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What changed in SemiLEDs Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SemiLEDs Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+202 added−227 removedSource: 10-K (2023-11-28) vs 10-K (2022-11-08)

Top changes in SemiLEDs Corp's 2023 10-K

202 paragraphs added · 227 removed · 187 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

94 edited+9 added−26 removed294 unchanged
Biggest changeOur ability to make further investments in Taiwan SemiLEDs may be dependent on regulatory approvals in Taiwan. Taiwan SemiLEDs depends on us to meet its equity financing requirements. Any capital contribution by us to Taiwan SemiLEDs requires the approval of the relevant Taiwan authorities, such as the Hsinchu Science Park Administration.
Biggest changeOn July 5, 2019, Taiwan SemiLEDs entered into two new loan agreements to refinance existing real estate loans of Taiwan SemiLEDs and provide for operating capital. 17 Table of Contents Our ability to make further investments in Taiwan SemiLEDs may be dependent on regulatory approvals in Taiwan. Taiwan SemiLEDs depends on us to meet its equity financing requirements.
If LEDs fail to achieve widespread adoption in the UV lighting market, or if alternative technologies gain market acceptance, our prospects will be materially and adversely impacted and we may be unable to achieve and maintain our profitability. SemiLEDs had moved away from general lighting markets due to extreme price erosion led by companies in China.
If UV LEDs fail to achieve widespread adoption in the UV lighting market, or if alternative technologies gain market acceptance, our prospects will be materially and adversely impacted and we may be unable to achieve and maintain our profitability. SemiLEDs had moved away from general lighting markets due to extreme price erosion led by companies in China.
We have developed advanced capabilities and proprietary know‑how in: • reusing sapphire substrate in subsequent production runs; • optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light; • employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance; • utilizing nanoscale surface engineering to improve usable light extraction; • manufacturing extremely small footprint LEDs with optimized yield, ideal for Mini LED applications; • developing a LED structure that generally consists of multiple epitaxial layers which are vertically‑stacked on top of a copper alloy base; • developing low cost Chip Scaled Packaging (CSP) technology; and • developing multi-pixel Mini LED packages for commercial displays. 3 Table of Contents These technical capabilities enable us to produce LED chips, LED component, LED modules and System products.
We have developed advanced capabilities and proprietary know‑how in: • reusing sapphire substrate in subsequent production runs; • optimizing our epitaxial growth processes to create layers that efficiently convert electrical current into light; • employing a copper alloy base manufacturing technology to improve our chip’s thermal and electrical performance; • utilizing nanoscale surface engineering to improve usable light extraction; • manufacturing extremely small footprint LEDs with optimized yield, ideal for Mini LED applications; • developing a LED structure that generally consists of multiple epitaxial layers which are vertically‑stacked on top of a copper alloy base; • developing low cost Chip Scaled Packaging (CSP) technology; and • developing multi-pixel Mini LED packages for commercial displays. 4 Table of Contents These technical capabilities enable us to produce LED chips, LED component, LED modules and System products.
The market price of shares of our common stock could be subject to wide fluctuations in response to various risk factors listed in this section and others beyond our control, including: • actual or anticipated fluctuations in our key operating metrics, financial condition and operating results; • changes in the composition of and the orders received from our customers; • actual or anticipated changes in our growth rate; 19 Table of Contents • issuance of new or updated research or reports by securities analysts that have a change in outlook regarding the performance of our business or the future trading price of our common stock; • our announcement of actual results for a fiscal period that are higher or lower than projected or expected results or our announcement of revenue or earnings guidance that is higher or lower than expected; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • sales or expected sales of additional common stock; • announcements from, or operating results of, our competitors; and • general economic and market conditions.
The market price of shares of our common stock could be subject to wide fluctuations in response to various risk factors listed in this section and others beyond our control, including: • actual or anticipated fluctuations in our key operating metrics, financial condition and operating results; • changes in the composition of and the orders received from our customers; • actual or anticipated changes in our growth rate; • issuance of new or updated research or reports by securities analysts that have a change in outlook regarding the performance of our business or the future trading price of our common stock; • our announcement of actual results for a fiscal period that are higher or lower than projected or expected results or our announcement of revenue or earnings guidance that is higher or lower than expected; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • sales or expected sales of additional common stock; • announcements from, or operating results of, our competitors; and • general economic and market conditions.
Sales of our products are concentrated in a few select markets. Adverse developments in these markets could have a material and disproportionate impact on us. Our revenues are highly concentrated in a few select markets, including the Netherlands, Taiwan, the United States, Germany, and Japan.
Sales of our products are concentrated in a few select markets. Adverse developments in these markets could have a material and disproportionate impact on us. Our revenues are highly concentrated in a few select markets, including the Netherlands, Taiwan, the United States and Japan.
If our common stock is delisted by Nasdaq, we expect prices for our common stock to be quoted one of the OTC Markets or the OTC Bulletin Board.
If our common stock is delisted by NASDAQ, we expect prices for our common stock to be quoted on one of the OTC Markets or the OTC Bulletin Board.
Currently, we focus mostly on UV LED applications. 4 Table of Contents LED Components We currently package a portion of our LED chips into LED components for sale to distributors and end-customers in selected markets. The majority of our LED components use chips that are greater than 860μm by 860μm, focusing on high wattage (>3W) applications.
Currently, we focus mostly on UV LED applications. 5 Table of Contents LED Components We currently package a portion of our LED chips into LED components for sale to distributors and end-customers in selected markets. The majority of our LED components use chips that are greater than 860μm by 860μm, focusing on high wattage (>3W) applications.
Our ability to successfully develop and introduce new products and product enhancements, and the revenues and costs associated with these efforts, are affected by our ability to (i) properly identify customer needs, (ii) prove the feasibility of new products, (iii) price our products competitively and profitably, (iv) accurately predict and control costs and yields associated with manufacturing the products, (v) manufacture and deliver new products timely and in sufficient volume, (vi) assist the customers in qualifying or adopting the new products 10 Table of Contents in a timely manner and (vii) anticipate and compete successfully with competitors.
Our ability to successfully develop and introduce new products and product enhancements, and the revenues and costs associated with these efforts, are affected by our ability to (i) properly identify customer needs, (ii) prove the feasibility of new products, (iii) price our products competitively and profitably, (iv) accurately predict and control costs and yields associated with manufacturing the products, (v) manufacture and deliver new products timely and in sufficient volume, (vi) assist the customers in qualifying or adopting the new products in a timely manner and (vii) anticipate and compete successfully with competitors.
We have made and continue to make significant investments in growth initiatives. For example, beginning in 2017, we moved down the supply chain, supplying customers with full UV LED lamp systems. We expect to continue our efforts at further research and development of innovative products.
We have made and continue to make significant investments in growth initiatives. For example, we moved down the supply chain, supplying customers with full UV LED lamp systems. We expect to continue our efforts at further research and development of innovative products.
If we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely basis, our business and competitive position may be adversely affected. 21 Table of Contents The intellectual property rights related to packaging LEDs with phosphors to make white light LED components are particularly complex and characterized by aggressive enforcement of those rights.
If we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely basis, our business and competitive position may be adversely affected. The intellectual property rights related to packaging LEDs with phosphors to make white light LED components are particularly complex and characterized by aggressive enforcement of those rights.
There can be no assurance that our interests will not conflict with those of these stockholders, who may also take actions that are not in line, or may conflict, with our other stockholders’ best interests. 18 Table of Contents Delaware law and our certificate of incorporation and bylaws will contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
There can be no assurance that our interests will not conflict with those of these stockholders, who may also take actions that are not in line, or may conflict, with our other stockholders’ best interests. Delaware law and our certificate of incorporation and bylaws will contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
While we believe that these liquidity plan measures will be adequate to satisfy our liquidity requirements for the twelve months ending August 31, 2023, there is no assurance that the liquidity plan will be successfully implemented.
While we believe that these liquidity plan measures will be adequate to satisfy our liquidity requirements for the twelve months ending August 31, 2024, there is no assurance that the liquidity plan will be successfully implemented.
Despite our planning, some cost-cutting and capital expenditure reduction measures could have unexpected negative consequences. As part of our ongoing cost reduction efforts, we may reduce our work force further and experience additional attrition, which may expose us to legal claims against us and loss of necessary human resources.
Despite our planning, some cost-cutting and capital expenditure reduction measures could have unexpected negative consequences. As part of our ongoing cost reduction efforts, we may reduce our work force further and experience additional attrition, which may expose us to 13 Table of Contents legal claims against us and loss of necessary human resources.
We generally enter into spot purchase orders with our suppliers and do not have long-term or guaranteed supply arrangements with any of them. For example, we purchase Red or IR LED chips, the key material used in the manufacture of our LED components, from a limited number of suppliers.
We generally enter into 14 Table of Contents spot purchase orders with our suppliers and do not have long-term or guaranteed supply arrangements with any of them. For example, we purchase Red or IR LED chips, the key material used in the manufacture of our LED components, from a limited number of suppliers.
In the past, we have experienced difficulties in achieving acceptable yields when introducing new products or new manufacturing processes, which has adversely affected our operating results. We may experience similar problems in the future, and we cannot predict when they may occur or the severity of such difficulties and the impact on our business.
In the past, we have experienced difficulties in achieving acceptable yields when introducing new products or new manufacturing processes, which has adversely affected our operating 15 Table of Contents results. We may experience similar problems in the future, and we cannot predict when they may occur or the severity of such difficulties and the impact on our business.
However, such cost savings currently have a limited impact on our gross profit, as we have suffered from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. We compete with many LED chip manufacturers and LED packaging manufacturers.
However, such cost savings currently have a limited impact on our gross profit, as we have suffered from the underutilization of manufacturing capacity and must absorb a high level of fixed costs, such as depreciation. 12 Table of Contents We compete with many LED chip manufacturers and LED packaging manufacturers.
We make available free of charge through our website our Annual Report on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC.
At our investor relations website, we make available free of charge our Annual Report on Form 10‑K, Quarterly Reports on Form 10‑Q, and Current Reports on Form 8‑K, and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act, as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC.
Competitors may reduce 11 Table of Contents average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost of production for our products.
Competitors may reduce average selling prices faster than our ability to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average selling prices. To address increased pricing pressure, we have improved and increased our production yields to reduce the per-unit cost of production for our products.
Our customer’s timely and successful product development, the success of our customers’ new product introductions and market acceptance could be materially and adversely affected our operating results. Any undetected defects in our products may harm our sales and reputation and adversely affect our manufacturing yields.
Our customer’s timely and successful product 16 Table of Contents development, the success of our customers’ new product introductions and market acceptance could be materially and adversely affected our operating results. Any undetected defects in our products may harm our sales and reputation and adversely affect our manufacturing yields.
We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Taiwan, the United States, the Netherlands, Germany and India. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets.
We 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, Norway and Japan. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets.
Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon future appreciation in their value.
Therefore, you are not likely to receive 20 Table of Contents any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon future appreciation in their value.
There can be no assurance that the steps we have taken or plan to take in the future are adequate to protect our intellectual property, including our proprietary technologies and trade secrets. We expect to continue to seek patent and trademark protection for our technologies and know-how.
There can be no assurance that the steps we have taken or plan to take in the future are adequate to protect our intellectual property, including our proprietary technologies and trade secrets. We expect to continue to seek patent and trademark protection for our technologies 22 Table of Contents and know-how.
We are also exposed to liquidity risk in the event of non-performance by the counterparty to the convertible note in the purchase agreement. Risks Related to Human Capital We rely on certain key personnel.
We are also exposed to liquidity risk in the event of non-performance by the counterparty to the convertible note in the purchase agreement. 21 Table of Contents Risks Related to Human Capital We rely on certain key personnel.
See “Risk Factors— Risks Related to Our Business— Intellectual property claims against us or our customers could subject us to significant costs and materially damage our business and reputation.” 7 Table of Contents Research and Development We focus our research and development efforts on our design methodology and process technology for our LED products.
See “Risk Factors— Risks Related to Our Business— Intellectual property claims against us or our customers could subject us to significant costs and materially damage our business and reputation.” Research and Development We focus our research and development efforts on our design methodology and process technology for our LED products.
Our revenue and operating results may continue to decline for a variety of reasons, some of which are described elsewhere in this “Risk Factors” section and are beyond our control. As of August 31, 2022, we had an accumulated deficit of $184 million.
Our revenue and operating results may continue to decline for a variety of reasons, some of which are described elsewhere in this “Risk Factors” section and are beyond our control. As of August 31, 2023, we had an accumulated deficit of $187 million.
If our employees or other agents are found to have engaged in corrupt or fraudulent business practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. Item 1B. Unresolv ed Staff Comments Not applicable.
If our employees or other agents are found to have engaged in corrupt or fraudulent business practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. 24 Table of Contents Item 1B. Unresolv ed Staff Comments Not applicable. Item 1C. Cybersecurity Not applicable.
Most of our operations are located in Taiwan, and the operations of many of our LED manufacturing service providers, suppliers and customers are located in Taiwan and the PRC. Our revenues derived from customers located in Taiwan and China (including Hong Kong) were 15% and 10% for the years ended August 31, 2022 and 2021, respectively.
Most of our operations are located in Taiwan, and the operations of many of our LED manufacturing service providers, suppliers and customers are located in Taiwan and the PRC. Our revenues derived from customers located in Taiwan and China (including Hong Kong) were 21% and 15% for the years ended August 31, 2023 and 2022, respectively.
As such, demand for our products is dependent on demand for our customers’ end-products that incorporate our LED products and our customers’ ability to sell these products. The general lighting market has 15 Table of Contents only recently begun to develop and adopt standards for fixtures that incorporate LED devices.
As such, demand for our products is dependent on demand for our customers’ end-products that incorporate our LED products and our customers’ ability to sell these products. The general lighting market has only recently begun to develop and adopt standards for fixtures that incorporate LED devices.
Since late 2011, we have suffered from the underutilization of our manufacturing capacity, primarily for our LED chips. Consequently, a portion of our manufacturing equipment was idled, resulting in significant excess capacity charges.
Manufacturing Our manufacturing operations are located in Taiwan. Since late 2011, we have suffered from the underutilization of our manufacturing capacity, primarily for our LED chips. Consequently, a portion of our manufacturing equipment was idled, resulting in significant excess capacity charges.
We provide standard product warranties on our products, which generally range from three months to two years. Our manufacturing facility located in Hsinchu Science Park, Taiwan, are certified in compliance with ISO 9001:2015. The facility is subject to periodic inspection by the relevant governmental authorities for safety, environmental and other regulatory compliance.
We provide standard product warranties on our products, which generally range from three months to two years. Our manufacturing facility is certified in compliance with ISO 9001:2015. The facility is subject to periodic inspection by relevant governmental authorities for safety, environmental and other regulatory compliance.
General Risks Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock.
Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations, resulting in a severe decline in the price of our common stock. Our quarterly operating results are difficult to predict and may fluctuate significantly in the future.
And our cash and cash equivalents decreased to $4.3 million at August 31, 2022, these facts and conditions raise substantial doubt about our ability to continue as a going concern, and our independent registered public accounting firm has included an explanatory paragraph regarding going concern qualification in its audit report.
And our cash and cash equivalents decreased to $2.6 million at August 31, 2023, these facts and conditions raise substantial doubt about our ability to continue as a going concern, and our independent registered public accounting firm has included an explanatory paragraph regarding going concern qualification in its audit report.
We incurred net losses attributable to SemiLEDs stockholders of $2.7 million and $2.9 million for the years ended August 31, 2022 and 2021, respectively. We can give no assurance that we will not continue to incur net losses in future periods.
We incurred net losses attributable to SemiLEDs stockholders of $2.7 million for both the years ended August 31, 2023 and 2022. We can give no assurance that we will not continue to incur net losses in future periods.
Failure to comply with any new or existing laws, whether intentional or inadvertent, could subject us to fines, penalties and other material liabilities to the government 8 Table of Contents or third parties, injunctions requiring the suspension of operations, redemption costs or other remedies, and the need for additional capital, equipment or other process requirements, any of which could have a material adverse effect on our business and reputation.
Failure to comply with any new or existing laws, whether intentional or inadvertent, could subject us to fines, penalties and other material liabilities to the government or third parties, injunctions requiring the suspension of operations, redemption costs or other remedies, and the need for additional capital, equipment or other process requirements, any of which could have a material adverse effect on our business and reputation. 9 Table of Contents Human Capital Resources Talent is the catalyst for our success.
We have moved toward a fabless business model in which we would utilize foundry fabs to ODM our chips using our developed technology. As part of the restructuring, we continue to explore opportunities to sell our chip manufacturing equipment, which will help us to reduce the idle capacity costs.
We have moved toward a fabless business model in which we utilize foundry fabs to ODM our chips using our developed technology and continue to explore opportunities to sell our chip manufacturing equipment, which will help us to reduce the idle capacity costs.
Any resulting delays in shipments of our products could also cause our customers to obtain products from other sources.
Any resulting delays in shipments of our products could also 23 Table of Contents cause our customers to obtain products from other sources.
We do not account for a significant percentage of the total market volume today, and we face significant competition from other more established providers of similar products as well as from new entrants into our markets. We compete with many LED chip manufacturers and LED packaging manufacturers.
We do not account for a significant percentage of the total market volume today, and we face significant competition from other more established providers of similar products as well as from new entrants into our markets. We compete with many LED chip manufacturers and LED packaging manufacturers, many of which compete directly with us and are much larger than us.
Failure to successfully implement the liquidity plan, including issuing convertible notes to certain of our directors, may have a material adverse effect on our business, results of operations and financial position, and may adversely affect our ability to continue as a going concern.
Failure to successfully implement the liquidity plan, may have a material adverse effect on our business, results of operations and financial position, and may adversely affect our ability to continue as a going concern.
For the years ended August 31, 2022 and 2021, our top ten customers collectively accounted for approximately 88% and 82%, respectively, of our revenues.
For the years ended August 31, 2023 and 2022, our top ten customers collectively accounted for approximately 91% and 88%, respectively, of our revenues.
The number of saleable products, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following: • variability in our process repeatability and control; • contamination of the manufacturing environment; • equipment failure, variations in the manufacturing process, or power outages; • lack of consistency and adequate quality and quantity of components and raw materials; • losses from broken wafers, inventory damage or human errors; • defects in packaging either within our facilities or at our subcontractors; and • any transitions or changes in our production process, planned or unplanned. 14 Table of Contents Introduction of new products and manufacturing processes are often characterized by lower yields in the initial commercialization stage.
The number of saleable products, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following: • variability in our process repeatability and control; • contamination of the manufacturing environment; • equipment failure, variations in the manufacturing process, or power outages; • lack of consistency and adequate quality and quantity of components and raw materials; • losses from broken wafers, inventory damage or human errors; • defects in packaging either within our facilities or at our subcontractors; and • any transitions or changes in our production process, planned or unplanned.
For the years ended August 31, 2022 and 2021, our top ten customers collectively accounted for 88% and 82%, respectively, of our revenues.
For the years ended August 31, 2023 and 2022, our top ten customers collectively accounted for 91% and 88%, respectively, of our revenues.
Over the long term, we expect to be required to invest substantially in LED component products development and production equipment if we are to grow. 5 Table of Contents Raw Materials and Components We use the following raw materials in our LED chip manufacturing: metal organics, sapphire, copper alloy, gold slugs, sodium gold sulfite, aluminum granules and electrolytic nickel, among others.
Over the long term, we expect to invest substantially in LED component products development and production equipment while managing our costs and expenses. 6 Table of Contents Raw Materials and Components We use the following raw materials in our LED chip manufacturing: metal organics, sapphire, copper alloy, gold slugs, sodium gold sulfite, aluminum granules and electrolytic nickel, among others.
Net revenues generated from sales to customers in the Netherlands, Taiwan, the United States, Germany, and Japan, in the aggregate, accounted for approximately 91% and 82% of our net revenues for the years ended August 31, 2022 and 2021, respectively.
Net revenues generated from sales to customers in the Netherlands, Taiwan, the United States, and Japan, in the aggregate, accounted for approximately 89% and 83% of our net revenues for the years ended August 31, 2023 and 2022, respectively.
Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past. As such, our past quarterly operating results may not be good indicators of future performance.
We have experienced seasonal and quarterly fluctuations in the past. As such, our past quarterly operating results may not be good indicators of future performance.
For the years ended August 31, 2022 and 2021, sales to our three largest customers, in the aggregate, accounted for 59% and 52% of our revenues, respectively. For the year ended August 31, 2022, sales to Revlon, Inc. and INDEL Distribution B.V. accounted for 28% and 18% of our total revenues, respectively.
For the years ended August 31, 2023 and 2022, sales to our three largest customers, in the aggregate, accounted for 53% and 59% of our revenues, respectively. For the year ended August 31, 2023, sales to INDEL Distribution B.V. and Revlon, Inc. accounted for 20% and 17% of our total revenues, respectively.
The incurrence of further indebtedness, whether in the form of public debt or bonds or bank financing, would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
The sale of convertible debt securities or additional equity securities could result in dilution to our stockholders. The incurrence of further indebtedness, whether in the form of public debt or bonds or bank financing, would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
As part of our cost reduction efforts, we moved and consolidated our LED packaging facility to our headquarters in Chunan, Taiwan in February 2018. While we intend to focus on managing our costs and expenses.
As part of our cost reduction efforts, we moved and consolidated our LED packaging facility to our headquarters in Chunan, Taiwan in February 2018.
Our inability to grow our revenues generated from the sales of LED components would have a negative impact on our business, financial condition and results of operations.
As such, the continued market acceptance of our LED components is critical to our continued success. Our inability to grow our revenues generated from the sales of LED components would have a negative impact on our business, financial condition and results of operations.
With our design capability and high precision packaging capabilities, Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., assisted in the design and manufacturing of transceiver modules to be used for ADAS (Advanced Driver Assistance Systems) applications. Manufacturing Our manufacturing operations are located in Taiwan.
Besides hardware, we also provide software development to lamp control and equipment-to-lamp signal communication. With our design capability and high precision packaging capabilities, Taiwan Bandaoti Zhaoming Co., Ltd., formerly known as Silicon Base Development, Inc., assisted in the design and manufacturing of transceiver modules to be used for ADAS (Advanced Driver Assistance Systems) applications.
As of August 31, 2022, we had 104 patents issued and 13 patents pending with the United States Patent and Trademark Office covering various aspects of our core technologies. As of August 31, 2022, we also had 118 patents issued and 12 patents pending before patent and trademark offices outside the United States.
As of August 31, 2023, we had 101 patents issued and 14 patents pending with the United States Patent and Trademark Office covering various aspects of our core technologies. As of August 31, 2023, we also had 111 patents issued and 17 patents pending before patent and trademark offices outside the United States.
There are a limited number of companies which supply certain of the specialized raw materials that are important to the manufacture of our products as well as a very limited number of manufacturers of equipment that are critical to our operations.
The loss of key suppliers may have a material adverse effect on our business. There are a limited number of companies which supply certain of the specialized raw materials that are important to the manufacture of our products as well as a very limited number of manufacturers of equipment that are critical to our operations.
We intend to continue to pursue opportunities for profitable growth in areas of business where we see the best opportunity for our UV market, focus on product enhancement and developing our UV LED into many other applications or devices.
In 2023, sales and gross margin both decreased due to other revenues rather than LED components compared to 2022. We intend to continue to pursue opportunities for profitable growth in areas of business where we see the best opportunity for our UV market, focus on product enhancement and developing our UV LED into many other applications or devices.
However, approval from SAFE or its local counterpart is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
However, approval from SAFE or its local counterpart is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.
We are also aware of a number of well-funded private companies that are developing competing products. We will also compete with numerous smaller companies entering the market, some of whom may receive significant government incentives and subsidies pursuant to government programs designed to encourage the use of LED lighting and to establish LED-sector companies.
We also compete with numerous smaller companies entering the market, some of whom may receive significant government incentives and subsidies pursuant to government programs designed to encourage the use of LED lighting and to establish LED-sector companies.
For example, as a strategic plan, we placed greater emphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory. In 2021, sales and gross margin both increased due to other revenues rather than LED components compared to 2020.
For example, as a strategic plan, we placed greater emphasis on the sales of LED components rather than the sales of LED chips where we have been forced to cut prices on older inventory. In 2022, sales increased but sales margin slightly decreased due to more volumes sold in LED components and lighting products compared to 2021.
For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us 13 Table of Contents to similarly reduce our prices, accelerating the decline in the gross margin of our products.
For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in the gross margin of our products. We anticipate our competitors will continue to implement such competitive strategies from time to time in the future.
There is no assurance, however, that prices for our common stock would be quoted on one of these other trading systems or that an active trading market for our common stock would thereafter exist, which would materially and adversely impact the market value of our common stock and your ability to sell our common stock.
There is no assurance, however, that prices of our common stock would be quoted on one of these other trading systems or that an active trading market for our common stock would thereafter exist, which would materially and adversely impact the market value of our common stock. 18 Table of Contents We may seek additional capital that may result in stockholder dilution.
Revenues attributable to the sales of our LED components represented approximately 69% of our revenues for both years ended August 31, 2022 and 2021. We expect to continue to generate our revenues mainly from the sales of LED components for the foreseeable future. As such, the continued market acceptance of our LED components is critical to our continued success.
Revenues attributable to the sales of our LED components represented approximately 56% and 69% of our revenues for the years ended August 31, 2023 and 2022, respectively. We expect to continue to generate our revenues mainly from the sales of LED components for the foreseeable future.
Key markets that we set to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging light engines, horticultural lighting and high standard commercial lighting. Recently, we introduced multi-pixel Mini-LED package (16 RGB pixels in one package) for fine pitch Mini-LED display market.
Key markets that we set to target at the system end include different types of UV LED industrial printers, aquarium lighting, medical applications, niche imaging light engines, horticultural lighting and high standard commercial lighting.
As of October 31, 2022, our directors and executive officers, together with their affiliates, beneficially owned, in the aggregate, approximately 40.2% of our outstanding common stock.
As of November 20, 2023, our directors and executive officers, together with their affiliates, beneficially owned, in the aggregate, approximately 41.9% of our outstanding common stock.
We may also see disruptions or delays in shipments and negative impacts to pricing of certain products as a result of such disruptions. If these contract manufacturers fail to deliver products on time and at a satisfactory level of quality, we could have difficulties fulfilling our customer orders and our net revenues could decline.
If these contract manufacturers fail to deliver products on time and at a satisfactory level of quality, we could have difficulties fulfilling our customer orders and our net revenues could decline.
If our current sources of capital are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities, including through our at-the-market equity program, or obtain bank loans and credit facilities. The sale of convertible debt securities or additional equity securities could result in dilution to our stockholders.
We expect to require additional capital due to continuing losses, deteriorating business conditions or other future developments. If our current sources of capital are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities, including through our at-the-market equity program, or obtain bank loans and credit facilities.
Risks Related to Owning Our Common Stock We may fail to qualify for continued listing on Nasdaq which could make it more difficult for investors to sell their shares. In December 2010, our common stock was initially approved for listing on the Nasdaq Global Select Market and was transferred to the Nasdaq Capital Market effective November 5, 2015.
Risks Related to Owning Our Common Stock We may fail to qualify for continued listing on Nasdaq which could make it more difficult for investors to sell their shares. Our common stock is listed on the Nasdaq Capital Market.
LED chip and component manufacturing is complicated and consists of many layers of complex materials that must interact with each other. In addition, when we introduce new products and processes, we often use new chemical solutions and chemical compounds with which we have less experience.
In addition, when we introduce new products and processes, we often use new chemical solutions and chemical compounds with which we have less experience. We must analyze how the various solutions, compounds and layers of materials interact with each other and perform as parts of the LED chip structure.
We believe that the key competitive factors in our markets are: • consistently producing high-quality LED chips with high efficacy; • providing a low total cost of ownership (i.e., cost, efficacy and lifespan) for end-customers; • producing UVA LED for niche markets where customers value quality and performance more than cost; • providing unique and high performance UV LED systems to replace mercury lamp; • providing high precision packaging solutions to automotive industries to enable high accuracy demands for LiDAR applications, and • our sales channels.
Some of our existing and potential competitors possess significant advantages, including longer operating histories, greater financial, technical, managerial, marketing, distribution and other resources, more long-standing and established relationships with our existing and potential customers, greater name recognition, larger customer bases and greater government incentives and support. 8 Table of Contents We believe that the key competitive factors in our markets are: • consistently producing high-quality LED chips with high efficacy; • providing a low total cost of ownership (i.e., cost, efficacy and lifespan) for end-customers; • producing UVA LED for niche markets where customers value quality and performance more than cost; • providing unique and high performance UV LED systems to replace mercury lamp; • providing high precision packaging solutions to automotive industries to enable high accuracy demands for LiDAR applications, and • our sales channels.
Even if we are successful, if a customer requires certain certifications for or new qualification process of our new products, the time when that customer will actually purchase our products and we will be able to receive revenue from that customer will be significantly delayed.
Even if we are successful, if a customer requires certain certifications for or new qualification process of our new products, the time when that customer will actually purchase our products and we will be able to receive revenue from that customer will be significantly delayed. 11 Table of Contents We derive a significant portion of our revenues from a limited number of customers, including distributor customers, and generally do not enter into long-term customer contracts.
The sales cycle from initial contact to confirmed orders with our customers is typically long and unpredictable. We typically enter into individual purchase orders with large customers, which can be altered, reduced or cancelled with little or no notice to us. We do not generally enter into long-term commitment contracts with our customers.
We typically enter into individual purchase orders with large customers, which can be altered, reduced or cancelled with little or no notice to us. We do not generally enter into long-term commitment contracts with our customers. As such, these customers may alter their purchasing behavior and reduce or cancel orders with little or no notice to us.
On January 21, 2021, we received a notice from The Nasdaq Stock Market indicating that we did not meet the minimum of $2,500,000 17 Table of Contents in stockholders’ equity required by Listing Rule 5550(b)(1) for continued listing.
Additionally, on July 11, 2023, we received a notice from NASDAQ indicating that we did not meet the minimum of $2,500,000 in stockholders’ equity required by NASDAQ Listing Rule 5550(b)(1) for continued listing or the alternatives of market value of listed securities or net income from continuing operations.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our business, revenue, reputation and competitive position. 22 Table of Contents The reduction or elimination of government investment in LED lighting or the elimination of, or changes in, policies in certain countries that encourage the use of LEDs over some traditional lighting technologies could cause demand for our products to decline, which could materially and adversely affect our revenues, profits and margins.
The reduction or elimination of government investment in LED lighting or the elimination of, or changes in, policies in certain countries that encourage the use of LEDs over some traditional lighting technologies could cause demand for our products to decline, which could materially and adversely affect our revenues, profits and margins.
We also disposed of a certain level of our idle equipment to reduce the excess capacity charges that we have suffered for many years. In addition, to provide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, we reduced our capital expenditures as appropriate.
In addition, to provide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, we reduced our capital expenditures as appropriate.
However, we are dependent on Taiwan SemiLEDs’ ability to raise money through the sale of a portion of its subsidiary and the restructuring of its chip operation to pay back SemiLEDs Corporation. On July 5, 2019, Taiwan SemiLEDs entered into two new loan agreements to refinance existing real estate loans of Taiwan SemiLEDs and provide for operating capital.
However, we are dependent on Taiwan SemiLEDs’ ability to raise money through the sale of a portion of its subsidiary and the restructuring of its chip operation to pay back SemiLEDs Corporation.
As of August 31, 2022, we had approximately 126 employees. All of our employees are based in Taiwan. None of our employees are represented by a labor union. We consider relations with our employees to be good. Financial Information about Geographic Areas We derive a substantial portion of our revenue from product sales to international customers.
We consider relations with our employees to be good. Financial Information about Geographic Areas We derive a substantial portion of our revenue from product sales to international customers.
We continue to monitor prices and, consistent with our existing contractual commitments, may decrease our activity level and 12 Table of Contents capital expenditures further. This plan reflects our strategy of controlling capital costs and maintaining financial flexibility.
We continue to monitor prices and, consistent with our existing contractual commitments, may decrease our activity level and capital expenditures further. This plan reflects our strategy of controlling capital costs and maintaining financial flexibility. We also disposed of a certain level of our idle equipment to reduce the excess capacity charges that we have suffered for many years.
Such 20 Table of Contents undertakings may not be successful or may take a substantially longer period than initially expected to become successful, and we may never recover our investments or achieve desired synergies or economies from these undertakings.
We continually evaluate and explore strategic opportunities as they arise, including product, technology, business or asset transactions, such as acquisitions or divestitures. Such undertakings may not be successful or may take a substantially longer period than initially expected to become successful, and we may never recover our investments or achieve desired synergies or economies from these undertakings.
We expect that our revenues will continue to be substantially derived from these countries for the foreseeable future. Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted by general economic and political conditions in these markets.
Given that we are operating in a rapidly changing industry, our sales in specific markets may fluctuate from quarter to quarter. Therefore, our financial results will be impacted by general economic and political conditions in these markets. Intellectual Property Our ability to compete successfully depends upon our ability to protect our proprietary technologies and other confidential information.
Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences. We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business.
Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls.
Human Capital Resources Talent is the catalyst for our success. We are fortunate to have talented and outstanding employees. To retain talented people who share our goals and interests, we work hard to cultivate a dynamic and enjoyable work environment full of opportunities to learn new skills.
We are fortunate to have talented and outstanding employees. To retain talented people who share our goals and interests, we work hard to cultivate a dynamic and enjoyable work environment full of opportunities to learn new skills. To that end, we aim to foster open communication between employees and management to create a sense of community and a shared purpose.
We may not be able to obtain any such approval in the future in a timely manner, or at all.
Any capital contribution by us to Taiwan SemiLEDs requires the approval of the relevant Taiwan authorities, such as the Hsinchu Science Park Administration. We may not be able to obtain any such approval in the future in a timely manner, or at all.
OEM/ODM Services We provide design and manufacturing services at the modular and system level. Currently, most of the design projects involve high power UV LED lamps to be incorporated/retrofitted into large scale press equipment. Besides hardware, we also provide software development to lamp control and equipment-to-lamp signal communication.
Revenues from sales of our lighting products represented 5% and 8% of our revenues for the years ended August 31, 2023 and 2022, respectively. OEM/ODM Services We provide design and manufacturing services at the modular and system level. Currently, most of the design projects involve high power UV LED lamps to be incorporated/retrofitted into large scale press equipment.
Even though we are currently in compliance with Nasdaq’s continued listing requirements, there can be no assurance that we will maintain compliance these requirements if we continue to incur losses or that our common stock will not be delisted from Nasdaq in the future.
There can be no assurance that we will be able to appoint an additional independent director timely or implement the plan successfully, regain and maintain compliance with the continued listing requirements or that our common stock will not be delisted from NASDAQ in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. P roperties The following are significant manufacturing and office facilities that we own or lease as of August 31, 2022: • We own a four-story building located in Hsinchu Science Park, Taiwan. We occupy approximately 183 thousand square feet of the building, and we lease approximately 55 thousand square feet of space to a third-party tenant.
Biggest changeItem 2. P roperties The following are significant manufacturing and office facilities that we own or lease as of August 31, 2023: • We own a four-story building located in Hsinchu Science Park, Taiwan. We occupy approximately 183 thousand square feet of the building, and we lease approximately 55 thousand square feet of space to a third-party tenant.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are directly or indirectly involved from time to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise. There was no material pending legal proceedings or claims as of August 31, 2022. Item 4. Mine Saf ety Disclosures Not applicable. 24 Table of Contents PART II.
Biggest changeWe are directly or indirectly involved from time to time and may be named in various other claims or legal proceedings arising in the ordinary course of our business or otherwise. There were no material pending legal proceedings or claims as of August 31, 2023. Item 4. Mine Saf ety Disclosures Not applicable. 25 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers We did not make any repurchases of our common stock and no purchases of common stock were made on our behalf during the fourth quarter of our fiscal 2022.
Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers We did not make any repurchases of our common stock, and no purchases of common stock were made on our behalf during the fourth quarter of our fiscal 2023. Item 6. [ Reserved] 26 Table of Contents
There were 66 holders of record of our common stock as of October 31, 2022. Dividends We have never declared or paid any cash dividends on our common stock.
There were 53 holders of record of our common stock as of November 20, 2023. Dividends We have never declared or paid any cash dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe historical results presented below are not necessarily indicative of the results that may be expected for any future period: Years Ended August 31, 2022 2021 % of % of $ Revenues $ Revenues (in thousands) Consolidated Statement of Operations Data: Revenues, net $ 7,051 100 % $ 4,735 100 % Cost of revenues 5,654 80 % 3,702 78 % Gross profit 1,397 20 % 1,033 22 % Operating expenses: Research and development 1,484 21 % 1,623 34 % Selling, general and administrative 3,309 47 % 3,614 76 % Gain on disposals of long-lived assets, net (196 ) (3 ) % (286 ) (6 ) % Total operating expenses 4,597 65 % 4,951 104 % Loss from operations (3,200 ) (45 ) % (3,918 ) (82 ) % Other income (expenses): Interest expenses, net (369 ) (5 ) % (371 ) (8 ) % Other income, net 1,485 21 % 1,090 23 % Foreign currency transaction (loss) gain, net (642 ) (9 ) % 342 7 % Total other income, net 474 7 % 1,061 22 % Loss before income taxes (2,726 ) (38 ) % (2,857 ) (60 ) % Income tax expense — — — — Net loss (2,726 ) (38 ) % (2,857 ) (60 ) % Less: Net loss attributable to noncontrolling interests 18 — % (6 ) — % Net loss attributable to SemiLEDs stockholders $ (2,744 ) (38 ) % $ (2,851 ) (60 ) % Year Ended August 31, 2022 Compared to Year Ended August 31, 2021 Years Ended August 31, 2022 2021 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) LED chips $ 166 2 % $ 171 4 % $ (5 ) (3 ) % LED components 4,872 69 % 3,259 69 % 1,613 49 % Lighting products 533 8 % 730 15 % (197 ) (27 ) % Other revenues (1) 1,480 21 % 575 12 % 905 157 % Total revenues, net 7,051 100 % 4,735 100 % 2,316 49 % Cost of revenues 5,654 80 % 3,702 78 % 1,952 53 % Gross profit $ 1,397 20 % $ 1,033 22 % $ 364 35 % (1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services and the lease of manufacturing as well as research and development facilities. 34 Table of Contents Revenues, net Our revenues increased by 49% from $4.7 million for the year ended August 31, 2021 to $7.1 million for the year ended August 31, 2022.
Biggest changeThe historical results presented below are not necessarily indicative of the results that may be expected for any future period: Years Ended August 31, 2023 2022 % of % of $ Revenues $ Revenues (in thousands) Consolidated Statement of Operations Data: Revenues, net $ 5,979 100 % $ 7,051 100 % Cost of revenues 4,972 83 % 5,654 80 % Gross profit 1,007 17 % 1,397 20 % Operating expenses: Research and development 1,353 23 % 1,484 21 % Selling, general and administrative 3,058 51 % 3,309 47 % Gain on disposals of long-lived assets, net — — % (196 ) (3 ) % Total operating expenses 4,411 74 % 4,597 65 % Loss from operations (3,404 ) (57 ) % (3,200 ) (45 ) % Other income (expenses): Investments loss (1 ) — % — — % Interest expenses, net (287 ) (5 ) % (369 ) (5 ) % Other income, net 1,054 18 % 1,485 21 % Foreign currency transaction (loss) gain, net (52 ) (1 ) % (642 ) (9 ) % Total other income, net 714 12 % 474 7 % Loss before income taxes (2,690 ) (45 ) % (2,726 ) (38 ) % Income tax expense — — — — Net loss (2,690 ) (45 ) % (2,726 ) (38 ) % Less: Net loss attributable to noncontrolling interests — — % 18 — % Net loss attributable to SemiLEDs stockholders $ (2,690 ) (45 ) % $ (2,744 ) (38 ) % Year Ended August 31, 2023 Compared to Year Ended August 31, 2022 Years Ended August 31, 2023 2022 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) LED chips $ 111 2 % $ 166 2 % $ (55 ) (33 ) % LED components 3,345 56 % 4,872 69 % (1,527 ) (31 ) % Lighting products 321 5 % 533 8 % (212 ) (40 ) % Other revenues (1) 2,202 37 % 1,480 21 % 722 49 % Total revenues, net 5,979 100 % 7,051 100 % (1,072 ) (15 ) % Cost of revenues 4,972 83 % 5,654 80 % (682 ) (12 ) % Gross profit $ 1,007 17 % $ 1,397 20 % $ (390 ) (28 ) % (1) Other includes primarily revenues attributable to the sale of epitaxial wafers, scraps and raw materials, the provision of services and the lease of manufacturing as well as research and development facilities. 35 Table of Contents Revenues, net Our revenues decreased by 15% from $7.1 million for the year ended August 31, 2022 to $6.0 million for the year ended August 31, 2023.
Cash Flows Provided by Financing Activities Net cash provided by financing activities was $490 thousand for the year ended August 31, 2022, consisting primarily of $995 thousand from the issuance of common stock under the ATM program, partially offset by $482 thousand in repayment of long-term debt.
Net cash provided by financing activities was $490 thousand for the year ended August 31, 2022, consisting primarily of $995 thousand from the issuance of common stock under the ATM program, partially offset by $482 thousand in repayment of long-term debt.
However, in response to controlling capital costs and maintaining financial flexibility, our management continues to 39 Table of Contents monitor prices and, consistent with its existing contractual commitments, may decrease its activity level and capital expenditures as appropriate. Accounting Pronouncements Not Yet Adopted Please refer to ‘Summary of Significant Accounting Policies Recent Accounting Pronouncements’ for more details. Item 7A.
However, in response to controlling capital costs and maintaining financial flexibility, our management continues to 40 Table of Contents monitor prices and, consistent with its existing contractual commitments, may decrease its activity level and capital expenditures as appropriate. Accounting Pronouncements Not Yet Adopted Please refer to ‘Summary of Significant Accounting Policies Recent Accounting Pronouncements’ for more details. Item 7A.
The significant assumptions used in determining the estimated undiscounted cash flows for the LED chips and components asset group were revised to reflect the new operation status. Based on the assessment, the expected undiscounted cash flows to be generated by this asset group exceeded its carrying value. Consequently, no asset impairment was recognized during the year ended August 31, 2022.
The significant assumptions used in determining the estimated undiscounted cash flows for the LED chips and components asset group were revised to reflect the new operation status. Based on the assessment, the expected undiscounted cash flows to be generated by this asset group exceeded its carrying value. Consequently, no asset impairment was recognized during the year ended August 31, 2023.
No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. 33 Table of Contents Results of Operations The following table sets forth, for the periods presented, our consolidated statements of operations information.
No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. 34 Table of Contents Results of Operations The following table sets forth, for the periods presented, our consolidated statements of operations information.
We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Netherlands, Taiwan, the United States, Germany and Japan. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets.
We package our LED chips into LED components, which we sell to distributors and a customer base that is heavily concentrated in a few select markets, including Netherlands, Taiwan, the United States, Norway and Japan. We also sell our “Enhanced Vertical,” or EV, LED product series in blue, white, green and UV in selected markets.
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 shares of our common stock from time to time.
We need to improve our liquidity, access alternative sources of funding and obtain additional equity capital or debt 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 shares of our common stock from time to time.
As of August 31, 2022, we had U.S. federal net operating loss (“NOLs”) carryforwards of $3 million, which will expire in various amounts beginning in our fiscal 2025. NOLs generated in tax years prior to August 31, 2018 can be carried forward for twenty years, whereas NOLs generated after August 31, 2018 can be carried forward indefinitely.
As of August 31, 2023, we had U.S. federal net operating loss (“NOLs”) carryforwards of $3 million, which will expire in various amounts beginning in our fiscal 2025. NOLs generated in tax years prior to August 31, 2018 can be carried forward for twenty years, whereas NOLs generated after August 31, 2018 can be carried forward indefinitely.
Cash Flows (Used in) Provided by Investing Activities Net cash used in investing activities was $113 thousand for the year ended August 31, 2022, consisting primarily of the proceeds from the sales of property, plant and equipment of $196 thousand as a result of the disposal of idle machinery, partially offset by a $280 thousand in cash used in the purchase of machinery and equipment and a $13 thousand for development of intangible assets.
Net cash used in investing activities was $113 thousand for the year ended August 31, 2022, consisting primarily of the proceeds from the sales of property, plant and equipment of $196 thousand as a result of the disposal of idle machinery, partially offset by a $280 thousand in cash used in the purchase of machinery and equipment and a $13 thousand for development of intangible assets.
In the table below and throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following consolidated statement of operations data for the years ended August 31, 2022 and 2021 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.
In the table below and throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following consolidated statement of operations data for the years ended August 31, 2023 and 2022 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.
We considered both positive and negative evidence, including forecasts of future taxable income and our cumulative loss position, and continued to report a full valuation allowance against our deferred tax assets as of both August 31, 2022 and 2021.
We considered both positive and negative evidence, including forecasts of future taxable income and our cumulative loss position, and continued to report a full valuation allowance against our deferred tax assets as of both August 31, 2023 and 2022.
For the year ended August 31, 2022, lower than projected sales of our LED products and lower market capitalization compared to our consolidated net book values again indicated potential impairment of our long‑lived assets.
For the year ended August 31, 2023, lower than projected sales of our LED products and lower market capitalization compared to our consolidated net book values again indicated potential impairment of our long‑lived assets.
Selling, general and administrative expenses consist primarily of salaries, bonuses and other benefits (including stock‑based compensation expenses) for our administrative, sales and marketing personnel, expenses for professional services, which include fees and expenses for accounting, legal, tax and valuation services, amortization and depreciation related expenses, marketing related travel, lease expenses, entertainment expenses, allowance for doubtful accounts and general office related expenses, as well 29 Table of Contents as compensation to our directors.
Selling, general and administrative expenses consist primarily of salaries, bonuses and other benefits (including stock‑based compensation expenses) for our administrative, sales and marketing personnel, expenses for professional services, which include fees and expenses for accounting, legal, tax and valuation services, amortization and depreciation related expenses, marketing related travel, lease expenses, entertainment expenses, allowance for doubtful accounts and general office related expenses, as well as compensation to our directors.
The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.
The Company also provides standard product warranties on its products, which generally range from three months to two years. Management estimates the Company’s warranty obligations as a percentage of revenues, 33 Table of Contents based on historical knowledge of warranty costs and other relevant factors. To date, the related estimated warranty provisions have been insignificant.
Income Tax Expense (Benefit) Our effective tax rate is expected to be approximately zero for both fiscal 2022 and 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.
Income Tax Expense (Benefit) Our effective tax rate is expected to be approximately zero for both fiscal year 2023 and 2022, 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.
Because most of our subsidiaries in Taiwan incurred losses before income tax for both our fiscal year 2022 and 2021, we do not expect to pay such taxes on undistributed earnings.
Because most of our subsidiaries in Taiwan incurred losses before income tax for both our fiscal year 2023 and 2022, we do not expect to pay such taxes on undistributed earnings.
On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022, and 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.
On January 16, 2021, the maturity date of these loans was extended with same terms and interest rate for one year to January 15, 2022, and on January 14, 2022, the maturity date of these loans was extended again with same terms and interest rate for one more year to January 15, 2023.
For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in our revenues and the gross margin of our products. When prices decline, we must also write down the value of our inventory.
For example, some of our competitors have in the past reduced their average selling prices, and the resulting competitive pricing pressures have caused us to similarly reduce our prices, accelerating the decline in our revenues and the gross 27 Table of Contents margin of our products. When prices decline, we must also write down the value of our inventory.
Management regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. Bad debt expenses were recognized $126 thousand and $540 thousand during the years ended August 31, 2022 and 2021, respectively.
Management regularly reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. Bad debt expenses were recognized $0 thousand and $126 thousand during the years ended August 31, 2023 and 2022, respectively.
Taiwan tax treatment. The corporate income tax rate in Taiwan is 20% for the year ended August 31, 2022 and 2021. Corporate income taxes payable, however, are subject to an alternative minimum tax. The Taiwan government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006.
The corporate income tax rate in Taiwan is 20% for the year ended August 31, 2023 and 2022. Corporate income taxes payable, however, are subject to an alternative minimum tax. The Taiwan government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006.
Our LED components include different sizes and wattage to accommodate different demands in the LED market. 27 Table of Contents • General economic conditions and geographic concentration.
Our LED components include different sizes and wattage to accommodate different demands in the LED market. 28 Table of Contents • General economic conditions and geographic concentration.
Therefore, dividends received from our subsidiaries in Taiwan, if any, will be subjected to withholding tax under Taiwan law. As of August 31, 2022, we had total foreign net operating loss carryforwards of $96 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan, which will expire in various amounts in future years.
Therefore, dividends received from our subsidiaries in Taiwan, if any, will be subjected to withholding tax under Taiwan law. As of August 31, 2023, we had total foreign net operating loss carryforwards of $72 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan, which will expire in various amounts in future years.
When average selling prices drop, as they did in recent years, inventory write‑downs to net realizable values may also result. Our customers consist primarily of packagers, ODMs and end‑customers. Our revenues attributable to our ten largest customers accounted for 88% and 82% of our revenues for the years ended August 31, 2022 and 2021, respectively.
When average selling prices drop, as they did in recent years, inventory write‑downs to net realizable values may also result. Our customers consist primarily of packagers, ODMs and end‑customers. Our revenues attributable to our ten largest customers accounted for 91% and 88% of our revenues for the years ended August 31, 2023 and 2022, respectively.
Interest expense consists primarily of interest on our convertible notes and long‑term borrowings and/or short‑term lines of credit with certain banks in Taiwan as well as with our Chairman and largest stockholder. We had long‑term debt totaling $6.9 million and $7.7 million as of August 31, 2022 and 2021, respectively. Other income, net.
Interest expense consists primarily of interest on our convertible notes and long‑term borrowings and/or short‑term lines of credit with certain banks in Taiwan as well as with our Chairman and largest stockholder. We had long‑term debt totaling $6.4 million and $6.9 million as of August 31, 2023 and 2022, respectively. Other income, net.
Due to the excess capacity charges that we have suffered for a few years, considering the risk of technological obsolescence and according to the production plan built based on our sales forecast, we disposed of a certain level of our idle equipment. Other Income (Expense) Interest expenses, net. Interest expenses, net consist of interest income and interest expense.
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. 30 Table of Contents Other Income (Expense) Interest expenses, net.
Net Income (Loss) Attributable to Noncontrolling Interests Years Ended August 31, 2022 2021 % of % of $ Revenues $ Revenues (in thousands) Net Income (Loss) attributable to noncontrolling interests $ 18 — % $ (6 ) — % We recognized net income attributable to non-controlling interests of $18 thousand and a net loss attributable to non-controlling interests of $6 thousand for the year ended August 31, 2022 and 2021, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd. held by the non-controlling holders.
Net Income (Loss) Attributable to Noncontrolling Interests Years Ended August 31, 2023 2022 % of % of $ Revenues $ Revenues (in thousands) Net Income (Loss) attributable to noncontrolling interests $ — — % $ 18 — % We recognized zero net income attributable to non-controlling interests and a net loss attributable to non-controlling interests of $18 thousand for the year ended August 31, 2023 and 2022, respectively, which was attributable to the share of the net losses of Taiwan Bandaoti Zhaoming Co., Ltd. held by the non-controlling holders.
Utilization of these net operating losses carryforwards may be subject to an annual limitation due to applicable provisions of the Internal Revenue Code and local tax laws if we have experienced an “ownership change” in the past, or if an ownership change occurs in the future. 36 Table of Contents As of August 31, 2022, we had total foreign net operating loss carryforwards of $96 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan.
Utilization of these net operating losses carryforwards may be subject to an annual limitation due to applicable provisions of the Internal Revenue Code and local tax laws if we have experienced an “ownership change” in the past, or if an ownership change occurs in the future. 37 Table of Contents As of August 31, 2023, we had total foreign net operating loss carryforwards of $72 million, arising primarily from certain of our consolidated and majority owned subsidiaries in Taiwan.
We recognized a net foreign currency transaction loss of $642 thousand and a net gain of $342 thousand for the years ended August 31, 2022 and 2021, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.
We recognized a net foreign currency transaction loss of $52 thousand and a net foreign currency transaction loss of $642 thousand for the years ended August 31, 2023 and 2022, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payables held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.
As of August 31, 2022 and 2021, we recognized full valuation allowances of $22.5 million and $33.8 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.
As of August 31, 2023 and 2022, we recognized full valuation allowances of $23.8 million and $22.5 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.
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.
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 or extend the maturity of our indebtedness, to support our working capital requirements or for other purposes.
We recognized a gain of $196 thousand and $286 thousand, net on the disposal of long-lived assets for the years ended August 31, 2022 and 2021, respectively. The decrease in the fiscal year ended August 31, 2022 was primarily due to excess capacity charges that we have suffered for several years.
We recognized a gain of $0 thousand and $196 thousand, net on the disposal of long-lived assets for the years ended August 31, 2023 and 2022, respectively. The decrease in the fiscal year ended August 31, 2023 was primarily due to excess capacity charges that we have suffered for several years.
Sources and Uses of Cash As of August 31, 2022 and 2021, we had cash and cash equivalents of $4.3 million and $4.8 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds. We require cash to fund our operating expenses, working capital requirements and service our debts, including principal and interest.
Sources and Uses of Cash As of August 31, 2023 and 2022, we had cash and cash equivalents of $2.6 million and $4.3 million, respectively, which were predominately held in U.S. dollar denominated demand deposits and/or money market funds. We require cash to fund our operating expenses, working capital requirements and service our debts, including principal and interest.
During fiscal 2022, we sold 286,328 shares of our common stock pursuant to the ATM program for net proceeds of $964,473. 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.
During fiscal years 2023 and 2022, we sold zero shares and 286,328 shares of our common stock pursuant to the ATM program for net proceeds of zero and $964,473, respectively. 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.
Inventory write‑downs totaled $807 thousand and $659 thousand for the years ended August 31, 2022 and 2021, respectively. A majority of our inventory write-downs during the years ended August 31, 2022 and 2021 was related to finished goods and work in process, primarily as a result of obsolescence.
Inventory write‑downs totaled $627 thousand and $807 thousand for the years ended August 31, 2023 and 2022, respectively. A majority of our inventory write-downs during the years ended August 31, 2023 and 2022 was related to finished goods and work in process, primarily as a result of obsolescence.
As of August 31, 2022 and 2021, the outstanding principal of these notes totaled $1.4 million. Working Capital We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $2.7 million and $2.9 million during the years ended August 31, 2022 and 2021, respectively.
As of August 31, 2023 and August 31, 2022, the outstanding principal of these notes totaled $1.4 million. Working Capital We have incurred significant losses since inception, including net losses attributable to SemiLEDs stockholders of $2.7 million both during the years ended August 31, 2023 and 2022.
Revenues attributable to other revenues represented 21% and 12% of our revenues for the years ended August 31, 2022 and 2021, respectively. The increase in revenues attributable to other revenues was primarily due to the provision of services and the sale of raw materials.
Revenues attributable to other revenues represented 37% and 21% of our revenues for the years ended August 31, 2023 and 2022, respectively. The increase in other revenues was primarily due to the provision of services and the sale of raw materials.
We recognized a net foreign currency transaction loss of $642 thousand and a net gain of $342 thousand for the years ended August 31, 2022 and 2021, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payable held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.
We recognized foreign currency transaction loss of $52 thousand and $642 thousand for the years ended August 31, 2023 and 2022, respectively, primarily due to the appreciation of the U.S. dollar against the NT dollar from bank deposits and accounts payable held by Taiwan SemiLEDs and Taiwan Bandaoti Zhaoming Co., Ltd. in currency other than the functional currency of such subsidiaries.
The Company provides its customers with limited rights of return for non-conforming shipments and product warranty 32 Table of Contents claims.
The Company provides its customers with limited rights of return for non-conforming shipments and product warranty claims.
Revenues attributable to the sales of our LED chips represented 2% and 4%, respectively, of our revenues for the years ended August 31, 2022 and 2021, respectively, and the slight decrease was primarily due to a lower volumes of LED chips sold in the fiscal year ended August 31, 2022.
Revenues attributable to the sales of our LED chips represented 2% of our revenues for both the years ended August 31, 2023 and 2022, and the slight decrease was primarily due to a lower volumes of LED chips sold in the fiscal year ended August 31, 2023.
Revenues attributable to the sales of lighting products represented 8% and 15% of our revenues for the years ended August 31, 2022 and 2021, respectively. The decrease in revenues attributable to the sales of lighting products was mainly due to a lower in demand on LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products.
Revenues attributable to the sales of lighting products represented 5% and 8% of our revenues for the years ended August 31, 2023 and 2022, respectively. The decrease in revenues attributable to the sales of lighting products was mainly due to lower demand for LED luminaries and retrofits and fewer non-recurring project-based orders for LED lighting products.
We recognized a gain of $196 thousand and $286 thousand on the disposal of long-lived assets for the years ended August 31, 2022 and 2021, respectively.
We recognized a gain of $0 and $196 thousand on the disposal of long-lived assets for the years ended August 31, 2023 and 2022, respectively.
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 $6.9 million and $7.7 million as of August 31, 2022 and 2021, respectively. Our NT dollar denominated long-term notes, totaled $2.4 million and $3.2 million as of August 31, 2022 and 2021, respectively.
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 $6.4 million and $6.9 million as of August 31, 2023 and 2022, respectively. Our NT dollar denominated long-term notes, totaled $1.8 million and $2.4 million as of August 31, 2023 and 2022, respectively.
Inventory write‑downs to estimated net realizable values for the years ended August 31, 2022 and 2021 were $807 thousand and $659 thousand, respectively.
Inventory write‑downs to estimated net realizable values for the years ended August 31, 2023 and 2022 were $627 thousand and $807 thousand, respectively.
Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States, Germany and Japan. Net revenues generated from these countries, in the aggregate, accounted for 91% and 82% of our net revenues for the years ended August 31, 2022 and 2021, respectively.
Our revenues have been concentrated in a few select markets, including the Netherlands, Taiwan, the United States and Japan. Net revenues generated from these countries, in the aggregate, accounted for 89% and 83% of our net revenues for the years ended August 31, 2023 and 2022, respectively.
Selling, general and administrative. Our selling, general and administrative expenses decreased from $3.6 million for the year ended August 31, 2021 to $3.3 million for the year ended August 31, 2022.
Our selling, general and administrative expenses decreased from $3.3 million for the year ended August 31, 2022 to $3.1 million for the year ended August 31, 2023.
Gross Profit Our gross profit increased from $1.0 million for the year ended August 31, 2021 to $1.4 million for the year ended August 31, 2022.
Gross Profit Our gross profit decreased from $1.4 million for the year ended August 31, 2022 to $1.0 million for the year ended August 31, 2023.
Net cash used in operating activities for the year ended August 31, 2022 was $1.5 million. As of August 31, 2022, we had cash and cash equivalents of $4.3 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.
Net cash used in operating activities for the year ended August 31, 2023 was $984 thousand. As of August 31, 2023, we had cash and cash equivalents of $2.6 million. We have undertaken actions to decrease losses incurred and implemented cost reduction programs in an effort to transform the Company into a profitable operation.
Non-controlling interests represented 2.63% and 3.05% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd. as of August 31, 2022 and 2021, respectively. Liquidity and Capital Resources This section includes a discussion and analysis of our cash requirements, contingencies, sources and uses of cash, operations, working capital and long-term assets and liabilities.
Non-controlling interests represented 2.63% equity interest in Taiwan Bandaoti Zhaoming Co., Ltd. for both the years ended August 31, 2023 and 2022. Liquidity and Capital Resources This section includes a discussion and analysis of our cash requirements, contingencies, sources and uses of cash, operations, working capital and long-term assets and liabilities.
The increase in revenues was driven primarily by a $1.6 million increase in revenues attributable to sales of LED components and a $905 thousand increase in other revenues, offset in part by a $202 thousand decrease in revenues attributable to the sales of LED chips and lighting products.
The decrease in revenues was driven primarily by a $1.5 million decrease in revenues attributable to sales of LED components and a $259 thousand decrease in revenues attributable to the sales of LED chips and lighting products, offset by a $706 thousand increase in other revenues.
The decrease was mainly attributable to a $497 thousand decrease in bad debt expense, offset partially by an increase in payroll expense, shipping and freight fees, and other various expenses. 35 Table of Contents Gain on disposal of long ‑ lived assets, net.
The decrease was mainly attributable to a $136 thousand decrease in bad debt expense and a $202 thousand decrease in other expenses, offset partially by an increase in payroll expense. 36 Table of Contents Gain on disposal of long ‑ lived assets, net.
Other income, net increase from $1 million for the years ended August 31, 2021 to $1.5 million for the year ended August 31, 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.
Other income, net decreased from $1.5 million for the years ended August 31, 2021 to $1.1 million for the year ended August 31, 2023, primarily due to the decrease of payments received under the Patent Cross-License Agreement with CrayoNano AS. Foreign currency transaction gain (loss), net.
Other income for the years ended August 31, 2022 and 2021 primarily consists of rental income from the lease of spare space in our Hsinchu building and a government subsidy for the COVID-19 pandemic impact. Foreign currency transaction gain (loss), net.
Other income for the years ended August 31, 2023 and 2022 primarily consists of rental income from the lease of spare space in our Hsinchu building. Foreign currency transaction gain (loss), net.
Cash Flows The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10‑K (in thousands): Years Ended August 31, 2022 2021 Net cash used in operating activities $ (1,508 ) $ (1,737 ) Net cash (used in) provided by investing activities $ (113 ) $ 159 Net cash provided by financing activities $ 490 $ 3,990 Cash Flows Used in Operating Activities Net cash used in operating activities was $1.5 million for the year ended August 31, 2022, consisting primarily of a net loss of $2.7 million and a decrease in inventory of $940 thousand and accounts payable of $388 thousand, partially offset by depreciation and amortization of $938 thousand and stock based compensation expense of $459 thousand and provision for inventory write-down of $807 thousand.
Cash Flows The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10‑K (in thousands): Years Ended August 31, 2023 2022 Net cash used in operating activities $ (984 ) $ (1,508 ) Net cash used in investing activities $ (321 ) $ (113 ) Net cash (used in) provided by financing activities $ (456 ) $ 490 Cash Flows Used in Operating Activities Net cash used in operating activities was $984 thousand for the year ended August 31, 2023, consisting primarily of a net loss of $2.7 million and a decrease in inventory of $1.0 million, partially offset by depreciation and amortization of $1.0 million and stock-based compensation expense of $518 thousand and provision for inventory write-down of $627 thousand and accrued liabilities of $398 thousand.
Cost of Revenues Our cost of revenues increased by 53% from $3.7 million for the year ended August 31, 2021 to $5.7 million for the year ended August 31, 2022. The increase in cost of revenues was primarily due to the increase of volumes sold in LED components and lighting products.
Cost of Revenues Our cost of revenues decreased by 12% from $5.7 million for the year ended August 31, 2022 to $5.0 million for the year ended August 31, 2023. The decrease in cost of revenues was primarily due to the decrease of volumes sold in LED components and lighting products.
The outstanding principal and unpaid accrued interest of the Notes may be converted into our Common Stock based on a conversion price of $3 dollars per share, at the option of the Holders any time from the date of the Notes. On May 25, 2020, the Holders each converted $300 thousand of notes into 100,000 shares of our common stock.
The outstanding principal and unpaid accrued interest of the Notes may be converted into shares of our common stock at a conversion price of $3.00 per share, at the option of the Holders any time from the date of the Notes.
Our gross margin percentage was 20% for the year ended August 31, 2022, as compared to 22% for the year ended August 31, 2021 as a result of an increase in the sales of products with lower margin.
Our gross margin percentage was 17% for the year ended August 31, 2023, as compared to 20% for the year ended August 31, 2022 as a result of a decrease in sales of products with higher margin.
Our provisional estimate is that no tax will be due under this provision. 30 Table of Contents The current presidential administration in the United States modified the rules governing taxation of controlled foreign corporations and affiliates and any such changes were not expected to result in our having to pay applicable taxes in the United States on income earned by such entities.
The current presidential administration in the United States modified the rules governing taxation of controlled foreign corporations and affiliates and any such changes were not expected to result in our having to pay applicable taxes in the United States on income earned by such entities. 31 Table of Contents Taiwan tax treatment.
On May 26, 2021 the Notes were extended with the same terms and interest rate for one year and mature on May 30, 2022, and on May 26, 2022, the Notes were further extended with the same terms and interest rate for one year and now mature on May 30, 2023.
On May 26, 2022, the Notes were second extended with the same terms and interest rate for one year and a maturity date of May 30, 2023.
On November 25, 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%.
On November 25, 2019 and on December 10, 2019, we issued the Notes to J.R. Simplot Company, our largest shareholder, and Trung Doan, our Chairman and Chief Executive Officer, (together, the “Holders”) with a principal sum of $1.5 million and $500 thousand, respectively, and an annual interest rate of 3.5%.
Other Income (Expenses) Years Ended August 31, 2022 2021 % of % of $ Revenues $ Revenues (in thousands) Interest expenses, net $ (369 ) (5 ) % $ (371 ) (8 ) % Other income, net 1,485 21 % 1,090 23 % Foreign currency transaction (loss) gain, net (642 ) (9 ) % 342 7 % Total other income, net $ 474 7 % $ 1,061 22 % Interest expenses, net.
Other Income (Expenses) Years Ended August 31, 2023 2022 % of % of $ Revenues $ Revenues (in thousands) Interest expenses, net $ (287 ) (5 ) % $ (369 ) (5 ) % Other income, net 1,054 18 % 1,485 21 % Foreign currency transaction (loss) gain, net (52 ) (1 ) % (642 ) (9 ) % Total other income, net $ 714 12 % $ 474 7 % Interest expenses, net.
Leasehold improvements are amortized using the straight‑line method over the shorter of the lease term or the estimated useful life of the asset.
Depreciation on property, plant and equipment is calculated using the straight‑line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight‑line method over the shorter of the lease term or the estimated useful life of the asset.
Our research and development expenses decreased from $1.6 million for the year ended August 31, 2021 to $1.5 million for the year ended August 31, 2022. The slight decrease was primarily due to a $173 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 decreased from $1.5 million for the year ended August 31, 2022 to $1.4 million for the year ended August 31, 2023. The slight decrease was primarily due to a $30 thousand decrease in materials and supplies used in research and development, and a $52 thousand decrease in payroll expense. Selling, general and administrative.
The second loan originally for $1.2 million (NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 2.195% currently) and is available for operating capital. These loans are secured by an $82 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building.
The second loan originally for $1.2 million (NT$38 million) has an annual floating interest rate equal to the NTD base lending rate plus 1.02% (or 2.195% currently) and is available for operating capital.
As of August 31, 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.
Based on our current financial projections and assuming our outstanding notes are converted or extended, we believe that we will have sufficient sources of liquidity to fund our operations and capital expenditure plans for the next 12 months.
For example, average selling prices for our LED components are generally higher than for LED chips and the average selling prices for our lighting products are higher than for our LED chips and LED components. 28 Table of Contents We recognize revenue on sales of our products when persuasive evidence of an arrangement exists, the price is fixed or determinable, ownership and risk of loss has transferred and collection of the sales proceeds is probable.
We recognize revenue on sales of our products when persuasive evidence of an arrangement exists, the price is fixed or determinable, ownership and risk of loss has transferred and collection of the sales proceeds is probable.
Our reliance on our chip suppliers exposes us to a number of significant risks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed production capacity or product supply.
The sale of additional equity securities, if required and available, could result in dilution to our stockholders. • Our ability to source chips from other chip suppliers. Our reliance on our chip suppliers exposes us to a number of significant risks, including reduced control over delivery schedules, quality assurance and production costs, lack of guaranteed production capacity or product supply.
Property, plant and equipment pledged as collateral for our notes payable were $2.8 million and $3.5 million as of August 31, 2022 and 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%.
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 $1.7 million and $1.5 million, respectively, and an annual interest rate of 8%.
If Revlon is not able to reorganize its business successfully, our revenue and financial results could be adversely impacted. • Intellectual property issues. Competitors of ours and other third parties have in the past and will likely from time to time in the future allege that our products infringe on their intellectual property rights.
Competitors of ours and other third parties have in the past and will likely from time to time in the future allege that our products infringe on their intellectual property rights.
Revenues attributable to the sales of our LED components increased by 49% from $3.3 million for the year ended August 31, 2021 to $4.9 million for the year ended August 31, 2022. The increase in revenues attributable to sales of LED components was primarily due to a result of higher volume of sales of LED components products.
Revenues attributable to the sales of our LED components decreased by 31% from $4.9 million for the year ended August 31, 2022 to $3.3 million for the year ended August 31, 2023. The decrease in revenues attributable to sales of LED components was primarily due to an unfavorable product mix, hence with lower volume of sales of LED components products.
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 $25 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2022, our outstanding balance on this note payable was approximately $1.5 million. 37 Table of Contents • Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $15 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2022, our outstanding balance on this note payable was approximately $0.9 million.
These loans are secured by an $82 thousand (NT$2.5 million) security deposit and a first priority security interest on the Company’s headquarters building. • Starting from May 2021, the first note payable requires monthly payments of principal in the amount of $25 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2023, our outstanding balance on this note payable was approximately $1.1 million. 38 Table of Contents • Starting from May 2021, the second note payable requires monthly payments of principal in the amount of $15 thousand plus interest over the 74-month term of the note with final payment to occur in July 2027 and, as of August 31, 2023, our outstanding balance on this note payable was approximately $0.7 million.
Our larger customers typically provide us with non‑binding rolling forecasts of their requirements for the coming one to three months; however, recent global economic uncertainty and weakness has led to reduced spending in our target markets and made it difficult for our customers and us to accurately forecast and plan future business activities.
We typically consider delivery to have occurred at the time of shipment, unless otherwise agreed in the applicable sales terms, as this is generally when title and risk of loss for the product passes to the customer. 29 Table of Contents Our larger customers typically provide us with non‑binding rolling forecasts of their requirements for the coming one to three months; however, recent global economic uncertainty and weakness has led to reduced spending in our target markets and made it difficult for our customers and us to accurately forecast and plan future business activities.
Interest income represents interest earned from our cash and cash equivalents deposited with commercial banks in the United States and Taiwan. As of August 31, 2022 and 2021, we had cash and cash equivalents of $4.3 million and $4.8 million, respectively, which consisted of time deposits with initial maturity of greater than three months but less than one year.
As of August 31, 2023 and 2022, we had cash and cash equivalents of $2.6 million and $4.3 million, respectively, which consisted of time deposits with initial maturity of greater than three months but less than one year.
Operating Expenses Years Ended August 31, 2022 2021 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) Research and development $ 1,484 21 % $ 1,623 34 % $ (139 ) (9 ) % Selling, general and administrative 3,309 47 % 3,614 76 % (305 ) (8 ) % Gain on disposals of long-lived assets, net (196 ) (3 ) % (286 ) (6 ) % 90 (31 ) % Total operating expenses $ 4,597 65 % $ 4,951 104 % $ (354 ) (7 ) % Research and development.
Operating Expenses Years Ended August 31, 2023 2022 % of % of Change Change $ Revenues $ Revenues $ % (in thousands) Research and development $ 1,353 23 % $ 1,484 21 % $ (131 ) (9 ) % Selling, general and administrative 3,058 51 % 3,309 47 % (251 ) (8 ) % Gain on disposals of long-lived assets, net — — % (196 ) (3 ) % 196 (100 ) % Total operating expenses $ 4,411 74 % $ 4,597 65 % $ (186 ) (4 ) % Research and development.
During the year ended August 31, 2022, we sold 286,328 shares of common stocks for gross proceeds of $995 thousand with $31 thousand paid as placement agent fees under our ATM program. 38 Table of Contents We estimate that our cash requirements to service debt and contractual obligations in fiscal 2023 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program.
During the year ended August 31, 2023, we did not sell any shares of common stock under our ATM program. 39 Table of Contents We estimate that our cash requirements to service debt and contractual obligations in fiscal 2024 is approximately $5.1 million, which we expect to fund through the issuance of additional equity under the ATM program, and other sources such as private equity funding.
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.
Capital Expenditures We had capital expenditures of $200 thousand and $280 thousand for the years ended August 31, 2023 and 2022, 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.
As of August 31, 2022 and 2021, these loans totaled $3.2 million, respectively. The loans are secured by a second priority security interest on the Company's headquarters building.
On January 13, 2023, the maturity date of these loans was further extended with same terms and interest rate for one year to January 15, 2024. As of August 31, 2023 and 2022, these loans totaled $3.2 million, respectively. The loans are secured by a second priority security interest on the Company's headquarters building.
Inventory write‑downs totaled $807 thousand and $659 thousand for the years ended 31 Table of Contents August 31, 2022 and 2021, respectively. A majority of our inventory write‑downs during the years ended August 31, 2022 and 2021 was related to finished goods and work in process, primarily as a result of obsolescence.
A majority of our inventory write‑downs during the years ended August 31, 2023 and 2022 was related to finished goods and work in process, primarily as a result of obsolescence. 32 Table of Contents Useful Life of Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
Key Factors Affecting Our Financial Condition, Results of Operations and Business The following are key factors that we believe affect our financial condition, results of operations and business: • COVID-19 Pandemic.
Key Factors Affecting Our Financial Condition, Results of Operations and Business The following are key factors that we believe affect our financial condition, results of operations and business: • Our ability to raise additional debt funding, sell additional equity securities and improve our liquidity.
On August 31, 2022 the exchange rate was 30.44 NT dollars to one U.S. dollar. On October 31, 2022, the exchange rate was 32.22 NT dollars to one U.S. dollar.
On August 31, 2023 the exchange rate was 31.86 NT dollars to one U.S. dollar. On November 20, 2023, the exchange rate was 31.64 NT dollars to one U.S. dollar.
Net cash used in operating activities was $1.7 million for the year ended August 31, 2021, consisting primarily of a net loss of $2.9 million and a decrease in inventory of $2 million and gain on disposal of long-live assets of $286 thousand, partially offset by depreciation and amortization of $897 thousand and stock based compensation expense of $186, bad debt expense of $540 thousand and provision for inventory write-downs of $659 thousand and decreased in accrued expenses and other current liabilities of $578 thousand.
Net cash used in operating activities was $1.5 million for the year ended August 31, 2022, consisting primarily of a net loss of $2.7 million and a decrease in inventory of $940 thousand and accounts payable of $388 thousand, partially offset by depreciation and amortization of $938 thousand and stock-based compensation expense of $459 thousand and provision for inventory write-down of $807 thousand.

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