What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-11-29 compared with 2020-11-17 · 83 added, 86 removed, 364 unchanged (32% of the section changed)

18 unchanged sentences

The conditions caused by the COVID-19 pandemic have adversely affected our customers’ ability or willingness to purchase our products or services, delayed prospective customers’ purchasing decisions, adversely impacted our ability to provide or deliver products and on-site services to our customers, delayed the provisioning of our offerings, or lengthened payment terms, all of which could adversely affect our future sales, operating results and overall financial performance.

Our operations have also begun to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control.

Our operations have also been negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control.

For example, our largest customer, Revlon, Inc., postponed its regular orders, which is expected to decrease our sales revenue for the first quarter ended November 30, 2021, and even for the quarters after that if the COVID-19 pandemic continues.

To avoid cash shortage due to the pandemic, we applied and received subsidies from the Taiwan government.

Our bank granted us a deferment period for twelve months starting from May 2020.

During this period, we do not need to pay the monthly payments of the principal but only the interest.

To avoid a cash shortage due to the pandemic, we applied and received subsidies from the Taiwan government.

Our bank granted us a deferment period for twelve months beginning May 2020.

During this period, we did not need to pay the monthly payments of the principal but only interest.

We have also devoted ourselves to new product development and expect these new products could bring in new revenue, offsetting the losses resulted from existing customers’ delayed purchasing.

2 unchanged sentences

We need to improve our liquidity, access alternative sources of funding and obtain additional equity capital or credit when necessary for our operations.

In July 2021, we established an at-the-market equity program (“ATM”) that allows us to sell up to $20 million of common stock from time to time.

However, we may not be able to obtain such debt funding or sell equity securities on terms that are favorable to us, or at all.

7 unchanged sentences

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.

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 stro ng impact on the demand of LED chips generally and, as a result, for our LED chips, LED components and LED lighting products.

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.

22 unchanged sentences

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.

In December 2018, we announced sampling of ultraviolet C (UVC) product lines and launched our first product in the tri-color multi pixel series, a 16-pixel RGB array component, to reduce total production costs through increased SMT throughput.

To differentiate ourselves from other LED package manufacturers, we are putting more resources towards module and system design.

4 unchanged sentences

Our LED components include different sizes and wattage to accommodate different demands in the LED market.

General economic conditions and geographic concentrat ion.

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 financia l 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.

When the global economy slows or a financial crisis occurs, consumer and government confidence declines, with levels of government grants and subsidies for LED adoption and consumer spending likely to be adversely impacted.

Our revenues have been concentrated in a few select markets, including the Netherland s , Taiwan, the United States , Germany, Japan and India .

1 unchanged sentence

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 ‑ sect or 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 grow ing market share in the global LED industry.

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.

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 quar ter to quarter primarily as a result of the timing of discrete, large project ‑ based purchases and broadening customer base, among other things.

Some of our largest customers and what we produce/have produced for them have changed from quarter to quarter primarily as a result of the timing of discrete, large project ‑ based purchases and broadening customer base, among other things.

For the years ended August 31, 2021 and 2020 , sales to our three largest customers, in the aggregate, accounted for 5 2 % and 61 % of our revenues, respectively.

11 unchanged sentences

Cash position.

Our cash and cash equivalents increased to $2.8 million as of August 31, 2020 primarily due to the combination of our net cash provided by financing activities offset by net cash used in operating activities.

Our cash and cash equivalents increased to $4.8 million as of August 31, 2021 primarily due to the sale of 344,391 shares of common stock for net proceeds of $4.0 million under our ATM program.

We have implemented actions to accelerate operating cost reductions and improve operational efficiencies.

The plan is further enhanced through the fabless business model in which we implemented certain workforce reductions and are exploring the opportunities to sell certain equipment related to the manufacturing of vertical LED chips, in order to reduce the idle capacity charges and minimize our research and development activities associated with chips manufacturing operation.

In December 2019, we issued convertible unsecured promissory notes with a principal sum of $2 million.

Among which, $600 thousand convertible notes were converted into 200 thousand shares of common stock in May 2020.

In December 2019, we issued convertible unsecured promissory notes with a principal sum of $2 million, of which, $600 thousand convertible notes were converted into 200 thousand shares of common stock in May 2020.

Based on our current financial projections, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months.

On May 26, 2021 the Notes were extended with the same terms and interest rate for one year and mature on May 30, 2022.

As of August 31, 2021 and 2020, the outstanding principal of these notes totaled $1.4 million.

Components of Consolidated Statements of Operations

8 unchanged sentences

Our larger customers typically provide us with non ‑ binding rolling forecasts of their requirements for the coming one to three months;

however, recent global economic uncertainty and weakness has led to reduced spending in our t arget markets and made it difficult for our customers and us to accurately forecast and plan future business activities.

however, recent global economic uncertainty and weakness has led to reduced spending in our target markets and made it difficult for our customers and us to accurately forecast and plan future business activities.

Our customers may increase, decrease, cancel or delay purchase orders already in place, with no material consequences to the customer.

1 unchanged sentence

We price our products in accordance with prevailing market conditions, taking into account the technical specifications of the product being sold, the order volume, the strength and history of our relationship with the customer, our inventory levels and our capacity utilization.

When average selling prices drop, as they did in recent yea rs, inventory write ‑ downs to net realizable values may also result.

When average selling prices drop, as they did in recent years, inventory write ‑ downs to net realizable values may also result.

Our customers consist primarily of packagers, ODMs and end‑customers.

30 unchanged sentences

Gain on disposal of investment.

We recognized a gain of $634 thousand for the year ended August 31, 2020.

On November 27, 2019, we entered into a stock purchase agreement to sell all of the outstanding shares of our Hong Kong Subsidiary, Semileds International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co Ltd for $100,000 and an additional $40,000 for the transaction cost.

The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.

We recognized a gain of $0 and $634 thousand for the years ended August 31, 2021 and 2020, respectively.

Interest expenses, net.

5 unchanged sentences

Other income, net.

Other income for the year ended August 31, 2020 primarily consists of government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our Hsinchu building.

Other income for the year ended August 31, 2019 consists primarily of rental income from the lease of spare space in our Hsinchu building, offset by the settlement of a lawsuit with Epistar.

Other income for the years ended August 31, 2021 and 2020 primarily consists of a government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our Hsinchu building.

Foreign currency transaction gain (loss), net.

28 unchanged sentences

Corporate income taxes payable, however, are subject to an alternative minimum tax.

The Taiwan government enac ted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006.

The Taiwan government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006.

Under the AMT Act, a taxpayer must pay the higher of its taxable income multiplied by the corporate income tax rate or the alternative minimum tax, or AMT.

In calculating the A MT amount, the taxpayer must include income that would otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain exemptions or tax credits that have been grandfathered for the purposes of calculating A MT.

In calculating the AMT amount, the taxpayer must include income that would otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain exemptions or tax credits that have been grandfathered for the purposes of calculating AMT.

The AMT rate for business entities is 12%.

In addition to the statutory corporate taxes payable, or the AMT, corporate taxpayers in Taiwan are subject to an additional tax on distributable retained earnings (after statutory legal reserves) to the exten t that such earnings are not distributed prior to the end of the subsequent year.

This undistributed earnings surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prior year is approved by a compan y’s stockholders and is payable in the subsequent year.

In addition to the statutory corporate taxes payable, or the AMT, corporate taxpayers in Taiwan are subject to an additional tax on distributable retained earnings (after statutory legal reserves) to the extent that such earnings are not distributed prior to the end of the subsequent year.

This undistributed earnings surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prior year is approved by a company’s stockholders and is payable in the subsequent year.

The surtax rate has been reduced from 10% to 5%, starting applicable to the undistributed retained earnings of the year ended August 31, 2019.

Because most of our subsidiaries in Taiwan incurred losse s before income tax for both our fiscal year 20 20 and 201 9 , we do not expect to pay such taxes on undistributed earnings.

In addition, in accordance with the Taiwan Income Tax Act, dividends distributed by companies incorporated in accordance with the Taiwan Company Act shall be deemed as income derived from sources in Taiwan and income taxes shall be levied on the shareholders receiving such dividends.

Because most of our subsidiaries in Taiwan incurred losses before income tax for both our fiscal year 2021 and 2020 , we do not expect to pay such taxes on undistributed earnings.

