What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-05-11 · 216 added, 280 removed, 195 unchanged (72% of the section changed)

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Unless the context otherwise requires, the words “AOS,” the “Company,” “we,” “us” and “our” refer to Alpha and Omega Semiconductor Limited and its subsidiaries.

This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 , filed with the Securities and Exchange Commission on August 23, 2019 .

This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 , filed with the Securities and Exchange Commission on September 2, 2020 .

We are a designer, developer and global supplier of a broad portfolio of power semiconductors.

Our portfolio of power semiconductors includes approximately 2,100 products, and has grown significantly with the introduction of 200 new products in each of the fiscal years ended June 30, 2019 and 2018, respectively, and over 80 new products in fiscal year 2017.

During the nine months ended March 31, 2020 , we introduced an additional 132 new products.

Our portfolio of power semiconductors includes approximately 2,300 products, and has grown significantly with the introduction of over 160 new products in the fiscal year ended June 30, 2020, and over 200 new products in each of the fiscal year ended June 30, 2019 and 2018, respectively.

During the three months ended September 30, 2020 , we introduced an additional 44 new products.

Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics.

We have an extensive patent portfolio that consists of 812 patents and 88 patent applications in the United States as of March 31, 2020 .

We also have a total of 838 foreign patents, which primarily were based on our research and development efforts through March 31, 2020 .

We have an extensive patent portfolio that consists of 832 patents and 70 patent applications in the United States as of September 30, 2020 .

We also have a total of 861 foreign patents, which were based primarily on our research and development efforts through September 30, 2020 .

We differentiate ourselves by integrating our expertise in technology, design and advanced manufacturing and packaging to optimize product performance and cost.

Our portfolio of products targets high-volume applications, including portable computers, flat panel TVs, LED lighting, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

Our portfolio of products targets high-volume applications, including personal and portable computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, game consoles, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

Our business model leverages global resources, including research and development and manufacturing in the United States and Asia.

Our sales and technical support teams are localized in several growing markets.

We operate an 8-inch wafer fabrication facility located in Hillsboro, Oregon, or the Oregon fab, which is critical for us to accelerate proprietary technology development, new product introduction and improve our financial performance in the long run.

To meet the market demand for the more mature high volume products, we also utilize the wafer manufacturing capacity of selected third party foundries.

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We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.

On March 29, 2016, we 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 we and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing a power semiconductor packaging, testing and wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”).

We formed a joint venture (the “JV Company”) which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”).

We currently own 51%, and the Chongqing Funds own 49%, of the equity interest in the JV Company.

The JV Company has been ramping up its production of assembly and testing in the past few quarters, and commenced limited mass production at the 12-inch wafer fabrication facility in the quarter ended September 30, 2019.

As a result of the coronavirus disease (“COVID-19”) outbreak and the resulting lockdowns and significant supply chain disruption in China during the quarter ended March 31, 2020, the JV Company continued its production at a reduced volume as compared to the prior quarter.

During the three and nine months ended March 31, 2020, we recorded $3.4 million and $9.8 million in net loss attributable to the noncontrolling interest in the JV Company.

For the quarter ending June 30, 2020, in response to the surging demand in the computing market, we expect the JV Company to sequentially increase its production of its

12” wafer fabrication and assembly and test.

However, the impact of the global COVID-19 pandemic and related economic downturn is highly uncertain and subject to change, and we cannot predict at this time with certainty as to when governmental orders and restrictions will be lifted and how global and regional economic conditions will evolve and affect our supply chain and market demand beyond the quarter ending June 30, 2020.

Therefore, currently we are not able to determine the timeframe as to when the JV Company will complete ramp-up activities to commence full production of the Phase 1 of this joint venture project, and we are not able to estimate the amount of additional expenses that we will incur to reach full production.

We will continue to monitor and evaluate market conditions closely during this period and implement aggressive measures in response to the changing environment as necessary to achieve an optimal production level at the JV Company.

In the long-term, we expect the joint venture to provide much needed capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures.

On September 5, 2017, we entered into a license agreement with STMicroelectronics International N.V.

(“STMicro”), pursuant to which STMicro granted us 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 previously offered by STMicro.

As of March 31, 2020 , we recorded $16.2 million of intangible assets on our condensed consolidated balance sheets.

We begin amortizing such license fees when the technology has met our qualification and is ready for its intended use in production.

During the third quarter of fiscal year of 2020, we released a new intelligent power module, AIM702H50B, specialized for low-power BLDC motor drives system such as fan motors in home appliances and air-conditioners that require highly compact size with reliable and efficient design allowance.

The new IPM7 series consists of advanced super junction MOSFETs designed for motor drive and high voltage gate driving ICs with an integrated bootstrap circuit in a new ultra-compact surface mountable package.

Also, we released 700V and 600V αaMOS5™ Super Junction MOSFET families in SMD-type DFN5x6 and DFN8x8 packages.

αaMOS5 is our latest generation of high voltage MOSFET, designed to meet the high efficiency and high-density needs for Quick Charger, Adapter, PC Power, Server, Industrial Power, Telecom, and Hyperscale Datacenter applications.

During the second quarter of fiscal year of 2020, we introduced the AOZ8621UNI, a series of Transient Voltage Suppressor (TVS) for VBUS protection using the latest high-surge TVS platform.

This new series is ideal for USB Type-C Power Delivery, including but not limited to laptops and smartphones.

In addition, we introduced AOZ6682CI and AOZ6683CI which offer high efficiency over the full load range, allowing greener power conversion for a variety of consumer electronics applications such as LCD TVs, set-top boxes, high definition Blu-rayTM Disc Players and Networking terminals.

During the first quarter of fiscal year of 2020, we introduced the “Source Down” in a DFN 5x6 package in combination with a 40V Shield-Gate Technology (AlphaSGT™).

Our innovative flip-chip know-how achieves the Source Down capability and this packaging technology offers a very low package resistance and inductance.

The AOE66410 is ideally suited in telecommunications applications for secondary rectification, in half bridge configuration for BLDC motor applications, and battery management where paralleling is important.

In addition, we introduced the TO-Leadless (TOLL) package in combination with a 60V and 100V Shield-Gate Technology providing the highest current capability in its voltage class.

The TOLL package has the highest current capacity due to our innovative technology, which utilizes a clip to achieve the in-rush current.

The TOLL packaging technology offers a very low package resistance and inductance due to the clip technology when compared to other TO-Leadless packages.

This packaging technology uses a standard wire-bonding technology which enables improved EMI performance.

While the JV Company is our consolidated subsidiary for purpose of financial reporting, it operates as an independent and separate legal entity.

As a result, the JV Company’s assets and liabilities are generally segregated from our company's assets and liabilities.

For example, the JV Company incurs debt through its own financing and bank loan agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for the JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

As part of our strategic plan, we built the JV Company to fulfill growing customer demand.

We expect the joint venture to provide much needed capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures.

During the quarter ended September 30, 2020, the additional capacity at the JV Company contributed significantly

to meeting the increasing demand for our products.

The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication.

During the three months ended September 30, 2020, we recorded $0.8 million in net loss attributable to the noncontrolling interest in the JV Company.

Our current goal is to achieve Phase I target run rate in the quarter ending September 30, 2021, but our goal may be affected by the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions between China and U.S., logistical difficulties and other factors beyond our control.

We will continue to monitor and evaluate market conditions closely during this period and react quickly to the changing environment as necessary to achieve an optimal production level at the JV Company.

During the fiscal quarter ended September 30, 2020, we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products.

Our metal-oxide-semiconductor field-effect transistors, or MOSFET, an power IC product portfolio expanded significantly.

Our high performance products and deepened customer relationships with our OEM and ODM customers resulted in our record high quarterly revenue of $151.6 million, a 28.6% growth compared to the same quarter last year.

Impact of COVID-19 Pandemic to our Business

Our business operations have been negatively impacted by the global COVID-19 pandemic and the resulting economic downturn.

Our business operations have been impacted, and expect to continue to be impacted, by the global COVID-19 pandemic and the resulting economic downturn.

Numerous governmental jurisdictions, including the States of California, Oregon and Texas in the U.S.

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Such orders and restrictions have resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and the global economic downturn, we have experienced a decline in the demand for our products, as our customers reduce orders in response to a slowdown in consumer spending and shifting market trends.

In particular, we expect declining demand in categories such as smartphones, power supply and industrial as business activity decelerates across the globe, which may be offset by increasing demand in the markets for notebooks, PCs and gaming devices as more consumers are staying at and working from home.

While we expect the reduction of demand will negatively impact our revenue and results of operations in the short term, we cannot predict the long-term economic and financial impact of the COVID-19 pandemic, including when the various government restrictions will be eased or lifted and how the market will respond to such decisions.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we took proactive, aggressive actions from the earliest signs of the COVID-19 outbreak in China to adopt policies and protocols at our 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.

Recently, as the COVID-19 pandemic reached the U.S., and federal and state authorities imposed “stay-at-home” orders, we have taken similar proactive and aggressive actions in California, Oregon and Texas where we have business activities in order to protect the health and safety of our employees, while maintaining our core operations.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions, including "stay-at-home" orders, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone products.

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

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

While some government authorities recently have permitted some reopening of businesses and approved gradual easing of various restrictions, many businesses may decide not to open fully or at all due to ongoing concerns with safety at the workplace, and there is no guarantee that governmental orders will not be re-imposed or modified to reinstate prior restrictions if the COVID-19 pandemic continues or caseloads deteriorate.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we took proactive actions to adopt policies and protocols at our 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.

In the U.S., federal and state authorities imposed “stay-at-home” orders, we have taken similar proactive actions in California, Oregon and Texas where we have business activities in order to protect the health and safety of our employees, while maintaining our core operations.

We expect these measures will result in difficulties and logistical challenges in our business operations, and in some cases, reduce the productivity of our workforce and cause disruptions and delays in shipping products to our customers.

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

The ultimate effects that any such alterations or modifications may have on our business are not clear, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of calendar year 2020.

This may impact our ability to respond quickly and effectively to changing market demands as the COVID-19 pandemic continues to cause economic disruption and recession around the globe.

In addition, the COVID-19 pandemic and related events have slowed the pace of ramp-up activities at the JV Company, and we have modified our goal and currently we expect to achieve Phase I target run rate in the quarter ending September 30, 2021.

We cannot predict the long-term economic impact of the COVID-19 pandemic, but we will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

The ultimate effects that any such alterations or modifications may have on our business are not clear, including the effects on our customers, employees, and prospects, or on our financial results.

Other Factors affecting our performance

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Costs of JV Company and digital power business:

We are incurring an increase in operating expenses due to the additional costs associated with pre-production and production ramp-up activities of the JV Company, as well as the initial startup work to develop and establish our new digital power business, both of which have had a significant impact on our financial performance.

The JV Company has continued ramping up its production of assembly and testing during the nine months ended March 31, 2020.

In July 2019, we commenced limited mass production at the 12-inch wafer fabrication facility, and continued ramping up during the nine months ended December 31, 2019.

We expect the JV Company’s ramp-up activities will decline as a result of the significant disruption to global commerce and financial markets due to the COVID-19 pandemic and various “stay-at-home” orders and restrictions imposed by government authorities.

As a result of the COVID-19 outbreak and the resulting lockdowns and significant supply chain disruption in China during the quarter ended March 31, 2020, the JV Company continued its production at a reduced volume as compared to the prior quarter.

For the quarter ending June 30, 2020, in response to the surging demand in the computing market, we expect the JV Company to sequentially increase its production of its 12” wafer fabrication and assembly and test.

The pre-production costs include costs relating to the installation of equipment;

performance of the qualification process;

increased demand for electrical power and other utilities;

increased headcount as a result of hiring of additional personnel, staff and operators;

and establishment of administrative and management functions and systems.

Certain of such pre-production costs could be capitalized under U.S.

GAAP accounting.

However, the majority of such pre-production costs and all of the production ramp-up costs cannot be capitalized, and such costs have and may continue to have a negative impact on our profitability.

We do not expect to incur pre-production costs after July 2019 as the JV Company has commenced limited mass production.

We have incurred an increase in operating expenses due to the additional costs associated with pre-production and production ramp-up activities of the JV Company, as well as the initial startup work to develop and establish our new digital power business, both of which have had a significant impact on our financial performance.

Even though the COVID-19 pandemic has slowed its production, we are making persistent progress.

The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication.

For the quarter ending December 31, 2020, we expect the JV Company to gradually increase the production of its 12-inch wafer fabrication and assembly and test.

We did not incur pre-production costs after July 2019 as the JV Company has commenced limited mass production.

In addition, we are developing our digital power business based on the STMicro license agreement, which will allow us to design and distribute a full suite of advanced low-voltage power IC products.

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For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations.

Our revenue from the PC market accounted for approximately 44.2% and 47.5% of our total revenue for the three months ended March 31, 2020 and 2019 , respectively and 41.5% and 46.6% of our total revenue for the nine months ended March 31, 2020 and 2019 , respectively.

The PC markets have experienced a modest global decline in recent year due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products.

While recently we have experienced an increase of demand in PC market due to the impact of the COVID-19 pandemic, we cannot predict whether and how long such trend will continue.

A decline of the PC market may have negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products.

While recently we have experienced an increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend, we cannot predict whether and how long this trend will continue.

A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures.

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As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and seek and acquire design wins.

Our failure to introduce new products on a timely basis that meet customers' specifications and performance requirements, particularly those products with major OEM customers, and our inability to continue to expand our serviceable markets, could adversely affect our financial performance, including loss of market share.

Our failure to introduce new products on a timely basis that meet

customers' specifications and performance requirements, particularly those products with major OEM customers, and our inability to continue to expand our serviceable markets, could adversely affect our financial performance, including loss of market share.

We believe that the JV Transaction will increase and diversify our customer base, particularly in China, in the long term.

However, the ramp-activities and production schedule of our JV Company have been impacted by the COVID-19 pandemic and related events, as discussed above.

Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies, lack of control over our operations and the general economic conditions in Chongqing and China.

Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies and the general economic conditions in Chongqing and China.

Distributor ordering patterns, customer demand and seasonality :

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Regulatory Development:

As previously disclosed in our Form 10-Q for the quarter ended December 31, 2019, the U.S.

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

In connection with this investigation, DOC has 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.

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

Accordingly, we expect the financial performance will be negatively impacted by the Huawei shipment interruption until such time when DOC permits us to continue shipment to Huawei.

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.

The Company is currently working with DOC to resolve this issue and seeks permission to reinstate shipment to Huawei.

As of the date of this report, DOC has not provided the Company with any definitive timeline or schedule for responding to the Company's request.

We expect the financial performance will be negatively impacted by the Huawei shipment interruption until such time when DOC permits us to continue shipment to Huawei.

There is no guarantee that DOC will agree to permit us to resume shipment to Huawei on a timely basis, or at all, and we may not be able to acquire new or additional customers or demand to offset such loss of shipment.

Our failure to do so will negatively impact our revenue and profitability.

Furthermore, the Company is expected to incur significant costs and expenses, including legal fees, in connection with the government investigation, which may reduce our profitability and margin.

See “Risk Factor- The current government investigation and evolving export control regulations may adversely affect our financial performance and business operations ”.

Furthermore, the Company is expected to incur significant costs and expenses, including legal and professional fees, in connection with the government investigation, which may reduce our profitability and margin.

Principal line items of statements of operations

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At our discretion or upon our direct negotiations with the original design manufacturers ("ODMs") or original equipment manufacturers ("OEMs"), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors.

In these situations, we will grant price adjustments to the distributors reflecting such special pricing.

In these situations, we will grant

price adjustments to the distributors reflecting such special pricing.

We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.

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Operating expenses

Our operating expenses consist of research and development, selling, general and administrative expenses.

Our operating expenses consist of research and development, selling, general and administrative expenses and impairment of long-lived assets.

We expect our operating expenses as a percentage of revenue to fluctuate from period to period as we continue to exercise cost control measures in response to the declining PC market as well as align our operating expenses to the revenue level.

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Our selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services.

We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures as well as incur less pre-production costs due to the commencement of mass production in our JV Company.

Impairment of privately-held investment

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

We accounted for the investment on a cost basis.

During the quarter ended as of March 31, 2020, we recorded impairment charges of $0.6 million in connection with this investment as we concluded the impairment to be other-than-temporary.

We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.

Income tax expense

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Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.

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) eliminating 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 quarter ended March 31, 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

Results of Operations

The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three and nine months ended March 31, 2020 and 2019 .

The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three months ended September 30, 2020 and 2019 .

Our historical results of operations are not necessarily indicative of the results for any future period.

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands)

(% of revenue)

Three Months Ended September 30,

(in thousands)

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Selling, general and administrative

Impairment of privately-held investment

Total operating expenses

Operating loss

Operating income (loss)

Interest expense and other income (loss), net

Loss before income taxes

Income tax expense (benefit)

Net loss including noncontrolling interest

Income (loss) before income taxes

Income tax expense

Net income (loss) including noncontrolling interest

Net loss attributable to noncontrolling interest

Net loss attributable to Alpha and Omega Semiconductor Limited

Net income attributable to Alpha and Omega Semiconductor Limited

Share-based compensation expense was recorded as follows:

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands)

(% of revenue)

Three Months Ended September 30,

(in thousands)

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Selling, general and administrative

Three and Nine Months Ended March 31, 2020 and 2019

Three Months Ended September 30, 2020 and 2019

The following is a summary of revenue by product type:

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands)

(in percentage)

Three Months Ended September 30,

(in thousands)

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Packaging and testing services

Total revenue was $106.9 million for the three months ended March 31, 2020 , a decrease of $2.2 million , or 2.0% , as compared to $109.1 million for the same quarter last year.

The decrease was primarily due to a decrease of $1.9 million in sales of power IC products and a decrease of $ 0.3 million in revenue of packaging and testing services, primarily as a result of reduction of customer demand caused by the global COVID-19 pandemic and related economic impact.

The decrease in power discrete and power IC product sales was primarily due to a 8.5% decrease in unit shipments, partially offset by a 7.4% increase in average selling price as compared to the same quarter last year due to a shift in product mix.

The decrease in revenue of packaging and testing services for the three months ended March 31, 2020 as compared to the same quarter last year was primarily due to decreased demand.

Total revenue was $342.5 million for the nine months ended March 31, 2020, an increase of $3.5 million , or 1.0% , as compared to $339.1 million for the same period last year.

The increase was primarily due to an increase of $16.5 million in sales of power discrete, partially offset by a decrease of $10.4 million in sales of power IC sales products.

The net increase in power discrete and power IC product sales was primarily due to a 11.8% increase in average selling price as compared to the same period of last year mainly due to a shift in product mix, partially offset by a 8.9% decrease in unit shipments.

The decrease in revenue of packaging and testing services for the nine months ended March 31, 2020 as compared to the same period last year was primarily due to decreased capacity to provide these services externally.

Total revenue was $151.6 million for the three months ended September 30, 2020 , an increase of $33.7 million , or 28.6% , as compared to $117.8 million for the same quarter last year.

The increase was primarily due to an increase of $18.8 million and $13.7 million in sales of power discrete products and sales of power IC products, respectively.

The increase in power discrete and power IC product sales was primarily due to a 39.7% increase in unit shipments, partially offset by an 8.4% decrease in average selling price as compared to same quarter last year due to a shift in product mix.

The increase in revenue of packaging and testing services for the three months ended September 30, 2020, as compared to same quarter last year, was primarily due to increased demand.

Cost of goods sold and gross profit

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands)

(in percentage)

Three Months Ended September 30,

(in thousands)

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Percentage of revenue

Cost of goods sold was $84.4 million for the three months ended March 31, 2020 , an increase of $1.0 million , or 1.1% , as compared to $83.4 million for the same quarter last year.

The increase was primarily due to the limited mass production in our Chongqing joint venture.

Gross margin decreased by 2.5 percentage points to 21.0% for the three months ended March 31, 2020 as compared to 23.5% for the same quarter last year.

The decrease in gross margin was primarily as a result of low capacity utilization due to the commencement of limited mass production in our Chongqing joint venture during the three months ended March 31, 2020 .

Cost of goods sold was $268.7 million for the nine months ended March 31, 2020 , an increase of $17.4 million , or 6.9% , as compared to $251.3 million for the same period last year.

The increase was primarily due to limited mass production in our Chongqing joint venture and the 1.0% increase of revenue.

Gross margin decreased by 4.4 percentage points to 21.5% for the nine months ended March 31, 2020 as compared to 25.9% for the same period last year.

The decrease in gross margin was primarily as of result of low capacity utilization due to the commencement of limited mass production in our Chongqing joint venture during the nine months ended March 31, 2020 .

Cost of goods sold was $109.0 million for the three months ended September 30, 2020 , an increase of $18.2 million , or 20.0% , as compared to $90.9 million for the same quarter last year.

The increase was primarily due to 28.6% increase in revenue.

Gross margin increased by 5.2 percentage points to 28.1% for the three months ended September 30, 2020 , as compared to 22.9% for the same quarter last year.

The increase in gross margin was primarily due to a reduction of production ramp-up costs in our JV Company during the three months ended September 30, 2020 .

Research and development expenses

Three Months Ended March 31,

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Research and development

Research and development expenses were $13.6 million for the three months ended March 31, 2020 , an increase of $2.2 million , or 18.8% , as compared to $11.4 million for the same quarter last year.

The increase was primarily attributable to a $0.9 million increase in employee compensation and benefit expense mainly due to higher bonus and annual merit increase, a $0.8 million in increase in professional services expense as a result of higher consulting fees, and a $0.5 million increase in share-based compensation expense due to an increase in stock awards canceled during the September 2019 quarter.

Research and development expenses were $38.1 million for the nine months ended March 31, 2020 , an increase of $2.7 million , or 7.6% , as compared to $35.4 million for the same period last year.

The increase was primarily attributable to a $0.5 million increase in employee compensation and benefit expense mainly due to annual merit increase, partially offset by lower bonus accrual, a $1.3 million in increase in professional services expense as a result of higher consulting fees, a $0.7 million increase in depreciation expenses, and a $0.1 million increase in share-based compensation expense due to more grants in stock awards.

Research and development expenses were $14.7 million for the three months ended September 30, 2020 , an increase of $2.3 million , or 18.8% , as compared to $12.4 million for the same quarter last year.

The increase was primarily attributable to a $0.6 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $0.8 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.3 million increase in professional services expense as a result of higher consulting fees.

partially offset by lower recruiting fees, as well as a $0.6 million increase in share-based compensation expense due to an increase in stock awards granted during the current quarter.

Selling, general and administrative expenses

Three Months Ended March 31,

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2 unchanged sentences

Selling, general and administrative

Selling, general and administrative expenses were $16.9 million for the three months ended March 31, 2020 , a decrease of $1.0 million , or 5.8% , as compared to $17.9 million for the same quarter last year.

The decrease was primarily due to the commencement of limited mass production at the 12-inch fab facility and continued ramping up the production of assembly and testing during the current quarter in the JV Company, resulting in significantly lower pre-production costs including a $2.7 million decrease in employee compensation and benefits expense and other costs.

In addition, there was a $0.5 million decrease in share-based compensation expense due to an increase in stock awards canceled and $0.3 million of gain on disposal of property and equipment.

The net decrease was partially offset by a $0.2 million increase in depreciation expenses and $2.4 million increase in legal expenses primarily due to government investigation.

Selling, general and administrative expenses were $47.7 million for the nine months ended March 31, 2020 , a decrease of $10.7 million , or 18.3% , as compared to $58.4 million for the same period last year.

The decrease was primarily due to the commencement of limited mass production at the 12-inch fab facility and continued ramping up the production of assembly and testing during the current period in the JV Company, resulting in significantly lower pre-production costs including a $11.1 million decrease in employee compensation and benefits expense and other costs.

In addition, there was a $2.6 million decrease in share-based compensation expense due to an increase in stock awards canceled and $0.2 million of gain on disposal of property and equipment.

The net decrease was partially offset by a $0.8 million increase in depreciation expenses and $2.7 million increase in legal expenses primarily due to government investigation.

Impairment of privately-held investment

Three Months Ended March 31,

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Impairment of privately-held investment

During the quarter of March 31, 2020, we recorded an other-than temporary impairment charge for our investment of $0.6 million in a privately-held start-up company.

As of March 31, 2020, we have $0.1 million of privately-held investment.

Selling, general and administrative expenses were $17.5 million for the three months ended September 30, 2020 , an increase of $2.3 million , or 15.3% , as compared to $15.2 million for the same quarter last year.

The increase was primarily attributable to a $1.6 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses.

The increase was also attributable a $1.2 million increase in legal expenses related to the government investigation.

These increases were partially offset by a $0.4 million decrease in employee business expenses due to decreased travel expenses as a result of the COVID-19 pandemic.

Interest expense and other income (loss), net

Three Months Ended March 31,

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Interest expense was primarily related to bank borrowings.

The decrease in interest expenses during the three and nine months ended March 31, 2020 as compared to the same period last year was primarily due to an interest refund from the Chinese government in the JV Company, partially offset by higher interest expense as a result of an increase in bank borrowings.

The increase in interest expenses during the three months ended September 30, 2020 as compared to the same period last year was primarily due to an increase in bank borrowings, partially offset by a $2.7 million interest refund from the Chinese government in the JV Company in the same period last year.

Interest income and others were primarily related to interest earned from cash and cash equivalents, as well as foreign exchange gains (losses).

The increase in interest income and others, net during the three and nine months ended March 31, 2020 as compared to the same quarter last year was primarily due to lower foreign currency exchange losses as a result of the appreciation of USD against RMB.

The decrease in interest income and others, net during the three months ended September 30, 2020 as compared to the same quarter last year was primarily due to higher foreign currency exchange gains as a result of the depreciation of USD against RMB.

Income tax expense

Three Months Ended March 31,

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1 unchanged sentence

(in percentage)

Income tax expense (benefit)

For the three months ended March 31, 2020 , the Company recognized income tax benefit of approximately $1.0 million , compared to income tax expense of $0.6 million for the three months ended March 31, 2019 .

The income tax benefit of $1.0 million for the three months ended March 31, 2020 included a $1.3 million discrete tax benefit, $1.1 million benefit of related to remeasuring the tax benefit of net operating losses that can be carried back to prior years following the passage of the U.S.

CARES Act, and $0.2 million related to primarily a prior year reserve release.

The tax expense of $0.6 million for the three months ended March 31, 2019 included a $0.2 million discrete tax benefit principally related to a prior year reserve release.

Excluding the discrete income tax items, the effective tax rate for the three months ended March 31, 2020 and 2019 was (2.3)% and (14.8)%, respectively.

The changes in the tax expense between the periods resulted primarily from the discrete tax benefit resulting from the tax law changes resulting from the CARES Act as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.

For the nine months ended March 31, 2020 , the Company recognized an income tax benefit of approximately $0.04 million , compared to income tax expense of $1.9 million for the nine months ended March 31, 2019.

The tax benefit of $0.04 million for the nine months ended March 31, 2020 included a $1.3 million discrete tax benefit, a $1.1 million of which related to remeasuring the tax benefit of net operating losses that can be carried back to prior years following the passage of the U.S.

CARES Act, and $0.2 million of which primarily related to a prior year reserve release.

The tax expense of $1.9 million for the nine months ended March 31, 2019 included a $0.1 million discrete tax benefit principally related to a prior year reserve release.

Excluding the discrete income tax items, the effective tax rate for the nine months ended March 31, 2020 and 2019 was (7.4)% and (19.2)%, respectively.

Income tax expense

For the three months ended September 30, 2020 , the Company recognized income tax expense of approximately $1.0 million , compared to income tax expense of $0.4 million for the three months ended September 30, 2019 .

The income tax expense of $1.0 million for the three months ended September 30, 2020 included a $0.03 million discrete tax benefit.

The income tax expense of $0.4 million for the three months ended September 30, 2019 included a $0.02 million discrete tax expense.

Excluding the discrete income tax items, the effective tax rate for the three months ended September 30, 2020 and 2019 was 10.7% and (27.3)%, respectively.

The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $9.8 million for the three months ended September 30, 2020 vs.

a pretax book loss of $1.4 million for the three months ended September 30, 2019.

Liquidity and Capital Resources

Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business.

To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loan, financing lease and other debt agreements.

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 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 local one-year loan prime rate ("LPR") plus 1.3% .

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 RMB 100 million (approximately $14.3 million based on the currency exchange rate between

Dollar on April 15, 2020).

In April 2020, the JV Company borrowed RMB 20 million , or $2.8 million based on the currency exchange rate between RMB and U.S.

Dollar on April 16, 2020, at a fixed interest rate of 5.1375% per annum.

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

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

To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.

In October 2019, our 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 was 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.

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

We 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 March 31, 2020 , there was no outstanding balance under the loan.

On September 23, 2019, the JV Company entered into a short-term 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, with either RMB or USD.

Interest payments with the entire principal are 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 under this loan, respectively.

Interest payments with the entire principal were due on April 7, 2020 and May 3, 2020.

As of March 31, 2020 , the outstanding balance under the loan was $7.1 million .

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 the currency exchange rate between RMB and U.S.

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

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

As of March 31, 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 than January 21, 2021.

As of March 31, 2020 , the outstanding balance under the loan was $14.1 million.

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.

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

On November 16, 2018, our 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.

We 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 March 31, 2020 , there was no outstanding balance under the line of credit.

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.

On September 30, 2020 , there was no outstanding balance under the line of credit and the line of credit expired.

On August 9, 2019, one of our 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 LIBOR plus 1.75% per annum.

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

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.

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

We are the guarantor for this agreement.

We are 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.

The Borrower was in compliance with these covenants as of March 31, 2020 .

During the three months ended March 31, 2020, the Company borrowed $8.0 million and repaid this amount in full.

As of March 31, 2020 , there was no outstanding balance and the Company had unused credit of approximately $30.0 million .

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 The Export-Import Bank of China (the “Lenders”).

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

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

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

During the three months ended September 30, 2020, the Borrower borrowed $29.7 million and repaid this amount in full.

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

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

We were in compliance with these covenants as of September 30, 2020 .

As of September 30, 2020 , the outstanding balance of the term loan was $15.7 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 us.

The credit agreement has a five -year term and matures on August 15, 2022.

In January 2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million and $16.7 million , respectively.

Beginning in October 2018, Jireh was 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 LIBOR as defined in the credit agreement, plus a 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 us to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

We were in compliance with these covenants as of September 30, 2020 .

As of September 30, 2020 , the outstanding balance of the term loan was $14.9 million .

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed us to repurchase our 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 our 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.

We did not repurchase any shares pursuant to the Repurchase Plan during the three months ended September 30, 2020 .

Since the inception of the program, we 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.

As of September 30, 2020 , of the 6,784,648 repurchased shares, 146,928 shares with a weighted average repurchase price of $10.30 per share, were reissued at an average price of $5.25 per share pursuant to option exercises and vested restricted share units.

We had $13.4 million remained available under the Repurchase Program as of September 30, 2020 .

We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months.

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing.

The sale of additional equity securities could result in dilution to our shareholders.

The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations.

We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

JV Company Financing Transactions

From time to time the JV Company entered into financing and loan agreements with banks and other third parties to fund capital expenditures and other operational expenses in connection with the constructions and ramp-up of the manufacturing facility in Chongqing.

The JV Company incurs debt through its own financing agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

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.

1 unchanged sentence

The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”).

As of March 31, 2020 , the outstanding balance of the Lease Financing was approximately $45.8 million based on the currency exchange rate as of March 31, 2020 .

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 is required to make consecutive semi-annual payments of principal until December 8, 2024.

The interest is accrued based on the LIBOR rate plus 280BP.

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

As of March 31, 2020 , the outstanding balance of the loan was $24.0 million.

The proceeds from the Lease Financing were 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 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 September 30, 2020 , the outstanding balance of the Lease Financing was approximately $39.8 million based on the currency exchange rate as of September 30, 2020 .

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 than January 21, 2021.

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

On September 23, 2019, the JV Company entered into a short-term 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 are due no later than 90 days from each borrowing date.

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

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.

7 unchanged sentences

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

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

In December 2019, RMB 3.0 million was repaid.

As of March 31, 2020 , the outstanding balance of the loan was RMB 197 million (equivalent of $27.8 million based on the currency exchange rate as of March 31, 2020 ).

On May 1, 2018, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount of $17.8 million.

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

The loan accrues interest based on a fixed rate of 5.04% based on the outstanding balance of the loan.

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

We were in compliance with these covenants as of March 31, 2020 .

As of March 31, 2020 , the outstanding balance of the term loan was $16.2 million .

On August 15, 2017, our Oregon subsidiary, Jireh Semiconductor Incorporated (“Jireh”), entered into a credit agreement with a financial institution (the “Bank”) that provides 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 the loan in the amount of $13.2 million and $16.7 million, respectively.

The loan accrues interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement, plus a 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, including certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

We were in compliance with these covenants as of March 31, 2020 .

As of March 31, 2020 , the outstanding balance of the term loan was $18.6 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, availability of our common shares and the amount of available cash reserve.

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.

There is no guarantee that such repurchases under the Repurchase Program will enhance the value of our shares.

We did not repurchase any shares during the nine months ended March 31, 2020 .

Since the inception of the prior repurchase program in 2010, we repurchased an aggregate of 6,784,648 shares from the open market for a total cost of $67.3 million , at an average price of $9.92 per share, excluding fees and related expenses.

As of March 31, 2020 , 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 pursuant to option exercises and vested restricted share units.

We had $13.4 million remained available under the Repurchase Program as of March 31, 2020 .

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing.

The sale of additional equity securities could result in dilution to our shareholders.

The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations.

We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

Cash and cash equivalents

As of March 31, 2020 and June 30, 2019 , we had $114.5 million and $124.3 million of cash, cash equivalents and restricted cash, respectively.

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 September 30, 2020 , the outstanding balance of the loan was 194 million RMB (equivalent of $28.5 million based on the currency exchange rate as of September 30, 2020 ).

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 March 21 and September 21 each year.

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

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow 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.

During the three months ended September 30, 2020, the JV Company repaid $9.0 million and borrowed $11.3 million at a fixed interest rate of 2.7% per annum under the accounts receivable collateralized loan.

As of September 30, 2020, the total outstanding balance under the loan was $14.2 million.

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

Dollar on April 26, 2020).

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

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

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

The JV Company drew down RMB 250 million (approximately $35.3 million based on the currency exchange rate between RMB and U.S.

Dollar on June 30, 2020) in April 2020.

As of September 30, 2020, the outstanding balance of the loan was $36.7 million .

Cash, cash equivalents and restricted cash

As of September 30, 2020 and June 30, 2020 , we had $159.0 million and $162.7 million of cash, cash equivalents and restricted cash, respectively.

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

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The following table shows our cash flows from operating, investing and financing activities for the periods indicated:

Nine Months Ended March 31,

Three Months Ended September 30,

(in thousands)

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash flows from operating activities

Net cash used in operating activities of $22.0 million for the nine months ended March 31, 2020 resulted primarily from net loss of $16.3 million and net changes in assets and liabilities of $3.4 million , partially offset by non-cash expenses of $41.7 million .

The non-cash expenses of $41.7 million primarily included $33.5 million of depreciation and amortization expenses, $7.7 million of share-based compensation expense, $0.6 million of impairment of our investment in a privately-held start-up company and $0.2 million of gain on disposal of property and equipment.

The net changes in assets and liabilities of $3.4 million were primarily due to a $14.7 million increase in inventories, a $3.4 million decrease in accounts payable due to timing of payment, and $1.3 million decrease in income taxes payable, partially offset by a $6.8 million decrease in accounts receivable from timing of billings and collection of payments as well as lower revenue in the current quarter, a $2.7 million decrease in other current and long term assets due to decrease in advance payments to vendors, and a $6.3 million increase in accrued and other liabilities.

Net cash provided by operating activities of $23.2 million for the nine months ended March 31, 2019 resulted primarily from net loss of $12.4 million and non-cash expenses of $35.1 million as well as net changes in assets and liabilities of $0.5 million.

The non-cash expenses of $35.1 million primarily included a $24.2 million of depreciation and amortization expenses, a $10.7 million of share-based compensation expense and $0.3 million of deferred income taxes.

The net changes in assets and liabilities of $0.5 million were primarily due to a $5.1 million decrease in accounts receivable from timing of billings and collection of payments as well as lower revenue in current quarter, a $6.0 million increase in accounts payable due to timing of payments and $9.7 million increase in accrued and other liabilities, partially offset by a $17.7 million increase in inventories, a $2.4 million increase in other current and long term assets due to increase in advance payments to vendors, and a $0.2 million decrease in income taxes payable.

Net cash provided by operating activities of $9.8 million for the three months ended September 30, 2020 resulted primarily from net income of $8.8 million and non-cash expenses of $15.4 million , partially offset by net changes in assets and liabilities using net cash of $14.3 million .

The non-cash expenses of $15.4 million primarily included $12.5 million of depreciation and amortization expenses and $2.9 million of share-based compensation expense.

The net changes in assets and liabilities using cash of $14.3 million were primarily due to a $13.0 million increase in accounts receivable as a result of better-than-expected revenue, a $2.2 million increase in inventories due to a continued ramp of the JV Company, and a $1.0 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $0.8 million decrease in accrued and other liabilities, partially offset by a $1.9 million increase in accounts payable due to timing of payments, and a $0.7 million increase in income taxes payable.

Net cash used in operating activities of $1.2 million for the three months ended September 30, 2019 resulted primarily from net loss of $1.9 million and net changes in assets and liabilities of $12.6 million, partially offset by non-cash expenses of $13.3 million.

The non-cash expenses of $13.3 million primarily included $10.9 million of depreciation and amortization expenses and $2.4 million of share-based compensation expense.

The net changes in assets and liabilities of $12.6 million were primarily due to a $5.8 million increase in inventories and a $15.0 million increase in accounts receivable from a one day delay of $9.2 million receivable payment from one of our major distributors due to the bank shut down on September 30, 2019 due to Typhoon Mitag in Taiwan, as well as increased billings in the current quarter as compared to the prior quarter, partially offset by a $3.8 million decrease in other current and long term assets due to decrease in advance payments to vendors, $0.8 million increase in accounts payable due to timing of payment, and a $3.7 million increase in accrued and other liabilities.

Cash flows from investing activities

Net cash used in investing activities of $47.7 million for the nine months ended March 31, 2020 was primarily attributable to $49.2 million purchases of property and equipment, including $15.8 million purchased by the JV Company, partially offset by $1.3 million government grant related to equipment in the JV Company and $0.3 million of proceeds from sale of property and equipment.

Net cash used in investing activities of $90.3 million for the nine months ended March 31, 2019 was primarily attributable to $89.9 million purchases of property and equipment, including $58.5 million purchased by the JV Company and $0.4 million in purchase of intangible asset.

Net cash used in investing activities of $11.3 million for the three months ended September 30, 2020 was primarily attributable to $11.3 million purchases of property and equipment, including $3.4 million purchased by the JV Company.

Net cash used in investing activities of $15.8 million for the three months ended September 30, 2019 was primarily attributable to $15.8 million purchases of property and equipment, including $7.5 million purchased by the JV Company.

Cash flows from financing activities

Net cash provided by financing activities of $16.5 million for the nine months ended March 31, 2020 was primarily attributable to $49.1 million proceeds from borrowings and $1.7 million of proceeds from exercise of stock options and ESPP, partially offset by $25.8 million in repayments of borrowings, $7.2 million in payment of finance lease obligations, and $1.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

Net cash provided by financing activities of $77.5 million for the nine months ended March 31, 2019 was primarily attributable to $24.0 million proceeds invested by the noncontrolling interest in the JV Company, $67.5 million proceeds from borrowings, and a $1.3 million of proceeds from exercise of stock options and ESPP, partially offset by $1.5 million for repurchase of our common shares under the Repurchase Program, $2.4 million in payment of capital lease obligations, $9.4 million in repayments of borrowings, and $1.9 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

Net cash used in financing activities of $4.2 million for the three months ended September 30, 2020 was primarily attributable to $11.1 million in repayments of borrowings, $4.0 million in payment of finance lease obligations, and $0.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $11.3 million proceeds from borrowings.

Net cash used in financing activities of $1.1 million for the three months ended September 30, 2019 was primarily attributable to $2.1 million in repayments of borrowings, $1.7 million in payment of finance lease obligations, and $0.1 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $2.8 million proceeds from borrowings.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.

Off-Balance Sheet Arrangements

As of March 31, 2020 , we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

As of September 30, 2020 , we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

Contractual Obligations

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended June 30, 2019 , filed with the SEC on August 23, 2019 .

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis