Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF1934
For the fiscal year ended August 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF1934
For the transition period from to
Commission File Number: 001-34992
SemiLEDs Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
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)
20-2735523
(I.R.S. Employer
Identification Number)
350
(Zip Code)
Registrant’s telephone number including area code: +886-37-586788
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0000056
TradingSymbol(s)
LEDS
Name of each exchange on which registered
The Nasdaq Stock Market
Securities 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 Rule405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section13 or Section15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule405 of Regulation S-T (§232.405 of this chapter) during the preceding 12months (or for such shorter
period that the registrant was required to submit such files).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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
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 any new 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 its internal 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 that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes
☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of February28, 2021 (the last
business day of the registrant’s most recently completed second fiscal quarter), based upon the closing price of the common
stock reported by the NASDAQ Capital Market on such date, was approximately $12.5million. Shares of common stock held
by each executive officer and director of the registrant and by each person who owns 10% or more of the registrant’s
outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of
affiliate 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 22,
2021:4,459,579
Table of Contents
SemiLEDs Corporation
Table of Contents
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
PART IV
Page
No.
1
7
21
21
22
22
23
23
24
37
37
66
66
66
67
71
73
74
76
77
78
79
Smaller Reporting Company— Scaled Disclosure
Pursuant to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, as amended, as
indicated herein, we have elected to comply with the scaled disclosure requirements applicable to “smaller
reporting companies.”
Table of Contents
Forward-looking Statements
PART I.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of
historical facts contained in this Form 10-K, including statements regarding the future results of operations of
SemiLEDs Corporation, or “we,” “our” or the “Company,” and financial position, strategy and plans, and our
expectations for future operations, are forward-looking statements. Any statements contained 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 similar expressions are intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations 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 subject to 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 actual results and the timing of certain events could differ materially and adversely from
those anticipated or implied in the forward-looking statements as a result of many factors.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or achievements. We have not assumed any
obligation to, and you should not expect us to, update or revise these statements because of new information,
future events or otherwise.
Item 1. Business
Company Overview
We develop, manufacture and sell light emitting diode (LED) chips and LED components, LED modules
and systems. Our products are used for general lighting and specialty industrial applications, including ultraviolet,
or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, germicidal
and viricidal devices LED lighting for horticulture applications, architectural lighting and entertainment lighting.
Utilizing our patented and proprietary technology, our manufacturing process begins by growing upon the
surface of a sapphire wafer, or substrate, several very thin separate semiconductive crystalline layers of gallium
nitride, or GaN, a process known as epitaxial growth, on top of which a mirror-like reflective silver layer is then
deposited. After the subsequent addition of a copper alloy layer and finally 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 a few 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 sell to packagers. 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 certain LED products, and for
certain aspects of our product fabrication, assembly and packaging processes, based on our design and technology
requirements and under our quality control specifications 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 copper alloy 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 these capabilities and know-how should also allow us to reduce our manufacturing costs
and our dependence on sapphire, a costly raw material used in the production of sapphire-based LED devices.
Table of Contents
1
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 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 Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., which is
engaged in the research, development, manufacture and a substantial portion of marketing and sale of LED
products, including lighting fixtures and systems, and is where most of our employees are based.
Our Technology
Our proprietary technology integrates copper alloy in a vertical LED structure. We first grow epitaxial
layers on a sapphire wafer. The epitaxial layers are multiple doped GaN layers. At this point in the process, our
structure has the following order: (i)sapphire; (ii)n-doped GaN (N-GaN); (iii)multi-quantum well layers (MQWs);
and (iv)p-doped GaN (P-GaN). Next, we deposit and define (by patterning and etching) multiple metal layers on
the P-GaN layer. These metal layers consist of several different mirror layers and copper alloy layers, which are
deposited on top of the mirror layers by electroplating. The copper alloy metal layers, which are collectively called
the P-Contact Metal Layer, 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 the production line and recycled. The remaining device structure—consisting of the P-Contact
Metal Layer on top of the epitaxial layers— is then ready for further processing. To complete our LED device
structure, we then deposit and define additional metal layers on top of the N-GaN layers to achieve low resistance
contact with the N-GaN layers. These additional metal layers are collectively called the N-Contact Metal 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 to customer specifications, such as wavelength (color) and brightness. When a
constant electrical current flows from our P-Contact Metal Layer 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 superior combination of both light output efficiency and heat removal is realized in a
vertical LED chip design with a copper alloy metal structure. Among pure metals at room temperature, copper
has the second highest electrical and thermal conductivity, after silver. Heat is generated by passing electrical
current through resistive materials. In our vertical LED chips, electrical current flows from the low resistance
copper alloy base to the epitaxial layers also with low electrical resistance, thereby resulting in lower heat
generation. Furthermore, due to the 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 and reliability.
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 reflectivity metal between the copper alloy layer and the P-GaN surface that acts as a mirror to
reflect light more effectively out of the internal structure of the device. In contrast, in conventional sapphire-based
LED devices, leakage can occur when light escapes through the sides of the substrate or is converted to heat due
to the higher internal resistance of the device. Furthermore, by optimizing the internal structure and surface of our
epitaxial layers through our proprietary nanosurface engineering, a greater portion of light is extracted after
generation within the device, whereas conventional sapphire-based LED devices have a semi-transparent contact
layer (STCL) which absorbs and reduces the amount of light that can be emitted vertically from the chip. We are
also developing various packaging technologies, such as component cost reducing Advanced Packaging
Technology called CSP, Multi-Channel Emitters (MCE) and Chip-On-Board (COB).
Our Products
LED Chips
We produce and purchase a wide variety of blue, white, green and UV LED chips, including our EV LED
product series, currently ranging from chip sizes of 380 microns, or µm, by 380µm to 1520µm by 1520µm. We
sell our LED chips to packaging customers or to distributors, who in turn sell to packagers. Our LED chips are
used primarily for applications in the specialty lighting market, including commercial, and industrial sectors. Our
LED chips may be used in specialty industrial applications, such as UV curing of polymers, LED light therapy in
medical/cosmetic applications, counterfeit detection, LED lighting for horticulture applications, and architectural
lighting. Currently, we focus mostly on UV LED applications.
LED Components
We 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. Our packaged products can be categorized into three
different groups: UV, Multi-Channel Emitter (MCE), and Specialty lighting. Besides the standard products, we
provide customization service for all market segments. Our UV LED product portfolio ranges from two to 260
electrical watts, and are designed for industrial applications such as printing, coating, curing, and
medical/cosmetic uses. The MCE packages target entertainment, architectural, aquarium and horticultural lighting
sectors. Variations of four, seven, 12, 16 channel LEDs allow users to control each LEDs separately to produce
all colors in the visible light spectrum. We use specialized chip bonding technology to ensure minimal chip-to-
chip distance in order to deliver optimized color mixing capability in compact packages. Specialty lighting is
mainly in the infrared spectrum with options of 30, 60, 90 and 120 degree view angles. These are used in
surveillance, IP cameras and night vision applications.
Table of Contents
2
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 mechanical manufacturing resources to provide customers with one-stop
system services. Services include design, prototyping, OEM and ODM. Key markets 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-LED package (16 RGB pixels in one package) for fine pitch Mini-LED display market. In 2019,
we expanded our UVC portfolio for disinfection markets.
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 also contract with other manufacturers to produce for our
LED components based on our design and technology requirements and under our quality control specifications
and final inspection process.
Lighting Products
We design, assemble and sell lighting fixtures and systems for general lighting applications, including
commercial, residential and industrial lighting. Our lighting products consist primarily of LED luminaries and
LED retrofits. Our lighting product customers are primarily ODMs of lighting products and the end-users of
lighting devices. Revenues from sales of our lighting products represented 15% and 9% of our revenues for the
years ended August 31, 2021 and 2020, respectively.
OEM/ODM Services
We provide design and manufacturing services at the modular and system level. Currently, most of the
design projects involve high power UV LED lamps to be incorporated/retrofitted into large scale press equipment.
Besides hardware, we also provide software development to lamp control and equipment-to-lamp signal
communication.
Manufacturing
Our manufacturing operations are located in Taiwan. Since late 2011, we have suffered from the
underutilization of our manufacturing capacity, primarily for our LED chips. Consequently, a portion of our
manufacturing equipment was idled, resulting in significant excess capacity charges. We also use contract
manufacturers to produce certain LED products, and for certain aspects of our product fabrication, assembly and
packaging processes, based on our design and technology requirements and under our quality control
specifications and final inspection process. We have moved toward a fabless business model in which we would
utilize foundry fabs to ODM our chips using our developed technology. As part of the restructuring, we continue
to explore opportunities to sell our chip manufacturing equipment, which will help us to reduce the idle capacity
costs. As part of our cost reduction efforts, we moved and consolidated our LED packaging 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 if we are to grow.
Raw Materials and Components
We use the following raw materials in our LED chip manufacturing: metal organics, sapphire, copper alloy,
gold slugs, sodium gold sulfite, aluminum granules and electrolytic nickel, among others. We use the following
assembly materials in the production of our LED component products: gold bond wire, lead frame, ceramic
substrate, phosphor, silicon zener-diode, silicone rubber, eutectic (AuSn) bonding material and silver paste, among
others. We also purchase industrial and general chemicals and gases for the manufacture of both our LED chips
and LED components. We do not manufacture our lighting products from the raw materials, but we assemble our
lighting products from individual components, such as LED emitters, electronic components, printed circuit
boards, heat-sink, lenses and other metal and plastic components.
We purchase raw materials and components from a wide range of suppliers around the world. The raw
materials and components we use are readily available. We have two or more suppliers for a majority of the raw
materials we use. Historically, we have never experienced any significant delay or shortage in the supply of our
raw materials and components. While the COVID-19 pandemic did not have a material impact on our supply
chain, it has the potential to have a meaningful impact on our supply chain if the factories that produce our raw
materials and components are disrupted, temporarily closed or experience worker shortages. We may also see
disruptions or delays in shipments and negative impacts to pricing of certain products as a result of such
disruptions.
Quality Management
We have implemented quality control measures at each stage of our operations, including obtaining supplier
qualifications, inspecting incoming raw materials and random testing during our production process, to ensure
consistent product yield and reliability. We test all new processes and new products prior to commercial
production. We also inspect all final products prior to delivery to our customers to ensure that production standards
are met. If we encounter defects, we conduct an analysis in an effort to identify the cause of the defect and take
3
Table of Contents
appropriate corrective and preventative measures. We provide standard product warranties on our products, which
generally range from three months to two years. Our manufacturing facility located in Hsinchu Science Park,
Taiwan, are certified in compliance with ISO9001:2015. The facility is subject to periodic inspection by the
relevant governmental authorities for safety, environmental and other regulatory compliance.
We require all of our employees involved in the manufacturing and engineering process to receive quality
control training, according to a certification system depending on the level of skills and knowledge required. The
training program is designed to ensure consistent and effective application of our quality control procedures.
Sales and Marketing
We market and sell our products through both our direct sales force and distributors. We primarily sell our
LED components to distributors and end-customers in selected markets. Our packaging customers package our
LED chips and sell the packaged product to distributors or end-customers. Our distributors resell our LED chips
either to packagers or to end-customers. We sell our LED chips to packagers and distributors. Our lighting product
customers consist primarily of ODMs of lighting products and the end-users of lighting devices 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 can keep 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 of marketing strategies, including participation in industry conferences and trade shows, to share
our technical message with customers, as well as public relations, industry research and online advertising.
Customers
We 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 0.14% and 2% of our revenues for the years ended August 31, 2021
and 2020, respectively.
We have historically derived a significant portion of our revenues from a limited number of customers. For
the years ended August 31, 2021 and 2020, our top ten customers collectively accounted for 82% and 83%,
respectively, of our revenues. Some of our largest customers and what we produce, or have produced, for them
have changed from quarter to quarter primarily as a result of the timing of discrete, large project-based purchases
and broadening customer base, among other things. For the years ended August 31, 2021 and 2020, sales to our
three largest customers, in the aggregate, accounted for 52% and 61% of our revenues, respectively. For the year
ended August 31, 2021, sales to Revlon, Inc. and INDEL Distribution B.V. accounted for 15% and 27% of our
total revenues, respectively. For the year ended August 31, 2020, sales to Revlon, Inc. and INDEL Distribution
B.V. accounted for 30% and 17% of our total revenues, respectively.
Our revenues are concentrated in a few select markets. We expect that our revenues will continue to be
substantially derived from these countries for the foreseeable future. Given that we are operating in a rapidly
changing industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial
results will be impacted by general economic and political conditions in these markets.
Intellectual Property
Our ability to compete successfully depends upon our ability to protect our proprietary technologies and
other confidential information. 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 protect our intellectual property, including our
proprietary technologies and trade secrets.
As of August 31, 2021, we had 111 patents issued and ten patents pending with the United States Patent
and Trademark Office covering various aspects of our core technologies. As of August 31, 2021, we also had 121
patents issued and three patents pending before patent and trademark offices outside the United States. Of these
232 issued patents, 112 expire between 2022 and 2026, 86 expire between 2027 and 2031, 32 expire between
2032 and 2038, and two expire after 2038. Fifty-four of our issued patents are design patents and one of our
pending patents is a design patent. We believe that factors such as the technological and innovative abilities of
our personnel, the success of our ongoing product development efforts and our efforts to maintain trade secret
protection are more important than patents in maintaining our competitive position. We pursue the registration of
certain of our trademarks in the United States, Taiwan and China and have 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 against any intellectual property infringement claims would likely
result in costly litigation and ultimately may lead to our not being able to manufacture, use or sell products found
to be infringing. Furthermore, other third parties may also assert infringement claims against our customers with
respect to our products, or our customers’ products that incorporate our technologies or products. Any such legal
action or the threat of legal action against us, or our customers, could impair such customers’ continued demand
for our products. This could prevent us from growing or
Table of Contents
4
even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our
financial condition and results of operations. See “Risk Factors— Risks Related to Our Business— Intellectual
property claims against us or our customers could subject us to significant costs and materially damage our
business and reputation.”
Research and Development
We focus our research and development efforts on our design methodology and process technology for our
LED products. We also focus on improving our production yields and increasing wafer sizes to lower our
production costs. Our research and development team work 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 partners
utilizing our vertical technology and our expertise in the manufacturing of LED components. We expect to be
continually engineering new products and systems, as well as enhancements to existing products, to meet the
needs of our customers. By leveraging the fabless business model, we expect to be able to minimize our own
research and development costs associated with chip products, increase the scale of our business without
increasing overhead and diversify our business risk among many sales channels.
Competition
We believe that our advanced technology helps us to compete in the innovative, intensely competitive and
rapidly changing market of LED design and manufacturing. To succeed, however, we must continue to
manufacture products that meet the demanding requirements of high performance at low costs. We do not account
for a significant percentage of the total market volume today, and we face significant competition 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 LED components, 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 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 against us with a relatively small segment
of their overall business. In addition, 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 developing semiconductor chips, which
is similar to the manufacturing process for LED chips and LED packaging. We are also aware of a number of
well-funded private companies that are developing competing products. We will also compete with numerous
smaller companies entering the market, some of whom may receive significant government incentives and
subsidies pursuant to government programs designed to encourage 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 and potential 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 UV LED 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 a highly aggressive pricing environment. Some of our competitors have in the past
reduced their average selling prices, and the resulting competitive 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.
Government Regulation
In our research and development and manufacturing processes, we use a variety of hazardous materials and
industrial chemicals. In each 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 laws and regulations are complex and
subject to constant change, with a tendency to become more stringent over time. Failure to comply with any new
or existing laws, whether intentional or inadvertent, could subject us to fines, penalties and other material liabilities
to the government or third
Table of Contents
5
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.
Human Capital Resources
Talent is the catalyst for our success. We are fortunate to have talented and outstanding employees. To
retain talented people who share our goals and interests, we work hard to cultivate a dynamic and enjoyable work
environment full of opportunities to learn new skills.
To that end, we aim to foster open communication between employees and management to create a sense
of community and a shared purpose. We stress teamwork, and we believe that high-performing teams are crucial
to our success. We encourage our employees to brainstorm, develop and refine new ideas to help us innovate and
achieve our goals.
We award each employee according to their contributions. We use performance-based awards, including
cash and equity such as stock options and restricted share units. We believe these equity awards create a sense of
ownership for the employee and furthers employee commitment to the company’s long-term vision, while
simultaneously helping to retain talented employees.
As of August 31, 2021, we had approximately 129 employees. All of our employees are based in Taiwan.
None of our employees are represented by a labor union. We consider relations with our employees to be good.
Financial Information about Geographic Areas
We derive a substantial portion of our revenue from product sales to international customers. For
information concerning geographic areas of our customers and geographic information concerning our long-lived
assets, see Note 11, “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 and transaction
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 Information
Our website is www.semileds.com. We make available free-of-charge through our website our Annual
Report on Form 10-K, quarterly reports 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 are electronically filed with or furnished
to the SEC. Our SEC reports can be accessed through the “Investors” section of our website. The information
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 on Form 10-K is available without charge to stockholders upon written request to: Investor
Relations, SemiLEDs Corporation, 3F, No.11 Ke Jung Rd., Chu-Nan Site, Hsinchu Science Park, Chu-Nan 350,
Miao-Li County, Taiwan, R.O.C.
6
Table of Contents
Item 1A. Risk Factors
A wide range of factors could materially affect our performance. The following factors and other
information included in this Annual 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 business operations. If any of the following risks
actually occur, our business, operating results, and financial condition could be adversely affected. 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 Business
The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our
businesses, and the duration and extent to which this will impact our future results of operations and overall
financial performance remains uncertain.
The novel coronavirus (“COVID-19”) pandemic and related restrictions have resulted in a widespread
health crisis that has adversely affected businesses, economies and financial markets worldwide, and has caused
significant volatility in U.S. and international debt and equity markets.
To date, we have not had to close any of our offices due to the pandemic. However, our business, financial
condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and
related restrictions. The conditions caused by the COVID-19 pandemic has adversely affected our customers’
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 of our offerings, and lengthened payment terms, all of which could adversely affect our future sales,
operating results and overall financial performance. Our operations have also begun to be negatively affected by
a range of external factors related to the COVID-19 pandemic that are not within our control. For example, our
largest customer, Revlon, Inc., postponed its regular orders, which is expected to decrease our sales revenue for
the quarter ended November 30, 2021, and potentially for future quarters if the COVID-19 pandemic continues.
While the potential economic impact of COVID-19 may be difficult to assess or predict, the pandemic has
resulted in significant disruption of global financial markets, and a recession or long-term market correction
resulting from the spread of COVID-19 could 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 accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and
effectiveness of containment actions and the impact of these and other factors on our employees, customers,
partners and vendors. If we are not able to respond to and manage the impact 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 to further downsize or discontinue operations.
We incurred net losses attributable to SemiLEDs stockholders of $2.9 million and $544 thousand for the
years ended August 31, 2021 and 2020, respectively. We can give no assurance that we will not continue to incur
net losses in future periods. Our revenue and operating results may continue to decline for a variety of reasons,
some of which are described elsewhere in this “Risk Factors” section and are beyond our control. As of August
31, 2021, we had an accumulated deficit of $181.2 million. Even though our cash and cash equivalents had
increased to $4.8 million at August 31, 2021, these facts and conditions raise substantial doubt about our ability
to continue as a going concern, and our independent registered public accounting firm has included an explanatory
paragraph regarding going concern qualification in its audit report. However, our management believes it has
liquidity plan, as further described in elsewhere in this annual report that if executed successfully should provide
sufficient liquidity to meet our obligations as they become due for a reasonable period of time. While we believe
that these liquidity plan measures will be adequate to satisfy our liquidity requirements for the twelve months
ending August 31, 2022, there is no assurance that the liquidity plan will be successfully implemented. Failure to
successfully implement the liquidity plan, including issuing convertible notes to certain of our directors, may have
a material adverse effect on our business, results of operations and financial position, and may adversely affect
our ability to continue as a going concern. If we do not become consistently profitable, our accumulated deficit
will grow larger and our cash balances will decline further, and we will require additional financing to continue
operations. Any such financing may not be accessible on acceptable terms, if at all. If we cannot generate sufficient
cash or obtain additional financing, we may be required to downsize 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 produce products 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 such contract 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.
While the COVID-19 pandemic did not have a material impact on our supply chain, it has the potential to
have a meaningful impact on our supply chain if the factories that produce our raw materials and components are
disrupted, temporarily closed or experience worker shortages. We may also see disruptions or delays in shipments
and negative impacts to pricing of certain products as a result of such disruptions.
Table of Contents
7
If these contract manufacturers fail to deliver products on time and at a satisfactory level of quality, we
could have difficulties fulfilling our customer orders and our net revenues could decline. If our contract
manufacturers were to become unable or unwilling to continue to manufacture our products at requested quality,
quantity, yields and costs, or in a timely manner, our business and reputation could be seriously harmed. As a
result, we would have to attempt to identify and qualify substitute manufacturers, which could be time consuming
and 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
products and enhancements to existing product lines.
Rapid change and technical innovation characterize the LED chips and components market. Our success
depends on the successful development, introduction, commercialization and acceptance of new products and
enhancements to existing product lines. We have made and continue to make significant investments in growth
initiatives. For example, beginning in 2017, we moved down the supply chain, supplying customers with full UV
LED lamp systems. We expect to continue our efforts at further research and development of innovative products.
We may need to spend more time and money than we expect to develop and introduce new products or
enhancements and, even if we succeed, these new products or enhancements 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
marketing efforts to sell or transition our customers to such new products or enhancements. Furthermore, once
introduced, new products may adversely impact sales of our older generation products, or make them less desirable
or even obsolete, and could adversely impact our revenues and operating results.
Our ability to successfully develop and introduce new products and product enhancements, and the revenues
and costs associated with these efforts, are affected by our ability to (i)properly identify customer needs, (ii)prove
the feasibility of new products, (iii)price our products 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 new products in a timely
manner and (vii)anticipate and compete successfully with competitors. Even if we are successful, if a customer
requires certain certifications for or new qualification process of our new products, the time when that customer
will actually purchase our products and 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 our ability 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 these distributors to service end-customers, and our failure to maintain strong working relationships
with such distributors could have a material adverse impact on our operating results and revenues from such
jurisdictions and damage our brand reputation. If we are unable to effectively develop and expand our distribution
channels, or do so in a timely manner, to ensure our products are reaching the appropriate customer base, our sales
and results of operations may be adversely impacted. In addition, if we successfully develop these channels, we
cannot guarantee that customers will accept our products or that we will be able to manufacture and deliver
products in the timeline established by our customers. We have attempted to direct our efforts to areas of business
where we see the best opportunity for the most profitable sales of our LED products, which includes primarily a
focus on the UV LED market segment and placing a greater emphasis on the sale of LED components in selected
markets where pricing pressure is significant, and pursuing new market opportunities that leverage our core
competencies. We are now focused on developing as an end-to-end LED module solution supplier by providing
our customers with high quality, flexible and more complete LED system solution, customer technical support
and LED module/system design, as opposed to just providing customers with individual components. Continual
introductions of new products and solutions, services, and enhancement of existing products and services, and
effective servicing of customers are key to our competitive strategy. We also work to develop relationships with
a select number of our customers to develop relationships which would continue to enhance our component
product growth 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 distribution channels 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 our products. Therefore, the reputation and performance of our distributors and the ability and
willingness of our distributors to sell our products, uphold our brand reputation for quality, by providing, for
example, high quality service and pre- and post-sales support, and their ability to expand their businesses and their
sales channels are essential to the future growth of our business and has a direct and material impact on our sales
and profitability in such jurisdictions. Also, as with our individual customers, we do not have long-term purchase
commitments from our distributor customers, and they can therefore generally cancel, modify or reduce orders
with little or no advance notice to us. As a result, any reductions or delays in, or cancellations of, orders from any
of our distributors may have a negative impact on our sales and budgeting process.
In addition, we have entered and may from time to time enter into exclusivity or other restrictions or
arrangements of a similar nature as part of our agreements with our distributors. Such restrictions or arrangements
may significantly hinder our ability to sell additional products, or enter into agreements with new or existing
customers or distributors that plan to sell our products, in certain markets, which may 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 are able to provide better incentives to distributors, which may result in reduced sales of
our products or the loss of our distributors. The loss of any key distributor may force us to seek replacement
distributors, and any resulting delay may be disruptive and costly.
Table of Contents
8
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. Increased competition could result in increased pricing pressure, reduced profit margins, increased sales
and marketing expenses, and failure to increase, 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 the rate of decline of our average
selling prices. To address increased pricing pressure, we have improved and increased our production yields to
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 LED components, 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 against us
with a relatively small segment of their overall business. In addition, several large and well-capitalized
semiconductor companies, such as Samsung and LG Innotek, have entered into the LED chip and UV market.
These potential competitors have extensive experience in developing semiconductor chips, which is similar to the
manufacturing process for LED chips and LED packaging. We are also aware of a number of well-funded private
companies that are developing competing products. We will also compete with numerous smaller companies
entering the market, some of whom may receive significant government incentives and subsidies pursuant to
government programs designed to encourage the use of LED lighting and to establish LED-sector companies. For
example, the Chinese government subsidizes equipment costs, which enables manufacturers in China to remain
price competitive and make it very difficult for foreign companies to compete.
