, Outside Director or Consultant at any time, with or without cause or notice, subject toapplicable laws, the Company’s certificate of incorporation and by-laws and a written employment or consulting agreement (if any). 13.2 Stockholders’ Rights. A Participant shall have no dividend rights, voting rights or other rights as astockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such CommonShares is issued or, if applicable, the time when he or she becomes entitled to receive such Common Shares by filing any required notice ofexercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date isprior to such time, except as expressly provided in the Plan. 13.3 Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Companyto issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatorybody as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to anyAward prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification orlisting or to an exemption from registration, qualification or listing. ARTICLE 14. WITHHOLDING TAXES. 14.1 General. To the extent required by applicable federal, state, local or foreign law, a Participant or his or hersuccessor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise inconnection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan untilsuch obligations are satisfied. 14.2 Share Withholding. To the extent that applicable law subjects a Participant to tax withholding obligations,the Committee may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of anyCommon Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or shepreviously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when they are withheld or surrendered. This Section 14.2 shall apply only to the minimum extent required by applicable tax laws. ARTICLE 15. FUTURE OF THE PLAN. 15.1 Term of the Plan. The Plan, as set forth herein, shall become effective on the IPO Date. The Plan shallremain in effect until the earlier of (a) the date when the Plan is terminated under Section 15.2 or (b) the 13th anniversary of the date when theBoard adopted the Plan. 15.2 Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall notaffect any Award previously granted under the Plan. 15.3 Stockholder Approval. An amendment of the Plan shall be subject to the approval of the Company’sstockholders only to the extent required by applicable laws, regulations or rules. ARTICLE 16. DEFINITIONS. 16.1 “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries ownnot less than 50% of such entity. 16.2 “Award” means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan. 16.3 “Board” means the Company’s Board of Directors, as constituted from time to time. 16.4 “Change in Control” means: (a) The consummation of a merger or consolidation of the Company or any other corporatereorganization or business combination transaction of the Company with or into another corporation, entity or person; (b) The sale, transfer or other disposition of all or substantially all of the Company’s assets; (c) A change in the composition of the Board, as a result of which fewer than 50% of the incumbentdirectors are directors who either: (i) Had been directors of the Company on the date 24 months prior to the date of suchchange in the composition of the Board (the “Original Directors”); or (ii) Were appointed to the Board, or nominated for election to the Board, with theaffirmative votes of at least a majority of the aggregate of (A) the Original Directors who were in office at the time oftheir appointment or nomination and (B) the directors whose appointment or nomination was previously approved in amanner consistent with this Paragraph (ii); or (d) Any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13d-3under the Exchange Act), directly or indirectly, of securities of the Company representing at least 50% of the total voting powerrepresented by the Company’s then outstanding voting securities. For purposes of this Subsection (d), the term “person” shallhave the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or otherfiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporationowned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of thecommon stock of the Company. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to createa holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediatelybefore such transaction. 16.5 “Code” means the Internal Revenue Code of 1986, as amended. 16.6 “Committee” means the Compensation Committee of the Board, as further described in Article 2. 16.7 “Common Share” means one share of the common stock of the Company. 16.8 “Company” means SemiLEDs Corporation, a Delaware corporation. 16.9 “Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, aSubsidiary or an Affiliate as an independent contractor. 16.10 “Employee” means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. 16.11 “Exchange Act” means the Securities Exchange Act of 1934, as amended. 16.12 “Exercise Price,” in the case of an Option, means the amount for which one Common Share may bepurchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of an SAR,means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share indetermining the amount payable upon exercise of such SAR. 16.13 “Fair Market Value” means the market price of a Common Share as determined in good faith by theCommittee. Such determination shall be conclusive and binding on all persons. The Fair Market Value shall be determined by the following: (i) If the Common Shares are admitted to trading on any established national stock exchange or market system on thedate in question then the Fair Market Value shall be equal to the closing sales price for such Common Shares as quoted onsuch national exchange or system on such date; or (ii) if the Common Shares are admitted to quotation or are regularly quoted by a recognized securities dealer but sellingprices are not reported on the date in question, then the Fair Market Value shall be equal to the mean between the bid andasked prices of the Common Shares reported for such date. In each case, the applicable price shall be the price reported in The Wall Street Journal or such other source as theCommittee deems reliable; provided, however, that if there is no such reported price for the Common Shares for the date in question, thenthe Fair Market Value shall be equal to the price reported on the last preceding date for which such price exists. If neither (i) or (ii) areapplicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. 16.14 “Immediate Family” means, except as otherwise defined by the Committee, any child, sibling, stepchild,grandchild, parent, stepparent, grandparent, spouse, former spouse, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,sister-in-law, or brother-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant oremployee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons(or the Participant) own more than fifty percent (50%) or more of the voting interests. 16.15 “IPO Date” means the effective date of the registration statement filed by the Company with the Securitiesand Exchange Commission for its initial offering of Common Shares to the public. 16.16 “ISO” means an incentive stock option described in section 422(b) of the Code. 16.17 “NSO” means a stock option not described in sections 422 or 423 of the Code. 16.18 “Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares. 16.19 “Optionee” means an individual, estate or other person holding an Option or SAR. 16.20 “Outside Director” means a member of the Board who is not an Employee. 16.21 “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending withthe Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting powerof all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after theadoption of the Plan shall be considered a Parent commencing as of such date. 16.22 “Participant” means an individual, estate or other person holding an Award. 16.23 “Performance Goals” means specific financial performance criteria determined by the Committee with respectto each Performance Period utilizing one or more of the following factors and any objectively verifiable adjustment(s) thereto permitted andpre-established by the Committee: revenue, operating income, adjusted operating income (adjusted to add back items such as non-cashstock compensation expense), EBITDA and/or net earnings (either before or after interest, taxes, depreciation and amortization), adjustedEBITDA, net income (either before or after taxes), earnings per share, earnings as determined other than pursuant to United States generallyaccepted accounting principles (“GAAP”), return on gross or net assets, return on equity, return on invested capital, cash flow (including,but not limited to, operating cash flow and free cash flow), operating or gross margins, net margins, stock price appreciation, totalstockholder return, customer satisfaction metrics, customer count, customer retention, cost per customer acquisition, and transactionvolume, any of which may be measured with respect to the Company, or any Subsidiary, affiliate or other business unit of the Company,either in absolute terms, terms of growth or as compared to any incremental increase, as compared to results of a peer group. Awards mayalso take into account other factors (including subjective factors). The Committee may, in its discretion, provide that one or more objectively determinable adjustments shall bemade to one or more of the Performance Goals. Such adjustments may include one or more of the following: (i) items related to a change inaccounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Companyduring the Performance Period; (vii) items related to the disposal of a business or segment of a business; (viii) items related to discontinuedoperations that do not qualify as a segment of a business under GAAP; (ix) items attributable to any stock dividend, stock split,combination or exchange of shares occurring during the Performance Period; or (x) any other items of significant income or expense whichare determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments,(xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-goingbusiness activities; or (xiv) items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principlesor business conditions. 16.24 “Performance Period” means any period not exceeding seven (7) years as determined by the Committee, inits sole discretion. The Committee may establish different Performance Periods for different Participants and the Committee may establishconcurrent or overlapping Performance Periods. 16.25 “Plan” means this SemiLEDs Corporation 2010 Equity Incentive Plan, as amended from time to time. 16.26 “Restricted Share” means a Common Share awarded under the Plan. 16.27 “Restricted Stock Agreement” means the agreement between the Company and the recipient of a RestrictedShare that contains the terms, conditions and restrictions pertaining to such Restricted Share. 16.28 “SAR” means a stock appreciation right granted under the Plan. 16.29 “SAR Agreement” means the agreement between the Company and a Participant that contains the terms,conditions and restrictions pertaining to his or her SAR. 16.30 “Service” means service as an Employee, Outside Director or Consultant. 16.31 “Stock Option Agreement” means the agreement between the Company and an Optionee that contains theterms, conditions and restrictions pertaining to his or her Option. 16.32 “Stock Unit” means a bookkeeping entry representing the equivalent of one Common Share, as awardedunder the Plan. 16.33 “Stock Unit Agreement” means the agreement between the Company and the recipient of a Stock Unit thatcontains the terms, conditions and restrictions pertaining to such Stock Unit. 16.34 “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporationsbeginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50%or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attainsthe status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. Exhibit 21.1List of Subsidiaries Percentage of Jurisdiction of Our Ownership Name Incorporation Interest Majority Owned Subsidiaries: SemiLEDs Optoelectronics Co., Ltd. Taiwan 100 %Helios Crew Corporation Delaware 100 %Taiwan Bandaoti Zhaoming Co., Ltd (Silicon Base Development, Inc.) Taiwan 97 % Exhibit 23.1Consent of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of SemiLEDs Corporation:We consent to the incorporation by reference in the registration statements (No.333-171107 and 333-197417) on Form S-8 of SemiLEDsCorporation of our report dated November 17, 2020 and November 20, 2019, with respect to the consolidated balance sheet of SemiLEDsCorporation and its subsidiaries as of August 31, 2020 and 2019, and the related consolidated statements of operations, comprehensiveloss, changes in equity and cash flows, and the related consolidated financial statement schedules for the years ended August 31, 2020 and2019, which report appears in the August 31, 2020 and 2019 annual report on Form 10-K of SemiLEDs Corporation. Our report datedNovember 17, 2020 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations, has notgenerated sufficient net cash flows from operating activities and has an accumulated deficit, which raise substantial doubt about its abilityto continue as a going concern. The consolidated financial statements and financial statement schedule do not include any adjustmentsthat might result from the outcome of that uncertainty./s/ KCCW Accountancy Corp. Diamond Bar, CaliforniaNovember 17, 2020Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Trung Tri Doan, certify that:1.I have reviewed this Annual Report on Form 10-K of SemiLEDs Corporation (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in thisreport;4.The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in ExchangeAct Rules 13a—15(f) and 15d—15(f)) for the Registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during theRegistrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer(s)and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing theequivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information;and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting. Dated: November 17, 2020 /s/ Trung Tri Doan Name: Trung Tri DoanTitle: Chairman and Chief Executive Officer Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Christopher Lee, certify that:1.I have reviewed this Annual Report on Form 10-K of SemiLEDs Corporation (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in thisreport;4.Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a—15(f) and 15d—15(f)) for the Registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during theRegistrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing theequivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information;and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’sinternal control over financial reporting. Dated: November 17, 2020 /s/ Christopher Lee Name: Christopher LeeTitle: Chief Financial Officer Exhibit 32.1CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of SemiLEDs Corporation (the “Registrant”) on Form 10-K for the year ended August 31, 2020 as filedwith the Securities and Exchange Commission as of the date hereof (the “Report”), I, Trung Tri Doan, Chairman and Chief Executive Officerof the Registrant, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:(1)the Report fully complies with the requirements of section 13(a)or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theRegistrant. Dated: November 17, 2020 /s/ Trung Tri Doan Name: Trung Tri Doan Title: Chairman and Chief Executive Officer Exhibit 32.2CERTIFICATIONPURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of SemiLEDs Corporation (the “Registrant”) on Form 10-K for the year ended August 31, 2020, asfiled with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Christopher Lee, Chief Financial Officer of theRegistrant hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:(1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theRegistrant. Dated: November 17, 2020 /s/ Christopher Lee Name: Christopher Lee Title: Chief Financial Officer

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