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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended February 29, 2012

or

For the transition period from                      to                     

Commission File Number: 001-34992

SemiLEDs Corporation

(Exact name of registrant as specified in its charter)

+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 x No o

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 x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,461,160 shares of common stock, par value $0.0000056 per share, outstanding as of April 6, 2012.

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SEMILEDS CORPORATION

FORM 10-Q for the Quarter Ended February 29, 2012

INDEX

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PART I — FINANCIAL INFORMATION

Item 1.         Financial Statements

SEMILEDS CORPORATION

Unaudited Consolidated Balance Sheets

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

See notes to unaudited consolidated financial statements.

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SEMILEDS CORPORATION

Unaudited Consolidated Statements of Operations

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

See notes to unaudited consolidated financial statements.

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SEMILEDS CORPORATION

Unaudited Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

See notes to unaudited consolidated financial statements.

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SEMILEDS CORPORATION

Notes to Unaudited Consolidated Financial Statements

1. Business

Business—SemiLEDs Corporation (“SemiLEDs”) was established on January 4, 2005 as a Delaware corporation and is a holding company for various wholly and majority-owned subsidiaries and joint ventures. SemiLEDs and its subsidiaries (collectively, the “Company”) develop, manufacture and sell high performance light emitting diodes (“LEDs”), consisting primarily of LED chips and LED components. A portion of the Company’s business conducted in the three and six months ended February 29, 2012 consisted of the sale of contract manufactured LED components. The Company’s customers are concentrated in a few select markets, including China, Taiwan, Russia and North America.

On December 8, 2010, SemiLEDs completed its initial public offering in the United States and sold 6,038 thousand new common shares. The Company’s common shares are listed on the NASDAQ Global Select Market under the symbol “LEDS.”

As of February 29, 2012 and August 31, 2011, SemiLEDs had the following consolidated subsidiaries:

The most significant of these consolidated subsidiaries is Taiwan SemiLEDs located in Hsinchu, Taiwan where substantially all research, development, manufacturing, marketing and sales activities currently take place and where substantially all of the assets are held. In August 2011, the Company, through a wholly owned subsidiary, acquired 51% of the outstanding shares of Ning Xiang. The results of Ning Xiang are included in the Company’s consolidated financial statements from the date of acquisition. In September 2011, the Company, through a wholly owned subsidiary, established Shenzhen SemiLEDs to conduct sales and to provide services to the Company’s customers in China.

SemiLEDs also has unconsolidated joint venture entities incorporated in China, Malaysia and Taiwan; see Note 4 for further details. The most significant of these partially owned joint ventures entities is Xurui Guangdian Co., Ltd. (“China SemiLEDs”), in Foshan, Guangdong Province, China, which is engaged in the research, development, manufacturing and sale of LED chips in China.

2. Summary of Significant Accounting Policies

Basis of Presentation—The Company’s unaudited interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the SEC. Accordingly, these unaudited interim 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 22, 2011. The unaudited consolidated balance sheet as of August 31, 2011 included herein was derived from the audited consolidated financial statements as of that date.

The unaudited interim 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

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the Company’s statement of financial position as of February 29, 2012, the Company’s results of operations for the three and six months ended February 29, 2012 and February 28, 2011, and the Company’s cash flows for the six months ended February 29, 2012 and February 28, 2011. The results for the three or six months ended February 29, 2012 are not necessarily indicative of the results to be expected for the year ending August 31, 2012.

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

Use of Estimates—The preparation of unaudited interim 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 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 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 and intangible assets, the fair value of acquired tangible and intangible assets, income tax uncertainties 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.

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 our 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, certificates of deposit and time 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 February 29, 2012 and August 31, 2011, cash and cash equivalents of the Company consist of the following (in thousands):

Substantially all of the Company’s revenues are 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.

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Net revenues generated from sales to the top ten customers represented 70% and 60% of the Company’s net revenues for the three and six months ended February 29, 2012, respectively, and 72% and 62% of the Company’s net revenues for the three and six months ended February 28, 2011, respectively.

The Company’s revenues have been concentrated in a few select markets, including China, Taiwan, Russia and North America. Net revenues generated from sales to customers in these markets, in the aggregate, accounted for 77% and 81% of the Company’s net revenues for the three and six months ended February 29, 2012, respectively, and 91% of the Company’s net revenues for both the three and six months ended February 28, 2011.

Recently Issued Accounting Standards Update

Presentation of comprehensive income—In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 increases the prominence of other comprehensive income in the financial statements. Under ASU 2011-05, the Company will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the option to present other comprehensive income in the statement of changes in equity. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. When ASU 2011-05 is adopted, the Company will be required to apply ASU 2011-05 retrospectively. The Company has elected not to early adopt ASU 2011-05 and has not yet decided whether to present the components of net income and comprehensive income in one single financial statement or two consecutive financial statements when ASU 2011-05 is adopted. In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers the effective date to present separate line items on the statement of operations for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral of the presentation requirements does not impact the effective date of other requirements in ASU 2011-05.

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3. Balance Sheet Components

Inventories

Inventories as of February 29, 2012 and August 31, 2011 consist of the following (in thousands):

Inventory write-downs to estimated net realizable values were $611 thousand and $1,605 thousand for the three and six months ended February 29, 2012, respectively, and $234 thousand and $374 thousand for the three and six months ended February 28, 2011, respectively.

Property, Plant and Equipment

Property, plant and equipment as of February 29, 2012 and August 31, 2011 consist of the following (in thousands):

Intangible Assets

Intangible assets as of February 29, 2012 and August 31, 2011 consist of the following (in thousands):

Amortization expense was $86 thousand and $171 thousand for the three and six months ended February 29, 2012, respectively, and $16 thousand and $31 thousand for the three and six months ended February 28, 2011, respectively.

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The estimated future amortization expense for the Company’s intangible assets as of February 29, 2012 is as follows (in thousands):

4. Investments in Unconsolidated Entities

The Company’s unconsolidated entities are joint ventures that the Company accounts for as investments on an equity or cost method basis. The equity method investments consist of SILQ (Malaysia) Sdn. Bhd. (“SILQ”), China SemiLEDs, and SS Optoelectronics Co., Ltd. (“SS Optoelectronics”). The Company’s ownership interest and investments in unconsolidated entities as of February 29, 2012 and August 31, 2011 consist of the following (in thousands, except percentages):

There were no dividends received from unconsolidated entities through February 29, 2012.

Equity Method Investments—The following joint ventures are partially owned by the Company or its wholly owned subsidiaries; however, the Company has determined it does not control the entities but can exercise significant influence over the operating and financial policies of the joint ventures. The Company accounts for these joint ventures using the equity method of accounting.

In December 2009, the Company entered into an agreement to establish China SemiLEDs in Guangdong, China for the purposes of conducting research and development and producing LED epitaxial wafers and chips to be sold in China. The Company contributed $14.7 million to acquire a 49% ownership interest in China SemiLEDs. The excess of the Company’s share of net assets of China SemiLEDs over the carrying value of this investment was $6.7 million as of February 29, 2012. This negative basis difference is being amortized to income and the investment in China SemiLEDs over the weighted average useful life of the tangible assets used in the operations of China SemiLEDs, which is 11 years beginning in the period those assets are put in place and ready for their intended use. Such amortization commenced during the year ended August 31, 2011. For the three and six months ended February 29, 2012, the Company recorded an increase of $167 thousand and $334 thousand, respectively, to the Company’s investment in China SemiLEDs and a corresponding reduction in the Company’s equity in the net loss of China SemiLEDs.

In September 2009, the Company, through a wholly owned subsidiary, contributed $570 thousand to form SILQ, a joint venture in Malaysia. In April 2011, the Company participated in SILQ’s capital increase and contributed $662 thousand. The Company and the other investor in the joint venture each hold a 50% ownership and voting interest in SILQ’s common stock. The Company entered into the joint venture agreement that established SILQ to design, manufacture and sell lighting fixtures and systems.

In December 2009, the Company, through a wholly owned subsidiary, entered into the joint venture agreement that established SS Optoelectronics to facilitate sales of the Company’s LED chips to the other investor in the joint venture. In November 2010, the Company made a determination to dissolve the joint venture in accordance with the joint venture agreement when the joint venture did not receive approval from the Hsinchu Science Park Administration of its application for entry into the Hsinchu Science Park. In December 2011, the dissolution of SS Optoelectronics was approved by the Company’s wholly owned subsidiary and the other shareholder. Management does not expect that dissolving this joint venture will have a material impact on the Company’s interim consolidated financial statements.

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The fair value of the Company’s investments in the non-marketable stock of its equity method investees is not readily available. These investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

The following is a summary of the financial information for China SemiLEDs and the Company’s other equity method investees (in thousands):

Cost Method Investments—The Company held investments in non-marketable common stock of three unaffiliated companies with a cost of $1,055 thousand and $1,059 thousand as of February 29, 2012 and August 31, 2011, respectively. The fair value of these investments is not readily available. These investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

5. Deferred Income

In March 2011, the Company received a one-time payment of $540 thousand, net of related costs of $60 thousand, for the assignment of 13 patents to China SemiLEDs pursuant to a patent assignment and license agreement. In addition, China SemiLEDs has granted the Company a royalty-free, transferable and exclusive license to use the assigned patents globally except in manufacturing LED wafers and chips in China and agreed to license all future patents acquired by China SemiLEDs to the Company for the use in manufacturing or selling LED products globally. Income of $509 thousand on such assignment was initially deferred and is being recognized in other income over the life of the assigned patents. For the three and six months ended February 29, 2012, the Company recognized $13 thousand and $26 thousand, respectively, in other income.

6. 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 noncancellable and which expire at various dates between January 2013 and December 2020. Lease expense related to these noncancellable operating leases was $196 thousand and $396 thousand for the three and six months ended February 29, 2012, respectively, and $177 thousand and $345 thousand for the three and six months ended and February 28, 2011, 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 February 29, 2012 consist of the following (in thousands):

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Purchase Obligations—The Company had purchase commitments for property, plant and equipment in the amount of $7.2 million and $10.9 million as of February 29, 2012 and August 31, 2011.

Litigation—The Company is subject to various claims arising in the ordinary course of business.

On October 14, 2010, Cree, Inc., (“Cree”), a competitor and a major manufacturer of LED products, filed a complaint against the Company in the United States District Court of Delaware asserting infringement of certain of their patents. The complaint seeks injunctive relief, unspecified monetary damages, pre- and post-judgment interest and attorneys’ fees. The Company filed an answer to the complaint on November 3, 2010, denying all allegations of infringement. Cree filed a motion on December 10, 2010 to amend its initial complaint to add additional United States patents that it alleges the Company has infringed. On March 22, 2011, the court granted Cree’s motion to amend and the second amended complaint was placed on file. Cree then filed a third amended complaint, based on the same Cree patents and adding a subsidiary of the Company as a defendant. The third amended complaint similarly alleges that the Company has infringed certain of Cree’s patents in the United States and seeks injunctive relief, unspecified monetary damages, pre- and post-judgment interest and attorneys’ fees. The Company answered the third amended complaint on May 16, 2011, denying all allegations of infringement. On November 1, 2011, Cree filed a motion for leave to file a fourth amended complaint adding a claim of willful infringement on one of the six patents-in-suit. On December 21, 2011, the court granted Cree’s motion for leave to amend. Accordingly, Cree will be seeking treble damages on its claim that the Company has willfully infringed one of the six patents-in-suit. The Markman hearing in this case was held on January 24, 2012, and the court issued a Markman ruling on March 21, 2012. Trial is scheduled for March 2013. On August 15, 2011, the Company filed a complaint for patent infringement against Cree in the United States District Court of Delaware seeking injunctive relief, damages, pre- and post-judgment interest, costs, expenses and attorneys’ fees for infringing a number of the Company’s patents. On October 11, 2011, Cree filed an answer and counterclaims to the Company’s complaint, denying all allegations of infringement, alleging that the Company and Taiwan SemiLEDs have infringed certain of its patents and seeking injunctive relief, unspecified monetary damages, pre- and post-judgment interest and attorneys’ fees. The Company and Taiwan SemiLEDs filed their answer to Cree’s counterclaims on November 4, 2011. On November 22, 2011, Cree filed an amended counterclaim adding a claim of willful infringement on one of the patents-in-suit, pursuant to which Cree will be seeking treble damages. The Company answered the amended counterclaim on December 5, 2011. The court held an initial scheduling conference in this case on January 24, 2012. Trial is scheduled for November 2013. Management believes that the Company has meritorious defenses and the Company intends to contest this lawsuit vigorously. The Company records 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. In the opinion of management, based on currently available information, the likelihood of an unfavorable outcome to the Company in the Cree matters described above is reasonably possible but not probable. In the event of an unfavorable outcome, management believes the estimated range of amounts of reasonably possible damages, if imposed, would not be material to the Company’s financial position, results of operations, or cash flows.

However, the outcomes of legal proceedings and claims brought against the Company are always subject to significant uncertainty. Therefore, in the event that Cree is successful in obtaining some or all of the relief it seeks, or other additional information becomes available, it may cause management to revise the above assessment.

Third parties have from time to time claimed, and others may claim in the future, that the Company has infringed their past, current or future intellectual property rights. These claims, whether meritorious or not, could be time-consuming, result in costly litigation, require expensive changes in the Company’s methods of doing business or could require the Company to enter into costly royalty or licensing agreements, if available. As a result, these claims could harm the Company’s business, operating results, cash flows and financial position.

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7. Stock-based Compensation

As of August 31, 2010, the Company had one stock-based compensation plan (the “2005 Plan”). In November 2010, SemiLEDs’ board of directors and its stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”), discussed further below, which became effective upon the completion of the initial public offering on December 8, 2010.

The total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stock units granted to employees, directors and nonemployees and also included stock options to purchase Series E shares issued, which were converted into common stock on a one-for-one basis, as part of an employment agreement related to the Company’s acquisition of SBDI. A summary of the stock-based compensation expense for the three and six months ended February 29, 2012 and February 28, 2011 is as follows (in thousands):

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 a vesting term that is less than one year from the time of grant.

Equity Incentive Plans—A total of 3,849 thousand shares of common stock was reserved for issuance under the 2005 Plan and 2010 Plan. Since the initial public offering, awards are being made from the 2010 Plan. The 2010 Plan provides for awards in the form of restricted shares, restricted stock units, stock options or stock appreciation rights to the Company’s employees, officers, directors and consultants. Options outstanding under the 2005 Plan will continue to be governed by their existing terms.

In February 2012, the Company’s board of directors granted 31 thousand restricted stock units to its directors that vest 100% on the earlier of the first anniversary of the vesting start date of February 6, 2012, and the date of the next annual meeting. The grant-date fair value of the restricted stock units was $3.27 per unit. The compensation committee of the board of directors also granted 786 thousand restricted stock units to its executives and employees. These restricted stock units vest over four years at a rate of 25% on each anniversary the vesting start date of February 20, 2012, subject to earlier expiration in the event of the holder’s termination. The grant-date fair value of the restricted stock units was $3.53 per unit. Each restricted stock unit represents the contingent right to one share of SemiLEDs’ common stock.

Determining Fair Value of Stock Options—The Company determines the fair value of each grant of stock options using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Valuation Method—Management estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

Expected Term—The expected term represents the period that the Company’s stock options are expected to be outstanding. The expected term for options granted to employees of the Company is derived from historical data on employee exercises and post-vesting employment termination behavior after taking into account the contractual life of the award. The expected term for nonemployee options is equal to the contractual life of the option.

Expected Volatility—The expected volatility was based on the implied stock volatilities of several of the Company’s publicly-traded peers over a period equal to the expected terms of the options as SemiLEDs does not have a sufficient trading history to use the volatility of its own common stock.

Fair Value of Common Stock—The fair value of the common stock underlying the stock options was based on the trading price of SemiLEDs’ shares on the date of grant. Prior to SemiLEDs’ initial public offering, the fair value of common stock at the date of grant was determined by the board of directors by considering a number of objective and subjective factors including independent

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valuation reports, valuations of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors.

Risk-Free Interest Rate—The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the related options.

Expected Dividend—The expected dividend has been zero for the Company’s option grants as SemiLEDs has never paid dividends and does not expect to pay dividends for the foreseeable future.

Determining Fair Value of Restricted Stock Units—Grant date fair value 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.

8. Net Income (Loss) Per Share of Common Stock

The following tables set forth the computation of the Company’s basic and diluted net income (loss) per share of common stock for the three and six months ended February 29, 2012 and February 28, 2011 (in thousands, except per share data). The two-class method was used for the period through December 8, 2010, a period in which shares of several series of SemiLEDs’ convertible preferred stock were outstanding.