What changed in this filing

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Item 1A. Risk Factors

2024-08-23 compared with 2023-08-29 · 97 added, 93 removed, 619 unchanged (23% of the section changed)

7 unchanged sentences

• Geopolitical and economic conflicts between United States and China may adversely affect our business.

• Our lack of control over the JV Company may adversely affect our operations.

• Our revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.

7 unchanged sentences

• Our reliance on third-party semiconductor foundries to manufacture our products subjects us to risks.

• Our lack of control over the JV Company may adversely affect our operations.

• Our reliance on distributors to sell a substantial portion of our products subjects us to a number of risks.

7 unchanged sentences

• Intellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from selling our products.

• The DOJ government investigation and evolving export control regulations may adversely affect our financial performance and business operations.

• The DOC government investigation and evolving export control regulations may adversely affect our financial performance and business operations.

• Global or regional economic, political and social conditions could adversely affect our business and operating results.

14 unchanged sentences

• Changes in China’s laws, legal protections or government policies on foreign investment in China may harm our business.

• The continuing potential for new or additional tariffs on imported goods from China could adversely affect our business operations.

• Uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact us.

• The continuing trade tensions between the U.S.

and China may result in increased tariffs on imported goods from China could adversely affect our business operations.

• Uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

• Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.

21 unchanged sentences

The increasing popularity of smaller, mobile computing devices such as tablets and smart phones with touch interfaces is rapidly changing the PC markets both in the United States and abroad.

In the past prior to the commencement of the COVID-19 pandemic, we experienced a significant reduction in the demand for our products due to the declining PC markets, which negatively impacted our revenue, profitability and gross margin.

While we experienced a surge of demand in the PC market as a result of the COVID-19 pandemic and related events, such demand began to return to normal level with the cessation of the COVID-19 pandemic, and recently declined due to an industry-wide inventory correction and the ensuing downturn in the semiconductor industry.

In the past we experienced a significant reduction in the demand for our products due to the declining PC markets, which negatively impacted our revenue, profitability and gross margin.

While we experienced a surge of demand in the PC market as a result of the COVID-19 pandemic and related events, such demand has returned to normal level and declined due to an industry-wide inventory correction and the ensuing downturn in the semiconductor industry from late 2022 to the end of 2023 and early 2024.

While we believe the negative impact of inventory correction has gradually subsided in mid-2024, we cannot predict how and when the market will be fully recovered.

We have implemented measures and strategies to mitigate the effect of such a downturn.

1 unchanged sentence

Our strategy of diversification into different market segments may not succeed according to our expectations and may expose us to new risks and place significant strains on our management, operational, financial and other resources.

As part of the growth strategy to diversify our product portfolio and in response to the decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.

As part of the growth strategy to diversify our product portfolio and in response to the decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.

However, there is no guarantee that these diversification efforts will be successful.

26 unchanged sentences

• the announcement of significant acquisitions, disposition or partnership arrangements;

• the ramp-up progress and operation of the JV Company, and announcement of significant transactions involving the JV Company;

• changes in the utilization of our in-house manufacturing capacity;

• changes in the utilization of our in-house manufacturing capacity and the availability of manufacturing capacity at third-party foundries and the JV Company;

• supply and demand dynamics and the resulting price pressure on the products we sell;

17 unchanged sentences

These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance.

Our lack of control over the JV Company may adversely affect our operations.

We formed the JV Company in 2016 which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing.

The JV Company is our subcontractor, and we rely and expect to continue to rely substantially on the JV Company to provide us with foundry capacity to develop and manufacture our products and to enhance our market position in China.

At the formation of the JV Company, we retained control over the business operation of the JV Company through our majority equity ownership and board representation.

In December 2021, we relinquished control over the JV Company through a series of transactions, including the sale of a portion of our equity interests in the JV Company and issuance of additional equity interests by the JV Company to raise capital.

As a result of these transactions, we currently own approximately 42.2% of outstanding equity interest in the JV Company and have the right to designate three (3) out of seven (7) directors, instead of four (4) directors prior to such transaction.

The reduction of our equity ownership of the JV Company is part of a plan to enable the JV Company to raise capital more easily and to facilitate a future public listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange (the “China IPO”).

Such reduction also caused the deconsolidation of the JV Company’s financial statements from our Consolidated Financial Statements.

Because we no longer have a controlling interest in the JV Company, the JV Company is operating and will continue to operate more independently, and our influence on all aspects of the JV Company’s business operations will be diminished.

Accordingly, we might not be able to prevent the JV Company from taking actions adverse to our interests.

For example, while we remain a major customer of the JV Company, the JV Company may decide to enter into business relationships with other customers and allocate foundry capacities to such customers, which may prevent us from securing a desirable or sufficient level of manufacturing capacity for our products.

Even if the JV Company agrees to continue allocating sufficient manufacturing capacity to us, we may not be able to negotiate or obtain favorable pricing or service terms, which may increase our expenses and adversely affect our results of operations.

Our lack of control over the JV Company may also make it more difficult for us to execute our broader business strategies in China, including our R&D, sales and marketing, product innovation efforts and protection of intellectual property rights, because the JV Company may decide not to cooperate with us in these matters.

In addition, while we expect to achieve a financial return for our investment in the JV Company as a result of the China IPO, the China IPO process is complex, time-consuming and subject to a number of risks and there is no guarantee that the China IPO will be completed in a timely manner, or at all, and the JV Company’s failure to close the China IPO will negatively affect our investment in the JV Company.

In order to fund its capital expenditures and cost of operation, the JV Company has incurred a significant amount of indebtedness from third-party lenders under several loan and lease financing agreements, some of which are secured by substantially all of the assets of the JV Company.

If the JV Company is not able to generate sufficient cash flow to make payments under these loans, the JV Company may be in default, which will adversely affect its ability to continue operations and provide foundry services to us.

In addition, the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness.

There is no guarantee that the JV Company will be able to obtain financing on favorable terms, or at all, and any such failure may negatively impact our ability to access its wafer manufacturing capacity.

Any of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affect our business operations, our financial performance and the trading price of our shares.

Our revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.

6 unchanged sentences

Our sales seasonality is affected by a number of factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons.

In recent year, broad fluctuations in the semiconductor markets and the global economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations, than seasonality, and have made it difficult to assess the impact of seasonal factors on our business.

Our normal seasonality cycle has also been impacted by the recent COVID-19 pandemic and related events, making it more difficult to predict and determine a more consistent seasonality trend.

In recent year, broad fluctuations in the semiconductor markets and the global economic conditions, in particular the decline of the PC market conditions, as well as the COVID-19 pandemic, have had a more significant impact on our results of operations, than seasonality, and have made it difficult to assess the impact of seasonal factors on our business.

If we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer’s product requirements in a timely manner, it may harm our business, financial position and operating results.

11 unchanged sentences

We may not win sufficient designs, or our design wins may not generate sufficient revenue for us to maintain or expand our business.

We invest significant resources to compete with other power semiconductor companies to win competitive bids for our products in selection processes, known as “design wins.” Our effort to obtain design wins may detract from or delay the completion of other important development projects, impair our relationships with existing end customers and negatively impact sales of products under development.

In addition, we cannot be assured that these efforts would result in a design win, that our product would be incorporated into an end customer's initial product design, or that any such design win would lead to production orders and generate sufficient revenue.

We invest significant capital and resources to compete with other power semiconductor companies to win competitive bids for our products in selection processes, known as “design wins.” Our effort to obtain design wins may detract from or delay the completion of other important development projects, impair our relationships with existing end customers and negatively impact sales of products under development.

In addition, we cannot be assured that these

efforts would result in a design win, that our product would be incorporated into an end customer's initial product design, or that any such design win would lead to production orders and generate sufficient revenue.

Furthermore, even after we have qualified our products with a customer and made sales, subsequent changes to our products, manufacturing processes or suppliers may require a new qualification process, which may result in delay and excess inventory.

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It can also be potentially dangerous as defective power components, or improper use of our products by customers, may lead to power overloads, which could result in explosion or fire.

Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts in order to address or remedy any defects and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.

and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.

Furthermore, as our products are typically sold at prices much lower than the cost of the equipment or other devices incorporating our products, any defective, inefficient or poorly performing products, or improper use by customers of power components, may give rise to warranty and product liability claims against us that exceed any revenue or profit we receive from the affected products.

71 unchanged sentences

Any of the foregoing risks could delay shipment of our products, result in higher expenses and reduced revenue, damage our relationships with customers and otherwise adversely affect our business and operating results.

Our lack of control over the JV Company may adversely affect our operations.

We formed the JV Company in 2016 which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing.

The JV Company is our subcontractor that provides us with foundry capacity to develop and manufacture our products and to enhance our market position in China.

While we retained control over the JV Company from inception of 2021, we lost control over the JV Company in December 2021 as our equity interest in the JV Company has been diluted through the issuances of additional equity securities by the JV Company and other transactions.

Accordingly, we might not be able to prevent the JV Company from taking actions adverse to our interests.

Although the JV Company has previously agreed to provide us with a guaranteed capacity on a monthly basis, such guarantee has expired and we are in the process of negotiating a new arrangement with the JV Company to provide us with capacity.

There is no guarantee that we will be successful in renewing the capacity agreement, and even if we do, there is no guarantee that we will obtain favorable pricing or service terms, or that such capacity will be sufficient, which may adversely affect our results of operations.

If the JV Company is not able to generate sufficient cash flow to make

payments under these loans, the JV Company may be in default, which will adversely affect its ability to continue operations and provide foundry services to us.

In addition, the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness.

Our reliance on distributors to sell a substantial portion of our products subjects us to a number of risks.

3 unchanged sentences

Two distributors, WPG and Promate, collectively accounted for 71.0%, 57.2% and 64.3% of our revenue for the fiscal years ended June 30, 2024, 2023 and 2022, respectively.

We currently have effective agreements with Promate and WPO to serve as our distributors, and such agreement is renewed automatically for one-year period continuously unless terminated earlier pursuant to the terms of such agreements.

We currently have effective agreements with Promate and WPG to serve as our distributors, and such agreement is renewed automatically for one-year period continuously unless terminated earlier pursuant to the terms of such agreements.

We believe that our success will continue to depend upon these distributors.

32 unchanged sentences

Our ability to reliably estimate these allowances enables us to recognize revenue upon delivery of goods to distributors instead of upon resale of goods by distributors to end customers.

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

We estimate the allowance for price adjustment based on factors such as distributor inventory levels, forecasted distributor selling prices, distributor margins and demand for our products.

Our estimated allowances for price adjustments, which we offset against accounts receivable from distributors, were $41.7 million and $40.0 million at June 30, 2024 and 2023, respectively.

15 unchanged sentences

• changes in the packaging requirements of customers;

• our limited experience in operating a high-volume packaging and testing facility;

• compliance with local and regional legal and regulatory requirements;

• operation stoppage due to the city-wide lockdown in response to public health emergencies or pandemics.

5 unchanged sentences

Our systems might be damaged or interrupted by natural or man−made events or by computer viruses, physical or electronic break−ins, cyber-attacks and similar disruptions affecting the global Internet.

In addition, recent widespread ransomware attacks and cybersecurity breaches in the U.S.

and elsewhere have affected many companies, including the cybersecurity incident involving SolarWinds Orion in December 2020.

In the past, we also experienced ransomware attacks on our information technology system.

In April, 2022, we became aware of a cybersecurity incident involving unauthorized access to one of the Company's email accounts, resulting in unauthorized payments.

We recorded a loss of $1.5 million due to the incident for the three months ended March 31, 2022.

Immediately following the discovery, we commenced an investigation, contained the incident and implemented additional protective measures and internal control policies and procedures.

We also alerted law enforcement authorities and banking institutions in an effort to recover the lost amount.

This incident appears to be isolated and its financial impact identified was not material.

The Company believes that it has not incurred other damages and losses based on the conclusion of the full investigation.

While these attacks did not have a material adverse effect on our business operation or results of operations, they caused temporary disruptions and interfered with our operations.

In the past we have experienced cybersecurity incidents and threats against our information technology systems.

While these incidents and attacks did not have a material adverse effect on our business operation or results of operations, they caused temporary disruptions and interfered with our operations.

Any cybersecurity breach and financial loss may also have a negative impact on our internal control over financial reporting.

9 unchanged sentences

If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and other senior management may be required to divert attention from other aspects of our business.

In addition, we do not have “key person” life insurance policies covering any member of

our management team or other key personnel.

In addition, we do not have “key person” life insurance policies covering any member of our management team or other key personnel.

The loss of any of these individuals or our inability to attract or retain qualified personnel, including engineers and others, could adversely affect our product introductions, overall business growth prospects, results of operations and financial condition.

19 unchanged sentences

Intellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from selling our products.

As is typical in the semiconductor industry, we or our customers may receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers.

As is typical in the semiconductor industry, we or our customers have received and may continue to receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.

1 unchanged sentence

Any litigation or arbitration regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations.

We have in the past and may from time

to time in the future become involved in litigation that requires our management to commit significant resources and time.

We have in the past and may from time to time in the future become involved in litigation that requires our management to commit significant resources and time.

In addition, as part of our strategy to diversify our serviceable markets, we launched several key product families and technologies to enable high efficiency power conversion solutions and we plan to develop and commercialize new products in other power semiconductor markets.

10 unchanged sentences

Any intellectual property claim or litigation against us harm our business, results of operations, financial condition and prospects.

The current government investigation and evolving export control regulations may adversely affect our financial performance and business operations.

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

The Company is cooperating fully with federal authorities in the investigation.

The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ, and DOJ has not provided the Company with any specific timeline or indication as to when the investigation will be concluded or resolved.

In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei.

The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019.

The Company continues to work with DOC to resolve this issue.

As part of this process and in response to DOC’s request, the Company provided certain documents and materials relating to the Company’s supply chain and shipment process to DOC, and DOC is currently reviewing this matter.

The current government investigation by Department of Commerce (“DOC”) and evolving export control regulations may adversely affect our business operations.

As previously disclosed, the Company has continued to respond to inquiries and requests for documents and information from Department of Commerce (“DOC”) in connection with an investigation into the Company’s export control practices and DOC is currently reviewing this matter.

DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review.

The ongoing government investigations into our export control compliance also subject us to a number of financial and business risks.

We expect to incur significant costs and expenses, including legal fees, in connection with our effort to respond to the government investigation, as well as additional legal fees for defending securities class actions resulting from public disclosure of the government investigation.

Such additional costs will adversely affect our profitability.

While the Company has purchased a D&O insurance policy which may reimburse a portion of such fees and expenses, there is no guarantee that such policy will be sufficient to reduce our costs or that reimbursement can be obtained on a timely basis or at all.

We expect to incur significant costs and expenses, including legal fees, in connection with our effort to respond to the government investigation.

Furthermore, the management has diverted its resources and time in response to the investigation, and might not be able to fully engage with the core operation and objectives of our business activities.

Finally, while we are fully cooperating with the government in the investigation, we are not able to predict its timing and outcome.

In the event that the government decides to bring enforcement action against us, it will result in a material adverse effect on our business operations, our financial conditions and our reputation.

In the event that the government decides to bring enforcement action or impose fines against us, it will result in a material adverse effect on our business operations, our financial conditions and our reputation.

We also expect that the U.S.

1 unchanged sentence

and China, including potential new export control regulations that may impose additional restrictions on our ability to continue to do business with certain customers in China and Asia.

changes occur, we may be required to reduce shipments to certain Asian customers, adjust our business practices and incur additional costs to implement new export control compliance procedures, policies and programs, each of which will adversely affect our financial conditions and results of operations.

If such changes occur, we may be required to reduce shipments to certain Asian customers, adjust our business practices and incur additional costs to implement new export control compliance procedures, policies and programs, each of which will adversely affect our financial conditions and results of operations.

Global or regional economic, political and social conditions could adversely affect our business and operating results.

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Historically, these regions have been vulnerable to natural disasters and other risks, such as earthquakes, fires and floods, which may disrupt the local economy and pose physical risks to our property.

We also have sales offices located in Taiwan and Japan where similar natural disasters and other risks may disrupt the local economy and pose physical risks to our operations.

We also have sales offices located in Taiwan and Japan where similar natural disasters and other risks may disrupt the local economy and pose physical risks

to our operations.

We are not currently covered by insurance against business disruption caused by earthquakes.

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Our business could be adversely affected by natural disasters such as epidemics, outbreaks or other health crisis.

An outbreak of avian flu or H1N1 flu in the human population, or another similar health crisis could adversely affect the economies and financial markets of many countries, particularly in Asia.

An outbreak of avian flu or H1N1 flu in the human population, or another similar health crisis similar to the COVID-19 pandemic could adversely affect the economies and financial markets of many countries, particularly in Asia.

Moreover, any related disruptions to transportation or the free movement of persons could hamper our operations and force us to close our offices temporarily.

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If we fail to maintain adequate controls, our business, the results of operations, financial condition and/or the value of our stock may be adversely impacted.

In connection with management’s evaluation of the effectiveness of our internal control over financial reporting, management identified a material weakness in our internal control over financial reporting due to the fact that (i) we did not design and maintain effective information technology general controls in the areas of user access, and segregation of duties for one of the information technology systems that supports the Company’s financial reporting over inventory (work in process and finished goods) in costing and (ii) we did not identify and test control to ensure reliability of costing of inventory (work in process and finished goods).

We are in the process of remediating the material weakness identified above, including the implementation of additional policies and procedures to address the issues in our information technology control systems.

For a more detailed description of the material weakness and our remediation plan, please see Item 9A of this Form 10-K.

If our remediation efforts are insufficient or if additional material weakness in internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and it could be required to revise or restate its financial results, which could materially and adversely affect our business, results of operations and financial condition, restrict its ability to access the capital markets, require it to expend significant resources to correct the material weakness, subject it to fines, penalties or judgments, harm its reputation or otherwise cause a decline in investor confidence.

In addition, if we identify material weakness in our internal control process, we may be required to incur additional costs to implement remedial measures, and public disclosure of material weaknesses may adversely affect the investors’ confidence in the quality of our financial disclosures, which may negatively impact trading price of our stock.

We are subject to the risk of increased income taxes and changes in existing tax rules.

We conduct our business in multiple jurisdictions, including Hong Kong, Macau, the U.S., China, Taiwan, South Korea, Japan and Germany.

We conduct our business in multiple jurisdictions, including Hong Kong, Macau, the U.S., China, Taiwan, South Korea, Japan, India and Germany.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.

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international tax laws.

In August 2022 the U.S.

enacted the Chip and Science Act of 2022 (the Chips Act).

The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.

Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment.

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

It is possible that these or other changes in the U.S.

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These new laws require Bermuda and Cayman companies carrying on one or more “relevant activity” (including:

banking, insurance, fund management,

financing, leasing, headquarters, shipping, distribution and service center, intellectual property or holding company) to maintain a substantial economic presence in Bermuda and Cayman Islands in order to comply with the economic substance requirements.

banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property or holding company) to maintain a substantial economic presence in Bermuda and Cayman Islands in order to comply with the economic substance requirements.

Effective from December 31, 2019, we have structured our activities to comply with the new law.

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The OECD published detailed blueprints of its proposals for pillar 1 and pillar 2 on October 14, 2020.

In June 2021, Finance Ministers from the Group of Seven (G7) nations reached an accord on the principles of pillar 2, backing the creation of a global minimum corporate tax rate of at least 15%.

Following the G7 announcement, the OECD/G20 Inclusive Framework announced on July 1, 2021 broad agreement on the two pillars, and released a proposal, which has been endorsed by over 130 jurisdictions, for a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis.

The OECD/G20 Inclusive Framework will work towards an agreement and the release of an implementation plan, which will contemplate bringing pillar 2 into law in 2022 with an effective date in 2023.

In 2021, the OECD announced that more than 140 member jurisdictions (including the United States and Bermuda) have politically committed to potential changes to the international corporate tax system, including enacting a minimum tax rate of at least 15% as part of the OECD's "Pillar Two" initiative.

During December 2022, the European Union reached agreement on the introduction of a minimum tax directive requiring member states to enact local legislation.

We will continue to monitor countries' laws with respect to the OECD model rules and the Pillar Two global minimum tax.

We do not believe Pillar Two has any material effect on us at this time, and the effects of any future legislation in this area are not yet reasonably estimable, but if such legislation is enacted in the future, it could have a material effect on our provision for income taxes, our financial results, and our earnings and cash flows.

As a result of the focus on the taxation of multinational corporations, the tax laws in the countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect us.

Our parent company is incorporated under the laws of Bermuda and is subject to Bermuda law with respect to taxation.

Under current Bermuda law, the Company is not subject to any income or capital gains taxes in Bermuda.

As we have previously disclosed, the Government of Bermuda announced in December 2023 that it enacted the Corporate Income Tax Act 2023, potentially imposing a 15% corporate income tax (CIT) on Bermuda companies that are within the scope of the CIT, that will be effective for tax years beginning on or after January 1, 2025.

In particular, the CIT applies to multinational companies with annual revenue of 750 million Euros or more in the consolidated financial

statements of the ultimate parent entity for at least two of the four fiscal years immediately preceding the fiscal year when the CIT may apply.

The Company is not in a position to determine whether the annual revenues may meet and/or cross the 750 million Euro threshold for at least two of the four fiscal years immediately preceding the fiscal year when CIT may apply.

The Company continues to monitor and assess if and when it may be within the scope of the CIT.

If we become subject to the Bermuda CIT, we may be subject to additional income taxes, which may adversely affect our financial position, results of operations and our overall business.

Our debt agreements include financial covenants that may limit our ability to pursue business and financial opportunities and subject us to risk of default.

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federal income tax consequences could apply for such U.S.

Changes in our United States federal income tax classification, or that of our subsidiaries, could result in adverse tax consequences to our 10% or greater U.S.

shareholders.

The Tax Act may have changed the consequences to U.S.

shareholders that own, or are considered to own, as a result of the attribution rules, 10% or more of the voting power or value of the stock of a non-U.S.

corporation (a 10% U.S.

shareholder) under the U.S.

Federal income tax law applicable to owners of U.S.

controlled foreign corporations, or CFCs.

Prior to the Tax Act, we did not believe that we, or any of our non-U.S.

subsidiaries, were considered a CFC, which is a determination made daily based on whether the 10% U.S.

shareholders together own, or are considered to own under the attribution rules, more than 50% of the voting power or value of a non-U.S.

Under the Tax Act, however, because our group includes one or more U.S.

subsidiaries, certain of our non-U.S.

subsidiaries may be classified as CFCs with respect to any single 10% U.S.

shareholder, even without regard to whether 10% U.S.

shareholders together own, directly or indirectly, more than 50% of the voting power or value of the Company.

Our 10% or greater U.S.

shareholders should consult their individual tax advisors for advice regarding the Tax Act’s revision to the U.S.

Federal tax law applicable to owners of CFCs.

Risks Related to Doing Business in China

51 unchanged sentences

For example, treatment of foreign investors on a national level will be no less favorable than the treatment received by domestic investors unless such investments fall within a “negative list”.

On June 30, 2019, the National Development and Reform Commission (the “NDRC”) and the Ministry of Commerce of the PRC (the “MOC”) published the Special Administrative Measures for Market Access of Foreign Investment (Negative List), which identifies specific sectors where foreign investors will be subject to special administrative measures.

The Negative List has been updated twice in June 2020 for year 2021 and December 2021 for year 2022.

The current effective Negative List took effect on January 1, 2022.

On June 28, 2018, the National Development and Reform Commission (the “NDRC”) and the Ministry of Commerce of the PRC (the “MOC”) published the Special Administrative Measures for Market Access of Foreign Investment (Negative List) (2018 Edition), which identifies specific sectors where foreign investors will be subject to special administrative measures.

The Negative List has been updated three times in June 2019, June 2020 and December 2021.

The current effective Negative List (2021 Edition) took effect on January 1, 2022.

Since the Foreign Investment Law was newly enacted, uncertainties still exist in relation to its interpretation and implementation.

For example, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance of certain of our China subsidiaries in such transition period.

Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

Failure to take timely and appropriate

measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

In addition, under the newly enacted Foreign Investment Law, foreign investors or the foreign invested enterprise should report investment information on the principle of necessity.

1 unchanged sentence

Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.

The transfer of funds from us to our China subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by the China's governmental authorities, including the State Administration of Foreign Exchange, or SAFE's, or the relevant examination and approval authority.

The transfer of funds from us to our China subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by the China's governmental authorities, including the State Administration of Foreign Exchange, (SAFE), the State Administration for Market Regulation (SAMR), and/or the relevant examination and approval authority.

Our subsidiaries may also experience difficulties in converting our capital contributions made in foreign currencies into RMB due to changes in the China's foreign exchange control policies.

6 unchanged sentences

However, 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 investment enterprises in China are required to allocate 10% of their accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises.

A Chinese company must pay 10% of its annual after-tax profits into the statutory reserve fund to fund the statutory reserve fund unless it has reached 50% of the registered capital of the company.

Where the accumulative amount of the company’s statutory reserve is not enough to make up for the losses of the previous year, the current year’s profits must first be used to make up for the losses before the statutory reserve is accrued.

Other transactions that involve conversion of Renminbi into foreign currency are classified as “capital account” transactions;

7 unchanged sentences

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances

that the Ministry of Commerce ("MOC") be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.

Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.

Moreover, the Anti-Monopoly Law requires that the MOC shall be

notified in advance of any concentration of undertaking if certain thresholds are triggered.

In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.

18 unchanged sentences

PRC labor laws may adversely affect our results of operations.

The PRC government promulgated the Labor Contract Law of the PRC, effective on January 1, 2008, as amended, to govern the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of and the amendment to employment contracts.

The PRC government promulgated the Labor Contract Law of the PRC, effective on January 1, 2008, which was amended on December 28, 2012 and the amended law became effective on July 1, 2013, to govern the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of and the amendment to employment contracts.

The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce.

11 unchanged sentences

Although significant economic and cultural relations have been established during recent years between Taiwan and China, relations have often been strained.

A substantial number of our key customers and some of our essential sales and engineering personnel are located in Taiwan, and we have a large number of operational personnel and employees located in China.

A substantial number of our key customers and some of our essential sales and

engineering personnel are located in Taiwan, and we have a large number of operational personnel and employees located in China.

Therefore, factors affecting military, political or economic relationship between China and Taiwan could have an adverse effect on our business, financial condition and operating results.

53 unchanged sentences

It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the U.S., against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Unresolved Staff Comments

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 1A. Risk Factors