What changed in this filing

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Item 9A. Controls and Procedures

2020-09-02 compared with 2019-08-23 · 457 added, 353 removed, 1065 unchanged (43% of the section changed)

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Opinion on Internal Control over Financial Reporting

We have audited Alpha and Omega Semiconductor Limited (a Bermuda corporation) and subsidiaries (the “Company”) internal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

We have audited Alpha and Omega Semiconductor Limited (a Bermuda corporation) and subsidiaries (the “Company’s”) internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of June 30, 2019, the related consolidated statement of operations, comprehensive income (loss), equity, and cash flow for the year ended June 30, 2019, and the related notes and schedules, and our report dated August 23, 2019 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2020, and the related notes and schedules and our report dated September 2, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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San Jose, California

August 23, 2019

September 2, 2020

Other Information

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Alpha and Omega Semiconductor Limited (a Bermuda corporation) and subsidiaries (the “Company”) as of June 30, 2019, the related consolidated statement of operations, comprehensive income (loss), equity, and cash flow for the year ended June 30, 2019, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2019, and the results of its operations and its cash flow for the year ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated August 23, 2019 expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheets of Alpha and Omega Semiconductor Limited (a Bermuda Corporation) and subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2020, and the related notes and schedules (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2020 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated September 2, 2020 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its accounting method for recognizing revenue from contracts with customers in fiscal year 2019 due to the adoption of Topic 606:

As discussed in Note 1 to the consolidated financial statements, the Company has changed its accounting method for accounting for leases in fiscal year 2020 due to the adoption of Topic 842:

Leases, using a modified retrospective approach, and changed its method for recognizing revenue in fiscal year 2019 due to the adoption of Topic 606:

Revenue from Contracts with Customers.

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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San Jose, California

August 23, 2019

September 2, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Alpha and Omega Semiconductor Limited (a Bermuda corporation) and subsidiaries (the “Company”) as of June 30, 2018, the related consolidated statements of comprehensive operations, comprehensive income (loss), equity, and cash flows for each of the two years in the period ended June 30, 2018, and the related notes and schedules (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Alpha and Omega Semiconductor Limited (a Bermuda corporation) and subsidiaries (the “Company”) as of June 30, 2018 (not presented herein), and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for the year then ended, and the related notes and schedules (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

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Property, plant and equipment, net

Operating lease right-of-use assets, net

Intangible assets, net

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Short-term debt

Deferred margin

Capital leases

Finance lease liabilities

Operating lease liabilities

Total current liabilities

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Deferred income tax liabilities

Capital leases - long-term

Finance lease liabilities - long-term

Operating lease liabilities - long-term

Other long-term liabilities

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Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Retained earnings

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Selling, general and administrative

Impairment of privately-held investment

Total operating expenses

Operating income (loss)

Interest income and other income (loss), net

Interest expense

Interest expense and other income (loss), net

Net income (loss) before income taxes

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Net loss attributable to noncontrolling interest

Net income attributable to Alpha and Omega Semiconductor Limited

Net income per common share attributable to Alpha and Omega Semiconductor Limited

Weighted average number of common share attributable to Alpha and Omega Semiconductor Limited used to compute net income per share:

Net income (loss) attributable to Alpha and Omega Semiconductor Limited

Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited

Weighted average number of common share attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share:

The accompanying notes are an integral part of these consolidated financial statements.

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(in thousands)

Convertible Preferred Shares

Preferred Shares

Common Shares

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Issuance of common shares under Employee Stock Purchase Plan

Repurchase of common shares under shares repurchase program

Share-based compensation expense

Net income (loss) including noncontrolling interest

Cumulative translation adjustment

Deferred tax asset related to ASU 2016-06 adoption

Foreign currency translation adjustment

Contributions by noncontrolling interest

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Issuance of common shares under Employee Stock Purchase Plan

Repurchase of common shares under shares repurchase program

Repurchase of common shares under share repurchase program

Share-based compensation expense

Net income (loss) including noncontrolling interest

Deferred tax asset related to ASU 2016-06 adoption

Cumulative translation adjustment

Impact on retained earnings related to ASC 606 adoption

Foreign currency translation adjustment

Contributions by noncontrolling interest

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Issuance of common shares under Employee Stock Purchase Plan

Repurchase of common shares under share repurchase program

Share-based compensation expense

Net income (loss) including noncontrolling interest

Net loss including noncontrolling interest

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

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(in thousands)

Impact on retained earnings related to ASC 606 adoption

Cumulative translation adjustment

Contributions by noncontrolling interest

Foreign currency translation adjustment

Balance, June 30, 2020

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(Gain) loss on disposal of property and equipment

Impairment of privately-held investment

Changes in assets and liabilities:

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Purchases of property and equipment in JV Company

Purchases of land use rights in JV Company

Purchases of intangible assets

Proceeds from sale of property and equipment

Investment in a privately held company

Government grant related to equipment in JV Company

Net cash used in investing activities

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Proceeds from exercise of stock options and ESPP

Proceeds from borrowings

Proceeds from financing lease

Payments for repurchase of common shares

Proceeds from borrowings

Repayments of borrowings

Proceeds from financing lease

Principal payments on capital leases

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Supplemental disclosures of non-cash investing and financing information:

Property and equipment purchased but not yet paid

Property and equipment purchased but not yet paid (fiscal year 2019 and 2018 amounts are presented as revised, see Note 1)

Reissuance of treasury stock

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Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”, "AOS", "we" or "us") design, develop and supply a broad range of power semiconductors.

The Company's portfolio of products targets high-volume applications, including personal computers, flat panel TVs, LED lighting, smart phones, battery packs, quick chargers, home appliances, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

The Company's portfolio of products targets high-volume applications, including personal computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, quick chargers, home appliances, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

The Company conducts its operations primarily in the United States of America (“USA”), Hong Kong, China, and South Korea.

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The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S.

During the fiscal year ended June 30, 2020, the Company corrected an immaterial error in the corresponding amount for the fiscal year ended June 30, 2019 and 2018 of property and equipment purchased but not yet paid in the supplemental disclosures of non-cash investing and financing information by decreasing the amount by $ 14.1 million from $ 58.9 million to $ 44.8 million and $ 2.1 million from $ 68.2 million to $ 66.1 million , respectively.

This disclosure change had no effect on the consolidated statements of operations and cash flows for the fiscal year ended June 30, 2019 and 2018.

Joint Venture

On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”).

As of June 30, 2020 , the Company owns 51 % , and the Chongqing Funds own 49 % , of the equity interest in the JV Company.

The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has controlling financial interest.

If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10 % simple annual rate prior to distributing the balance of the JV Company's assets to the Company.

The JV Company had been ramping up its production of assembly and testing during the fiscal year 2020.

The 12-inch wafer fabrication facility commenced its limited mass production in the quarter ended September 30, 2019 and continued its ramp in the year ended June 30, 2020.

Certain Significant Risks and Uncertainties Related to Outbreak of Coronavirus Disease 2019 (“COVID-19”)

On March 11, 2020, the World Health Organization characterized the outbreak of the coronavirus disease known as COVID-19 as a global pandemic and recommended containment and mitigation measures.

On March 13, 2020, the United States ("U.S.") declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies.

Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world where the Company has operations, including quarantines, and “stay-at-home” orders, closure of all business not deemed "essential", practice of social distancing when engaging in essential activities and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

In response to these steps, the Company took proactive actions from the early signs of the COVID-19 outbreak in China to adopt policies and protocols at its locations around the world, including social distancing guidelines, working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

As the COVID-19 pandemic reached the U.S.

and federal and state authorities imposed “stay-at-home” orders, the Company has taken similar proactive actions in California, Oregon and Texas

where the Company has business activities in order to protect the health and safety of its employees.

The Company has considered the economic implications of the COVID-19 pandemic in making critical and significant accounting estimates.

COVID-19 has had a negative impact on business activity across the globe.

As a result of the COVID-19 pandemic and the global economic downturn and changing consumer behaviors due to “stay-at-home” restrictions, the Company has experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone and industrial products, as more consumers are staying at and working from home.

While the Company has recently benefited from the increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue as government authorities relax COVID-19 related restrictions.

Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persists, consumer spending may slow down substantially, in which case the Company may experience a significant decline of customer orders for its products, including those designed for PC-related applications, and such decline will adversely affect its financial conditions and results of operations.

The extent to which the COVID-19 pandemic may impact the Company's business will depend on future developments which are uncertain, such as the duration of the outbreak, travel restrictions governmental mandates issued to mitigate the spread of the disease, business closures, economic disruptions, and the effectiveness of actions taken to contain and treat the virus.

Accordingly, the COVID-19 pandemic may have a negative impact on the Company's sales and results of operations, the size and duration of which is difficult to predict.

The Company will continue to actively monitor the situation and may take further actions altering its business operations that the Company determines are in the best interests of its employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

Risks and Uncertainties

The Company is subject to certain risks and uncertainties.

The Company believes changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations or cash flows:

new product development, including market receptiveness, operation of in-house manufacturing facilities, operation of the JV Company, litigation or claims against the Company based on intellectual property, patent, product regulatory or other factors, competition from other products, general economic conditions, the ability to attract and retain qualified employees, the ability to successfully operate joint venture and ultimately to sustain profitable operations, risks associated with doing business in China, and ability to diversify products and develop digital business;

the general state of the U.S., China and world economies;

the highly cyclical nature of the industries the Company serves;

the loss of any of its larger customers;

restrictions on the Company’s ability to sell to foreign customers due to trade laws, regulations and requirements;

disruptions of the supply chain of components needed for our products;

ability to obtain additional financing;

inability to meet certain debt covenants;

fundamental changes in the technology underlying the Company’s products;

successful and timely completion of product design efforts;

and new product design introductions by competitors.

Additional risks and uncertainties that the Company is unaware of, or that the Company currently believes are not material, may also become important factors that adversely affect its business.

The semiconductor industry is characterized by rapid technological change, competition, competitive pricing pressures and cyclical market patterns.

The Company's financial results are affected by a wide variety of factors, including general economic conditions specific to the semiconductor industry and the Company's particular market, such as the PC markets, the timely implementation of new products, new manufacturing process technology and the ability to safeguard patents and intellectual property in a rapidly evolving market.

In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns.

As a result, the Company may experience significant period-to-period fluctuations in operating results due to the factors mentioned above or other factors.

The Company's business model allocates its wafer manufacturing requirements to both in-house capacity and selected third-party foundries.

The Company also deploys and implements its proprietary power discrete processes and equipment at third-party foundries to maximize the performance and quality of its products.

The Company's revenue may be impacted by its ability to obtain adequate wafer supplies from third-party foundries and utilize wafer production and packaging and testing capacity from its in-house facilities.

Currently the Company's main third-party foundry is Shanghai Hua Hong Grace Electronic Company Limited, or HHGrace, located in Shanghai, China.

HHGrace has been manufacturing wafers for the Company since 2002.

HHGrace manufactured approximately 12.7 % , 14.1 % and 15.4 % of the wafers used in the Company's products for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively.

Although the Company believes that its volume of production allows the Company to secure favorable pricing and priority in allocation of capacity in its third-party foundries, if the foundries' capacities are constrained due to market demands, HHGrace, together with other foundries from which the Company purchases wafers, may not be willing or able to satisfy all of the Company's manufacturing requirements on a timely basis and/or at favorable prices.

The Company is also subject to the risks of service

disruptions and raw material shortages by its foundries.

Such disruptions, shortages and price increases could harm the Company's operating results.

In addition, manufacturing facilities' capacity affects the Company's gross margin because the Company has certain fixed costs associated with its Oregon fab and the JV Company, as well as in-house packaging and testing facilities.

If the Company fails to utilize its manufacturing facilities' capacity at a desirable level, its financial condition and results of operations will be adversely affected.

Use of Estimates

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To the extent there are material differences between these estimates and actual results, the Company's consolidated financial statements will be affected.

On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, share-based compensation, and useful lives for property, plant and equipment and intangible assets.

On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as economic impacts of the COVID-19 pandemic.

Foreign Currency Transactions and Translation

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Foreign exchange gains and losses, resulting from the settlement of such transactions and from the re-measurement of monetary assets and liabilities denominated in foreign currencies using exchange rates at balance sheet date and non-monetary assets and liabilities using historical exchange rates, are recognized in the consolidated statements of operations.

For the Company's subsidiaries which use the local currency as their functional currency, including a Joint Venture Company ("JV Company"), their results and financial position are translated into U.S.

For the Company's subsidiaries which use the local currency as their functional currency, including the JV Company, their results and financial position are translated into U.S.

dollars using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses items.

The resulting translation differences are presented as a separate component of accumulated other comprehensive income (loss) and noncontrolling interest in the consolidated statements of equity.

Joint Venture

As of June 30, 2019 , the Company owns 51% , and the Chongqing Funds own 49% , of the equity interest in the JV Company.

The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has controlling financial interest.

10% simple annual rate prior to distributing the balance of the JV Company's assets to the Company.

The JV Company started its assembly and testing production in the September quarter of 2018 and continued its ramp up during the fiscal year 2019.

The Company also completed installation of equipment and trial production at the 12-inch wafer fabrication facility in fiscal year 2019.

In July 2019, the Company commenced limited mass production at the 12-inch wafer fabrication facility.

As part of the JV Transaction, the JV Company entered into an Engineering, Procurement and Construction Contract (the “EPC Contract”) with The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited (the “Contractor”), effective as of January 10, 2017 (the "Effective Date"), pursuant which the Contractor was engaged to construct the manufacturing facility contemplated under the JV Agreement.

The total price payable under the EPC Contract is Chinese Renminbi (RMB) 540.0 million , or approximately $78.0 million based on the currency exchange rate between RMB and U.S.

Dollar on the Effective Date.

As of June 30, 2019, the JV Company paid approximately $69.9 million (RMB 480.0 million ), and expects to pay the remaining of $8.7 million (RMB 60.0 million ) in the near term.

Restricted cash

As a condition of the loan arrangements, the Company is required to keep a compensating balance at the issuing bank (see Note 6).

The balance has been excluded from the Company’s cash and cash equivalents balance and is classified as restricted cash - long-term in the Company’s consolidated balance sheets.

As of June 30, 2019 and 2018, the amount of restricted cash was $2.0 million and $0 , respectively.

Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents primarily consist of cash on hand and short-term bank deposits with original maturities of three months or less.

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however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.

Accounts Receivable

As a condition of the loan arrangements, the Company is required to keep a compensating balance at the issuing bank (see Note 5).

In addition, the Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations including the possibility of a dispute with a vendor.

These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s consolidated balance sheets.

As of June 30, 2020 and 2019 , the amount of restricted cash was $ 4.2 million and $ 2.4 million, respectively.

Accounts Receivable, net

The allowance for doubtful accounts is based on assessment of the collectability of accounts receivable from customers.

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Cash equivalents consist primarily of short-term bank deposits.

The carrying values of financial instruments

such as cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term maturities.

The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term maturities.

The carrying value of the company's debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities, structure and terms of the debts.

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There is no private land ownership in China.

Individuals and companies are permitted to acquire land use rights for specific purpose.

Individuals and companies are permitted to acquire land use rights for a specific purpose.

In March 2017, the JV Company received the necessary land use right certificate from the PRC government.

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Equipment and construction in progress represent equipment received but the necessary installation has not been fully performed or building construction and leasehold improvements have been started but not yet completed.

Equipment and construction in progress are stated at cost and transferred to respective asset class when fully completed and ready for their intended use.

Equipment and

construction in progress are stated at cost and transferred to respective asset class when fully completed and ready for their intended use.

Internal-use software development costs are capitalized to the extent that the costs are directly associated with the development of identifiable and unique software products controlled by the Company that will probably generate economic benefits beyond one year.

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Costs include employee costs incurred and fees paid to outside consultants for the software development and implementation.

Internal developed software is amortized over its estimated useful life of three to five years starting from the date when it is ready for its intended use.

Internally developed software is amortized over its estimated useful life of three to five years starting from the date when it is ready for its intended use.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized as selling, general and administrative expenses in the consolidated statements of operations.

Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred.

Intangible Assets

Intangible assets are stated at cost less accumulated amortization.

Intangible assets primarily include patents and exclusive technology rights that the Company entered a license agreement with STMicroelectronices International N.V.

The Company begins amortizing such license fees when the technology has met its qualification and is ready for intended use in production.

The Company evaluates its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount and fair value less costs to sell.

There was no indication of intangible assets impairment for the fiscal year of 2019 , 2018 and 2017 .

Impairment of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired.

An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset.

Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.

There was no impairment of long-lived assets for the fiscal year of 2019 , 2018 and 2017 .

Impairment of Privately-held Investment

During fiscal year 2017, the Company purchased shares of common stock in a privately-held company at a total investment cost of $ 0.6 million .

The Company made the investment because it viewed the privately-held company as having strategic technology and a business that would complement the Company's technological capabilities and help create an opportunity for the Company to sell its products.

The Company accounted for the investment on a cost basis.

During the fiscal year ended June 30, 2020, the Company recorded an impairment charge of $ 0.6 million in connection with this investment as the Company concluded the impairment to be other-than-temporary.

Government Grants

The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China.

These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits, , as well as business expansion credits.

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received.

The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant.

As a result of such grants, during the fiscal year ended June 30, 2020, the Company reduced interest expense by $ 6.1 million , property, plant and equipment by $ 1.3 million , and operating expenses by $ 4.7 million .

During the fiscal year ended June 30, 2019, the Company reduced interest expenses by $ 0.3 million .

During the fiscal year ended June 30, 2018, the Company reduced property, plant and equipment by $ 3.3 million .

Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes indicate that the carrying amount of such assets may not be recoverable.

Due to the COVID-19 pandemic, the Company assessed the changes in circumstances that occurred during the March and June 2020 quarters.

These factors included continued operating losses, a decrease in the Company's share price in February and March of 2020, which reduced its market capitalization, expectation of lower business growth for the coming quarters, increased and prolonged economic and regulatory uncertainty in the global economies, and the expectation of higher supply chain costs and increased competition.

Therefore, the Company performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of its long-lived assets to their carrying amount as of June 30, 2020.

Some of the more significant assumptions used in the estimated future cash flows involve net sales, cost of goods sold, operating expenses, working capital, capital expenditures, income tax rates, long-term growth rates that appropriately reflect the risks inherent in the future cash flow stream and terminal value.

The Company selected the assumptions used in the financial forecasts by referencing to historical data, supplemented by current and anticipated market conditions, estimated product growth rates and management's plans.

These estimated future cash flows were consistent with those the Company uses in its internal planning.

The result of the recoverability test indicated that the sum of the expected future cash flows (undiscounted and without interest charges) was greater than the carrying amount of the long-lived assets.

Therefore, the Company concluded that the carrying amount of the long-lived assets is recoverable.

There was no impairment of long-lived assets for fiscal years 2020 , 2019 and 2018 .

Revenue Recognition

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Packaging and testing services revenue is recognized upon shipment of serviced products to the customer.

On July 1, 2019, the Company adopted Topic 842, Leases, using the modified retrospective method.

Results for reporting periods beginning after July 1, 2019 were presented under Topic 842, while prior period amounts were not adjusted and continue to be reported on a historical basis as permitted under Topic 840.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and long-term operating lease liabilities on the Company's consolidated balance sheets.

Finance leases are included in property, plant and equipment, finance lease liabilities and long-term finance leases liabilities on the consolidated balance sheets.

The Company elected the practical expedient permitted under the transition guidance, which allowed the Company to carryforward its historical lease classifications, make an assessment on whether a contract was or contains a lease, and determine initial direct costs for any leases that existed prior to July 1, 2019.

The Company elected to combine its lease and non-lease components as a single lease component for all asset classes.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

The Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date.

The operating lease ROU assets also include any lease payments made and exclude lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Operating lease expense is generally recognized on a straight-line basis over the lease term.

Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation.

The Company does not record leases on the consolidated balance sheet with a term of one year or less.

Product Warranty

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The fair value of restricted share units is based on the fair value of the Company's common share on the date of grant.

For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carol pricing model.

For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model.

The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model.

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The Company's accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments.

Leases entered into by the Company as a lessee are classified as capital or operating leases.

Leases that transfer to the Company substantially the entire risks and benefits incidental to ownership are classified as capital leases.

At the inception of a capital lease, an asset and an obligation are recorded at an amount equal to the lesser of the present value of the minimum lease payments and the asset’s fair market value at the beginning of each lease.

Rental payments under operating leases are expensed as incurred.

The Company will recognize leases in accordance with Accounting Standards Update (ASU) 842 "Leases" beginning on July 1, 2019.

Both finance and operating leases will result in the recognizing a right-of-use asset and a corresponding liability on its balance sheet, with differing methodology for income statement recognition.

Risks and Uncertainties

The Company is subject to certain risks and uncertainties.

The Company believes changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations or cash flows:

new product development, including market receptiveness, operation of in-house manufacturing facilities, litigation or claims against the Company based on intellectual property, patent, product regulatory or other factors, competition from other products, general economic conditions, the ability to attract and retain qualified employees, the ability to successfully operate joint venture and ultimately to sustain profitable operations, and ability to diversify products and develop digital business.

Additional risks and uncertainties that the Company is unaware of, or that the Company currently believes are not material, may also become important factors that adversely affect its business.

The semiconductor industry is characterized by rapid technological change, competition, competitive pricing pressures and cyclical market patterns.

The Company's financial results are affected by a wide variety of factors, including general economic conditions specific to the semiconductor industry and the Company's particular market, such as the personal computing (PC) markets, the timely implementation of new products, new manufacturing process technology and the ability to safeguard patents and intellectual property in a rapidly evolving market.

In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns.

As a result, the Company may experience significant period-to-period fluctuations in operating results due to the factors mentioned above or other factors.

The Company's business model allocates its wafer manufacturing requirements to both in-house capacity and selected third-party foundries.

The Company also deploys and implements its proprietary power discrete processes and equipment at third-party foundries to maximize the performance and quality of its products.

Currently the Company's main third-party foundry is Shanghai Hua Hong Grace Electronic Company Limited, or HHGrace, located in Shanghai, China.

HHGrace has been manufacturing wafers for the Company since 2002.

HHGrace manufactured approximately 14.1% , 15.4% and 18.6% of the wafers used in the Company's products for the fiscal years ended June 30, 2019 , 2018 and 2017 , respectively.

The Company is also subject to the risks of service disruptions and raw material shortages by its foundries.

Such disruptions, shortages and price increases could harm the Company's operating results.

If the Company fails to utilize its manufacturing facilities' capacity at a desirable level, its financial condition and results of operations will be adversely affected.

Recent Accounting Pronouncements

Recently Issued Accounting Standards not yet adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No.

In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions.

ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting.

For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No.

2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12") by removing certain exceptions to the general principles.

The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of the amendments is permitted.

Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis.

The Company is currently evaluating the impacts of adoption of the new guidance to its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

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The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2018, the FASB issued ASU 2018-07, "Compensation -Stock Compensation:

Improvement to Nonemployees Share-Based Payment Accounting ("ASU 2018-07"), which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees.

ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards.

ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606.

ASU 2018-07 is effective fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted, but no earlier than our adoption of ASC 606.

The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses ("ASU 2016-13").

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The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Leases ("ASU 2016-02").

This guidance requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases.

Both finance and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding liability on its balance sheet, with differing methodology for income statement recognition.

This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted.

The Company will adopt this standard in the first quarter of fiscal year of 2020, using the modified retrospective transition method and will not restate comparative periods.

The Company will also elect to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

The key change that will affect the Company relates to its accounting for operating leases for which the Company are the lessee that were historically off-balance sheet.

While the Company is currently evaluating the impact the pronouncement will have on its consolidated balance sheet and related disclosures, the Company expects that most of its operating lease commitments will be subject to the new standard and will result in the recognition of right-of-use assets and lease liabilities on its consolidated balance sheet as of July 1, 2019.

Additionally, the Company will elect the package of practical expedients as permitted by the guidance.

The Company is also evaluating the effect of the additional recognition and disclosure requirements under the standard on its current processes and controls.

Recently Adopted Accounting Standards

In August 2018, the SEC adopted the final rule under SEC Release No.

33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.

In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements.

Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement.

The analysis should be presented in the form of a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed with the SEC.

The Company's first presentation of changes in stockholders' equity has been included in its Form 10-Q for the quarter ending March 31, 2019.

In May 2017, the FASB issued ASU 2017-09, "Compensation -Stock Compensation:

Scope of Modification Accounting ("ASU 2017-09").

ASU 2017-09 is an update to the existing guidance to clarify when modification accounting would be applied for a change to the terms or conditions of a share-based award.

Under this new guidance, modification accounting is required only if the fair value, a vesting condition, or the classification of the award changes as a result of the change in terms or conditions.

This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted.

The Company does not regularly modify the terms and conditions of its share-based awards and the adoption of this guidance had no impact on its financial statements.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows:

Restricted Cash ("ASU 2016-18").

ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows.

This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted and requires retrospective adoption.

The Company adopted this standard effective July 1, 2018.

The reclassified restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows were not material for all periods presented.

In August 2016, the FASB issued ASU No.

2016-15, "Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15").

ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows under Topic 230.

ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.

Upon adoption, entities must apply the guidance retrospectively to all periods presented.

There was no impact on the Company's consolidated financial statements upon the adoption of this standard.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (ASC 606).

The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance.

The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance.

The change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors.

Sales to these distributors are governed under the terms of agreements providing extended price protection and other return rights, and were historically deferred under the previous accounting guidance until the related product was sold to the end customer.

Under ASC 606, the transaction price takes into consideration the effect of variable consideration such as price adjustments and returns rights, which are estimated and recorded at the time the goods are delivered.

Accordingly, the Company recognizes revenue under ASC 606 at the time of shipment or delivery to these two distributors, adjusted for estimates of the price adjustments and product returns based on historical data and other available information.

Revenue from other non-U.S.

distributors and direct customers, which consists of the majority of the Company's total revenue, is recognized at the time of shipment or delivery to the distributors and direct customers.

Accordingly, revenue recognition with these distributors and direct customers remains unchanged upon adoption of ASC 606.

See "Note 2 - Revenue" for additional information on the impact of the adoption of the new standard on the Company’s consolidated financial statements.

Impact from the Adoption of the New Revenue Standard:

On July 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts.

Results for reporting periods beginning after July 1, 2018 were presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors.

Sales to these distributors are governed under terms of agreements providing extended price protection and other return rights.

The Company recorded a net increase to opening retained earnings of $1.0 million as of July 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding $1.6 million decrease in deferred margin, a $0.2 million decrease in accounts receivables, a $0.1 million increase in current accrued liabilities, and a $0.3 million increase in deferred tax liabilities.

Effective July 1, 2018, the Company recognized revenue at the time of shipment or delivery to these two distributors, adjusted for estimates of the price adjustments and return rights based on historical data and other available information.

Based on the Company's assessment, only minimal changes were required to the Company's existing policies, processes, and controls to support the standard's measurement and disclosure requirements.

The following tables compare the amounts reported in the condensed consolidated statements of income and condensed consolidated balance sheet to the amounts had the previous revenue recognition guidance been in effect:

As of June 30, 2019

Balances Without Adoption

(in thousands)

Accounts receivable, net

Accrued liabilities

Deferred margin

Income taxes payable

Deferred income tax liabilities

Retained earnings

Year Ended June 30, 2019

Balances Without Adoption

(in thousands)

Cost of goods sold

Income tax expense

Net loss including noncontrolling interest

New Revenue Recognition Policy Including Significant Judgments and Estimates

As a result of the adoption of the new revenue standard on July 1, 2018, beginning with the first quarter of fiscal year 2019, the Company determines revenue recognition through the following steps:

(1) identification of the contract with a customer;

(2) identification of the performance obligations in the contract;

(3) determination of the transaction price;

(4) allocation of the transaction price to the performance obligations in the contract;

and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company has written contracts with a combination of agreements and purchase orders with all customers including certain general terms and conditions.

Often purchase orders entail merchandises, quantities and prices, which define the performance obligations of each party and are approved or accepted by the Company.

The Company’s contracts with

customers do not typically include extended payment terms.

Payment terms vary by contract type and type of customer and generally range from 30 to 60 days.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

Transfer of control typically occurs at the time of shipment or at the time the product is pulled from consignment as that is the point at which delivery has occurred, title and the risks and rewards of ownership have passed to the customers, and the Company has a right to payment.

Packaging and testing services revenue is recognized upon shipment of serviced products to the customer.

The majority of the Company’s total revenue is from non-U.S.

distributors and direct customers, which is recognized at the time of shipment or delivery to distributors and direct customers.

Accordingly, revenue recognition with these distributors and direct customers remains unchanged upon adoption of ASC 606.

As noted above, the change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors.

Under ASC 606, the transaction price takes into consideration the effect of variable consideration such as price adjustments and return rights, which are estimated and recorded at the time the goods are delivered.

Because all of the Company’s performance obligations relate to contracts with a duration of less than one year, the Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company adjusts the transaction price for variable consideration.

Variable consideration primarily represents adjustments related to stock rotation rights and price adjustments provided to our distributors.

As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than twelve months, as an expense when incurred.

Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.

The Company warrants its products to be free of defects generally for a period of one year.

The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of goods sold.

Warranty expenses and the accrued warranty liability were not material as of June 30, 2019 .

The following table presents the Company's revenue information by geographical location based on the country or region to which the products were shipped.

The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers.

Because the Company's distributors sell their products to end customers which may have a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets.

The revenue by geographical location in the following tables is based on the country or region in which the products were shipped to:

Year Ended June 30,

(in thousands)

United States

Other countries

The following is a summary of revenue by product type:

Year Ended June 30,

(in thousands)

Power discrete

Packaging and testing services

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates.

These amendments are effective for entities as of March 12, 2020 through December 31, 2022.

The Company elected to apply

the provisions of ASU 2020-04 for its contracts as of June 30, 2020.

The adoption of ASU 2020-04 did not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

This guidance requires a dual approach for lessee accounting under which a lessee accounts for leases as finance leases or operating leases.

Both finance and operating leases result in the lessee recognizing a right-of-use asset and a corresponding liability on its balance sheet, with differing methodology for income statement recognition.

The Company adopted this standard as of July 1, 2019, using the modified retrospective transition method and recorded a cumulative-effect balance sheet adjustment.

As a result of adopting ASU 2016-02 on July 1, 2019, the Company recognized operating lease right-of-use assets and corresponding operating lease liabilities of approximately $ 21 million each from existing leases on the Company's consolidated balance sheet.

See Note 6 for further details.

In June 2018, the FASB issued ASU 2018-07, "Compensation -Stock Compensation:

ASU 2018-07 had no material impact on the Company's consolidated financial statements.

Net Income (loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited

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(in thousands, except per share data)

Net income attributable to Alpha and Omega Semiconductor Limited

Net income (loss) attributable to Alpha and Omega Semiconductor Limited

Weighted average number of common shares used to compute basic net income per share

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Weighted average number of common shares used to compute diluted net income per share

Net income per share attributable to Alpha and Omega Semiconductor Limited:

Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited:

The following potential dilutive securities were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:

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The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.

The Company ships its product indirectly to Huawei and its affiliates (collectively, “Huawei”) through distributors.

Typically, the Company sells its products to distributors who then sell to original design manufacturers (“ODMs”) that incorporate our products into end applications that are then shipped to Huawei.

While distributor point of sale reports summarize distributor sales to ODMs, the Company must make certain assumptions and estimates in order to determine the amount of revenues attributed to indirect shipment to Huawei.

During the fiscal year ended June 30, 2019, the estimated revenues attributed to indirect shipment to Huawei were approximately 2 % of total revenues.

During the period from May 2019 to December 2019, estimated revenues earned by the Company from shipments indirectly made to Huawei were in the range of $ 11 million to $ 13 million .

Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:

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Balance Sheet Components

Accounts receivable

Accounts receivable, net

(in thousands)

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Other receivables

* Refund of the accumulated value-added tax paid previously

Property, plant and equipment, net

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The Company capitalized $ 1.0 million , $ 0.8 million and 0.3 million of software development costs during the fiscal year 2020 , 2019 and 2018 , respectively.

Amortization of capitalized software development costs was $ 0.5 million in fiscal year 2019 , and $0.6 million in each of the fiscal year 2018 and 2017 , respectively.

Amortization of capitalized software development costs was $ 0.5 million in fiscal year 2020 , $ 0.5 million in fiscal year 2019 and $ 0.6 million in fiscal year 2018 .

Unamortized capitalized software development costs in each of the periods presented at June 30, 2020 and 2019 were $ 1.4 million and $ 0.9 million , respectively.

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Lease financing costs

VAT long-term receivable

Customs deposit

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Intangible assets, net

The carrying value of goodwill was $0.3 million for fiscal years 2019 , 2018 and 2017 .

Intangible assets of patents and technology rights are primarily related to a license agreement that the Company entered into with STMicroelectronics International N.V.

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This agreement allows the Company to develop and market products in a new market, primarily in the computer server segment.

Under the license agreement, the Company agreed to pay a total price in cash of $17.0 million based on the payment schedule of approximately $10.1 million , $6.7 million , and $0.2 million in calendar year 2017, 2018 and 2019, respectively.

As of June 30, 2020 , the Company recorded $ 16.2 million of intangible assets related to STMicro.

The Company begins amortizing such license fees when the technology has met the Company's qualification.

The Company will begin to amortize such license fees during the September 2020 quarter, which is when the technology meets qualification requirements and becomes ready for its intended use in production.

Amortization expense for intangible assets was $ 113,000 , $ 113,000 and $ 76,000 for the years ended June 30, 2020 , 2019 and 2018 , respectively.

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Other accrued expenses

Customer deposit

The activity in the warranty accrual, included in accrued liabilities is as follows:

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Ending balance

Deferred margin

Deferred margin consists of the following:

(in thousands)

Deferred revenue

Deferred costs

Deferred margin

Other long-term liabilities

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* Customer deposit from our customer A and customer B for securing future shipment from the Company.

The Company reclassified $ 2.0 million of the customer deposit to short term accrued liabilities during the fiscal year ended June 30, 2020 since the repayment of this amount is due within a year.

Bank borrowings

Short-term borrowing

On March 21, 2019, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to provide a loan for Chinese Renminbi (RMB) 20 million , or $3.0 million based on currency exchange rate between RMB and U.S.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to provide a loan of a maximum of Chinese Renminbi (RMB) 100 million (approximately $ 14.3 million based on the currency exchange rate between RMB and U.S.

Dollar on April 15, 2020), in the amount in RMB or USD.

Interest payments are due on the 20th of each month, and the entire principal is due on April 16, 2021.

The loan consists of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that is collateralized by eligible accounts receivable.

During the three months ended June 30, 2020, the JV Company borrowed RMB 20 million , or $ 2.8 million based on the currency exchange rate between RMB and U.S.

Dollar, at a fixed interest rate of 5.1375 % per annum under the working capital loan .

The JV Company also borrowed $ 7.1 million and $ 1.9 million at a fixed interest rate of 2.7 % and 2.8 % per annum, respectively, during the same period under the accounts receivable collateralized loan .

As of June 30, 2020, the total outstanding balance under the loan was $ 11.8 million .

In October 2019, the Company's subsidiary in China entered into a line of credit facility with Bank of Communications Limited in China.

This line of credit matures on February 14, 2021 and is based on the China Base Rate multiplied by 1.05 , or 4.99 % on October 31, 2019.

The purpose of the credit facility is to provide short-term borrowings.

The Company could borrow up to approximately RMB 60.0 million or $ 8.5 million based on the currency exchange rate between the RMB and the U.S.

Dollar on October 31, 2019.

As of June 30, 2020 , there was no outstanding balance under the loan.

On September 23, 2019, the JV Company entered into a short-term revolving loan agreement with China Everbright bank in China.

The JV Company can borrow up to RMB 50.0 million , or $ 7.1 million based on the currency exchange rate between RMB and U.S.

Dollar on September 23, 2019, at varying interest rates, in RMB or USD.

Interest payments with the entire principal were due no later than 90 days from each borrowing date.

In January and February 2020, the JV Company borrowed $ 1.6 million and $ 5.5 million , respectively, under this loan.

During the three months ended June 30, 2020, the JV Company repaid the loan in full.

As of June 30, 2020 , there was no outstanding balance under the loan.

On March 21, 2019, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to provide a loan for RMB 20 million , or $ 3.0 million based on currency exchange rate between RMB and U.S.

Dollar on March 31, 2019 at fixed interest rate of 5.44 % per annum.

Interest payments are due monthly with the entire principal due on March 21, 2020.

As of June 30, 2019 , the outstanding balance under the loan was 20 million RMB (equivalent of $2.9 million based on the currency exchange rate as of June 30, 2019 ).

On November 29 and December 4, 2018, the JV Company entered into two one-year loan agreements with China Merchant Bank in China to provide loans for RMB 80 million and 20 million , respectively, or $14.5 million in total based on currency exchange rate between RMB and U.S.

Interest payments were due monthly with the entire principal due on March 21, 2020.

As of June 30, 2020 , there was no outstanding balance under the loan.

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million , respectively, or $ 14.5 million in total based on the currency exchange rate between RMB and U.S.

Dollar on December 31, 2018, at varying interest rates.

Interest payments are due monthly and quarterly with the entire principal due not later than December 18 and December 5, 2019, respectively.

As of June 30, 2019 , the outstanding balances under the loans were 80 million RMB and 20 million (equivalent of $14.6 million in total based on the currency exchange rate as of June 30, 2019 ).

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expires on September 30, 2019.

The purpose the credit facility is to provide short-term borrowings.

The Company can borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S.

On January 20, 2020, the JV Company renewed the loan agreements with the same terms.

Interest payments are due monthly and quarterly with the entire principal due not later

than January 21, 2021.

During the three months ended June 30, 2020, the JV Company repaid the loan in full.

As of June 30, 2020 , there was no outstanding balance under the loan.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expired on September 30, 2019.

The purpose of the credit facility was to provide short-term borrowings.

The Company could borrow up to approximately RMB 72.0 million or $ 10.3 million based on currency exchange rate between RMB and U.S.

Dollar on November 16, 2018.

In November 2018 and April, 2019, the Company borrowed $5.0 million and $10.5 million , respectively under this line with an interest rate of 3.64% and 4.57% , per annum, respectively.

The amount of $5.0 million and $10.5 million were repaid in December 2018 and June 2019.

In October 2019, this line of credit was renewed with the same terms and a maturity date of September 30, 2020.

As of June 30, 2020 , there was no outstanding balance under the line of credit.

Accounts Receivable Factoring Agreement

On August 9, 2019, one of the Company's wholly-owned subsidiaries (the "Borrower") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited (“HSBC”), whereby the Borrower assigns certain of its accounts receivable with recourse.

This factoring agreement allows the Borrower to borrow up to 70 % of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $ 30.0 million .

The interest rate is based on one month London Interbank Offered Rate ("LIBOR") plus 1.75 % per annum.

The Company is the guarantor for this agreement.

The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance.

In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing.

This agreement, with certain financial covenants required, has no expiration date.

The Borrower was in compliance with these covenants as of June 30, 2020.

During the fiscal year ended June 30, 2020, the Company borrowed $ 20.0 million and repaid it in full.

As of June 30, 2020 , there was no outstanding balance and the Company had unused credit of approximately $ 30.0 million .

Credit Facilities

On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”).

Pursuant to the Agreements, the Lenders agree to provide an aggregate of Chinese Renminbi (RMB) 400.0 million , or $62.8 million based on the currency exchange rate between RMB and U.S.

Pursuant to the Agreements, the Lenders agree to provide an aggregate of RMB 400.0 million , or $ 62.8 million based on the currency exchange rate between RMB and U.S.

Dollar on the Effective Date, of financing to the JV Company (the “Lease Financing”).

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The Agreements also contain customary events of default, including but are not limited to, failure to make payments and breach of material terms under the Agreements.

The Agreements include certain customary closing conditions, including

the payment of deposit by the JV Company.

As of June 30, 2019 , the outstanding balance of the Lease Financing of 376.0 million RMB (equivalent of $54.7 million based on the currency exchange rate as of June 30, 2019 ) was recorded under short-term and long-term capital lease liabilities.

Capital leases

Capital lease liabilities include the following:

(in thousands)

Financing lease

Computer software

Exclusive technology rights

current portion

Capital leases - long-term portion

The computer software and exclusive technology rights under capital leases were included in property, plant and equipment and intangible assets, respectively.

Future minimum lease payments at June 30, 2019 are as follows (in thousands):

Year ending June 30,

Total minimum lease payments

Less amount representing interest

Total capital lease liabilities

The Agreements include certain customary closing conditions, including the payment of deposit by the JV Company.

On June 28, 2020, the parties entered into a modification to this agreement, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125 % , or 5.4625 % .

Other terms of this agreement remain the same.

As of June 30, 2020 , the outstanding balance of the Lease Financing of 298.0 million RMB (equivalent of $ 42.1 million based on the currency exchange rate as of June 30, 2020 ) was recorded under short-term and long-term finance lease liabilities.

See future minimum lease payment table for finance lease liabilities in Note 6.

Long-term debt

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of 200 million RMB (approximately $29.8 million based on currency exchange rate between RMB and U.S.

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million (approximately $ 35.7 million based on the currency exchange rate between RMB and U.S.

Dollar on April 26, 2020).

The obligation under the loan agreement is secured by certain assets of the JV Company.

Beginning December 18, 2020, the JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024.

Interest payment is due on March 20, June 20, September 20 and December 20 of each year based on China one-year loan prime rate ("LPR") plus 1.3 % .

The JV Company drew down RMB 250 million (approximately $ 35.3 million based on the

currency exchange rate between RMB and U.S.

Dollar on June 30, 2020) in April 2020.

As of June 30, 2020, the outstanding balance of the loan was $ 35.3 million .

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $ 24.0 million .

The obligation under the loan agreement is secured by certain assets of the JV Company.

Beginning December 18, 2020, the JV Company will make consecutive semi-annual payments of principal until December 8, 2024.

The interest is accrued based on the LIBOR rate plus 2.8 % .

The interest is required to be paid on March 21 and September 21 each year.

As of June 30, 2020 , the outstanding balance of the loan was $ 24.0 million .

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $ 29.8 million based on currency exchange rate between RMB and U.S.

Dollar on March 31, 2019).

The loan will mature on February 20, 2025.

The JV Company drew down 190 million RMB (approximately $28.3 million based on the currency exchange rate between RMB and U.S.

Dollar on March 31, 2019) in March 2019.

The loan withdraw window will expire on February 28, 2020.

The interest is accrued based on the China Base Rate multiplied by 1.1 , or 5.39% on March 12, 2019.

The JV Company drew down RMB 190 million and RMB 10 million in March 2019 and December 2019, respectively.

The loan withdraw window expired on February 28, 2020.

The interest is accrued based on the China Base Rate multiplied by 1.1 , or 5.39 % .

The loan requires quarterly interest payments.

The principal payments are required to pay every 6 months over the term of loan commencing in October 2019.

The obligation under this loan agreement is secured by the buildings and certain equipment owned by the JV Company.

As a condition of the loan arrangements, 14 million RMB (approximately $2.0 million ) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid off.

The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019.

This loan is secured by the buildings and certain equipment owned by the JV Company.

As a condition of the loan arrangements, 14 million RMB (approximately $ 2.0 million ) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid.

On June 24, 2020, a modification of this loan was signed, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74 % , or 5.39 % .

Other terms of this loan remain the same.

During the three months ended December 31, 2019, the JV Company paid 6.0 million RMB under this agreement.

As of June 30, 2020 , the outstanding balance of the loan was 194 million RMB (equivalent of $ 27.4 million based on the currency exchange rate as of June 30, 2020 ).

On May 1, 2018, our Oregon subsidiary, Jireh Semiconductor Incorporated (“Jireh”) entered into a loan agreement with the Bank that provided a term loan in an amount of $17.8 million .

On May 1, 2018, Jireh Semiconductor Incorporated (“Jireh”), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in an amount of $ 17.8 million .

The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company.

The loan has a five-year term and matures on June 1, 2023.

Beginning June 1, 2018, Jireh shall make consecutive monthly payments of principal and interest to the Bank.

Beginning June 1, 2018, Jireh made consecutive monthly payments of principal and interest to the Bank.

The outstanding principal shall accrue interest at a fixed rate of 5.04 % per annum on the basis of a 360-day year.

The loan agreement contains

customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios.

The Company was in compliance with these covenants.

The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios.

The Company was in compliance with these covenants as of June 30, 2020.

As of June 30, 2020 , the outstanding balance of the term loan was $ 15.9 million .

On August 15, 2017, Jireh entered into a credit agreement with a financial institution (the “Bank”) that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for our fabrication facility located in Oregon.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $ 30.0 million for the purpose of purchasing certain equipment for our fabrication facility located in Oregon.

The obligation under the credit agreement is secured by substantially all assets of Jireh and guaranteed by the Company.

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Beginning in October 2018, Jireh is required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments.

The monthly loan interest is based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement, plus specified applicable margin in the range of 1.75% to 2.25% , based on the outstanding balance of the loan.

The loan accrues interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement, plus specified applicable margin in the range of 1.75 % to 2.25 % , based on the outstanding balance of the loan.

The credit agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

The Company was in compliance with these covenants.

The Company was in compliance with these covenants as of June 30, 2020.

As of June 30, 2020 , the outstanding balance of the term loan was $ 16.8 million .

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Total debt, less debt issuance costs

Under Topic 842, the Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date.

Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities and operating lease liabilities - long-term on the Company's consolidated balance sheets.

Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the consolidated balance sheets.

The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments.

As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate at lease commencement.

The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments.

Operating leases are primarily related to offices, research and development facilities, sales and marketing facilities, and manufacturing facilities.

In addition, long-term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases.

Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs.

For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term.

The finance lease is related to the RMB 400.0 million of lease financing of the JV Company with YinHai Leasing Company and The Export-Import Bank of China.

See Note 5 - Bank Borrowings for details.

The Company does not record leases on the consolidated balance sheet with a term of one year or less.

The components of the Company’s operating and finance lease expenses are as follows for the period presented (in thousands):

Fiscal Year Ended June 30, 2020

Operating leases:

Fixed rent expense

Variable rent expense

Finance lease:

Amortization of equipment

Short-term leases:

Short-term lease expenses

Total lease expenses

Supplemental balance sheet information related to the Company’s operating and finance leases is as follows (in thousands, except lease term and discount rate):

June 30, 2020

Operating Leases :

ROU assets associated with operating leases

Finance Lease:

Property, plant and equipment, gross

Accumulated depreciation

Property, plant and equipment, net

Weighted average remaining lease term (in years)

Operating leases

Finance lease

Weighted average discount rate

Operating leases

Finance lease

Supplemental cash flow information related to the Company’s operating and finance lease is as follows (in thousands):

Fiscal Year Ended June 30, 2020

Cash paid from amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance lease

Financing cash flows from finance lease

Future minimum lease payments are as follows as of June 30, 2020 (in thousands):

Operating Leases

Finance Leases

Total minimum lease payments

Less amount representing interest

Total lease liabilities

Prior to the adoption of the new lease standard, future minimum lease payments as of June 30, 2019 were as follows (in thousands):

Year ending June 30,

Operating Leases

Finance Leases

Total minimum lease payments

Less amount representing interest

Total lease liabilities

Shareholders' Equity

Common Shares

On November 8, 2017, the shareholders of the Company approved the Company to increase the authorized number of common shares from 50,000,000 shares to 100,000,000 shares with par value of $0.002 .

The Company's Bye-laws, as amended, authorized the Company to issue 100,000,000 common shares with par value of $ 0.002 .

Each common share is entitled to one vote.

The holders of common shares are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors in accordance with the Company's Bye-laws.

The holders of common shares are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors.

No dividends had been declared as of June 30, 2020.

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From time to time, treasury shares may be reissued as part of the Company's stock-based compensation programs.

Gains on re-issuance of treasury stock are credited to

additional paid-in capital;

Gains on re-issuance of treasury stock are credited to additional paid-in capital;

losses are charged to additional paid-in capital to offset the net gains, if any, from previous sales or re-issuance of treasury stock.

Any remaining balance of the losses is charged to retained earnings.

During fiscal years 2019 and 2018 , the Company repurchased an aggregate of 111,509 shares and 950,046 shares, respectively, from the open market for a total cost of approximately $1.5 million and $15.1 million, excluding fees and related expenses, at an average price of $13.43 and $15.86 per share, respectively.

During fiscal year 2020, the Company did not repurchase any shares pursuant to the repurchase program.

During fiscal years 2019 and 2018, the Company repurchased an aggregate of 111,509 shares and 950,046 shares, respectively, from the open market for a total cost of approximately $ 1.5 million and $ 15.1 million, excluding fees and related expenses, at an average price of $ 13.43 and $ 15.86 per share, respectively.

As of June 30, 2020 , the Company had repurchased an aggregate of 6,784,648 shares for a total cost of $ 67.3 million, at an average price of $ 9.92 per share, excluding fees and related expenses, since inception of the program.

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The 2018 Plan authorized the board of directors to grant incentive share options, non-statutory share options and restricted shares to employees, directors, non-employee directors and consultants of the Company and its subsidiaries for up to 2,065,000 common shares.

The 2018 Plan does not include an evergreen authorization, therefore the Company is not permitted to increase the number of shares reserved in the share pool without obtaining further shareholder approval.

The 2018 Plan does not include an evergreen authorization, therefore the Company is not permitted to increase the number of shares reserved in the share pool without

obtaining further shareholder approval.

Outstanding shares under the 2018 Plan and awards granted under the 2009 Plan that expire, are forfeited or cancelled or terminate prior to the issuance of the shares subject to those awards or are settled in cash will be available for subsequent issuance under the 2018 Plan.

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Performance-based Restricted Stock Units ("PRSU")

In March 2019, 2018 and 2017, the Company granted 291,750 , 298,050 and 170,000 PRSUs to its certain personnel.

In March each year since year 2017, the Company granted PRSU to certain personnel.

The number of shares to be ultimately earned under the PRSU is determined based on the level of attainment of predetermined financial goals.

The PRSU vests in four equal annual installments from the first anniversary date after the grant date if certain predetermined financial goals were met.

During fiscal year 2019, 295,300 shares related to PRSUs granted in fiscal year 2018 were earned.

During fiscal year 2018, 153,000 shares related to PRSUs granted in fiscal year 2017 were earned.

The Company recorded approximately $ 1.5 million , $ 2.8 million and $ 1.9 million of expenses for these PRSUs during the years ended June 30, 2020 , 2019 and 2018 , respectively.

During the quarter ended June 30, 2019, the Company announced an incentive program.

Under this program, each participant’s award is denominated in stock and subject to achievement of certain objective goals within certain timelines.

In June 2020, the Company believed it was most likely that predetermined goal measures would be met.

The Company recorded $ 0.6 million of non-cash compensation expense for these awards in the quarter ended June 30, 2020.

The expense was reported in the other current liabilities line on the consolidated balance sheet as the total amount of bonus is to be settled in variable

number of RSU’s at the completion of the objective goals.

Such non-cash compensation expense was recorded as part of stock compensation expense in the consolidated statements of operations.

The following table summarizes the Company's PRSU activities:

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During the quarter ended September 30, 2018, the Company granted 1.3 million market-based restricted stock units ("MSUs") to certain personnel.

The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the recipients remaining in continuous service with the Company through such period.

The number of shares to be earned at the end of the performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the recipients remaining in continuous service with the Company through such period.

The MSUs vest in four equal annual installments after the end of performance period.

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Risk-free interest rate of 2.7 % , expected term of 3.5 years, expected volatility of 38.8 % and dividend yield of 0 % .

The Company recorded approximately $0.4 million of expense for these MSUs during the year ended June 30, 2019 .

The following table summarizes the Company's MSUs activities:

Number of Performance-based Restricted Stock

Weighted Average

Grant Date Fair

Value Per Share

Weighted Average

Period (Years)

Nonvested at June 30, 2018

Nonvested at June 30, 2019

MSUs vested and expected to vest

The Company recorded approximately $ 0.6 million and $ 0.4 million of expense for these MSUs during the years ended June 30, 2020 and 2019 , respectively.

Subsequent to June 30, 2020, the Company's Board of Directors approved the modification of the performance period of the MSU.

The following table summarizes the Company's stock option activities:

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(in thousands)

Income before income taxes

Loss before income taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Net operating loss carryforwards

Operating lease liabilities

Capitalized intangible assets

Capitalized Costs

Accruals and reserves

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Depreciation and amortization

Right of use assets

Accruals and reserves

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The Company’s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was $ 37.8 million and $ 35.4 million as of June 30, 2020 and 2019, respectively.

The change in valuation allowance for June 30, 2019 and 2018 was an increase of $5.3 million and $23.9 million , as revised for the correction of the immaterial items described below, respectively.

In fiscal 2019, the Company corrected the prior year balance of deferred tax assets relating to capitalized intangible assets as well as the valuation allowance related to those assets by an equal and offsetting amount.

The capitalized intangible assets and valuation allowance as of June 30, 2018 have both been increased in the table above by $12.9 million relating to certain patent rights and related intellectual property (“IP”) (see below).

The Company carries a full valuation allowance against the JV Company deferred tax assets, therefore these immaterial adjustments to the disclosure had no effect on the consolidated balance sheet as of June 30, 2018 and consolidated statements of operations and cash flows for the year then ended.

The change in valuation allowance for June 30, 2020 and 2019 was an increase of $ 2.4 million and $ 5.3 million , respectively.

During the quarter ended September 30, 2016, the Company fulfilled its obligations to contribute certain packaging equipment as required by the JV Agreement by transferring the legal titles of such equipment to the JV Company.

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Because the JV Company provided a full valuation allowance, there was no change to our net deferred tax assets for the initial adoption of ASU 2016-16.

At June 30, 2019 and 2018 , the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $5.1 million and $4.4 million , respectively, as it generated more state tax credits each year than it can utilize.

At June 30, 2020 and 2019 , the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $ 5.4 million and $ 5.1 million , respectively, as it generated more state tax credits each year

than it can utilize.

The Company intends to maintain a partial valuation allowance equal to the state research and development credit carryforwards in excess of the state net deferred tax liabilities on all other state book/tax differences and net operating loss carryforward.

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The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions.

In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.

provision for income taxes.

These assessments can require considerable estimates and judgments.

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If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.

Tax Cuts and Jobs Act, Enacted December 22, 2017

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changes the existing U.S.

tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a move from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued Staff Accounting Bulletin No.

118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740 ("ASC 740").

In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax law that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we reported a second quarter of fiscal year 2018 discrete tax benefit of $ 2.7 million related to the re-measurement of certain deferred tax assets and liabilities.

The $ 2.7 million tax benefit related to the tax rate re-measurement estimated in the second quarter of fiscal year 2018 was reduced downward by $ 0.2 million in the fourth quarter of fiscal year 2018, to $ 2.5 million .

In addition, we used a 28 % U.S.

federal tax rate to measure our U.S.

federal income tax expense for fiscal year 2018, down from the 34 % U.S.

federal income tax rate used in first quarter of fiscal year 2018.

Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), which made the changes to existing U.S.

tax laws, including, but not limited to, (1) allowing U.S.

federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the prior five years, (2) eliminated the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense.

As a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S.

federal tax rate were revalued to the U.S.

tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years.

Accordingly, we reported a discrete tax benefit of $ 1.1 million in the third quarter of fiscal year 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

On July 27, 2015, in Altera Corp.

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Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case.

Due to the uncertainty surrounding the status of the current regulations and questions related to the scope of potential benefits, the Company has not recorded any benefit as of June 30, 2019.

The Company will continue to monitor ongoing developments and potential impacts to its financial statements.

The petition was subsequently denied by the Ninth Circuit.

Altera appealed the case to the U.S.

Supreme Court in February 2020, but the U.S.

Supreme Court declined to hear the case in June 2020, leaving intact the U.S.

Court of Appeals for the Ninth Circuit’s decision.

AOS has no t recorded any benefit related to the Altera Corporation Tax Court decision in any period through June 2020.

We will continue to monitor ongoing developments and potential impact to our financial statements.

Segment and Geographic Information

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Accordingly, the Company reports as a single operating segment.

The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers.

The revenue by geographical location in the following tables is based on the country or region in which the products were shipped to:

Year Ended June 30,

(in thousands)

United States

Other countries

The following is a summary of revenue by product type:

Year Ended June 30,

(in thousands)

Power discrete

Packaging and testing services

Long-lived assets, net consisting of property, plant and equipment and land use rights, net by geographical area are as follows:

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Other countries

For our revenues by geography, please refer to Note 2.

Restricted Net Assets

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Commitments and Contingencies

Operating lease obligations

The Company leases its office facilities and certain office equipment under non-cancelable operating leases that expire through 2026.

Rent expense related to the Company's operating leases was $4.7 million , $3.8 million and $3.4 million for the fiscal years ended June 30, 2019 , 2018 and 2017 , respectively.

Certain leases contain escalation clauses calling for increased rents.

Future minimum lease payments of these leases at June 30, 2019 are as follows:

Year ending June 30,

(in thousands)

Purchase commitments

As of June 30, 2020 and 2019 , the Company had approximately $ 43.9 million and $ 59.5 million , respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, packaging and testing services and others.

As of June 30, 2019 and 2018 , the Company had approximately $33.8 million , primarily for the JV Company, and $58.3 million , respectively, of capital commitments for the purchase of property and equipment.

As of June 30, 2020 and 2019 , the Company had approximately $ 18.0 million , and $ 33.8 million primarily for the JV Company, respectively, of capital commitments for the purchase of property and equipment.

Other commitments

See Note 1 and Note 6 of the Notes to the Consolidated Financial Statements contained in this annual Report on Form 10-K for descriptions of commitments including Joint Venture and bank borrowings.

See Notes 1, 5 and 6 to the Consolidated Financial Statements contained in this annual Report on Form 10-K for descriptions of commitments including Joint Venture, bank borrowings and leases.

Contingencies and indemnities

The Company is currently not a party to any material legal proceedings.

The Company has in the past, and may from time to time in the future, becomes involved in legal proceedings arising from the normal course of business activities.

The Company has in the past, and may from time to time in the future, become involved in legal proceedings arising from the normal course of business activities.

The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices.

Irrespective of the validity of such claims, the Company could incur significant costs in the defense thereof or could suffer adverse effects on its operations.

The Company is a party to a variety of agreements that it contracted with various parties.

Irrespective of the validity of such claims, the Company could incur significant costs in the defense of such claims and suffer adverse effects on its operations.

In December 2019, the U.S.

Department of Justice ("DOJ") commenced an investigation into the Company's compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” maintained by the Department of Commerce (“DOC”) on May 16, 2019.

The Company is cooperating fully with federal authorities in the investigation, including responding to requests for documents and information from DOJ in connection with the investigation.

The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations.

In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019 (see Note 3).

The Company is currently working with DOC to resolve this issue.

Given the case is in still ongoing and neither DOJ nor DOC have provided the Company with any clear indication of the timing and schedule for the investigation, the Company cannot estimate the reasonably possible loss or range of loss that may occur.

Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, although the Company expects to incur additional professional fees as a result of this matter.

In addition, the Company is unable to predict what, if any, further action that may be taken by the government in connection with the investigation, or what, if any, penalties, sanctions or remedial actions may be sought.

On March 19, 2020, Darryl Gray, a stockholder of the Company (the “Plaintiff”), filed a putative class action complaint in the United States District Court for the Southern District of New York (the “Gray Action”), alleging that the Company and its management members made material misstatements or omissions regarding the Company’s business and operations, including its export control practices relating to business transactions with Huawei and its affiliate.

The Gray Action asserts claims under Section 10(b) of the Exchange Act against the Company, its Chief Executive Officer and Chief Financial Officer (collectively, the Defendants”), as well as claims under Section 20(a) of the Exchange Act against the Chief Executive Officer and Chief Financial Officer.

Among other remedies, the Gray Action seeks to recover compensatory and other damages as well as attorney’s fees and costs.

On May 18, 2020, Plaintiff moved for an order appointing him as Lead Plaintiff pursuant to Section 21D of the Exchange Act and approving Glancy Prongay & Murray LLP as Lead Counsel for the putative class (the “Motion”).

On July 1, 2020, the Court entered an order granting the Motion and requiring that:

(i) Lead Plaintiff file an amended complaint or designate the current complaint as operative within sixty days;

(ii) Defendants answer the complaint or otherwise move within sixty days of such filing or designation;

(iii) Lead Plaintiff file an opposition, if any, within forty-five days;

and (iv) Defendants file a reply, if any, forty-five days thereafter.

On August 28, 2020, Plaintiff filed an amended complaint asserting the same claims against the Defendants, and adding the Company’s Executive Vice President of Product Line as a defendant on both claims.

The Company believes the claims in the Gray Action are without merit and intends to vigorously defend this litigation.

Given the case is in its early stages and still on going, the Company cannot estimate the reasonably possible loss or range of loss that may occur.

The Company is a party to a variety of agreements that it has contracted with various third parties.

Pursuant to these agreements, the Company may be obligated to indemnify another party to such an agreement with respect to certain matters.

these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes.

Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes.

In these circumstances, payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claim.

Further, the Company's obligations under these agreements maybe limited in time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements.

Further, the Company's obligations under these agreements may be limited in time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements.

The Company has not historically paid or recorded any material indemnifications, and no accrual was made at June 30, 2020 and 2019.

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The Company has not recorded a liability associated with these indemnification arrangements, as it historically has not incurred any material costs associated with such indemnification obligations.

Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains, however, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay.

Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains.

However, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay.

In addition, the Company may not be able to maintain such insurance coverage in the future.

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However, it is possible that additional environmental issues may arise in the future, which the Company cannot currently predict.

Subsequent Event

On August 31, 2020, the Company’s MSU grant described in Note 8 was modified with the performance period extended through December 31, 2022 and the original four-year time-based service period to commence on January 1, 2023.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

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Operating loss

Interest income

Interest expense and other income (loss), net

Income (loss) on equity investment in subsidiaries

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Commitments and contingencies

In March 2016, the Company executed the JV Agreement with the Chongqing Funds to form a joint venture for the construction of a new state-of -the-art power semiconductor packaging, testing and wafer fabrication facility in Liangjiang New Area of Chongqing.

The Company expects to commence initial packaging production as soon as the required milestones, including certain construction and funding milestones, have been met, and there is no assurance that we can meet these milestones in a timely manner.

In January 2017, the JV Company entered into an Engineering, Procurement and Construction Contract (the "EPC Contract") with The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited.

The total price payable by the JV Company under the EPC Contract is approximately $78.0 million , which consists of $2.8 million of design fees and $75.2 million of construction and procurement fees.

As of June 30, 2019 , we had paid approximately $69.9 million , and expects to pay the remaining of $8.7 million in the near term.

For a discussion of the Company’s commitments and contingencies, see Note 13 to the Company’s consolidated financial statements.

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001-34717) filed with the Commission on August 23, 2018)

Second Supplemental Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (English Translation) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No.

001-34717) filed with the Commission on May 11, 2020)

Third Supplemental Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (English Translation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No.

001-34717) filed with the Commission on May 11, 2020)

First Amendment to Lease dated as of December 23, 2009 between Alpha and Omega Semiconductor Incorporated and ECI Five Oakmead, LLC (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.

001-34717) filed with the Commission on May 11, 2020)

Amended and Restated 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-34717) filed with the Commission on November 12, 2019)

Supplemental Agreement to Financing Lease Contract, dated as of June 28, 2020 between YinHai Leasing Company and China Import/Export Bank and Chongqing Alpha and Omega Semiconductor Technology Co., Ltd.

(English Translation)

Letter from Grant Thornton LLP to the Commission dated September 17, 2018 (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed with the Commission on September 17, 2018)

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 23, 2019

September 2, 2020

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

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Chairman of the Board and Chief Executive Officer

August 23, 2019

September 2, 2020

(Principal Executive Officer)

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Chief Financial Officer and Corporate Secretary

August 23, 2019

September 2, 2020

(Principal Financial Officer and Principal Accounting Officer)

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Director and Chief Operating Officer

August 23, 2019

September 2, 2020

Yueh-Se Ho, Ph.D.

August 23, 2019

/s/ ROBERT I.

August 23, 2019

September 2, 2020

/s/ CLAUDIA CHEN

September 2, 2020

/s/ KING OWYANG

August 23, 2019

September 2, 2020

/s/ MICHAEL L.

August 23, 2019

September 2, 2020

/s/ MICHAEL J.

August 23, 2019

September 2, 2020

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

What changed 10-K

Item 9A. Controls and Procedures