10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2018

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 001-34992

SemiLEDs Corporation

(Exact name of registrant as specified in its charter)

Delaware	20-2735523
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

3F, No. 11 Ke Jung Rd., Chu-Nan Site,
Hsinchu Science Park, Chu-Nan 350,
Miao-Li County, Taiwan, R.O.C.	350
(Address of principal executive offices)	(Zip Code)

+886-37-586788
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,556,790 shares of common stock, par value $0.0000056 per share, outstanding as of July 6, 2018.

SEMILEDS CORPORATION

FORM 10-Q for the Quarter Ended May 31, 2018

INDEX

		Page No.
	Part I. Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of May 31, 2018 (unaudited) and August 31, 2017 (audited)	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended May 31, 2018 and 2017	2
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended May 31, 2018 and 2017	3
	Unaudited Condensed Consolidated Statement of Changes in Equity for the nine months ended May 31, 2018	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2018 and 2017	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
	Part II. Other Information
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
Signatures		30

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SEMILEDS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars and shares, except par value)

	May 31,			August 31,
	2018			2017
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,739		$	3,582
Accounts receivable (including related parties), net of allowance for doubtful accounts of $501 and $815 as of May 31, 2018 and August 31, 2017, respectively		310			1,111
Inventories		2,290			2,946
Prepaid expenses and other current assets		286			405
Total current assets		6,625			8,044
Property, plant and equipment, net		7,629			8,275
Intangible assets, net		103			104
Investments in unconsolidated entities		999			992
Other assets		246			255
TOTAL ASSETS	$	15,602		$	17,670
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt	$	342		$	335
Accounts payable		807			1,145
Advance receipt toward the convertible note		500			500
Accrued expenses and other current liabilities		5,676			5,482
Total current liabilities		7,325			7,462
Long-term debt, excluding current installments		2,151			2,391
Total liabilities		9,476			9,853
Commitments and contingencies (Note 5)
EQUITY:
SemiLEDs stockholders’ equity
Common stock, $0.0000056 par value—7,500 shares authorized; 3,557 shares and 3,544 shares issued and outstanding as of May 31, 2018 and August 31, 2017, respectively		—			—
Additional paid-in capital		175,487			175,386
Accumulated other comprehensive income		3,759			3,701
Accumulated deficit		(173,120	)		(171,270	)
Total equity		6,126			7,817
TOTAL LIABILITIES AND EQUITY	$	15,602		$	17,670

See notes to unaudited condensed consolidated financial statements.

1

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(In thousands of U.S. dollars and shares, except per share data)

	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
Revenues, net	$	1,999		$	2,111		$	5,545		$	6,643
Cost of revenues		1,837			2,297			5,775			6,706
Gross profit (loss)		162			(186	)		(230	)		(63	)
Operating expenses:
Research and development		296			257			703			651
Selling, general and administrative		799			879			2,313			2,920
Gain on disposals of long-lived assets, net		(581	)		(33	)		(790	)		(113	)
Total operating expenses		514			1,103			2,226			3,458
Loss from operations		(352	)		(1,289	)		(2,456	)		(3,521	)
Other income (expenses):
Impairment loss on investment		—			(352	)		—			(352	)
Equity in loss from unconsolidated entities, net		—			—			—			(11	)
Interest expenses, net		(7	)		(9	)		(22	)		(26	)
Other income, net		78			29			625			525
Foreign currency transaction gain (loss), net		(45	)		35			3			(46	)
Total other income (expenses), net		26			(297	)		606			90
Loss before income taxes		(326	)		(1,586	)		(1,850	)		(3,431	)
Income tax expense		—			—			—			—
Net loss		(326	)		(1,586	)		(1,850	)		(3,431	)
Less: Net loss attributable to noncontrolling interests		—			—			—			(13	)
Net loss attributable to SemiLEDs stockholders	$	(326	)	$	(1,586	)	$	(1,850	)	$	(3,418	)
Net loss per share attributable to SemiLEDs stockholders:
Basic and diluted	$	(0.09	)	$	(0.45	)	$	(0.52	)	$	(0.97	)
Shares used in computing net loss per share attributable toSemiLEDs stockholders:
Basic and diluted		3,550			3,544			3,546			3,544

See notes to unaudited condensed consolidated financial statements.

2

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(In thousands of U.S. dollars)

	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
Net loss	$	(326	)	$	(1,586	)	$	(1,850	)	$	(3,431	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax of $0 for all periods presented		(77	)		99			58			332
Comprehensive loss	$	(403	)	$	(1,487	)	$	(1,792	)	$	(3,099	)
Comprehensive loss attributable to noncontrolling interests	$	—		$	—		$	-		$	(16	)
Comprehensive loss attributable to SemiLEDs stockholders	$	(403	)	$	(1,487	)	$	(1,792	)	$	(3,083	)

See notes to unaudited condensed consolidated financial statements.

3

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Equity

(In thousands of U.S. dollars and shares)

							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive		Accumulated			Total
	Shares		Amount		Capital		Income		Deficit			Equity
BALANCE—September 1, 2017		3,544	$	—	$	175,386	$	3,701	$	(171,270	)	$	7,817
Issuance of common stock under equity incentive plans		13		—		—		—		—			—
Stock-based compensation		—		—		101		—		—			101
Comprehensive loss:
Other comprehensive income (loss)		—		—		—		58		—			58
Net loss		—		—		—		—		(1,850	)		(1,850	)
BALANCE—May 31, 2018		3,557	$	—	$	175,487	$	3,759	$	(173,120	)	$	6,126

See notes to unaudited condensed consolidated financial statements.

4

SEMILEDS CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

	Nine Months Ended May 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,850	)	$	(3,431	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		766			849
Impairment loss on investment		-			352
Stock-based compensation expense		101			207
Bad debt expense		10
Provisions for inventory write-downs		487			1,119
Equity in loss from unconsolidated entities, net		-			11
Gain on disposals of long-lived assets, net		(790	)		(113	)
Changes in :
Accounts receivable, net		802			(316	)
Inventories		201			(238	)
Prepaid expenses and other		119			141
Accounts payable		(269	)		(498	)
Accrued expenses and other current liabilities		150			(700	)
Net cash used in operating activities		(273	)		(2,617	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(247	)		(149	)
Proceeds from sales of property, plant and equipment		913			113
Payments for development of intangible assets		(4	)		(11	)
Proceeds from patents assignment		1			—
Proceeds from sale of investment		—			59
Other investing activities		—			(1	)
Net cash provided by investing activities		663			11
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(255	)		(240	)
Acquisition of noncontrolling interests		—			(46	)
Net cash provided used in financing activities		(255	)		(286	)
Effect of exchange rate changes on cash and cash equivalents		22			(1	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		157			(2,893	)
CASH AND CASH EQUIVALENTS—Beginning of period		3,582			6,030
CASH AND CASH EQUIVALENTS—End of period	$	3,739		$	3,137
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrual related to property, plant and equipment	$	140		$	225

See notes to unaudited condensed consolidated financial statements.

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SEMILEDS CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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, as well as LED chips and lighting products. LED components 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 Taiwan, the United States and China.

As of May 31, 2018, SemiLEDs had five 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 100% 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.

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

2. Summary of Significant Accounting Policies

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2017. The unaudited condensed consolidated balance sheet as of August 31, 2017 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2018, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2018 and 2017, the statement of changes in equity for the nine months ended May 31, 2018, and the statements of cash flows for the nine months ended May 31, 2018 and 2017. The results for the three or nine months ended May 31, 2018 are not necessarily indicative of the results to be expected for the year ending August 31, 2018.

The accompanying unaudited interim condensed 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 suffered losses from operations of $4.3 million and $20.6 million,  and net cash used in operating activities of $2.1 million and $3.4 million for the years ended August 31, 2017 and 2016, respectively. Gross profit on product sales was $82 thousand for the year ended August 31, 2017 and gross loss was $4.9 million for the year ended August 31, 2016. Loss from operations for the three and nine months ended May 31, 2018 were $352 thousand and $2.5 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2018 was $273 thousand. Although, at May 31, 2018, the Company’s cash and cash equivalents was slightly increased to $3.7 million, these facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, 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 Company is suppressing the gross loss from chip sales by moving toward a fabless business model through an agreement with an ODM partner entered into on December 31, 2015. The Company is continuously restructuring its chips

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manufacturing operation. The Company expects to purchase chips from the strategic partner and follow the best process to combine the Company’s technology with the strategic partner’s production process.

• Continuing to further reduce idle capacity charges. This partnership should help the Company obtain a steady source of LED chips with competitive and favorable price for its packaging business, expand the production capacity for LED components, and strengthen its product portfolio and technology.

• Increasing sales of automotive products in both China and India by cultivating relationships with automotive lighting developers that are outside the Company’s historical distribution channels. Maintaining a number of display models at automotive lighting facilities in order to provide dealers, communities and consumers with examples of newly designed products.

• Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing 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.

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

While the Company’s management believes that the measures described in the above liquidity plan should be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statement 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 unaudited interim condensed consolidated financial statements 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.

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

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 accounted for using the cost method. Under the cost method, investments are reported at cost on the consolidated balance sheets in investments in unconsolidated entities, and 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‑method or cost‑method 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.

7

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

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

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 May 31, 2018 and August 31, 2017, cash and cash equivalents of the Company consisted of the following (in thousands):

	May 31,		August 31,
Cash and Cash Equivalents  by Location	2018		2017
United States;
Denominated in U.S. dollars	$	256	$	109
Taiwan;
Denominated in U.S. dollars		2,434		2,350
Denominated in New Taiwan dollars		143		81
Denominated in other currencies		870		646
China (including Hong Kong);
Denominated in U.S. dollars		7		7
Denominated in Renminbi		23		389
Denominated in H.K. dollars		6		—
Total cash and cash equivalents	$	3,739	$	3,582

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 collectibility 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.

8

Net revenues generated from sales to the top ten customers represented 69% and 62% of the Company’s total net revenues for the three and nine months ended May 31, 2018, respectively, and 81% and 67% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

The Company’s revenues have been concentrated in a few select markets, including Taiwan, the United States, and China (including Hong Kong). Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 54% and 57% of the Company’s net revenues for the three and nine months ended May 31, 2018, respectively, and 76% and 75% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

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 March 1, 2017, the 93% equity interest subsidiary, Ning Xiang was dissolved. The assets, liability and certain employees of Ning Xiang were merged into its holding company, Taiwan Bandaoti Zhaoming Co., Ltd. An amount of $46 thousand was paid for the acquisition of the Ning Xiang non-controlling interests. As a result of this payment, non-controlling interest in the Company was reduced to zero.

Recent Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The guidance provides clarity and reduces diversity in practice and cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has subsequently issued multiple ASUs which amend and clarify the guidance. This standard will be effective for the Company on September 1, 2018. The standard permits the use of either the retrospective or modified retrospective transition method. The Company will adopt the new

9

standard using the modified retrospective transition method. Although the Company’s analysis of the impact of the new revenue recognition guidance is not fully complete, the Company does not currently expect that such guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

3. Balance Sheet Components

Inventories

Inventories as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,		August 31,
	2018		2017
Raw materials	$	734	$	885
Work in process		457		758
Finished goods		1,099		1,303
Total	$	2,290	$	2,946

Inventory write-downs to estimated net realizable values were $74 thousand and $487 thousand for the three and nine months ended May 31, 2018, respectively, and $589 thousand and $1,119 thousand for the three and nine months ended May 31, 2017, respectively.

Property, Plant and Equipment

Property, plant and equipment as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,			August 31,
	2018			2017
Buildings and improvements	$	14,007		$	13,891
Machinery and equipment		39,072			42,562
Leasehold improvements		336			238
Other equipment		2,370			2,311
Construction in progress		308			321
Total property, plant and equipment		56,093			59,323
Less: Accumulated depreciation and amortization		(48,464	)		(51,048	)
Property, plant and equipment, net	$	7,629		$	8,275

The Company sold property, plant and equipment with net carrying value of $123 thousand and $0 for a total of $913 thousand and $113 thousand for the nine months ended May 31, 2018 and 2017, respectively.

Intangible Assets

Intangible assets as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31, 2018
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	557	$	454	$	103
Acquired technology		5		507		507		—
Total			$	1,064	$	961	$	103

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	August 31, 2017
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	574	$	470	$	104
Acquired technology		5		503		503		—
Total			$	1,077	$	973	$	104

The Company sold 4 patents on October 25, 2017 for a total of $500 thousand.

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands, except percentages):

	May 31, 2018					August 31, 2017
	Percentage					Percentage
	Ownership			Amount		Ownership			Amount
Equity method investments:
Xurui Guangdian Co., Ltd. (“China SemiLEDs”)		49	%	$	—		49	%	$	—
Cost method investments	Various				999	Various				992
Total investments in unconsolidated entities				$	999				$	992

There were no dividends received from unconsolidated entities through May 31, 2018.

Equity Method Investments

The Company still owns a 49% equity interest in China SemiLEDs. However, this investment has a carrying amount of zero as a result of a previously recognized impairment.

Cost Method Investments

The fair values of the Company’s cost method investments are not readily available. All cost method investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. In February 2017, the Company sold all Nanoteco shares owned to the other investor for a cash consideration of $18 thousand and recognized a loss on sale of investment of $2 thousand. For the period ended May 31, 2017, the Company recognized another-than-temporary impairment loss of $352 thousand on our cost method investments in Intematix based on the excess of the carrying amount over the estimated recoverable value. 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.

5. Commitments and Contingencies

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which are including cancellable and noncancellable and which expire at various dates between October 2018 and December 2020. Lease expense related to these noncancellable operating leases was $101 thousand and $348 thousand for the three and nine months ended May 31, 2018, respectively, and $111 thousand and $334 thousand for the three and nine months ended May 31, 2017, respectively. Lease expense is recognized on a straight-line basis over the term of the lease.

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The aggregate future noncancellable minimum rental payments for the Company’s operating leases as of May 31, 2018 consisted of the following (in thousands):

	Operating
Years Ending August 31,	Leases
Remainder of 2018	$	40
2019		97
2020		97
2021		32
2022		—
Thereafter		—
Total	$	266

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $1.8 million and $1.5 million as of May 31, 2018 and August 31, 2017, respectively.

Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. 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 SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, the Company has retained the $500 thousand payment as liquidated damages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March 13, 2018, the Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice.  On March 27, 2018, Well Thrive filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case.  The judge has not ruled on the Company’s motion. If the Company’s motion for specific enforcement is not granted, the Company intends to defend this case vigorously.

Except as described above, as of May 31, 2018, there was no pending litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.

6. 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 increased the number of shares authorized for issuance under the plan by an additional 250 thousand shares. 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 521 thousand shares was reserved for issuance under the 2010 Plan as of both May 31, 2018 and 2017. There were 196 thousand and 252 thousand shares of common stock available for future issuance under the 2010 Plan as of May 31, 2018 and 2017, respectively.

In January 2018, SemiLEDs granted 56.7 thousand restricted stock units to its employees among which 50% will be vested each year on January 1 of 2019 and 2020 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $4.10 per unit.

In March and November 2017, SemiLEDs granted 5 thousand and 2.5 thousand restricted stock units to its directors, that vested 100% on March 31, 2018 and June 29, 2018, respectively. The grant-date fair value of the restricted stock units was $3.18 and $4.15 per unit, respectively.

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the

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expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. 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.

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.

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2018 and 2017 was as follows (in thousands):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Cost of revenues	$	19	$	9	$	33	$	42
Research and development		10		4		16		9
Selling, general and administrative		23		30		52		156
	$	52	$	43	$	101	$	207

7. 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 been anti-dilutive (in thousands of shares):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Stock units and stock options to purchase    common stock		11		10		63		10

8. Income Taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2018 and 2017 consisted of the following (in thousands):

	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
U.S. operations	$	(179	)	$	(487	)	$	(86	)	$	(448	)
Foreign operations		(147	)		(1,099	)		(1,764	)		(2,983	)
Loss before income taxes	$	(326	)	$	(1,586	)	$	(1,850	)	$	(3,431	)

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. The Company will continue gather information relating to this estimate.

As of both May 31, 2018 and August 31, 2017, the Company had no unrecognized tax benefits related to tax positions taken in prior periods. The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions. The tax years 2005 through 2017 remain open in most jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or foreign jurisdictions.

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9. Significant Subsequent Event

At its Annual Meeting held on June 29, 2018 (Taiwan time), the Company’s stockholders approved an amendment to its Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), to reduce the number of authorized common stock from 75,000,000 to 7,500,000. The amendment will not change any of the current rights and privileges of the Company’s Common Stock or its par value, and will not affect the number of shares of the Company’s Common Stock currently outstanding.Accordingly, the authorized common shares disclosures for all periods presented have been retrospectively adjusted to reflect this amendment of its Restated Certificate of Incorporation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q, or this Quarterly Report, 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 Quarterly Report, 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, including the execution of our restructuring plan and any resulting cost savings, 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, 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. These factors include, among other things,

• Declining cash position.

• The ability to retain any partial payments of the $1.6 million note financing as liquidated damages.

• Our ability to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations, the difficulty of which may increase if our common stock is delisted from the NASDAQ Stock Market.

• The inability of our ODM partner or other contract manufacturers to produce products that satisfy our requirements.

• Our ability to implement our cost reduction programs and to execute our restructuring plan effectively.

• Our ability to improve our gross margins, reduce our net losses and restore our operations to profitability.

• Our ability to successfully introduce new products that we can produce and that customers will purchase in such amounts as to be sufficiently profitable to cover the costs of developing and producing these products, as well as providing us additional net income from operations.

• Our ability to effectively develop, maintain and expand our sales and distribution channels, especially in the niche LED markets, including the UV LED and architectural lighting that we focus on.

• Our ability to successfully manage our operations in the face of the cyclicality, rapid technological change, rapid product obsolescence, declining average selling prices and wide fluctuations in supply and demand typically found in the LED market.

• Competitive pressures from existing and new companies.

• Our ability to grow our revenues generated from the sales of our products and to control our expenses.

• Loss of any of our key personnel, or our failure to attract, assimilate and retain other highly qualified personnel.

• Intellectual property infringement or misappropriation claims by third parties against us or our customers, including our distributor customers.

• The failure of LEDs to achieve widespread adoption in the general lighting market, or if alternative technologies gain market acceptance.

• The loss of key suppliers or contract manufacturers.

• Our ability to effectively expand or upgrade our production facilities or do so in a timely or cost-effective manner.

• Difficulty in managing our future growth or in responding to a need to contract operations, and the associated changes to our operations.

• Adverse development in those selected markets, including Taiwan, the United States and China, where our revenues are concentrated.

• Our ability to develop and execute upon a new strategy to exploit the China and India markets.

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• 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.

• Our ability to implement our product innovation strategy effectively, particularly in view of the prohibition against our (and/or our assisting others in) making, using, importing, selling and/or offering to sell in the United States our accused products and/or any device that includes an accused product after October 1, 2012 as a result of the injunction agreed to in connection with the Cree Inc., or Cree, litigation.

• Loss of customers.

• Failure of our strategy of marketing and selling our products in jurisdictions with limited intellectual property enforcement regimes.

• Lack of marketing and distribution success by our third-party distributors.

• Our customers’ ability to produce and sell products incorporating our LED products.

• Our failure to adequately prevent disclosure of trade secrets and other proprietary information.

• Ineffectiveness of our disclosure controls and procedures and our internal control over financial reporting.

• Our ability to profit from existing and future joint ventures, investments, acquisitions and other strategic alliances.

• Impairment of long-lived assets or investments.

• Undetected defects in our products that harm our sales and reputation and adversely affect our manufacturing yields.

• The availability of adequate and timely supply of electricity and water for our manufacturing facilities.

• Our ability to comply with existing and future environmental laws and the cost of such compliance.

• The ability of SemiLEDs Optoelectronics Co., Ltd., or Taiwan SemiLEDs, to make dividends and other payments to SemiLEDs Corporation.

• Our ability to obtain necessary regulatory approvals to make further investments in Taiwan SemiLEDs.

• Catastrophic events such as fires, earthquakes, floods, tornados, tsunamis, typhoons, pandemics, wars, terrorist activities and other similar events, particularly if these events occur at or near our operations, or the operations of our suppliers, contract manufacturers and customers.

• The effect of the legal system in the People’s Republic of China, or the PRC.

• Labor shortages, strikes and other disturbances that affect our operations.

• Deterioration in the relations between the PRC and Taiwan governments.

• Fluctuations in the exchange rate among the U.S. dollar, the New Taiwan, or NT, dollar and other currencies in which our sales, raw materials and component purchases and capital expenditures are denominated.

• The effect of the disclosure requirements under the provisions of the Dodd-Frank Act relating to “conflict minerals,” which could increase our costs and limit the supply of certain metals used in our products and affect our reputation with customers and shareholders.

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.

For more information on the significant risks that could affect the outcome of these forward-looking statements, see Item 1A “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended August 31, 2017, or the 2017 Annual Report, and those contained in Part II, Item 1A of this Quarterly Report, and other information provided from time to time in our filings with the Securities and Exchange Commission, or the SEC.

The following discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes and other information included elsewhere in this Quarterly Report, in our 2017 Annual Report, and in other filings with the SEC.

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Company Overview

We develop, manufacture and sell light emitting diode (LED) chips and LED components. Our products are used for general lighting applications, including street lights and commercial, industrial, system and residential lighting. Our LED chips may also be used in specialty industrial applications, such as 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.

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 and China (including Hong Kong). 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;

• developing a LED structure that generally consists of multiple epitaxial layers which are vertically-stacked on top of a copper alloy base; and

• developing low cost Chip Scaled Packaging (CSP) technology.

These technical capabilities enable us to produce LED chips and LED component products. We entered into a Foundry Services and Licensing Agreement with an ODM partner in December 2015 to assist us with the restructuring of our chips manufacturing operations. We granted our ODM partner a royalty-free, non-transferable, nonexclusive license to use our technology and intellectual property for internal use by the ODM partner’s employees at its facilities for the purpose of manufacturing, testing and supplying us its products. The ODM partner is working with us to enable it to ODM vertical chips for us using our vertical technology. We believe these capabilities, know-how and partnership 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.

We were incorporated in the State of Delaware on January 4, 2005 and sold our first LED chips in November 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, where a portion of our research, development, manufacturing and sales activities take place. Taiwan SemiLEDs owns a 100% 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:

• 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. 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

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restrict our operations. The sale of additional equity securities, if required and available, could result in dilution to our stockholders.

• Our ability to outsource manufacturing and our ability to get chips from other chip suppliers.  Our reliance on our ODM partner 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, and the possible breach of the manufacturing agreement by the contract manufacturer because of factors beyond our control. If our ODM partner fails to deliver products on time and at a satisfactory level of quality, we could have difficulties fulfilling our customer orders and our net revenue could decline. If our ODM partner were to become unable or unwilling to continue to manufacture our products at requested quality, quantity, performance 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. 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. Steadily growth of the module product 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

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as depreciation. We are moving 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 to our ODM partner or others, 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, after the lease ended on February 28, 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.

• 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 equipments, providing uncompromised reliability and optical output. Our LED components include different sizes and wattage to accommodate different demands in the LED market.

• 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 Taiwan, the United States and China (including Hong Kong). 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 three and nine months ended May 31, 2018, sales to our three largest customers, in the aggregate, accounted for 34% and 28% 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.

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• Cash position.  Our cash and cash equivalents slightly increased to $3.7 million as of May 31, 2018 primarily due to the net cash provided by proceeds from sales of property, plant and equipment. 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 opportunities to sell certain equipment related to the manufacturing of vertical LED chips to our ODM partner or others, in order to reduce the idle capacity charges, minimize our research and development activities associated with chips manufacturing operation. We believe we will be able to generate positive cash inflows through the restructuring of our chip operation and the significant ongoing cost savings in the form of reduced payroll and research and development activities. The shipment of our new module product and the continued commercial sales of our UV LED product are expected to grow steadily. 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. Please see “Critical Accounting Policies and Estimates” for more information about our liquidity plans.

Critical Accounting Policies and Estimates

There have been no material changes in the matters for which we make critical accounting policies and estimates in the preparation of our unaudited interim condensed consolidated financial statements for the nine months ended May 31, 2018 as compared to those disclosed in our 2017 Annual Report.

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 as set forth in the statistical release of the Bank of Taiwan. On May 31, 2018, the exchange rate was 29.87 NT dollars to one U.S. dollar. On July 6, 2018, the exchange rate was 30.49 NT dollars to one U.S. dollar.

The following table sets forth, for the periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged.

	NT dollars per U.S. dollar
	Average(1)		High		Low		Period-End
Fiscal 2016		32.55		33.77		31.19		31.73
Fiscal 2017		30.95		32.30		30.04		30.18
December  2017		29.97		30.03		29.76		29.76
January  2018		29.41		29.62		29.05		29.13
February  2018		29.28		29.39		29.19		29.20
March  2018		29.20		29.30		29.11		29.11
April  2018		29.39		29.71		29.14		29.61
May  2018		29.87		30.03		29.71		29.95
June  2018		30.07		30.58		29.72		30.46
July  2018 (through July 6, 2018)		30.52		30.58		30.49		30.49

(1) Annual averages calculated from month-end rates and monthly averages calculated from daily closing rates.

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.

20

Results of Operations

Three Months Ended May 31, 2018 Compared to the Three Months Ended May 31, 2017

		Three Months Ended May 31,
		2018					2017
				% of						% of				Change			Change
		$		Revenues			$			Revenues				$			%
	(in thousands)
LED chips		$	43		2	%	$	64			3		%	$	(21	)		(33	)	%
LED components			1,289		64	%		1,553			74		%		(264	)		(17	)	%
Lighting products			269		13	%		276			13		%		(7	)		(3	)	%
Other revenues(1)			398		21	%		218			10		%		180			83		%
Total revenues, net			1,999		100	%		2,111			100		%		(112	)		(5	)	%
Cost of revenues			1,837		92	%		2,297			109		%		(460	)		(20	)	%
Gross profit (loss)		$	162		8	%	$	(186	)		(9	)	%	$	348			(187	)	%

(1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services.

Revenues, net

Our revenues decreased by 5% to $2.0 million for the three months ended May 31, 2018 from $2.1 million for the three months ended May 31, 2017. The decrease in revenues was driven primarily by a $264 thousand decrease in revenues attributable to sales of LED components, a $21 thousand decrease in revenues attributable to sales of LED chips, and a $7 thousand decrease in revenues attributable to sales of Lighting products, offset by a $180 thousand increase in other revenues.

Revenues attributable to the sales of our LED chips represented 2% and 3% of our revenues for the three months ended May 31, 2018 and 2017, respectively. The decrease of 33% in revenues attributable to sales of LED chips was a result of a decrease in the volume of LED chips sold, offset partially by higher average selling price for the LED chips. 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 profitable products.

Revenues attributable to the sales of our LED components represented 64% and 74% of our revenues for the three months ended May 31, 2018 and 2017, respectively. The decrease in revenues attributable to sales of LED components was primarily due to seasonal swings in demand for the UV LED components product,offset in part by an increase in the volume sold for general LED products.

Revenues attributable to the sales of lighting products represented 13% of our revenues for both the three months ended May 31, 2018 and 2017. Revenues attributable to the sales of lighting products were slightly lower for the three months ended May 31, 2018 primarily due to a slowdown in demand for LED luminaries and fewer non-recurring project-based orders for LED lighting products, offset in part by a higher average selling price for the LED luminaries.

The increase in other revenues was primarily due to an increase in service revenues for the three months ended May 31, 2018.

Cost of Revenues

Our cost of revenues decreased by 20% from $2.3 million for the three months ended May 31, 2017 to $1.8 million for the three months ended May 31, 2018. The decrease in cost of revenues was primarily due to the effect of our ongoing cost reduction efforts, a decrease in volume sold and decreases in depreciation expenses and idle capacity charges associated with property, plant and equipment.

Gross Profits (Loss)

Our gross margin increased from a loss of $186 thousand for the three months ended May 31, 2017 to a profit of $162 thousand for the three months ended May 31, 2018. Our gross margin percentage was positive 8% for the three months ended May 31, 2018, as compared to negative 9% for the three months ended May 31, 2017 as a consequence of the reduction in cost of revenues, as more fully described above.

21

Operating Expenses

	Three Months Ended May 31,
	2018							2017
				% of							% of				Change			Change
	$			Revenues				$			Revenues				$			%
	(in thousands)
Research and development	$	296			15		%	$	257			12		%	$	39			15		%
Selling, general and administrative		799			40		%		879			42		%		(80	)		(9	)	%
Gain on disposals of long-lived assets, net		(581	)		(29	)	%		(33	)		(2	)	%		(548	)	*
Total operating expenses	$	514			26		%	$	1,103			52		%	$	(589	)		(53	)	%

* Not meaningful

Research and development.  Our research and development expenses were $296 thousand and $257 thousand for the three months ended May 31, 2018 and 2017, respectively. The increase was primarily due to an increase in payroll and in materials and supplies used in research and development.

Selling, general and administrative.  Our selling, general and administrative expenses decreased from $879 thousand for the three months ended May 31, 2017 to $799 thousand for the three months ended May 31, 2018. The decrease was mainly attributable to an $83 thousand decrease in payroll and stock based compensation, offset in part by an increase in professional service fees.

Gain on disposal of long-lived assets, net.  We recognized a gain of $581 thousand and $33 thousand on the disposal of long-lived assets for the three months ended May 31, 2018 and 2017, 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.

Other Income (Expenses)

	Three Months Ended May 31,
	2018							2017
				% of							% of
	$			Revenues				$			Revenues
	(in thousands)
Impairment loss on investment	$	—			—		%	$	(352	)		(17	)	%
Interest expenses, net		(7	)		—		%		(9	)		—		%
Other income, net		78			4		%		29			1		%
Foreign currency transaction gain (loss), net		(45	)		(2	)	%		35			2		%
Total other expenses, net	$	26			2		%	$	(297	)		(14	)	%

Impairment loss on investment.   We recognized an other-than-temporary impairment loss of $352 thousand on our cost method investments in Intematix for the three months ended May 31, 2017 based on the excess of the carrying amount over the estimated recoverable value. The recoverable value of the investment was determined based on our best estimate of the amount that could be realized from the investment, which considered the latest financial information.

Interest expenses, net.  The decrease in interest expenses, net was primarily due to the decrease in debt balance because of the continuous repayment of debt.

Other income, net.  Our other income consists primarily of rental income from the lease of the second floor of our Hsinchu building, net of related depreciation charge.

Foreign currency transaction gain (loss), net.  We recognized a net foreign currency transaction loss of $45 thousand and a net gain of $35 thousand for the three months ended May 31, 2018 and 2017, respectively, primarily due to the depreciation of the U.S. dollar against the NT dollar from bank deposits and accounts receivables.

22

Income Tax Expense

Our effective tax rate is expected to be approximately zero for fiscal 2018 and was zero for fiscal 2017, 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.

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. We continue gather information relating to this estimate.

Nine Months Ended May 31, 2018 Compared to the Nine Months Ended May 31, 2017

	Nine Months Ended May 31,
	2018							2017
				% of							% of				Change			Change
	$			Revenues				$			Revenues				$			%
	(in thousands)
LED chips	$	193			3		%	$	306			5		%	$	(113	)		(37	)	%
LED components		3,641			66		%		4,807			72		%		(1,166	)		(24	)	%
Lighting products		825			15		%		1,003			15		%		(178	)		(18	)	%
Other revenues(1)		886			16		%		527			8		%		359			68		%
Total revenues, net		5,545			100		%		6,643			100		%		(1,098	)		(17	)	%
Cost of revenues		5,775			104		%		6,706			101		%		(931	)		(14	)	%
Gross loss	$	(230	)		(4	)	%	$	(63	)		(1	)	%	$	(167	)	*

* Not meaningful

(1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials and the provision of services.

Revenues, net

Our revenues decreased by approximately 17% from $6.6 million for the nine months ended May 31, 2017 to $5.5 million for the nine months ended May 31, 2018. The $1.1 million decrease in revenues reflects a $113 thousand decrease in revenues attributable to sales of LED chips, a $1.2 million decrease in sales of LED components, and a $178 thousand decrease in revenues attributable to sales of lighting products, offset in part by a $359 thousand increase in other revenues.

Revenues attributable to the sales of our LED chips represented 3% and 5% of our revenues for the nine months ended May 31, 2018 and 2017, respectively. The decrease of 37% in revenues was attributable to a decrease in the volume of LED chips sold, offset partially by higher average selling price for the LED chips. 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 profitable products.

Revenues attributable to the sales of our LED components represented 66% and 72% of our revenues for the nine months ended May 31, 2018 and 2017, respectively. The decrease in revenues attributable to sales of LED components was primarily due to seasonal swings in demand for the UV LED components product, offset in part by an increase in the volume sold for general LED product.

Revenues attributable to the sales of lighting products represented 15% of our revenues for both the nine months ended May 31, 2018 and 2017. Revenues attributable to the sales of lighting products was lower for the nine months ended May 31, 2018 primarily due to a slowdown in demand on LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products compared to the nine months ended May 31, 2017.

The increase in other revenues was primarily due to an increase in service revenues for the nine months ended May 31, 2018.

23

Cost of Revenues

Our cost of revenues decreased by 14% from $6.7 million for the nine months ended May 31, 2017 to $5.8 million for the nine months ended May 31, 2018. The decrease in cost of revenues was primarily due to the effect of our ongoing cost reduction efforts, a decrease in volume sold and decreases in depreciation expenses and idle capacity charges associated with property, plant and equipment, offset by the effect of raw-material-scrap in January 2018.

Gross Loss

Our gross loss increased from a loss of $63 thousand for the nine months ended May 31, 2017 to $230 thousand for the nine months ended May 31, 2018. Our gross margin percentage was negative 4% for the nine months ended May 31, 2018, as compared to negative 1% for the nine months ended May 31, 2017 as a consequence of a raw-material-scrap in January 2018 as more fully described above.

Operating Expenses

	Nine Months Ended May 31,
	2018							2017
				% of							% of				Change			Change
	$			Revenues				$			Revenues				$			%
	(in thousands)
Research and development	$	703			13		%	$	651			10		%	$	52			8		%
Selling, general and administrative		2,313			42		%		2,920			44		%		(607	)		(21	)	%
Gain on disposals of long-lived assets, net		(790	)		(14	)	%		(113	)		(2	)	%		(677	)	*
Total operating expenses	$	2,226			41		%	$	3,458			52		%	$	(1,232	)		(36	)	%

* Not meaningful

Research and development.  Our research and development expenses increased from $651 thousand for the nine months ended May 31, 2017 to $703 thousand for the nine months ended May 31, 2018. The increase was primarily due to an increase in payroll and in materials and supplies used in research and development and offset by a decrease in depreciation and amortization expenses.

Selling, general and administrative.  Our selling, general and administrative expenses decreased from $2.9 million for the nine months ended May 31, 2017 to $2.3 million for the nine months ended May 31, 2018. The decrease was mainly attributable to a $466 thousand decrease in payroll and stock based compensation and related expense, and a decrease in professional service fee and other general and administrative expenses.

Gain on disposal of long-lived assets, net.

We recognized a net gain of $790 thousand and $113 thousand on the disposal of long-lived assets for the nine months ended May 31, 2018 and 2017, respectively. Due to the excess capacity charges that we have experienced for the last few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment.

Other Income (Expenses)

	Nine Months Ended May 31,
	2018						2017
				% of						% of
	$			Revenues			$			Revenues
	(in thousands)
Impairment loss on investment	$	—			—	%	$	(352	)		(5	)	%
Equity in loss from unconsolidated entities, net		—			—	%		(11	)		—		%
Interest expenses, net		(22	)		—	%		(26	)		—		%
Other income, net		625			11	%		525			8		%
Foreign currency transaction loss, net		3			—	%		(46	)		(1	)	%
Total other income (expenses), net	$	606			11	%	$	90			2		%

24

Impairment loss on investment.   We recognized an other-than-temporary impairment loss of $352 thousand on our cost method investments in Intematix for the nine months ended May 31, 2017 based on the excess of the carrying amount over the estimated recoverable value. The recoverable value of the investment was determined based on our best estimate of the amount that could be realized from the investment, which considered the latest financial information.

Equity in loss from unconsolidated entities, net

We sold all of our equity interest in SILQ and Nanoteco in November 2016 and February 2017 and recognized a loss on sale of investment of $9 thousand and $2 thousand for the nine months ended May 31, 2017, respectively.

Interest expenses, net.  The decrease in interest expenses, net was primarily due to the decrease in debt balance because of the continuous repayment of debt.

Other income, net.  Other income for the nine months ended May 31, 2018 primarily consists of sales of patents and rental income from the lease of the second floor of our Hsinchu building, offset by the commission expense and related depreciation charge. Other income for the nine months ended May 31, 2017 primarily due to the favorable settlement of a lawsuit.

Foreign currency transaction loss, net.

We recognized a net foreign currency transaction gain of $3 thousand and a net loss of $46 thousand for the nine months ended May 31, 2018 and 2017, 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

Our effective tax rate is expected to be approximately zero for fiscal 2018 and was zero for fiscal 2017, 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.

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. We continue gather information relating to this estimate.

Net Loss Attributable to Noncontrolling Interests

	Nine Months Ended May 31,
	2018					2017
			% of						% of
	$		Revenues			$			Revenues
	(in thousands)
Net loss attributable to noncontrolling interests	$	—		—	%	$	(13	)		(0	)%

We recognized net losses attributable to noncontrolling interests of $13 thousand for the nine months ended May 31, 2017, which were attributable to the share of the net losses of Ning Xiang held by the remaining noncontrolling holders. On March 1, 2017, the 93% equity interest subsidiary, Ning Xiang was dissolved. The assets, liability and certain employees of Ning Xiang were merged into its holding company, Taiwan Bandaoti Zhaoming Co., Lt d. An amount of $46 thousand was paid for the acquisition of the Ning Xiang non-controlling interests. As a result of this payment, our non-controlling interest was reduced to zero.

Liquidity and Capital Resources

As of May 31, 2018 and August 31, 2017, we had cash and cash equivalents of $3.7 million and $3.6 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds.

25

As of July 6, 2018, we had no available credit facility.

Our long-term debt, which consisted of NT dollar denominated long-term notes, totaled $2.5 million and $2.7 million as of May 31, 2018 and August 31, 2017, respectively. These long-term notes carry an interest rate of 1.62%, based on the annual time deposit rate plus a specific spread, as of both May 31, 2018 and August 31, 2017, are payable in monthly installments, and are secured by our property, plant and equipment. These long-term notes do not have prepayment penalties or balloon payments upon maturity.

• The first note payable requires monthly payments of principal and interest in the amount of $12 thousand over the 15-year term of the note with final payment to occur in May 2024 and, as of May 31, 2018, our outstanding balance on this note payable was approximately $919 thousand.

• The second note payable requires monthly payments of principal and interest in the amount of $16 thousand over the 15-year term of the note with final payment to occur in December 2025 and, as of May 31, 2018, our outstanding balance on this note payable was approximately $1.6 million.

Property, plant and equipment pledged as collateral for our notes payable were $4.4 and $4.6 million as of May 31, 2018 and August 31, 2017, respectively.

We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $4.1 million and $21.3 million during the years ended August 31, 2017 and 2016, respectively. Net cash used in operating activities for the year ended August 31, 2017 was $2.1 million. As of August 31, 2017, we had cash and cash equivalents of $3.6 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.

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. However, there can be no assurances that our planned activities will be successful in 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. Please see “Critical Accounting Policies and Estimates” for more information on our liquidity plans.

Cash Flows

The following summary of our cash flows for the periods indicated has been derived from our unaudited interim condensed consolidated financial statements, which are included elsewhere in this Quarterly Report (in thousands):

	Nine Months Ended May 31,
	2018			2017
Net cash used in operating activities	$	(273	)	$	(2,617	)
Net cash provided by investing activities	$	663		$	11
Net cash used in financing activities	$	(255	)	$	(286	)

Cash Flows Used In Operating Activities

Net cash used in operating activities for the nine months ended May 31, 2018 and 2017 was $273 thousand and $2.6 million, respectively. Cash flows used in operating activities for the nine months ended May 31, 2018 was $2.3 million lower, primary attributable to an increase of $1.1 million in cash collected from customers, and a portion of accounts payable and expenses due in August 2016 was paid in the first quarter of fiscal 2017. In addition, a decrease in cash used to pay for salary-related expenses reflecting the effect of cost reduction.

Cash Flows Provided By Investing Activities

Net cash provided by investing activities for the nine months ended May 31, 2018 was $663 thousand, consisting primarily of $913 thousand of proceeds from the sales of machinery and equipment, offset in part by the purchases of machinery and equipment.

26

Net cash provided by investing activities for the nine months ended May 31, 2017 was $11 thousand, consisting primarily of $113 thousand of proceeds from the sales of machinery and equipment, and $59 thousand of the proceeds from the sale of investments in SILQ and Nanoteco, offset in part by the purchases of machinery and equipment.

Cash Flows Used In Financing Activities

Net cash used in financing activities for the nine months ended May 31, 2018 was $255 thousand, primarily attributable to the repayments on long-term debt.

Net cash used in financing activities for the nine months ended May 31, 2017 was $286 thousand, primarily attributable to the repayments on long-term debt and the payment for the acquisition of noncontrolling interests.

Capital Expenditures

We had capital expenditures of $247 thousand and $149 thousand for the nine months ended May 31, 2018 and 2017, 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 further its activity level and capital expenditures as appropriate.

Off-Balance Sheet Arrangements

As of May 31, 2018, we did not engage in any off-balance sheet arrangements. We do not have any interests in variable interest entities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. 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 May 31, 2018 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 May 31, 2018, 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.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended May 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27

PART II — OTHER INFORMATION

Item 1. 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 in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to 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 have retained the $500 thousand payment as liquidated damages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March 13, 2018, 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.  The judge has not ruled on ours motion.If our motion for specific enforcement is not granted, we intends to defend this case vigorously.

Except as described above, there were no material pending legal proceedings or claims as of May 31, 2018.

Item 1A. Risk Factors

There are no material changes related to risk factors from the risk factors described in Item 1A “Risk Factors” in Part I of our 2017 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Repurchases

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of SemiLEDs Corporation (Filed as Exhibit 3.1(c) to Amendment No. 8 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 22, 2010, and incorporated herein by reference).
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of SemiLEDs Corporation (Filed as Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 3, 2018, and incorporated herein by reference).

28

31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(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.

		SEMILEDS CORPORATION
		(Registrant)
Dated:	July 12, 2018	By:	/s/ Christopher Lee
		Name:	Christopher Lee
		Title:	Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

30

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Trung Tri Doan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SemiLEDs Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated:	July  12, 2018	/s/ Trung Tri Doan
		Name: Trung Tri Doan
		Title: Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher Lee, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SemiLEDs Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated:	July  12, 2018	/s/ Christopher Lee
		Name: Christopher Lee
		Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of SemiLEDs Corporation (the “Registrant”) on Form 10-Q for the quarter ended May 31, 2018, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Trung Tri Doan, Chairman and Chief Executive Officer of the Registrant, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated:	July  12, 2018	/s/ Trung Tri Doan
		Name: Trung Tri Doan
		Title: Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of SemiLEDs Corporation (the “Registrant”) on Form 10-Q for the quarter ended May 31, 2018, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Christopher Lee, Chief Financial Officer of the Registrant, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated:	July  12, 2018	/s/ Christopher Lee
		Name: Christopher Lee
		Title: Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	May 31, 2018	Jul. 06, 2018
Document And Entity Information [Abstract]
Entity Registrant Name	SemiLEDs Corp
Entity Central Index Key	0001333822
Trading Symbol	LEDS
Document Type	10-Q
Document Period End Date	May 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--08-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,556,790
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	May 31, 2018	Aug. 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 3,739	$ 3,582
Accounts receivable (including related parties), net of allowance for doubtful accounts of $501 and $815 as of May 31, 2018 and August 31, 2017, respectively	310	1,111
Inventories	2,290	2,946
Prepaid expenses and other current assets	286	405
Total current assets	6,625	8,044
Property, plant and equipment, net	7,629	8,275
Intangible assets, net	103	104
Investments in unconsolidated entities	999	992
Other assets	246	255
TOTAL ASSETS	15,602	17,670
CURRENT LIABILITIES:
Current installments of long-term debt	342	335
Accounts payable	807	1,145
Advance receipt toward the convertible note	500	500
Accrued expenses and other current liabilities	5,676	5,482
Total current liabilities	7,325	7,462
Long-term debt, excluding current installments	2,151	2,391
Total liabilities	9,476	9,853
Commitments and contingencies (Note 5)
SemiLEDs stockholders’ equity
Common stock, $0.0000056 par value—7,500 shares authorized; 3,557 shares and 3,544 shares issued and outstanding as of May 31, 2018 and August 31, 2017, respectively
Additional paid-in capital	175,487	175,386
Accumulated other comprehensive income	3,759	3,701
Accumulated deficit	(173,120)	(171,270)
Total equity	6,126	7,817
TOTAL LIABILITIES AND EQUITY	$ 15,602	$ 17,670

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	May 31, 2018	Aug. 31, 2017
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts	$ 501	$ 815
Common stock, par value (in dollars per share)	$ 0.0000056	$ 0.0000056
Common stock, shares authorized	7,500,000	7,500,000
Common stock, shares issued	3,557,000	3,544,000
Common stock, shares outstanding	3,557,000	3,544,000

XML

Unaudited Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017
Income Statement [Abstract]
Revenues, net	$ 1,999	$ 2,111	$ 5,545	$ 6,643
Cost of revenues	1,837	2,297	5,775	6,706
Gross profit (loss)	162	(186)	(230)	(63)
Operating expenses:
Research and development	296	257	703	651
Selling, general and administrative	799	879	2,313	2,920
Gain on disposals of long-lived assets, net	(581)	(33)	(790)	(113)
Total operating expenses	514	1,103	2,226	3,458
Loss from operations	(352)	(1,289)	(2,456)	(3,521)
Other income (expenses):
Impairment loss on investment		(352)		(352)
Equity in loss from unconsolidated entities, net				(11)
Interest expenses, net	(7)	(9)	(22)	(26)
Other income, net	78	29	625	525
Foreign currency transaction gain (loss), net	(45)	35	3	(46)
Total other income (expenses), net	26	(297)	606	90
Loss before income taxes	(326)	(1,586)	(1,850)	(3,431)
Net loss	(326)	(1,586)	(1,850)	(3,431)
Less: Net loss attributable to noncontrolling interests				(13)
Net loss attributable to SemiLEDs stockholders	$ (326)	$ (1,586)	$ (1,850)	$ (3,418)
Net loss per share attributable to SemiLEDs stockholders:
Basic and diluted	$ (0.09)	$ (0.45)	$ (0.52)	$ (0.97)
Shares used in computing net loss per share attributable to SemiLEDs stockholders:
Basic and diluted	3,550	3,544	3,546	3,544

XML

Unaudited Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net loss	$ (326)	$ (1,586)	$ (1,850)	$ (3,431)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax of $0 for all periods presented	(77)	99	58	332
Comprehensive loss	(403)	(1,487)	(1,792)	(3,099)
Comprehensive loss attributable to noncontrolling interests				(16)
Comprehensive loss attributable to SemiLEDs stockholders	$ (403)	$ (1,487)	$ (1,792)	$ (3,083)

XML

Unaudited Condensed Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017
Statement Of Income And Comprehensive Income [Abstract]
Foreign currency translation adjustments tax	$ 0	$ 0	$ 0	$ 0

XML

Unaudited Condensed Consolidated Statement of Changes in Equity - 9 months ended May 31, 2018 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit
BALANCE at Aug. 31, 2017	$ 7,817		$ 175,386	$ 3,701	$ (171,270)
BALANCE (in shares) at Aug. 31, 2017		3,544
Issuance of common stock under equity incentive plans (in shares)		13
Stock-based compensation	101		101
Comprehensive loss:
Other comprehensive income (loss)	58			58
Net loss	(1,850)				(1,850)
BALANCE at May. 31, 2018	$ 6,126		$ 175,487	$ 3,759	$ (173,120)
BALANCE (in shares) at May. 31, 2018		3,557

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	May 31, 2018	May 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,850)	$ (3,431)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	766	849
Impairment loss on investment		352
Stock-based compensation expense	101	207
Bad debt expense	10
Provisions for inventory write-downs	487	1,119
Equity in loss from unconsolidated entities, net		11
Gain on disposals of long-lived assets, net	(790)	(113)
Changes in :
Accounts receivable, net	802	(316)
Inventories	201	(238)
Prepaid expenses and other	119	141
Accounts payable	(269)	(498)
Accrued expenses and other current liabilities	150	(700)
Net cash used in operating activities	(273)	(2,617)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(247)	(149)
Proceeds from sales of property, plant and equipment	913	113
Payments for development of intangible assets	(4)	(11)
Proceeds from patents assignment	1
Proceeds from sale of investment		59
Other investing activities		(1)
Net cash provided by investing activities	663	11
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(255)	(240)
Acquisition of noncontrolling interests		(46)
Net cash provided used in financing activities	(255)	(286)
Effect of exchange rate changes on cash and cash equivalents	22	(1)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	157	(2,893)
CASH AND CASH EQUIVALENTS—Beginning of period	3,582	6,030
CASH AND CASH EQUIVALENTS—End of period	3,739	3,137
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrual related to property, plant and equipment	$ 140	$ 225

XML

Business

9 Months Ended

May 31, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Business

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, as well as LED chips and lighting products. LED components 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 Taiwan, the United States and China.

As of May 31, 2018, SemiLEDs had five 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 100% 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.

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

XML

Summary of Significant Accounting Policies

9 Months Ended

May 31, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2017. The unaudited condensed consolidated balance sheet as of August 31, 2017 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2018, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2018 and 2017, the statement of changes in equity for the nine months ended May 31, 2018, and the statements of cash flows for the nine months ended May 31, 2018 and 2017. The results for the three or nine months ended May 31, 2018 are not necessarily indicative of the results to be expected for the year ending August 31, 2018.

The accompanying unaudited interim condensed 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 suffered losses from operations of $4.3 million and $20.6 million,  and net cash used in operating activities of $2.1 million and $3.4 million for the years ended August 31, 2017 and 2016, respectively. Gross profit on product sales was $82 thousand for the year ended August 31, 2017 and gross loss was $4.9 million for the year ended August 31, 2016. Loss from operations for the three and nine months ended May 31, 2018 were $352 thousand and $2.5 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2018 was $273 thousand. Although, at May 31, 2018, the Company’s cash and cash equivalents was slightly increased to $3.7 million, these facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, 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 Company is suppressing the gross loss from chip sales by moving toward a fabless business model through an agreement with an ODM partner entered into on December 31, 2015. The Company is continuously restructuring its chips manufacturing operation. The Company expects to purchase chips from the strategic partner and follow the best process to combine the Company’s technology with the strategic partner’s production process.

• Continuing to further reduce idle capacity charges. This partnership should help the Company obtain a steady source of LED chips with competitive and favorable price for its packaging business, expand the production capacity for LED components, and strengthen its product portfolio and technology.

• Increasing sales of automotive products in both China and India by cultivating relationships with automotive lighting developers that are outside the Company’s historical distribution channels. Maintaining a number of display models at automotive lighting facilities in order to provide dealers, communities and consumers with examples of newly designed products.

• Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing 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.

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

While the Company’s management believes that the measures described in the above liquidity plan should be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statement 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 unaudited interim condensed consolidated financial statements 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.

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

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 accounted for using the cost method. Under the cost method, investments are reported at cost on the consolidated balance sheets in investments in unconsolidated entities, and 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‑method or cost‑method 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.

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

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

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 May 31, 2018 and August 31, 2017, cash and cash equivalents of the Company consisted of the following (in thousands):

	May 31,		August 31,
Cash and Cash Equivalents  by Location	2018		2017
United States;
Denominated in U.S. dollars	$	256	$	109
Taiwan;
Denominated in U.S. dollars		2,434		2,350
Denominated in New Taiwan dollars		143		81
Denominated in other currencies		870		646
China (including Hong Kong);
Denominated in U.S. dollars		7		7
Denominated in Renminbi		23		389
Denominated in H.K. dollars		6		—
Total cash and cash equivalents	$	3,739	$	3,582

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 collectibility 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.

Net revenues generated from sales to the top ten customers represented 69% and 62% of the Company’s total net revenues for the three and nine months ended May 31, 2018, respectively, and 81% and 67% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

The Company’s revenues have been concentrated in a few select markets, including Taiwan, the United States, and China (including Hong Kong). Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 54% and 57% of the Company’s net revenues for the three and nine months ended May 31, 2018, respectively, and 76% and 75% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

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 March 1, 2017, the 93% equity interest subsidiary, Ning Xiang was dissolved. The assets, liability and certain employees of Ning Xiang were merged into its holding company, Taiwan Bandaoti Zhaoming Co., Ltd. An amount of $46 thousand was paid for the acquisition of the Ning Xiang non-controlling interests. As a result of this payment, non-controlling interest in the Company was reduced to zero.

Recent Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The guidance provides clarity and reduces diversity in practice and cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has subsequently issued multiple ASUs which amend and clarify the guidance. This standard will be effective for the Company on September 1, 2018. The standard permits the use of either the retrospective or modified retrospective transition method. The Company will adopt the new standard using the modified retrospective transition method. Although the Company’s analysis of the impact of the new revenue recognition guidance is not fully complete, the Company does not currently expect that such guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

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Balance Sheet Components

9 Months Ended

May 31, 2018

Disclosure Text Block Supplement [Abstract]

Balance Sheet Components

3. Balance Sheet Components

Inventories

Inventories as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,		August 31,
	2018		2017
Raw materials	$	734	$	885
Work in process		457		758
Finished goods		1,099		1,303
Total	$	2,290	$	2,946

Inventory write-downs to estimated net realizable values were $74 thousand and $487 thousand for the three and nine months ended May 31, 2018, respectively, and $589 thousand and $1,119 thousand for the three and nine months ended May 31, 2017, respectively.

Property, Plant and Equipment

Property, plant and equipment as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,			August 31,
	2018			2017
Buildings and improvements	$	14,007		$	13,891
Machinery and equipment		39,072			42,562
Leasehold improvements		336			238
Other equipment		2,370			2,311
Construction in progress		308			321
Total property, plant and equipment		56,093			59,323
Less: Accumulated depreciation and amortization		(48,464	)		(51,048	)
Property, plant and equipment, net	$	7,629		$	8,275

The Company sold property, plant and equipment with net carrying value of $123 thousand and $0 for a total of $913 thousand and $113 thousand for the nine months ended May 31, 2018 and 2017, respectively.

Intangible Assets

Intangible assets as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31, 2018
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	557	$	454	$	103
Acquired technology		5		507		507		—
Total			$	1,064	$	961	$	103

	August 31, 2017
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	574	$	470	$	104
Acquired technology		5		503		503		—
Total			$	1,077	$	973	$	104

The Company sold 4 patents on October 25, 2017 for a total of $500 thousand.

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Investments in Unconsolidated Entities

9 Months Ended

May 31, 2018

Investments In Unconsolidated Entities Disclosure [Abstract]

Investments in Unconsolidated Entities

4. Investments in Unconsolidated Entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands, except percentages):

	May 31, 2018					August 31, 2017
	Percentage					Percentage
	Ownership			Amount		Ownership			Amount
Equity method investments:
Xurui Guangdian Co., Ltd. (“China SemiLEDs”)		49	%	$	—		49	%	$	—
Cost method investments	Various				999	Various				992
Total investments in unconsolidated entities				$	999				$	992

There were no dividends received from unconsolidated entities through May 31, 2018.

Equity Method Investments

The Company still owns a 49% equity interest in China SemiLEDs. However, this investment has a carrying amount of zero as a result of a previously recognized impairment.

Cost Method Investments

The fair values of the Company’s cost method investments are not readily available. All cost method investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. In February 2017, the Company sold all Nanoteco shares owned to the other investor for a cash consideration of $18 thousand and recognized a loss on sale of investment of $2 thousand. For the period ended May 31, 2017, the Company recognized another-than-temporary impairment loss of $352 thousand on our cost method investments in Intematix based on the excess of the carrying amount over the estimated recoverable value. 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.

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Commitments and Contingencies

9 Months Ended

May 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

5. Commitments and Contingencies

Operating Lease Agreements —The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which are including cancellable and noncancellable and which expire at various dates between October 2018 and December 2020. Lease expense related to these noncancellable operating leases was $101 thousand and $348 thousand for the three and nine months ended May 31, 2018, respectively, and $111 thousand and $334 thousand for the three and nine months ended May 31, 2017, respectively. Lease expense is recognized on a straight-line basis over the term of the lease.

The aggregate future noncancellable minimum rental payments for the Company’s operating leases as of May 31, 2018 consisted of the following (in thousands):

	Operating
Years Ending August 31,	Leases
Remainder of 2018	$	40
2019		97
2020		97
2021		32
2022		—
Thereafter		—
Total	$	266

Purchase Obligations —The Company had purchase commitments for inventory, property, plant and equipment in the amount of $1.8 million and $1.5 million as of May 31, 2018 and August 31, 2017, respectively.

Litigation —The Company is directly or indirectly involved from time to time in various claims or legal proceedings arising in the ordinary course of business. 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 SemiLEDs Corporation in the United States District Court for the District of Delaware. The complaint alleges that Well Thrive is entitled to return of $500 thousand paid toward a note purchase pursuant to a purchase agreement (the “Purchase Agreement”) effective July 6, 2016 with Dr. Peter Chiou, which was assigned to Well Thrive on August 4, 2016. Pursuant to the terms of the Purchase Agreement, the Company has retained the $500 thousand payment as liquidated damages. Well Thrive alleges that the liquidated damages provision is unenforceable as an illegal penalty and does not reflect the amount of purported damages. On March 13, 2018, the Company filed a motion to enforce a settlement agreement between the parties to dismiss the lawsuit with prejudice.  On March 27, 2018, Well Thrive filed an answering brief in opposition to the Company’s motion on the basis that Well Thrive never consented to dismiss the case.  The judge has not ruled on the Company’s motion. If the Company’s motion for specific enforcement is not granted, the Company intends to defend this case vigorously.

Except as described above, as of May 31, 2018, there was no pending litigation that could have a material impact on the Company’s financial position, results of operations or cash flows.

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Stock-based Compensation

9 Months Ended

May 31, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

6. 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 increased the number of shares authorized for issuance under the plan by an additional 250 thousand shares. 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 521 thousand shares was reserved for issuance under the 2010 Plan as of both May 31, 2018 and 2017. There were 196 thousand and 252 thousand shares of common stock available for future issuance under the 2010 Plan as of May 31, 2018 and 2017, respectively.

In January 2018, SemiLEDs granted 56.7 thousand restricted stock units to its employees among which 50% will be vested each year on January 1 of 2019 and 2020 and will become fully vested upon a change in control. The grant-date fair value of the restricted stock units was $4.10 per unit.

In March and November 2017, SemiLEDs granted 5 thousand and 2.5 thousand restricted stock units to its directors, that vested 100% on March 31, 2018 and June 29, 2018, respectively. The grant-date fair value of the restricted stock units was $3.18 and $4.15 per unit, respectively.

The grant date fair value of stock options is determined using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs including the market price of SemiLEDs’ common stock on the date of grant, the term that the stock options are expected to be outstanding, the implied stock volatilities of several of the Company’s publicly-traded peers over the expected term of stock options, risk-free interest rate and expected dividend. Each of these inputs is subjective and generally requires significant judgment to determine. 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.

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.

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2018 and 2017 was as follows (in thousands):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Cost of revenues	$	19	$	9	$	33	$	42
Research and development		10		4		16		9
Selling, general and administrative		23		30		52		156
	$	52	$	43	$	101	$	207

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Net Loss Per Share of Common Stock

9 Months Ended

May 31, 2018

Earnings Per Share [Abstract]

Net Loss Per Share of Common Stock

7. 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 been anti-dilutive (in thousands of shares):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Stock units and stock options to purchase    common stock		11		10		63		10

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Income Taxes

9 Months Ended

May 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2018 and 2017 consisted of the following (in thousands):

	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
U.S. operations	$	(179	)	$	(487	)	$	(86	)	$	(448	)
Foreign operations		(147	)		(1,099	)		(1,764	)		(2,983	)
Loss before income taxes	$	(326	)	$	(1,586	)	$	(1,850	)	$	(3,431	)

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. The Company will continue gather information relating to this estimate.

As of both May 31, 2018 and August 31, 2017, the Company had no unrecognized tax benefits related to tax positions taken in prior periods. The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions. The tax years 2005 through 2017 remain open in most jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or foreign jurisdictions.

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Significant Subsequent Event

9 Months Ended

May 31, 2018

Subsequent Events [Abstract]

Significant Subsequent Event

9. Significant Subsequent Event

At its Annual Meeting held on June 29, 2018 (Taiwan time), the Company’s stockholders approved an amendment to its Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), to reduce the number of authorized common stock from 75,000,000 to 7,500,000. The amendment will not change any of the current rights and privileges of the Company’s Common Stock or its par value, and will not affect the number of shares of the Company’s Common Stock currently outstanding.Accordingly, the authorized common shares disclosures for all periods presented have been retrospectively adjusted to reflect this amendment of its Restated Certificate of Incorporation.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

May 31, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation —The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable provisions of the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on November 29, 2017. The unaudited condensed consolidated balance sheet as of August 31, 2017 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated balance sheet as of May 31, 2018, the statements of operations and comprehensive loss for the three and nine months ended May 31, 2018 and 2017, the statement of changes in equity for the nine months ended May 31, 2018, and the statements of cash flows for the nine months ended May 31, 2018 and 2017. The results for the three or nine months ended May 31, 2018 are not necessarily indicative of the results to be expected for the year ending August 31, 2018.

The accompanying unaudited interim condensed 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 suffered losses from operations of $4.3 million and $20.6 million,  and net cash used in operating activities of $2.1 million and $3.4 million for the years ended August 31, 2017 and 2016, respectively. Gross profit on product sales was $82 thousand for the year ended August 31, 2017 and gross loss was $4.9 million for the year ended August 31, 2016. Loss from operations for the three and nine months ended May 31, 2018 were $352 thousand and $2.5 million, respectively. Net cash used in operating activities for the nine months ended May 31, 2018 was $273 thousand. Although, at May 31, 2018, the Company’s cash and cash equivalents was slightly increased to $3.7 million, these facts and conditions raise substantial doubt about the Company’s ability to continue as a going concern. However, 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 Company is suppressing the gross loss from chip sales by moving toward a fabless business model through an agreement with an ODM partner entered into on December 31, 2015. The Company is continuously restructuring its chips manufacturing operation. The Company expects to purchase chips from the strategic partner and follow the best process to combine the Company’s technology with the strategic partner’s production process.

• Continuing to further reduce idle capacity charges. This partnership should help the Company obtain a steady source of LED chips with competitive and favorable price for its packaging business, expand the production capacity for LED components, and strengthen its product portfolio and technology.

• Increasing sales of automotive products in both China and India by cultivating relationships with automotive lighting developers that are outside the Company’s historical distribution channels. Maintaining a number of display models at automotive lighting facilities in order to provide dealers, communities and consumers with examples of newly designed products.

• Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of new higher margin products. Steady growth of module products and the continued commercial sales of its UV LED product are expected to improve the Company’s future gross margin, operating results and cash flows. The Company is targeting niche markets and focusing 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.

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

While the Company’s management believes that the measures described in the above liquidity plan should be adequate to satisfy its liquidity requirements for the twelve months after the date that the financial statement 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 unaudited interim condensed consolidated financial statements 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.

Principles of Consolidation

Principles of Consolidation —The unaudited interim condensed consolidated financial statements include the accounts of SemiLEDs and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated during consolidation.

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 accounted for using the cost method. Under the cost method, investments are reported at cost on the consolidated balance sheets in investments in unconsolidated entities, and 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‑method or cost‑method 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.

Use of Estimates

Use of Estimates —The preparation of unaudited interim condensed 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 unaudited interim condensed 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 collectibility 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

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

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

Concentration of Credit Risk

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 May 31, 2018 and August 31, 2017, cash and cash equivalents of the Company consisted of the following (in thousands):

	May 31,		August 31,
Cash and Cash Equivalents  by Location	2018		2017
United States;
Denominated in U.S. dollars	$	256	$	109
Taiwan;
Denominated in U.S. dollars		2,434		2,350
Denominated in New Taiwan dollars		143		81
Denominated in other currencies		870		646
China (including Hong Kong);
Denominated in U.S. dollars		7		7
Denominated in Renminbi		23		389
Denominated in H.K. dollars		6		—
Total cash and cash equivalents	$	3,739	$	3,582

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 collectibility 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.

Net revenues generated from sales to the top ten customers represented 69% and 62% of the Company’s total net revenues for the three and nine months ended May 31, 2018, respectively, and 81% and 67% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

The Company’s revenues have been concentrated in a few select markets, including Taiwan, the United States, and China (including Hong Kong). Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 54% and 57% of the Company’s net revenues for the three and nine months ended May 31, 2018, respectively, and 76% and 75% of the Company’s net revenues for the three and nine months ended May 31, 2017, respectively.

Noncontrolling Interests

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 March 1, 2017, the 93% equity interest subsidiary, Ning Xiang was dissolved. The assets, liability and certain employees of Ning Xiang were merged into its holding company, Taiwan Bandaoti Zhaoming Co., Ltd. An amount of $46 thousand was paid for the acquisition of the Ning Xiang non-controlling interests. As a result of this payment, non-controlling interest in the Company was reduced to zero.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The guidance provides clarity and reduces diversity in practice and cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This standard will be effective for the Company on September 1, 2020. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to improve financial reporting on leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. This standard will be effective for the Company on September 1, 2019. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments in this Update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. This standard will be effective for the Company on September 1, 2018. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has subsequently issued multiple ASUs which amend and clarify the guidance. This standard will be effective for the Company on September 1, 2018. The standard permits the use of either the retrospective or modified retrospective transition method. The Company will adopt the new standard using the modified retrospective transition method. Although the Company’s analysis of the impact of the new revenue recognition guidance is not fully complete, the Company does not currently expect that such guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

May 31, 2018

Accounting Policies [Abstract]

Schedule of cash and cash equivalents by location

As of May 31, 2018 and August 31, 2017, cash and cash equivalents of the Company consisted of the following (in thousands):

	May 31,		August 31,
Cash and Cash Equivalents  by Location	2018		2017
United States;
Denominated in U.S. dollars	$	256	$	109
Taiwan;
Denominated in U.S. dollars		2,434		2,350
Denominated in New Taiwan dollars		143		81
Denominated in other currencies		870		646
China (including Hong Kong);
Denominated in U.S. dollars		7		7
Denominated in Renminbi		23		389
Denominated in H.K. dollars		6		—
Total cash and cash equivalents	$	3,739	$	3,582

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Balance Sheet Components (Tables)

9 Months Ended

May 31, 2018

Disclosure Text Block Supplement [Abstract]

Schedule of inventories

Inventories as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,		August 31,
	2018		2017
Raw materials	$	734	$	885
Work in process		457		758
Finished goods		1,099		1,303
Total	$	2,290	$	2,946

Schedule of property, plant and equipment

Property, plant and equipment as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31,			August 31,
	2018			2017
Buildings and improvements	$	14,007		$	13,891
Machinery and equipment		39,072			42,562
Leasehold improvements		336			238
Other equipment		2,370			2,311
Construction in progress		308			321
Total property, plant and equipment		56,093			59,323
Less: Accumulated depreciation and amortization		(48,464	)		(51,048	)
Property, plant and equipment, net	$	7,629		$	8,275

Schedule of intangible assets

Intangible assets as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands):

	May 31, 2018
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	557	$	454	$	103
Acquired technology		5		507		507		—
Total			$	1,064	$	961	$	103

	August 31, 2017
	Weighted
	Average		Gross				Net
	Amortization		Carrying		Accumulated		Carrying
	Period (Years)		Amount		Amortization		Amount
Patents and trademarks		15	$	574	$	470	$	104
Acquired technology		5		503		503		—
Total			$	1,077	$	973	$	104

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Investments in Unconsolidated Entities (Tables)

9 Months Ended

May 31, 2018

Investments In Unconsolidated Entities Disclosure [Abstract]

Schedule of ownership interest and carrying amounts of investments in unconsolidated entities

The Company’s ownership interest and carrying amounts of investments in unconsolidated entities as of May 31, 2018 and August 31, 2017 consisted of the following (in thousands, except percentages):

	May 31, 2018					August 31, 2017
	Percentage					Percentage
	Ownership			Amount		Ownership			Amount
Equity method investments:
Xurui Guangdian Co., Ltd. (“China SemiLEDs”)		49	%	$	—		49	%	$	—
Cost method investments	Various				999	Various				992
Total investments in unconsolidated entities				$	999				$	992

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Commitments and Contingencies (Tables)

9 Months Ended

May 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Schedule of aggregate future noncancellable minimum rental payments for the operating leases

The aggregate future noncancellable minimum rental payments for the Company’s operating leases as of May 31, 2018 consisted of the following (in thousands):

	Operating
Years Ending August 31,	Leases
Remainder of 2018	$	40
2019		97
2020		97
2021		32
2022		—
Thereafter		—
Total	$	266

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Stock-based Compensation (Tables)

9 Months Ended

May 31, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of the stock-based compensation expense

A summary of the stock-based compensation expense for the three and nine months ended May 31, 2018 and 2017 was as follows (in thousands):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Cost of revenues	$	19	$	9	$	33	$	42
Research and development		10		4		16		9
Selling, general and administrative		23		30		52		156
	$	52	$	43	$	101	$	207

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Net Loss Per Share of Common Stock (Tables)

9 Months Ended

May 31, 2018

Earnings Per Share [Abstract]

Schedule of stock-based compensation plan awards were excluded from the computation of diluted 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 been anti-dilutive (in thousands of shares):

	Three Months Ended May 31,				Nine Months Ended May 31,
	2018		2017		2018		2017
Stock units and stock options to purchase    common stock		11		10		63		10

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Income Taxes (Tables)

9 Months Ended

May 31, 2018

Income Tax Disclosure [Abstract]

Schedule of Income (loss) before income taxes

The Company’s income (loss) before income taxes for the three and nine months ended May 31, 2018 and 2017 consisted of the following (in thousands):

	Three Months Ended May 31,						Nine Months Ended May 31,
	2018			2017			2018			2017
U.S. operations	$	(179	)	$	(487	)	$	(86	)	$	(448	)
Foreign operations		(147	)		(1,099	)		(1,764	)		(2,983	)
Loss before income taxes	$	(326	)	$	(1,586	)	$	(1,850	)	$	(3,431	)

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Business (Details)	9 Months Ended
	May 31, 2018 subsidiary
Business
State of entity incorporated	Delaware
Date of entity incorporation	Jan. 04, 2005
Number of wholly owned subsidiaries	5
Taiwan SemiLEDs | Taiwan Bandaoti Zhaoming Co., Ltd.
Business
Ownership interest (as a percent)	100.00%

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Summary of Significant Accounting Policies - Basis of Presentation and Use of Estimates (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017	Aug. 31, 2017	Aug. 31, 2016
Accounting Policies [Abstract]
Losses from operations	$ 352	$ 1,289	$ 2,456	$ 3,521	$ 4,300	$ 20,600
Gross profits (losses) on product sales	162	(186)	(230)	(63)	82	(4,900)
Net cash used in operating activities			273	2,617	2,100	3,400
Cash and cash equivalents	$ 3,739	$ 3,137	$ 3,739	$ 3,137	$ 3,582	$ 6,030

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Summary of Significant Accounting Policies - Concentration of Credit Risk (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017	Aug. 31, 2017	Aug. 31, 2016
Concentration Risk [Line Items]
Cash and cash equivalents	$ 3,739	$ 3,137	$ 3,739	$ 3,137	$ 3,582	$ 6,030
Net revenues | Customer concentration
Concentration Risk [Line Items]
Concentration risk (as a percent)	69.00%	81.00%	62.00%	67.00%
Net revenues | Geographic concentration
Concentration Risk [Line Items]
Concentration risk (as a percent)	54.00%	76.00%	57.00%	75.00%
United States | U.S. Dollars
Concentration Risk [Line Items]
Cash and cash equivalents	$ 256		$ 256		109
Taiwan | U.S. Dollars
Concentration Risk [Line Items]
Cash and cash equivalents	2,434		2,434		2,350
Taiwan | New Taiwan Dollars
Concentration Risk [Line Items]
Cash and cash equivalents	143		143		81
Taiwan | Other currencies
Concentration Risk [Line Items]
Cash and cash equivalents	870		870		646
China (including Hong Kong) | U.S. Dollars
Concentration Risk [Line Items]
Cash and cash equivalents	7		7		7
China (including Hong Kong) | Renminbi
Concentration Risk [Line Items]
Cash and cash equivalents	23		23		$ 389
China (including Hong Kong) | H.K. dollars
Concentration Risk [Line Items]
Cash and cash equivalents	$ 6		$ 6

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Summary of Significant Accounting Policies - Noncontrolling Interests (Details) - USD ($) $ in Thousands		9 Months Ended
	Mar. 01, 2017	May 31, 2017
Minority Interest [Line Items]
Payments to acquire non-controlling interests		$ 46
Ning Xiang
Minority Interest [Line Items]
Equity interest ownership percentage, dissolved	93.00%
Payments to acquire non-controlling interests	$ 46
Non-controlling interest	$ 0

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Balance Sheet Components - Inventories (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017	Aug. 31, 2017
Disclosure Text Block Supplement [Abstract]
Raw materials	$ 734		$ 734		$ 885
Work in process	457		457		758
Finished goods	1,099		1,099		1,303
Total	2,290		2,290		$ 2,946
Inventory write-downs	$ 74	$ 589	$ 487	$ 1,119

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Balance Sheet Components - Property, Plant and Equipment (Details) - USD ($) $ in Thousands	9 Months Ended
	May 31, 2018	May 31, 2017	Aug. 31, 2017
Property Plant And Equipment [Line Items]
Total property, plant and equipment	$ 56,093		$ 59,323
Less: Accumulated depreciation and amortization	(48,464)		(51,048)
Property, plant and equipment, net	7,629		8,275
Sale of property, plant and equipment net carrying value	123	$ 0
Proceeds from sales of property, plant and equipment	913	$ 113
Buildings and improvements
Property Plant And Equipment [Line Items]
Total property, plant and equipment	14,007		13,891
Machinery and equipment
Property Plant And Equipment [Line Items]
Total property, plant and equipment	39,072		42,562
Leasehold improvements
Property Plant And Equipment [Line Items]
Total property, plant and equipment	336		238
Other equipment
Property Plant And Equipment [Line Items]
Total property, plant and equipment	2,370		2,311
Construction in progress
Property Plant And Equipment [Line Items]
Total property, plant and equipment	$ 308		$ 321

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Balance Sheet Components - Intangible Assets (Details) $ in Thousands		9 Months Ended	12 Months Ended
	Oct. 25, 2017 USD ($) Patent	May 31, 2018 USD ($)	Aug. 31, 2017 USD ($)
Finite Lived Intangible Assets [Line Items]
Gross Carrying Amount		$ 1,064	$ 1,077
Accumulated Amortization		961	973
Net Carrying Amount		103	$ 104
Number of patents sold | Patent	4
Proceeds from sale of intangible assets		$ 1
Patents and trademarks
Finite Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (Years)		15 years	15 years
Gross Carrying Amount		$ 557	$ 574
Accumulated Amortization		454	470
Net Carrying Amount		$ 103	$ 104
Acquired technology
Finite Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (Years)		5 years	5 years
Gross Carrying Amount		$ 507	$ 503
Accumulated Amortization		$ 507	$ 503
Patents
Finite Lived Intangible Assets [Line Items]
Proceeds from sale of intangible assets	$ 500

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Investments in Unconsolidated Entities (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended	9 Months Ended
	Feb. 28, 2017	May 31, 2017	May 31, 2018	May 31, 2017	Aug. 31, 2017
Investments in unconsolidated entities
Cost method investments			$ 999		$ 992
Total investments in unconsolidated entities			$ 999		$ 992
Cash consideration from sale of the investment	$ 18
Loss on sale of investment	$ 2			$ 11
Impairment loss on investment		$ 352		352
Xurui Guangdian Co., Ltd. ("China SemiLEDs")
Investments in unconsolidated entities
Percentage Ownership			49.00%		49.00%
Equity method investments			$ 0		$ 0
Unconsolidated Entities
Investments in unconsolidated entities
Dividend received from unconsolidated entities			$ 0
Intematix
Investments in unconsolidated entities
Impairment loss on investment				$ 352

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017	Aug. 31, 2017
Commitments and Contingencies
Lease expense related to operating leases	$ 101	$ 111	$ 348	$ 334
Operating lease agreements, description			The Company has several operating leases with unrelated parties, primarily for land, plant and office spaces in Taiwan, which are including cancellable and noncancellable and which expire at various dates between October 2018 and December 2020.
Future noncancellable minimum rental payments
Remainder of 2018	40		$ 40
2019	97		97
2020	97		97
2021	32		32
Total	266		266
Purchase Obligations
Purchase commitments for inventory, property, plant and equipment	1,800		1,800		$ 1,500
Litigation
Litigation settlement amount to be received	500		500		$ 500
Claims From Well Thrive Ltd.
Litigation
Litigation settlement amount to be received	$ 500		$ 500
Minimum
Commitments and Contingencies
Cancellable and noncancellable operating lease expiration			2018-10
Maximum
Commitments and Contingencies
Cancellable and noncancellable operating lease expiration			2020-12

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Stock-based Compensation (Details) $ / shares in Units, $ in Thousands			1 Months Ended				3 Months Ended		9 Months Ended
	Jun. 29, 2018	Mar. 31, 2018	Jan. 31, 2018 $ / shares shares	Nov. 30, 2017 $ / shares shares	Mar. 31, 2017 $ / shares shares	Apr. 30, 2014 shares	May 31, 2018 USD ($) item shares	May 31, 2017 USD ($) shares	May 31, 2018 USD ($) item shares	May 31, 2017 USD ($) shares
Stock-based Compensation
Number of share-based compensation plans | item							1		1
Additional number of shares authorized for issuance						250,000
Shares of common stock reserved for issuance							521,000	521,000	521,000	521,000
Common stock available for future issuance (in shares)							196,000	252,000	196,000	252,000
Share-based Compensation, Forfeiture Method [Fixed List]									Estimating expected forfeitures
Estimated forfeiture rate (as a percent)							0.00%		0.00%
Stock-based compensation expense | $							$ 52	$ 43	$ 101	$ 207
Cost of revenues
Stock-based Compensation
Stock-based compensation expense | $							19	9	33	42
Research and development
Stock-based Compensation
Stock-based compensation expense | $							10	4	16	9
Selling, general and administrative
Stock-based Compensation
Stock-based compensation expense | $							$ 23	$ 30	$ 52	$ 156
Officer and Employees | Restricted stock unit
Stock-based Compensation
Stock units granted (in shares)			56,700
Vesting percentage per anniversary of the vesting start date			50.00%
Grant-date fair value (in dollars per share) | $ / shares			$ 4.10
Directors | Restricted stock unit
Stock-based Compensation
Stock units granted (in shares)				2,500	5,000
Grant-date fair value (in dollars per share) | $ / shares				$ 4.15	$ 3.18
Vesting percentage		100.00%
Directors | Restricted stock unit | Subsequent Event
Stock-based Compensation
Vesting percentage	100.00%

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Net Loss Per Share of Common Stock (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	May 31, 2018	May 31, 2017	May 31, 2018	May 31, 2017
Stock units and stock options to purchase common stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities (in shares)	11	10	63	10

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Income Taxes (Details) - USD ($)	3 Months Ended		8 Months Ended	9 Months Ended		12 Months Ended
	May 31, 2018	May 31, 2017	Aug. 31, 2018	May 31, 2018	May 31, 2017	Aug. 31, 2017
Income Taxes [Line Items]
U.S. operations	$ (179,000)	$ (487,000)		$ (86,000)	$ (448,000)
Foreign operations	(147,000)	(1,099,000)		(1,764,000)	(2,983,000)
Loss before income taxes	(326,000)	$ (1,586,000)		$ (1,850,000)	$ (3,431,000)
U.S. federal corporate income tax rate						34.00%
One-time transition tax payable period on certain unrepatriated earnings from non-U.S. subsidiaries				8 years
Unrecognized tax benefits	$ 0			$ 0		$ 0
Scenario, Plan
Income Taxes [Line Items]
U.S. federal corporate income tax rate			21.00%

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Significant Subsequent Event (Details) - shares	May 31, 2018	Feb. 28, 2018	Aug. 31, 2017
Subsequent Events [Abstract]
Reduction in the number of authorized common stock	7,500,000	75,000,000	7,500,000