What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-08-29 compared with 2022-09-20 · 204 added, 194 removed, 399 unchanged (50% of the section changed)

2 unchanged sentences

Our consolidated financial statements contained in this annual report are prepared in accordance with U.S.

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

Our portfolio of power semiconductors includes approximately 2,500 products, and has grown significantly with the introduction of over 130 new products in the fiscal year ended June 30, 2022, and over 160 new products in each of the fiscal year ended June 30, 2020 and 2019, respectively.

We are a designer, developer and global supplier of a broad range of power discretes, ICs, modules and digital power solutions including a wide portfolio of Power MOSFET, SiC, IGBT,IPM, TVS, Gate Drivers, Power IC, and Digital Power products.

Our portfolio of power semiconductors includes approximately 2,600 products, and has grown significantly with the introduction of over 60 new products in the fiscal year ended June 30, 2023, and over 130 and 160 new products in the fiscal year ended June 30, 2022 and 2021, respectively.

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.

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On March 29, 2016, we formed the JV Company with the Chongqing Funds, for the purpose of constructing and operating the Chongqing Fab in the LiangJiang New Area of Chongqing, China.

The Chongqing Fab is being built in phases.

The Chongqing Fab was being built in phases.

As of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company.

The JV Company was accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021.

Effective December 1, 2021, we entered into a share transfer agreement ("STA") with a third-party investor (the "Investor"), pursuant to which we sold to the Investor approximately 2.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 108 million or approximately $16.9 million.

The STA contained customary representations, warranties and covenants.

The Transaction was closed on December 2, 2021.

As a result of the Transaction, as of the Closing Date, our equity interest in the JV Company decreased from 50.9% to 48.8%.

Also, our right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction.

As of December 2, 2021, we no longer have a controlling financial interest in the JV Company under generally accepted accounting principles.

Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain or represent, a majority of the subsidiary’s board of directors.

All of these loss of control factors were present for us as of December 2, 2021.

Accordingly, since December 2, 2021, we have deconsolidated the JV Company in our Consolidated Financial Statements and accounted for our investment in the JV Company using the equity method of accounting.

On December 24, 2021, we entered into a share transfer agreement with another third-party investor, pursuant to which we sold to this investor 1.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 60 million or approximately $9.4 million based on the currency exchange rate as of December 24, 2021.

In addition, on December 30, 2021, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash.

As a result, we owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to the Financing Agreement between the JV Company and certain New Investors.

Under the Financing Agreement, the New Investors purchased newly issued equity interest of the JV Company for a total purchase price of RMB 509 million (or approximately $80 million based on the currency

exchange rate as of January 26, 2022) (the "Investment").

Following the closing of the Investment, the percentage of outstanding JV Company equity interest beneficially owned by the Company was reduced to 42.2%.

On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd.

(“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH” and, together with AOS SH, the “Sellers”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement ("STA") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”).

The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%.

Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction.

As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

On December 24, 2021, we entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by us in the JV Company.

In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company in exchange for cash.

As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the “Investment Agreement”) between the JV Company and certain third-party investors (the “New Investors”).

Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82% of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”).

Following the closing of the January 26, 2022 Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2% at both June 30, 2022 and 2023.

We reduced our ownership of the JV Company to below 50% to increase the flexibility of the JV Company to raise capital to fund its future expansion.

Following the Transaction and the successful ramp up to its Phase I target run rate in the September quarter of 2021, as planned, the JV Company commenced an effort to raise up to $200 million of additional capital, including an $80 million round that was completed on January 26, 2022 through private funding for its Phase II expansion.

In addition to immediate private funding rounds, the JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange.

The Transaction assists the JV Company in meeting certain regulatory listing requirements.

The JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange.

The reduction of our ownership assists the JV Company in meeting certain regulatory listing requirements.

A potential STAR Market listing may take several years to consummate and there is no guarantee that such listing by the JV Company will be successful or will be completed in a timely manner, or at all.

In addition, the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products.

On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company provided us a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain goal.

During the fiscal year ended June 30, 2022, 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, and power IC product portfolio expanded significantly.

Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to the achievement of our record high revenue of $777.6 million for the fiscal year 2022, a 18.4% growth compared to the last fiscal year.

On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company provided us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level.

Impact of COVID-19 Pandemic to Our Business

Our business operations have been 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.

and countries throughout the Asia Pacific region have imposed various restrictions on commercial activities, resulting in business closures, work stoppages, labor shortage, disruptions to ports, vaccine mandates and other shipping infrastructure, border closures, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions and the growing trend to provide remote-working options by employers, we have experienced shifting market trends, including an increasing demand in markets for notebooks, personal computing ("PC"), gaming devices and other products.

While we have 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 if government authorities relax or terminate COVID-19 related restrictions and consumer behaviors change in response to the reopening of certain economic activities.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we also took proactive actions to adopt policies and protocols at our locations around the world, including social distancing guidelines, vaccine and testing protocols.

Since the start of the second quarter of calendar year 2021, there have been increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, and a gradual resumption of economic activities and consumer spending in our industries.

However, infection rates continued to fluctuate in various regions and new strains of the virus remain a risk, including a surge of COVID-19 cases and hospitalization due to the spread of Omicron variants in late 2021 and early 2022.

During the first half of calendar year 2022, COVID-19 cases and hospitalization rate continued to decline and governments in various jurisdictions, including the U.S.

and Europe, have lifted various restrictions and limitations on economic activities.

At the same time, however, new variants of COVID-19 continued to emerge and contributed to recent rise of infection rates in various jurisdictions in which we operate, including China and U.S.

Furthermore, we may be subject to the ongoing global impacts resulting from the pandemic, including disruption of the product supply chains, shortages of semiconductor components, and delays in shipments, product development, and product launches and rising inflation rates.

In April 2022, the operations of our two packaging and testing facilities in Shanghai, China were suspended due to a strict lockdown of the city imposed by the local government in response to surging COVID cases.

Our facilities in Shanghai were required to shut down and production was halted beginning in early April.

Transportation suspension in and out of Shanghai also interrupted the shipping of raw materials and finished parts to and from our facilities.

We received permission to reopen our facilities partially in early May.

We gradually ramped up production at these facilities in May and returned to normal operation in June 2022.

The suspension of our Shanghai facilities, and the subsequent partial resumption of production,

reduced our ability to complete orders from our customers in a timely manner, which adversely affected our revenue and results of operation for the three months ended June 30, 2022.

We cannot guarantee that the Shanghai government will not impose similar restrictions and lockdown in the future, and any such restrictions and lockdown will adversely affect our operations and financial performance.

The full extent of the longer-term impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines;

the spread of new variants of COVID-19;

the continued and renewed imposition of protective public safety measures, including local and regional lockdown and quarantines;

the disruption of global supply chain;

and the impact of the pandemic on the global economy and demand for consumer products.

Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our business operations and financial expenditures in response to continued uncertainty.

During the first half of calendar year 2022, our operations were negatively impacted by China’s zero-Covid policy that resulted in factory shutdowns and supply chain shortages, including the temporary suspension of our factory operations in Shanghai from April to June 2022.

In December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies, including the relaxation of testing requirements and travel restrictions.

In May 2023, World Health Organization (WHO) declared an end to the COVID-19 pandemic.

As of June 30, 2023, our business operations and financial performance were no longer affected by the pandemic.

Other Factors Affecting Our Performance

In addition to the COVID-19 pandemic and related events as described above, our performance is affected by several key factors, including the following:

The global, regional economic and PC market conditions :

Because our products primarily serve consumer electronic applications, any significant change in global and regional economic conditions could materially affect our revenue and results of operations.

A significant amount of our revenue is derived from sales of products in the PC markets, such as notebooks, motherboards and notebook battery packs, therefore a substantial decline or downturn in the PC market could have a material adverse effect on our revenue and results of operations.

Because our products primarily serve consumer electronic applications, any significant changes in global and regional economic conditions could materially affect our revenue and results of operations.

A significant amount of our revenue is derived from sales of products in the PC markets, such as notebooks, motherboards and notebook battery packs.

Therefore, a substantial decline in the PC market could have a material adverse effect on our revenue and results of operations.

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.

However, we recently have experienced a significant increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behaviors.

We cannot predict whether and how long this trend will continue due to the uncertainty and unpredictability of COVID-19 pandemic.

Since mid-2022, we have experienced an industry-wide decline of customer demand for semiconductor products.

This decline has negatively affected our recent financial performance in 2023.

While we expect some continued recovery of our revenue in the September quarter of 2023, there is no guarantee that it will occur.

A prolonged and extended downturn in the semiconductor industry would have a substantial impact on our operating results and financial conditions.

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.

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If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected.

For example, in April 2022, the operations of our packaging and testing facilities in Shanghai, China were suspended due to a strict lockdown of the city imposed by the local government in response to surging COVID cases.

The facilities were required to be shut down and production was halted since early April.

Transportation suspension in and out of Shanghai also interrupted the shipping of raw materials and finished parts to and from our facilities.

We received permission to reopen our facilities partially in early May.

We gradually ramped up production at these facilities in May and returned to normal operation in June 2022.

However, there is no guarantee that additional restrictions and lockdown will not be reimposed by the government, which is outside of our control, and any extension of the lockdown will continue to have a negative impact on our results of operation and financial condition.

In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand of our customers.

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While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

In addition, we recently commenced a plan to enhance the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.

The expansion is expected to be completed in the fiscal quarter ending March 31, 2023.

In addition, we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.

We also rely substantially on the JV Company to provide foundry capacity to manufacture our products, therefore it is critical that we maintain continuous access to such capacity, which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company’s operation.

As a result of sales of our JV Company equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our

equity interest in the JV Company was reduced to 42.2%, which reduced our control and influence over the JV Company.

While we continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity, and we are currently negotiating a foundry agreement for the JV Company to provide guarantee level of capacity, the JV Company may take actions or make decisions that adversely impact our ability to access required capacity, and our lack of control and influence may prevent us from eliminating or mitigating such risk.

As a result of sales of our JV Company equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our equity interest in the JV Company was reduced to 42.2%, which reduced our control and influence over the JV Company.

We continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity.

On July 12, 2022, we entered into an agreement with the JV Company, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level.

Because we continue to rely on the JV Company to provide us with manufacturing capacity, if the JV Company take actions or make decisions that prevents us from accessing required capacity, our operations may be adversely affected.

Erosion and fluctuation of average selling price :

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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 certain 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.

In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million and 6.8 million paid to us in the March and July 2023, with the remaining amount to be paid upon the achievement of

specified engineering services and product milestones.

The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services.

We use the input method to measure progression of the transfer of services.

We also entered an accompanying supply agreement to provide limited wafer supply to the customer.

Cost of goods sold

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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 shift 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.

tax laws, including, but not limited to, (1) a reduction in the corporate tax

rate from 35% to 21%, (2) a shift 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 Company is not currently subject to the Base Erosion and Anti-Abuse (BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S.

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Currently, we are evaluating the impact of the Chips Act to us.

“The Inflation Reduction Act”, Enacted August 16, 2022

In August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA).

The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion.

The CAMT is effective for tax years beginning after 31 December 2022.

The CAMT is currently not applicable to the Company.

Equity method investment income/loss from equity investee

We use the equity method of accounting when we have the ability to exercise significant influence, but we do not have control, as determined in accordance with generally accepted accounting principles, over the operating and financial policies of

Effective December 2, 2021, we reduced our equity interest in the JV Company below 50% of outstanding equity ownership and experienced a loss of control of the JV Company.

As a result, we record our investment under equity method of accounting.

Since we are unable to obtain accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag.

We record our interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Operations.

Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor or investee.

Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them.

Equity method goodwill is not amortized or tested for impairment.

Instead the total equity method investment balance, including equity method goodwill, is tested for impairment.

We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Operations.

Operating results

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Selling, general and administrative (1) 88,861 95,259 77,514 12.8 % 12.3 % 11.8 %

Impairment of privately-held investment — — 600 — % — % 0.1 %

Total operating expenses 177,007 166,518 140,467 25.6 % 21.5 % 21.4 %

Operating income (loss) 102,038 64,076 (13,937) 13.0 % 9.7 % (2.9) %

Operating income 22,529 102,038 64,076 3.3 % 13.0 % 9.7 %

Other income (loss), net (1,730) 999 2,456 (0.3) % 0.1 % 0.4 %

Interest expenses, net (3,920) (6,308) (2,743) (0.5) % (1.0) % (0.6) %

Interest expense, net (1,087) (3,920) (6,308) (0.2) % (0.5) % (1.0) %

Gain on deconsolidation of the JV Company — 399,093 — — % 51.3 % — %

Loss on changes of equity interest in the JV Company, net — (3,140) — — % (0.4) % — %

Net income (loss) before income taxes 495,070 60,224 (17,909) 63.5 % 9.1 % (3.8) %

Net income before income taxes 19,712 495,070 60,224 2.8 % 63.5 % 9.1 %

Income tax expense 5,937 39,258 3,935 0.9 % 5.0 % 0.6 %

Net income (loss) before loss from equity method investment 455,812 56,289 (18,257) 58.5 % 8.5 % (3.9) %

Net income before loss from equity method investment 13,775 455,812 56,289 1.9 % 58.5 % 8.5 %

Equity method investment loss from equity investee (1,411) (2,629) — (0.1) % (0.3) % — %

Net income (loss) 453,183 56,289 (18,257) 58.2 % 8.5 % (3.9) %

Net income 12,364 453,183 56,289 1.8 % 58.2 % 8.5 %

Net income (loss) attributable to noncontrolling interest — 20 (1,827) 0.0 % 0.0 % (0.3) %

Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ 453,163 $ 58,116 $ (6,596) 58.2 % 8.8 % (1.4) %

Net income attributable to Alpha and Omega Semiconductor Limited $ 12,364 $ 453,163 $ 58,116 1.8 % 58.2 % 8.8 %

(1) Includes share-based compensation expense as follows:

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Packaging and testing services 3,979 11,535 12,458 (7,556) (65.5) % (923) (7.4) %

License and development services 9,927 — — 9,927 100.0 % — — %

$ 691,321 $ 777,552 $ 656,902 $ (86,231) (11.1) % $ 120,650 18.4 %

Year Ended June 30, Change

2023 2022 2021 2023 2022

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Computing $ 243,286 $ 345,855 $ 279,150 $ (102,569) (29.7) % $ 66,705 23.9 %

Consumer 180,753 160,808 145,346 19,945 12.4 % 15,462 10.6 %

Communication 103,218 110,356 97,395 (7,138) (6.5) % 12,961 13.3 %

Power Supply and Industrial 150,158 149,000 122,553 1,158 0.8 % 26,447 21.6 %

Packaging and testing services 3,979 11,533 12,458 (7,554) (65.5) % (925) (7.4) %

License and development services 9,927 — — 9,927 100.0 % — — %

$ 691,321 $ 777,552 $ 656,902 $ (86,231) (11.1) % $ 120,650 18.4 %

Fiscal 2023 vs 2022

Total revenue was $777.6 million for fiscal year 2022, an increase of $120.7 million, or 18.4%, as compared to $656.9 million for fiscal year 2021.

The increase was primarily due to an increase of $62.4 million in sales of power discrete products and an increase of $59.2 million in sales of power IC products.

The increase in power discrete and power IC product sales was primarily due to a 21.0% increase in average selling price as compared to last fiscal year due to a shift in product mix, partially offset by a 2.1% decrease in unit shipments.

The decrease in revenue of packaging and testing services for the fiscal year 2022 as compared to last fiscal year was primarily due to decreased demand.

Total revenue was $691.3 million for fiscal year 2023, a decrease of $86.2 million, or 11.1%, as compared to $777.6 million for fiscal year 2022.

The decrease was primarily due to a decrease of $86.3 million and $2.3 million in sales of power discrete products and power IC products, respectively.

The decrease in power discrete and power IC product sales was primarily due to a 30.1% decrease in unit shipments, offset by a 26.9% increase in average selling price as compared to last fiscal year due to a shift in product mix.

The decrease in revenues was primarily driven by the significant decrease in the computing market, reflecting weaker demand for computers and inventory correction by our customers, in response to the industry-wide downturn in the semiconductor industry, partially offset by increased sales in the consumer markets, particularly in gaming products.

The decrease in revenue from packaging and testing services for the fiscal year 2023 as compared to last fiscal year was primarily due to decreased demand.

The increase in license and development services for the fiscal year 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services in February 2023.

During fiscal year 2023, we accelerated the development of new technology platforms which allowed us to introduce 19 medium and high voltage MOSFET products, targeting primarily the industrial markets and communication marketing, and 6 module products primarily for the consumer markets, as well as 4 low voltage MOSFET products primarily for the computing and communication markets.

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The increase was primarily due to an increase of $62.4 million in sales of power discrete products and an increase of $59.2 million in sales of power IC products.

The increase in power discrete and power IC product sales was primarily due to a 23.0% increase in unit shipments and a 14.5% increase in average selling price due to a shift in product mix as compared to last fiscal year.

The increase in revenue of packaging and testing services for the fiscal year 2021 as compared to last fiscal year was primarily due to increased demand.

The decrease in revenue of packaging and testing services for the fiscal year 2022 as compared to last fiscal year was primarily due to decreased demand.

Cost of goods sold and gross profit

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Fiscal 2023 vs 2022

Cost of goods sold was $509.0 million for fiscal year 2022, an increase of $56.6 million, or 12.5%, as compared to $452.4 million for fiscal year 2021.

The increase was primarily due to 18.4% increase in revenue.

Gross margin increased by 3.4 percentage points to 34.5% for the fiscal year 2022, as compared to 31.1% for the fiscal year 2021.

The increase in gross margin was primarily due to better product mix during the fiscal year ended June 30, 2022.

Cost of goods sold was $491.8 million for fiscal year 2023, a decrease of $17.2 million, or 3.4%, as compared to $509.0 million for fiscal year 2022.

The decrease was primarily due to 11.1% decrease in revenue.

Gross margin decreased by 5.6 percentage points to 28.9% for the fiscal year 2023, as compared to 34.5% for the fiscal year 2022.

The decrease in gross margin was primarily due to higher material costs and lower unit shipments during the fiscal year ended June 30, 2023.

We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions.

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Gross margin increased by 3.4 percentage points to 34.5% for the fiscal year 2022, as compared to 31.1% for the fiscal year 2021.

Our JV Company continued its ramp during the fiscal year 2021, which resulted in an increase in the capacity utilization and contributed to the increase in gross margin.

The increase in gross margin was primarily due to better product mix during the fiscal year ended June 30, 2022.

Research and development expenses

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Research and development expenses were $88.1 million for fiscal year 2023, an increase of $16.9 million, or 23.7%, as compared to $71.3 million for fiscal year 2022.

The increase was primarily attributable to a $6.8 million increase in employee compensation and benefit expense mainly due to higher bonus accrual, increased headcount and annual merit increase, a $1.7 million increase in share-based compensation expense due to an increase in stock awards granted, a $0.2 million increase in depreciation expenses, and a $0.2 million increase in professional fees, partially offset by a $0.8 million decrease in product prototyping engineering expense as a result of decreased engineering activities.

The increase was primarily attributable to a $3.9 million increase in employee compensation and benefit expense mainly due to increased headcount and higher medical insurance expenses, partially offset by lower vacation accrual and lower bonus accrual, a $2.4 million increase in share-based compensation expense due to an increase in stock awards granted, a $3.6 million increase in depreciation expenses, a $2.2 million increase in allocation, and a $4.8 million increase in product prototyping engineering expense as a result of increased engineering activities.

We continue to evaluate and invest resources in developing new technologies and products utilizing our own fabrication and packaging facilities.

We believe the investment in research and development are important to meet our strategic objectives.

We believe the investment in research and development is important to meet our strategic objectives.

Fiscal 2022 vs 2021

Research and development expenses were $71.3 million for fiscal year 2022, an increase of $8.3 million, or 13.2%, as compared to $63.0 million for fiscal year 2021.

The increase was primarily attributable to a $4.0 million increase in employee compensation and benefit expense mainly due to higher bonus accrual, a $4.2 million increase in product prototyping engineering expense as a result of increased engineering activities, a $2.5 million increase in share-based compensation expense due to higher stock awards price, and a $0.5 million increase in facility expenses as a result of higher office rental expenses and higher utility costs.

Selling, general and administrative expenses

4 unchanged sentences

Fiscal 2023 vs 2022

Selling, general and administrative expenses were $95.3 million for fiscal year 2022, an increase of $17.7 million, or 22.9%, as compared to $77.5 million for fiscal year 2021.

The increase was primarily attributable to a $8.6 million increase in employee compensation and benefits expenses mainly due to increased headcount, annual merit increase, higher bonus expenses and increased employee and business insurance expenses, as well as $10.9 million increase in share-based compensation expense due to increase in stock award granted, partially offset by a $2.2 million decrease in legal expense related to the government investigation.

Selling, general and administrative expenses were $88.9 million for fiscal year 2023, a decrease of $6.4 million, or 6.7%, as compared to $95.3 million for fiscal year 2022.

The decrease was primarily attributable to a $11.3 million decrease in employee compensation and benefits expenses mainly due to lower bonus expenses accrual and lower vacation accrual, partially offset by increased headcount, higher medical and business insurance expenses, as well as a $1.5 million decrease in cyber security incident, partially offset by a $3.1 million increase in share-based compensation expense due to an increase in stock award granted and the incremental expenses for one of our former officers' equity shares resulting from the modification, a $1.1 million increase in legal expenses, a $0.7 million increase in recruiting and consulting fees, a $1.2 million increase in allocation, and a $0.8 million increase in employee business expenses.

Fiscal 2022 vs 2021

Selling, general and administrative expenses were $95.3 million for fiscal year 2022, an increase of $17.7 million, or 22.9%, as compared to $77.5 million for fiscal year 2021.

The increase was primarily attributable to a $13.2 million increase in

employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses, as well as $2.2 million increase in share-based compensation expense due to higher stock rewards price.

The increase was partially offset by a $1.9 million decrease in legal expense related to the government investigation, and a $0.9 million decrease in business travel expenses as a result of the COVID-19 pandemic.

Impairment of privately-held investment

Year Ended June 30, Change

2022 2021 2020 2022 2021

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Impairment of privately-held investment $ — $ — $ 600 $ — — % $ (600) 100.0 %

During the fiscal year 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 June 30, 2022 and 2021, we have remaining a privately-held investment of $0.1 million.

Other income (loss), net

4 unchanged sentences

Other income (loss), net decreased by $2.7 million in fiscal year 2023 as compared to the last fiscal year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Other income (loss), net increased by $3.7 million in the fiscal year 2021 as compared to the fiscal year 2020 was primarily due to a decrease in foreign currency exchange loss as a result of the appreciation of RMB against USD.

Other income (loss), net decreased by $1.5 million in fiscal year 2022 as compared to the last fiscal year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Interest expense, net

4 unchanged sentences

Interest expense was primarily related to bank borrowings.

Interest expense decreased by $2.4 million in fiscal year 2022 as compared to the prior fiscal year primarily because of deconsolidation of the JV Company in December 2021.

Interest expense increased by $3.6 million in fiscal year 2021 as compared to the fiscal year 2020 primarily due to an increase in bank borrowings as well as to a reduction in the interest refund from the Chinese government to the JV Company.

Interest expense decreased by $2.8 million in fiscal year 2023 as compared to the prior fiscal year primarily due to a $3.6 million increase in interest income as a result of higher interest rate, offset by a $0.7 million increase in interest expense as a result of an increase in bank borrowings during the periods.

Interest expense decreased by $2.4 million in fiscal year 2022 as compared to the fiscal year 2021 primarily because of deconsolidation of the JV Company in December 2021.

Gain on deconsolidation of the JV Company and Gain/loss on changes of equity interest in the JV Company

5 unchanged sentences

We no longer have a controlling financial interest in the JV Company under generally accepted accounting principles.

other means such as having, or the ability to obtain, a majority of the subsidiary’s board of directors.

Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain, a majority of the subsidiary’s board of directors.

All of these loss of control factors were present for us as of December 2, 2021.

7 unchanged sentences

During the fiscal year ended June 30, 2022, we recorded a gain of $399.1 million on deconsolidation of the JV Company, and a $3.1 million of loss on changes of equity interest in the JV Company.

We account for our investment in the JV Company as an equity method investment and report our equity in earnings or loss of the JV Company on a three-month lag due to an inability to timely obtain financial information of the JV Company.

For the fiscal year ended June 30, 2022 using lag reporting, we recorded $2.6 million of its equity in loss of the JV Company.

We account for our investment in the JV Company as an equity method investment and report our equity in earnings or loss of the JV Company on a three-month lag due to our inability to timely obtain financial information of the JV Company.

For the fiscal year ended June 30, 2023 and June 30, 2022 using lag reporting, we recorded $1.4 million and 2.6 million of its equity in loss of the JV Company, respectively.

Income tax expense

5 unchanged sentences

Income tax expense for fiscal years 2023 and 2022 was $5.9 million and $39.3 million, respectively.

Income tax expense decreased by $33.3 million, or 84.9% in fiscal year 2023 as compared to fiscal year 2022.

The income tax expense of $5.9 million for the year ended June 30, 2023 included a $0.1 million discrete tax expense, and the income tax expense of $39.3 million for the year ended June 30, 2022 included a $33.5 million discrete tax expense related to the Company’s $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting.

In addition, for the year ended June 30, 2022 we recorded a tax benefit of $0.4 million from other discrete income tax items.

Excluding the discrete income tax items, the effective tax rate for the years ended June 30, 2023 and 2022 was 29.4% and 6.3%, respectively.

The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $19.7 million for the year ended June 30, 2023 as compared to a pretax book income of $495.0 million ($99.0 million of pretax book income plus the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the year ended June 30, 2022 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.

Fiscal 2022 vs 2021

Income tax expense for fiscal years 2022 and 2021 was $39.3 million and $3.9 million, respectively.

Income tax expense increased by $35.3 million, or 897.7% in fiscal year 2022 as compared to fiscal year 2021.

The income tax expense of $39.3 million for the year ended June 30, 2022 included a $33.5 million discrete tax expense related to the Company’s $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting.

The income tax expense of $39.3 million for the year ended June 30, 2022 included a $33.5 million discrete tax expense related to the Company’s $396.0 million

of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company changed from the consolidation method of accounting to the equity method of accounting.

In addition, we recorded a tax benefit of $0.4 million from other discrete income tax items.

2 unchanged sentences

The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $495.0 million ($99.0 million of pretax book income plus the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the year ended June 30, 2022 as compared to a pretax book income of $60.2 million for the year ended June 30, 2021 as well as changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.

Fiscal 2021 vs 2020

Income tax expense for fiscal years 2021 and 2020 was $3.9 million and $0.3 million, respectively.

Income tax expense increased by $3.6 million in fiscal year 2021 as compared to fiscal year 2020, primarily due to an approximate $80 million increase in pretax book income in fiscal 2021 (in which we reported a pretax book income of $60.2 million) vs.

fiscal 2020 (in which we reported pretax book loss of $17.9 million).

Excluding discrete income tax items, the effective tax rate for the current fiscal year was 7.1%, compared to (9.6%) for the prior fiscal year.

The changes in the effective tax rate and tax expense between the fiscal years resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current fiscal year and prior fiscal year.

Liquidity and Capital Resources

1 unchanged sentence

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.

On August 18, 2021, Jireh Semiconductor Incorporated (“Jireh”) entered into a term loan agreement with a financial institution (the “Bank”) in an amount up to $45.0 million for the purpose of expanding and upgrading the Company’s fabrication facility located in Oregon.

On February 6, 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide (SiC) MOSFET and diode technology.

Pursuant to the agreement, we license and provide 24-months of engineering support for our proprietary SiC technology to the supplier for a total fee of $45 million, consisted of an upfront fees of $18 million and $6.8 million paid to us in March 2023 and July 2023, respectively, and the remaining amount to be paid upon our achievements of specified business and product milestones.

In addition, we entered an accompanying supply agreement with the supplier to provide it with limited wafer supply.

In January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China.

The purpose of the credit facility is to provide working capital borrowings.

The Company could borrow up to approximately RMB 140 million or $20.6 million based on currency exchange rate between RMB and U.S.

Dollar on January 31, 2023 with a maturity date of December 1, 2023.

As of June 30, 2023, there was no outstanding balance for this loan.

In September 2022, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.

The purpose of the credit facility was to provide working capital 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 September 20, 2022 with a maturity date of September 30, 2023.

As of June 30, 2023, there was no outstanding balance.

In September 2021, Jireh Semiconductor Incorporated (“Jireh”), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier.

This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $1.

The implied interest rate was 4.75% per annum which was adjustable based on every five basis point increase in 60-month U.S.

Treasury Notes, until the final installation and acceptance of the equipment.

The total purchase price of this equipment was euro 12.0 million.

In April 2021, Jireh made a down payment of euro 6.0 million, representing 50% of the total purchase price of the equipment, to the supplier.

In June 2022, the equipment was delivered to Jireh after Lender paid 40% of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh.

In September 2022, Lender paid the remaining 10% payment for the total purchase price and reimbursed Jireh for the 50% down payment, after the installation and configuration of the equipment.

The title of the equipment was transferred to Lender following such payment.

The agreement was amended with fixed implied interest rate of 7.51% and monthly payment of principal and interest effective in October 2022.

Other terms remain the same.

In addition, Jireh purchased hardware for the machine under this financing arrangement.

The purchase price of this hardware was $0.2 million.

The financing arrangement is secured by this equipment and other equipment which had the carrying amount of $15.2 million as of June 30, 2023.

As of June 30, 2023, the outstanding balance of this debt financing was $11.9 million.

On August 18, 2021, Jireh entered into a term loan agreement with a financial institution (the "Bank") in an amount up to $45.0 million for the purpose of expanding and upgrading the Company’s fabrication facility located in Oregon.

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

The agreement has a 5.5 year term and matures on February 16, 2027.

The agreement has a 5.5 years term and matures on February 16, 2027.

Jireh is required to make consecutive quarterly payments of principal and interest.

The loan accrues interest based on adjusted London Interbank Offered Rate (“LIBOR”) plus the applicable margin based on the outstanding balance of the loan.

The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.

This agreement contains customary restrictive covenants and includes certain financial covenants that the Company is required to maintain.

Jireh drew down $45.0 million on February 16, 2022.

Jireh drew down $45.0 million on February 16, 2022 with the first payment of principal beginning in October 2022.

As of June 30, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan was $38.3 million.

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

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

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

4 unchanged sentences

During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $1.6 million, at an interest rate of 3.85% per annum, with principal due on November 18, 2022.

As of June 30, 2022, there was $1.6 million outstanding balance under the loan.

On November 16, 2018, the Company’ subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China.

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.

The RMB 72.0 million consisted of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022.

During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $0.8 million, at an interest rate of 3.7% per annum, with principal due on September 12, 2022.

As of June 30, 2022, the total outstanding balance of this loan was $0.5 million.

In September 2021, Jireh Semiconductor Incorporated (“Jireh”) entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier.

The total purchase price of this machinery equipment was euro 12.0 million, or $12.8 million based on the currency exchange rate between the euro and U.S.

Dollar on June 30, 2022.

In April 2021, Jireh made a down payment of euro 6.0 million, representing 50% of the total purchase price of the equipment, to the supplier.

In June 2022, the equipment was delivered to Jireh after Lender paid 40% of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh.

Based on the terms of the agreement between Jireh and Lender, after the installation and configuration of the equipment for its intended use, Lender will make the remaining 10% payment for the total purchase price and reimburse Jireh for the down payment made to the supplier.

By that time, the title of the equipment will be transferred to Lender.

This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $1.

Jireh is required to make a monthly payment of interest at an implied interest rate of 4.75% per annum to Lessor.

Principal payment is required to be paid monthly after the completion of the title transfer.

The financing arrangement is secured by this machinery equipment which had the carrying amount of $12.8 million as of June 30, 2022.

As of June 30, 2022, the outstanding balance of this debt financing was $5.0 million.

On August 9, 2019, one of the Company’ 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 allowed 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 was based on one month London Interbank Offered Rate (“LIBOR”) plus 1.75% per annum.

The Company was the guarantor for this agreement.

As of June 30, 2023, there was no outstanding balance and this loan was expired.

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 had a legal right of offset against the borrowing.

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

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.

On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $8.0 million with certain financial covenants required.

2 unchanged sentences

As of June 30, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

On November 16, 2018, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China.

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.

The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022.

During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $0.8 million, at an interest rate of 3.7% per annum, with principal due on September 12, 2022.

As of June 30, 2023, there was no outstanding balance and this loan was expired.

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

1 unchanged sentence

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.

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.

2 unchanged sentences

The amendment was accounted for as a debt modification and no gain or loss was recognized.

The Company was in compliance with these covenants as of June 30, 2022.

As of June 30, 2022, the outstanding balance of the term loan was $14.2 million.

The Company paid this loan in full on May 1, 2023.

As of June 30, 2023, there was no outstanding balance and this loan was expired.

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 the 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.

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

The credit agreement had a five-year term and matured 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 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.

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 accrued 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 contained customary restrictive covenants and included certain financial covenants that required the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021, discussed above.

The amendment was accounted for as a debt modification and no gain or loss was recognized.

The Company was in compliance with these covenants as of June 30, 2022.

As of June 30, 2022, the outstanding balance of the term loan was $1.9 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, 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.

During fiscal year 2022, 2021 and 2020, we did not repurchase any shares pursuant to the repurchase program.

As of June 30, 2022, 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, 167,395 shares with a weighted average repurchase price of $10.06 per share, were reissued at an average price of $5.00 per share for option exercises and vested restricted stock units (“RSU”).

As of June 30, 2022, $13.4 million remain available under the share repurchase program.

The loan was fully paid off in September, 2022.

As of June 30, 2023, there was no outstanding balance and this loan was expired.

The Chinese government imposes certain currency exchange controls on cash transfers out of China.

2 unchanged sentences

Pursuant to applicable regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.

In calculating accumulated profits, foreign-invested enterprises in China are required to allocate at least 10% of their profits each year, if any, to fund the equity reserve account unless the reserve has reached 50% of the registered capital of the enterprises.

In calculating accumulated profits, foreign-invested enterprises in China are required to allocate 10% of their profits each year, if any, to fund the equity reserve account unless the reserve has reached 50% of the registered capital of the enterprises.

While SAFE approval is not statutorily required for eligible dividend payments to the foreign parent, in practice, before making the dividend payment, the account bank may seek SAFE’s opinion with respect to a dividend payment if the payment involves a relatively large amount, which may delay the dividend payment depending on the then overall status of cross-border payments and receipts of China.

4 unchanged sentences

As a result of this and other restrictions under PRC laws and regulations, our China subsidiaries are restricted in their ability to transfer a portion of their net assets to us, and such restriction may adversely affect our ability to generate sufficient liquidity to fund our operations or other expenditures.

As of June 30, 2022 and 2021, such restricted portion amounted to approximately

$92.4 million and $209.9 million, or 10.8% and 50.4%, of our total consolidated net assets attributable to the Company, respectively.

The decrease of restricted net assets was primarily from deconsolidation of the JV Company in China.

As of June 30, 2023 and 2022, such restricted portion amounted to approximately $93.2 million and $92.4 million, or 10.5% and 10.8%, of our total consolidated net assets attributable to the Company, respectively.

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 addition, we recently commenced an investment plan to expand the manufacturing capacity and upgrade the operational capabilities of our Oregon Fab.

We intend to fund the costs by a combination of cash reserve, bank loans and equipment leases.

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.

15 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash (280) (59) 4,895

Net increase in cash, cash equivalents and restricted cash $ 109,838 $ 42,109 $ 38,409

Net increase (decrease) in cash, cash equivalents and restricted cash $ (119,048) $ 109,838 $ 42,109

Cash flows from operating activities

Net cash provided by operating activities of $20.5 million for fiscal year 2023 resulted primarily from net income of $12.4 million, non-cash charges of $80.9 million and net change in assets and liabilities providing net cash of $72.8 million.

The non-cash charges of $287.6 million included depreciation and amortization expenses of $42.9 million, share-based compensation expense of $31.3 million, gain on deconsoidation of the JV Company of $399.1 million, loss on changes of equity interest in the JV Company, net of $3.1 million, deferred income tax on deconsolidation and changes of equity interest in the JV Company of $30.0 million, loss on equity investment of $2.6 million, and net deferred income taxes of $1.6 million.

The non-cash charges of $80.9 million included depreciation and amortization expenses of $43.2 million, share-based compensation expense of $37.5 million, equity method investment loss from equity investee of $1.4 million, the net deferred income taxes of $1.4 million and loss on disposal of property and equipment of $0.2 million.

The net change in assets and liabilities providing net cash of $72.8 million was primarily due to $45.5 million decrease in accrued and other liabilities, other payable on equity investee of $17.0 million, and $19.6 million decrease in accounts payable primarily due to timing of payment, $25.2 million increase in inventories, $18.7 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, partially offset by $43.3 million decrease in accounts receivable due to timing of billings and collection of payments, $8.1 million increase in deferred revenue, and $2.0 million increase in income taxes payable.

Net cash provided by operating activities of $218.9 million for fiscal year 2022 resulted primarily from net income of $453.2 million, non-cash charges of $287.6 million and net change in assets and liabilities providing net cash of $53.3 million.

the JV Company of $30.0 million, equity method investment loss from equity investee of $2.6 million, and net deferred income taxes of $1.6 million.

The net change in assets and liabilities providing net cash of $53.3 million was primarily due to $76.4 million increase in accrued and other liabilities, income taxes payable on deconsolidation and changes of equity interest in the JV company of $3.5 million, other payable on equity investee of $48.2 million, and $23.8 million increase in accounts payable primarily due to timing of payment, partially offset by $30.1 million increase in accounts receivable due to timing of billings and collection of payments, $57.4 million increase in inventories, $9.4 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, and $1.7 million decrease in income taxes payable.

2 unchanged sentences

The net change in assets and liabilities providing net cash of $2.5 million was primarily due to $48.5 million increase in accrued and other liabilities and $1.7 million increase in income taxes payable, partially offset by $22.5 million increase in accounts receivable due to timing of billings and collection of payments, $18.8 million increase in inventories, $5.8 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, and $0.5 million decrease in accounts payable primarily due to timing of payments.

Net cash provided by operating activities of $62.3 million for fiscal year 2020 resulted primarily from net loss of $18.3 million, non-cash charges of $56.1 million and net change in assets and liabilities providing net cash of $24.4 million.

The non-cash charges of $56.1 million included depreciation and amortization expenses of $45.1 million, share-based compensation expense of $10.5 million, impairment of our investment in a privately-held start-up company of $0.6 million, gain on disposal of property and equipment of $0.1 million, and net deferred income taxes of $0.1 million.

The net change in assets and liabilities providing net cash of $24.4 million was primarily due to $27.3 million decrease in other current and long-term assets primarily due to increase in advance payments to suppliers, $11.0 million decrease in accounts receivable due to timing of billings and collection of payments, and $11.0 million increase in accrued and other liabilities, partially offset by $22.8 million increase in inventories, $1.8 million decrease in accounts payable primarily due to timing of payments, and $0.3 million decrease in income taxes payable.

Cash flows from investing activities

Net cash used in investing activities of $109.6 million for the fiscal year 2023 was primarily attributable to $110.4 million purchases of property and equipment, partially offset by $0.6 million government grant related to equipment and $0.2 million in proceeds from sale of property and equipment.

Net cash used in investing activities of $130.8 million for the fiscal year 2022 was primarily attributable to $138.0 million purchases of property and equipment, and $20.7 million deconsolidation of cash and cash equivalents of the JV Company, partially offset by $1.4 million government grant related to equipment in the JV Company, $26.3 million proceeds from sale of equity interest in the JV Company and $0.1 million proceeds from sale of property and equipment.

Net cash used in investing activities of $72.5 million for the fiscal year 2021 was primarily attributable to $72.7 million purchases of property and equipment, which was partially offset by $0.1 million government grant related to equipment in the JV Company.

Net cash used in investing activities of $60.8 million for the fiscal year 2020 was primarily attributable to $62.4 million purchases of property and equipment, which was 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.

Cash flows from financing activities

Net cash used in financing activities of $29.6 million for the fiscal year 2023 was primarily attributable to $6.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $0.8 million in payments of capital lease obligations, $26.6 million in repayments of borrowings, and $13.4 million of payments for repurchase of common shares, partially offset by $8.6 million of proceeds from borrowings and $9.0 million of proceeds from exercises of share options and issuance of shares under the ESPP.

Net cash used in financing activities of $21.9 million for the fiscal year 2022 was primarily attributable to $64.3 million of proceeds from borrowings and $6.1 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $8.6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $4.2 million in payments of capital lease obligations, and $35.7 million in repayments of borrowings.

Net cash used in financing activities of $19.0 million for the fiscal year 2021 was primarily attributable to $6.9 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $16.5 million in payments of capital lease obligations, and $66.6 million in repayments of borrowings, partially offset by $65.9 million of proceeds from borrowings and $5.1 million of proceeds from exercises of share options and issuance of shares under the ESPP.

Net cash provided by financing activities of $37.7 million for the fiscal year 2020 was primarily attributable to $96.2 million of proceeds from borrowings, and $3.4 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $1.5 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $11.0 million in payments of capital lease obligations, and $49.4 million in repayments of borrowings.

Contractual Obligations

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(in thousands)

Recorded liabilities:

Bank borrowings $ 49,887 $ 11,472 $ 23,535 $ 14,880 $ —

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Operating leases 29,149 5,452 8,430 6,964 8,303

$ 83,804 $ 18,068 $ 34,253 $ 23,180 $ 8,303

Capital commitments with respect to property and equipment $ 9,711 $ 9,711 $ — $ — $ —

Purchase commitments with respect to inventories and others 127,490 127,490 — — —

$ 137,201 $ 137,201 $ — $ — $ —

Total contractual obligations $ 221,005 $ 155,269 $ 34,253 $ 23,180 $ 8,303

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Off-Balance Sheet Arrangements

As of June 30, 2022, we had no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2023, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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

On an ongoing basis, we evaluate the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, valuation of inventories, warranty accrual, income taxes, leases, equity method investment, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as economic implications of the COVID-19 pandemic.

Revenue recognition

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Packaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer.

License and Development Revenue Recognition

In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million and $6.8 million paid to us in March 2023 and July 2023, respectively, with the remaining amount to be paid upon the achievement of specified engineering services and product milestones.

The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services.

We use the input method to measure progression, representing a faithful depiction of the transfer of services.

During the fiscal year ended June 30, 2023, we recorded $9.9 million of license and development revenue.

The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets.

In addition, we also entered an accompanying supply agreement to provide limited wafer supply to the customer.

Equity method investment

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Due to difficulties in obtaining accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag.

Therefore, our share of losses of the JV Company for the period from December 2, 2021 to March 31, 2022 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30, 2022.

Therefore, our share of losses of the

JV Company for the period from December 2, 2021 to March 31, 2022 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30, 2022.

And our share of losses of the JV Company for the period of April 1, 2022 to March 31, 2023 was recorded in our Consolidated Statement of Operations for the fiscal year ended June 30, 2023.

We recognize and disclose intervening events at the JV Company in the lag period that could materially affect our consolidated financial statements.

We record our interest in the net earnings of our equity method investees, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Income.

Profits or losses related to intra-entity sales with its equity method investees are eliminated until realized by the investor and investee.

Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor and investee.

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instead the equity method investment is tested for impairment.

We review for impairment whenever factors indicate that the carrying amount of the

investment might not be recoverable.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Condensed Consolidated Statements of Income.

We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable.

In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statements of Operations.

Valuation of inventories

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The Financial Accounting Standards Board ("FASB") has 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.

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.

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Our 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.

We are subject to the continuous examination of our income tax returns by the

Internal Revenue Service and other tax authorities.

We are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities.

We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

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We maintain an equity-settled, share-based compensation plan to grant restricted share units and stock options.

We recognize share-based compensation expense based on the estimated fair value of the awards, using the accelerated attribution method.

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

We recognize 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 our 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.

Share-based compensation expense is significant to the consolidated financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis