What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-07 compared with 2022-01-12 · 173 added, 99 removed, 239 unchanged (53% of the section changed)

26 unchanged sentences

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 the Netherlands, Ireland, Taiwan, Japan, the United States, Germany and India, where our revenues are concentrated, including the impact of the COVID-19 pandemic on customer demand.

Adverse development in those selected mark ets, including the United States, Japan, Germany and Netherlands, where our revenues are concentrated, including the impact of the COVID-19 pandemic and inflation on customer demand.

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

Our ability to resolve pending litigation on favorable terms.

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.

24 unchanged sentences

Company Overview

We develop, manufacture and sell light emitting diode (LED) chips and LED components, LED modules and systems.

Our products are used for general lighting and specialty industrial applications, including ultraviolet, or UV, curing of polymers, LED light therapy in medical/cosmetic applications, counterfeit detection, germicidal and viricidal devices, LED lighting for horticulture applications, architectural lighting and entertainment lighting.

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, the Netherlands, Germany and India.

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 the United States, Japan, Germany and Netherlands.

We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets.

24 unchanged sentences

Our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by COVID-19 and related restrictions.

The conditions caused by the COVID-19 pandemic have adversely affected our customers’ ability or willingness to purchase our products or services,

delayed prospective customers’ purchasing decisions, adversely impacted our ability to provide or deliver products and on-site services to our customers, delayed the provisioning of our offerings, or lengthened payment terms, all of which could adversely affect our future sales, operating results and overall financial performance.

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

For example, while operations continue d in our locations, some of our non-manufacturing employees work remotely and travel remains limited;

which hinders our ability to connect with customers and participate in trade shows.

G iven the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments, which could have a material adverse effect on our financial position and results of operations.

Our ability to raise additional debt funding, sell additional equity securities and improve our liquidity.

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.

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 did not need to pay the monthly payments of the principal but only the interest.

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

However, given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments, which could have a material adverse effect on our financial position and results of operations.

Our ability to raise additional debt, sell additional equity securities and improve our liquidity.

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

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

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

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

The raising of additional debt funding by us, if required and available, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict our operations.

19 unchanged sentences

We anticipate that our gross margins will continue to fluctuate from period to period as a result of the mix of products that we sell and the utilization of our manufacturing capacity in any given period, among other things.

For example, we continue to pursue opportunities for profitable growth in areas of business where we see the best opportunity to develop as an end-to-end LED module solution supplier by providing our customers with high quality, flexible and more complete LED system solution, customer technical support and LED module/system design, as opposed to just providing customers with individual components.

As a strategic plan, we have placed greater emphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory.

The growth of our module products and the continued commercial sales of our UV LED product are expected to improve our gross margin, operating results and cash flows.

For example, we continue to pursue opportunities for profitable growth in areas of our 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 pri ces on older inventory.

Steady 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.

18 unchanged sentences

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

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

Our revenues have been concentrated in a few select markets, including the United States, Japan, Germany and Netherlands.

Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter to quarter.

4 unchanged sentences

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 months ended November 30, 2021 and 2020, sales to our three largest customers, in the aggregate, accounted for 68% and 61% of our revenues, respectively.

For the three and the six months ended February 28, 2022, sales to our three largest customers, in the aggregate, accounted for 58% and 62% of our revenues, respectively.

Intellectual property issues.

4 unchanged sentences

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.

Any such legal action or the threat of legal action against us, or our customers, could impair such customers’ continued demand for our products.

This could prevent us from growing or even maintaining our revenues, or cause us to incur additional costs and expenses, and adversely affect our financial condition and results of operations.

Cash position.

Our cash and cash equivalents increased to $4.1 million as of November 30, 2021 from $2.7 million as of November 30, 2020, primarily due to the sale of 344,391 shares of common stock for net proceeds of $4.0 million under our ATM program.

Our cash and cash equivalents increased to $3.7 million as of February 28, 2022 from $2.1 million as of February 28, 2021, primarily due to the sale of 344,391 shares of common stock in the fourth quarter of fiscal 2021 for net proceeds of $4.0 million under our ATM program.

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

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

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

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

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

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 November 30, 2021 and 2020, the outstanding principal of these notes totaled $1.4 million.

As of February 28, 2022 and 2021, the outstanding principal of these notes totaled $1.4 million.

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.

Critical Accounting Policies and Estimates

21 unchanged sentences

dollars were made at the exchange rates as set forth in the statistical release of the Bank of Taiwan.

On November 30, 2021, the exchange rate was 27.80 NT dollars to one U.S.

On January 7, 2022, the exchange rate was 27.69 NT dollars to one U.S.

On February 28, 2022, the exchange rate was 28.03 NT dollars to one U.S.

On April 5, 2022, the exchange rate was 28.70 NT dollars to one U.S.

No representation is made that the NT dollar or U.S.

2 unchanged sentences

Results of Operations

Three Months Ended November 30, 2021 Compared to the Three Months Ended November 30, 2020

Three Months Ended November 30,

Three Months Ended February 28, 2022 Compared to the Three Months Ended February 28, 2021

Three Months Ended

February 28, 2022

February 28, 2021

(in thousands)

4 unchanged sentences

Cost of revenues

Gross profit (loss)

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

Revenues, net

Our revenues increased by 104% to $1.5 million for the three months ended November 30, 2021 from $719 thousand for the three months ended November 30, 2020.

The increase in revenues was caused primarily by a $618 thousand increase in sales of LED components and 231 thousand increase in other revenue offset by a $19 thousand decrease in LED chips and $84 thousand decrease in lighting products.

Revenues attributable to the sales of our LED chips represented 1% and 5% of our revenues for the three months ended November 30, 2021 and 2020, respectively.

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

Revenues attributable to the sales of our LED components represented 77% and 70% of our revenues for the three months ended November 30, 2021 and 2020, respectively.

Our revenues increased by 80% to $2.2 million for the three months ended February 28, 2022 from $1.2 million for the three months ended February 28, 2021.

The increase in revenues was driven primarily by a $817 thousand increase in sales of LED components and a $28 thousand increase in sales of LED chips and a $135 thousand increase in other revenue, offset in part by a $10 thousand decrease in lighting products.

Revenues attributable to the sales of our LED chips were $78 thousand and $50 thousand, representing 4% of our revenues for each of the three months ended February 28, 2022 and February 28, 2021, the increase was primarily due to varying volumes sold for the LED chips.

Revenues attributable to the sales of our LED components were $1.6 million and $752 thousand, representing 72% and 62%, respectively, of our revenues for the three months ended February 28, 2022 and February 28, 2021, respectively.

The increase in revenues attributable to sales of LED components was primarily due to more volumes sold.

Revenues attributable to the sales of lighting products represented 6% and 24% of our revenues for the three months ended November 30, 2021 and 2020, respectively.

Revenues attributable to the sales of lighting products were lower for the three months ended November 30, 2021 primarily due to less demand of the lighting products sold.

Revenues attributable to other revenues represented 16% and 1% of our revenues for the three months ended November 30, 2021 and 2020, respectively.

The increase in revenues attributable to other revenues was primarily due to the non-recurring sale of raw materials in the three months ended November 30, 2021.

Revenues attributable to the sales of lighting products represented 6% and 13% of our revenues for the three months ended February 28, 2022 and February 28, 2021, respectively.

Revenues attributable to the sales of lighting products were slightly higher for the three months ended February 28, 2022 primarily due to higher in demand for LED lighting products.

Revenues attributable to other revenues were $38 7 thousand and $ 252 thousand, represent ing 18 % and 21 % of our revenues for the three months ended February 2 8 , 202 2 and February 2 8 , 20 2 1 , respectively.

The in crease in revenues attributable to other revenues was primarily due to the non-recurring sale of raw materials in the three months ended February 28, 202 2 .

Cost of Revenues

Our cost of revenues increased by 70% from $741 thousand for the three months ended November 30, 2020 to $1.3 million for the three months ended November 30, 2021.

Our cost of revenues increased by 71% from $965 thousand for the three months ended February 28, 2021 to $1.7 million for the three months ended February 28, 2022.

The increase in cost of revenues was primarily due to the increase in the volume of products sold.

Gross Profit (loss)

Our gross profit (loss) increased from a loss of $22 thousand for the three months ended November 30, 2020 to a profit of $203 thousand for the three months ended November 30, 2021.

The increase was a consequence of focusing on profitable products described above.

Our gross profit increased from $241 thousand for the three months ended February 28, 2021 to $523 thousand for the three months ended February 28, 2022.

The increase was primarily a consequence of focusing on profitable products described above.

Operating Expenses

Three Months Ended November 30,

Three Months Ended

February 28, 2022

February 28, 2021

(in thousands)

1 unchanged sentence

Selling, general and administrative

Gain on disposals of long-lived assets

Gain on disposals of long-lived assets, net

Total operating expenses

Research and development

Our research and development expenses were $404 thousand and $346 thousand for the three months ended November 30, 2021 and 2020, respectively.

The increase was mainly attributable to a $58 thousand increase in the payroll and engineering experiment materials.

Our research and development expenses were $295 thousand and $288 thousand for the three months ended February 28, 2022 and February 28, 2021, respectively.

The increase was primary due to a $39 thousand increase in payroll and compensation and an $11 thousand increase in development project service fee and a $10 thousand in patent write-off and $7 thousand increase in depreciation and amortization, offset partially by a decrease in $59 thousand in material and supplies capacity.

Selling, general and administrative

Our selling, general and administrative expenses increased from $681 thousand for the three months ended November 30, 2020 to $777 thousand for the three months ended November 30, 2021.

The increase was mainly attributable to increase in other expenses and professional service expenses.

Gain on disposal of long-lived assets.

We recognized $0 and $77 thousand gain on the disposal of long-lived assets for the three months ended November 30, 2021 and 2020, respectively.

Due to the excess capacity charges that we have suffered for a few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of certain of our idle equipment in the three months ended November 30, 2020.

Our selling, general and administrative expenses increased from $667 thousand for the three months ended February 28, 2021 to $746 thousand for the three months ended February 28, 2022.

The increase was mainly attributable to increases in stock-based compensation and in various other expenses.

Gain on disposal of long-lived assets, net

We recognized a net gain of $139 thousand and $207 thousand on the disposal of long-lived assets for the three months ended February 28, 2022 and 2021, 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)

Three Months Ended November 30,

Three Months Ended

February 28, 2022

February 28, 2021

(in thousands)

1 unchanged sentence

Other income, net

Foreign currency transaction (loss) gain, net

Total other income, net

Interest expenses, net.

The decrease in interest expenses, net, was primarily due to the impact of a lower exchange rate of NT dollars to U.S.

Other income, net.

Other income, net increased from $170 thousand for the three months ended November 30, 2020 to $566 thousand for the three months ended November 30, 2021 was primarily due to the subsidies from a government jointly developed research project.

Foreign currency transaction gain, net.

We recognized a net foreign currency transaction loss of $22 thousand and a gain of $187 thousand for the three months ended November 30, 2021 and 2020, respectively, primarily due to the impact of a higher exchange rate of the U.S.

dollar against the NT dollar from bank deposits.

Foreign currency transaction gain (loss), net

Total other income (expenses), net

Interest expenses, net Interest expenses, net was $92 thousand for both the three months ended February 28, 2022 and 2021, which primarily consisted of the interest payment of convertible notes and the loans.

Other income, net Other income, net increase from $307 thousand for the three months ended February 28, 2021, to $385 thousand for the three months ended February 28, 2022, primarily due to higher rental income and payments received under the new Patent Cross-License Agreement with CrayoNano AS.

Foreign currency transaction gain (loss), net We recognized a net foreign currency transaction loss of $66 thousand and gain of $38 thousand for the three months ended February 28, 2022 and February 28, 2021, respectively, primarily due to the appreciation of the U.S.

dollar against the NT dollar from bank deposits and accounts receivables.

Income Tax Expense

8 unchanged sentences

subsidiaries relating to the parent’s deductions for payments to the subsidiaries.

Net Loss Attributable to Non-controlling Interests

Three Months Ended November 30,

Net Income Attributable to Noncontrolling Interests

Three Months Ended

February 28, 2022

February 28, 2021

(in thousands)

Net income attributable to noncontrolling interests

We recognized net income attributable to non-controlling interests of $20 thousand and $1 thousand for the three months ended February 28, 2022 and February 28, 2021, respectively, which was attributable to the share of the net gain of Taiwan Bandaoti Zhaoming Co., Ltd held by the remaining non-controlling holders.

Non-controlling interests represented 3.05% and 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., as of February 28, 2022 and February 28, 2021, respectively.

Six Months Ended February 2 8 , 202 2 Compared to the Six Months Ended February 2 8 , 20 2 1

Six Months Ended

February 28, 2022

February 28, 2021

(in thousands)

LED components

Lighting products

Other revenues (1)

Total revenues, net

Cost of revenues

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

Revenues, net

Our revenues increased by 89% from $1.9 million for the six months ended February 28, 2021 to $3.6 million for the six months ended February 28, 2022.

The $1.7 million increase in revenues reflects a $1.4 million increase in sales of LED components and a $9 thousand increase in sales of LED chips and $368 thousand increase in revenues attributable to other revenue, offset by a $94 thousand decrease in sales of lighting products.

Revenues attributable to the sales of our LED chips were $96 thousand and $87 thousand, representing 3% and 4% of our revenues for the six months ended February 28, 2022 and February 28, 2021, respectively.

The slight increase in revenues attributable to sales of LED chips was a result of an increase in the volume of LED chips sold.

Revenues attributable to the sales of our LED components were $2.7 million and $1.3 million, representing 74% and 65%, respectively, of our revenues for the six months ended February 28, 2022 and February 28, 2021.

The increase in revenues attributable to sales of LED components was primarily due to more volumes sold.

Revenues attributable to the sales of lighting products represented 6% and 17% of our revenues for the six months ended February 28, 2022 and February 28, 2021, respectively.

Revenues attributable to the sales of lighting products was $94 thousand lower for the six months ended February 28, 2022 primarily due to less demand for the lighting products sold.

Revenues attributable to other revenues represented 17% and 14% of our revenues for the six months ended February 28, 2022 and February 28, 2021, respectively.

The increase in revenues attributable to other revenues was primarily due to the non-recurring sale of raw materials in the six months ended February 28, 2022.

Cost of Revenues

Our cost of revenues increased by 71% from $1.7 million for the six months ended February 28, 2021 to $2.9 million for the six months ended February 28, 2022.

The increase in cost of revenues was primarily due to the increase in the volume of products sold.

Our gross profit increased from $219 thousand for the six months ended February 28, 2021 to $726 thousand for the six months ended February 28, 2022.

Our gross margin percentage was 20% for the six months ended February 28, 2022, as compared to 11% for the six months ended February 28, 2021 as a consequence of focusing on profitable products described above.

Operating Expenses

Six Months Ended

February 28, 2022

February 28, 2021

(in thousands)

Research and development

Selling, general and administrative

Gain on disposals of long-lived assets, net

Total operating expenses

Research and development

Our research and development expenses were $699 thousand and $634 thousand for the six months ended February 28, 2022 and February 28, 2021, respectively.

The increase was primary due to a $81 thousand increase in payroll and compensation expense due to higher headcount offset partially by a decrease in material and supplies capacity and less engineering expenses.

Selling, general and administrative

Our selling, general and administrative expenses were $1.5 million and $1.3 million for the six months ended February 28, 2022 and February 28, 2021.

The increase was mainly attributable to a increase of $44 thousand in stock-based compensation and $125 thousand increase in insurance and patent expenses and other various expenses, offset partially by a decrease in professional service fee.

Gain on disposal of long-lived assets, net

We recognized a net gain of $139 thousand and $284 thousand on the disposal of long-lived assets for the six months ended February 28, 2022 and February 28, 2021, respectively.

Other Income (Expenses)

Six Months Ended

February 28, 2022

February 28, 2021

(in thousands)

Interest expenses, net

Other income, net

Foreign currency transaction gain (loss), net

Total other income (expenses), net

Interest expenses, net The slight decrease in interest expenses, net was primarily due to the issuance of $2 million of convertible notes in December 2019, and our entry into an aggregate amount of $3.2 million of loan agreements in January 8, 2019, with each of our Chairman and Chief Executive Officer and our largest shareholder, offset by the conversion of $600,000 of convertible notes into 200,000 shares of the Company’s common stock in May 2020.

Other income, net Other income, net for the six months ended February 28, 2022 primarily consist of rental income from the lease of spare space in our Hsinchu building and the cross patent license-fee income.

Other income for the six months ended February 28, 2021 primarily consist of rental income from the lease of spare space in our Hsinchu building and subsidies received from the Taiwan government for COVID-19 pandemic.

Foreign currency transaction gain (loss) , net We recognized a net foreign currency transaction loss of $88 thousand and gain of $ 225 thousand for the six months ended February 2 8 , 202 2 and February 2 8 , 20 2 1 , respectively, primarily due to the appreciation 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 2022 and was zero for fiscal 2021, 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.

Net Loss Attributable to Noncontrolling Interests

We recognized net loss attributable to non-controlling interests of $7 thousand and $10 thousand for the three months ended November 30, 2021 and 2020, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd., held by the remaining non-controlling holders.

Non-controlling interests represented 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., for both of November 30, 2021 and 2020, respectively.

Six Months Ended

February 28, 2022

February 28, 2021

(in thousands)

Net loss attributable to noncontrolling interests

We recognized net gain of attributable to non-controlling interests of $13 thousand net loss of $9 thousand for the six months ended February 28, 2022 and February 28, 2021, respectively, which was attributable to the share of the net gain (loss) of Taiwan Bandaoti Zhaoming Co., Ltd., held by the remaining non-controlling holders.

Non-controlling interests represented 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd., as of both February 28, 2022 and 2021.

Liquidity and Capital Resources

As of November 30, 2021 and August 31, 2021, we had cash and cash equivalents of $4.1 million and $4.8 million, respectively, which were predominately held in U.S.

As of February 28, 2022 and August 31, 2021, we had cash and cash equivalents of $3.7 million and $4.8 million, respectively, which were predominately held in U.S.

dollar denominated demand deposits and/or money market funds.

As of January 7 , 2022, we had no available credit facility.

Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured promissory notes, and loans from our Chairman and our largest shareholder, totaled $7.5 million and $7.7 million as of November 30, 2021 and August 31, 2021, respectively.

Our NT dollar denominated long-term notes, totaled $3.2 million of both November 30, 2021 and August 31, 2021.

As of April 5 , 2022, we had no available credit facility.

Our long-term debt, which consisted of NT dollar denominated long-term notes, convertible unsecured promissory notes, and loans from our Chairman and our largest shareholder, totaled $7.4 million and $7.7 million as of February 28, 2022 and August 31, 2021, respectively.

Our NT dollar denominated long-term notes, totaled $3.2 million of both February 28, 2022 and August 31, 2021.

These long-term notes consisted of two loans which we entered into on July 5, 2019, with aggregate amounts of $3.2 million (NT$100 million).

2 unchanged sentences

These loans are secured by an $89 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building.

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

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 until April 2021.

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 November 30, 2021, our outstanding balance on this note payable was approximately $1.8 million.

Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $17 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of November 30, 2021, our outstanding balance on this note payable was approximately $1.1 million.

Property, plant and equipment pledged as collateral for our notes payable were $3.4 million and $3.5 million as of November 30, 2021 and August 31, 2021, respectively.

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 February 28, 2022, our outstanding balance on this note payable was approximately $1.7 million.

Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $17 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of February 28, 2022, our outstanding balance on this note payable was approximately $1.1 million.

Property, plant and equipment pledged as collateral for our notes payable were $3.2 million and $3.5 million as of February 28, 2022 and August 31, 2021, respectively.

On January 8, 2019, we entered into loan agreements with each of our Chairman and Chief Executive Officer and our largest shareholder, with aggregate amounts of $3.2 million, and an annual interest rate of 8%.

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

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

On January 16, 2021, the maturity date of these loans were extended with same terms and interest rate for one year to January 15, 2022.

As of November 30, 2021 and August 31, 2020, these loans totaled $3.2 million, respectively.

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 we re initially required to repay the loans of $1.5 million on January 14, 2021 and $1.7 million on January 22, 2021, respectively.

On January 16, 2021, the maturity date of these loans w as extended with same terms and interest rate for one year to January 15, 2022 , a nd on January 14, 2022, the maturity date of these loans was further extended with same terms and interest rate for one more year to January 15, 2023.

As of February 28, 2022 and August 31, 202 1 , these loans totaled $3.2 million , respectively.

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

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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 November 30, 2021 and 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 $518 thousand and $697 thousand during the three months ended November 30, 2021 and 2020, respectively.

Net cash used in operating activities for the three months ended November 30, 2021 was $607 thousand.

As of November 30, 2021, we had cash and cash equivalents of $4.1 million.

As of February 28, 2022 and August 31, 2021, 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 $172 thousand and $255 thousand during the three months ended February 28, 2022 and 2021, respectively.

Net cash used in operating activities for the three months ended February 28, 2022 was $424 thousand.

As of February 28, 2022, we had cash and cash equivalents of $3.7 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.

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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 did not sell any shares under the ATM program in the first quarter of fiscal 2022.

We expect to resume sales of Placement Shares after the issuance of the first quarter Form 10-Q.

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.

We did not sell any shares under the ATM program in the first and second quarter of fiscal 2022.

We expect to resume sales of Placement Shares after the issuance of the second quarter Form 10-Q.

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

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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):

Three Months Ended November 30,

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Six Months Ended

February 28, 2022

February 28, 2021

Net cash used in operating activities

Net cash provided by investing activities

Net cash used in financing activities

Cash Flows Used In Operating Activities

Net cash used in operating activities for the three months ended November 30, 2021 was $607 thousand and net cash provided by operating activities for the three months ended November 30, 2020 was $88 thousand.

The cash flows used in operating activities for the three months ended November 30, 2021 was $695 thousand more, primarily due to a decrease in accounts receivable and inventory and an increase in accrued expenses and other current liabilities.

Cash Flows Used In Investing Activities

Net cash used in investing activities for the three months ended November 30, 2021 was $31 thousand primarily for the purchase of machinery and equipment.

Net cash provided by investing activities for the three months ended November 30, 20 20 was $ 30 thousand, consisting of $ 7 7 thousand in proceeds from sale of machinery and equipment, offset by a $ 41 thousand in purchases of machinery and equipment and $6 thousand in payments for development of intangible assets .

Net cash used in operating activities for the six months ended February 28, 2022 and February 28, 2021 were $1.0 million and $625 thousand, respectively.

The increase in cash flows used in operating activities for the six months ended February 28, 2022 was primary attributable to a decrease of 284 thousand of net loss and $123 thousand decrease in inventories and $107 thousand decrease in accrued expenses and other current liabilities, offset partially by $110 thousand increase in stock-based compensation expense.

Cash Flows Provided By Investing Activities

Net cash provided by investing activities for the six months ended February 28, 2022 was $84 thousand, consisting primarily of $139 thousand of proceeds from sales of property, plant and equipment, offset in part by $49 thousand of purchases of property, plant and equipment and $6 thousand of payments for development of intangible assets.

Net cash provided by investing activities for the six months ended February 28, 2021 was $177 thousand, consisting primarily of $284 thousand of proceeds from sales of property, plant and equipment, offset in part by $97 thousand of purchases of machinery and equipment and $10 thousand of payments for development of intangible assets

Cash Flows Used In Financing Activities

Net cash used in financing activities for the three months ended November 30, 2021 was primarily for the repayment of long-term debt, while the three months ended November 30, 2020 was for the acquisition of noncontrolling interests.

Net cash used in financing activities for the six months ended February 28, 2022 and February 28, 2021 was $260 thousand and $12 thousand, respectively.

The increase was primary attributable to the repayments of long-term debt.

Capital Expenditures

We had capital expenditures of $31 thousand and $41 thousand for the three months ended November 30, 2021 and 2020, respectively.

We had capital expenditures of $49 thousand and $97 thousand for the six months ended February 28, 2022 and February 28, 2021, 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 is continuing to monitor prices and, consistent with the existing contractual commitments, may decrease further our activity level and capital expenditures as appropriate.

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.

Quantitative and Qualitative Disclosures About Market Risk

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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-Q

Item 2. Management’s Discussion and Analysis