In addition, in accordance with the Taiwan Income TaxAct, dividends distributed by companies incorporated in accordance with the Taiwan Company Act shall be deemed as income derived from sources in Taiwan and income taxes shall be levied on the shareholders receiving such dividends.

In the event that a Taiwan incorporated company distributes dividends to its foreign shareholders, it will be required to withhold tax payable by the foreign shareholders at the time of payment at a rate of 20% or a lower tax treaty rate if applicable.

50 unchanged sentences

Critical Accounting Policies and Estimates

On September 1, 2019, we adopted ASU No.

2018-07, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting.

The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

There was no material impact on our consolidated financial position, results of operations or cash flows due to the adoption.

Effective September 1, 2019, we adopted, without restating comparatives, ASC 842, 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.

As of September 1, 2019, we recognized $307 thousand of lease right of use Asset and of lease liability;

and there was no material impact on our consolidated financial results of operations or cash flows due to the adoption.

Except as described above, there have been no material changes in the matters for which we make critical accounting policies and estimates in the preparation of our condensed consolidated financial statements for the year ended August 31, 2020 as compared to those disclosed in our 2019 Annual Report.

We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management.

For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements.

Revenue Recognition

The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business.

Refer to Note 2 to the Consolidated Financial Statements for our revenue recognition policies.

Write-down of Inventories

The net realized value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal.

The estimation of net realized value is based on current market conditions and historical experience with product sales of similar nature.

Changes in market conditions may have a material impact on the estimation of the net realizable value.

The reliability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available.

In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.

Exchange Rate Information

We are a Delaware corporation and, under SEC requirements, must report our financial position, results of operations and cash flows in accordance with U.S.

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.

At the same time, our subsidiaries use the local currency as their functional currency.

1 unchanged sentence

The assets and liabilities of the subsidiaries are, therefore, translated into U.S.

dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive income (loss) within equity.

Income and expense accounts are translated at average exchange rates during the period.

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).

43 unchanged sentences

Revenues, net

Total revenues increased by 3% from $5.9 million for the year ended August 31, 2019 to $6.1 million for the year ended August 31, 2020.

The $166 thousand increase in revenues reflects a $727 thousand increase in other revenues, offset by a $24 thousand decrease in revenues attributable to sales of LED chips, a $453 thousand decrease in revenues attributable to sales of LED components, and an $84 thousand decrease in revenues attributable to the sales of lighting products.

Revenues attributable to the sales of our LED chips represented 1% and 2% of our revenues for the years ended August 31, 2020 and 2019, respectively.

The decrease in revenues attributable to sales of LED chips was as a result of a decrease in the volume of LED chips sold, primarily due to our strategic decision to place greater emphasis on the sales of LED components rather than the sales of LED chips.

Our revenues decreased by 22% from $6.1million for the year ended August31, 2020 to $4.7 million for the year ended August 31, 2021.

The decrease in revenues was driven primarily by a $719 thousand decrease in revenues attributable to sales of LED components and a $899 thousand decrease in other revenues , offset in part by a $284 thousand increase in revenues attributable to the sales of LED chips and lighting products.

Revenues attributable to the sales of our LED chips represented 4% and 1%, respectively, of our revenues for the years ended August 31, 2021 and 2020, respectively, and the increase was primarily due to varying volumes sold for the LED chips.

Revenues attributable to the sales of our LED components represented 69% and 66% of our revenues for the years ended August 31, 2021 and 2020, respectively.

2 unchanged sentences

Revenues attributable to the sales of lighting products represented 15% and 9% of our revenues for the years ended August 31, 2021 and 2020, respectively.

The decrease in revenues attributable to the sales of lighting products was mainly due to a slowdown in demand on LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products.

Revenues attributable to other revenues represented 24% and 12% of our revenues for the year ended August 31, 2020 and 2019, respectively.

The increase in revenues attributable to other revenues was primarily due to the provision of services and the sale of raw materials.

The increase in revenues attributable to the sales of lighting products was mainly due to a higher in demand on LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products.

Revenues attributable to other revenues represented 12% and 24% of our revenues for the years ended August 31, 2021 and 2020, respectively.