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 potential customers, greater name recognition, larger customer
bases and greater government incentives and support. In addition, some of our competitors have been in operation
much longer than we have and therefore may have more long-standing and established relationships with 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 products to meet customer needs. However, our competitors may be able to develop more
competitive products, respond more quickly to new or emerging technologies, offer comparable products at more
competitive prices or bring new products to the market earlier. Any failure to respond to increased competition in
a timely or cost-effective manner could have a material adverse effect on our business, financial condition, 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 and potential customers.
We derive our revenues mainly from the sales of our LED components. Our inability to grow our revenues
generated from the sales of LED 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 LED components represented 69% and 65% of our revenues for the years ended August 31, 2021 and
2020, respectively. Revenues attributable to the sale of LED lighting products accounted for 15% and 9% of our
revenues for the years ended August 31, 2021 and 2020, respectively. We expect to continue to generate our
revenues mainly from the sales of LED components for the foreseeable future. As such, the continued market
acceptance of our LED components is critical to our continued success. Our inability to grow our revenues
generated from the sales of LED components 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 result in 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 of operations. Our industry, akin to the semiconductor industry, is highly cyclical and
characterized by rapid technological change, rapid product obsolescence, declining average selling prices and
wide fluctuations in supply and demand. Our industry’s cyclicality results from a 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
performance improvements; 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 increasing our capacity levels, we may not be able to achieve our financial targets.
Alternatively, as market demand decreases or as market supply surpasses demand, we may not be able to reduce
manufacturing expenses or overhead costs proportionately. If an increase in supply outpaces the increase in market
demand, or if demand decreases, the resulting oversupply could adversely impact our sales and result in the
underutilization of manufacturing capacity, high inventory levels, changes in revenue mix and rapid price erosion,
which would lower our margins and adversely impact our financial results. For example, over the past few years,
we recorded significant excess capacity charges as we suffered from underutilization of our manufacturing
capacity as a result of a decrease in customer demand, and significant write-downs of inventories as a result of a
decline in their average selling prices. We may experience similar problems in the future, and we cannot predict
when they may occur or the severity of such difficulties and the impact on our margins and operating results.
Table of Contents
9
Our ongoing cost and capital expenditure reduction efforts may not be effective, might have unintended
consequences, and could negatively impact our business.
We have implemented certain actions to accelerate operating cost reductions and improve operational
efficiencies in response to changes in the economic environment, our industry and demand. In connection with
the implementation of our cost and capital expenditure reduction programs, we developed a strategic plan to
address areas of business where we see the best opportunity for the most profitable sales of our LED products,
which includes primarily a focus on the UV LED market segment and placing a greater emphasis on the sale of
LED components in selected markets where pricing pressure is less significant, and pursuing new market
opportunities that leverage our core competencies. We continue to monitor prices and, consistent with our existing
contractual commitments, may decrease our activity level and capital expenditures further. This plan reflects our
strategy of controlling capital costs and maintaining financial flexibility. We also disposed of a certain level of
our idle equipment to reduce the excess capacity charges that we have suffered for many years. In addition, to
provide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, we reduced
our capital expenditures as appropriate. The cost reduction plan is further enhanced through the fabless business
model in which we implemented certain workforce reductions and have sold certain patents that we were no longer
actively developing and are exploring the opportunities to consign or sell certain equipment related to the
manufacturing of vertical LED chips, in order to reduce the idle capacity charges, minimize our research and
development 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 expose us to legal claims against us and loss of necessary human
resources. If we face costly employee or contract termination claims, our operations and prospects could be
harmed. Furthermore, capital expenditure reduction could adversely impact our future sales. While our cost and
capital expenditure reduction efforts reduced, or are expected to reduce, our operating costs as well as capital
expenditure, we cannot be certain that all efforts will be successful or that we will not be required to implement
additional actions to structure our business to 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 and adversely affected.
As part of our growth strategy, we plan to continue to be innovative in product design, to deliver new
products and improve our manufacturing efficiencies. In particular, as the LED industry develops and technical
specifications and market standards change, we must continue to innovate and develop competitive products that
are accepted by the marketplace. Our existing or potential customers could develop, or acquire companies that
develop, products or technologies that may render our products or technologies obsolete or noncompetitive. Our
future success depends on our ability to develop and introduce new, technologically advanced and lower cost
products, 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 evolving technological standards and market development, we may
experience reduced market share and our ability to compete may be adversely impacted. If we are unable to
execute our product innovation strategy effectively, we may not be able to take advantage of market opportunities
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, our prospects 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 on to focus on industrial UV applications. If LED lighting does not achieve widespread
acceptance and adoption, or if demand for LED products 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 of light 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 technology because 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, or HID, lighting devices, and
may perceive risks relating to the complexity, reliability, quality, usefulness and cost-effectiveness of LED
products. Even if LED lighting continues to achieve performance improvements and cost reductions, limited
customer awareness of the benefits of LEDs, lack of widely accepted standards governing LED lighting and
customer unwillingness to adopt LEDs in favor of entrenched solutions could significantly limit the demand for
LED products. Additional factors that may limit the adoption of LEDs for general lighting include, among others:
•
•
•
a significant reduction in or discontinuation of government regulations and economic incentives to
promote the development of the 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 example declining 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 during economic downturns.
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 sell and the utilization of our manufacturing capacity in any given period, among other
things. For example, as a strategic plan, we placed greater emphasis on the sales of LED components rather than
the sales of LED chips where we have been forced to cut prices on older inventory. In 2019, sales continued to
decrease but sales contributed by LED components increased, compared to 2018, which resulted in an increase in
Table of Contents
10
gross margin. In both 2020 and 2021, sales and gross margin both increased due to other revenues rather than
LED components. We intend to continue to pursue opportunities for profitable growth in areas of business where
we see the best opportunity for our UV market, focus on product enhancement and developing our UV LED into
many other applications or devices. As we expand and diversify our product offerings and with varying average
selling prices, or execute new business initiatives, a change in the mix of products that we sell in any given period
may increase volatility in our revenues and gross margin from period to period.
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 caused us to similarly reduce our
prices, accelerating the decline in the gross margin of our products. We anticipate our competitors will continue
to implement such competitive strategies from time to time in the future. Our introduction of new LED component
products, such as the LED components that incorporate EV or UV LED chips may further reduce the selling prices
of our older generation products or render them obsolete.
We rely on a limited number of key suppliers for certain key raw materials and equipment. The loss of key
suppliers may have a material 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 of our products as well as a very limited number of manufacturers of equipment that
are critical to our operations. We generally enter into spot purchase orders with our suppliers and do not have
long-term or guaranteed supply arrangements with any of them. For example, we purchase Red or IR LED chips,
the key material used in the manufacture of our LED components, from a limited number of suppliers. A major
shortage 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 constraints do not currently have an impact on our ability to procure supply, supply constraints
have occurred in the past and may occur again from time to time in the future. Additionally, we use metals such
as copper alloy and other commodities in our manufacturing process. The price volatility of such materials may
make our procurement planning challenging. If the prices of materials increase it may adversely affect our
operating margins. Although these materials are generally available and are not considered to be specialty
chemicals, our inability to procure such materials in volumes and at commercially reasonable prices could result
in a material adverse effect on our business, financial condition 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 supplies from other sources on a timely basis or on commercially reasonable terms and our
production may be delayed or interrupted, which could impair 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 invest substantially if we are to grow. This will mean having to continually expand our
production capacity or upgrade our production facilities as we deem appropriate under future market conditions
and future customer demand. Such investment could take time to become fully operational, and could otherwise
increase our costs, and we may not be able to execute quickly to take advantage of market opportunities as they
arise.
Upgrading or expanding existing facilities could result in manufacturing problems that may reduce our
yields and utilization rates below our target levels. For example, we have experienced difficulties in the past in
achieving acceptable yields when we moved our manufacturing facilities to a new location and when we
introduced new products or new manufacturing processes, which has adversely affected our operating results.
Upgrading or expanding production facilities or capacity requires a significant amount of fixed cost since
it requires us to add and purchase manufacturing lines, equipment and additional raw materials and other supplies.
If we are not able to recoup these costs through increased 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 and disproportionate impact on us.
Our revenues are highly concentrated in a few select markets, including the Netherlands, Taiwan, the United
States, Germany, Japan and India. Net revenues generated from sales to customers in the Netherlands, Taiwan,
the United States, Germany, Japan and India, in the aggregate, accounted for 83% and 90% of the Company’s net
revenues for the years ended August 31, 2021 and 2020, respectively. As a result of the concentration of our
revenues in these markets, economic downturns, changes in governmental policies and increased competition 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.
Variations in our production yields and limitations in the amount of process improvements we can implement
could impact our ability to 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 our production 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;
11
Table of Contents
•
•
•
•
•
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 commercialization stage. LED chip and component manufacturing is complicated and consists of many
layers of complex materials that must interact with each other. In addition, when we introduce new products and
processes we often use new chemical solutions and chemical compounds with which we have less experience. We
must analyze how the various solutions, compounds and layers of materials interact with each other and perform
as parts of the LED chip structure. It takes time for us to analyze the data from our initial manufacturing runs and
optimize our processes, and over time we generally achieve higher yield rates as we gain more experience with
the product or processes. We have continuously improved and increased our production yields to reduce the per-
unit cost of production for our new LED components that incorporate EV or UV LED chips; however, such cost
savings currently have limited impact on our gross profit, as we currently suffer from the underutilization of
manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. In the past, we have
experienced difficulties in achieving acceptable yields when introducing new products or new manufacturing
processes, which has adversely affected our operating results. We may experience similar problems in the future,
and we cannot predict when they may occur or the 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 cost efficiencies from other production advances. Failure to achieve these planned improvements or
advances could significantly affect our margins and operating results.
We may face challenges further expanding our LED components business. In addition, our strategy of
marketing our LED components in jurisdictions with limited intellectual property enforcement regimes may
limit the markets where we can sell our LED components and 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, because it involves processes and technologies that are significantly different from our
manufacturing processes for LED chips. For example, we are developing advanced-level LED component
manufacturing techniques, such as processes that allow us to manufacture wafer-level packaging. If we are not
able to further develop our LED components business or if competitors create or adopt more advanced packaging
technologies 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 the highest demand or market potential. The intellectual property rights related to LED
components are particularly complex and characterized by aggressive enforcement of those rights. To minimize
the likelihood that one of our competitors or another third party will assert a claim related to our LED components,
we have sought to market these products only in countries in which we believe enforcement of intellectual property
rights has historically been more limited as identified below and to ensure the new line of LED products are not
subject to any effective 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 and thereby have a negative impact on our
continued development and growth. We do not currently sell our LED components in all countries that meet, what
we believe to be, an acceptable litigation risk profile. We review profiles of different countries and may determine
from time to time that we should sell our products in one or more additional countries that meet our litigation risk
profile for sale of our LED components. However, we may not be able to identify additional countries that we
find to be suitable markets for these products. We have considered the potential loss of revenues and income that
we may suffer as a result of our strategy to sell only in certain select countries and 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
property rights, including our patents, to infringement by others. With respect to any potential infringement of our
patents and other intellectual property rights by others in countries where we currently sell our LED components,
we have considered the potential loss of revenues and income that we may suffer associated with such sales and
have made a business judgment that the benefits outweigh any potential loss. In addition, if the countries in which
we currently sell our LED components increase their enforcement of intellectual property rights, the risk of
litigation would materially increase and our ability to continue to sell our LED components in these markets may
be materially and adversely affected. Sales of our LED components and our other products may also be limited in
the event that they are subsequently shipped or otherwise resold in a country and a claim is brought against us or
our customer pursuant to the intellectual property laws of the country of final destination.
As we continue to operate in the lighting fixtures market, we may face additional competition and our existing
customers may reduce orders.
As we continue to operate in the lighting fixtures market and seek to increase our sales of lighting products
in the future, we may face competition from fixtures and bulbs manufactured and marketed by other LED lighting
fixture companies and from lighting products incorporating incandescent, fluorescent, halogen, ceramic metal
halide or other lighting technology. In addition, many of our existing customers who purchase our LED chips and
LED components develop and manufacture lighting fixtures using those chips and components. As we continue
to operate in that market, our customers may respond by reducing or discontinuing their orders for our products.
This could prevent us from growing or even maintaining our revenues from the sale of LED chips and LED
components, which would negatively impact our 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 assert an intellectual property right related to our lighting fixtures, we have sought to
market these products only in countries in which we believe enforcement of intellectual property rights has been
more limited. Our sales of lighting products to customers in the United States decreased
Table of Contents
12
significantly in recent years. This distribution strategy may limit our sales to countries that do not have the highest
demand or market potential, and raise similar issues and risks to those raised with respect to our use of this strategy
in connection with marketing our LED components.
We derive a significant portion of our revenues from a limited number of customers, including distributor
customers, and generally do not enter into long-term customer contracts. The loss of, or a significant reduction
in purchases by, one or more of these customers, or the 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 distributor customers. For the years ended August 31, 2021 and 2020, our top ten customers collectively
accounted for 82% and 83%, respectively, of our revenues. Some of our largest customers and what we
produce/have produced for them have changed from quarter to quarter primarily as a result of the timing of
discrete, large project-based purchases and broadening customer base, among other things. For the years ended
August 31, 2021 and 2020, sales to our three largest customers, in the aggregate, accounted for 52% and 61% of
our revenues, respectively.
The sales cycle from initial contact to confirmed orders with our customers is typically long and
unpredictable. We typically enter into individual purchase orders with large customers, which can be altered,
reduced or cancelled with little or no notice to us. We do not generally enter into long-term commitment contracts
with our customers. As such, these customers may alter their purchasing behavior and reduce or cancel orders
with little or no notice to us. Consequently, any one of the following events may cause material fluctuations or
declines 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 are not 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 our customers’ end-products that incorporate our LED products and our customers’
ability to sell these products. The general lighting market has only recently begun to develop and adopt standards
for fixtures that incorporate LED devices. If the end-customers for our products are 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 as UV 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 products are generally dependent on their ability
to develop high quality and highly efficient lighting products and require complex designs and processes, including
thermal design, optical design and power conversion. We are making a transition to develop as an end-to-end LED
module solution supplier by providing our customers with high quality, flexible and more complete LED system
solution, customer technical support and LED module/system design, as opposed to just providing customers with
individual components. Our customer’s timely and successful product development, the success of our customers’
new product introductions and market acceptance could be materially and adversely 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 sterile environment 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 may still contain defects that are undetected
until after they are shipped or inspected by our customers, or on operation of the device. For example, there could
be sub-micron defects that would not be detected by our quality control procedures; such sub-micron defects may
increase the current leakage in the device and could negatively affect the product performance over time.
Unsatisfactory performance of or defects in our products may cause us to incur additional expenses, including
costs in relation to product warranties, cancellation and rescheduling of orders and shipments, and product returns
or recalls. Failure to detect and rectify defects in our products before delivery could subject us to product liability
claims and harm our credibility and market reputation, which could materially adversely affect our business and
results of operations.
In addition, we do not currently have fully automated manufacturing processes, which could potentially
introduce contaminants to the production processes through human error. Defects or other difficulties in the
manufacturing process can prevent us from achieving maximum capacity utilization, which is the actual number
of wafers that we are able to produce in relation to our capacity, and also can prevent acceptable yields of quality
LED chips from those wafers.
Our operations involve the use of hazardous materials and we must comply with environmental laws, which
can result in significant costs, and may affect our business and operating results.
Our research and development and manufacturing activities involve the use of hazardous materials,
including acids, adhesives and other industrial chemicals. As a result, we are subject to a variety of environmental,
health and safety laws and regulations governing the use, storage, handling, transportation, emission, discharge,
exposure to, and disposal of such hazardous materials. Compliance with applicable environmental laws and
regulations in each of the jurisdictions in which we operate can be costly, and there can be no assurance that
violations of these laws will not occur in the future as a result of human error, accident, equipment failure, or other
causes. Liability under environmental and health and safety laws can be joint and several, and without regard to
fault or negligence. The failure to comply with 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 adverse publicity. Any of these events could
harm our business and financial condition.
Table of Contents
13
Furthermore, environmental protection and workplace safety regulations may become more stringent in the
future, and although we cannot 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 abatement or remediation
equipment, modify our product designs or incur other expenses associated with such laws and regulations. As our
industry continues to evolve, we may be required to evaluate and use new materials in our manufacturing process
that may be subject to regulation under existing or future environmental laws and regulations, and our use of such
new materials may be restricted. Any such restriction could require us to alter our manufacturing processes or
increase our expenses. If we fail to comply with current and future environmental laws and regulations, whether
intentional or inadvertent, we may be required to pay fines and other liabilities to the government or third parties,
suspend production or even cease operation.
Risks Relating to Intellectual Property
We may be exposed to intellectual property infringement or misappropriation claims by third parties, which
could adversely affect our financial 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 designs among others. Competitors of ours and other third parties
have in the past and will likely from time to time in the future allege that our products 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 of third-party intellectual property rights can be highly uncertain because of the complex
scientific, legal and factual questions and analyses involved. Defending against any intellectual property
infringement claims would likely result in costly litigation, diversion of the attention and efforts of our technical
and management personnel and ultimately may lead to our not being able to manufacture, use or sell products
found 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 and advertising activities or take other actions to resolve the claims. These
actions, if required, may be costly or unavailable on terms acceptable to us. If we are unable to obtain sufficient
rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely basis,
our business and competitive position may be adversely affected. For example, although we and Cree executed a
settlement agreement providing for dismissal of our amended complaints against each other without prejudice, we
agreed to the entry of a permanent injunction that was effective October 1, 2012 that precludes us from (and/or
from assisting others in) making, using, importing, selling and/or offering to sell in the United States certain
accused products and/or any device that includes such an accused product after that date 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 particularly complex and characterized by aggressive enforcement of those rights. Many of our
competitors and other third parties hold patents or licenses or cross-licenses that relate to phosphors and the use
of phosphors in LED packages to make white light LED components. We have sought to minimize the risk that
one of our competitors or another third party will assert a claim related to our packaged LED components by
marketing these products only in certain countries in which we believe enforcement of intellectual property rights
has historically been more limited. We cannot assure you that our belief with respect to the enforcement of rights
within those markets is accurate. In addition, if the products we sell in a particular country are subsequently
shipped or resold to another country, the intellectual property laws of the country of final destination may also
apply to our products. Further, we may be subject to claims if our packaging customers for our LED chips lack
sufficient intellectual property rights with respect to their packaging process and related packaging materials. We
cannot assure you that our competitors or others will not claim that our LED chips or our LED components infringe
their intellectual 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 and materially 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 our customers’ products that incorporate our technologies or products, and any such legal
action or the threat of legal action against us, or our customers, 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 property infringement claims involving the sale or use of our products. There can be no assurance
that we will be successful in defending these claims. 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 or misappropriation by our competitors, the value of our brand and other intangible
assets may be diminished, and our business may be materially 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 proprietary technologies 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 that are critical to our
business. We rely, and expect to continue to rely, on a combination of confidentiality and license agreements with
our employees, licensees, partner and third parties with whom we have relationships, and trademark, copyright,
patent and trade secret protection 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 our technologies and know-how. However, we will only be able to protect
such technologies and know-how from unauthorized use by third parties to the extent
Table of Contents
14
that valid, protectable and enforceable rights cover them. We cannot be certain that our patent and trademark
applications will lead to patents being issued and registered trademarks being granted in a timely manner, or at
all. Even if we are successful in obtaining such rights, the intellectual property laws of other countries in which
our products are sold or may in the future be sold may not protect our products and intellectual property rights to
the same extent as the laws of the United States. For example, China currently is thought to afford less protection
to intellectual property rights generally than some other jurisdictions. As such, the lack of strong patent and other
intellectual property protection in China may significantly increase our vulnerability as regards unauthorized
disclosure or use of our intellectual property and undermine our competitive position. The legal standards relating
to the validity, enforceability and scope of protection of intellectual property rights in LED-related industries are
uncertain and still evolving, both in the United States and in other countries. Moreover, the contractual agreements
that we enter into with employees, licensees and third parties to protect our intellectual property and proprietary
rights afford only limited protection and may not been enforceable.
We also expect that the more successful we are, the more likely it will be that competitors will try to develop
or patent similar or superior 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 technologies and/or our other intellectual property and
proprietary rights may undermine our competitive position. In addition, third parties may knowingly or
unknowingly infringe our trademarks and other intellectual property rights, and litigation may be necessary to
protect and enforce our intellectual property rights or determine the validity and scope of our proprietary rights.
Any such litigation could be very costly and could divert management attention and resources away from our
business, and the outcome of such litigation may not be in our favor. If the protection of our intellectual property,
including our proprietary technologies and trade secrets, is inadequate to prevent use or appropriation by third
parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more
effectively mimic our products and methods of operation. Any of these events may have a material adverse effect
on our business, financial condition, 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 to monetize 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 be strategic in our decisions to sell
patents, we might incur reputational harm if a purchaser of our patents sues one of our customers for infringement
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 proprietary information.
To protect a substantial amount of our technologies, we have chosen to rely primarily on trade secrets law
rather than seeking protection through patents. Trade secrets are inherently difficult to protect. In order to protect
our intellectual property rights, including our proprietary 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. While we believe we use reasonable efforts to protect our trade secrets, we could potentially lose
future trade secret protection if any unintentional or willful disclosure by our directors, employees, consultants or
contractors of such information occurs, including disclosure by employees during or after the termination of their
employment with us, in particular if they were to join one of our competitors. Laws regarding trade secret rights
in certain markets in which we operate may afford little or no protection. The loss of trade secret protection could
make it easier for third parties to compete with our products by copying functionality. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain trade secret protection could adversely 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 certain countries 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 either directly promote the use of LEDs or discourage the use of some traditional lighting
technologies. Today, the upfront cost of LED lighting exceeds the upfront cost for some traditional lighting
technologies that provide similar lumen output in many applications. However, for environmental reasons, among
others, some governments around the world have used policy initiatives to accelerate the development and
adoption of LED lighting and other non-traditional lighting technologies that are seen as more environmentally-
friendly compared to some traditional lighting technologies. Reductions in, or eliminations of, government
investment and favorable energy policies could result in decreased demand for our products and decrease our
revenues, profits, margins and prospects.
Risks Related to Human Capital
We rely on certain key personnel. The loss of any of our key personnel, or our failure to attract, assimilate and
retain other highly qualified 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 key employees.
If Mr. Doan or other key personnel were unable or unwilling to continue in their present positions, we may
not be able to replace them readily 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 our management team and certain of our key marketing, sales,
product development or technology personnel, could significantly disrupt our operations and prevent the timely
achievement of our development strategies and growth, which would likely have an adverse effect on our financial
condition, operating results and prospects. Moreover, we may lose some of our customers if any of our officers
or key employees
Table of Contents
15
were to join a competitor or form a competing company. The loss of the services of our senior management for
any reason could adversely affect 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 our business may aggravate this problem. For example, the
challenges we faced in recent years relating to loss of market share and a sustained decrease in the market price
of our common stock, among others, could impact our ability to attract and retain employees. When consumer
demand for our products is reduced or delayed, we expect lower net revenue and reduced profitability. When our
stock price declines, our equity 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 salary reductions. Layoffs during an industry
downturn could make it more difficult for us to retain key talent and staff members, or to rehire employees should
business improve.
Risks Related to Taxation
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 corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires
companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is
payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free to
U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s
deductions for payments to the subsidiaries. Our provisional estimate is that no tax will be due under this provision.
However, there can be no assurance as to accuracy of the estimation. If the ultimate determination of the Company’s
taxes owed is for an amount in excess of amounts previously accrued, the Company’s financial condition, operating
results and cash flows could be materially adversely affected.
General Risks
Our operating results may fluctuate from quarter to quarter, which could make our future performance
difficult to predict and could cause our operating results for a particular period to fall below expectations,
resulting in a severe decline in the price of our common stock.
Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have
experienced seasonal and quarterly 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 our customers’ competitors;
timing of orders from and shipments to major customers and end-customers, including as part of LED
project-based orders, and our 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 future performance, and our actual revenue and operating results in future quarters may fall
short of the expectations of investors and financial analysts, which could have a severe adverse effect on the
trading price of our common stock.
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 the price 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 of our common stock could be subject to wide fluctuations in response to various risk
factors listed in this section and others beyond our control, 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 performance of 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 our announcement 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.
16
Table of Contents
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected
and continue to affect the market prices of equity securities of many companies. These fluctuations often have been
unrelated or disproportionate to the operating performance of those companies. These broad market and industry
fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes
or international currency fluctuations, may cause the market price of shares of our common stock to decline. In the
past, companies that have experienced volatility in the market price of their stock have been subject to securities
class action litigation. We had ever been a defendant in two filed actions and may be the target of this type of litigation
in the future. 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.
We do not anticipate paying any cash dividends on our common stock and, consequently, your ability to achieve
a return on your investment 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 so for the foreseeable future. We currently intend to invest our future earnings, if any, to
fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable
future and the success of an investment in shares of our common stock will depend upon future appreciation in
their value. There is no guarantee that shares of our common stock will appreciate in value or maintain the price
at which our stockholders purchased their shares.
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, class action lawsuits, employment claims and other litigation claims. Any such litigation, whether
with or without merit, could result in significant costs. 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 and diversion of attention and
resources, along with any reputational issues raised by these lawsuits, may have a material negative impact on our
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 such assessment could result in a loss of investor confidence in our financial reports,
significant expenses to remediate any internal control deficiencies 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 our internal control over financial reporting in our annual report on Form 10-K. Our testing
may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses,
which we will be required to disclose. Our compliance with Section 404 requires that we incur substantial
accounting expenses and expend significant management resources and time on compliance related issues. If we
are unable to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in
our internal controls over financial reporting that are deemed to be material weaknesses, we may be subject to
sanctions or investigations by regulatory agencies such as the SEC. In addition, failure to meet the requirements
of Section 404 or to disclose any material weakness may cause investors to lose confidence in our financial
statements and the trading price of our common stock may decline. Moreover, if we fail to remedy any material
weakness, our financial statements may be inaccurate, our ability to report our financial results on a timely and
accurate basis may be adversely affected, our access to the capital markets may be restricted, we may be subject
to sanctions or investigation by regulatory authorities, including the SEC and The Nasdaq Stock Market, or
Nasdaq, and our stated results of operations and reputation may be materially and adversely affected.
Cost-method investments could reduce our earnings.
Some of our investments are accounted for under the equity method of accounting, which we record our
proportionate share of their net income or loss, or using the cost method. However, they must also be tested for
impairment. For the investments we account for under the equity method or the cost method, the impairment test
considers whether the fair value of the equity investment as a whole, not the underlying net assets, has declined
and whether that decline is other than temporary. If we determine that impairment is indicated, 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 well as 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 strategic opportunities as they arise, including product, technology, business or asset transactions,
such as acquisitions or divestitures. Such undertakings may not be successful or may take a substantially longer
period than initially expected to become successful, and we may never recover our investments or achieve desired
synergies or economies from these undertakings.
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 activities involve challenges and risks in negotiation, execution, valuation and
integration, and closing of the transactions could be delayed or prevented by regulatory approval requirements,
including antitrust review, or other conditions.
Table of Contents
17
Any future agreements that we may enter into also could expose us to new operational, regulatory, market,
litigation and geographical risks as well as risks associated with significant capital requirements, the diversion of
management and financial resources, unforeseen operating difficulties and expenditures, sharing of proprietary
information, loss of control over day-to-day operations, non-performance by a counterparty and potential
competition and conflicts of interest. In addition, we may not be successful in finding suitable targets on terms
that are favorable to us, or at all. Even if successfully negotiated and closed, expected synergies from a joint
venture, acquisition or other strategic alliance may not materialize or may not advance our business strategy, may
fall short of expected return-on-investment targets or may not prove successful or effective for our business. We
may also encounter difficulty integrating the operations, personnel and financial and 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 such acquisitions. 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 in additional operating and financing
covenants, or liens on our assets, that would restrict our operations. The sale of additional equity securities, 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 purchase agreement.
Risks Relating to Our Holding Company Structure
Our 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 fund and 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 tax under Taiwan law. The ability of our subsidiaries in Taiwan to pay dividends, repay
intercompany loans from us or make other distributions to us is restricted by, among other things, the availability
of funds, the terms of various credit arrangements entered into by our subsidiaries, as well as statutory and other
legal restrictions. In addition, although there are currently no foreign exchange control regulations that restrict the
ability of our subsidiaries located in Taiwan to distribute dividends to us, we cannot assure you that the relevant
regulations will not be changed and that the ability of our subsidiaries to distribute dividends to us will not be
restricted in the future. A Taiwan company is generally not permitted to distribute dividends or to make any other
distributions to stockholders for any year in which it did not have either earnings or retained earnings (excluding
reserves). In addition, before distributing a dividend to stockholders following the end of a fiscal year, the
company must recover any past losses, pay all outstanding taxes and set aside 5% of its annual net income (less
prior years’ losses and outstanding taxes) as a legal reserve until the accumulated legal reserve equals its paid-in
capital, and may set aside a special reserve.
Our ability to operate our holding company in the U.S. is dependent on Taiwan SemiLEDs’ ability to repay its
obligations to SemiLEDs Corporation.
SemiLEDs Corporation has substantial intercompany receivables from Taiwan SemiLEDs. However, we
are dependent on Taiwan SemiLEDs’ ability to raise money through the sale of a portion of its subsidiary and the
restructuring of its chip operation to pay back SemiLEDs Corporation. On July 5, 2019, Taiwan SemiLEDs
entered into two new loan agreements to refinance existing real estate loans of Taiwan SemiLEDs and provide
for operating capital.
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 SemiLEDs requires the approval of the relevant Taiwan authorities, such as the Hsinchu Science Park
Administration. We may not be able to obtain any such approval in the future in a timely manner, or at all. We
cannot assure you that we will be able to complete these government registrations or obtain the government
approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our subsidiaries
or any of their respective subsidiaries. If we fail to complete these registrations or obtain the approvals, our ability
to capitalize Taiwan SemiLEDs may be negatively affected, which could adversely and materially affect our
liquidity and our ability to fund and expand our business.
The rights of stockholders may be limited as we conduct a substantial portion of our operations in Taiwan and
a substantial portion of our 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 Taiwan SemiLEDs and its subsidiaries. As such, a substantial portion of our assets are located in Taiwan.
In addition, substantially all of our directors and officers reside outside the United States, and a substantial portion
of the assets of those persons are located outside of the United States. Therefore, it may be difficult or impossible
for you to bring an action against us or against these individuals in the United States in the event that you believe
that your rights have been infringed under applicable securities laws or otherwise. Even if you are successful in
bringing an action, the laws of Taiwan may render you unable to enforce a United States judgment against our
assets or the assets 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, the Taiwan court in which the enforcement is sought must be satisfied that: the foreign court
rendering such judgment has jurisdiction over the subject matter in accordance with the Taiwan law; the judgment
and the court procedure resulting in the judgment are not contrary to the public order or good morals of Taiwan;
the judgment is a final judgment for which the period for appeal has expired or from which no appeal can be
taken; if the judgment was rendered by default by the foreign court, the defendant was duly served in the
jurisdiction of such court within a reasonable period of time in accordance with the laws and regulations of such
jurisdiction, or process was served on the defendant with the Taiwan judicial assistance; and judgment of Taiwan
courts is recognized and enforceable in the foreign court rendering the judgment on a reciprocal basis.
Table of Contents
18
Political, Geographical and Economic Risks
Due to the location of our operations, we are vulnerable to natural disasters and other events, which may
seriously disrupt our operations.
Most of our operations are located in Taiwan, and the operations of many of our LED manufacturing service
providers, suppliers and customers are located in Taiwan and the PRC. For the both years ended August 31, 2021
and 2020, 10% of our revenues were derived from customers located in Taiwan and China (including Hong Kong).
Our operations and the operations of our customers and suppliers are vulnerable to earthquakes, tsunamis, floods,
droughts, typhoons, fires, power losses and other major catastrophic events, including the outbreak, or threatened
outbreak, of any widespread communicable diseases. Disruption of operations due to any of these events may
require us to evacuate personnel or suspend operations, which could reduce our productivity. Such disasters may
also damage our facilities and equipment and cause us to incur additional costs to repair our facilities or procure
new equipment, or result in personal injuries or fatalities or result in the termination of our leases and land use
agreements. Any resulting delays in shipments of our products could also cause our customers to obtain products
from other sources. Although we maintain property insurance for such risks, there is no guarantee that future
damages or business losses from earthquakes and catastrophic other events will be covered by such insurance,
that we will be able 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 of our customers and suppliers, resulting in reduced
orders or shipments or the inability to perform contractual obligations. The occurrence of any 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 PRC government claims that it is the sole government in China and that Taiwan is part of China.
Although significant economic and cultural relations have been established during recent years between Taiwan
and the PRC, the PRC government has refused to renounce the possibility that it may at some point use force to
gain control over Taiwan. Furthermore, the PRC government adopted an anti-secession law relating 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 States government. Any tension between the Taiwan government and the PRC government, or
between the United States and China, could materially 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 denominated fluctuate 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, the NT 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 we are affected by fluctuations in exchange
rates among the U.S. dollar, the NT dollar and other currencies. For example, the announcement of Brexit caused
severe volatility in global currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar
against foreign currencies in which we conduct business. Any significant fluctuation in exchange rates may be
harmful to our financial condition and results of operations.
The PRC government’s control of currency conversion and changes in the exchange rate between the
Renminbi and other currencies could 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, the remittance of currency out of China. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, interest payments and expenditures from trade
related transactions, can be made in foreign currencies without prior approval from 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 to pay capital expenses such as the repayment of loans denominated in foreign
currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for
current account transactions. Our revenue from sales in China (including Hong Kong) accounted for 7% and 4%
of our revenues for the years ended August 31, 2021 and 2020, 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 bribery or making other prohibited payments to foreign officials for the purpose of
obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent
our transactions and have an adequate system of internal accounting controls. Foreign companies, including some
that may compete with us, may not be subject to these prohibitions, and therefore may have a competitive
advantage. In the past, there have been instances of corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices in Taiwan and China, as well as other Asian countries and Russia. We cannot assure that our
employees or other agents will not engage in such conduct and render us responsible under the FCPA. If our
employees or other agents are found to have engaged in corrupt or fraudulent business 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 Stock
We 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
and was transferred to the Nasdaq Capital Market effective November 5, 2015. To maintain that listing, we must
satisfy the continued listing requirements of Nasdaq for inclusion in the Nasdaq Capital Market, including among
other things, a minimum stockholders’ equity of $2.5 million and a minimum bid price for our common stock of
$1.00 per share, that a majority of the members of our board of directors are independent under the Nasdaq
Table of Contents
19
Listing Rules and that our audit committee consist of three independent directors who satisfy additional
requirements under the Exchange Act. On January 21, 2021, we received a notice from The Nasdaq Stock Market
indicating that we did not meet the minimum of $2,500,000 in stockholders’ equity required by Listing Rule
5550(b)(1) for continued listing. On June 23, 2021, Nasdaq sent a notice stating that were gained compliance with
Listing Rule 5550(b)(1) following 20 consecutive business days where our market value of listed securities was
at least $35,000,000.
Even though we are currently in compliance with Nasdaq’s continued listing requirements, there can be no
assurance that we will maintain compliance these requirements if we continue to incur losses or that our common
stock will not be delisted from 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 OTC Markets or the OTC Bulletin Board. Under such circumstances,
stockholders may find it more difficult to sell, or to obtain accurate quotations, for our common stock, and our
common stock would become substantially less attractive to certain purchasers such as financial institutions,
hedge funds and other similar investors. There is no assurance, however, that prices for our common stock would
be quoted on one of these other trading systems or that an active trading market for our common stock would
thereafter exist, which would materially and adversely 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 our current sources of capital are insufficient to satisfy our cash requirements, we may seek to
sell additional equity or debt securities, including through our at-the-market equity program, or obtain bank loans
and credit facilities. The sale of convertible debt securities or additional equity securities could result in dilution
to our stockholders. The incurrence of further indebtedness, whether in the form of public debt or bonds or bank
financing, would result in increased 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;
raising additional cash through potential equity offerings, including sales through an at-the-market, or
ATM program, sales of assets and/or issuance of debt as considered necessary and looking at other
potential business opportunities;
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 directors, executive officers and principal stockholders have substantial control over us and will be able
to influence corporate matters.
As of November 22, 2021, our directors and executive officers, together with their affiliates, beneficially
owned, in the aggregate, approximately 48% of our outstanding common stock. As a result, certain of these
stockholders acting alone or these stockholders, acting together, would have the ability to practically control the
outcome of matters submitted to our stockholders for approval, including the election of our directors and any
merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting
together, would have the ability to control the management and affairs of our company. Accordingly, this
concentration of ownership might harm 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 not in line, or may conflict, with our other stockholders’ best interests.
Table of Contents
20
Delaware law and our certificate of incorporation and bylaws will contain anti-takeover provisions that could
delay or discourage takeover 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 or changes in our management. As long as our major stockholder, Simplot Taiwan,
Inc., which is beneficially owned by Scott R. Simplot, one of our directors, continues to hold 25% or more of the
total voting power of all outstanding shares of our stock entitled to vote generally in the election of directors,
shareholders holding at least 25% of the total voting power of all outstanding shares of our stock entitled to vote
generally in the election of directors are able to call a special meeting in accordance with our bylaws; provided,
however, at such time when the ownership interest of Simplot Taiwan, Inc. first falls below 25% of our total
voting power, our amended and restated certificate of incorporation requires that a special meeting may be called
only by a majority of our board of directors. Our amended and restated certificate of incorporation precludes
stockholder action by written consent. In addition, our amended and restated bylaws require that any stockholder
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 of undesignated preferred stock makes it possible for our board of directors to issue
preferred stock with voting or other rights or preferences that 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 General Corporation Law. These provisions may prohibit or restrict large stockholders, in
particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These
provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential
takeover attempts and could reduce the price that investors might be willing to pay for shares of our common
stock in the future and result in our market price being lower than it would be without these provisions.
Item1B. Unresolved Staff Comments
Not applicable.
Item2. Properties
The following are significant manufacturing and office facilities that we own or lease as of August31, 2021:
• We own a four-story building located in Hsinchu Science Park, Taiwan. We occupy approximately 183
thousand square feet of the building, and we lease approximately 55 thousand square feet of space to a
third-party tenant. Approximately 32% of our occupied space in the building is devoted to our
manufacturing operations. We lease the land on which the building is situated from the Science Park
Administration in Hsinchu.
21
Table of Contents
Item3. Legal Proceedings
Due to the complex technology required to compete successfully in the LED industry, participants in our
industry are often engaged in significant intellectual property licensing arrangements, negotiations, disputes and
litigation. We are directly or indirectly involved from time 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 (“the
Company”) in the United States District Court for the District of Delaware. The complaint alleged that Well
Thrive was entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the
“Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August
4, 2016. Pursuant to the terms of the Purchase Agreement, we retained the $500 thousand payment as liquidated
damages. Well Thrive alleged that the liquidated damages provision was unenforceable as an illegal penalty and
did not reflect the amount of purported damages. On March 13, 2018, we 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 our motion on the basis that Well Thrive never consented to dismiss the case. On
January 2, 2019, the judge denied without prejudice the motion filed by us, because there remains some question
as to whether Well Thrive’s former lawyers and Dr. Chiou had authority from Well Thrive to settle this case. The
Court held a trial on March 2, 2020. After the trial, the judge ordered both sides to prepare post-trial briefs and
proposed findings of fact for the Court to be submitted before end of April 2020. Both sides submitted post-trial
briefs and proposed findings of fact on April 30, 2020. On December 21, 2020, the judge, following a hearing ,
issued her judgment, which ordered the Company to return the $500 thousand to Well Thrive, and required both
parties, on or before January 6, 2021, to submit information on the appropriate amount of interest to be added. On
January 6, 2021, the Company filed a brief arguing that there should not be an award of prejudgment interest and
Well Thrive was arguing for the amount of $135,774 in pre-judgement interest. On April 8, 2021, the judge issued
a ruling requiring the Company to pay pre-judgment interest in the amount of $123,000 to Well Thrive. On May
7, 2021, the Court of Appeal issued an order requiring the parties to mediate on June 28, 2021. The Company and
Well Thrive Ltd. entered into an Agreement Regarding Satisfaction of Judgment dated June 14, 2021, as amended
on June 16, 2021 and June 21, 2021 (collectively, the “Settlement Agreement”), pursuant to which the Company
issued 35,365 shares (the “Shares”) of its common stock to Well Thrive Ltd. The Shares were issued to satisfy the
amount payable under the Settlement Agreement and, accordingly, no cash proceeds were received by the
Company from the issuance of the Shares.
Except as described above, there was no material pending legal proceedings or claims as of August 31,
2021.
Item4. Mine Safety Disclosures
Not applicable.
Table of Contents
22
PART II.
Item5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Price Information for our Common Stock
Our common stock began trading on the NASDAQ Global Select Market under the symbol “LEDS” on
December 8, 2010 and was transferred to the NASDAQ Capital Market effective November 5, 2015 where it
continues to trade under the same symbol.
There were 62 holders of record of our common stock as of November 22, 2021.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain
any future earnings to fund the development and expansion of our business, and therefore we do not anticipate
paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors and will depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant by our board of directors.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not make any repurchases of our common stock and no purchases of common stock were made on
our behalf during the fourth quarter of our fiscal 2021.
Item6. (Reserved)
Table of Contents
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is based upon
and should be read in conjunction with the audited consolidated financial statements and the notes included
elsewhere in this Annual Report on Form 10-K, as well 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 in our other filings with the SEC.
Overview
We develop, manufacture and sell light emitting diode (LED) chips, LED components, LED modules and
systems. Our products are used for general specialty industrial applications, including ultraviolet, or UV, curing
of polymers, LED light therapy in medical/cosmetic applications, 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 a few select markets, including Netherlands, Taiwan, the United States, Germany and
India. We also sell our “Enhanced Vertical,” or EV, LED product 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 certain
LED products, and for certain aspects of our product fabrication, assembly and packaging processes, based on our
design and technology requirements 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 our wholly 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 Zhaoming Co., Ltd., formerly known as
Silicon Base Development, Inc., which is engaged in the research, development, manufacture, and substantial
portion 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 Business
The 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, which continues 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 precautionary measures and adjusted our
operational needs. Our workplaces are operating under enhanced measures to ensure the health and
safety of our employees, including limiting the visitors coming into our workplace and using
videoconferencing for meetings when possible. Our business, financial condition, liquidity and operating
results have been, and will continue to be, adversely affected by COVID-19 and related restrictions. The
conditions caused by the COVID-19 pandemic have adversely affected our customers’ 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 of our offerings, or lengthened payment terms, all of which could adversely
affect our future sales, operating results and overall financial performance. Our operations have also
been negatively affected by a range of external factors related to the COVID-19 pandemic that are not
within our control. For example, our largest customer, Revlon, Inc., postponed its regular orders, which
is expected to decrease our sales revenue for the first quarter ended November 30, 2021, and even for
the quarters after that if the COVID-19 pandemic continues. To avoid a cash shortage due to the
pandemic, we applied and received subsidies from the Taiwan government. Our bank granted us a
deferment period for twelve months beginning May 2020. During this period, we did not need to pay
the monthly payments of the principal but only interest. We have also devoted ourselves to new product
development and expect these new products could bring in new revenue, offsetting the losses resulted
from existing customers’ delayed purchasing. However, given the ongoing and evolving economic and
business impact of the COVID-19 pandemic, we may be required to further revise certain accounting
estimates and judgments, which could have a material 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 improve our liquidity, access alternative sources of funding and obtain additional equity
capital or credit when necessary for our operations. In July 2021, we established an at-the-market equity
program (“ATM”) that allows us to sell up to $20 million of common stock from time to time. 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 in additional operating and financing covenants, or
liens on our assets, that would restrict our operations. The sale of additional equity securities, if required
and available, could result in dilution to our stockholders.
Table of Contents
24
• Our ability to source chips from other chip suppliers. Our reliance on our chip suppliers exposes us to
a number of significant risks, including reduced control over delivery schedules, quality assurance and
production costs, lack of guaranteed production capacity 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 to procure
chips from other chip suppliers at the desired quality, quantity, performance and cost 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.
•
Industry growth and demand for products and applications using LEDs. The overall adoption of LED
lighting devices to replace traditional lighting sources is expected to influence the growth and demand
for LED chips and component products and impact our financial performance. We believe the potential
market for LED lighting will continue to expand. LEDs for efficient generation of UV light are also
starting to gain attention for various medical, germicidal and industrial applications. Since a substantial
portion of our LED chips, LED components and our lighting products are used by end-users in general
lighting applications and specialty industrial applications such as UV curing, medical/cosmetic,
counterfeit detection, horticulture, architectural lighting and entertainment lighting the adoption of LEDs
into these applications will have a strong impact on the demand of LED chips generally 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, including prices charged by our competitors, the efficacy of our products, our cost
basis, changes in our product mix, the size of the order and our relationship with the relevant customer,
as well as general market and economic conditions. Competition in the markets for LED products is
intense, and we expect that competition will continue to increase, thereby creating a highly aggressive
pricing environment. For example, some of our competitors have in the past reduced their average selling
prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices,
accelerating the decline in our revenues and 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 to continue to innovate
and offer competitive products that meet our customers’ specifications and pricing requirements, such
as higher efficacy LED products at lower costs, will have a material influence on our ability to improve
our revenues and product margins, although in the near term the introduction of such higher performance
LED products may further reduce the selling prices 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 of the mix of products that we sell and the utilization of our manufacturing capacity
in any given period, among other things. For example, we continue to pursue opportunities for profitable
growth in areas of business where we see the best opportunity to develop as an end-to-end LED module
solution supplier by providing our customers with high quality, flexible and more complete LED system
solution, customer technical support and LED module/system design, as opposed to just providing
customers with individual components. As a strategic plan, we have placed greater emphasis 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 growth of our module products and the continued commercial sales of our UV LED
product are expected to improve our gross margin, operating results and cash flows. In addition, we have
adjusted the lower-priced LED components strategy as appropriate. We have adopted a strategy to adjust
our product mix by exiting certain high volume but low unit selling price product lines in response to
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, a change in the mix of products that we sell in any given
period may increase volatility in our revenues and gross margin from period to period.
• Our ability to reduce cost to offset lower average selling prices. Competitors may reduce average
selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate
the rate of decline of our average selling prices. To address increased pricing pressure, we have improved
and increased our production yields to reduce the per-unit cost of production of our products. However,
such cost savings currently have limited impact on our gross profit, as we currently suffer from the
underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as
depreciation. 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 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, to deliver new products and to improve our manufacturing efficiencies. Our continued
success depends on our ability to develop and introduce new, technologically advanced and lower cost
products, such as more efficient, better performance LED component products. If we are unable to
introduce new products that are commercially viable and meet rapidly evolving customer requirements
or keep pace with evolving technological standards and market developments or are otherwise unable
to execute 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. 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 mechanical manufacturing resources to provide customers with
one-stop system services. Services include design, prototyping, OEM and ODM. Key markets that we
intend 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. The modules are designed for various printing, curing, and PCB exposure
industrial equipment, providing uncompromised reliability and optical output. Our LED components
include different sizes and wattage to accommodate different demands in the LED market.
Table of Contents
25
• General economic conditions and geographic concentration. Many countries including the United
States and the European Union (the “E.U.”) members have instituted, or have announced plans to
institute, government regulations and programs designed to encourage or mandate increased energy
efficiency in lighting. These actions include in certain cases banning the sale after specified dates of
certain forms of incandescent lighting, which are advancing the adoption of more energy efficient
lighting solutions such as LEDs. When the global economy slows or a financial crisis occurs, consumer
and government confidence declines, with levels of government grants and subsidies for LED adoption
and consumer spending likely to be adversely impacted. Our revenues have been concentrated in a few
select markets, including the Netherlands, Taiwan, the United States, Germany, Japan and India. Given
that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from
quarter to quarter. Therefore, our financial results will be impacted by general economic and political
conditions in such markets. For example, the aggressive support by the Chinese government for the LED
industry through significant government incentives and subsidies to encourage the use of LED lighting
and to establish the LED-sector companies has resulted in production overcapacity in the market and
intense competition. Furthermore, due to Chinese package manufacturers increasing usage of domestic
LED chips, prices are increasingly competitive, leading to Chinese manufacturers growing market share
in the global LED industry. In addition, we have historically derived a significant portion of our revenues
from a limited number of customers. Some of our largest customers and what we produce/have produced
for them have changed from quarter to quarter primarily as a result of the timing of discrete, large
project-based purchases and broadening customer base, among other things. For the years ended August
31, 2021 and 2020, sales to our three largest customers, in the aggregate, accounted for 52% and 61%
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 the future allege that our products infringe on their intellectual property rights.
Defending against any intellectual property infringement claims would likely result in costly litigation
and ultimately may lead to our not being able to manufacture, use or sell products found to be infringing.
In June 2012, we settled an intellectual property dispute involving Cree. We agreed to dismiss amended
complaints filed against each other without prejudice. We agreed to the entry of a permanent injunction
that was effective October 1, 2012 that precludes us from (and/or from assisting others in) making, using,
importing, selling and/or offering to sell in the United States certain accused products and/or any device
that includes such an accused product after that date and to payment of a settlement fee for past damages.
All accused products sold before the date of settlement are released under this agreement and our
customers and distributors are specifically released. All remaining claims between Cree and us were
withdrawn without prejudice, with each retaining the right to assert them in the future. However, other
third parties may also assert infringement claims against our customers with respect to our products, or
our customers’ products that incorporate our technologies or products. Any such legal action or the threat
of legal action against us, or our customers, could impair such customers’ continued demand for our
products. This could prevent us from growing or even maintaining our revenues, or cause us 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 $4.8 million as of August 31, 2021 primarily
due to the sale of 344,391 shares of common stock for net proceeds of $4.0 million under our ATM
program. We have implemented actions to accelerate operating cost reductions and improve operational
efficiencies. The plan is further enhanced through the fabless business model in which we implemented
certain workforce reductions and are exploring the opportunities to sell certain equipment related to the
manufacturing of vertical LED chips, in order to reduce the idle capacity charges and minimize our
research and development activities associated with chips manufacturing operation. In December 2019,
we issued convertible unsecured promissory notes with a principal sum of $2 million, of which, $600
thousand convertible notes were converted into 200 thousand shares of common stock in May 2020.
Based on our current financial projections, we believe that we will have sufficient sources of liquidity
to fund our operations and capital expenditure plans for the next 12 months. On May 26, 2021 the Notes
were extended with the same terms and interest rate for one year and mature on May 30, 2022. As of
August 31, 2021 and 2020, the outstanding principal of these notes totaled $1.4 million.
Components of Consolidated Statements of Operations
Revenues, net
Our core products are LED components, LED modules and systems, which are the most important part of
our business, as well as LED chips and lighting products.
Our revenues are affected by sales volumes of our LED chips, LED components and lighting products and
our average selling prices for such products. In addition, as we expand and diversify our product offerings and
with varying average selling prices, any change in the mix of products that we sell in any given period may affect
our total revenues. For example, average selling prices for our LED components are generally higher than for
LED chips and the average selling prices for our lighting products are higher than for our LED chips and LED
components.
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 from our 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 is generally
when title and risk of loss for the product passes to the customer.
Table of Contents
26
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 our customers and us to accurately forecast and plan future
business activities. Our customers may increase, decrease, cancel or delay purchase orders already in place, with
no material consequences to the customer. As a result, we may face increased inventories and our backlog may
decline as a result of any economic downturn or material change in market conditions or economic outlook. We
price our products in accordance with prevailing market conditions, taking into account the technical
specifications of the product being sold, the order volume, the strength and history of our relationship with the
customer, our inventory levels and our capacity utilization. When average 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 customers accounted for 82% and 83% of our revenues for the years ended August 31, 2021 and 2020,
respectively.
Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United
States, Germany, Japan and India. Net revenues generated from these countries, in the aggregate, accounted for
83% and 90% of our net revenues for the years ended August 31, 2021 and 2020, respectively. We expect that
our revenues will continue to be substantially derived from these countries for the foreseeable future. Given that
we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter 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 our historical discounts and return rates and our assessment of future conditions.
Cost of Revenues
Our cost of revenues consists primarily of cost of materials, depreciation expenses, manufacturing overhead
costs, direct labor costs and utilities cost, all related to the manufacture of our LED products. Materials include
raw materials, other materials such as gases and chemicals, consumables, and assembly materials. Because our
products are manufactured based on customers’ orders and specifications and we purchase materials and supplies
to support such orders, we generally purchase our materials at spot prices in the marketplace and do not maintain
long-term supply contracts. We purchase materials from several suppliers. Our procurement policy is to select
only a small number of qualified vendors who demonstrate quality of materials and reliability on delivery time.
We are subject to variations in the cost of our materials and consumables from period to period. Moreover, because
we consume a significant amount of electricity in our manufacturing process, any fluctuations in electricity costs
will have an impact on our cost of revenues. We also use contract manufacturers to produce for our certain LED
products, and for certain aspects of our product fabrication, assembly and packaging processes, 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 costs related to our employees engaged in the manufacture of our products. Manufacturing
overhead costs consist primarily of salaries, bonuses and 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 and inventory valuation adjustments to write down our inventories to their estimated net
realizable values as a result of declines in their average selling prices.
Operating Expenses
Research and development. Our research and development expenses, which are expensed as incurred,
consist primarily of expenses related to employee salaries, bonuses and other benefits (including stock-based
compensation expenses) for our research and development personnel, engineering charges related to product
design, purchases of materials and supplies, repairs and maintenance and depreciation related expenses.
Selling, general and administrative. Selling, general and administrative expenses consist primarily of
salaries, bonuses and other benefits (including stock-based compensation expenses) for our administrative, sales
and marketing personnel, expenses for professional services, 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, as well as
compensation to our directors. We expect our selling, general and administrative expenses to decrease as we
continue to implement cost 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 $286 thousand and $669 thousand on
the disposal of long-lived assets for the years ended August 31, 2021 and 2020, 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 a certain level of our idle
equipment.
27
Table of Contents
Other Income (Expense)
Gain on disposal of investment. We recognized a gain of $0 and $634 thousand for the years ended August
31, 2021 and 2020, respectively.
Interest expenses, net. Interest expenses, net consist of interest income and interest expense. Interest
income represents interest earned from our cash and cash equivalents deposited with commercial banks in the
United States and Taiwan. As of August 31, 2021 and 2020, we had cash and cash equivalents of $4.8 million and
$2.8 million, respectively, which consisted of time deposits with initial maturity of greater than three months but
less than one year. Interest expense consists primarily of interest on our convertible notes and long-term
borrowings and/or short-term lines of credit with certain banks in Taiwan as well as with our Chairman and largest
stockholder. We had long-term debt totaling $7.7 million and $7.7 million as of August 31, 2021 and 2020,
respectively.
Other income, net. Other income for the years ended August 31, 2021 and 2020 primarily consists of a
government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our
Hsinchu building.
Foreign currency transaction gain (loss), net. We recognized a net foreign currency transaction gain of
$342 thousand and $352 thousand for the years ended August 31, 2021 and 2020, respectively, primarily due to
the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables held by
Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of
such subsidiaries.
Provision for Income Taxes
United States tax treatment. We and one of our subsidiaries, Helios Crew, are United States corporations
and are therefore required to file federal income tax returns with the Internal Revenue Service as well as with
certain applicable state tax authorities. As our operations in 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 Revenue Code, or Subpart F, may under certain circumstances subject our investments in controlled
foreign corporations and affiliates to taxation in the United States. Subpart F provides that United States
corporations may be required to include in their income certain undistributed earnings of the foreign corporations
and affiliates as though such earnings had been distributed currently. Subpart F applies only to United States
shareholders (such as us) who hold an interest in a foreign corporation and affiliates that meet the definition of a
“controlled foreign corporation.” Under Section957(a) of the United States Internal Revenue Code, a “controlled
foreign corporation” means any foreign corporation 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’s taxable year.
Subpart F does not apply, however, to the income of a controlled foreign corporation generated from the
sale of goods that are manufactured in its country of incorporation. Also, any income attributable to a controlled
foreign corporation and its affiliates that is not engaged in a United States trade or business is generally not subject
to United States taxation until its earnings are distributed, or the stock of the foreign corporation is disposed. All
of our products are manufactured in Taiwan by Taiwan SemiLEDs, our wholly owned foreign subsidiary. Because
Taiwan SemiLEDs conducts its manufacturing activities in Taiwan, the income or loss of Taiwan SemiLEDs is
included in 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 defer United 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 affiliates
and 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 corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires
companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is
payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free
to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s
deductions for payments to the subsidiaries. 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 corporations and affiliates and any such changes were not expected to result in our having to
pay applicable taxes in the United States on income earned by such entities.
Table of Contents
28
Taiwan tax treatment. The corporate income tax rate in Taiwan is 20% for the year ended August 31, 2021
and 2020. Corporate income taxes payable, however, are subject to an alternative minimum tax. The Taiwan
government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006. Under the
AMT Act, a taxpayer must pay the higher of its taxable income multiplied by the corporate income tax rate or the
alternative minimum tax, or AMT. In calculating the AMT amount, the taxpayer must include income that would
otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain
exemptions or tax credits that have been grandfathered for the purposes of calculating AMT. The AMT rate for
business entities is 12%. In addition to the statutory corporate taxes payable, or the AMT, corporate taxpayers in
Taiwan are subject to an additional tax on distributable retained earnings (after statutory legal reserves) to the
extent that such earnings are not distributed prior to the end of the subsequent year. This undistributed earnings
surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prior
year 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 Taiwan incurred losses before income tax for both our fiscal year 2021
and 2020, we do not expect to pay such taxes on undistributed earnings.
In addition, in accordance with the Taiwan Income TaxAct, dividends distributed by companies
incorporated in accordance with the Taiwan Company Act shall be deemed as income derived from sources in
Taiwan and income taxes shall be levied on the shareholders receiving such dividends. In the event that a Taiwan
incorporated company distributes dividends to its foreign shareholders, it will be required 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, 2021, we had total foreign net operating loss carryforwards of $115.1 million, arising
primarily from certain of our consolidated and majority owned subsidiaries in Taiwan, which will expire in various
amounts in future years. Pursuant to the Taiwan Income Tax Act, as amended in January 2009, net operating loss
carryforwards can be carried forward for a period of ten years.
Income Taxes
We are subject to income taxes in both the United States and foreign jurisdictions. Significant management
judgment is required in determining our income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. Our deferred tax assets represent future tax benefits to be
received when certain expenses previously recognized in our consolidated statements 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 and credits can be utilized. Therefore, we assess the likelihood that our deferred tax assets
will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than
not, a valuation allowance is established. These estimates and judgments about our future taxable income are
based on assumptions that are consistent with our future plans. A net cumulative loss in recent years is a significant
piece of negative evidence in determining the realization of the benefits of deferred tax assets. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs. We have provided
a full valuation allowance on our deferred tax assets because our cumulative losses in recent years causes us to
believe that realization of our deferred tax assets is not more likely than not.
Inventory Valuation
Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost
or net realizable value. We determine cost using a weighted average. For work in process and manufactured
inventories, cost consists of raw materials, direct labor and an allocated portion of our production overhead. At
each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence, and we write
down our inventory to its estimated net realizable value based upon assumptions about future demand and market
conditions. Our estimation of future demand is primarily based on the backlog of customer orders as of the balance
sheet date and projections based on our actual historical sales trends and customers’ demand forecast. We
evaluated our inventories on an individual item basis. For our finished goods and work in process, if the estimated
net realizable value for an inventory item, which is the estimated selling price in the ordinary course of business,
less reasonably predictable costs to completion and disposal, is lower than its cost, the specific inventory item is
written down to its estimated net realizable value. Market for raw materials is based on replacement cost. We also
write down items that are considered obsolete based upon changes in customer demand, manufacturing process
changes or new product introductions that may eliminate demand for the product. Once written down, inventories
are carried at this lower amount until sold or scrapped. Provisions for inventory write-downs are included in our
costs of revenues in the consolidated statements of operations. There is significant judgment involved with the
estimates of excess and obsolescence and if our estimates regarding customer demand or other factors 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 $659 thousand and $709 thousand for the years ended August 31, 2021 and
2020, respectively. A majority of our inventory write-downs during the years ended August 31, 2021 and 2020
was related to finished goods and work in process, primarily as a result of obsolescence.
Table of Contents
29
Useful Life of Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using 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 life of our property,
plant and equipment in order to determine depreciation expense to be recorded each reporting period based on
similar assets purchased in the past and our historical experience with such similar assets, as well anticipated
technological or market changes. The estimated useful life of our property, plant and equipment directly impacts
the timing of when our depreciation expense is recognized. There is significant judgment involved with estimating
the useful lives of our property, plant and equipment, and a change in the estimates of such useful lives could
cause our depreciation expense in future periods to increase significantly.
Impairment of Long-lived Assets
In 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 factors or in the business climate, among others, may trigger
an impairment review. Second, if we determine that indicators of impairment are present, we determine whether
the estimated undiscounted cash flows expected to be generated from the use and eventual disposal of the
potentially impaired assets (or asset group) are less than the carrying amount. Third, if such estimated
undiscounted cash flows do not exceed the carrying amount, we estimate the fair value of the asset (or asset group)
and recognize an impairment charge if the carrying amount is greater than the fair value of the asset (or asset
group). Fair value is determined through various valuation techniques, including discounted cash flow models,
quoted market values and third-party independent appraisers, as considered necessary. We group our long-lived
assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated, or an
asset group. We determined that we have two asset groups for impairment testing purposes, one of which is
associated with the manufacture and sale of LED chips and LED components, and the other is associated with our
Ning Xiang subsidiary, which is engaged in the manufacture and sale of lighting fixtures and systems.
The estimates of future cash flows involve subjective judgments and represent our best estimate at each
date of assessment about future developments, determined based on reasonable and supportable assumptions and
projections taking into account past experience, as well as market data obtained from independent external
sources. The use of different assumptions could increase or decrease the estimates of expected future cash flows
and consequently, increase or decrease the related impairment charges. For example, if the average selling prices
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 possible that 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, 2021, lower than projected sales of our LED products and lower market
capitalization compared to our consolidated net book values again indicated potential impairment of our long-lived
assets. We projected undiscounted future cash flows to analyze potential impairment, based upon a variety of
factors, including primarily our continuous efforts to suppress gross loss from chip sales and the cooperation
model discussed with other parties, considering all known trends and uncertainties. The significant assumptions
used in determining the estimated undiscounted cash flows for the LED chips and components asset group were
revised to reflect the new operation status. Based on the assessment, the expected undiscounted cash flows to be
generated by this asset group exceeded its carrying value. Consequently, no asset impairment was recognized
during the year ended August 31, 2021.
Critical Accounting Policies and Estimates
We believe that the application of the following accounting policies, which are important to our financial
position and results of operations, require significant judgments and estimates on the part of management. For a
summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to
the Consolidated Financial Statements.
Revenue Recognition
The Company has revenue recognition policies for its various operating segments that are appropriate to the
circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements for our revenue
recognition policies.
Write-down of Inventories
The net realized value of inventories is the estimated selling price in the ordinary course of business less the
estimated costs of completion and disposal. The estimation of net realized value is based on current market
conditions and historical experience with product sales of similar nature. Changes in market conditions may have
a material impact on the estimation of the net realizable value.
Income taxes
Table of Contents
30
The reliability of the deferred tax asset mainly depends on whether sufficient future profits or taxable
temporary differences will be available. In cases where the actual future profits generated are less than expected,
a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in
which such a reversal takes place.
Exchange Rate Information
We are a Delaware corporation and, under SEC requirements, must report our financial position, results of
operations and cash flows in accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. At the same time, our subsidiaries use the local currency as their functional currency.
For example, the functional 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, and
income and expense accounts are translated at average exchange rates during the period. The resulting translation
adjustments are recorded to a separate component of accumulated other comprehensive income (loss) within
equity. Any gains and losses from transactions denominated in currencies other than their functional currencies
are recognized in the consolidated statements of operations as a separate component of other income (expense).
Due to exchange rate fluctuations, such translated amounts may vary from quarter to quarter even in circumstances
where such amounts have not materially changed when denominated 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 of Taiwan. On August 31, 2021 the exchange rate was 27.75 NT dollars to one U.S. dollar.
On November 22, 2021, the exchange rate was 27.78 NT 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.
Table of Contents
31
Results of Operations
The following table sets forth, for the periods presented, our consolidated statements of operations
information. In the table below and throughout this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the following consolidated statement of operations data for the years ended
August 31, 2021 and 2020 has been derived from our audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. The information contained in the table below should be read in conjunction
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 be expected for any future period:
Years Ended August 31,
2021
2020
% of
Revenues
$
% of
Revenues
$
(in thousands)
Consolidated Statement of Operations Data:
Revenues, net
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Gain on disposals of long-lived assets, net
Total operating expenses
Loss from operations
Other income (expenses):
Gain on disposals of investment
Interest expenses, net
Other income, net
Foreign currency transaction gain, net
Total other income (expenses), net
Loss before income taxes
Income tax expense
Net loss
Less: Net loss attributable to noncontrolling
interests
(6 )
Net loss attributable to SemiLEDs stockholders $ (2,851 )
$ 4,735
3,702
1,033
100 % $ 6,068
4,478
1,590
78 %
22 %
1,623
3,614
(286 )
4,951
(3,918 )
34 %
76 %
(6 ) %
104 %
(82 ) %
1,538
2,808
(669 )
3,677
(2,087 )
—
(371 )
1,090
342
1,061
(2,857 )
—
(2,857 )
— %
(8 ) %
23 %
7 %
22 %
(60 ) %
—
(60 ) %
634
(358 )
912
352
1,540
(547 )
—
(547 )
— %
(60 ) % $
(3 )
(544 )
100 %
74 %
26 %
25 %
46 %
(11 ) %
60 %
(34 ) %
10 %
(6 ) %
15 %
6 %
25 %
(9 ) %
—
(9 ) %
— %
(9 ) %
Year Ended August 31, 2021Compared to Year Ended August 31, 2020
Years Ended August 31,
2021
2020
LED chips
LED components
Lighting products
Other revenues(1)
Total revenues, net
Cost of revenues
Gross profit
171
$
3,259
730
575
4,735
3,702
$ 1,033
% of
Revenues
$
% of
Revenues
Change Change
$
%
$
(in thousands)
69
4 % $
69 % 3,977
15 %
548
12 % 1,474
100 % 6,068
78 % 4,478
22 % $ 1,590
1 % $
66 %
9 %
24 %
102
(718 )
182
(899 )
100 % (1,333 )
(776 )
(557 )
74 %
26 % $
148 %
(18 ) %
33 %
(61 ) %
(22 ) %
(17 ) %
(35 ) %
(1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the
provision of services and the lease of manufacturing as well as research and development facilities.
32
Table of Contents
Revenues, net
Our revenues decreased by 22% from $6.1million for the year ended August31, 2020 to $4.7 million for
the year ended August 31, 2021. The decrease in revenues was driven primarily by a $719 thousand decrease in
revenues attributable to sales of LED components and a $899 thousand decrease in other revenues, offset in part
by a $284 thousand increase in revenues attributable to the sales of LED chips and lighting products.
Revenues attributable to the sales of our LED chips represented 4% and 1%, respectively, of our revenues
for the years ended August 31, 2021 and 2020, respectively, and the increase was primarily due to varying volumes
sold for the LED chips.
Revenues attributable to the sales of our LED components represented 69% and 66% of our revenues for
the years ended August 31, 2021 and 2020, respectively. The decrease in revenues attributable to sales of LED
components was primarily due to a result of lower volume sold of LED components products with a lower average
selling price. We have adopted a strategy to adjust our product mix by exiting certain high volume but low unit
selling price product lines in response to the general trend of lower average selling prices for products that have
been available in the market for some time and to focus on the profitable products.
Revenues attributable to the sales of lighting products represented 15% and 9% of our revenues for the
years ended August 31, 2021 and 2020, respectively. The increase in revenues attributable to the sales of lighting
products was mainly due to a higher in demand on LED luminaries and retrofits and fewer non-recurring project-
based orders for LED lighting products.
Revenues attributable to other revenues represented 12% and 24% of our revenues for the years ended
August 31, 2021 and 2020, respectively. The decrease in revenues attributable to other revenues was primarily
due to the provision of services and the sale of raw materials.
Cost of Revenues
Our cost of revenues decreased by 17% from $4.5 million for the year ended August 31, 2020 to $3.7
million for the year ended August 31, 2021. The decrease in cost of revenues was primarily due to our ongoing
cost reduction efforts, a decrease in volume sold and a decrease in depreciation expense and idle capacity charges
associated with property, plant and equipment. Inventory write-downs totaled $659 thousand and $709 thousand
for the years ended August 31, 2021 and 2020, respectively. A majority of our inventory write-downs during the
years ended August 31, 2021 and 2020was related to finished goods and work in process, primarily as a result of
obsolescence.
Gross Profit
Our gross profit decreased from $1.6 million for the year ended August 31, 2020 to $1.0 million for the
year ended August 31, 2021. Our gross margin percentage was 22% for the year ended August 31, 2021, as
compared to 26% for the year ended August 31, 2020 as a consequence of an increase in the sales of products
with lower margin.
Operating Expenses
Years Ended August 31,
2021
2020
% of
Revenues
$
% of
Revenues
$
(in thousands)
Change Change
$
%
Research and development
Selling, general and administrative
Gain on disposals of long-lived assets, net
$ 1,623
3,614
(286 )
34 % $ 1,538
76 % 2,808
(669 )
(6 ) %
25 % $
46 %
(11 ) %
85
806
383
6 %
29 %
(57 ) %
Total operating expenses
$ 4,951
104 % $ 3,677
60 % $ 1,274
35 %
Research and development. Our research and development expenses increased from $1.5 million for the
year ended August 31, 2020 to $1.6 million for the year ended August 31, 2021. The slight increase was primarily
due to a $139 thousand increase in materials and supplies used in research and development, offset partially by
an decrease in payroll expense and other operating expenses.
Selling, general and administrative. Our selling, general and administrative expenses increased from $2.8
million for the year ended August 31, 2020 to $3.6 million for the year ended August 31, 2021. The increase was
mainly attributable to a $835 thousand increase in professional fees, offset partially by a decrease in payroll
expense, shipping and freight fee, and other various expenses.
Table of Contents
33
Gain on disposal of long-lived assets, net. We recognized a gain of $286 thousand and $669 thousand, net
on the disposal of long-lived assets for the years ended August 31, 2021 and 2020, respectively. Primarily due to
the excess capacity charges that we have suffered for several 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)
Gain on disposals of investment
Interest expenses, net
Other income, net
Foreign currency transaction gain, net
Total other income, net
Years Ended August 31,
2021
2020
% of
Revenues
$
% of
Revenues
$
$
—
(371 )
1,090
342
$ 1,061
(in thousands)
634
— % $
(358 )
(8 ) %
912
23 %
352
7 %
22 % $ 1,540
10 %
(6 ) %
15 %
6 %
25 %
Gain on disposal of investment. We recognized a gain of $0 and $634 thousand for the years ended August
31, 2021 and 2020, respectively.
Interest expenses, net. The increase in interest expenses, net was primarily due to the issuance of $1.4
million of convertible notes in December 2019 and accrued interest and a $3.2 million loan with each of our
Chairman and Chief Executive Officer and our largest shareholder.
Other income, net. Other income for the years ended August 31, 2021 and 2020 primarily consists of
government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our
Hsinchu building.
Foreign currency transaction gain (loss), net. We recognized a net foreign currency transaction gain of
$342 thousand and $352 thousand for the years ended August 31, 2021 and 2020, respectively, primarily due to
the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables held by
Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of
such subsidiaries.
Income Tax Expense (Benefit)
Our effective tax rate is expected to be approximately zero for fiscal 2021 and was zero for fiscal 2020,
since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax
assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.
As of August 31, 2021 and 2020, we recognized full valuation allowances of $33.8 million and $32.3
million, respectively, on our net deferred tax assets to reflect uncertainties related to our ability to utilize these
deferred tax assets, which consist primarily of certain net operating loss carryforwards and foreign investment
loss. We considered both positive and negative evidence, including forecasts of future taxable income and our
cumulative loss position, and continued to report a full valuation allowance against our deferred tax assets as of
both August 31, 2021 and 2020. We continue to review all available positive and negative evidence in each
jurisdiction and our valuation allowance may need to be adjusted in the future as a result of this ongoing review.
Given the magnitude of our valuation allowance, future adjustments to this allowance based on actual results
could result in a significant adjustment to our results of operations.
As of August 31, 2021, we had U.S. federal net operating loss (“NOLs”) carryforwards of $29.9 million,
which will expire in various amounts beginning in our fiscal 2026. NOLs generated in tax years prior to August
31, 2018 can be carried forward for twenty years, whereas NOLs generated after August 31, 2018 can be carried
forward indefinitely. Utilization of these net operating losses carryforwards may be subject to an annual limitation
due to applicable provisions of the Internal Revenue Code of 1986, as amended, and local tax laws if we have
experienced an “ownership change” in the past, or if an ownership change occurs in the future.
Table of Contents
34
As of August 31, 2021, we had total foreign net operating loss carryforwards of $115 million, arising
primarily from certain of our consolidated and majority owned subsidiaries in Taiwan. Pursuant to the Taiwan
Income TaxAct, as amended in January 2009, net operating losses carryforwards can be carried forward for a
period of ten years.
Net Loss Attributable to Noncontrolling Interests
Years Ended August 31,
2021
2020
% of
Revenues
$
% of
Revenues
$
Net loss attributable to noncontrolling interests
$
(6 )
(in thousands)
— % $
(3 )
— %
We recognized net loss attributable to non-controlling interests of $6 thousand and a net loss attributable to
non-controlling interests of $3 thousand for the year ended August 31, 2021 and 2020, respectively, which was
attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the non-controlling
holders. Non-controlling interests represented 3.05% and 3.25% equity interest in Taiwan Bandaoti Zhaoming
CO., Ltd as of August 31, 2021 and 2020, respectively.
Liquidity and Capital Resources
As of August 31, 2021 and 2020, we had cash and cash equivalents of $4.8 million and $2.8 million,
respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market
funds.
As of November 22, 2021, we had no available credit facility.
Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured
promissory notes, and loans from our Chairman and our largest shareholder, totaled $7.7 million and $7.7 million
as of August 31, 2021 and 2020, respectively.
Our NT dollar denominated long-term notes, totaled $3.2 million and $3.1 million as of August 31, 2021
and August 31, 2020, 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 lending rate 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 for operating capital. These loans are secured by an $85 thousand (NT$2.5 million)
security deposit and a first priority security interest on the Company’s headquarters building. Due to the impact
of the COVID-19 pandemic, the bank agreed to give us a deferment period for twelve months starting from May
2020. During this period, we did not 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
$27 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027
and, as of August 31, 2021, our outstanding balance on this note payable was approximately $1.9 million.
Starting from May 2021, the second note payable requires monthly payments of principal in the amount
of $17 thousand plus interest over the 74-month term of the note with final payment to occur in July
2027 and, as of August 31, 2021, our outstanding balance on this note payable was approximately $1.2
million.
Property, plant and equipment pledged as collateral for our notes payable were $3.5 million and $3.6 million
as of August 31, 2021 and 2020, respectively.
On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive
Officer and our largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%.
All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in
connection with the proposed sale of our headquarters building pursuant to the agreement 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. In February 2021, the loans were extended with the same principal amount and interest rate
for one year and are now due on January 15, 2022. As of August 31, 2021 and 2020, these loans totaled $3.2
million, respectively. The loans are secured by a second priority security interest on our headquarters.
On December 6, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes to
each of our Chairman and Chief 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”). The outstanding principal and unpaid
accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3 dollars
per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each
converted $300 thousand of notes into 100,000 shares of our Common stock. On May 26, 2021, the Notes were
extended with the same terms and interest rate for one year and now mature on May 30, 2022. As of August 31,
2021 and 2020, the outstanding principal of these notes totaled $1.4 million.
Table of Contents
35
We have incurred significant losses since inception, including net losses attributable to SemiLEDs
stockholders of $2.9 million and $544 thousand during the years ended August 31, 2021 and 2020, respectively.
Net cash used in operating activities for the year ended August 31, 2021 was $2.8 million. As of August 31, 2021,
we had cash and cash equivalents of $4.8 million. We have undertaken actions to decrease losses incurred and
implemented cost reduction programs in an effort to transform the Company into a profitable operation. In
addition, we are planning to issue additional equity to our stockholders.
On July 6, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners,
LLC (the “Agent”). In accordance with the terms of the Sales Agreement, we may offer and sell from time to time
through the Agent our common stock having an aggregate offering price of up to $20,000,000 (the “Placement
Shares”). Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted
by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended.
The Company will pay a commission to the Agent of 3.0% of the gross proceeds of the sale of the Placement
Shares sold under the Agreement and reimburse the Agent for certain expenses. In the fourth quarter of fiscal
2021, we sold 344,391 shares of common stock for gross proceeds of $4.2 million with $125 thousand paid as
placement agent fees under our ATM program.
We estimate that our cash requirements to service debt and contractual obligations in fiscal 2022 is
approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM
program. Based on our current financial projections and assuming the successful implementation of our liquidity
plans, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure
plans for the next 12 months and beyond. However, there can be no assurances that our planned activities will be
successful in raising additional capital, reducing losses and preserving cash. If we are not able to generate positive
cash flows from operations, we may need to consider alternative financing sources and seek additional funds
through public or private equity financings or from other sources, or refinance our indebtedness, to support our
working capital requirements or for other purposes. There can be no assurance that additional debt or equity
financing will be available to us or that, if available, such financing will be available on terms favorable to us.
Cash Flows
The 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):
Cash Flows Used in Operating Activities
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
$
$
$
2021
(1,737 ) $
159 $
3,990 $
2020
(1,001 )
518
2,415
Years Ended August 31,
Net cash used in operating activities was $1.7 million and $1.0 million for the years ended August 31, 2021
and 2020, respectively. Cash used in operating activities for the year ended August 31, 2021 was $700 thousand
higher, primary attributable to a decrease of $2.3 million in net loss, an increase of $143 thousand in cash collected
from customers, and a decrease of $401thousand in cash paid out for accrued expenses and other current liabilities,
partially offset by various non-cash adjustments during the year ended August 31, 2021 compared to the year
ended August 31, 2020.
Cash Flows Provided By (Used in) Investing Activities
Net cash provided by investing activities was $159 thousand for the year ended August 31, 2021, consisting
primarily of the proceeds from the sales of property, plant and equipment of $291 thousand as a result of the
disposal of idle machinery, partially offset by a $118 thousand in cash used in the purchase of machinery and
equipment and a $14 thousand for development of intangible assets.
Net cash provided by investing activities was $518 thousand for the year ended August 31, 2020, consisting
primarily of the proceeds from the sales of property, plant and equipment of $669 thousand as a result of the
disposal of idle machinery, and the proceeds of $140 thousand from the sales of our Hong Kong subsidiary,
SemiLEDs International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co., Ltd.,
partially offset by a $271 thousand in cash used in the purchase of machinery and equipment and a $20 thousand
for development of intangible assets.
Table of Contents
36
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $4.0 million for the year ended August 31, 2021, consisting
primarily of $4.2 million of issuance of common stock for private placement.
Net cash provided by financing activities for the year ended August 31, 2020 was $2.4 million, consisting
primarily of $2 million of proceeds from convertible notes and $700 thousand of issuance of common stock, offset
in part by the repayments on long-term debt.
Capital Expenditures
We had capital expenditures of $118 thousand and $271 thousand for the years ended August 31, 2021 and
2020, respectively. Our capital expenditures consisted primarily of the purchases of machinery and equipment,
construction in progress, prepayments for our manufacturing facilities and prepayments for equipment purchases.
We expect to continue investing in capital expenditures in the future as we expand our business operations and
invest in such expansion of our production capacity as we deem appropriate under market conditions and customer
demand. However, in response to controlling capital costs and maintaining financial flexibility, our management
continues to monitor prices and, consistent with its existing contractual commitments, may decrease its activity
level and capital expenditures as appropriate.
Accounting Pronouncements Not Yet Adopted
Please refer to ‘Summary of Significant Accounting Policies Recent Accounting Pronouncements’ for more
details.
Item7A.Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item8.Financial Statements and Supplementary Data
37
Table of Contents
Audit • Tax • Consulting • Financial Advisory
Registered with Public Company Accounting Oversight
Board (PCAOB)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of SemiLEDs Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SemiLEDs Corporation and its subsidiaries (the
“Company”) as of August 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss,
changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its
cash flows for the years then ended, in conformity with the U.S. generally accepted accounting principles.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a
going concern. As described in Note 2 to the financial statements, the Company incurred recurring losses from
operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going
concern. Management’s plans with regard to these matters are described in Note 2. The accompanying consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 6 to the consolidated financial statements, on September 1, 2019, the Company has changed its
method of accounting for leases due to the adoption of Financial Accounting Standards Board Accounting Standards
Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company’s revenue is derived from the delivery
of its products. The sale of products by the Company is considered complete when the products are delivered at that
time the ownership and risk of loss have been transferred to the customer.
The Company considers the contracts with its customer contain one performance obligation, and the Company is
entitled to the consideration when performance obligation is satisfied at a point in time. The amount of revenue to be
recognized is determined by the contracts between the Company and its customer. The Company recognizes revenue
when the product is delivered.
Table of Contents
38
The principal considerations for our determination that performing procedures relating to revenue recognition,
specifically the identification and evaluation of the timing and amount of revenue recognition, is a critical audit
matter, involved judgment exercised by management in identifying and evaluating the performance obligation.
Auditor judgement is involved in performing our audit procedures to evaluate whether the timing and amount of
revenue recognition was appropriately stated.
How the Critical Audit Matter Will Be Addressed in the Audit
Our audit procedures over determining the timing and amount of revenue recognition involved, among others,
evaluation of management’s assessment in regard to the identification of performance obligation of revenue. We
selected customer agreements and performed the following procedures:
- Evaluated the terms and conditions of each selected contract and the appropriateness of the accounting
treatment within the context of the five-step model prescribed by ASC 606, Revenue from Contracts with
Customers, and evaluated whether management’s conclusions were appropriate.
- Tested the accuracy of management’s recognition of revenue for the performance obligation.
/s/ KCCW Accountancy Corp.
We have served as the Company’s auditor since 2019.
Diamond Bar, California
November 29, 2021
KCCW Accountancy Corp.
3333 South Brea Canyon Rd. #206, Diamond Bar, CA 91765, USA
Tel: +1 909 348 7228 ● Fax: +1 909 895 4155 ● info@kccwcpa.com
39
Table of Contents
SEMILEDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars and shares, except par value)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable (including related parties), net of allowance for
doubtful accounts
of $199 and $187 as of August 31, 2021 and August 31, 2020,
respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right of use assets
Intangible assets, net
Investments in unconsolidated entities
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt
Accounts payable
Advance receipt toward the convertible note
Accrued expenses and other current liabilities
Other payable to related parties
Operating lease liabilities, current portion
Total current liabilities
Long-term debt, excluding current installments
Operating lease liabilities, less current portion
Total liabilities
Commitments and contingencies (Note 6)
EQUITY:
August 31,
2021
2020
$
4,833 $
90
2,832
85
$
$
865
3,937
329
10,054
5,244
1,635
126
1,011
169
18,239 $
5,109 $
753
—
2,783
764
98
9,507
2,569
1,537
13,613
1,331
2,476
781
7,505
5,645
203
89
952
186
14,580
4,750
536
500
2,654
460
97
8,997
2,909
106
12,012
SemiLEDs stockholders’ equity
Common stock, $0.0000056 par value—7,500 shares authorized; 4,460
shares
and 4,011 shares issued and outstanding as of August 31, 2021 and
August 31, 2020,
—
—
respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total SemiLEDs stockholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
$
See notes to consolidated financial statements.
40
Table of Contents
182,255
3,543
(181,211 )
4,587
39
4,626
18,239 $
177,235
3,647
(178,360 )
2,522
46
2,568
14,580
SEMILEDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars and shares, except per share data)
Revenues, net
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Gain on disposals of long-lived assets, net
Total operating expenses
Loss from operations
Other income (expenses):
Gain on disposals of investment
Interest expenses, net
Other income, net
Foreign currency transaction gain, net
Total other income, net
Loss before income taxes
Income tax expense
Net loss
Less: Net loss attributable to noncontrolling interests
Net loss attributable to SemiLEDs stockholders
Net loss per share attributable to SemiLEDs stockholders:
Basic and diluted
Years Ended August 31,
2020
2021
4,735 $
3,702
1,033
1,623
3,614
(286 )
4,951
(3,918 )
—
(371 )
1,090
342
1,061
(2,857 )
—
(2,857 )
(6 )
(2,851 ) $
6,068
4,478
1,590
1,538
2,808
(669 )
3,677
(2,087 )
634
(358 )
912
352
1,540
(547 )
—
(547 )
(3 )
(544 )
(0.68 ) $
(0.15 )
$
$
$
Shares used in computing net loss per share attributable to SemiLEDs
stockholders:
Basic and diluted
4,180
3,921
See notes to consolidated financial statements.
41
Table of Contents
SEMILEDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars)
Net loss
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $0 for both
periods
Comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to SemiLEDs stockholders
Years Ended August 31,
2020
2021
$
(2,857 ) $
(547 )
(102 )
(2,959 )
(4 )
(2,955 ) $
(103 )
(650 )
—
(650 )
$
See notes to consolidated financial statements.
42
Table of Contents
SEMILEDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars and shares)
Additional
Paid-in
Common Stock
Shares Amount Capital
3,594 $ — $ 175,804 $
Accumulated
Other
Total
SemiLEDs
Non-
Comprehensive Accumulated Stockholders’ Controlling Total
Income
Deficit
Equity
Interests
Equity
3,753 $ (177,816 ) $
1,741 $
47 $ 1,788
34 —
— —
183 —
BALANCE—
September 1,
2019
Issuance of
common stock
under equity
incentive plans
Stock-based
compensation
Issuance of
common stock for
private
placement
Issuance of
convertible notes — —
Conversion of
notes into
common stocks
Change ownership
in SBDI*
Comprehensive
income (loss)
Other
comprehensive
income (loss)
Net loss
BALANCE—
August 31, 2020
Issuance of
common stock
under equity
— —
— —
200 —
— —
69 —
—
—
—
—
— —
101
—
—
101
—
101
700
—
—
700
—
700
39
—
—
39
—
39
592
—
—
592
—
592
(1 )
—
—
(1 )
(1 )
(2 )
—
—
(106 )
—
—
(544 )
(106 )
(544 )
3
(3 )
(103 )
(547 )
4,011 — 177,235
3,647 (178,360 )
2,522
46 2,568
—
—
—
—
— —
345 —
— —
incentive plans
Stock-based
compensation
Issuance of
common stock for
private
placement
Issuance of
convertible notes — —
Conversion of
notes into
common stocks
Change ownership
in SBDI*
Comprehensive
income (loss)
Other
comprehensive
income (loss)
Net loss
BALANCE—
August 31, 2021
— —
— —
— —
35 —
186
—
—
186
—
186
4,175
—
—
4,175
— 4,175
18
—
—
18
—
18
650
—
—
650
—
650
(9 )
—
—
(9 )
(3 )
(12 )
—
—
(104 )
—
—
(2,851 )
(104 )
(2,851 )
2
(102 )
(6 ) (2,857 )
4,460 $ — $ 182,255 $
3,543 $ (181,211 ) $
4,587 $
39 $ 4,626
*
SBDI (Taiwan Bandaoti Zhaoming Co., Ltd.) is one of the Company’s subsidiaries.
See notes to consolidated financial statements.
Table of Contents
43
SEMILEDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Years Ended August 31,
2020
2021
$
(2,857 ) $
(547 )
Depreciation and amortization
Stock-based compensation expense
Bad debt expense
Provisions for inventory write-downs
Gain on disposals of investment
Gain on disposals of long-lived assets, net
Other non-cash expenses
Income recognized on patents assignment
Changes in :
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other current liabilities
Net cash used in operating activities
897
186
540
659
—
(286 )
150
158
(1,974 )
37
175
578
(1,737 )
843
101
—
709
(634 )
(669 )
—
15
(988 )
131
(139 )
177
(1,001 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from disposals of investments
Payments for development of intangible assets
Refund of cash receipt-in-advance
Net cash provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt
Repayments of long-term debt
Issuance of common stock
Payment of offering costs
Acquisition of noncontrolling interests
Net cash provided by financing activities
Changes in cash balance included in deconsolidated subsidiaries
Effect of exchange rate changes on cash and cash equivalents
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—
Beginning of year
CASH, AND CASH EQUIVALENTS, AND RESTRICTED CASH—End
$
of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
$
$
Cash paid for interest
Cash paid for income taxes
NONCASH INVESTING AND FINANCING ACTIVITIES:
(118 )
291
—
(14 )
—
159
—
(173 )
4,302
(127 )
(12 )
3,990
(396 )
2,016
(271 )
669
140
(20 )
—
518
2,000
(283 )
700
—
(2 )
2,415
(61 )
(330 )
1,541
3,012
1,471
5,028 $
3,012
374 $
— $
47
—
9
Accrual related to property, plant and equipment
$
17 $
See notes to consolidated financial statements.
44
SEMILEDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 31, 2021 and 2020
Table of Contents
1. BUSINESS
SemiLEDs Corporation (“SemiLEDs” or the “parent company”) was incorporated in Delaware on January
4, 2005 and is a holding company for various wholly owned subsidiaries. SemiLEDs and its subsidiaries
(collectively, the “Company”) develop, manufacture and sell high performance light emitting diodes (“LEDs”).
The Company’s core products are LED components, LED modules and systems, as well as LED chips and lighting
products. LED components, modules and systems have become the most important part of its business. A portion
of the Company’s business consists of the sale of contract manufactured LED products. The Company’s customers
are concentrated in a few select markets, including Netherlands, Taiwan, the United States, Germany and India.
As of August 31, 2021, SemiLEDs had two wholly owned subsidiaries. SemiLEDs Optoelectronics Co.,
Ltd., or Taiwan SemiLEDs, is the Company’s wholly owned operating subsidiary, where a substantial portion of
the assets is held and located, and where a portion of research, development, manufacturing and sales activities
take place. Taiwan SemiLEDs owns a 97% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., formerly
known as Silicon Base Development, Inc., which is engaged in the research, development, manufacturing and a
substantial portion of marketing and sale of LED components, and where most of the Company’s employees are
based. On November 27, 2019, SemiLEDs entered into a stock purchase agreement (the “Agreement”) with Xian
Chang Ma (the “Purchaser”) pursuant to which the Purchaser agreed to purchase all of the outstanding shares of
the Company’s Hong Kong subsidiary, Semileds International Corporation Limited, and its wholly owned
subsidiary Xuhe Guangdian Co Ltd. for $100,000 and an additional $40,000 for the transaction costs. The
Purchaser paid $140,000 to the Company, and the transaction was completed in January 2020. The Purchaser also
subscribed for approximately 4% of the Company’s outstanding common shares on January 17, 2020 (see Note
7).
SemiLEDs’ common stock trades the Nasdaq Capital Market under the symbol “LEDS”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation —The Company’s consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Going Concern —The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The realization of assets and the satisfaction of liabilities in the normal course of business are
dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from
operations, and to pursue financing arrangements to support its working capital requirements.
The Company has suffered losses from operations of $3.9 million and $2.1 million, and used net cash in
operating activities of $1.7 million and $1.0 million for the years ended August 31, 2021 and 2020,
respectively. These facts and conditions have raised substantial doubt about the Company’s ability to continue as
a going concern, even though gross profit on product sales was $1.0 million for the year ended August 31, 2021
compared to $1.6 million for the year ended August 31, 2020. On August 31, 2021, the Company’s cash and cash
equivalents increased to $4.8 million, mainly due to the issuance of convertible notes and common stock from a
private placement. Management believes that it has developed a liquidity plan, as summarized below, that, if
executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due
for a reasonable period of time, and allow the development of its core business. The plan includes:
• Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales
of new higher margin products. The growth of the Company’s module products and the continued
commercial sales of its UV LED products are expected to improve the Company’s future gross margin,
operating results and cash flows. The Company is targeting niche markets and focused on product
enhancement and developing its LED product into many other applications or devices;
• Continuing to monitor prices, work with current and potential vendors to decrease costs and, consistent
with its existing contractual commitments, may possibly decrease its activity level and capital
expenditures further. This plan reflects its strategy of controlling capital costs and maintaining financial
flexibility; and
• Raising additional cash through the issuance of convertible notes to the Company’s major stockholders,
further equity offerings (including through as the Company’s ATM program), sales of assets and/or
issuance of debt as considered necessary and looking at other potential business opportunities.
Table of Contents
45
While the Company's management believes that the measures described in the above liquidity plan will be
adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statements are
issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully
implement the liquidity plan may have a material adverse effect on its business, results of operations and financial
position, and may adversely affect its ability to continue as a going concern. These consolidated financial
statements and financial statement schedule do not include any adjustments related to the recoverability and
classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might
be necessary should the Company be unable to continue as a going concern.
Revenue Recognition —Effective September 1 2018, the Company adopted ASC 606 using the modified
retrospective transition method. The Company applied the following five steps to achieve the core principles of
ASC 606: 1) identified the contract with a customer; 2) identified the performance obligations (promises) in the
contract; 3) determined the transaction price; 4) allocated the transaction price to the performance obligations in
the contract; and 5) recognized revenue when (or as) the Company satisfies a performance obligation. The
Company recognizes the amount of revenue when the Company satisfies a performance obligation to which it
expects to be entitled for the transfer of promised goods or services to customers. The Company obtains written
purchase authorizations from its customers as evidence of an arrangement and these authorizations generally
provide for a specified amount of product at a fixed price. Generally, the Company considers delivery to have
occurred at the time of shipment as this is generally when title and risk of loss for the products will pass to the
customer. The Company provides its customers with limited rights of return for non-conforming shipments and
product warranty claims. Based on historical return percentages, which have not been material to date, and other
relevant factors, the Company estimates its potential future exposure on recorded product sales, which reduces
product revenues in the consolidated statements of operations and reduces accounts receivable in the consolidated
balance sheets. The Company also provides standard product warranties on its products, which generally range
from three months to two years. Management estimates the Company’s warranty obligations as a percentage of
revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated
warranty provisions have been insignificant.
Principles of Consolidation —The consolidated financial statements include the accounts of SemiLEDs
and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during
consolidation.
On September 1, 2018, the Company adopted ASU 2016-01, “Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). This
standard allows equity investments (except those accounted for under the equity method of accounting or those
that result in consolidation of the investees) that do not have readily determinable fair values to be re-measured at
fair value either upon the occurrence of an observable price change or upon identification of impairment. The
standard also simplifies the impairment assessment of equity investments without readily determinable fair values
by requiring a qualitative assessment to identify impairment at each reporting period. When a qualitative
assessment indicates that impairment exists, the Company is required to measure the investments at fair value.
Investments in which the Company has the ability to exercise significant influence over the investee but
not a controlling financial interest, are accounted for using the equity method of accounting and are not
consolidated. These investments are in joint ventures that are not subject to consolidation under the variable
interest model, and for which the Company: (i) does not have a majority voting interest that would allow it to
control the investee, or (ii) has a majority voting interest but for which other shareholders have significant
participating rights, but for which the Company has the ability to exercise significant influence over operating and
financial policies. Under the equity method, investments are stated at cost after adding or removing the Company’s
portion of equity in undistributed earnings or losses, respectively. The Company’s investment in these
equity-method entities is reported in the consolidated balance sheets in investments in unconsolidated entities,
and the Company’s share of the income or loss of these equity-method entities, after the elimination of unrealized
intercompany profits, is reported in the consolidated statements of operations in equity in losses from
unconsolidated entities. When net losses from an equity-method investee exceed its carrying amount, the carrying
amount of the investment is reduced to zero. The Company then suspends using the equity method to provide for
additional losses unless the Company has guaranteed obligations or is otherwise committed to provide further
financial support to the equity-method investee. The Company resumes accounting for the investment under the
equity method if the investee subsequently returns to profitability and the Company’s share of the investee’s
income exceeds its share of the cumulative losses that have not been previously recognized during the period the
equity method is suspended.
Investments in entities that are not consolidated or accounted for under the equity method are recorded as
investments without readily determinable fair values. Investments without readily determinable fair values are
reported on the consolidated balance sheets in investments in unconsolidated entities, at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or
similar investment of the same issuer. Dividend income, if any, received is reported in the consolidated statements
of operations in equity in losses from unconsolidated entities.
If the fair value of an equity investment declines below its respective carrying amount and the decline is
determined to be other-than-temporary, the investment will be written down to its fair value.
Table of Contents
46
Use of Estimates— The preparation of consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates
and assumptions include the preparation of the Company’s consolidated financial statements on the basis that the
Company will continue as a going concern, the collectability of accounts receivable, inventory net realizable
values, realization of deferred tax assets, valuation of stock-based compensation expense, the useful lives of
property, plant and equipment and intangible assets, the recoverability of the carrying amount of property, plant
and equipment, intangible assets and investments in unconsolidated entities, the fair value of acquired tangible
and intangible assets, income tax uncertainties, provision for potential litigation costs and other contingencies.
Management bases its estimates on historical experience and also on assumptions that it believes are reasonable.
Management assesses these estimates on a regular basis; however, actual results could differ materially from those
estimates.
Certain Significant Risks and Uncertainties— The Company is subject to certain risks and uncertainties
that could have a material and adverse effect on the Company’s future financial position or results of operations,
which risks and uncertainties include, among others: it has incurred significant losses over the past few years, any
inability of the Company to compete in a rapidly evolving market and to respond quickly and effectively to changing
market requirements, any inability of the Company to grow its revenue and/or maintain or increase its margins, it
may experience fluctuations in its revenues and operating results, any inability of the Company to protect its
intellectual property rights, claims by others that the Company infringes their proprietary technology, and any
inability of the Company to raise additional funds in the future.
Concentration of Supply Risk— Some of the components and technologies used in the Company’s products
are purchased and licensed from a limited number of sources and some of the Company’s products are produced by
a limited number of contract manufacturers. The loss of any of these suppliers and contract manufacturers may cause
the Company to incur transition costs to another supplier or contract manufacturer, result in delays in the
manufacturing and delivery of the Company’s products, or cause it to carry excess or obsolete inventory. The
Company relies on a limited number of such suppliers and contract manufacturers for the fulfillment of its customers’
orders. Any failure of such suppliers and contract manufacturers to perform could have an adverse effect upon the
Company’s reputation and its ability to distribute its products or satisfy customers’ orders, which could adversely
affect the Company’s business, financial position, results of operations and cashflows.
Concentration of Credit Risk— Financial instruments that subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
The Company keeps its cash and cash equivalents in demand deposits with prominent banks of high credit
quality and invests only in money market funds. Deposits held with banks may exceed the amount of insurance
provided on such deposits. As of August 31, 2021 and 2020, cash and cash equivalents of the Company consisted
of the following (in thousands):
The Company’s revenues are substantially derived from the sales of LED products. A significant portion
of the Company’s revenues are derived from a limited number of customers and sales are concentrated in a few
select markets. Management performs ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable. Management evaluates the need to establish an allowance for doubtful accounts
for estimated potential credit losses at each reporting period. The allowance for doubtful accounts is based on the
management’s assessment of the collectability of its customer accounts. Management regularly reviews the
allowance by considering certain factors, such as historical experience, industry data, credit quality, age of
accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
Cash and Cash Equivalents by Location
United States;
Denominated in U.S. dollars
Taiwan;
August 31,
2021
2020
$
1,162 $
251
Denominated in U.S. dollars
Denominated in New Taiwan dollars
3,405
47
2,514
52
Denominated in other currencies
219
15
China (including Hong Kong);
Denominated in Renminbi
Denominated in H.K. dollars
Total cash and cash equivalents
Table of Contents
—
—
4,833 $
—
—
2,832
$
47
Customers that accounted for 10% or more of the Company’s total net accounts receivable as of August 31,
2021 and 2020 consist of the following:
Customers
Customer A
Customer B
Customer C
Customer G
August 31,
2021
2020
53 %
20 %
0 %
8 %
50 %
— %
29 %
5 %
The customers accounted for 10% or more of the Company’s total net revenues for the years ended August
31, 2021 and 2020, as follows (in thousands, except percentages):
Customers
Customer A
Customer B
Customer C
Customer D
Years Ended August 31,
2021
% of
Revenues
2020
% of
Revenues
Amount
Amount
$
1,260
721
502
—
27 % $
15 %
11 %
0 %
1,005
1,828
237
862
17 %
30 %
4 %
14 %
Cash and Cash Equivalents—The Company considers all highly liquid investment instruments purchased
with initial maturities of three months or less to be cash equivalents.
As of August 31, 2021 and 2020, cash and cash equivalents of the Company consist of the following (in
thousands):
Cash and Cash Equivalents
Cash;
August 31,
2021
2020
Cash and demand deposits
$
4,833 $
2,832
Cash equivalents;
Money market funds
Total cash and cash equivalents
—
4,833 $
—
2,832
$
Restricted Cash Equivalents— Restricted cash primarily consists of cash held in reserved bank accounts
in Taiwan. As of August 31, 2021 and 2020, the Company’s restricted cash equivalents at current portion
amounted $90 thousand and $85 thousand, respectively. As of August 31, 2021 and 2020, the Company’s
restricted cash at noncurrent portion, which was recorded as other assets, amounted to $105 thousand and $95
thousand, respectively.
Foreign Currency— The Company’s subsidiaries use the local currency as their functional currency. The
assets and liabilities of the subsidiaries are, therefore, translated into the U.S. dollars at exchange rates in effect at
each balance sheet date, with the resulting translation adjustments recorded to a separate component of
accumulated other comprehensive income (loss) within equity. Income and expense accounts are translated at
average exchange rates during the period. Any gains and losses from transactions denominated in foreign
currencies are recognized in the consolidated statements of operations as a separate component of other income
(expense).
Accounts Receivable — Accounts receivable (including related parties with zero net book value as of
August 31, 2021 and 2020, respectively) are recorded at invoiced amounts, net of allowances for doubtful
accounts, and do not bear interest. The allowance for doubtful accounts is based on management’s assessment of
the collectability of customer accounts. Management regularly reviews the allowance by considering certain
factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current
economic conditions that may affect a customer’s ability to pay. Bad debt expenses were recognized $540
thousand and $0 during the years ended August 31, 2021 and 2020, respectively.
Table of Contents
48
Inventories— Inventories consist of raw materials, work in process and finished goods and are stated at
the lower of cost or net realizable value. Cost is determined using a weighted average. For work in process and
manufactured inventories, cost consists of raw materials, direct labor and an allocated portion of the Company’s
production overhead. The Company writes down excess and obsolete inventory to its estimated net realizable
value based upon assumptions about future demand and market conditions. For finished goods and work in
process, if the estimated net realizable value for an inventory item, which is the estimated selling price in the
ordinary course of business, less reasonably predicable costs to completion and disposal, is lower than its cost,
the specific inventory item is written down to its estimated net realizable value. Net realizable value for raw
materials is based on replacement cost. Provisions for inventory write-downs are included in cost of revenues in
the consolidated statements of operations. Once written down, inventories are carried at this lower cost basis until
sold or scrapped.
Property, Plant and Equipment— Property, plant and equipment are stated at cost less accumulated
depreciation, amortization and impairment. Depreciation on property, plant and equipment is calculated using the
straight-line method over the estimated useful lives, less estimated salvage values of the assets. Leasehold
improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful
life of the asset.
The estimated useful lives of property, plant and equipment are as follows:
Buildings and improvements
Machinery and equipment
Leasehold improvements
Other equipment
5 to 20 years
1 to 10 years
2 to 10 years
2 to 6 years
Major Maintenance Activities— The Company incurs maintenance costs on its major equipment. Repair
and maintenance costs are expensed as incurred.
Intangible Assets— Intangible assets consist of patents, trademarks and acquired technology. Intangible
assets are initially recognized at their respective acquisition costs. All of the Company’s intangible assets have
been determined to have finite useful lives and are, therefore, amortized using the straight-line method over their
estimated useful lives:
Patents and trademarks
Acquired technology
5 to 25 years
years
5
Impairment of Long-Lived Assets— Management evaluates the Company’s long-lived assets, excluding
goodwill, that consist of property, plant and equipment and intangible assets, for indicators of possible impairment
when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash
flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured
based on the excess carrying amount of the asset over the estimated fair value of the asset. Fair value is determined
through various valuation techniques, including discounted cash flow models, quoted market values and
third-party independent appraisers, as considered necessary.
No impairment charge was recognized in the years ended August 31, 2021 and 2020.
Recovery of Investments in Unconsolidated Entities —Management evaluates the recoverability of the
carrying amount of the Company’s equity investments accounted for using the equity method and cost method
when there is an indication of potential impairment. If the estimated realizable value of an equity investment falls
below its carrying amount and management determines that this shortfall is other-than-temporary, the carrying
amount of such investment is written down to its estimated realizable value. In determining whether a decline in
value is other-than-temporary, management considers the length of time and the extent to which such value has
been less than the carrying amount, the financial condition and prospects of the investee, and the Company’s
ability and intent to retain the equity investment for a period of time sufficient to allow for any anticipated recovery
in value.
No impairment charge was recognized in the year ended August 31, 2021 and 2020.
Income Taxes —The Company accounts for income taxes under the asset and liability method. As part of
the process of preparing the consolidated financial statements, the Company estimates its income taxes in each of
the jurisdictions in which it operates. The Company estimates actual current tax expense together with assessing
temporary differences resulting from differing accounting treatment for items such as accruals and allowances
that are not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities
which are included in the Company’s consolidated balance sheets. In general, deferred tax assets represent future
tax benefits to be received when certain expenses previously recognized in the Company’s consolidated statements
of operations become deductible expenses under applicable income tax laws or when operating loss or tax credit
carryforwards are utilized. Accordingly, realization of the deferred tax assets is dependent on the Company’s
ability to earn future taxable income against which these deductions, losses and credits can be utilized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to be applicable to the taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect of a change in
tax rates on the Company’s deferred tax assets and liabilities is recognized in the consolidated statements of
operations in the period the change in the tax law was enacted.
Table of Contents
49
Management assesses the likelihood that the Company’s deferred tax assets will be recovered from future
taxable income and, to the extent management believes that recovery is not more likely than not, a valuation
allowance is established. The Company recognizes the effect of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that
is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. The Company records interest and penalties, if any, related to
unrecognized tax benefits in income tax expense.
Stock-based Compensation —Compensation costs related to employee stock options and restricted stock
units are based on the fair value of the options and stock units on the date of grant, net of estimated forfeitures.
The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model.
The related stock-based compensation expense is generally recognized on a straight-line basis over the period in
which an employee is required to provide service in exchange for the options and stock units, or the vesting period
of the respective options and stock units.
Research and Development Costs —Research and development costs are expensed as incurred. Research
and development costs are presented as a separate line item in the consolidated statements of operations.
Advertising Costs —Advertising costs are expensed as incurred. Advertising costs totaled $1 thousand
and $1 thousand for the years ended August 31, 2021 and 2020, respectively, and are included in selling, general
and administrative expenses in the consolidated statements of operations.
Segment Reporting —The Company uses the management approach in determining reportable operating
segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker for making operating decisions, allocating resources and assessing performance
as the source for determining the Company’s reportable segments. During the years ended August 31, 2021 and
2020, the Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief
operating decision maker regularly reviews consolidated assets and consolidated operating results prepared under
U.S. GAAP for the enterprise as a whole when making decisions about allocating resources and assessing
performance of the Company. Consequently, management has determined that the Company does not have any
operating segments as defined in the Financial Accounting Standards Board (the “FASB”) Accounting Standards
Codification (“ASC”) 280-10-50-1, “Segment Reporting.”
Shipping and Handling Costs — The Company includes costs from shipping and handling within cost of
revenues in the period in which they are incurred.
Net Income (Loss) Per Share of SemiLEDs Common Stock —Basic net income (loss) per share is
computed by dividing net income (loss) attributable to SemiLEDs stockholders by the weighted average number
of shares of common stock outstanding during the period. Net income (loss) attributable to SemiLEDs
stockholders is determined by allocating undistributed earnings as if all of the earnings for the period had been
distributed. Diluted net income (loss) per share is computed by using the weighted-average shares of common
stock outstanding, including potential dilutive shares of common stock assuming the dilutive effect of outstanding
stock options and unvested restricted stock units using the treasury stock method.
Noncontrolling Interests —Noncontrolling interests are classified in the consolidated statements of
operations as part of consolidated net income (loss) and the accumulated amount of noncontrolling interests in the
consolidated balance sheets as part of equity. Changes in ownership interest in a consolidated subsidiary that do
not result in a loss of control are accounted for as an equity transaction. If a change in ownership of a consolidated
subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the
gain or loss reported in net earnings.
On September 1, 2018, Taiwan Bandaoti Zhaoming Co., Ltd. (“SBDI”), the Company’s wholly owned
operating subsidiary, issued 414,000 common shares and amended its certificate of incorporation to increase its
issued common stock from 12,087,715 shares to 12,501,715 shares. As of the issuance date, the increased capital
of $176 thousand (NT$5.4 million) has been received in full amount by Taiwan Bandaoti Zhaoming Co., Ltd. The
Company did not subscribe for any newly issued common shares at the issuance date; as a result, noncontrolling
interest in SBDI was increased from zero to 3.31%. From January 2019 to September 2020, the Company
purchased additional 33,000 common shares of SBDI from non-controlling shareholders. Therefore,
noncontrolling interest in SBDI declined to 3.05% as of August 31, 2021.
Commitments and Contingencies — Liabilities for loss contingencies arising from claims, assessments,
litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred
and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are
expensed as incurred.
Table of Contents
50
Fair Value Measurements — The Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines
fair value based on assumptions that market participants would use in pricing an asset or liability in the principal
or most advantageous market. When considering market participant assumptions in fair value measurements, the
following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized
in one of the following levels:
•
•
Level1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to
the reporting entity at the measurement date.
Level2 Inputs: Other than quoted prices included in Level1 inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the asset or liability.
•
Level3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which there is little, if any, market
activity for the asset or liability at measurement date.
See Note12 for further details.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which
requires entities to measure all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing
incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the
standard will have on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-
06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion
accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium
or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be
allocated between debt and equity components. This modification will reduce the issue discount and result in less
non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation
and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For
contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and
embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the
settlement assessment by removing the requirements to (i) consider whether the contract would be settled in
registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU
2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year.
The Company is currently evaluating the impact that the standard will have on its consolidated financial
statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and
Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and
Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides
guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a
freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or
exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of
a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the
fair value of that warrant immediately before modification or exchange and then apply a recognition model that
comprises four categories of transactions and the corresponding accounting treatment for each category (equity
issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination
or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-
04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted
for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim
period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The
Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
Table of Contents
51
3. BALANCE SHEET COMPONENTS
Inventories
Inventories as of August 31, 2021 and 2020 consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total
August 31,
2021
2020
$
$
564 $
1,217
2,156
3,937 $
433
792
1,251
2,476
Inventory write-downs to estimated net realizable values for the years ended August 31, 2021 and 2020
were $659 thousand and $709 thousand, respectively.
Property, Plant and Equipment
Property, plant and equipment as of August 31, 2021 and 2020 consist of the following (in thousands):
August 31,
2021
2020
Buildings and improvements
Machinery and equipment
Leasehold improvements
Other equipment
Construction in progress
Total property, plant and equipment
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
$ 14,997 $ 14,104
33,977
166
2,384
7
50,638
(44,993 )
5,645
34,421
176
2,547
—
52,141
(46,897 )
5,244 $
$
Depreciation expense was $879 thousand and $831 thousand for the years ended August 31, 2021 and 2020,
respectively.
Property, plant and equipment pledged as collateral for the Company’s notes payable were $3.5 million and
$3.6 million as of August 31, 2021 and 2020, respectively.
Intangible Assets
Intangible assets as of August 31, 2021 and 2020consist of the following (in thousands):
August 31, 2021
Patents and trademarks
Acquired technology
Total
15
5
$
$
Weighted
Average
Amortization Carrying Accumulated Carrying
Period (Years) Amount
Gross
Net
Amortization Amount
501 $
367
868 $
627 $
367
994 $
126
—
126
Patents and trademarks
Acquired technology
Total
15
5
$
$
August 31, 2020
Weighted
Average
Amortization Carrying Accumulated Carrying
Period (Years) Amount
Gross
Net
Amortization Amount
461 $
345
806 $
550 $
345
895 $
89
—
89
Amortization expense was $18 thousand and $12 thousand for the years ended August 31, 2021 and 2020,
respectively.
No impairment charge was recognized in the year ended August 31, 2021 and 2020.
Table of Contents
52
The estimated future amortization expense for the Company’s intangible assets as of August 31, 2021 is as
follows (in thousands):
Accrued Expenses and Other Current Liabilities
Years Ending August 31,
2022
2023
2024
2025
2026
Thereafter
Total
Total
$
$
11
11
10
10
10
74
126
Accrued expenses and other current liabilities as of August 31, 2021 and 2020 consist of the following (in
thousands):
Accrued compensation and benefits
Customer deposits
Accrued business expenses
Accrued professional service fees
Advance receipts
Other (individually less than 5% of total accrued
expenses and
other current liabilities)
Total
$
August 31,
2021
2020
1,694 $
293
200
283
1,661
148
144
133
313
2,783 $
568
2,654
$
4.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of
August 31, 2021 and 2020 consist of the following (in thousands, except percentages):
Equity investment without readily determinable
fair value
Total investments in unconsolidated entities
Various $
$
1,011 Various $
$
1,011
952
952
August 31, 2021
August 31, 2020
Percentage
Ownership Amount
Percentage
Ownership Amount
There were no dividends received from unconsolidated entities through August 31, 2021.
Equity Investment without Readily Determinable Fair Value
Equity investments (except those accounted for under the equity method of accounting or those that result
in consolidation of the Company) which do not have readily determinable fair values are recorded as equity
investment without readily determinable fair value. All equity investments without readily determinable fair value
are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not
be recoverable, and measured at cost minus impairment, if any, plus or minus changes resulting from observable
price changes in orderly transactions for an identical or similar investment of the same issuer. The recoverable
value of the investment was determined based on the Company’s best estimate of the amount that could be realized
from the investment, which considered the latest financial information. During the year ended August 31, 2021
and 2020, no impairment losses were recognized for the equity investments without readily determinable fair
value.
53
Table of Contents
5.
INDEBTEDNESS
Long-term Debt
Long-term debt as of August 31, 2021 and 2020 consist of the following loans (in thousands):
First note payable- Mega Bank
Second note payable- Mega Bank
Loans from Chairman and Shareholders
Convertible notes issued to Chairman and
Shareholders
Total long-term debt
Less: Current installments
Total long-term debt, excluding current
installments
August 31,
2021
2020
$
1,917 $
1,175
3,200
1,905
1,168
3,200
1,386
7,678
(5,109 )
1,386
7,659
(4,750 )
$
2,569 $
2,909
Our long-term debt, which consisted of New Taiwan dollar (“NTD”) denominated long-term notes,
convertible unsecured promissory notes and loans from the Chairman and the largest shareholder of the Company,
totaled $7.7 million and $7.7 million as of August 31, 2021 and 2020, respectively.
On July 5, 2019, the Company and Mega International Commercial Bank (“Mega Bank”) entered into two
NTD denominated loan agreements in an aggregate amount of $3.39 million (NT$100 million). The first note of
$2.1 million (NT$62 million) payable to Mega Bank has an annual floating interest rate equal to the NTD base
lending rate plus 0.64% (or 1.465% currently), and was exclusively used to repay original notes with E Sun Bank.
The second note of $1.29 million (NT$38 million) payable to Mega Bank has an annual floating interest rate equal
to the NTD base lending rate plus 1.02% (or 1.845% currently) and is available for operating capital. Both note
payables are secured by a first priority security interest on the Company’s headquarters building. Income from
renting the collateral must be deposited into a reserved account opened with Mega Bank, and only the balance of
deposits exceeding $80 thousand (NT$2.5 million) after deducting the principal and interest payable for the
current month (including the accumulated outstanding amount) may be transferred outwards. The balance of the
reserve account is $90 thousand and $85 thousand as of August 31, 2021 and 2020, respectively. In May 2020,
due to the impact of the COVID-19 pandemic, Mega bank agreed to give us a deferment period for twelve months
starting from May 2020. During this period, the Company did not need to pay the monthly payments of the
principal but only the interest. Starting from May 2021, the two notes payables to Mega Bank require monthly
payments of principal in the amount of $27 thousand plus interest and $17 thousand plus interest, respectively,
over the 74-month term of the notes with final payment to occur in July 2027.
On January 8, 2019, the Company entered into loan agreements with Trung Doan, the Chairman and Chief
Executive Officer, and J.R. Simplot Company, the largest shareholder of the Company, with aggregate amounts
of $1.7 million and $1.5 million, respectively, and an annual interest rate of both 8%. All proceeds of the loans
were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the cancelled
proposed sale of the Company’s headquarters building pursuant to the agreement dated December 15, 2015. The
Company is required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021,
unless the loans are sooner accelerated pursuant to the loan agreements. As of August 31, 2021 and 2020, these
loans totaled $3.2 million. The loans are secured by a second priority security interest on the headquarters building
of the Company.
On December 6, 2019 and December 10, 2019, the Company issued two convertible unsecured promissory
notes (the “Notes”) to each of J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and
Chief Executive Officer (together, the “Holders”), with a principal sum of $1.5 million and $500 thousand,
respectively, and an annual interest rate of 3.5%. Principal and accrued interest is due on demand by the Holders
on and at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes may
be converted into the Company’s common stock based on a conversion price of $3.00 per share, at the option of
the Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $300,000 of
the Notes into 100,000 shares of the Company’s common stock. On May 26, 2021, the Notes were extended with
the same terms and interest rate for one year and now mature on May 30, 2022. As of August 31, 2021 and 2020,
the outstanding principal of these notes totaled $1.4 million.
The scheduled principal payments for the Company’s long-term debt as of August 31, 2021 consist of the
following (in thousands):
Years Ending August 31,
2022
2023
2024
2025
2026
Thereafter
Total
Table of Contents
Scheduled
Principal
Payments
$
5,109
523
523
523
523
477
7,678
$
54
6. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements —The Company has several operating leases with third parties, primarily
for land, plant and office spaces in Taiwan, including cancellable and noncancelable leases that expire at various
dates between December 2021 and December 2040. Leases with an initial term of 12 months or less are not
recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over
the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company did
not combine lease and non-lease components.
Most leases do not include options to renew. The exercise of lease renewal options has to be agreed by the
lessors. The depreciable life of assets and leasehold improvements are limited by the term of leases, unless there
is a transfer of title or purchase option reasonably certain of exercise. Lease expense is recognized on a straight-
line basis over the term of the lease. Lease expense related to these noncancelable operating leases were $164
thousand and $156 thousand for the years ended August 31, 2021 and 2020, respectively.
Balance sheet information related to the Company’s leases is presented below:
Assets
Operating lease right of use assets
$
1,635 $
203
August 31,
2021
2020
Liabilities
Operating lease liabilities, current portion
Operating lease liabilities, less current portion
Total
$
$
98 $
1,537
1,635 $
97
106
203
The following provides details of the Company’s lease expenses:
Operating lease expenses
$
164 $
156
August 31,
2021
2020
Other information related to leases is presented below:
August 31,
2021
2020
Cash Paid for amounts Included In
Measurement of Liabilities:
Operating cash flows from operating leases
$
164 $
156
Weighted Average Remaining Lease Term:
Operating leases
Weighted Average Discount Rate
Operating leases
18.74
years
2.34
years
1.76 %
1.76 %
As most of the Company’s leases do not provide an implicit rate, the Company uses its average borrowing
rate from non-related parties of 1.76% based on the information available at commencement date in determining
the present value of lease payments.
The aggregate future noncancelable minimum rental payments for the Company’s operating leases as of
August 31, 2021 consist of the following (in thousands):
Table of Contents
55
Years Ending August 31,
2022
2023
2024
2025
2026
Thereafter
Total future minimum lease payments, undiscounted
Less: Imputed interest
Present value of future minimum lease payments
Operating
Leases
$
$
126
105
105
105
105
1,369
1,915
280
1,635
Purchase Obligations —The Company had purchase commitments for inventory, property, plant and
equipment in the amount of $101thousand and $33thousand as of August 31, 2021 and 2020, respectively.
Table of Contents
56
Litigation — The Company is directly or indirectly involved from time to time in various claims or legal
proceedings arising in the ordinary course of business. The Company recognizes a liability when it is probable
that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in
assessing both the likelihood of an unfavorable outcome and whether the amount of loss, if any, can be reasonably
estimated.
On June 21, 2017, Well Thrive Ltd. (“Well Thrive”) filed a complaint against the Company in the United
States District Court for the District of Delaware. The complaint alleged that Well Thrive was entitled to return
of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”)
effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to
the terms of the Purchase Agreement, the Company retained the $500 thousand payment as liquidated damages.
Well Thrive alleged that the liquidated damages provision was unenforceable as an illegal penalty and did not
reflect the amount of purported damages. On March 13, 2018, the Company filed a motion to enforce a settlement
agreement between the parties to dismiss the lawsuit with prejudice. On March 27, 2018, Well Thrive filed an
answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss
the case. On January 2, 2019, the judge denied without prejudice the motion filed by the Company, because there
remained some question as to whether Well Thrive’s former lawyers and Dr. Chiou had authority from Well
Thrive to settle this case. The Court held a trial on March 2, 2020. After the trial, the judge ordered both sides to
prepare post-trial briefs and proposed findings of fact for the Court to be submitted before end of April 2020. Both
sides submitted post-trial briefs and proposed findings of fact on April 30, 2020. On December 21, 2020, the
judge, following a hearing, issued her judgment, which ordered the Company to return the $500 thousand to Well
Thrive, and required both parties, on or before January 6, 2021, to submit information on the appropriate amount
of interest to be added. On January 6, 2021, the Company filed a brief arguing that there should not be an award
of prejudgment interest and Well Thrive was arguing for the amount of $135,774 in pre-judgement interest. On
April 8, 2021, the judge issued a ruling requiring the Company to pay pre-judgment interest in the amount of
$123,000 to Well Thrive. On May 7, 2021, the Court of Appeal issued an order requiring the parties to mediate
on June 28, 2021. The Company and Well Thrive Ltd. entered into an Agreement Regarding Satisfaction of
Judgment dated June 14, 2021, as amended on June 16, 2021 and June 21, 2021 (collectively, the “Settlement
Agreement”), pursuant to which the Company issued 35,365 shares (the “Shares”) of its common stock to Well
Thrive Ltd. The Shares were issued to satisfy the amount payable under the Settlement Agreement and,
accordingly, no cash proceeds were received by the Company from the issuance of the Shares.
Except as described above, as of August 31, 2021, there was no pending litigation that could have a material
impact on the Company’s financial position, results of operations or cash flows.
7. COMMON STOCK
On January 17, 2020, the Company entered into a definitive common stock purchase agreement with Xian
Chang Ma. Pursuant to the terms of the Agreement, Mr. Ma purchased 150,000 shares of the Company’s common
stock at $4.00 per share, representing approximately 4% of the outstanding shares of the Company at the time of
purchase. The Company received the $600,000 purchase price in full on January 17, 2020.
On May 25, 2020, the Company entered into a definitive common stock purchase agreement (the
“Agreement”) with Feng Shuang Zhu. Pursuant to the terms of the Agreement, Mr. Zhu purchased 33,333 shares
of the Company’s common stock at $3.00 per share for an aggregate purchase price of $100,000. The Company
received the $100,000 purchase price in full on May 25, 2020.
On May 25, 2020, J.R. Simplot Company, the largest shareholder of the Company, and Trung Doan, the
Chairman and Chief Executive Officer of the Company, each converted $300,000 of convertible unsecured
promissory notes into 100,000 shares of the Company’s common stock (see Note 5).
In June 2021, the Company and Well Thrive Ltd., entered into an Agreement Regarding Satisfaction of
Judgement dated June 14, 2021 (collectively, the “Settlement Agreement”) pursuant to which the Company issued
35,365 shares (the “Shares”) of the common stock to Well Thrive Ltd, valued at $650,000. The Shares were issued
to satisfy the amount payable under the Settlement Agreement and, accordingly, no cash proceeds were received
by the Company from the issuance of the Shares.
On July 6, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital
Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company may offer and
sell from time to time through the Agent the Company’s common stock having an aggregate offering price of up
to $20,000,000 (the “Placement Shares”). Sales of the Placement Shares, if any, will be made on Nasdaq at market
prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the
Securities Act of 1933, as amended. The Company will pay a commission to the Agent of 3.0% of the gross
proceeds of the sale of the Placement Shares sold under the Agreement and reimburse the Agent for certain
expenses. In July 2021, 344,391 shares of the Company’s common stock were issued for gross proceeds of
$4,175,225, before placement agent fees and legal fees of $126,576.
Table of Contents
57
8. STOCK-BASED COMPENSATION
The Company currently has one equity incentive plan (the “2010 Plan”), which provides for awards in the
form of restricted shares, stock units, stock options or stock appreciation rights to the Company’s employees,
officers, directors and consultants. In April 2014, SemiLEDs’ stockholders approved an amendment to the 2010
Plan that increases the number of shares authorized for issuance under the plan by an additional 250 thousand
shares. On July 31, 2019, the stockholders approved an increase in the authorized share reserve under the 2010
plan by an additional 500 thousand shares, to extend expiration of the 2010 Plan to November 3, 2023, to remove
the IRS Code section 162(m) provisions, and to modify the maximum grant limit to 35 thousand shares to one
person in a one year period. Prior to SemiLEDs’ initial public offering, the Company had another stock-based
compensation plan (the “2005 Plan”), but awards are made from the 2010 Plan after the initial public offering.
Options outstanding under the 2005 Plan continue to be governed by its existing terms.
A total of 1,421 thousand and 1,021thousand shares were reserved for issuance under the 2010 Plans of August
31, 2021 and 2020, respectively. As of August 31, 2021 and 2020, there were 1026 thousand and 548 thousand shares
of common stock available for future issuance under the 2010 Plan, respectively.
In November 2020, SemiLEDs granted 15,000 restricted stock units to its directors, which vested 25% on
each of February 12, 2021, May 12, 2021 and August 12, 2021 and will vest 25% on November 12, 2021. If the
2021 annual meeting is held before November 12, 2021, 100% of the stock units shall immediately vest on the
date of the 2021 annual meeting. The grant-date fair value of the restricted stock units was $3.00 per unit.
In November 2020, SemiLEDs granted 33,000 restricted stock units to its employees, which vested 25%
on each of February 12, 2021, May 12, 2021 and August 12, 2021 and will vest 25% on November 12, 2021 and
will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $3.00
per unit.
In January 2020, SemiLEDs granted 136 thousand restricted stock units to its employees, which vest 25%
each year on January 10 of 2021, 2022, 2023 and 2024 and will become fully vested upon a change in control.
The grant-date fair value of the restricted stock units was $2.39 per unit.
In September 2019, SemiLEDs granted 5 thousand restricted stock units to its directors, which vested 100%
on July 31, 2020. The grant-date fair value of the restricted stock units was $2.45 per unit.
In September 2019, SemiLEDs granted 2.5 thousand restricted stock units to a director, which vested 100%
on September 5, 2020. The grant-date fair value of the restricted stock units was $2.45 per unit.
Stock-based Compensation Expense
The total stock-based compensation expense consists of stock-based compensation expense for stock
options and restricted stock units granted to employees, directors, nonemployees and also includes stock options
to purchase SemiLEDs’ common stock as part of an employment agreement related to the Company’s acquisition
of SBDI (later on renamed as TSLC Corporation). A summary of the stock-based compensation expense for the
years ended August 31, 2021 and 2020is as follows (in thousands):
Cost of revenues
Research and development
Selling, general and administrative
Years Ended August 31,
2021
2020
$
$
51 $
43
92
186 $
27
21
53
101
Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded
only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of
zero is estimated for stock-based awards with vesting term that is less than or equal to one year from the date of
grant.
There was no recognized stock-based compensation tax benefit for the years ended August 31, 2021 and
2020, as the Company recorded a full valuation allowance on net deferred tax assets as of August 31, 2021 and
2020.
Stock Options Awards
The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on
the date of grant, the term that the stock options are expected
Table of Contents
58
to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the
expected term of stock options, risk-free interest rate and expected dividend. The expected term is derived from
historical data on employee exercises and post-vesting employment termination behavior after taking into account
the contractual life of the award. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term
of the related options. The expected dividend has been zero for the Company’s option grants as SemiLEDs has
never paid dividends and does not expect to pay dividends for the foreseeable future. Each of these inputs is
subjective and generally requires significant judgment to determine.
A summary of the option activity and changes for the years ended August 31, 2021 and 2020 is presented
below:
Weighted-
Outstanding—September 1, 2019
Granted
Forfeited
Exercised
Outstanding—August 31, 2020
Granted
Forfeited
Exercised
Number of
Stock Options Exercise Contractual
Life (Years)
Outstanding Price
(In thousands)
Weighted- Average
Average Remaining Aggregate
Intrinsic
Value
(In thousands)
—
1.4 $
10 $ 133.82
—
—
41.00
(2 )
—
—
8 $ 159.00
(8 ) 159.00
0.5 $
—
Outstanding—August 31, 2021
— $
—
— $
—
Vested and expected to vest—August 31, 2021
Exercisable—August 31, 2021
— $
— $
—
—
— $
— $
—
—
As of August 31, 2021 and 2020, unrecognized compensation costs related to unvested stock options were
nil.
Restricted Stock Units Awards
The grant date fair value of stock units is based upon the market price of SemiLEDs’ common stock on the
date of the grant. This fair value is amortized to compensation expense over the vesting term.
A summary of the restricted stock unit awards outstanding and changes for the years ended August 31,
2021 and 2020 is presented below:
Outstanding—September 1, 2019
Granted
Vested
Forfeited
Outstanding—August 31, 2020
Granted
Vested
Forfeited
Outstanding—August 31, 2021
Weighted-
Average
Number of
Stock Units Grant Date
Outstanding Fair Value
(In thousands)
29 $
144
(34 )
—
139 $
48
(69 )
(15 )
103 $
4.10
2.39
3.86
—
2.39
3.00
2.70
2.51
2.46
As of August 31, 2021 and 2020, unrecognized compensation cost related to unvested restricted stock unit
awards of $ 205 thousand and $ 284thousand, respectively, is expected to be recognized over a weighted average
period of 2.09 years and 3.36 years, respectively, and will be adjusted for subsequent changes in estimated
forfeitures.
Table of Contents
59
9. NET LOSS PER SHARE OF COMMON STOCK
The following stock-based compensation plan awards were excluded from the computation of diluted net
loss per share of common stock for the periods presented because including them would have an antidilutive effect
on the net loss per share (in thousands of shares):
Stock units and stock options to purchase common
stock
Convertible notes to convert into common stock
70
235
182
431
Years Ended August 31,
2021
2020
10. INCOME TAXES
Income taxes are recognized for the amount of taxes payable for the current year and for the impact of
deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized
differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using
the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.
United States
SemiLEDs Corporation is incorporated in the United States of America and is subject to United States
federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the
period.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to
as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the U.S. corporate
income tax system including, among other things, lowering the U.S. statutory federal tax rate to 21%. The
reduction of the U.S. corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to
the lower federal rate of 21% in the fiscal year ended August 31, 2019. The Tax Act also added many new
provisions, including a one-time repatriation tax on deemed repatriation of historical earnings of foreign
subsidiaries (“transition tax”), changes to bonus depreciation, limits on deductions for executive compensation
and interest expense, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax
(“BEAT”) and a deduction for foreign-derived intangible income. The Company has elected to account for the
tax on GILTI and BEAT as a period cost and thus has not adjusted any net deferred tax assets of its foreign
subsidiaries for the new tax. However, the Company has considered the potential impact of GILTI and BEAT on
its U.S. federal net operating loss (“NOL”) carryforward and determined that the projected tax benefit to be
received from its NOL carryforward may be reduced due to these provisions.
The changes included in the Tax Act are broad and complex. The SEC issued Staff Accounting Bulletin
No. 118 (SAB 118), as amended by ASU 2018-05, which provides guidance for companies related to the Tax Act.
ASU 2018-05 allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize
the recording of the related tax impacts. The Company’s accounting for the tax effects of the Tax Act were
completed in fiscal 2019. Although the Company believes the effects of the Tax Act have been appropriately
recorded, it will continue to monitor, among other things, changes in interpretations of the Tax Act, any legislative
action arising because of the Tax Act and any changes in accounting standards for income taxes or related
interpretations in response to the Tax Act. The Company intends to assess the impact of any such changes in
legislative interpretations or standards and adjust its provision as new information becomes available.
In accordance with SAB 118, the Company has made reasonable estimates related to (1) the remeasurement
of its U.S. deferred tax balances for the reduction in the statutory tax rate, (2) the liability for the transition tax
and (3) the partial valuation allowance recorded against its federal NOL carryforward due to the impact of the
GILTI and BEAT provisions. In fiscal 2021, the Company determined that there were no material changes to the
provisional amounts recorded as of August 31, 2021.
Taiwan
The Company’s loss before income taxes is primarily derived from the operations in Taiwan and income
tax expense is primarily incurred in Taiwan.
As a result of amendments to the “Taiwan Income Tax Act” enacted by the Office of the President of
Taiwan on February 7, 2018, the statutory income tax rate increased from 17% to 20% and the undistributed
earning tax, or a surtax, decreased from 10% to 5% effective from January 1, 2018. As a result, the statutory
income tax rate in Taiwan is20% for the years ended August 31, 2021 and 2020. An additional surtax, of which
rate was reduced from 10% to 5% being applied to the Company starting from September 1, 2018, is assessed on
undistributed income for the entities in Taiwan, but only to the extent such income is not distributed or set aside
as a legal reserve before the end of the following year. The 5% surtax is recorded in the period the income is
earned, and the reduction in the surtax liability is recognized in the period the distribution to stockholders or the
setting aside of legal reserve is finalized in the following year.
Table of Contents
60
The Company’s loss before income taxes for the years ended August 31, 2021 and 2020was attributable to
the following jurisdictions (in thousands):
Years Ended August 31,
2021
2020
U.S. operations
Foreign operations
Loss before income taxes
$
$
(1,156 ) $
(1,701 )
(2,857 ) $
(310 )
(237 )
(547 )
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax
rate of 21% to loss before income taxes for the years ended August 31, 2021 and 2020, as a result of the following
(in thousands):
Computed “expected” income tax benefit
Foreign tax rate differential
Valuation allowance
Other
Income tax expense
Years Ended August 31,
2021
2020
$
$
(115 ) $
19
(239 )
335
— $
(115 )
3
(286 )
398
—
Net deferred tax assets (liabilities) as of August 31, 2021 and 2020 consist of the following (in thousands):
Deferred tax assets:
Inventories, primarily due to inventory
obsolescence and
lower of cost or market provisions
Allowance for doubtful accounts
Accruals and other
Property, plant and equipment
Stock-based compensation
Net operating loss carryforwards
Total gross deferred tax assets
$
Less: Valuation allowance
Deferred tax assets, net of valuation allowance
$
August 31,
2021
2020
1,848 $
38
(159 )
738
392
30,924
33,781
(33,781 )
— $
1,719
35
(60 )
871
388
29,302
32,255
(32,255 )
—
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible and operating loss carryforwards
utilizable. Management considers the scheduled reversal of deferred tax liabilities, carryback availability,
projected future income, and tax-planning strategies in making this assessment. The Company established full
valuation allowances to offset all of its deferred tax assets due to the uncertainty of realizing future tax benefits
from its net operating loss carryforwards and other deferred tax assets.
Table of Contents
61
As of August 31, 2021 the Company had the U.S. net operating losses (the “U.S. NOLs”) of approximately
$29,889 thousand, which begins to expire in 2025. The U.S. NOLs generated in tax years prior to August 31,
2018, can be carryforward for twenty years, whereas U.S. NOLs generated after August 31, 2018 can be
carryforward indefinitely. The unused net operating loss carryforwards were as follows (in thousands):
U.S. federal net operating loss carryforwards
(prior to August 31, 2018)
U.S. federal net operating loss carryforwards (after
August 31, 2018)
August 31, Expiration
2021
Year
$
12,892
2025-
2037
16,997
—
Foreign net operating loss carryforwards
(expiring over the next 5 years)
Foreign net operating loss carryforwards
(expiring in more than 5 years)
98,088
23,992
2021-
2025
2026-
2030
Total unused net operating loss carryforwards
and income tax
credits
$ 151,969
Unrecognized Tax Benefits
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was adopted, which among other effects, reduced
the U.S. federal corporate income tax rate to 21% from 34% (or 35% in certain cases) beginning in 2018, requires
companies to pay a one-time transition tax on certain unrepatriated earnings from non-U.S. subsidiaries that is
payable over eight years, makes the receipt of future non-U.S. sourced income of non-U.S. subsidiaries tax-free
to U.S. companies and creates a new minimum tax on the earnings of non-U.S. subsidiaries relating to the parent’s
deductions for payments to the subsidiaries. Provisional estimate of the Company is that no tax will be due under
this provision.
As of August 31, 2021 and 2020, the Company had no unrecognized tax benefits.
The Company is subject to taxation in the United States and various states and certain foreign jurisdictions.
As of August 31, 2021, the 2016 through 2019 tax years remain subject to examination by the U.S. tax authorities.
With few exceptions, as of August 31, 2021, the Company is no longer subject to U.S. federal, state, local, or
foreign examinations by tax authorities for tax years before 2016. Below is a summary of open tax years by major
tax jurisdiction:
U.S. federal
U.S. state
Foreign—Taiwan
Open
Tax Year
2017-2020
2017-2020
2020
The Company is not currently under examination by income tax authorities in any federal, state or foreign
jurisdictions. The Company does not expect that the total amount of unrecognized tax benefits will change
significantly within the next 12 months.
11. PRODUCT AND GEOGRAPHIC INFORMATION
Revenues by products for the years ended August 31, 2021 and 2020 are as follows (in thousands):
LED chips
LED components
Lighting products
Other(1)
Total
Years Ended August 31,
2021
2020
$
$
171 $
3,259
730
575
4,735 $
69
3,977
548
1,474
6,068
(1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and
the provision of services.
Table of Contents
62
Revenues by geography are based on the billing address of the customer. The following table sets forth
revenues by geographic area for the years ended August 31, 2021 and 2020 (in thousands):
United States
Netherlands
Ireland
Japan
Taiwan
Germany
China
Other (individually less than 5% of total net
revenues)
Total
Years Ended August 31,
2021
2020
$
1,550 $
1,274
8
504
155
380
256
2,429
1,009
862
477
366
238
105
608
4,735 $
582
6,068
$
Tangible Long-Lived Assets
Substantially all of the Company’s tangible long-lived assets are located in Taiwan.
12. FAIR VALUE MEASUREMENTS
The following table presents the carrying amounts and estimated fair values of the Company’s financial
instruments as of August 31, 2021 and 2020 (in thousands):
August 31, 2021
August 31, 2020
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents and restricted cash
Receivables (including related parties)
Other assets (non-derivatives)
$
4,923 $
865
248
4,923 $
865
248
2,917 $
1,331
809
2,917
1,331
809
Financial liabilities:
Payables (including related parties)
Long-term debt (including current
installments)
$
4,300 $
4,300 $
4,150 $
4,150
7,678
7,678
7,659
7,659
The fair values of the financial instruments shown in the above table as of August 31, 2021 and 2020
represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities
in an orderly transaction between market participants at that date. Those fair value measurements maximize the
use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability
at the measurement date, the fair value measurement reflects management’s own judgments about the assumptions
that market participants would use in pricing the asset or liability. Those judgments are developed by management
based on the best information available in the circumstances, including expected cash flows and appropriately
risk-adjusted discount rates, available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
• Cash, cash equivalents, restricted cash, receivables and payables (including related parties) and notes
payable to banks: The carrying amounts, at face value or cost plus accrued interest, approximate fair
value because of the short maturity of these instruments.
• Other assets (non-derivatives) include primarily value-added tax (“VAT”) refund receivables,
refundable deposits, and restricted time deposits. The fair value of VAT refund receivables approximates
the carrying amount because of the short maturity. The fair value of refundable deposits and restricted
time deposits with no fixed maturity is based on the carrying amount.
•
Long-term debt: The fair value of the Company’s variable rate long-term debt is estimated based on the
prevailing market rate adjusted by the Company’s credit spread.
Table of Contents
63
13. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
As a holding company, dividends received from SemiLEDs’ subsidiaries in Taiwan, if any, will be subject
to withholding tax under Taiwan law, as well as statutory and other legal restrictions. The condensed parent
company only financial information for SemiLEDs is presented below (in thousands):
Condensed Balance Sheets
ASSETS
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Intangible assets, net
Investments in subsidiaries
TOTAL ASSETS
LIABILITIES AND EQUITY
Advance receipt toward the convertible note
Accrued expenses and other current liabilities
Long-term debt, current portion
Total current liabilities
Total non-current liabilities
Total equity
TOTAL LIABILITIES AND EQUITY
August 31,
2021
2020
$
1,162 $
11,995
13,157
1
(2,841 )
$ 10,317 $
251
9,078
9,329
1
(1,072 )
8,258
$
- $
1,104
4,587
5,691
—
4,626
$ 10,317 $
500
650
4,586
5,736
—
2,522
8,258
SemiLEDs had no contingencies, long-term obligations and guarantees as of August 31, 2021 or August
31, 2020.
Condensed Statements of Operations
Operating expenses:
Years Ended August 31,
2021
2020
Selling, general and administrative
$
Loss from operations
Other income (expenses):
Gain on disposal of investments
Equity in losses from subsidiaries, net
Interest expenses
Other income, net
Total other (expenses) income, net
Net loss
$
694 $
(694 )
—
(1,697 )
(322 )
(138 )
(2,157 )
(2,851 ) $
641
(641 )
634
(230 )
(320 )
13
97
(544 )
Condensed Statements of Cash Flows
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Years Ended August 31,
2021
2020
$
(3,264 ) $
—
4,175
911
251
(2,641 )
140
2,700
199
52
Cash and cash equivalents at end of year
$
1,162 $
251
Table of Contents
64
14. RELATED PARTY TRANSACTIONS
On December 6, 2019 and on December 10, 2019, the Company issued convertible unsecured promissory
notes (the “Notes”) to J.R. Simplot Company, its largest shareholder, and Trung Doan, its Chairman and Chief
Executive Officer (together, the “Holders”), with a principal sum of $1.5 million and $500 thousand, respectively,
and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by the Holders on and
at any time after May 30, 2021. The outstanding principal and unpaid accrued interest of the Notes may be
converted into the Company’s common stock based on a conversion price of $3.00 per share, at the option of the
Holders any time from the date of the Notes. On May 25, 2020, each of the Holders converted $300,000 of the
Notes into 100,000 shares of the Company’s common stock (see Note 5). On May 26, 2021, the Notes were
extended with the same terms and interest rate for one year and now mature on May 30, 2022. As of August 31,
2021 and 2020, the outstanding principal of these notes totaled $1.4 million.
On January 8, 2019, the Company entered into loan agreements with each of the Chairman and Chief
Executive Officer and the largest shareholder of the Company, with aggregate amounts of $1.7 million and $1.5
million, respectively, and an annual interest rate of both 8%. All proceeds of the loans were exclusively used to
return the deposit to Formosa Epitaxy Incorporation in connection with the cancelled proposed sale of the
Company’s headquarters building pursuant to the agreement dated December 15, 2015. The Company is required
to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively, unless
the loans are sooner accelerated pursuant to the loan agreements. As of August 31, 2021 and 2020, these loans
totaled $3.2 million. The loans are secured by a second priority security interest on the headquarters building of
the Company.
15. SUBSEQUENT EVENTS
In November 2021, SemiLEDs granted 15 thousand restricted stock units to its directors that will vest 25%
every three months on February 12, 2022, May 12, 2022, August 12, 2022 and November 12, 2022. In the event
that the 2022 annual meeting falls before November 12, 2022, 100% of the stock units shall immediately vest on
the date of the 2022 annual meeting. The grant-date fair value of the restricted stock units was $7.11 per unit.
In November 2021, SemiLEDs granted 98.5 thousand restricted stock units to its employees, which will
vest 12.5% every three months on the vesting commencement date of November 2021 and will become fully
vested upon a change in control. The grant-date fair value of the restricted stock units was $7.11 per unit.
The Company has analyzed its operations subsequent to August 31, 2021 to the date these consolidated
financial statements were issued, finding that the impact of COVID-19 on the Company is unknown at this time
and the financial consequences of this situation cause uncertainty as to the future and its effects on the economy
and the Company.
Except for the above, the Company has determined that it does not have any other material subsequent
events to disclose in these consolidated financial statements.
Table of Contents
65
Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer, or CEO, and our chief financial
officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act as of August 31, 2021. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the
design of disclosure controls and procedures must reflect the fact that there are resource constraints and that
management is required to apply 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, 2021,
our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide
reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and forms, and that such information
is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Under the supervision and with the participation of our management, including our CEO and CFO, we
assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by
this report based on the framework in “Internal Control— Integrated Framework (2013)” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEO and CFO
concluded that our internal control over financial reporting is effective to provide reasonable assurance regarding
the reliability of our financial reporting and the preparation of the financial statements for external purposes in
accordance with GAAP, as of August 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter
ended August 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item9B. Other Information
Not applicable.
Table of Contents
66
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our Board of Directors
Trung T. Doan, 63, has served as a director, Chairman of our Board and as our CEO since January 2005,
and as our President since August 2012. Prior to joining us, Mr. Doan served as Corporate Vice President of
Applied Global Services (AGS) Product Group at Applied Materials, Inc. and also served as President and Chief
Executive Officer of Jusung Engineering, Inc., a semiconductor/LCD equipment company in Korea. In addition,
Mr. Doan served as Vice President of Process Development at Micron Technology Inc. Mr. Doan previously
served as a director of Advanced Energy Industries, a publicly traded manufacturer of power conversion and
control systems within the past five years. Mr. Doan also previously served as a director of Dolsoft Corporation,
a privately held software company, as a director of Nu Tool Inc., a semiconductor technology company, and as a
director of EMCO, a publicly traded manufacturer of advanced flow control devices 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 business and industry and his experience serving on the boards of directors of
several major technology companies, as well as in management roles in the technology industry.
Dr. Edward Kuan Hsiung Hsieh, 69, has served as a director since February 2012. Dr. Hsieh has been
Chairman, Chief Executive Officer and a director of Eton Intelligent Technologies, a media and publications
company, since April 2000 and Chairman, Chief Executive Officer and a director of VR Networks, a VoIP and
VR application company, since January 2000. He has also served as an Adjunct Professor at National Taiwan
University since February 2009. From February 2007 to February 2010, Dr. Hsieh was Chief Executive Officer
of Asia Pacific Telecom, a 3G mobile, and fixed line telecommunications company, as well as Executive Director
of APOL, an Internet service provider. He also served as Chairman of Good Neighbors Taiwan since 2019. Dr.
Hsieh holds a bachelor of science degree in electrical engineering from National Taiwan University, a master of
science degree in electrical engineering from the University of California, Santa Barbara, and a doctor of
philosophy degree in electrical engineering and applied physics from Cornell University. He also studied
accounting at the University of California, Los Angeles. Our Board has determined that Dr. Hsieh should serve
as a director based on his experience teaching master of business administration classes at National Taiwan
University, his service as an International Financial Adviser with Merrill Lynch, Pierce, Fenner & Smith and his
management roles at several start-up companies.
Scott R. Simplot, 75, has served as a director since March 2005. Mr. Simplot has been Chairman of the
board of directors and a director of J.R. Simplot Company since May 2001 and August 1970, respectively. Mr.
Simplot holds a bachelor of science degree in business from the University of Idaho and a master of business
administration degree from the University of Pennsylvania. Mr. Simplot became a director 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 Series A convertible preferred stock. Our Board has determined that Mr. Simplot should serve
as a director based on the extensive knowledge and insight he brings to our Board from his experience serving as
Chairman and holding a variety of management positions at a large private company and serving on the boards of
directors of companies in a variety of industries.
Walter Michael Gough, 67, has served as a director since April 2016. Mr. Gough has led Gough and
Associates, a firm that specializes in financial consulting for domestic and international companies since 2005.
He is also a tenured faculty member in Accounting and Business at DeAnza College in Cupertino, California
where he has taught since 1985. From June 2000 to June 2004, he was Chief Financial Officer and Financial
Consultant at NuTool Inc., a semiconductor equipment manufacturer. From 1995 through 1999, he was a founding
member 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 high technology electronics firm. Before Watkins-Johnson, Mr. Gough
worked for Kidder Peabody, an investment banking firm. He holds MBA and BA degrees (cum laude) from Santa
Clara University, and a Masters in English from Notre Dame de Namur University. Our Board has determined
that Mr. Gough should serve on our Board based on his experience as a consultant to technology companies in
both the United States and Taiwan, his prior experience as a chief financial officer of several companies, and his
expertise in accounting and finance.
Roger Lee, 63, has served as a director since September 2019. Mr. Lee previously served as a director and
an Audit Committee member of SemiLEDs from August 2017 to March 2019. Mr. Lee has more than 30 years of
semiconductor experience and leadership. He has been the President and CEO of TF Semiconductor Solutions
(TFSS) since August 2014. Prior to becoming the CEO of TFSS, Mr. Lee served as world-wide COO and Interim
President & CEO of Telefunken Semiconductors located in Roseville, California and Heilbronn, Germany from
May 2011 to July 2014. Mr. Lee began his career as an engineer for Texas Instruments. During his career, Mr.
Lee has served on numerous 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 several senior management positions,
including senior fellow and head of flash memory at Micron Technology and was instrumental to the development
of Micron’s flash memory program. More recently, he was COO and a board member of Founder
Microelectronics, Inc. in Shenzhen, China where he was responsible for overall company operations, including
fab manufacturing, sales and marketing, facilities, and R&D operations. Mr. Lee earned his Bachelor’s degree
and Master’s degree in Electrical Engineering from Iowa State University. Our Board has determined that Mr.
Lee should serve on our Board based on his experience with technology companies and other organizations in the
United States, Germany and China.
67
Table of Contents
Executive Officers
In addition to Mr. Doan, our CEO, who also serves as a director, our executive officers as of November 22,
2021 consisted of the following:
Christopher Lee, 50, has served as our Chief Financial Officer since September 2015. From November 21,
2014 until his appointment as Chief Financial Officer, Mr. Lee was the interim Chief Financial Officer of the
Company. Mr. Lee joined SemiLEDs in September 2014. Mr. Lee has over 25 years of experience in accounting
and finance, including US GAAP, PCAOB standards and SEC rules and regulations. Prior to joining us, Mr. Lee
was a partner of KEDP CPA Group from August 2009 to June 2011 and a self-employed accountant from July
2011 to August 2014. Mr. Lee holds a BS degree in accounting from The Ohio State University and a MS degree
in business taxation from Golden Gate University and is licensed as a Certified Public Accountant (CPA) in the
United States.
CORPORATE GOVERNANCE
Board Composition
Our Nominating and Corporate Governance Committee is charged with identifying and evaluating
individuals qualified to serve as members of the Board and recommending to the full Board nominees for election
as directors. We seek directors with experience in areas relevant 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 nominees below contains
information regarding the person’s service as a director, business experience, director positions held currently or
at any time during the last five years and the experiences, qualifications, attributes or skills that caused the
Nominating and Corporate Governance Committee to determine that the person should serve as a director of our
Company. In addition to the information presented below regarding each director’s specific experience,
qualifications, attributes and skills that led our Nominating and Corporate Governance Committee and Board to
the conclusion that he should serve as a director, we also believe that each of our directors has a reputation for
integrity, honesty and adherence to high ethical standards. Each of our directors has demonstrated business
acumen and an ability to exercise sound judgment, as well as a commitment of service to our Company and our
Board. Each of our director nominees is currently serving on the Board.
Board Responsibilities and Structure
The Board oversees, counsels, and directs management in the long-term interests of the Company and our
stockholders. The Board’s responsibilities 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 the business is being properly managed; and
overseeing the processes for maintaining our integrity with regard to our financial statements and other
public disclosures, and compliance 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 from time to time as appropriate. During fiscal year 2021, 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 the position 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
attention on the most pressing issues facing the Company. The Board has not appointed a lead independent
director. The Board believes its administration of its risk oversight function has not affected the Board’s leadership
structure.
68
Table of Contents
Board Committees and Charters
The Board delegates various responsibilities and authority to different Board committees. Committees
regularly report on their activities and actions to the full Board. The Board currently has, and appoints the members
of, a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance
Committee. Each of the Board committees has a written charter approved by the Board, and we post each charter
on our web site at http://investors.semileds.com/governance.cfm. Each committee can engage outside experts,
advisors and counsel to assist the committee in its work. The following table identifies the current committee
members.
Name
Dr. Edward Kuan Hsiung Hsieh
Walter Michael Gough
Roger Lee
Scott R. Simplot
Number of Committee Meetings Held in
Fiscal Year 2021
Nominating
and Corporate
Compensation Governance
˅
Audit
Chair
˅
˅
Chair
Chair
4
2
2
Audit Committee
Our 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 be performed by our independent auditors;
• monitoring the integrity of our financial statements and our compliance with legal and regulatory
requirements as they relate to financial 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 the independent 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 meets the additional SEC independence requirements for audit committee members. It has
also determined that Dr. Hsieh and Mr. Gough meet the requirements of an “audit committee financial expert,” as
defined in Regulation S-K.
Compensation Committee
Our 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 specific goals 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 a subcommittee, in the case of other officers, or to officers,
in the case of employees and consultants. It may also delegate to officers the authority to grant options or other
equity or equity-based awards to employees who are not executive officers or members of the Board. It may also
generally take into account the recommendations of the CEO, other than with respect to his own compensation.
Table of Contents
69
Nominating and Corporate Governance Committee
Our 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 applicable to 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 in assessing the skills and characteristics of individual members, it must give due regard for
independence and financial literacy considerations dictated by the NASDAQ rules. The Nominating and
Corporate Governance Committee does not at this time have a policy regarding its consideration of director
candidates recommended by stockholders, as it has not yet received any such recommendations. It may adopt a
policy if such recommendations are received.
Attendance at Board, Committee and Annual Stockholders’ Meetings
The Board held four meetings in fiscal 2021. We expect each director to attend every meeting of the Board
and the committees on which he serves, and encourage them to attend the annual stockholders’ meeting. All
directors attended at least 75% of the aggregate meetings of the Board and the committees on which they served
in fiscal 2021 and all continuing directors attended the 2021 annual meeting of stockholders.
Risk Management
The Board is involved in the oversight of risks that could affect the Company. The Board also monitors
cyber threat trends, regulatory developments, and major threats to the Company, including setting expectations
and accountability for management, as well as assessing the adequacy of resources, funding, and focus on cyber
risk management activities. This oversight is conducted primarily through the Audit Committee which, on behalf
of the Board, is charged with overseeing the principal risk exposures we face and our mitigation efforts in respect
of these risks. The Audit Committee is responsible for interfacing with management and discussing with
management the Company’s principal risk exposures and the steps management has taken to monitor and control
risk exposures, including risk assessment and risk management policies. The Compensation Committee also plays
a role in that it is charged, in overseeing the Company’s overall compensation structure, with assessing whether
that compensation structure creates risks that are reasonably likely to have a material adverse effect on us.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and
directors, including those officers 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 to the Code, or any waivers of its
requirements required to be disclosed pursuant to SEC or NASDAQ requirements, will be disclosed on the
website.
Communications from Stockholders and Other Interested Parties to Directors
The Board recommends that stockholders and other interested parties initiate communications with the
Board, any committee of the Board or any individual director in writing to the attention of our Corporate Secretary
at our principal executive office at 3F, No.11 Ke Jung Rd., Chu-Nan Site, Hsinchu Science Park, Chu-Nan 350,
Miao-Li County, Taiwan, R.O.C. This process will assist the Board in reviewing and responding to stockholder
communications in an appropriate manner. The Board has instructed our Corporate Secretary to review such
correspondence and, at his discretion, not to forward items if he deems them to be of a commercial or frivolous
nature or otherwise inappropriate for the Board’s consideration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more
than 10% of our common stock 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 matter of practice, our
administrative staff assists our executive officers and directors in preparing initial ownership reports and reporting
ownership changes, and typically files those reports on their behalf. Based solely on a review of the copies of such
forms in our possession and on written representations from reporting persons, we believe that during fiscal year
2021all of our executive officers, directors and 10% beneficial owners filed the required reports on a timely basis
under Section 16(a).
70
Table of Contents
Item11.Executive Compensation
COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AND DIRECTORS
Executive Compensation
This executive compensation section discloses the compensation awarded to or earned by our “named
executive officers” during fiscal years 2021 and 2020.
We held our last non-binding advisory vote regarding compensation of our named executive officers at the
2021 Annual Meeting of Stockholders and expect to hold our next vote at our 2024 Annual Meeting of
Stockholders.
Summary Compensation Table
The following table sets forth all of the compensation earned by our named executive officers(1) during the
relevant fiscal years.
Name and Principal Position
Trung T. Doan
Chief Executive Officer
Christopher Lee
Fiscal
Year
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Option All Other
Awards
($)
Compensation
($)
Total
($)
2021 258,188 — — —
2020 151,875 — — —
2021 91,420 —
18,079 —
— 258,188
— 151,875
— 109,499
(1) Mr. Christopher Lee’s compensation did not exceed $100 thousand for the fiscal year ended August 31, 2020.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards held by Mr. Doan as of the fiscal year ended August 31, 2021.
Pension Benefits
We do not maintain any defined benefit pension plans.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Severance and Change in Control Benefits
Mr. Doan entered into an employment agreement in 2005, which provides that if he is terminated by us
without cause or resigns due to a constructive termination, he will receive as severance an amount equal to six
months of his then-current salary plus his current medical insurance for six months following his termination date.
We offered such severance to motivate Mr. Doan to continue as our executive officer by providing severance
protection in the event that he is terminated by us without having committed any egregious act constituting cause
or if we adversely change his position such that he resigns. Cause is defined as (a) the conviction of a felony or
of any criminal offense involving moral turpitude; (b) the repeated failure to satisfactorily perform duties
reasonably required by us; (c) material breach of the proprietary information and invention agreement, our written
policies established by our Board or any term of his employment agreement; or (d) misappropriation of our
property or unlawful appropriation of our corporate opportunity or our business. If we determine cause exists, we
will provide Mr. Doan with written notice alleging cause and his failure to remedy the alleged cause within 30
days may result in a termination for cause. Constructive termination is defined as one of the following events
when we have not received Mr. Doan’s written consent for such event: (a) a significant reduction of his duties,
position or responsibilities relative to his duties, position or responsibilities in effect immediately prior to such
reduction or his removal from such position, duties and responsibilities, provided that a reduction in duties,
position or responsibilities solely by virtue of us being acquired and made part of a larger entity will not constitute
a constructive termination; (b) a substantial reduction, without good business reasons, of the facilities and
perquisites available to him immediately prior to such reduction; (c) a reduction of his base salary unless such
reduction is a part of a Company-wide reduction for similarly situated persons; or (d)a material reduction in the
kind or level of employee benefits to which he is entitled immediately prior to such reduction, with the result that
his overall benefits package is significantly reduced, unless such reductions are part of a Company-wide reduction
for similarly situated persons.
71
Table of Contents
Employment Agreements
Mr. 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 Compensation
Our Board amended our director compensation policy on November 11, 2020 to replace the annual cash
retainers for board and committee service with additional restricted stock units, as a result of which non-employee
members of the Board now receive the following compensation for their board and committee services:
•
•
•
no annual cash retainer for general Board or committee service;
no cash payments for attendance at general Board meetings; and
each year shortly following the annual stockholder meeting an annual grant of 5,000 shares of restricted
stock units, which fully vests on the earlier of the next annual meeting or the one-year anniversary of
the grant date, whichever is earlier, subject to continued service through the vesting date, provided that
the restricted stock units 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 re-nominated. The policy also includes an equity ownership guideline whereby our directors will be
expected to own and hold shares of our common stock until retirement from their Board service. We also
reimburse non-employee directors for travel, lodging and other expenses incurred in connection with their
attendance at Board or committee meetings.
Director Compensation Table
The following table sets forth the total compensation for our non-employee directors for the year ended
August 31, 2021:
Name
Dr. Edward Kuan Hsiung Hsieh
Walter Michael Gough
Roger Lee
Scott R. Simplot(1)
Fees Earned or
Paid in Cash
($)
All Other
Compensation
($)
Total
($)
Stock Awards
($)
15,000
15,000
15,000
—
—
—
—
—
— 15,000
— 15,000
— 15,000
— —
(1) Mr. Simplot waived any right to compensation.
72
Table of Contents
Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock as of
November 22, 2021 with respect 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 options currently exercisable or exercisable within 60days of November 22, 2021and RSUs that
will vest within 60days of November 22, 2021, are deemed to be outstanding for the purpose of computing the
percentage ownership of the person or group holding options and RSUs, but are 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 stockholder named in the table has sole voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
Percentage of ownership is based on 4, 459,579shares of common stock outstanding as of November 22,
2021.
Unless otherwise indicated in the footnotes to the table, the address of each individual listed in the table is
c/o SemiLEDs Corporation, 3F, No.11Ke Jung Rd., Chu-Nan Site, Hsinchu Science Park, Chu-Nan 350, Miao-Li
County, Taiwan, R.O.C.
Name and Address of Beneficial Owner
5% Stockholders:
Simplot Taiwan, Inc.
Shares Beneficially Owned
Number
Percent
1,489,934 (1)
33.3 %
J.R. Simplot Company
999 Main Street, Suite 1300 Boise, ID 83702
Trung Tri Doan
536,639 (2)
12.0 %
Executive Officers and Directors:
Trung Tri Doan
Walter Michael Gough
Roger Lee
Dr. Edward Kuan Hsiung Hsieh
Scott R. Simplot
Christopher Lee
536,639 (2)
16,068 (3)
7,500 (3)
28,571 (3)
1,520,970 (1)(4)
9,800 (5)
12.0 %
*
*
*
34.0 %
*
All executive officers and directors as a group
(6 persons)
2,119,548
47.4 %
Indicates beneficial ownership of less than 1%.
*
(1) Based on a Schedule13D/A filed June 5, 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. Simplot disclaims beneficial ownership
of such shares, except to the extent of his pecuniary interest therein. Includes 400,000 shares issuable upon
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 shares issuable upon exercise of outstanding convertible promissory notes.
(3) Includes 1,250 restricted stock units that will vest within 60 days.
(4) 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. Scott Simplot and Stephen A. Beebe are the managers of JRS Management L.L.C. As
managers of JRS Management L.L.C., Mr. Simplot and Mr. Beebe share voting and investment power over
the securities held by JRS Properties III L.P. Mr. Simplot may be deemed to have shared voting and
investment power over the shares held by JRS Properties III L.P. Mr. Simplot disclaims beneficial ownership
of such shares, except to the extent of his pecuniary interest therein.
(5) Includes 6,450 restricted stock units that will vest within 60 days.
Table of Contents
73
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of August 31, 2021.
All outstanding awards relate to our common stock.
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
(a)
(in thousands)
Weighted-
average
exercise price of
outstanding
options,
warrants
and rights(2)
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
(in thousands)
(1)
103
$
159.00
—
103
—
820
—
820
Plan category
Equity compensation plans
approved by security
holders
Equity compensation plans
not approved by security
holders
Total
(1) Consists of stock options granted under the 2005 Equity Incentive Plan and the 2010 Equity Incentive Plan,
and restricted stock units granted under the 2010 Equity Incentive Plan. No additional grants could be made
under the 2005 Equity Incentive Plan after December 8, 2010. In April2014 and July 2019, SemiLEDs’
stockholders approved amendments to the 2010 Plan that increased the number of shares authorized for
issuance under the plan by an additional 250 thousand shares and 500thousand shares, respectively. On
September 25, 2020, stockholders of SemiLEDs approved an increase in the authorized share reserve under
the 2010 plan by an additional 400 thousand shares.
(2) The weighted average exercise price does not take into account the shares issuable upon vesting of
outstanding restricted stock unit awards, 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 Independence
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since September 1, 2019, there has not been any transaction or series of similar transactions to which
we were or are 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 at year-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 any class of our voting securities or any member
of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest,
other than the transactions described below, some of which represent continuing transactions from prior periods.
On January 8, 2019, the Company entered into loan agreements with each of Mr. Doan,
its Chairman and Chief Executive Officer, and Simplot Taiwan, Inc., its largest shareholder,
with aggregate amounts of $3.2 million, and an annual interest rate of 8%. All proceeds of the
loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in
connection with the cancelled sale of the Company’s headquarters building pursuant to the
agreement dated December 15, 2015. The Company was initially required to repay the loans
of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively. In
February 2021, the loan agreements were extended with the same principal amount and interest
rate for one year and are now due on January 15, 2022, unless the loans are sooner accelerated
pursuant to the loan agreements. As of August 31, 2021, these loans totalled $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, the Company issued convertible
unsecured promissory notes (the “Notes”) to each of J.R. Simplot Company and Mr. Doan
(together, the “Holders”), with a principal sum of $1.5 million and $500 thousand, respectively,
and an annual interest rate of 3.5%. Principal and accrued interest shall be due on demand by
the Holders on and at any time after May 30, 2021. The outstanding principal and unpaid
accrued interest of the Notes may be converted into the Company’s common stock based on a
conversion price of $3.00 per share, at the option of the Holders any time from the date of the
Notes. On May 25, 2020, each of the Holders converted$300,000of the Notes into 100,000
shares of the Company’s common stock. On May 26, 2021, the Notes were extended with the
same terms and interest rate for one year and are now due on demand by the Holders on and at
any time after May 30, 2022.
Table of Contents
74
Policies and Procedures for Related Party Transactions
Our 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 other entity 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 person has a 5% or greater beneficial interest,
are not permitted to enter into a related party transaction with us without prior consent and approval of our Audit
Committee. This policy covers any transaction, arrangement or relationship, or any series of similar transactions,
arrangements or relationships in which we are a participant, the aggregate amount involved will or may be
expected to exceed $120,000 in any year and a related 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 in which 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 following categories 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 executive officer), director, or beneficial owner of less than 10% of that company’s shares,
if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total
annual revenue.
Director Independence
The published listing requirements of NASDAQ dictate that a majority of the Board be comprised of
independent directors whom our Board has determined have no material relationship with our Company and who
are otherwise “independent” directors under those listing requirements. 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 independent directors
under the NASDAQ rules.
The NASDAQ rules have objective tests and a subjective test for determining who is an “independent
director.” Under the objective tests, 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 any period of 12 consecutive months within the three years preceding the
independence determination (subject to certain exclusions, 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 to which the company made, or from which the company received, payments in the
current or any of the past three fiscal years that exceeded 5% of the recipient’s consolidated gross
revenue for that year or $200,000, whichever was greater (subject to certain exclusions);
•
•
the director or a family member of the director is employed as an executive officer of an entity where,
at any time during the past three 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 the past 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 established categorical 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 be three, who serve on the Audit Committee must each satisfy standards established
by the SEC that require that members of audit committees must not be affiliated persons of the issuer and may not
accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer other than their
director compensation.
Transactions Considered in Independence Determinations
In making its independence determinations, the Board considered transactions that occurred since the
beginning of fiscal year 2016 between the Company and entities associated with the independent directors or
members of their immediate family. All identified transactions that appeared to relate to the Company and a family
member of, or entity with a known connection to, a director were presented to the Board for consideration.
Table of Contents
75
None of the non-employee directors were disqualified from “independent” status under the objective tests.
In making its subjective determination that each of our Company’s non-employee director is independent, the
Board reviewed and discussed additional information provided by the directors and the Company with regard to
each director’s business and personal activities as they may relate to the Company and the Company’s
management. The Board considered the transactions in the context of the NASDAQ objective standards, the
special 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 a subjective determination that, because of the nature of the director’s
relationship with the entity and/or the amount involved, no relationships exist that, in the opinion of the Board,
would impair the director’s independence.
Item14.Principal Accountant Fees and Services
Fees Billed by Independent Registered Public Accounting Firm
The following table shows the fees and related expenses for audit and other services provided by KCCW
Accountancy Corp billed for fiscal year 2021 and 2020. The services described in the following fee table were
approved in conformity with the Audit Committee’s pre-approval process.
KCCW Accountancy Corp
Audit Services
Audit-Related Services
Tax Services
All Other Services
Total
2020 Fees
2021 Fees
$ 173,000 $ 173,000
—
7,000
—
$ 197,000 $ 180,000
—
7,000
17,000
Audit Services. This category includes the audit of our annual consolidated financial statements, review of
our quarterly condensed consolidated financial statements and services that are normally provided by our
independent auditors in connection with statutory and regulatory filings or engagements. This category also
includes statutory audits required by the Tax Bureau of Taiwan for certain of our subsidiaries in Taiwan.
Tax Services. The services for the fees disclosed in this category include tax return preparation and technical
tax advice.
Table of Contents
76
PART IV
Item15.Exhibits and Financial Statement Schedules
(2) Exhibits:
Exhibit
No
Exhibit Title
Form
File No.
Exhibit Filing Date
Filed
Herewith
3.1
3.2
3.3
Amended and Restated Certification of
Incorporation of Registrant
S-
1/A
333-168624
3.1(c)
Certificate of Amendment of Amended and
Restated Certificate of Incorporation
8-K
333-168624
3.1
November
22, 2010
April 15,
2016
Certificate of Amendment of Amended and
Restated Certificate 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)
4.1
Form of Common Stock Certificate
S-1/A
333-168624
4.1
4.2(d)
Description of the Registrant’s Securities
Under Section 12 of the Securities Exchange
Act of 1934
10-K
001-34992
4.2(d)
10.2†
2010 Equity Incentive Plan, as amended
September 25, 2020
10-K
001-34992
10.2
10.3†
10.4†
10.5†
Amended and Restated Employment
Agreement with Trung T. Doan, dated March
15, 2005
SemiLEDs Corporation 2010 Equity Incentive
Plan, Stock Unit Grant Agreement (Director
Form)
SemiLEDs Corporation 2010 Equity Incentive
Plan, Form of Stock Unit Agreement (Officer
Form)
S-1
333-168624
10.3
8-K
001-34992
99.1
8-K
001-34992
99.1
10.6
Form of Proprietary Information and
Inventions Agreement
S-1/A
333-168624
10.8
10.7
Form of Non-competition Agreement
S-1/A
333-168624
10.9
November
22, 2010
November
22, 2010
November
20, 2019
November
17, 2020
August 6,
2010
February 9,
2012
February 24,
2012
September
14, 2010
September
14, 2010
10.8†
Form of Option Agreement for the 2010
Equity Incentive Plan
S-1/A
333-168624
10.10
10.9†
Form of Indemnification Agreement with
directors and officers
S-1/A
333-168624
10.11
November
16, 2010
October 26,
2010
January 11,
2019
January 11,
2019
November
20, 2019
10-Q
001-34992
10.1
10-Q
001-34992
10.2
10-K
001-34992
10.12
10-K
001-34992
10.13
November
20, 2019
10.10
10.11
10.12
10.13
Loan Agreement dated January 8, 2019
between SemiLEDs Corporation and Trung
Doan
Loan Agreement dated January 8, 2019
between SemiLEDs Corporation and J. R.
Simplot Company
The First Loan Agreement between Mega
International Commercial Bank and
SemiLEDs Optoelectronics Co., Ltd. dated
July 5, 2019 (translation)
The Second Loan Agreement between Mega
International Commercial Bank and
SemiLEDs Optoelectronics Co., Ltd. dated
July 5, 2019 (translation)
10.14†
Amendment to Convertible Unsecured
Promissory Note dated May 26, 2021 to Trung
Doan
10-K
001-34992
10.14
X
Table of Contents
77
Exhibit Title
Form
File No.
Exhibit Filing Date
Filed
Herewith
Exhibit
No
10.15†
23.1
31.1
31.2
32.1
32.2
10-K
001-34992
10.15
Amendment to Convertible Unsecured
Promissory Note dated May 26,2021 to
Simplot Taiwan Inc.
Consent of KCCW Accountancy Corp,
Independent Registered Public Accounting
Firm
Certification of Chief Executive Officer
Pursuant to Exchange Act Rule
13a-14(a)/15d-14(a)
Certification of Chief Financial Officer
Pursuant to Exchange Act Rule
13a-14(a)/15d-14(a)
Certification Pursuant to 18 U.S.C. Section
1350
Certification Pursuant to 18 U.S.C. Section
1350
101.INS* XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
Document
101.CAL*
XBRL Taxonomy Extension Calculation
Linkbase Document
X
X
X
X
X
X
X
X
X
X
X
X
101.DEF*
XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase
Document
104
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101)
† Management contract or compensatory arrangement
Item 16. Form 10-K Summary
None.
Table of Contents
78
SIGNATURES
Pursuant to the requirements of Section13 or15 (d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 29, 2021
SemiLEDs Corporation
By:
/s/ TRUNG TRI DOAN
Trung Tri Doan
Chairman 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 on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ TRUNG TRI DOAN
Trung Tri Doan
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ CHRISTOPHER LEE
Christopher Lee
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
/s/ SCOTT R. SIMPLOT
Scott R. Simplot
/s/ DR. EDWARD KUAN HSIUNG
HSIEH
Dr. Edward Kuan Hsiung Hsieh
Director
Director
/s/ GOUGH WALTER MICHAEL
Gough Walter Michael
Director
/s/ ROGER LEE
Roger Lee
Director
79
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
Table of Contents
SEMILEDS CORPORATION
SCHEDULE II— VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts (Including Related Parties):
Beginning balance
Charged to bad debt expense
Write-downs charged against the allowance
Effect of exchange rate changes
Ending balance
Valuation Allowance for Deferred Tax Assets:
Beginning balance
Charged to income tax expense
Net operating loss carryforward expired
Effect of exchange rate changes
Ending balance
80
Years Ended
August 31,
2021
2020
(In thousands)
187 $
540
12
739 $
195
—
(8 )
187
Years Ended
August 31,
2021
2020
(In thousands)
32,254 $
(78 )
(368 )
1,973
33,781 $
30,983
(285 )
(136 )
1,692
32,254
$
$
$
$