ALPHA & OMEGA SEMICONDUCTOR Ltd 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2020 have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control over Financial Reporting Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), as amended from time to time. Based on the assessment, our management has concluded that our internal control over financial reporting was effective as of June 30, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The effectiveness of the Company's internal control over financial reporting as of June 30, 2020 has been audited by BDO, USA LLP, an independent registered public accounting firm, as stated in their report, included on the following page. Limitation on the Effectiveness of Controls While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance that their respective objectives will be met, we do not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2020 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. 66 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Alpha and Omega Semiconductor Limited Sunnyvale, California Opinion on Internal Control over Financial Reporting 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 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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP San Jose, California September 2, 2020 67 Table of Contents Item 9B. Other Information None 68 PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K because we intend to file our definitive proxy statement for our next annual general meeting of shareholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “ 2020 Proxy Statement”), no later than 120 days after the end of fiscal year 2020 , and certain information to be included in the 2020 Proxy Statement is incorporated herein by reference. Item 10. Directors, Executive Officers and Corporate Governance The information required by this item concerning our directors, executive officers, Section 16 compliance and corporate governance matters is contained in part under the caption "Business - Executive Officers" in Part I of this report, and the remainder is incorporated by reference to the information set forth in the sections titled “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2020 Proxy Statement. Item 11. Executive Compensation The information required by this item regarding executive compensation is incorporated by reference from the information set forth under the captions “Compensation of Non-Employee Directors” and “Executive Compensation,” in the 2020 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2020 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item regarding related party transactions and director independence is incorporated by reference from the information set forth under the captions “Board of Directors and Committees of the Board", and “Related Party Transactions" in the 2020 Proxy Statement. Item 14. Principal Accounting Fees and Services The information required by this item regarding principal accountant fees and services is incorporated by reference from the information set forth under the caption “Principal Accounting Fees and Services” in the 2020 Proxy Statement. 69 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this annual report: (1) Consolidated Financial Statements. The index to the consolidated financial statements is below. Item Page Report of Independent Registered Public Accounting Firm (BDO USA, LLP) 71 Report of Independent Registered Public Accounting Firm (Grant Thornton LLP) 72 Consolidated Balance Sheets 73 Consolidated Statements of Operations 75 Consolidated Statements of Comprehensive Income (Loss ) 76 Consolidated Statements of Equity 77 Consolidated Statements of Cash Flows 79 Notes to the Consolidated Financial Statements 81 (2) Financial Statement Schedules. Schedule I - Condensed Financial Information of Registrant 115 Schedule II - Valuation and Qualifying accounts 120 (b) Exhibits The exhibits listed on the accompanying Index to Exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K. 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Alpha and Omega Semiconductor Limited Sunnyvale, California Opinion on the Consolidated Financial Statements 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 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company's auditor since 2018. San Jose, California September 2, 2020 71 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Alpha and Omega Semiconductor Limited 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 (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 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 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 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 We served as the Company’s auditor from 2012 to 2018. San Francisco, California August 23, 2018 72 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED BALANCE SHEETS (in thousands, except par value per share) June 30, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 158,536 $ 121,893 Restricted cash 2,190 364 Accounts receivable, net 13,272 24,296 Inventories 135,528 111,643 Other current assets 8,807 37,102 Total current assets 318,333 295,298 Property, plant and equipment, net 412,340 409,737 Operating lease right-of-use assets, net 32,948 — Intangible assets, net 16,770 16,882 Deferred income tax assets 4,766 4,822 Restricted cash - long-term 1,978 2,038 Other long-term assets 5,804 10,617 Total assets $ 792,939 $ 739,394 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 86,181 $ 94,384 Accrued liabilities 54,986 44,075 Income taxes payable 1,360 1,541 Short-term debt 30,114 26,609 Finance lease liabilities 15,258 11,355 Operating lease liabilities 4,159 — Total current liabilities 192,058 177,964 Long-term debt 99,775 59,380 Income taxes payable - long-term 903 993 Deferred income tax liabilities 496 466 Finance lease liabilities - long-term 26,842 43,381 Operating lease liabilities - long-term 30,254 — Other long-term liabilities 10,723 13,921 Total liabilities 361,051 296,105 Commitments and contingencies ( Note 13 ) Equity: Preferred shares, par value $0.002 per share: Authorized: 10,000 shares; issued and outstanding: none at June 30, 2020 and 2019 — — Common shares, par value $0.002 per share: Authorized: 100,000 shares; issued and outstanding: 31,944 shares and 25,305 shares, respectively at June 30, 2020 and 31,163 shares and 24,517 shares, respectively at June 30, 2019 64 62 Treasury shares at cost; 6,639 shares at June 30, 2020 and 6,646 shares at June 30, 2019 ( 66,184 ) ( 66,240 ) Additional paid-in capital 246,103 234,410 Accumulated other comprehensive loss ( 5,127 ) ( 2,693 ) Retained earnings 118,833 125,485 Total Alpha and Omega Semiconductor Limited shareholders’ equity 293,689 291,024 Noncontrolling interest 138,199 152,265 Total equity 431,888 443,289 73 Total liabilities and equity $ 792,939 $ 739,394 The accompanying notes are an integral part of these consolidated financial statements. 74 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended June 30, 2020 2019 2018 Revenue $ 464,909 $ 450,920 $ 421,553 Cost of goods sold 362,178 335,542 309,625 Gross profit 102,731 115,378 111,928 Operating expenses: Research and development 51,252 46,431 37,344 Selling, general and administrative 64,816 75,967 66,164 Impairment of privately-held investment 600 — — Total operating expenses 116,668 122,398 103,508 Operating income (loss) ( 13,937 ) ( 7,020 ) 8,420 Interest expense and other income (loss), net ( 3,972 ) ( 6,362 ) ( 2,764 ) Net income (loss) before income taxes ( 17,909 ) ( 13,382 ) 5,656 Income tax expense 348 1,256 708 Net income (loss) including noncontrolling interest ( 18,257 ) ( 14,638 ) 4,948 Net loss attributable to noncontrolling interest ( 11,661 ) ( 16,499 ) ( 9,315 ) Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ ( 6,596 ) $ 1,861 $ 14,263 Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited Basic $ ( 0.27 ) $ 0.08 $ 0.60 Diluted $ ( 0.27 ) $ 0.08 $ 0.57 Weighted average number of common share attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share: Basic 24,840 24,063 23,901 Diluted 24,840 24,698 24,844 The accompanying notes are an integral part of these consolidated financial statements. 75 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year ended June 30, 2020 2019 2018 Net income (loss) including noncontrolling interest $ ( 18,257 ) $ ( 14,638 ) $ 4,948 Other comprehensive income (loss), net of tax Foreign currency translation adjustment ( 4,839 ) ( 5,937 ) 244 Comprehensive income (loss) ( 23,096 ) ( 20,575 ) 5,192 Noncontrolling interest ( 14,066 ) ( 19,303 ) ( 9,205 ) Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited $ ( 9,030 ) $ ( 1,272 ) $ 14,397 The accompanying notes are an integral part of these consolidated financial statements. 76 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) Preferred Shares Common Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total AOS Shareholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Shares Amount Balance, June 30, 2017 — $ — 29,600 $ 59 ( 5,608 ) $ ( 49,836 ) $ 206,332 $ 306 $ 113,909 $ 270,770 $ 27,779 $ 298,549 Exercise of common stock options and release of RSUs — — 645 1 — — 1,543 — — 1,544 — 1,544 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 18 144 — — ( 53 ) 91 — 91 Withholding tax on restricted stock units — — ( 145 ) — — — ( 2,363 ) — — ( 2,363 ) — ( 2,363 ) Issuance of common shares under Employee Stock Purchase Plan — — 300 1 — — 3,320 — — 3,321 — 3,321 Repurchase of common shares under shares repurchase program — — — — ( 950 ) ( 15,098 ) — — — ( 15,098 ) — ( 15,098 ) Share-based compensation expense — — — — — — 11,412 — — 11,412 — 11,412 Net income (loss) including noncontrolling interest — — — — — — — — 14,263 14,263 ( 9,315 ) 4,948 Deferred tax asset related to ASU 2016-06 adoption — — — — — — — — ( 5,480 ) ( 5,480 ) — ( 5,480 ) Foreign currency translation adjustment — — — — — — — 134 — 134 110 244 Contributions by noncontrolling interest — — — — — — — — — — 128,994 128,994 Balance, June 30, 2018 — — 30,400 61 ( 6,540 ) ( 64,790 ) 220,244 440 122,639 278,594 147,568 426,162 Exercise of common stock options and release of RSUs — — 616 1 — — 109 — — 110 — 110 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 6 51 — — ( 51 ) — — — Withholding tax on restricted stock units — — ( 182 ) — — — ( 2,028 ) — — ( 2,028 ) — ( 2,028 ) Issuance of common shares under Employee Stock Purchase Plan — — 329 — — — 2,908 — — 2,908 — 2,908 Repurchase of common shares under share repurchase program — — — — ( 112 ) ( 1,501 ) — — — ( 1,501 ) — ( 1,501 ) Share-based compensation expense — — — — — — 13,177 — — 13,177 — 13,177 Net income (loss) including noncontrolling interest — — — — — — — — 1,861 1,861 ( 16,499 ) ( 14,638 ) Impact on retained earnings related to ASC 606 adoption — — — — — — — 1,036 1,036 — 1,036 Foreign currency translation adjustment — — — — — — — ( 3,133 ) — ( 3,133 ) ( 2,804 ) ( 5,937 ) Contributions by noncontrolling interest — — — — — — — — — — 24,000 24,000 Balance, June 30, 2019 — — 31,163 62 ( 6,646 ) ( 66,240 ) 234,410 ( 2,693 ) 125,485 291,024 152,265 443,289 Exercise of common stock options and release of RSUs — — 562 1 — — 24 — — 25 25 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 7 56 — — ( 56 ) — — — Withholding tax on restricted stock units — — ( 181 ) — — — ( 1,509 ) — — ( 1,509 ) — ( 1,509 ) Issuance of common shares under Employee Stock Purchase Plan — — 400 1 — — 3,324 — — 3,325 — 3,325 Share-based compensation expense — — — — — — 9,854 — — 9,854 — 9,854 Net loss including noncontrolling interest — — — — — — — — ( 6,596 ) ( 6,596 ) ( 11,661 ) ( 18,257 ) 77 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) Foreign currency translation adjustment — — — — — — — ( 2,434 ) — ( 2,434 ) ( 2,405 ) ( 4,839 ) Balance, June 30, 2020 — $ — 31,944 $ 64 ( 6,639 ) $ ( 66,184 ) $ 246,103 $ ( 5,127 ) $ 118,833 $ 293,689 $ 138,199 $ 431,888 The accompanying notes are an integral part of these consolidated financial statements. 78 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended June 30, 2020 2019 2018 Cash flows from operating activities Net income (loss) including noncontrolling interest $ ( 18,257 ) $ ( 14,638 ) $ 4,948 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 45,090 32,038 29,419 Share-based compensation expense 10,454 13,177 11,412 Deferred income taxes, net 85 ( 452 ) ( 2,244 ) (Gain) loss on disposal of property and equipment ( 102 ) 21 45 Impairment of privately-held investment 600 — — Changes in assets and liabilities: Accounts receivable 11,024 9,237 ( 5,345 ) Inventories ( 22,793 ) ( 21,461 ) ( 13,928 ) Other current and long-term assets 27,306 ( 1,887 ) ( 34,625 ) Accounts payable ( 1,777 ) 6,410 4,872 Income taxes payable ( 270 ) ( 601 ) 466 Accrued and other liabilities 10,955 9,577 8,460 Net cash provided by operating activities 62,315 31,421 3,480 Cash flows from investing activities Purchases of property and equipment excluding JV Company ( 42,389 ) ( 36,002 ) ( 49,390 ) Purchases of property and equipment in JV Company ( 20,009 ) ( 76,049 ) ( 128,359 ) Purchases of intangible assets — ( 405 ) ( 16,384 ) Proceeds from sale of property and equipment 295 21 6 Government grant related to equipment in JV Company 1,254 — — Net cash used in investing activities ( 60,849 ) ( 112,435 ) ( 194,127 ) Cash flows from financing activities Proceeds from investment by noncontrolling interest — 24,000 128,994 Withholding tax on restricted stock units ( 1,509 ) ( 2,028 ) ( 2,363 ) Proceeds from exercise of stock options and ESPP 3,350 3,018 4,956 Payments for repurchase of common shares — ( 1,501 ) ( 15,098 ) Proceeds from borrowings 96,232 77,949 30,950 Repayments of borrowings ( 49,394 ) ( 21,947 ) ( 74 ) Proceeds from financing lease — — 60,416 Principal payments on capital leases ( 11,028 ) ( 4,392 ) ( 828 ) Net cash provided by financing activities 37,651 75,099 206,953 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 708 ) ( 1,514 ) ( 511 ) Net increase (decrease) in cash, cash equivalents and restricted cash 38,409 ( 7,429 ) 15,795 Cash, cash equivalents and restricted cash at beginning of year 124,295 131,724 115,929 Cash, cash equivalents and restricted cash at end of year $ 162,704 $ 124,295 $ 131,724 79 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended June 30, 2020 2019 2018 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,223 $ 6,582 $ 700 Cash paid for income taxes $ 2,258 $ 1,841 $ 2,985 Supplemental disclosures of non-cash investing and financing information: Property and equipment purchased but not yet paid (fiscal year 2019 and 2018 amounts are presented as revised, see Note 1) $ 17,370 $ 44,799 $ 66,063 Reissuance of treasury stock $ 56 $ 51 $ 53 The accompanying notes are an integral part of these consolidated financial statements. 80 ALPHA AND OMEGA SEMICONDUCTOR LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and Significant Accounting Policies The Company 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, 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. Basis of Preparation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and a subsidiary in which it has a controlling interest after elimination of inter-company balances and transactions. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). 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 81 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 82 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 The preparation of our consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. 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, 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 Most of the Company's principal subsidiaries use U.S. dollars as their functional currency because their transactions are primarily conducted and settled in U.S. dollars. All of their revenues and a significant portion of their operating expenses are denominated in U.S. dollars. The functional currencies for the Company's in-house packaging and testing facilities in China are U.S. dollars, and a majority of their capital expenditures are denominated in U.S. dollars. Foreign currency transactions are translated into the functional currencies using the exchange rates prevailing at the dates of the transactions. 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 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. 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. Cash equivalents are highly liquid investments with stated maturities of three months or less as of the dates of purchase. The carrying amounts reported for cash and cash equivalents are considered to approximate fair values based upon their short maturities. Cash and cash equivalents are maintained with reputable major financial institutions. If, due to current economic conditions or other factors, one or more of the financial institutions with which the Company maintains deposits fails, the Company's cash and cash equivalents may be at risk. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. 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. The Company reviews the allowance by considering factors such as historical collection experience, credit quality, age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay. The Company writes off a receivable and charges against its recorded allowance when it has exhausted its collection efforts without success. 83 Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: • Level 1 - Quoted prices in active markets for identical assets or liabilities. • Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Fair Value of Financial Instruments The fair value of cash equivalents is based on observable market prices and have been categorized in Level 1 in the fair value hierarchy. 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 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. Inventories The Company carries inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Cost includes semiconductor wafer and raw materials, labor, depreciation expenses and other manufacturing expenses and overhead, and packaging and testing fees paid to third parties if subcontractors are used. Inventory reserves are made based on the Company's periodic review of inventory quantities on hand as compared with its sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices. If actual market conditions are less favorable than those forecasted by management, additional future inventory write-downs may be required that could adversely affect the Company's operating results. Inventory reserves once established are not reversed until the related inventory has been sold or scrapped. Property, Plant and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the items and the costs incurred to make the assets ready for their intended use. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows: Building 20 to 30 years Manufacturing machinery and equipment 5 to 15 years Equipment and tooling 5 years Computer hardware and software 3 to 5 years Office furniture and equipment 5 years Leasehold and building improvements 2 to 20 years Land use rights 50 years There is no private land ownership in China. 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. The land use rights will expire on November 30, 2066. 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 84 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. Costs incurred during the application development stage are required to be capitalized. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Costs include employee costs incurred and fees paid to outside consultants for the software development and implementation. 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. 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 . 85 Revenue Recognition As a result of the adoption of the new revenue standard on July 1, 2018, at the beginning of 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 recognizes revenue when product is shipped to the customer, net of estimated stock rotation returns and price adjustments that it expects to provide to certain distributors. The Company sells its products primarily to distributors, who in turn sell the products globally to various end customers. The Company allows stock rotation returns from certain distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period. The Company records an allowance for stock rotation returns based on historical returns and individual distributor agreements. The Company also provides special pricing to certain distributors, primarily based on volume, to encourage resale of the Company's products. Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the consolidated balance sheets. Packaging and testing services revenue is recognized upon shipment of serviced products to the customer. Leases 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. See Note 6. Product Warranty The Company provides a standard one-year warranty for the products from the date of purchase by the end customers. The Company accrues for estimated warranty costs at the time revenue is recognized. The Company's warranty obligation is affected by product failure rates, labor and material costs for replacing defective parts, related freight costs for failed parts and other quality assurance costs. The Company monitors its product returns for warranty claims and maintains warranty reserves based on historical experiences and anticipated warranty claims known at the time of estimation. Shipping and Handling Costs Shipping and handling costs are included in cost of goods sold. Research and Development Research and development costs are expensed as incurred. 86 Provision for Income Taxes Income tax expense or benefit is based on income or loss before taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The Company is subject to income taxes in a number of jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company establishes accruals for certain tax contingencies based on estimates of whether additional taxes may be due. While the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or research and experimentation tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. The Company considers all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. The Company considers evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income. The Financial Accounting Standards Board, or FASB, issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result. The Company's provision for income taxes is subject to volatility and could be adversely impacted by changes in earnings or tax laws and regulations in various jurisdictions. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of changes to reserves, as well as the related net interest and penalties. Share-based Compensation Expense The Company maintains an equity-settled, share-based compensation plan to grant restricted share units and stock options. The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. 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-Carlo pricing model. The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period. The Employee Share Purchase Plan (the "ESPP") is accounted for at fair value on the date of grant using the Black-Scholes option valuation model. Advertising Advertising expenditures are expensed as incurred. Advertising expense was $ 0.7 million , $ 0.6 million and $ 0.4 million in the fiscal years ended June 30, 2020 , 2019 , and 2018 , respectively. 87 Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments. 88 Recent Accounting Pronouncements Recently Issued Accounting Standards not yet adopted 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): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15”). These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13”). ASU 2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU No. 2018-13 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. 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"). This accounting standard update changes the accounting for recognizing impairments of financial assets. Under the update, credit losses for certain types of financial instruments will be estimated based on expected losses. The update also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements. Recently Adopted Accounting Standards 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 89 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: 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 had no material impact on the Company's consolidated financial statements. 90 2. Net Income (loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding, plus potential shares of common stock during the period. Potential shares of common stock include dilutive shares attributable to the assumed exercise of share options, ESPP shares and vesting of RSUs using the treasury stock method and contingent issuances of common shares related to convertible preferred shares, if dilutive. Under the treasury stock method, potential common shares outstanding are not included in the computation of diluted net income per share if their effect is anti-dilutive. The following table presents the calculation of basic and diluted net income per share attributable to common shareholders: Year Ended June 30, 2020 2019 2018 (in thousands, except per share data) Numerator: Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ ( 6,596 ) $ 1,861 $ 14,263 Denominator: Basic: Weighted average number of common shares used to compute basic net income per share 24,840 24,063 23,901 Diluted: Weighted average number of common shares used to compute basic net income per share 24,840 24,063 23,901 Effect of potentially dilutive securities: Stock options, RSUs and ESPP shares — 635 943 Weighted average number of common shares used to compute diluted net income per share 24,840 24,698 24,844 Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited: Basic $ ( 0.27 ) $ 0.08 $ 0.60 Diluted $ ( 0.27 ) $ 0.08 $ 0.57 The following potential dilutive securities were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive: Year Ended June 30, 2020 2019 2018 (in thousands) Employee stock options and RSUs 2,028 593 186 ESPP 834 512 182 Total potential dilutive securities 2,862 1,105 368 91 3. Concentration of Credit Risk and Significant Customers The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers. Credit sales, which are mainly on credit terms of 30 to 60 days , are only made to customers who meet the Company's credit standards, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its financial assets to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. 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 . See Note 13. Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts: Year Ended June 30, Percentage of revenue 2020 2019 2018 Customer A 29.3 % 28.8 % 28.3 % Customer B 35.5 % 36.4 % 35.2 % June 30, Percentage of accounts receivable 2020 2019 Customer A * 12.1 % Customer B * 19.7 % Customer C 29.8 % 18.1 % Customer D * 13.3 % Customer E 20.1 % * Customer F 10.4 % * Customer G 10.3 % * Customer H 10.9 % * * Less than 10% 92 4. Balance Sheet Components Accounts receivable, net June 30, 2020 2019 (in thousands) Accounts receivable $ 43,394 $ 48,401 Less: Allowance for price adjustments ( 30,092 ) ( 24,075 ) Less: Allowance for doubtful accounts ( 30 ) ( 30 ) Accounts receivable, net $ 13,272 $ 24,296 Inventories June 30, 2020 2019 (in thousands) Raw materials $ 55,377 $ 59,076 Work in-process 61,863 38,214 Finished goods 18,288 14,353 $ 135,528 $ 111,643 Other current assets June 30, 2020 2019 (in thousands) VAT receivable $ 1,639 * $ 30,769 Other prepaid expenses 1,900 2,745 Prepaid insurance 1,520 939 Prepaid maintenance 587 481 Prepayments to supplier 938 583 Prepaid income tax 1,991 267 Customs deposit 163 114 Lease financing cost — 825 Other receivables 69 379 $ 8,807 $ 37,102 * Refund of the accumulated value-added tax paid previously 93 Property, plant and equipment, net June 30, 2020 2019 (in thousands) Land $ 4,877 $ 4,877 Building 58,875 36,205 Manufacturing machinery and equipment 447,079 303,750 Equipment and tooling 25,398 20,739 Computer equipment and software 38,779 34,048 Office furniture and equipment 3,529 3,243 Leasehold improvements 68,224 53,597 Land use rights 8,502 8,760 655,263 465,219 Less: accumulated depreciation ( 291,515 ) ( 252,982 ) 363,748 212,237 Equipment and construction in progress 48,592 197,500 Property, plant and equipment, net $ 412,340 $ 409,737 Total depreciation expense was $ 43.9 million , $ 31.9 million and $ 29.2 million for fiscal year 2020 , 2019 and 2018 , respectively. The gross amount of computer software recorded under capital leases was $ 13.7 million and $ 13.7 million and the related accumulated depreciation was $ 10.1 million and $ 8.2 million , respectively, at June 30, 2020 and 2019 . 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 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. There is no private land ownership in China. Individuals and companies are permitted to acquire land use rights for specific purpose. In March 2017, the JV Company received the necessary land use right certificate from the PRC government. The land use rights will expire on November 30, 2066. Other long-term assets June 30, 2020 2019 (in thousands) Prepayments for property and equipment $ 2,242 $ 4,846 Investments in privately held companies 100 700 Lease financing costs — 1,758 Customs deposit 1,662 980 Other long-term deposits 850 889 Office leases deposits 766 1,031 Other 184 413 $ 5,804 $ 10,617 94 Intangible assets, net June 30, 2020 2019 (in thousands) Patents and technology rights $ 18,037 $ 18,037 Trade name 268 268 Customer relationships 1,150 1,150 19,455 19,455 Less: accumulated amortization ( 2,954 ) ( 2,842 ) 16,501 16,613 Goodwill 269 269 Intangible assets, net $ 16,770 $ 16,882 Intangible assets of patents and technology rights are primarily related to a license agreement that the Company entered into with STMicroelectronics International N.V. (“STMicro”) on September 5, 2017, pursuant to which STMicro granted the Company a world-wide, royalty-free and fully-paid license to use its technologies to develop, market and distribute certain digital multi-phase controller products, which have been offered by STMicro. This agreement allows the Company to develop and market products in a new market, primarily in the computer server segment. As of June 30, 2020 , the Company recorded $ 16.2 million of intangible assets related to STMicro. 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. Estimated future minimum amortization expense of intangible assets is as follows (in thousands): Year ending June 30, 2021 $ 3,360 2022 3,360 2023 3,286 2024 3,249 2025 3,246 $ 16,501 95 Accrued liabilities June 30, 2020 2019 (in thousands) Accrued compensation and benefits $ 19,968 $ 16,385 Warranty accrual 709 623 Stock rotation accrual 3,358 1,921 Accrued professional fees 5,868 1,721 Accrued inventory 775 857 Accrued facilities related expenses 1,831 4,233 Accrued financing lease costs — 728 Accrued property, plant and equipment 11,039 11,527 Other accrued expenses 8,017 5,144 Customer deposit 2,813 351 ESPP payable 608 585 $ 54,986 $ 44,075 The activity in the warranty accrual, included in accrued liabilities is as follows: Year Ended June 30, 2020 2019 2018 (in thousands) Beginning balance $ 623 $ 535 $ 1,866 Addition 895 236 ( 147 ) Released — — ( 1,000 ) Utilization ( 809 ) ( 148 ) ( 184 ) Ending balance $ 709 $ 623 $ 535 The activity in the stock rotation accrual, included in accrued liabilities is as follows: Year Ended June 30, 2020 2019 2018 (in thousands) Beginning balance $ 1,921 $ 1,750 $ 1,871 Addition 9,441 5,267 2,714 Utilization ( 8,004 ) ( 5,096 ) ( 2,835 ) Ending balance $ 3,358 $ 1,921 $ 1,750 96 Other long-term liabilities June 30, 2020 2019 (in thousands) Deferred rent $ — $ 65 Customer deposits 8,000 * 10,000 * Computer software liabilities 1,897 3,701 Other 826 155 Other long-term liabilities $ 10,723 $ 13,921 * 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. 5. Bank borrowings Short-term borrowing 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 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. 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 97 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 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 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”). In exchange for the Lease Financing, the JV Company agrees to transfer title of its assembly and testing equipment to the Lenders, and the Lenders lease such equipment to the JV Company under a five-year lease arrangement, pursuant to which the JV Company makes quarterly lease payments to the Lenders consisting of principal and interest based on a repayment schedule mutually agreed by the parties. The interest under the Lease Financing is accrued based on the China Base Rate multiplied by 1.15 , or 5.4625 % on the Effective Date. Under the Agreements, at the end of the five-year lease term, the Lenders agree to sell such equipment back to the JV Company for a nominal amount (RMB 1 ). The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”). The proceeds from the Lease Financing will be used primarily for the acquisition and installation of the 12-inch fabrication equipment and other expenses of the JV Company relating to the completion of the fabrication facility located in Chongqing. The Agreements contain customary representation, warranties and covenants, including restrictions on the transfer of the Collateral. 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. 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 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 98 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 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 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, 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 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 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 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. The credit agreement has a five -year term and matures on August 15, 2022. In January 2018 and July 2018, Jireh drew down on the loan in the amount of $ 13.2 million and $ 16.7 million , respectively. 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 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 as of June 30, 2020. As of June 30, 2020 , the outstanding balance of the term loan was $ 16.8 million . 99 At June 30, 2020 , maturities of short-term debt and long-term debt were as follows (in thousands): Year ending June 30, 2021 $ 30,616 2022 26,396 2023 37,004 2024 22,694 2025 14,550 Total principal of debt 131,260 Less: debt issuance costs ( 1,371 ) Total principal of debt, less debt issuance costs $ 129,889 Short-term Debt Long-term Debt Principal amount $ 30,613 $ 100,647 Less: debt issuance costs ( 499 ) ( 872 ) Total debt, less debt issuance costs $ 30,114 $ 99,775 6. Leases 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 $ 6,077 Variable rent expense 797 Finance lease: Amortization of equipment 2,839 Interest 2,783 Short-term leases: Short-term lease expenses 306 Total lease expenses $ 12,802 100 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 $ 32,948 Finance Lease: Property, plant and equipment, gross $ 104,374 Accumulated depreciation 86,540 Property, plant and equipment, net $ 17,834 Weighted average remaining lease term (in years) Operating leases 9.57 Finance lease 2.72 Weighted average discount rate Operating leases 4.45 % Finance lease 5.46 % 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 $ 5,241 Operating cash flows from finance lease $ 2,783 Financing cash flows from finance lease $ 11,028 Future minimum lease payments are as follows as of June 30, 2020 (in thousands): Operating Leases Finance Leases 2021 $ 5,695 $ 17,273 2022 5,223 16,428 2023 4,385 11,907 2024 3,938 — 2025 3,517 — Thereafter 20,687 — Total minimum lease payments 43,445 45,608 Less amount representing interest ( 9,032 ) ( 3,508 ) Total lease liabilities $ 34,413 $ 42,100 101 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 2020 $ 4,357 $ 14,219 2021 1,741 17,799 2022 1,164 16,928 2023 894 12,269 2024 1,002 — Thereafter 149 — Total minimum lease payments 9,307 61,215 Less amount representing interest — ( 6,479 ) Total lease liabilities $ 9,307 $ 54,736 7. Shareholders' Equity Common Shares 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. No dividends had been declared as of June 30, 2020. In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed the Company to repurchase its common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $ 30.0 million . The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of the Company's common shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. 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; 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 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. No repurchased shares have been retired. Of the 6,784,648 repurchased shares, 145,428 shares with a weighted average repurchase price of $ 10.32 per share, were reissued at an average price of $ 5.30 per share for option exercises and vested restricted stock units ("RSU"). As of June 30, 2020 , $ 13.4 million remain available under the share repurchase program. 8. Share-based Compensation 2018 Omnibus Incentive Plan The 2009 Share Option/Share Issuance Plan (the “2009 Plan”) was approved in September 2009 at the annual general meeting of shareholders in connection with the Company's IPO. At the annual general meeting of shareholders in November 2018, the 2009 Plan was approved to be terminated and the 2018 Omnibus Incentive Plan (the "2018 Plan") was effective. No further awards will be made under the 2009 Plan. 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 102 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. As of June 30, 2020 , 1,606,154 shares were available for grant under the 2018 Plan. Beginning with the 2014 Annual Shareholders Meeting, on the date of each annual shareholders meeting, each individual who commences service as a non-employee Board member by reason of his or her election to the Board at such annual meeting and each individual who is to continue to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual meeting, will automatically be granted an award in the form of restricted share units ("RSU") covering that number of common shares determined by dividing ninety-five thousand dollars ( $ 95,000 ) by the average fair market value per share for the ninety ( 90 )-day period preceding the grant date. Under the 2018 Plan, incentive share options and RSU are to be granted at a price that is not less than 100 % and nonstatutory share options are to be granted at not less than 85 % of the fair value of the common shares, at the date of grant for employees and consultants. Options and RSUs generally vest over a four -year to five -year period, and are exercisable for a maximum period of ten years after the date of grant. The fair value of RSU, including time-based restricted stock units and performance-based restricted stock units is based on the market price of the Company's share on the date of grant. Time-based Restricted Stock Units ("TRSU") The following table summarizes the Company's TRSU activities: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Aggregate Intrinsic Value Nonvested at June 30, 2017 974,365 $ 13.51 1.68 $ 16,244,748 Granted 482,397 $ 16.46 Vested ( 468,051 ) $ 13.24 Forfeited ( 69,688 ) $ 14.25 Nonvested at June 30, 2018 919,023 $ 15.14 1.62 $ 13,086,888 Granted 527,022 $ 11.28 Vested ( 499,954 ) $ 13.09 Forfeited ( 39,750 ) $ 13.82 Nonvested at June 30, 2019 906,341 $ 14.09 1.62 $ 8,465,225 Granted 505,440 $ 8.51 Vested ( 455,893 ) $ 13.53 Forfeited ( 23,750 ) $ 13.19 Nonvested at June 30, 2020 932,138 $ 11.36 1.66 10,141,661 Performance-based Restricted Stock Units ("PRSU") 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. 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 103 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: Number of Performance-based Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Aggregate Intrinsic Value Nonvested at June 30, 2017 170,000 $ 17.58 2.21 $ 2,833,900 Granted 298,050 $ 16.22 Vested ( 38,247 ) $ 17.58 Forfeited ( 7,503 ) $ 17.26 Nonvested at June 30, 2018 422,300 $ 16.63 2.06 $ 6,013,552 Granted 291,750 $ 11.18 Vested ( 111,623 ) $ 16.68 Forfeited ( 5,703 ) $ 16.78 Nonvested at June 30, 2019 596,724 $ 13.95 1.88 $ 5,573,402 Granted 155,000 $ 7.36 Vested ( 110,659 ) $ 16.68 Forfeited ( 298,290 ) $ 11.32 Nonvested at June 30, 2020 342,775 $ 12.38 1.60 3,729,392 Market-based Restricted Stock Units ("MSUs") 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 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. The Company estimated the grant date fair values of its MSUs with derived service periods of 4.5 to 7.5 years using a Monte-Carlo simulation model with the following assumptions: 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 $ 0.6 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. See Note 14. 104 Stock Option The following table summarizes the Company's stock option activities: Weighted Weighted Average Average Remaining Number of Exercise Price Contractual Aggregate Shares Per Share Term (in years) Intrinsic Value Outstanding at June 30, 2017 1,053,367 $ 10.98 4.43 Granted — $ — Exercised ( 166,389 ) $ 11.00 $ 959,257 Canceled or forfeited — $ — Outstanding at June 30, 2018 886,978 $ 10.97 4.03 Granted — $ — Exercised ( 10,500 ) $ 10.50 $ 43,415 Canceled or forfeited — $ — Outstanding at June 30, 2019 876,478 $ 10.98 3.06 Granted — $ — Exercised ( 2,500 ) $ 10.50 $ 4,726 Canceled or forfeited ( 230,000 ) $ 17.11 Outstanding at June 30, 2020 643,978 $ 8.79 2.89 $ 1,544,664 Options vested and expected to vest 643,978 $ 8.79 2.89 $ 1,544,664 Exercisable at June 30, 2020 643,978 $ 8.79 2.89 $ 1,544,664 The aggregate intrinsic value for options outstanding at June 30, 2020 in the table above is based on the Company’s common stock closing price on June 30, 2020 . Information with respect to stock options outstanding and exercisable as of June 30, 2020 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted-Average Remaining Contractual Life (Years) Weighted-Average Exercise Price Number Exercisable Weighted-Average Exercise Price $7.21 - $7.21 6,875 3.58 $ 7.21 6,875 $ 7.21 $7.44 - $7.44 331,139 3.71 $ 7.44 331,139 $ 7.44 $7.56 - $9.19 132,150 3.14 $ 8.47 132,150 $ 8.47 $9.90 - $12.68 168,000 1.11 $ 11.64 168,000 $ 11.64 $12.91 - $12.91 5,814 0.79 $ 12.91 5,814 $ 12.91 $7.21 - $12.91 643,978 2.89 $ 8.79 643,978 $ 8.79 The 2018 Employee Share Purchase Plan At the annual general meeting of shareholders in November 2018, the 2018 Employee Share Purchase Plan ("Purchase Plan" or "ESPP") Plan was approved, under which 1,430,000 common shares are available for issuance. The ESPP 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 Purchase Plan provided for a series of overlapping offering periods with a duration of 24 months, generally beginning on May 15 and November 15 of each year. The Purchase Plan allows employees to purchase common shares through payroll deductions of up to 15 % of their eligible compensation. Such deductions will accumulate over a six-month accumulation period without interest. After such accumulation period, common 105 shares will be purchased at a price equal to 85 % of the fair market value per share on either the first day of the offering period or the last date of the accumulation period, whichever is less. The maximum number of shares that may be purchased by a participant on any purchase date may not exceed 875 shares for a total of 3,500 shares per a 24 -month offering period. In addition, no participant may purchase more than $ 25,000 worth of common stock in any one calendar year period. No more than 200,000 common shares may be purchased by all participants on any purchase date. The ESPP is compensatory and results in compensation expense. The fair values of common shares to be issued under the ESPP were determined using the Black-Scholes option pricing model with the following assumptions: Year Ended June 30, 2020 2019 2018 Volatility rate 46.4% - 58.3% 40.1% - 40.7% 42.1% - 45.3% Risk-free interest rate 0.2% - 1.6% 2.1% - 2.9% 1.4% - 2.6% Expected term 1.3 years 1.3 years 1.3 years Dividend yield — % — % — % The weighted-average estimated fair value of employee stock purchase rights granted pursuant to the ESPP during the years ended June 30, 2020 , 2019 and 2018 was $ 4.33 , $ 3.84 and $ 5.81 per share, respectively. Share-based Compensation Expenses The total share-based compensation expense related to TRSU, PSUs, MSUs, stock options and ESPP described above, recognized in the consolidated statements of operations for the years presented was as follows: Year Ended June 30, 2020 2019 2018 (in thousands) Cost of goods sold $ 1,530 $ 1,963 $ 1,641 Research and development 2,895 2,453 1,855 Selling, general and administrative 6,029 8,761 7,916 $ 10,454 $ 13,177 $ 11,412 Total unrecognized share-based compensation expense as of June 30, 2020 was $ 10.7 million including estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.8 years. 9. Employee Benefit Plans The Company maintains a 401(k) retirement plan for the benefit of qualified employees in the U.S. Employees who participate may elect to make salary deferral contributions to the plan up to 100 % of the employees' eligible salary subject to annual Internal Revenue Code maximum limitations. The employer's contribution is discretionary. The Company had not made any contributions for eligible employees as of June 30, 2020 . The Company makes mandatory contributions for its employees to the respective local governments in terms of retirement, medical insurance and unemployment insurance, where applicable, according to labor and social security laws and regulations of the countries and areas in which the Company operates. The retirement contribution rate is 7.7 % in the U.S., 12.0 % to 16.0 % in China, and 6.0 % in Taiwan. The Company has no obligations for the payment of such social benefits beyond the required contributions as set out above. 106 10. Income Taxes The provision for income taxes is comprised of: Year Ended June 30, 2020 2019 2018 (in thousands) U.S. federal taxes: Current $ ( 1,673 ) $ ( 57 ) $ 55 Deferred 22 ( 510 ) ( 1,943 ) Non-U.S. taxes: Current 1,940 1,765 2,898 Deferred 58 55 ( 298 ) State taxes, net of federal benefit: Current 1 3 ( 4 ) Total provision for income taxes $ 348 $ 1,256 $ 708 The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows (in percentage): Year Ended June 30, 2020 2019 2018 United States statutory rate 21.0 % 21.0 % 28.1 % Stock-based compensation — 0.1 ( 1.4 ) Foreign taxes, net ( 36.1 ) ( 40.9 ) 39.5 Research and development credit 8.0 11.7 ( 17.1 ) Non-deductible expenses ( 1.0 ) ( 2.7 ) 7.0 U.S. Tax Act deferred tax re-measurement 6.2 — ( 44 ) Other — 1.4 0.4 ( 1.9 )% ( 9.4 )% 12.5 % The domestic and foreign components of income before taxes are: Year Ended June 30, 2020 2019 2018 (in thousands) U.S. operations $ 3,549 $ 4,100 $ 4,219 Non-U.S. operations ( 21,458 ) ( 17,482 ) 1,437 Loss before income taxes $ ( 17,909 ) $ ( 13,382 ) $ 5,656 107 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. Significant components of our deferred tax assets and liabilities are as follows: June 30, 2020 2019 (in thousands) Deferred tax assets: Accrued compensation $ 1,954 $ 1,428 Net operating loss carryforwards 19,870 16,782 Depreciation 8,149 10,036 Tax credits 13,909 10,882 Operating lease liabilities 6,649 — Capitalized intangible assets 10,367 11,981 Accruals and reserves 1,832 1,000 Total deferred tax assets 62,730 52,109 Valuation allowance ( 37,827 ) ( 35,420 ) Total deferred tax assets, net of valuation allowance 24,903 16,689 Deferred tax liabilities: Depreciation and amortization ( 14,097 ) ( 12,243 ) Right of use assets ( 6,453 ) — Accruals and reserves ( 83 ) ( 90 ) Total deferred tax liabilities ( 20,633 ) ( 12,333 ) Net deferred tax assets $ 4,270 $ 4,356 The breakdown between deferred tax assets and liabilities is as follows: June 30, 2020 2019 (in thousands) Long-term deferred tax assets $ 4,766 $ 4,822 Long-term deferred tax liabilities ( 496 ) ( 466 ) Net deferred tax assets $ 4,270 $ 4,356 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, 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. As a result of the transfer, the Company reduced its deferred tax assets by $ 6.6 million and recorded a $ 6.6 million in prepaid tax asset, which is amortized to tax expense over the useful life of the assets. On July 1, 2017, we adopted ASU 2016-16, Intra-Entity Transfers of Assets other than Inventory, which resulted in a de-recognition of a prepaid tax asset of $ 5.5 million related to the prior period intra-entity asset transfer with the JV Company, with an offsetting reduction to retained earnings. In July 2017, the Company contributed to the JV Company certain China patent rights and certain manufacturing related IP, which per ASU 2016-16, resulted in a deferred tax asset of $ 12.9 million on the difference between the tax basis and the consolidated U.S. GAAP book value of $ 0 . 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, 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 108 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. Furthermore, the Company provided a valuation allowance mainly for the net operating loss, fixed asset and intangible asset related to deferred tax assets of the JV Company totaling $ 32.4 million and $ 30.3 million as of June 30, 2020 and 2019 , respectively. The Company intends to maintain a valuation allowance equal to the JV Company’s net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. At June 30, 2020 , the Company had federal net operating loss and research and development tax credit carryforwards of approximately $ 18.0 million and $ 8.3 million , respectively. The federal net operating losses begin to expire in 2038 and the tax credits begin to expire in 2026, if not utilized. At June 30, 2020 , the Company had $ 0.8 million of state net operating loss carryforwards and had tax credit carryforwards of approximately $ 7.1 million . Approximately $ 0.6 million of the state tax credits begin to expire in 2021, if not utilized. The remaining $ 6.5 million of the state tax credits carryforward indefinitely. At June 30, 2020 , the JV Company had $ 108.0 million of net operating loss carryforwards which begin to expire in 2021, if not utilized. The Company has not provided for withholding taxes on the undistributed earnings of its foreign subsidiaries because it intends to reinvest such earnings indefinitely. As of June 30, 2020 , the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is $ 159.4 million . The determination of the unrecognized deferred tax liability on these earnings is not practicable. Should the Company decide to remit this income to its Bermuda parent company in a future period, its provision for income taxes may increase materially in that period. A reconciliation of the beginning and ending amount of unrecognized tax benefits from July 1, 2017 to June 30, 2020 is as follows: Year Ended June 30, 2020 2019 2018 (in thousands) Balance at beginning of year $ 7,150 $ 7,143 $ 6,589 Additions based on tax positions related to the current year 333 417 721 Reductions based on tax positions related to prior years ( 114 ) ( 271 ) ( 11 ) Reductions due to lapse of applicable statute of limitations ( 243 ) ( 139 ) ( 156 ) Balance at end of year $ 7,126 $ 7,150 $ 7,143 At June 30, 2020 , the total unrecognized tax benefits of $ 7.1 million included $ 6.3 million of unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining $ 0.8 million of unrecognized tax benefits was recorded within long-term income tax payable on the Company's consolidated balance sheet as of June 30, 2020 . The Company cannot reasonably estimate the timing and amount of potential cash settlements on the unrecognized tax benefits. The total unrecognized tax benefits of $ 7.1 million at June 30, 2020 included $ 4.3 million that, if recognized, would reduce the effective income tax rate in future periods. It is reasonably possible that the Company will recognize approximately $ 0.1 million reduction to its uncertain tax positions during the next twelve months, related to potential expiration of the relevant statute of limitations. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties accrued at June 30, 2020 was $ 0.1 million , of which $( 0.03 ) million was recognized in the year ended June 30, 2020 . The amount of interest and penalties accrued at June 30, 2019 was $ 0.2 million , of which $ 0.03 million was recognized in the year ended June 30, 2019 . The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2020 remain open to examination by U.S. federal and state tax authorities. The tax years 2013 to 2020 remain open to examination by foreign tax authorities. 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 109 provision for income taxes. These assessments can require considerable estimates and judgments. If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. 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. U.S. 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. U.S. 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. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S. Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision. In July 2019, Altera petitioned U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. 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. 110 Table of Contents 11. Segment and Geographic Information The Company is organized as, and operates in, one operating segment: the design, development and supply of power semiconductor products for computing, consumer electronics, communication and industrial applications. The chief operating decision-maker is the Chief Executive Officer. The financial information presented to the Company's Chief Executive Officer is on a consolidated basis, accompanied by information about revenue by customer and geographic region, for purposes of evaluating financial performance and allocating resources. The Company has one business segment, and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. 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. 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, 2020 2019 2018 (in thousands) Hong Kong $ 383,411 $ 355,058 $ 340,178 China 64,058 81,955 71,213 South Korea 10,370 2,590 1,061 United States 4,465 7,015 5,658 Other countries 2,605 4,302 3,443 $ 464,909 $ 450,920 $ 421,553 The following is a summary of revenue by product type: Year Ended June 30, 2020 2019 2018 (in thousands) Power discrete $ 391,941 $ 371,837 $ 342,148 Power IC 66,360 70,215 67,083 Packaging and testing services 6,608 8,868 12,322 $ 464,909 $ 450,920 $ 421,553 Long-lived assets, net consisting of property, plant and equipment and land use rights, net by geographical area are as follows: June 30, 2020 2019 (in thousands) China $ 310,600 $ 321,145 United States 100,984 87,817 Other countries 756 775 $ 412,340 $ 409,737 111 Table of Contents 12. Restricted Net Assets Laws and regulations in China permit payments of dividends by the Company's subsidiaries in China only out of their retained earnings, if any, as determined in accordance with China accounting standards and regulations. Each China subsidiary is also required to set aside at least 10 % of its after-tax profit, if any, based on China accounting standards each year to its statutory reserves until the cumulative amount of such reserves reaches 50 % of its registered capital. As a result of these China laws and regulations, the Company's China subsidiaries are restricted in their abilities to transfer a portion of their net assets to the Company. As of June 30, 2020 and 2019 , such restricted portion amounted to approximately $ 209.8 million and $ 209.5 million, or 61.4 % and 64.4 % , of our total consolidated net assets attributable to the Company, respectively. As the Company's China subsidiaries are not revenue generating operating units, the Company does not expect to repatriate funds in the form of dividends, loans or advances from its China subsidiaries for working capital and other funding purposes. 13. Commitments and Contingencies 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, 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 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 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 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. 112 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. 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 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. The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its Bye-laws, and has entered into indemnification agreements with its directors and executive officers. 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. In addition, the Company may not be able to maintain such insurance coverage in the future. Environmental matters The Company is subject to various federal, state, local, and foreign laws and regulations governing environmental matters, including the use, handling, discharge, and disposal of hazardous materials. The Company believes that it has been in material compliance with applicable environmental regulations and standards. Complying with current laws and regulations has not had a material adverse effect on the Company’s financial condition and results of operations. However, it is possible that additional environmental issues may arise in the future, which the Company cannot currently predict. 113 14. 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. 114 SCHEDULE I ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS) CONDENSED UNCONSOLIDATED BALANCE SHEETS (in thousands, except par value per share) June 30, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 4,538 $ 5,284 Accounts receivable - Intercompany — — Other current assets 220 325 Total current assets 4,758 5,609 Property, plant and equipment, net 44 119 Other long-term assets 160 242 Investment in subsidiaries 446,415 459,696 Total assets $ 451,377 $ 465,666 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities $ 4,816 $ 863 Accounts payable - Intercompany 14,673 21,514 Total liabilities 19,489 22,377 Equity: Preferred shares, par value $0.002 per share: Authorized: 10,000 shares; Issued and outstanding: none at June 30, 2020 and 2019 — — Common shares, par value $0.002 per share: Authorized: 100,000 shares; issued and outstanding: 31,944 shares and 25,305 shares, respectively at June 30, 2020 and 31,163 shares and 24,517 shares, respectively at June 30, 2019 64 62 Treasury shares at cost; 6,639 shares at June 30, 2020 and 6,646 shares at June 30, 2019 ( 66,184 ) ( 66,240 ) Additional paid-in capital 246,103 234,410 Accumulated other comprehensive income ( 5,127 ) ( 2,693 ) Retained earnings 118,833 125,485 Total Alpha and Omega Semiconductor Limited shareholder's equity 293,689 291,024 Noncontrolling interest 138,199 152,265 Total equity 431,888 443,289 Total liabilities and equity $ 451,377 $ 465,666 The accompanying notes to Schedule I are an integral part of these financial statements. 115 SCHEDULE I ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS) CONDENSED UNCONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) Year Ended June 30, 2020 2019 2018 Revenue $ 1,334 $ 4,292 $ 4,096 Cost of revenue — — — Gross profit 1,334 4,292 4,096 Operating expenses: General and administrative 1,745 4,599 4,479 Total operating expenses 1,745 4,599 4,479 Operating loss ( 411 ) ( 307 ) ( 383 ) Interest expense and other income (loss), net ( 1 ) 3 7 Income (loss) on equity investment in subsidiaries ( 17,845 ) ( 14,334 ) 5,324 Net income (loss) including noncontrolling interest ( 18,257 ) ( 14,638 ) 4,948 Net loss attributable to noncontrolling interest ( 11,661 ) ( 16,499 ) ( 9,315 ) Net income attributable to Alpha and Omega Semiconductor Limited $ ( 6,596 ) $ 1,861 $ 14,263 The accompanying notes to Schedule I are an integral part of these financial statements. 116 SCHEDULE I ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS) CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year ended June 30, 2020 2019 2018 Net income (loss) including noncontrolling interest $ ( 18,257 ) $ ( 14,638 ) $ 4,948 Other comprehensive income (loss), net of tax Foreign currency translation adjustment ( 4,839 ) ( 5,937 ) 244 Comprehensive income (loss) ( 23,096 ) ( 20,575 ) 5,192 Noncontrolling interest ( 14,066 ) ( 19,303 ) ( 9,205 ) Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited $ ( 9,030 ) $ ( 1,272 ) $ 14,397 The accompanying notes to Schedule I are an integral part of these financial statements. 117 SCHEDULE I ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS) CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended June 30, 2020 2019 2018 Cash flows from operating activities Net income (loss) including noncontrolling interest $ ( 18,257 ) $ ( 14,638 ) $ 4,948 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 76 274 464 Share-based compensation expense 450 432 503 Equity in net (income) loss of subsidiaries 17,845 14,334 ( 5,324 ) Other — — — Changes in assets and liabilities: Accounts receivable - intercompany — 3,937 14,316 Other current assets 187 134 ( 199 ) Accounts payable and accrued liabilities 3,953 121 ( 182 ) Accounts payable - intercompany ( 6,841 ) 21,514 — Net cash provided by (used in) operating activities ( 2,587 ) 26,108 14,526 Cash flows from investing activities Purchases of property and equipment — ( 51 ) — Investment in subsidiaries — ( 25,000 ) ( 10,000 ) Net cash used in investing activities — ( 25,051 ) ( 10,000 ) Cash flows from financing activities Withholding tax on restricted stock units ( 1,509 ) ( 2,028 ) ( 2,363 ) Proceeds from exercise of stock options and ESPP 3,350 3,018 4,956 Payments for repurchases of common shares — ( 1,501 ) ( 15,098 ) Net cash provided by (used in) financing activities 1,841 ( 511 ) ( 12,505 ) Net increase (decrease) in cash and cash equivalents ( 746 ) 546 ( 7,979 ) Cash and cash equivalents at beginning of year 5,284 4,738 12,717 Cash and cash equivalents at end of year $ 4,538 $ 5,284 $ 4,738 The accompanying notes to Schedule I are an integral part of these financial statements. 118 ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS) NOTES TO THE CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Alpha and Omega Semiconductor Limited is the parent company of all Alpha and Omega Semiconductor subsidiaries. It was incorporated in Bermuda on September 27, 2000 as an exempted limited liability company. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The accompanying condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of its subsidiaries exceed 25 % of the consolidated net assets of Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”). The parent company records its investment in subsidiaries under the equity method of accounting. Such investment is presented on the balance sheet as "Investment in subsidiaries" and the subsidiaries' net income (loss) are recognized based on the effective shareholding percentage as income on equity investment in subsidiaries on the statement of operations. Intercompany balances and transactions have not been eliminated. The revenue recorded represents intercompany administrative service fees charged by the parent company starting in fiscal year 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. 2. Restricted net assets of subsidiaries For a discussion of the Company’s restricted net assets of subsidiaries, see Note 12 of the Company’s consolidated financial statements. 3. Commitments and contingencies For a discussion of the Company’s commitments and contingencies, see Note 13 to the Company’s consolidated financial statements. 119 SCHEDULE II ALPHA AND OMEGA SEMICONDUCTOR LIMITED VALUATION AND QUALIFYING ACCOUNTS (in thousands) Allowance Allowance Allowance for Doubtful for Price for Deferred Accounts Adjustments Tax Assets June 30, 2017 $ 30 $ 19,599 $ 6,178 Additions — 124,694 23,927 Reductions — ( 125,391 ) — June 30, 2018 30 18,902 30,105 Additions — 115,842 5,315 Reductions — ( 110,669 ) — June 30, 2019 30 24,075 35,420 Additions — 140,413 2,407 Reductions — ( 134,396 ) — June 30, 2020 $ 30 $ 30,092 $ 37,827 120 (b) Index to Exhibits: Number Description 3.1 Memorandum of Association of Registrant (incorporated by reference to Exhibit 3.1 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 3.2 Amended and Restated Bye-laws of Registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on November 12, 2015) 3.3 Amendment No. 1 to Amended and Restated Bye-Laws of Registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on November 14, 2017) 4.1 Form of Common Share Certificate (incorporated by reference to Exhibit 4.2 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.1 2000 Share Plan (incorporated by reference to Exhibit 10.1 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.2 Form of Option Agreement under 2000 Share Plan (incorporated by reference to Exhibit 10.2 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.3(+) 2009 Share Option/Share Issuance Plan (incorporated by reference to Exhibit 10.3 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.4(+) Form of Option Agreement under 2009 Share Plan (incorporated by reference to Exhibit 4.4 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.5(+) Form of Restricted Share Unit Issuance Agreement under 2009 Share Plan (incorporated by reference to Exhibit 4.5 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.6(+) Employee Share Purchase Plan (incorporated by reference to Exhibit 10.15 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.7†† Foundry Agreement dated as of January 10, 2002 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.16 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.8†† First Addendum to Foundry Agreement dated as of July 28, 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.17 from Registration Statement on Form F-1 (File No. 333-165823) initially filed with the Commission on March 31, 2010) 10.9†† Second Addendum to Foundry Agreement dated as of April 11, 2007 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.18 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.10†† Foundry Service Agreement dated as of November 2, 2009 between Alpha & Omega Semiconductor (Macau), Ltd. and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.6 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.11 Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation (incorporated by reference to Exhibit 4.17 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.12†† Supplement to Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation (incorporated by reference to Exhibit 4.18 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.13†† First Amendment of Supplement to Distribution Agreement dated as of April 21, 2011 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation(incorporated by reference to Exhibit 10.15 from Annual Report Form 10-K (File No. 001-34717) filed with the Commission on September 9, 2011) 121 10.14 Supplement to Distribution Agreement dated as of July 27, 2010 between the Registrant and Frontek Technology Corporation (incorporated by reference to Exhibit 10.1 from Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 6, 2015) 10.15 Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 4.19 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.16†† Supplement to Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 4.20 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.17†† First Amendment of Supplement to Distribution Agreement dated as of April 21, 2011 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 10.18 from Annual Report Form 10-K (File No. 001-34717) filed with the Commission on September 9, 2011) 10.18 Supplement to Distribution Agreement dated as of July 27, 2010 between the Registrant and Promate Electronic Co., Ltd (incorporated by reference to Exhibit 10.2 from Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 6, 2015) 10.19 Lease dated as of December 23, 2009 between Alpha and Omega Semiconductor Incorporated and OA Oakmead II, LLC (incorporated by reference to Exhibit 10.19 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.20 Guarantee dated as of January 5, 2010 between the Registrant and OA Oakmead II, LLC (incorporated by reference to Exhibit 10.20 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.21(+) Form of Employment Agreement between the Registrant and Mike F. Chang (incorporated by reference to Exhibit 10.13 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.22(+) Form of Retention Agreement (incorporated by reference to Exhibit 10.14 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.23(+) Form of Restricted Shares Purchase Agreement (incorporated by reference to Exhibit 10.21 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.24 Third Addendum to Foundry Agreement dated as of March 6, 2012 by and among the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.34 from Annual Report on Form 10-K (File No.: 001-34717) filed with the Commission on August 31, 2012) 10.25(+) Amended Form of Restricted Share Unit Issuance Agreement (incorporated by reference to Exhibit 10.35 from Annual Report on Form 10-K (File No.: 001-34717) filed with the Commission on August 31, 2012) 10.26(+) Summary of Fiscal Year 2014 Executive Incentive Plan (incorporated by reference to Exhibit 10.34 from Annual Report on Form 10-K (File No: 001-34717) filed with the Commission on August 30, 2013) 10.27(+) Form of Director's Share Option Agreement under the Automatic Grant Program (incorporated by reference to Exhibit 10.1 from Quarterly Report on Form 10-Q (File No: 001-34717)filed with the Commission on November 6, 2013) 10.28(+) Amendment to Automatic Grant Program for Non-Employee Directors under the 2009 Share Option/Share Issuance Plan (incorporated by reference to Exhibit 10.2 from Quarterly Report on Form 10-Q (File No: 001-34717) filed with the Commission on May 9, 2014) 10.29(+) Form of Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.3 from Quarterly Report on Form 10-Q (File No: 001-34717) filed with the Commission on May 9, 2014) 10.30(+) Summary of Fiscal Year 2015 Executive Incentive Plan (incorporated by reference to Exhibit 10.39 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 29, 2014) 122 10.31†† Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, dated as of March 29, 2016, among the Registrant, certain subsidiaries of the Registrant, Chongqing Strategic Emerging Industry Equity Investment Fund Partnership (LP), and Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) (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 10, 2016) 10.32 (+) Alpha and Omega Semiconductor Limited Calendar Year 2016 Executive Incentive Plan (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 10, 2016) 10.33 (+) Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 9, 2017) 10.34 (+) Alpha and Omega Semiconductor Limited 2017 Executive Incentive Cash Bonus Plan (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 4, 2017) 10.35†† Engineering, Procurement and Construction Contract dated January 10, 2017 between Chongqing Alpha and Omega Semiconductor Limited and The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited (the “EPC Contract”) (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 4, 2017) 10.36†† Amendment No. 1 to EPC Contract effective as of January 10, 2017 (English Translation) (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 4, 2017) 10.37(+) Alpha and Omega Semiconductor Limited Amended and Restated 2017 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on November 21, 2017) 10.38*†† Financing Lease Contract, dated May 9, 2018, by and between Chongqing Alpha and Omega Semiconductor Limited and Chongqing YinHai Financing Lease Co., Ltd. (English Translation) (incorporated by reference to Exhibit 10.38 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 23, 2018) 10.39*†† Real Estate Mortgage Contract, dated May 14, 2018, by and between Chongqing Alpha and Omega Semiconductor Limited and the Export-Import Bank of China (English Translation) (incorporated by reference to Exhibit 10.39 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 23, 2018) 10.40 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) 10.41 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) 10.42 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) 10.43 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) 10.44* 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) 16.1 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) 21.1* List of Subsidiaries of the Registrant 123 23.1* Consent of BDO USA, LLP, independent registered public accounting firm 23.2* Consent of Grant Thornton LLP, independent registered public accounting firm 31.1* Certification of Chief Executive Officer required by Rule 13(a)-14(a) under the Exchange Act 31.2* Certification of Chief Financial Officer required by Rule 13(a)-14(a) under the Exchange Act 32.1* Certification of Chief Executive Officer required by Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code 32.2* Certification of Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code 101.INS XBRL Instance 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation 101.DEF XBRL Taxonomy Extension Definition 101.LAB XBRL Taxonomy Extension Labels 101.PRE XBRL Taxonomy Extension Presentation * Filed with this Annual Report on Form 10-K. †† Confidential treatment has been granted for certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted and filed separately with the Securities and Exchange Commission. (+) Indicates management contract or compensatory plan or arrangement. 124 SIGNATURES 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. September 2, 2020 ALPHA AND OMEGA SEMICONDUCTOR LIMITED By: /s/ MIKE F. CHANG Mike F. Chang Chief Executive Officer (Principal Executive Officer) 125 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints Mike F. Chang and Yifan Liang, and each or any one of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ MIKE F. CHANG Chairman of the Board and Chief Executive Officer September 2, 2020 Mike F. Chang, Ph.D. (Principal Executive Officer) /s/ YIFAN LIANG Chief Financial Officer and Corporate Secretary September 2, 2020 Yifan Liang (Principal Financial Officer and Principal Accounting Officer) /s/ YUEH-SE HO Director and Chief Operating Officer September 2, 2020 Yueh-Se Ho, Ph.D. /s/ LUCAS S. CHANG Director September 2, 2020 Lucas S. Chang /s/ CLAUDIA CHEN Director September 2, 2020 Claudia Chen /s/ KING OWYANG Director September 2, 2020 King Owyang /s/ MICHAEL L. PFEIFFER Director September 2, 2020 Michael L. Pfeiffer /s/ MICHAEL J. SALAMEH Director September 2, 2020 Michael J. Salameh 126