The decrease in revenues attributable to other revenues was primarily due to the provision of services and the sale of raw materials.

Cost of Revenues

3 unchanged sentences

A majority of our inventory write-downs during the years ended August 31, 2021 and 2020was related to finished goods and work in process, primarily as a result of obsolescence.

Our gross profit increased from $452 thousand for the year ended August 31, 2019 to $1.6 million for the year ended August 31, 2020.

Our gross margin percentage was 26% for the year ended August 31, 2020, as compared to 8% for the year ended August 31, 2019 as a consequence of an increase in the sales of products with higher margin.

Our gross profit decreased from $1.6 million for the year ended August 31, 2020 to $1.0 million for the year ended August 31, 2021.

Our gross margin percentage was 22% for the year ended August 31, 2021, as compared to 26% for the year ended August 31, 2020 as a consequence of an increase in the sales of products with lower margin.

Operating Expenses

6 unchanged sentences

Research and development.

Our research and development expenses decreased from $1.6 million for the year ended August 31, 2019 to $1.5 million for the year ended August 31, 2020.

The slight decrease was primarily due to an $87 thousand decrease in materials and supplies used in research and development, offset partially by an increase in payroll expense and other operating expenses.

Our research and development expenses increased from $1.5 million for the year ended August 31, 2020 to $1.6 million for the year ended August 31, 2021.

The slight increase was primarily due to a $139 thousand increase in materials and supplies used in research and development, offset partially by an decrease in payroll expense and other operating expenses.

Selling, general and administrative.

Our selling, general and administrative expenses increased slightly from $2.8 million for the year ended August 31, 2019 to $2.8 million for the year ended August 31, 2020.

Our selling, general and administrative expenses increased from $2.8 million for the year ended August 31, 2020 to $3.6 million for the year ended August 31, 2021.

The increase was mainly attributable to a $835 thousand increase in professional fees, offset partially by a decrease in payroll expense, shipping and freight fee, and other various expenses.

Gain on disposal of long ‑ lived assets, net.

Gain on disposal of long ‑ lived asset s , net.

We recognized a gain of $ 286 thousand and $ 669 thousand, net on the disposal of long-lived assets for the years ended August 31, 2021 and 2020 , respectively.

Primarily due to the excess capacity charges that we have suffered for 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.

Primarily due to the excess capacity charges that we have suffered for several years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of a certain level of our idle equipment.

Other Income (Expenses)

5 unchanged sentences

Foreign currency transaction gain, net

Total other income (expenses), net

Total other income, net

Gain on disposal of investment.

We recognized a gain of $634 thousand for the year ended August 31, 2020.

The $140,000 was fully received in November 2019, and the transaction was approved by the authority and closed in January 2020.

We recognized a gain of $0 and $634 thousand for the years ended August 31, 2021 and 2020, respectively.

Interest expenses, net.

The increase in interest expenses, net was primarily due to the increase in debt balance, resulting from issuance of $2 million of convertible notes in December 2019, and our entry into an aggregate amount of $3.2 million loan of agreements in January 8, 2019, with each of our Chairman and Chief Executive Officer and our largest shareholder.

The increase in interest expenses, net was primarily due to the issuance of $1.4 million of convertible notes in December 2019 and accrued interest and a $3.2 million loan with each of our Chairman and Chief Executive Officer and our largest shareholder.

Other income, net.

Other income for the year ended August 31, 2020 primarily consists of government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our Hsinchu building.

Other expenses for the year ended August 31, 2019 consists primarily of rental income from the lease of spare space in our Hsinchu building, net of related depreciation charge, offset by the settlement of a lawsuit with Epistar.

Other income for the years ended August 31, 2021 and 2020 primarily consists of government subsidy for the COVID-19 pandemic impact and rental income from the lease of spare space in our Hsinchu building.

Foreign currency transaction gain (loss), net.

3 unchanged sentences

Income Tax Expense (Benefit)

We did not recognize any income tax expense for both the years ended August 31, 2020 and 2019.

Although we incurred losses before income tax for most of our subsidiaries for the fiscal year, we provided a full valuation allowance on all deferred tax assets.

Our effective tax rate is expected to be approximately zero for fiscal 2021 and was zero for fiscal 2020, since Taiwan SemiLEDs incurred losses, and because we provided a full valuation allowance on all deferred tax assets, which consisted primarily of net operating loss carryforwards and foreign investment loss.

As of August 31, 2021 and 2020, we recognized full valuation allowances of $33.8 million and $32.3 million, respectively, on our net deferred tax assets to reflect uncertainties related to our ability to utilize these deferred tax assets, which consist primarily of certain net operating loss carryforwards and foreign investment loss.

12 unchanged sentences

Net loss attributable to noncontrolling interests

We recognized net loss attributable to non-controlling interests of $3 thousand and a net gain of approximately $0 thousand for the year ended August 31, 2020 and 2019, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the remaining non-controlling holders.

As of August 31, 2020 and 2019, non-controlling interests represented 3.25% and 3.29% equity interest, respectively, in Taiwan Bandaoti Zhaoming CO., Ltd.

We recognized net loss attributable to non-controlling interests of $6 thousand and a net loss attributable to non-controlling interests of $3 thousand for the year ended August 31, 2021 and 2020, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd held by the non-controlling holders.

Non-controlling interests represented 3.05% and 3.25% equity interest in Taiwan Bandaoti Zhaoming CO., Ltd as of August 31, 2021 and 2020, respectively.

Liquidity and Capital Resources

9 unchanged sentences

Due to the impact of the COVID-19 pandemic, the bank agreed to give us a deferment period for twelve months starting from May 2020.

During this period, we don’t need to pay the monthly payments of the principal but only the interest.

During this period, we did not need to pay the monthly payments of the principal but only the interest.

Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $27 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2021, our outstanding balance on this note payable was approximately $1.9 million.

Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $1 6 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of Augus t 31, 2020, our outstanding balance on this note payable was approximately $1.

Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $17 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2021, our outstanding balance on this note payable was approximately $1.2 million.

Property, plant and equipment pledged as collateral for our notes payable were $3.5 million and $3.6 million as of August 31, 2021 and 2020, respectively.

1 unchanged sentence

All proceeds of the loans were exclusively used to return the deposit to Formosa Epitaxy Incorporation in connection with the proposed sale of our headquarters building pursuant to the agreement dated December 15, 2015.

We are required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively, unless the loans are sooner accelerated pursuant to the loan agreements.

As of August 31, 2020 and 2019, these loans totaled $3.2 million.

The loans are secured by a second priority security interest on our headquarters building.

We are required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively.

In February 2021, the loans were extended with the same principal amount and interest rate for one year and are now due on January 15, 2022.

As of August 31, 2021 and 2020, these loans totaled $3.2 million, respectively.

The loans are secured by a second priority security interest on our headquarters.

On December 6, 2019 and on December 10, 2019, we issued convertible unsecured promissory notes to each of our Chairman and Chief Executive Officer and our largest shareholder (the “Holders”), with a principal sum of $2 million and an annual interest rate of 3.5%.

2 unchanged sentences

On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our Common stock.

As of August 31, 2020, the outstanding principal of these notes totaled $1.4 million.

We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $544 thousand and $3.6 million during the years ended August 31, 2020 and 2019, respectively.

On May 26, 2021, the Notes were extended with the same terms and interest rate for one year and now mature on May 30, 2022.

As of August 31, 2021 and 2020, the outstanding principal of these notes totaled $1.4 million.

We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $ 2.9 million and $ 544 thousand during the years ended August 31, 2021 and 2020 , respectively.

Net cash used in operating activities for the year ended August 31, 20 21 was $ 2.8 million .

1 unchanged sentence

We have undertaken actions to decrease losses incurred and implemented cost reduction programs in an effort to transform the Company into a profitable operation.

In addition, we are planning to issue convertible notes to our major stockholders and may issue additional equity.

Based on our current financial projections and assuming the successful implementation of our liquidity plans, we believe that we 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.

In addition, we are planning to issue additional equity to our stockholders.

On July 6, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”).

In accordance with the terms of the Sales Agreement, we may offer and sell from time to time through the Agent our common stock having an aggregate offering price of up to $20,000,000 (the “Placement Shares”).

Sales of the Placement Shares, if any, will be made on Nasdaq at market prices by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended.

The Company will pay a commission to the Agent of 3.0% of the gross proceeds of the sale of the Placement Shares sold under the Agreement and reimburse the Agent for certain expenses.

In the fourth quarter of fiscal 2021, we sold 344,391 shares of common stock for gross proceeds of $4.2 million with $125 thousand paid as placement agent fees under our ATM program.

We estimate that our cash requirements to service debt and contractual obligations in fiscal 2022 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program.

However, there can be no assurances that our planned activities will be successful in raising additional capital, reducing losses and preserving cash.

If we are not able to generate positive cash flows from operations, we may need to consider alternative financing sources and seek additional funds through public or private equity financings or from other sources, or refinance our indebtedness, to support our working capital requirements or for other purposes.

1 unchanged sentence

The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10‑K (in thousands):

Cash Flows Used in Operating Activities

Years Ended August 31,

2 unchanged sentences

Net cash provided by financing activities

Cash Flows Used in Operating Activities

Net cash used in operating activities was $1.7 million and $1.0 million for the years ended August 31, 2021 and 2020, respectively.

Cash used in operating activities for the year ended August 31, 2020 was $2.5 million lower, primary attributable to a decrease of $3.0 million in net loss, an increase of $442 thousand in cash collected from customers, and a decrease of $111 thousand in cash paid out for accrued expenses and other current liabilities, partially offset by various non-cash adjustments during the year ended August 31, 2020 compared to the year ended August 31, 2019.

Cash used in operating activities for the year ended August 31, 2021 was $700 thousand higher, primary attributable to a decrease of $2.3 million in net loss, an increase of $143 thousand in cash collected from customers, and a decrease of $401thousand in cash paid out for accrued expenses and other current liabilities, partially offset by various non-cash adjustments during the year ended August 31, 2021 compared to the year ended August 31, 2020.

Cash Flows Provided By (Used in) Investing Activities

Net cash provided by investing activities was $159 thousand for the year ended August 31, 2021, consisting primarily of the proceeds from the sales of property, plant and equipment of $291 thousand as a result of the disposal of idle machinery, partially offset by a $118 thousand in cash used in the purchase of machinery and equipment and a $14 thousand for development of intangible assets.

Net cash provided by investing activities was $518 thousand for the year ended August 31, 2020, consisting primarily of the proceeds from the sales of property, plant and equipment of $669 thousand as a result of the disposal of idle machinery, and the proceeds of $140 thousand from the sales of our Hong Kong subsidiary, SemiLEDs International Corporation Limited, and its wholly owned subsidiary Xuhe Guangdian Co., Ltd., partially offset by a $271 thousand in cash used in the purchase of machinery and equipment and a $20 thousand for development of intangible assets.

Net cash used in investing activities was $2.6 million for the year ended August 31, 2019, consisting primarily of the return of $3 million to Epistar and $ 127 thousand of purchases of machinery and equipment, partially offset by $50 2 thousand of proceeds from sales of machinery and equipment.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the year ended August 31, 2020 was $2.4 million, consisting primarily of $2 million of proceeds from convertible notes and $700 thousand of issuance of common stocks, offset in part by the repayments on long-term debt.

Net cash provided by financing activities was $4.1 million for the year ended August 31, 2019, consisting primarily of $3.2 million of proceeds from Chairman and shareholder loans, and $3.2 million of proceeds from the new bank loans, partially offset by $2.3 million of repayments on long-term notes.

Net cash provided by financing activities was $4.0 million for the year ended August 31, 2021, consisting primarily of $4.2 million of issuance of common stock for private placement.

Net cash provided by financing activities for the year ended August 31, 2020 was $2.4 million, consisting primarily of $2 million of proceeds from convertible notes and $700 thousand of issuance of common stock, offset in part by the repayments on long-term debt.

Capital Expenditures

3 unchanged sentences

However, in response to controlling capital costs and maintaining financial flexibility, our management continues to monitor prices and, consistent with its existing contractual commitments, may decrease its activity level and capital expenditures as appropriate.

Off ‑ Balance Sheet Arrangements

As of August 31, 2020, we did not engage in any off‑balance sheet arrangements.

We do not have any interests in variable interest entities.

Accounting Pronouncements Not Yet Adopted

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis