Super Micro Computer (SMCI) 10-K risk factor changes: FY2019 vs FY2017

Risks Related to Our [removed: Investigation, Procedures and Analysis, Consolidated Financial Statements,] [added: Material Weaknesses in] Internal Control Over Financial Reporting and Related Matters

We face risks related to being delinquent in our SEC reporting [removed: obligations if we are unable to resume a timely filing schedule.][added: obligations.]

[removed: Due] [added: Primarily due] to the [removed: circumstances discussed in the Explanatory Note and in Part II, Item 8, Note 19, “Restatement of Previously Issued Consolidated Financial Statements”] [added: matters that led] to [removed: the consolidated] [added: our restatement of prior] financial statements [removed: in this Annual Report on Form 10-K] and [removed: “Financial Statements and Supplementary Data” contained elsewhere] [added: the material weaknesses identified] in [added: connection therewith, which are more fully detailed in our 2017 10-K, immediately prior to the filing of] this Annual [removed: Report on Form 10-K,] [added: Report,] our SEC filings, including [removed: this Annual Report on Form 10-K,] our [removed: Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2017, December 31, 2017, and March 31, 2018 (the “2018 Form 10-Qs”), our] Annual [removed: Report] [added: Reports] on Form 10-K for the fiscal [removed: year] [added: years] ended June 30, 2018 [removed: (the “2018 Form 10-K”),] and [added: 2019 and] our Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, [added: 2017, December 31, 2017, March 31,] 2018, [added: September 30, 2018,] December 31, [removed: 2018 and] [added: 2018,] March 31, 2019 [removed: (the “2019 Form 10-Qs”,] and [removed: collectively with the 2018 Form 10-Qs and the 2018 Form 10-K, the “Delinquent Reports”) are] [added: September 30, 2019, were] delinquent.

[removed: We] [added: While we] cannot [removed: ensure] [added: give assurance as to] when we will file [added: this outstanding quarterly report,] our [removed: Delinquent Reports] [added: current intention is to file it in or before January 2020,] and [added: thereafter] resume a timely filing schedule with respect to our future SEC reports.

We expect to continue to face many of the risks and challenges related to the [removed: Investigation, Procedures and Analysis,] [added: matters that led to the delay in the filing of our 2017 10-K,] including the following:

| • | Failure to timely file our SEC reports and make our current financial information available, has placed, and will continue to place, downward pressure on our stock price and result in the continued inability of our employees to sell the shares of our common stock underlying their awards granted pursuant to our equity compensation plans, which has adversely affected, and may continue [added: to] adversely affect, hiring and employee retention; |

| • | Further delay in [added: the] filing [added: of] our SEC reports will delay our ability to seek the relisting of our common stock on a national securities exchange, and as a result, may continue to reduce the liquidity of our common stock; |

| • | We may not be able to recapture lost business or business opportunities due to ongoing reputational harm; [added: and] |

We have concluded that our internal control over financial reporting was not effective as of June 30, [removed: 2017] [added: 2019] due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of June 30, [removed: 2017] [added: 2019] due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A, “Controls and Procedures” of this Annual [removed: Report on Form 10-K.][added: Report.]

While [removed: having] [added: we have] initiated remediation measures to address the identified [added: material] weaknesses, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future.

[added: If we are unable to successfully complete our remediation efforts or favorably] assess the effectiveness of our internal control over financial reporting, our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and stock price could be adversely affected.

Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor and customer confidence in our management [removed: and the accuracy of our financial statements and disclosures,] or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the price of [removed: our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and have a material adverse impact on our business and financial condition.]

Investors will need to evaluate certain decisions with respect to our common stock in light of [removed: a] [added: our] lack of current financial [removed: information.][added: information due to our inability to file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, on a timely basis.]

This precludes us from raising debt or equity financing in the public [removed: markets and] [added: markets,] limits our access to the private markets and also limits our ability to use stock options and other equity-based awards to attract, retain and provide incentives to our employees.

The delisting of our common stock may [added: continue to] have a material adverse effect on the trading and price of our common stock, and we cannot assure you that our common stock will be relisted, or that once relisted, it will remain listed.

As a result of the delay in [added: the] filing [added: of] our periodic reports with the SEC, we were unable to comply with Nasdaq’s listing standards and our common stock was suspended from trading on The Nasdaq Global Select Market effective August 23, 2018 and formally delisted effective March 22, 2019.

The delisting of our common stock from Nasdaq [added: has had and] may [added: continue to] have a material adverse effect on us by, among other things, causing investors to dispose of our shares and limiting:

Following the filing of our [removed: Delinquent Reports] [added: Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019] and [added: any other required filings with the SEC, and] compliance with any other prerequisite requirements, we intend to apply to relist our common stock on a national securities exchange.

The outcome of litigation and other claims as well as regulatory examinations, investigations, proceedings and orders arising out of the matters that [removed: were] [added: led to] the [removed: subject of] [added: delay in] the [removed: Investigation, Procedures and Analysis,] [added: filing of our 2017 10-K] and our [removed: failure to file] [added: other] SEC reports [removed: on a timely basis] are unpredictable, and any orders, actions or rulings not in our favor could have a material adverse effect on our business, results of operations and financial condition.

In addition, the circumstances [removed: which gave rise] [added: that led] to the [removed: Investigation, Procedures and Analysis, and] [added: delay in] the [removed: related] [added: filing of our 2017 10-K and our continued] SEC filing delays [removed: continue to create] [added: have created] the risk of additional litigation and claims by investors and examinations, investigations, proceedings and orders by regulatory authorities.

These include a broad range of potential actions that may be taken against us by the SEC or other regulatory agencies, including a cease and desist order, suspension of trading [removed: of our securities, deregistration of our securities and/or the assessment of possible civil monetary penalties.]

We have incurred [added: significant expenses related to the matters that led to the delay in the filing of our 2017 10-K] and expect to continue to incur significant expenses related to the [removed: Investigation, Procedures and Analysis, the] remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation.

As a result of these efforts, we have incurred [removed: and expect that we will continue to incur significant] [added: substantial] incremental fees and expenses for additional accounting, financial and other consulting and professional services, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented or replaced.

[removed: As described in this Annual Report on Form 10-K, we] [added: We] have taken a number of steps in order to strengthen our corporate culture, sales processes, and accounting function so as to allow us to be able to provide timely and accurate financial reporting.

To the extent these steps are not successful, we could be required to [removed: incur] [added: devote] significant additional time and [removed: expense.][added: incur significant additional expenses.]

The expenses we are incurring in this regard, as well as the substantial time devoted by our management [removed: towards identifying] [added: to identify] and [removed: addressing] [added: address] the internal control deficiencies, could have a material adverse effect on our business, results of operations and financial condition.

Under the terms of the credit agreement with Bank of America, N.A. (“Bank of America”), dated April 19, 2018, [added: as amended in June 2019,] we are required to deliver [removed: certain] [added: our audited] financial statements [removed: to Bank of America on a periodic basis.][added: for the fiscal years ended June 30, 2018 and 2019 by March 31, 2020.]

[removed: If this were to occur, we] [added: We] may be unable to secure [added: other] outside financing, if needed, to fund ongoing operations and [removed: for] other capital needs.

In addition, unless and until we have filed all required reports with the SEC, we will be precluded from registering our securities with the SEC for offer and sale, and the failure to timely file our SEC reports will limit our ability to use “short-form” Form S-3 registration statements for registering our securities for sale with the SEC until we again meet the [removed: timely] filing requirements of Form [added: S-3 including having timely filed all Exchange Act reports required to be filed during the twelve calendar months prior to the filing of the registration statement on Form] S-3.

[removed: Matters relating] [added: The matters leading] to [removed: or arising from] the [removed: restatement and] [added: delay in] the [removed: results] [added: filing] of [removed: the Investigation, Procedures] [added: our 2017 10-K] and [removed: Analysis of] our [added: lack of effective] internal control over financial reporting, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition.

We have been and could continue to be the subject of negative publicity focused on the matters [removed: underlying the Investigation, Procedures and Analysis,] [added: that led to] the [removed: lengthy] delay in [removed: filing our SEC reports, and] the [removed: resulting restatement] [added: filing] of our [removed: historical financial statements.][added: 2017 10-K.]

Pursuant to Section 404 of the Sarbanes-Oxley Act of [removed: 2002 (“Section 404”),] [added: 2002,] our management is required to report on the effectiveness of our internal control over financial reporting in our annual reports, and annually our independent auditors must attest to and [removed: report on the effectiveness of our internal control over financial reporting.]

As described in Part II, Item 9A, “Controls and Procedures” of this Annual [removed: Report on Form 10-K,] [added: Report,] we have concluded that there are material weaknesses in our internal control over financial reporting and that our disclosure controls and procedures were ineffective as of June 30, [removed: 2017.][added: 2019.]

[removed: We have concluded that there are material weaknesses in our internal control over financial reporting, which have] [added: This] adversely affected our ability to timely and accurately report our results of operations and financial condition.

[removed: This material weakness has not been fully remediated as of the filing date of this Annual Report on Form 10-K, and we] [added: We] cannot ensure that other errors or material weaknesses will not be identified in the future.

If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely [removed: affected.”][added: affected.]

Although we are working to remediate [removed: the] [added: our] material [removed: weaknesses identified in the course of the Investigation, Procedures and Analysis,] [added: weaknesses,] and are focused on re-establishing effective internal controls over financial reporting in order to prevent and detect material misstatements in our annual and quarterly financial statements and prevent fraud, we cannot ensure that such efforts will be effective.

| • | Variability of our margins based on the mix of server [added: and storage] systems, subsystems and accessories we sell and the percentage of our sales to internet data [removed: center] [added: center,] cloud [added: computing] customers or certain geographical regions; |

| • | Fluctuations in availability and costs associated with key components, particularly [added: memory,] storage solutions, and other materials needed to satisfy customer requirements; |

| • | Mix of whether customer purchases are of [removed: full] [added: partially or fully integrated] systems or subsystems and accessories and whether made directly or through [added: our] indirect sales [removed: channels;] [added: channel partners;] |

Following this filing, our only delinquent report will be our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019.

our common stock, subject us to further regulatory investigations, potential penalties or stockholder litigation, and have a material adverse impact on our business and financial condition.

The circumstances that led to the delay in the filing of our 2017 10-K, and our efforts to investigate, assess and remediate those matters have also caused substantial delays in the preparation and filing of our annual and quarterly reports for periods after June 30, 2017, including this Annual Report.

We cannot give assurances as to when we will file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, our current intention is to file it in or before January 2020, and thereafter resume a timely filing schedule with respect to our future SEC reports.

of our securities, deregistration of our securities, sanctioning of our officers and directors and/or the assessment of possible civil monetary penalties.

We have devoted substantial internal and external resources towards investigating, discovering, understanding and remediating the matters that led to the delay in the filing of our 2017 10-K (all as described in the 2017 10-K).

Specifically, in connection with these efforts, we incurred professional fees of approximately $67 million in fiscal year 2019 and $42 million in fiscal year 2018, and we continue to incur additional fees in the current fiscal year.

Even if these steps are successful, we expect to continue to incur significant legal fees in future periods as we address litigation and regulatory action arising from the matters that led to the delay in the filing our 2017 10-K.

If we are unable to become current in our SEC reports by June 30, 2020, we may lose the right to convert our existing credit facility into a five-year revolving credit facility, and may be unable to access outside financing.

With the filing of this Annual Report, we have satisfied that requirement.

The credit facility expires on June 30, 2020, although we have the right to convert it to a five-year revolving credit facility if we are current in all SEC filing obligations and meet certain other conditions.

If we are unable to become current in our SEC filing obligations by that date, we may lose the ability to elect for such a conversion, and any amounts then outstanding under the existing credit facility could become due and payable.

As of November 30, 2019, we did not have any outstanding principal obligations under the Bank of America credit facility.

report on the effectiveness of our internal control over financial reporting.

| • | Geopolitical tensions, including trade wars, tariffs and/or sanctions in our geographic markets; |

| • | Costs associated with the circumstances leading to the restatement of our previously issued financial statements, and our efforts to investigate, assess and remediate those matters, as well as related legal proceedings. |

No single customer accounted for 10% or more of net sales in fiscal years 2019, 2018 or 2017.

Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

operations and financial condition.

Adverse economic conditions may harm our business.

Our business depends on the overall demand for our products and on the economic health of our current and prospective customers.

We market and sell our products both domestically and in international markets.

If economic conditions, including currency exchange rates, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, our customers may delay or reduce their spending on our products.

If our customers or potential customers experience economic hardship, this could reduce the demand for our products, delay and lengthen sales cycles, lower prices for our products, and lead to slower growth or even a decline in our revenues, operating results and cash flows.

See Part II, Item 9A, "Controls and Procedures" of this Annual Report for a more fulsome description of our material weaknesses and remediation efforts surrounding our ERP systems.

None of

In addition, numerous states in the U.S. are also expanding data protection through legislation.

For example, in June 2018, California enacted the California Consumer Privacy Act, which takes effect on January 1, 2020, and will give California residents expanded privacy rights and protections and provide for civil penalties for violations and a private right of action for data breaches.

At the same time, certain developing countries in which we do business have already or are also currently considering adopting privacy and data protection laws and regulations.

As a result of the 2017 Tax Reform Act, we recorded a one-time write down of our U.S. deferred tax assets and liabilities resulting from the U.S. federal corporate income tax rate decrease from 35% to 21%, and a one-time transition tax, in our income tax provision for the fiscal year ended June 30, 2018.

We expect further guidance may be forthcoming from federal and state tax agencies, which could result in additional impacts.

See Part II, Item 8, Note 14, “Income Taxes” to the consolidated financial statements in this Annual Report for further discussion of the impact of the 2017 Tax Reform Act.

We continue to optimize our tax structure to align with our business operations and growth

strategy.

The market continues to evolve with the growth of public cloud shifting server and storage purchasing from traditional data centers to lower margin public cloud vendors.

ODMs sell server solutions marketed or sold under a third-party brand.

As a result, they may possess sensitive knowledge or experience which may be used against us competitively and/or which may

We have experienced much greater turnover in our sales and marketing personnel as compared to other departments and other companies, which we believe has been due in part to our employees' inability to exercise their stock options since our registration statement on Form S-8 lost its effectiveness due to our delinquent filings.

Ablecom and Compuware, related parties, accounted for 9.2%, 9.0% and 11.1% of our total

certain applications.

| • | Noncompliance with the covenants in our revolving credit facility will prohibit us from borrowing under the facility unless we are able to obtain additional amendments to the facility or waivers of the covenants from the lender; and |

In addition, because we are a large accelerated filer, we are required to file disclosure and financial statements sooner than companies that are non-accelerated filers, accelerated filers or smaller reporting companies, which gives us less time to fully remediate our material weaknesses by the filing deadlines.

In addition, we previously identified a material weakness in our internal control over financial reporting related to the revenue recognition of contracts with extended product warranties that impacted prior periods.

If we are unable to successfully complete our remediation efforts or favorably

The subject matters of the Investigation, Procedures and Analysis and the findings thereof have caused substantial delays in filing this Annual Report on Form 10-K and the Delinquent Reports, which may result in future delays in our SEC reporting.

It is uncertain when we will resume a timely filing schedule with respect to our future SEC reporting requirements, including our Delinquent Reports.

It is likely that future reports will become delinquent until the Delinquent Reports are filed with the SEC.

We have devoted and expect to continue to devote substantial internal and external resources towards remediation efforts relating to the results of the Investigation, Procedures and Analysis and revision of our previously issued consolidated financial statements, the management review process and other efforts to regain timely compliance with the filing of our future SEC periodic and other reports.

Specifically, in connection with the Audit Committee’s Investigation, Procedures and Analysis, audit and compliance efforts and related litigation, we have incurred professional fees totaling $40.6 million in fiscal year 2018 and $50.7 million through the third quarter of fiscal year 2019.

The Investigation, Procedures and Analysis and the findings thereof, have diverted, and continue to divert, management and other human resources from the operation of our business.

The absence of timely and accurate financial information has hindered and may in the future hinder our ability to effectively manage our business.

The Investigation, Procedures and Analysis have diverted, and continue to divert, management and other human resources from the operation of our business.

The Board of Directors, members of management, and our accounting, legal, administrative and other staff have spent significant time on the Investigation, Procedures and Analysis and will continue to spend significant time on remediation of disclosure controls and procedures and internal control over our financial reporting.

These resources have been, and will likely continue to be, diverted from the strategic and day-to-day management of our business and may have an adverse effect on our ability to accomplish our strategic objectives.

Our failure to file SEC reports timely and the resulting delisting of our common stock could impact our ability to comply with covenants in our debt instruments, which could adversely affect our access to outside financing.

The delay in our SEC filings could impact our ability to comply with our financial statement delivery covenant, which could result in an event of default and eventual termination of the credit agreement.

In addition, in November 2015, we reported a material weakness in our internal control over financial reporting related to the revenue recognition of contracts with extended product warranties.

| • | Costs associated with the Investigation, Procedures and Analysis and related legal proceedings. |

If we fail to meet expectations of investors or

Although no customer represented greater than 10% of our total net sales in the fiscal year ended June 30, 2017, one of our customers accounted for 11.4% and 10.4% of our net sales in the fiscal years ended June 30, 2016 and 2015, respectively.

As our business continues to grow, we may increasingly be subject to this industry risk.

materials and components on a purchase order basis.

For example, our net sales were adversely impacted in fiscal years 2013 and 2012 by disk drive shortages resulting from flooding in Thailand.

In other periods, our cost of sales as a percentage of revenue has been adversely impacted by higher component prices resulting from shortages.

For example, our gross margin was adversely impacted in the quarters ended December 31, 2016, March 31, 2017 and June 30, 2017 due to higher costs related to shortages of memory and solid-state drives ("SSD").

We commenced using a new enterprise resource planning ("ERP") system in the United States in July 2015 and in Taiwan and the Netherlands in January 2016.

practices or compliance with GDPR or other privacy-related laws and regulations could materially adversely affect our business, results of operations and financial condition.

We have grown from 1,837 employees on July 1, 2014 to 2,996 employees on June 30, 2017.

The 2017 Tax Reform Act significantly changed the existing U.S. corporate income tax laws by, among other things, lowering the corporate tax rate, implementing a territorial tax system, and imposing a one-time deemed repatriation toll tax on cumulative undistributed foreign earnings.

We cannot predict the impact of all of these changes to our business as we have not yet finalized our fiscal year 2018 financial statements.

However, it is possible that these changes

could adversely affect our business as we are currently evaluating whether to change our indefinite reinvestment assertion in light of the 2017 Tax Act, and, we consider that assessment to be incomplete.

It is possible that we will seek to revise our tax structure further in the future.

We have traditionally experienced much greater turnover in our sales and marketing personnel as compared to other departments and other companies.

One of

As a result, our product

needed to be repaired.

Ablecom owns approximately 0.4% of our common stock.

research and development efforts.

We do not control the corporate venture and any fluctuation in the results of operations of the corporate venture or any

The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this Annual [removed: Report on Form 10-K.][added: Report.]

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual [removed: Report on Form 10-K,] [added: Report,] particularly under the heading "Risk Factors." [removed: The following discussion gives effect to the restatement discussed in Part II, Item 8, Note 19, “Restatement of Previously Issued Consolidated Financial Statements” to the consolidated financial statements of this Annual Report on Form 10-K.]

Following the suspension of trading, our common stock has been quoted on the OTC Market and is currently traded under the symbol “SMCI.” For further information regarding trading in our common stock, refer to Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual [removed: Report on Form 10-K.][added: Report.]

We are a global leader [removed: in high performance, high efficiency] [added: and innovator of high-performance, high-efficiency] server [removed: technology] and [removed: innovation.][added: storage technology.]

We develop and provide end-to-end green computing solutions to the cloud computing, data [removed: center,] [added: centers,] enterprise, big data, [removed: high performance] [added: AI, HPC, edge] computing [removed: ("HPC"] and [removed: internet of things ("IoT")/embedded] [added: IoT] markets.

Our solutions range from complete server, storage, [added: modular] blade [added: servers, blades] and workstations to full racks, networking devices, server management [removed: software] [added: software, server sub-systems] and [removed: technology] [added: global] support and services.

For fiscal years [removed: 2017, 2016] [added: 2019, 2018] and [removed: 2015,] [added: 2017,] our net income was [removed: $66.9] [added: $71.9] million, [removed: $72.1] [added: $46.2] million and [removed: $92.6] [added: $66.9] million, respectively.

In order to increase our sales and profits, we believe that we must continue to develop flexible and [removed: customizable] [added: application optimized] server [added: and storage] solutions and be among the first to market with new features and products.

We must also continue to expand our software and customer service and support offerings, particularly as we increasingly focus on larger enterprise [removed: sales.][added: customers.]

We measure our financial success based on various indicators, including growth in net sales, gross profit margin and operating [removed: margin as key measures of profitability, and cash conversion cycle as a key measure of working capital management.][added: margin.]

Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest [removed: application optimized] [added: application-optimized] server [added: and storage] solutions.

In this regard, we work closely with microprocessor and other [added: key] component vendors to take advantage of new technologies as they are introduced.

Historically, our ability to introduce new products rapidly has allowed us to benefit from [added: technology transitions such as] the introduction of new microprocessors and [added: storage technologies, and] as a [removed: result] [added: result,] we monitor the introduction cycles of Intel Corporation, Advanced Micro Devices, Inc., [removed: and] Nvidia [removed: Corporation] [added: Corporation, Samsung Electronics Company Limited, Micron Technology, Inc. and others] carefully.

The following is a summary of [removed: other] financial highlights of fiscal [removed: year 2017:][added: years 2019 and 2018:]

For details, see Part II, Item 8, Note [removed: 18,] [added: 19,] “Subsequent Events” in our notes to the consolidated financial statements in this Annual [removed: Report on Form 10-K.][added: Report.]

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with [removed: accounting principles] generally accepted [added: accounting principles] in the United States.

The preparation of these [added: consolidated] financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, [removed: revenues] [added: net sales] and expenses.

We [added: evaluate our estimates on an on-going basis, and] base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources.

A summary of significant accounting policies is included in Part II, Item 8, Note 1, “Organization and Summary of Significant Accounting Policies” in our notes to the consolidated financial statements in this Annual [removed: Report on Form 10-K.][added: Report.]

Revenue from distributors may be recognized on sell-in or sell-through basis depending on the terms of the arrangement [removed: between] [added: with] the [removed: distributor and us.][added: distributor.]

[removed: We] [added: Based on historical experience, we] accrue for estimated returns of defective products at the time revenue is [removed: recognized based on historical warranty experience and recent trends.][added: recognized.]

We monitor warranty obligations and may make revisions to [removed: our] [added: its] warranty reserve if actual costs of product repair and replacement are significantly higher or lower than estimated.

[removed: We adjust the changes in] estimates [added: that are updated] on an ongoing basis [added: taking into consideration inputs such] as [removed: a result of] new product [removed: introductions or] [added: introductions,] changes in [removed: unit volumes] [added: the volume of claims] compared with our historical experience, [removed: or if] [added: and] the [added: changes in the] cost of servicing warranty [removed: claims is greater or lesser than expected, and we account for the changes in estimates prospectively.][added: claims.]

Inventories are stated at weighted average cost, subject to lower of cost or [removed: market.][added: net realizable value.]

Inventories consist of purchased parts and raw materials (principally [added: electronic] components), work in process (principally products being assembled) and finished goods.

We evaluate inventory on a quarterly basis for lower of cost or [removed: market] [added: net realizable value] and excess and obsolescence and, as necessary, write down the valuation of units based upon [added: our forecasted] usage and sales, anticipated [removed: sales] [added: selling] price, product obsolescence and other factors.

The rebates [added: earned] are recognized as a reduction of cost of inventories and [removed: reduces] [added: reduce] the cost of sales in the period when the related inventory is sold.

If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related charge in our tax provision during the period in which we make such [added: a] determination.

We measure and recognize compensation expense for all share-based awards made to [removed: employees, consultants] [added: employees] and [removed: non-employee members of our Board of Directors] [added: non-employees,] including stock options and restricted stock units ("RSUs").

[removed: The] [added: Prior to July 1, 2017, we estimated forfeitures and expensed the] value of awards that [removed: are] [added: were] ultimately expected to vest [removed: is recognized as an expense] over the requisite service periods.

The fair value of RSUs [added: with service conditions or performance conditions] is based on the closing market price of our common stock on the date of grant.

We [removed: estimated] [added: estimate] the fair value of stock options granted using a Black-Scholes [removed: option-pricing] [added: option pricing] model and a single option award approach.

The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on [removed: a combination of] our [removed: peer group and our] historical experience.

The expected volatility is based on [removed: a combination of our] [added: the] implied and historical [removed: volatility.][added: volatility of our common stock.]

We determine at the inception of each arrangement whether an entity in which we hold an investment or in which we have other variable interests [removed: in] is considered a variable interest entity ("VIE").

The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the [removed: VIE;] [added: VIE] and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.

If we are not the primary beneficiary in a VIE, we account for the investment [removed: under the equity method] or [removed: cost method] [added: other variable interest] in accordance with [removed: the] applicable GAAP.

In performing this analysis, [removed: our management] [added: we] considered our explicit arrangements with Ablecom and Compuware, including the supplier arrangements.

Also, as a result of the substantial related party relationships between us and these two companies, [removed: management] [added: we] considered whether any implicit arrangements exist that would cause us to protect those related parties’ interests from suffering losses.

[removed: Management] [added: We] determined that no [added: material] implicit arrangements exist with Ablecom, Compuware, or their shareholders.

During fiscal years 2018 and 2019, we continued to concentrate our efforts on selling server and storage systems to larger customers such as enterprise and data center customers.

As a result of these efforts, sales of server and storage systems represented sequentially greater percentages of our net sales over the course of the two fiscal years, rising from 70.0% of net sales in fiscal year 2017 to 79.3% in fiscal year 2018 and 81.7% in fiscal year 2019.

Server and storage systems generally have higher average selling prices and provide an opportunity to sell services.

The substantial increase in our net sales from fiscal year 2017 to fiscal year 2018 reflected both this concentration on selling server and storage systems and an increased demand for our products.

The further increase in our net sales from fiscal year 2018 to fiscal year 2019, which was less substantial than the prior year’s increase in net sales, reflected our continued concentration on selling server and storage systems, but also reflected a softening demand for our products due to an overall market slowdown in the second half of fiscal year 2019.

In addition, adverse publicity associated with false assertions made against our company in a news article published in October 2018 and the unrelated suspension of trading in our common stock on NASDAQ in August 2018 may have been factors contributing to the slower growth in our net sales for fiscal year 2019.

| • | Net sales increased by 4.2% and 35.2% in fiscal years 2019 and 2018, respectively, as compared to fiscal years 2018 and 2017, respectively. |

| • | Gross margin increased to 14.2% in fiscal year 2019 from 12.8% in fiscal year 2018, primarily due to lower prices for key components, a favorable geographic mix with less competitive pricing, and increased service revenues that have higher margins. Gross margin in fiscal year 2018 decreased by 130 basis points from 14.1% in fiscal year 2017 primarily due to higher costs of key components resulting from shortages of memory and SSDs, higher volume of server and storage systems sales configured with these key components and a less favorable geographical mix of sales resulting in a higher cost of sales. |

| • | Operating expenses increased by 18.8% and 31.4% in fiscal years 2019 and 2018, respectively, as compared to fiscal years 2018 and 2017, respectively. The increase in both fiscal years was primarily due to an increase in professional fees incurred to investigate, assess and begin remediating the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements, as well as an increase in the number of employees to support our growth. |

| • | Net income increased to $71.9 million as compared to $46.2 million in fiscal year 2018, which was primarily due to a reduction in our effective tax rate to 16.6% as compared to 43.6% in fiscal year 2018 and a $1.3 million increase in income before taxes. Net income in fiscal year 2018 decreased by $20.7 million from $66.9 million in fiscal year 2017 primarily due to an increase in our effective tax rate to 43.6% in fiscal year 2018, in part due to the remeasurement of our deferred tax assets under the 2017 Tax Reform Act, as compared to 26.7% in fiscal year 2017. |

| • | Our cash and cash equivalents were $248.2 million, $115.4 million and $110.6 million at the end of fiscal years 2019, 2018, and 2017, respectively. In fiscal year 2019, we generated net cash of $141.8 million, of which $262.6 million was generated from operating activities related to increased net income and improved working capital management while we invested $24.8 million primarily in new manufacturing capacity and used $95.8 million in financing activities primarily to repay outstanding loans. In fiscal year 2018, we generated net cash of $7.6 million, of which $84.3 million was generated from operating activities related to improved working capital management while we invested $25.9 million primarily in new manufacturing capacity and used $50.8 million in financing activities to primarily repay outstanding loans. |

Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control.

Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows.

Revenue recognition for periods after adoption of ASC 606 as of July 1, 2018

We adopted the new accounting guidance issued by the Financial Accounting Standards Board (“FASB”), Revenue from Contracts with Customers, (“ASC 606”) as of July 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

For contracts that were modified before the effective date, we considered the effect of all

modifications when identifying performance obligations and allocating transaction price, which did not have a material effect on the adjustment to retained earnings.

We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings.

The comparative information has not been recast and continues to be reported under the accounting standards in effect for those periods.

ASC 606 provides a unified model in determining when and how revenue is recognized with the core principle that revenue should be recognized when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We generate revenues from the sale of server and storage systems, subsystems, accessories, services, server software management solutions, and support services.

We recognize revenue from sales of products as control is transferred to customers, which generally happens at the point of shipment or upon delivery, unless customer acceptance is uncertain.

Products sold are delivered via shipment from our facilities or drop shipment directly to our customer from our vendor.

Revenue from distributors is recognized when the distributor obtains control of the product, which generally happens at the point of shipment or upon delivery, unless customer acceptance is uncertain, and in the amount of consideration to which we expect to be entitled.

As part of determining the transaction price in contracts with customers, we estimate reserves for future sales returns based on a review of our history of actual returns for each major product line.

Based upon historical experience a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs.

We also reduce revenue for the estimated costs of customer and distributor programs and incentive offerings such as price protection and rebates as well as the estimated costs of cooperative marketing arrangements where the fair value of the benefit derived from the costs cannot be reasonably estimated.

Any provision for customer and distributor programs and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.

Revenue related to extended warranty commences upon the expiration of the standard warranty period and is recognized ratably over the contractual period as we stand ready to perform any required warranty service.

Revenue related to on-site services commences upon recognition of the product sale and is recognized ratably over the contractual period as the on-site services are made available to the customer.

Contracts with multiple promised goods and services.

Certain of our contracts contain multiple promised goods and services.

Performance obligations in a contract are identified based on the promised goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.

If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

Revenue allocated to each performance obligation is recognized at the time the related performance obligation is satisfied by transferring control of the promised good or service to a customer.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.

We determine standalone selling prices based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information, such as internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives, for the related performance obligations.

When we receive consideration from a customer prior to transferring goods or services to the customer, we record a contract liability (deferred revenue).

See related discussion in the Explanatory Note.

Background of Investigation, Procedures and Analysis

See "Explanatory Note" to this Annual Report on Form-10K.

| | |

| --- | --- |

| • | Net sales increased by 11.7% as compared to fiscal year 2016 primarily due to increased unit shipments, reflecting the successful execution of our strategy to ship more complete systems, which increased by 13.5% as compared to fiscal year 2016. |

| • | Gross margin declined to 14.1% from 14.9% in fiscal year 2016 primarily due to increased component prices for memory and storage relative to our ability to pass cost increases to our customers as well as increased sales where pricing is typically more competitive and lower total capacity utilization while we ramp up use of our new facilities. |

| • | Operating expenses increased by 14.4% as compared to fiscal year 2016, but remained approximately 10% of sales as we continued to increase our human talent, primarily with respect to further investments in research and development. |

| • | Net income declined to $66.9 million as compared to $72.1 million in fiscal 2016, which was primarily due to a $16.1 million decline in income before taxes, which was partially offset by a reduction in our effective tax rate to 26.8% as compared to 32.9% in fiscal 2016. |

| • | Our cash and cash equivalents were $110.6 million at the end of fiscal year 2017, compared with $178.8 million at the end of fiscal year 2016. The decrease in our cash and cash equivalents at the end of fiscal year 2017 was primarily due to $96.2 million of cash used in our operating activities and $29.4 million of purchases of property, plant and equipment, of which $16.1 million was related to property and equipment in connection with the construction of buildings at our Green Computing Park in San Jose, California, partially offset by $66.6 million of borrowings, net of repayments. |

| • | The cash conversion cycle is the sum of days of sales outstanding (“DSO”) and days of inventory outstanding (“DIO”), less days of purchases outstanding (“DPO”). Cash conversion cycle at the end of fiscal year 2017 was 86 days compared with 76 at the end of fiscal year 2016. DSO and DIO at the end of fiscal year 2017 were 3 days higher and 6 days higher, respectively, than at the end of fiscal year 2016. DPO at the end of fiscal year 2017 was 1 day lower than at the end of fiscal year 2016. |

| • | Our inventory balance was $736.7 million at the end of fiscal year 2017, compared with $516.8 million at the end |

of fiscal year 2016.

The increase in inventory was to meet current demand and expected future sales volume growth.

| • | Our purchase commitments with contract manufacturers and suppliers were $309.1 million at the end of fiscal year 2017 and $334.0 million at the end of fiscal year 2016. |

Fiscal Year

Our fiscal year ends on June 30.

References to fiscal year 2017, for example, refer to the fiscal year ended June 30, 2017.

We evaluate our estimates on an on-going basis, including those related to allowances for doubtful accounts and sales returns, inventory valuation, useful lives of property, plant and equipment, product warranty accruals, stock-based compensation, impairment of investments and long-lived assets, and income taxes.

Revenue Recognition

Market value represents net realizable value for finished goods and work in process and replacement value for purchased parts and raw materials.

Once a reserve is established, it is maintained until the product to which it relates is sold or scrapped.

In addition, forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We use historical data to estimate pre-vesting option and restricted stock unit forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Therefore, we concluded that we are the primary beneficiary of the Management Company.

| Server systems | $ | 1,740.6 | | | $ | 1,533.4 | | | $ | 1,186.3 | | | $ | 207.2 | | | 13.5 | % | | $ | 347.1 | | | 29.3 | % |

| Subsystems and accessories | 744.3 | | | | 691.6 | | | | 768.1 | | | | 52.7 | | | | 7.6 | % | | (76.5 | | ) | | (10.0 | )% |

| Total net sales | $ | 2,484.9 | | | $ | 2,225.0 | | | $ | 1,954.4 | | | $ | 259.9 | | | 11.7 | % | | $ | 270.6 | | | 13.8 | % |

The year-over-year increase of $259.9 million in our net sales in fiscal year 2017 compared with fiscal year 2016 was primarily due to an increase in sales of our server systems.

The year-over-year increase of $270.6 million in our net sales in fiscal year 2016 compared with fiscal year 2015 was due to an increase in sales of our server systems partially offset by reduced sales of subsystems.

systems that offer higher density computing and more memory and hard drive capacity.

| Distributors | 47.8 | % | | 45.8 | % | | 49.6 | % | | 2 | % | | (3.8 | )% |

| United States | 57.2 | % | | 63.3 | % | | 58.8 | % | | (6.1 | )% | | 4.5 | % |

| Asia | 20.2 | % | | 14.4 | % | | 16.0 | % | | 5.8 | % | | (1.6 | )% |

| Europe | 18.3 | % | | 17.4 | % | | 18.8 | % | | 0.9 | % | | (1.4 | )% |

| Others | 4.3 | % | | 4.9 | % | | 6.4 | % | | (0.6 | )% | | (1.5 | )% |

As a result, our United States sales as a percentage of total net sales decreased in fiscal year 2017 compared with fiscal year 2016.

The year-over-year increase in net sales in the United States in fiscal year 2016 as a percentage of total net sales as compared with fiscal year 2015 was primarily due to the higher sales of our server systems to our cloud computing and internet data center customers, which sales represent a higher portion of sales in the United States than in other regions.

The year-over-year decrease in net sales in Asia and Europe in fiscal year 2016 as a percentage of total net sales as compared with fiscal year

| Cost of sales | $ | 2,135.0 | | | $ | 1,894.5 | | | $ | 1,647.8 | | | $ | 240.5 | | | 12.7 | % | | $ | 246.7 | | | 15.0 | % |

Our [removed: long-term investments include] [added: investment in an] auction rate [removed: securities, which have] [added: security has] been classified as [removed: long-term] [added: non-current] due to the lack of a liquid market for these securities.

As of June 30, [removed: 2017,] [added: 2019,] our investments were in money market funds, certificates of deposits and auction rate securities.

The interest rates for the term loans and the revolving lines of credit ranged from 0.93% to [removed: 2.46%] [added: 4.50%] at June 30, [removed: 2017] [added: 2019] and [removed: 0.90%] [added: 0.95%] to [removed: 1.96%] [added: 4.75%] at June 30, [removed: 2016.][added: 2018.]

Based on the outstanding principal indebtedness of [removed: $161.4] [added: $23.6] million under our credit facilities as of June 30, [removed: 2017,] [added: 2019,] we believe that a 10% change in interest rates would not have a significant impact on our results of operations.

Foreign exchange gain (loss) for fiscal years [removed: 2017, 2016] [added: 2019, 2018] and [removed: 2015] [added: 2017] was [removed: $(1.3)] [added: $0.5] million, [removed: $1.3] [added: $(0.6)] million and [removed: $0.8] [added: $(1.3)] million, respectively.

We are a Silicon Valley founded, headquartered and operated provider of [removed: application optimized] [added: application-optimized] high performance and [removed: high efficiency] [added: high-efficiency] server and storage systems.

We develop and provide end-to-end green computing solutions to the cloud computing, data [removed: center,] [added: centers,] enterprise, [removed: artificial intelligence and machine learning,] big data, [removed: hyper-converged, OEM, high performance computing] [added: artificial intelligence ("AI"), High-Performance Computing] ("HPC"), [added: edge computing] and Internet of [removed: Things ("IoT")/embedded] [added: Things/embedded (“IoT”)] markets.

Our solutions range from complete server, storage, [added: modular] blade [added: servers, blades] and workstations to full racks, networking devices, server management [removed: software] [added: software, server sub-systems] and global support and services.

Our server [added: and storage] systems, subsystems and accessories are architecturally designed to provide high levels of reliability, quality, [removed: configurability and scalability, thereby enabling our customers to benefit from improvements in compute performance, density, thermal management] [added: configurability,] and [removed: power efficiency, which lead to lower total cost of ownership.][added: scalability.]

We perform the majority of our research and development [removed: efforts in-house,] [added: efforts,] at our San Jose, California headquarters, which we believe increases the efficiency of communication and collaboration between design teams, streamlines the development process and reduces time-to-market.

This building block approach allows us to provide a broad range of [removed: products,] [added: products] and enables us to build and deliver application-optimized solutions based upon customers’ requirements.

We develop and manufacture [removed: high performance] [added: high-performance] server [added: and storage] solutions based upon an innovative, modular and open architecture.

Our [removed: competitive advantages arise from how we combine our] integrated internal research and development resources [added: along] with our deep understanding of complex computing [added: and storage] requirements [added: enable us] to [removed: develop] [added: deliver] the [removed: intellectual property used in] [added: advanced functionality and capabilities required by] our [removed: server solutions.][added: customers.]

We believe that our approach provides us with greater flexibility to quickly and efficiently develop [removed: new] [added: optimized] server solutions [removed: that are optimized] for our [removed: customers'] [added: customers’] specific application requirements.

Rapid Time-to-Market [added: Server Solutions]

Our in-house design competencies, control of [removed: the] design of many of the components used within our server [added: and storage] systems and our building block architecture enable us to rapidly develop, build and test server [added: and storage] systems, subsystems and accessories with unique configurations.

As a result, when new technologies are brought to market, we are generally able to quickly design, integrate and assemble [removed: solutions with little need to re-engineer other portions] [added: a broad portfolio] of [removed: our solution.][added: solutions by leveraging common building blocks across product lines.]

We work closely with the leading microprocessor, [removed: GPU,] [added: graphics processing units (“GPU”),] memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology.

We believe that we are an industry leader in [removed: power saving] [added: power-saving] technology.

We have designed flexible power management [removed: systems] [added: systems,] which customize or eliminate components [removed: in an effort] to reduce overall power consumption.

We have developed proprietary power supplies [removed: that can be integrated] [added: capable of integration] across a wide range of server system form factors which can significantly enhance power efficiency.

We have also developed [added: thermal management] technologies [removed: that are specifically designed] to reduce the effects of heat dissipation from our servers.

Our [removed: thermal management technology allows our] products [removed: to] achieve a [removed: better] [added: competitive] price-to-performance ratio while minimizing energy costs and reducing the risk of server malfunction caused by overheating.

[removed: High Density] [added: High-Density] Servers

Our servers are designed to enable customers to maximize computing power while minimizing the physical space utilized, which allows our customers to [removed: efficiently] deploy our server [added: and storage] systems in scale-out configurations.

[removed: Through our industry-leading technology, our] [added: Our] systems [added: can] offer significantly more memory, hard [added: drive, solid-state] drive [added: (“SSD”),] storage and expansion slots than traditional server [added: and storage] systems with a comparable server form factor.

For example, our [removed: BigTwin] [added: BigTwin®] solutions contain two or four full feature [removed: dual processor] [added: dual-processor] hot-pluggable compute nodes with All-Flash Non-Volatile Memory express (“NVMe”) support in a [removed: 2] [added: two] rack unit (“2U”) server.

This [removed: high density] [added: high-density] design is well suited for our customers that require highly space-efficient solutions and delivers [removed: higher] [added: better] efficiency through sharing resources across systems.

Our objective is to be the world’s leading provider of [removed: application optimized, high performance] [added: application-optimized, high-performance] server, storage and networking solutions.

Achieving this objective requires continuous development and innovation of our solutions with better [removed: price performance] [added: price-performance] and architectural advantages compared with our prior generation of solutions and with solutions offered by our competitors.

We believe that our [removed: strategy and our] ability to innovate and execute will enable us to maintain [added: or improve] our relative competitive position in many [removed: of our] product areas and [removed: improve our competitive position in others, while providing] [added: provide] us with additional long-term growth opportunities.

Key elements of our strategy include [removed: maintaining] [added: sustaining] our time-to-market advantage, enhancing our software management solutions, [removed: expand] [added: expanding] our service and support offerings, further [removed: optimize] [added: optimizing] our global operating structure and [removed: deepen] [added: deepening] our relationships with [added: customers, partners,] suppliers and manufacturers.

We believe one of our major competitive advantages is our ability to rapidly incorporate the latest [removed: computing] [added: technological] innovations into our products.

We intend to maintain our time-to-market advantage by continuing our investment in our research and development efforts to rapidly develop new proprietary server, storage and networking solutions based on [removed: industry standard] [added: industry-standard] components.

We plan to continue to work closely with technology partners such as Intel Corporation [removed: ("Intel"),] [added: (“Intel”),] Nvidia Corporation [removed: ("Nvidia")] [added: (“Nvidia”)] and Advanced Micro Devices, Inc. [removed: ("AMD"),] [added: (“AMD”),] to develop products that are compatible with the latest generation of [removed: industry standard technologies.][added: industry-standard technologies and maintain our time-to-market advantage.]

We have introduced and plan to continue [removed: developing] [added: to develop] additional server, storage and networking management software capabilities [removed: and partnering] [added: as well as partner] with [removed: certain] software suppliers for software solutions that are integrated with our server products.

This [added: strategy] will enable our customers to simplify and automate the large scale deployment, configuration and monitoring of our servers.

Expand Our Service [removed: &] [added: and] Support Offerings

We intend to continue to expand our global customer service and support offerings [removed: and] [added: that] enable our customers to purchase service and support together with our complete server [added: and storage] systems as [removed: total] [added: complete] solution [removed: packages around the world.][added: packages.]

Our service and support [removed: is] [added: are] designed to help our customers improve uptime, reduce costs and enhance the productivity of [removed: their investment in] our products.

We believe that continued enhancement of these offerings will support the continued growth of our business and increase our [removed: penetration] [added: market-penetration] with enterprise customers.

We plan to continue to increase our worldwide manufacturing capacity and logistics [removed: capabilities] [added: abilities] in the [removed: US,] [added: United States, the] Netherlands and Taiwan [removed: in order] to more efficiently serve our customers and lower our [added: overall] manufacturing costs.

Within our global operating structure, we employ stringent due diligence and qualification processes to select our contract manufacturers, which we regularly audit for process, [removed: quality] [added: quality, security] and control.

Our efficient supply chain and combined internal and outsourced manufacturing [added: strategy] allow us to build [removed: customized] [added: application optimized] systems [removed: to order,] while minimizing costs.

We plan to continue leveraging our relationships with suppliers and contract [removed: manufacturers in order] [added: manufacturers, two of which are related parties,] to maintain and improve our cost structure as we benefit from economies of scale.

Our resource-saving architecture continues our tradition of leading the market with green IT innovation.

Leveraging an overall architecture that optimizes data center power, cooling, shared resources and refresh cycles, we believe this approach helps the environment and provides total cost of ownership (“TCO”) savings for our customers.

Furthermore, our architecture disaggregates central processing units (“CPU”) and memory, which allows each resource to be refreshed independently thereby allowing data centers to reduce refresh cycle costs.

In our indirect sales channels, we work with distributors, value added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers.

During each of the fiscal years 2019 and 2018, we sold to over 850 direct customers in over 110 countries.

During the same periods, through our indirect sales channels, we have also sold to numerous end users.

We have invested in system management software like industry standard Redfish APIs for automation, RAS functionality to improve quality, and diagnostics to help reduce debug times.

We have partnerships with security researchers, and have also invested in security technologies and testing tools like Root of Trust for improving product security on BIOS and BMC images.

We remain focused on our global tax structure to optimally manage our tax obligations.

For example, our All-Flash NVMe systems can deliver better performance and efficiency than traditional storage solutions; and our

We work closely with GPU leaders, specifically Nvidia, Intel and others to offer a rich set of GPU based systems.

These switches enable us to offer more complete solutions for our customers.

Our SuperRack total server solutions provide rack level solutions that incorporate server, storage, networking and software with a wide range of flexible accessory options.

processor market.

During each of the fiscal years 2019 and 2018, we sold to over 850 direct customers in over 110 countries.

During the same periods, through our indirect sales channels, we have also sold to numerous end users.

Our sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners.

design and manufacturing coordination support.

See Part II, Item 8, Note 12, “Related Party Transactions” to the consolidated financial statements and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.”

As of June 30, 2018, we employed 3,266 full time employees, consisting of 1,346 employees in research and development, 390 employees in sales and marketing,316 employees in general and administrative and 1,214 employees in manufacturing.

Of these employees, 2,090 employees are based in our San Jose facilities.

As a result, we do not have a significant backlog of unfilled customer orders.

We have developed a set of design principles which allow us to aggregate individual industry standard components and materials to develop optimized products, such as serverboards, chassis, power supplies, and networking and storage devices.

Core to our business is our focus on green computing.

We are committed to leveraging the best new and emerging technologies and designs to reduce the environmental impact of the systems we deliver to market.

Building these higher efficiency resource optimized systems brings a dual benefit to our customers of lower acquisition and operating costs while at the same time reducing the energy consumption and eWaste.

We sell through our direct sales force as well as through distributors, including value added resellers and system integrators, and OEMs who develop their products on our systems.

During fiscal year 2017, our products were purchased by over 900 customers in 110 countries.

For fiscal years 2017, 2016 and 2015, our net sales were $2,484.9 million, $2,225.0 million and $1,954.4 million, respectively, and our net income was $66.9 million, $72.1 million and $92.6 million, respectively.

These competitive advantages have enabled us to develop a set of design principles and performance specifications that meet industry standard Server System Infrastructure ("SSI") requirements and also incorporate the advanced functionality and capabilities required by our customers.

Flexible and Customizable Server Solutions

We provide a broad portfolio of flexible and customizable server solutions to better address the specific application needs of our customers.

Our design principles allow us to aggregate industry standard components and materials to develop optimized server subsystems and accessories, such as serverboards, mid/backplanes, chassis and power supplies to deliver a broad range of products with superior features.

This building block approach allows us to provide a broad range of optimized solution SKUs.

We are able to reduce the design and development time required to incorporate the latest technologies into the next generation of application optimized server solutions.

Our efficient design capabilities allow us to offer our customers server solutions incorporating the latest technology with a better price-to-performance ratio.

We leverage advanced technology and system design expertise to reduce the power consumption of our server, blade, workstation and storage systems.

Our server solutions include many design innovations to optimize power consumption and manage heat dissipation.

We believe that many of these product innovations are gaining momentum based on the strong year-over-year

revenue growth across these next-generation products.

We believe these efforts will allow us to continue to offer products that lead in price for performance as each generation of computing innovations becomes available.

We continue to assess the efficiency of our global tax structure to manage our tax costs.

We intend to continue to source non-core products from external suppliers.

They provide industry-leading density, price-to-performance per square foot and energy savings to reduce data center total cost of ownership ("TCO").

We have introduced a complete portfolio of Xeon Phi and Nvidia Pascal based systems.

Our SuperRack total server solutions offer a wide range of flexible accessory options including front, rear and side expansion units to provide modular solutions for system configuration.

SPM is designed specifically for HPC/Data Center cluster deployment and management.

For our rackmount server systems, we not only adhere to SSI specifications, but our customized specifications provide an advanced set of features that increase the functionality and flexibility of our products.

Our Battery Backup Power ("BBP") Module provides backup power to systems during an electricity outage and provides flexible backup power capability and reduces total cost of ownership.

Our Powerstick design provides the slim form factor of a redundant power supply that increases system computing and storage density across our multiple product lines.

Our Supermicro Global Services are comprised of customer support services and hardware enhanced services.

Both customer support services and hardware enhanced services develop and implement services solutions for our direct and OEM customers as well as our distributors.

We continue to invest in

As of June 30, 2017, we had 1,254 employees and 14 engineering consultants dedicated to research and development.

Our total research and development expenses were $144.0 million, $124.2 million, and $101.4 million for fiscal years 2017, 2016 and 2015, respectively.

For fiscal year 2017, our products were purchased by over 900 customers, in 110 countries.

In fiscal years 2016 and 2015, sales to SoftLayer, a division of IBM Corporation, represented 11.4% and 10.4%, respectively, of our total net sales.

As of June 30, 2017, our sales and marketing team consisted of 358 employees and 37 independent sales representatives in 23 locations worldwide.

Our long-lived assets located outside of the United States represented 22.1%, 24.0% and 23.8% of total long-lived assets in fiscal years 2017, 2016 and 2015, respectively.

products through direct sales and distribution channels.

Please see Part II, Item 8, Note 16, “Segment Reporting” to the consolidated financial statements in this Annual Report on Form 10-K for information regarding our international operations, and see Part II, Item 1A, “Risk Factors” for further information on risks attendant to our international operations.

The address of the site is www.sec.gov.

From time to time, we have been involved in various legal proceedings arising from the [removed: normal] course of business activities.

The complaint claimed that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 because of alleged misrepresentations and/or omissions in public statements which supposedly were revealed when we announced on August 31, 2015 that the filing of our Annual Report on Form 10-K for fiscal [added: year] 2015 would be delayed to allow us to complete an investigation into certain marketing expenses.

The court subsequently appointed New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund as lead plaintiff and it filed an amended complaint naming our Senior Vice President of Investor [removed: Relations,] [added: Relations] as an additional defendant.

[removed: Between late 2015 and 2017, we] [added: We] cooperated with the SEC in its investigation of marketing expenses that contained certain irregularities discovered by our management, which irregularities were disclosed on August 31, 2015.

We also received a subpoena from the SEC following the [added: publication of a] false and [removed: widely-discredited reporting] [added: widely discredited news article] in October 2018 [removed: by Bloomberg Businessweek] concerning our products.

On June 21, 2019, plaintiff filed a further amended complaint naming our former Senior Vice President of International Sales, Corporate Secretary, and Director as an additional defendant.

On July 26, 2019, we filed a motion to dismiss which remains pending.

The court approved the parties’ agreement to permit a further amendment of the complaint, which was filed on January 22, 2019.

For the fiscal year ended June 30, [removed: 2017][added: 2019]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S-T [removed: (§229.405] [added: (§232.405] of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files).

| Non-accelerated filer ¨ [removed: (Do not check if a smaller reporting company)] | | Smaller reporting company ¨ |

The aggregate market value of the registrant’s common stock held by non-affiliates, based upon the closing price of the common stock on December 31, [removed: 2016,] [added: 2018,] as reported by the [removed: Nasdaq Global Select] [added: OTC] Market, was [removed: $1,110,444,831.][added: $596,876,261.]

As of [removed: March 31,] [added: November 30,] 2019, there were [removed: 49,881,914] [added: 50,085,282] shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common stock of the registrant issued.

| | [Explanatory [removed: Note](#sB5E401CF9F57198B845789985B4BBBCF)] [added: Note](#sD0A14931AD1855CBB6BDEA57FEEA4800)] | [removed: [2](#sB5E401CF9F57198B845789985B4BBBCF)] [added: [2](#sD0A14931AD1855CBB6BDEA57FEEA4800)] |

| Item 1. | [removed: [Business](#sE39AA0A4A681BA78B1C48998685D3E6E)] [added: [Business](#sA578BD5545F355689063C6A6319F58C8)] | [removed: [3](#sE39AA0A4A681BA78B1C48998685D3E6E)] [added: [3](#sA578BD5545F355689063C6A6319F58C8)] |

| Item 1A. | [Risk [removed: Factors](#s6A9C31C45124A8F1F4F1899868FED936)] [added: Factors](#sE0C211C4E6885564879962A481DE6996)] | [removed: [11](#s6A9C31C45124A8F1F4F1899868FED936)] [added: [11](#sE0C211C4E6885564879962A481DE6996)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s0A0E20260BE0F881E95589986A8058F3)] [added: Comments](#sC8825EDAD9885DDFBFCF1081C6312DC2)] | [removed: [28](#s0A0E20260BE0F881E95589986A8058F3)] [added: [29](#sC8825EDAD9885DDFBFCF1081C6312DC2)] |

| Item 2. | [removed: [Properties](#s93FCB9DF3B2E7380C0C789986AA3C829)] [added: [Properties](#s4FEFBED5D5B458A996F27EA2C9BF2882)] | [removed: [28](#s93FCB9DF3B2E7380C0C789986AA3C829)] [added: [29](#s4FEFBED5D5B458A996F27EA2C9BF2882)] |

| Item 3. | [Legal [removed: Proceedings](#sFCA87BAF3B781815061F89986AD7785C)] [added: Proceedings](#s44F7D7136F4556A38BD376B1E93089BC)] | [removed: [29](#sFCA87BAF3B781815061F89986AD7785C)] [added: [29](#s44F7D7136F4556A38BD376B1E93089BC)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s3234737E481428CA84FE89986AF60F30)] [added: Disclosures](#s584434F9BA9B565681142DE0EDA1E13D)] | [removed: [30](#s3234737E481428CA84FE89986AF60F30)] [added: [30](#s584434F9BA9B565681142DE0EDA1E13D)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sF4C9F39FEB525A738C8B89986B400DDC)] [added: Securities](#s718D71E65DB25196B5BFB619ACEFFB74)] | [removed: [31](#sF4C9F39FEB525A738C8B89986B400DDC)] [added: [31](#s718D71E65DB25196B5BFB619ACEFFB74)] |

| Item 6. | [Selected Financial [removed: Data](#s5070B549D1942FA93438899859BBFA47)] [added: Data](#s2C7627875E065257A6885752BA316795)] | [removed: [33](#s5070B549D1942FA93438899859BBFA47)] [added: [33](#s2C7627875E065257A6885752BA316795)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s687C016014814EE7FA1489986C96BB7C)] [added: Operations](#sFE5C6F40CD755136BCD44DA42315624F)] | [removed: [35](#s687C016014814EE7FA1489986C96BB7C)] [added: [35](#sFE5C6F40CD755136BCD44DA42315624F)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s039BF49392230852DE8089986FB81FEC)] [added: Risk](#s5376AC4FA73A5604B1782BE6BD61F84C)] | [removed: [50](#s039BF49392230852DE8089986FB81FEC)] [added: [64](#s5376AC4FA73A5604B1782BE6BD61F84C)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s4BA376F0C04FEC38EF9B89986FD0AB40)] [added: Data](#s0E6C84166A7C52BEBD1673C557E62CE5)] | [removed: [51](#s4BA376F0C04FEC38EF9B89986FD0AB40)] [added: [66](#s0E6C84166A7C52BEBD1673C557E62CE5)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sB95D51AC64772AD4C37C89987C6F408C)] [added: Disclosure](#sE66C61839A6751CD92CAF9DC763AFCC7)] | [removed: [100](#sB95D51AC64772AD4C37C89987C6F408C)] [added: [111](#sE66C61839A6751CD92CAF9DC763AFCC7)] |

| Item 9A. | [Controls and [removed: Procedures](#s0E1BD44599D70EBACFBB89987C77B219)] [added: Procedures](#s013007C8C4005F538300C4374593FC0F)] | [removed: [100](#s0E1BD44599D70EBACFBB89987C77B219)] [added: [111](#s013007C8C4005F538300C4374593FC0F)] |

| Item 9B. | [Other [removed: Information](#s830FB9CFE9B9A25D58A089987C93F873)] [added: Information](#s10AEF1DE31045D99B1080C615C6D6964)] | [removed: [110](#s830FB9CFE9B9A25D58A089987C93F873)] [added: [120](#s10AEF1DE31045D99B1080C615C6D6964)] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s426865170AD7727EDC4A89987CD655DB)] [added: Governance](#s27960CED3689548AB262B8536FFFF41D)] | [removed: [110](#s426865170AD7727EDC4A89987CD655DB)] [added: [121](#s27960CED3689548AB262B8536FFFF41D)] |

| Item 11. | [Executive [removed: Compensation](#s74984FF7DA79138641AD89987D3149AE)] [added: Compensation](#s0C8431ED4E9B5B80B3539D1DA9E9C015)] | [removed: [117](#s74984FF7DA79138641AD89987D3149AE)] [added: [128](#s0C8431ED4E9B5B80B3539D1DA9E9C015)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s7B06813D6D882B1D2A2A899857E36B46)] [added: Matters](#s2B30CA7D394F5824AAACCAB22157314F)] | [removed: [128](#s7B06813D6D882B1D2A2A899857E36B46)] [added: [148](#s2B30CA7D394F5824AAACCAB22157314F)] |

| Item 13. | [Certain Relationships and Related Transactions and Director [removed: Independence](#s69B19D9511CC19AFC9CC89987F3C623D)] [added: Independence](#sC63B5AF9B2055898B645DF11172750A9)] | [removed: [130](#s69B19D9511CC19AFC9CC89987F3C623D)] [added: [150](#sC63B5AF9B2055898B645DF11172750A9)] |

| Item 14. | [Principal Accountant Fees and [removed: Services](#sF6448DFA1EE252532FE189987F5F5F26)] [added: Services](#s5344B95841FE58419818503804A6DFFB)] | [removed: [132](#sF6448DFA1EE252532FE189987F5F5F26)] [added: [152](#s5344B95841FE58419818503804A6DFFB)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s2F1D9C119C6A186447F489987F83E117)] [added: Schedules](#s69D4128A71985D59A7EB7E0ADB095BE7)] | [removed: [132](#s2F1D9C119C6A186447F489987F83E117)] [added: [153](#s69D4128A71985D59A7EB7E0ADB095BE7)] |

Prior to [added: the] filing [added: of] this Annual [removed: Report on Form 10-K,] [added: Report,] we filed [added: separate] Quarterly Reports on Form [removed: 10-Q/A] [added: 10-Q] for the quarterly periods ended [removed: March 31, 2017,] [added: September 30, 2018,] December 31, [removed: 2016,] [added: 2018,] and [removed: September 30, 2016, which included restatement of the condensed consolidated financial statements (and related disclosures) for] [added: March 31, 2019 (collectively,] the [removed: periods described therein, as set forth in those reports.][added: “2019 10-Qs”).]

This Annual Report [removed: on Form 10-K] contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended that involve risks and uncertainties.

In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report [removed: on Form 10-K] may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to [removed: publicly] update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

10-K 1 smci-2019630x10k.htm 10-K

FOR THE FISCAL YEAR ENDED JUNE 30, 2019

| | [Signatures](#sFA6D19347E705C1CAC15A2941AE41F1F) | [157](#sFA6D19347E705C1CAC15A2941AE41F1F) |

We are filing this comprehensive Annual Report on Form 10-K (this “Annual Report”) for the fiscal year ended June 30, 2019 with expanded financial and other disclosures in lieu of filing a separate Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and separate Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2017, December 31, 2017, and March 31, 2018.

This Annual Report is being filed to facilitate the dissemination of financial and other information to investors.

We do not intend to file a separate Annual Report on Form 10-K for the fiscal year ended June 30, 2018 or Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2017, December 31, 2017 and March 31, 2018.

We did not file our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (the “2017 10-K”) until May 17, 2019.

On that date we also filed amended Quarterly Reports on Form 10-Q/A for the quarters ended September 30, 2016, December 31, 2016 and March 31, 2017 (the “2017 Amended Quarterly Reports” and with the 2017 10-K, the “2017 Reports”).

Some of the financial statements contained in the 2017 Reports were restated.

The circumstances leading to the need to restate those financial statements, and our efforts to investigate, assess and remediate those matters, are more fully described in those reports.

Our delay in the filing of this Annual Report was primarily due to the time required to (a) complete the preparation of the 2017 Reports, including the restatement of certain of our previously issued consolidated financial statements; (b) prepare the financial statements for each of the quarters in our fiscal year ended June 30, 2018; (c) prepare and file the Quarterly Reports on Form 10-Q for each of the quarters in our fiscal year ended June 30, 2019; (d) prepare the consolidated financial statements for the fiscal years ended June 30, 2019 and 2018; and (e) prepare other disclosures contained herein.

10-K 1 smci-2017630x10kxa.htm 10-K

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| | [Signatures](#sF03E6486950DA0DF44AB89987FC35AE1) | [136](#sF03E6486950DA0DF44AB89987FC35AE1) |

This Annual Report on Form 10-K includes restatement of: (1) our consolidated balance sheet as of June 30, 2016 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years ended June 30, 2016 and 2015 in Part II, Item 8 of this Annual Report on Form 10-K; (2) our selected financial data as of and for our fiscal years ended June 30, 2016 and 2015 located in Part II, Item 6 of this Annual Report on Form 10-K; (3) our management’s discussion and analysis of financial condition and results of operations as of and for our fiscal years ended June 30, 2016 and 2015 contained in Part II, Item 7 of this Annual Report on Form 10-K; and (4) our quarterly financial information for the three months ended June 30, 2016 in Part II, Item 8, Note 17, “Quarterly Financial Information (Unaudited)” of the notes to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

See below and Part II, Item 8, Note 19, “Restatement of Previously Issued Consolidated Financial Statements” of the notes to the consolidated financial statements of this Annual Report on Form 10-K for a detailed discussion of the effect of the restatement.

We have not previously issued consolidated financial statements as of and for the year ended June 30, 2017, for the reasons set forth below under “Background of Restatement.” This Annual Report on Form 10-K includes our consolidated balance sheet as of June 30, 2017 and related consolidated statements of operations, comprehensive income, stockholders’ equity for the fiscal year then ended, and unaudited quarterly financial information for the quarter ended June 30, 2017.

Background of Restatement

In August 2017, prior to the issuance of our consolidated financial statements for the fiscal year ended June 30, 2017, the audit committee (the “Audit Committee”) of our Board of Directors (the “Board”) commenced an investigation (the “Investigation”) into certain accounting and internal control matters, principally focused on certain revenue recognition matters.

The Investigation was conducted with the assistance of outside counsel, which retained forensic accountants to assist them in their work.

Following the conclusion of the Investigation, the Audit Committee directed its outside counsel and its forensic accountants to conduct additional procedures on an expanded scope of revenue recognition matters.

Concurrent with these additional procedures, new members of our management, under the direction of the Audit Committee, performed a thorough analysis of our historical financial statements, accounting policies and financial reporting, as well as our disclosure controls and procedures and our internal control over financial reporting.

During the course of the Investigation, the further procedures by outside counsel and the management analysis (collectively, the “Investigation, Procedures and Analysis”), the Audit Committee and management determined certain employees had violated our Code of Business Conduct and Ethics and discovered accounting and financial reporting errors and certain irregularities.

On November 14, 2018, the Board, upon the recommendation, and with the concurrence of the Audit Committee and new members of management, concluded that certain previously filed consolidated financial statements and related financial information should no longer be relied upon.

The Investigation, Procedures and Analysis identified certain material weaknesses in our internal control over financial reporting.

See Part II, Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K for the conclusions of our Chief Executive Officer and Chief Financial Officer regarding disclosure controls and procedures and our internal control over financial reporting.

As of June 30, [removed: 2017,] [added: 2019,] we owned approximately [removed: 1,408,000] [added: 1,308,000] square feet and leased approximately [removed: 558,000] [added: 768,000] square feet of office and manufacturing space.

Our principal executive offices, research and development center and production operations are located in San Jose, California where we own approximately [removed: 1,197,000] [added: 1,097,000] square feet of office and manufacturing [removed: space which is subject to existing term loans and revolving line of credit with $123.2 million outstanding as of June 30, 2017.][added: space.]

Our European headquarters for manufacturing and service operations is located in Den Bosch, the Netherlands where we lease approximately [removed: 124,000] [added: 165,000] square feet of office and manufacturing space under [removed: two] [added: three] leases, which expire in July 2025 and June 2026.

These manufacturing facilities are subject to an existing term loan with [removed: $19.7] [added: $22.5] million remaining outstanding as of June 30, [removed: 2017.][added: 2019.]

Our research and development [removed: center and] [added: center,] service [removed: operations] [added: operations, and warehouse space] in Asia are located in an approximately [removed: 131,000] [added: 106,000] square feet facility in Taipei, Taiwan under eleven leases that expire at various dates ranging from [removed: May] [added: October] 2019 through [removed: January 2022.][added: July 2022 and an approximately 194,000 square feet facility in Taoyuan, Taiwan under seven leases that expire in December 2021.]

In addition, we lease approximately [removed: 2,000] [added: 3,000] square feet of office space in Japan under [removed: one lease,] [added: two leases,] which [removed: expires] [added: expire] in January [removed: 2020.][added: 2020 and April 2020, respectively.]

In fiscal [removed: year 2017,] [added: years 2018 and 2019,] we continued to engage several contractors for the development and construction of improvements on the property.

We financed this development through our operating cash flows and [removed: additional] borrowings from banks.

See Part II, Item 8, Note [removed: 9,] [added: 10,] “Short-term [removed: and Long-term Obligations”] [added: Debt”] to the consolidated financial statements in this Annual Report [removed: on Form 10-K] for a discussion of our company’s short-term [removed: and long-term obligations.][added: debt.]

Our long-lived assets located outside of the United States represented 21.5%, 22.9% and 22.1% of total long-lived assets in fiscal years 2019, 2018 and 2017, respectively.

See Part II, Item 8, Note 17, “Segment Reporting” to the consolidated financial statements in this Annual Report for a summary of long-lived assets by geographic region.

These facilities are subject to a revolving line of credit with $1.1 million outstanding as of June 30, 2019.

| | |

| --- | --- |

| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |

Market Information

Effective at the open of business on August 23, 2018, our common stock was suspended from trading on the Nasdaq Global Select Market.

Effective March 22, 2019, our common stock was delisted from the Nasdaq Global Select Market.

Since the date our common stock was suspended from trading on the Nasdaq Global Select Market, our common stock has been quoted on the OTC Market and is currently traded under the symbol “SMCI.” Any OTC Market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Prior to the suspension, we had traded on the Nasdaq Global Select Market since March 29, 2007, and prior to that time there was no public market for our common stock.

Holders

As of November 30, 2019, there were 31 registered stockholders of record of our common stock.

Because most of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these holders of record.

Dividend Policy

We have never declared or paid cash dividends on our capital stock.

We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Under the terms of the credit agreement with Bank of America, dated April 19, 2018, we may not pay any dividends.

Equity Compensation Plan

Please see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for disclosure relating to our equity compensation plans.

Stock Performance Graph

This performance graph shall not be deemed “soliciting material” or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Super Micro Computer, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.

The following graph compares our cumulative five-year total stockholder return on our common stock with the cumulative return of the Nasdaq Computer Index, the Nasdaq Composite Index and a new industry peer group, which we refer to as the FY2019 Peer Group, consisting of: Cray Inc., Extreme Networks, Inc., Infinera Corporation, NetApp, Inc., and NetGear, Inc. In selecting the companies for inclusion in the FY2019 Peer Group, we considered and selected companies with similar industry comparability, net revenues, and operating income as our company.

Due to our delisting from the Nasdaq Global Select Market on March 22, 2019, we have added the FY2019 Industry Peer Group.

The graph reflects an investment of $100 (with reinvestment of all dividends, if any) in our common stock, the Nasdaq Computer Index, the Nasdaq Composite Index and the FY2019 Peer Group, on June 30, 2014 and our relative performance tracked through June 30, 2019.

The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.


| | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | |

| | | 6/30/2014 | | | 6/30/2015 | | | 6/30/2016 | | | 6/30/2017 | | | 6/30/2018 | | | 6/30/2019 | |

| Super Micro Computer, Inc. | | 100.00 | | | 117.06 | | | 98.34 | | | 97.55 | | | 93.59 | | | 76.57 | |

| FY2019 Peer Group | | 100.00 | | | 105.68 | | | 101.44 | | | 109.63 | | | 169.32 | | | 140.32 | |

| Nasdaq Composite Index | | 100.00 | | | 113.13 | | | 109.86 | | | 139.30 | | | 170.37 | | | 181.62 | |

| Nasdaq Computer Index | | 100.00 | | | 110.81 | | | 112.37 | | | 153.16 | | | 198.30 | | | 214.60 | |

Recent Sales of Unregistered Securities

During fiscal years 2018 and 2019 we granted a consultant restricted stock units covering a total of 26,491 shares of our common stock for services rendered.

The restricted stock units were fully vested at the time of grant.

The issuances did not involve a public offering of securities and we believe that the transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

Issuer Purchases of Equity Securities

None.

The following selected consolidated financial data [removed: is qualified by reference to, and] should be read in conjunction [removed: with, our] [added: with Part I, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the] consolidated financial statements and [added: the] notes thereto [added: included] in Part II, Item 8, "Financial Statements and Supplementary Data" [removed: and “Management’s Discussion and Analysis] of [removed: Financial Condition and Results of Operations” in Part II, Item 7, of] this Annual Report [removed: on Form 10-K.][added: to fully understand factors that may affect the comparability of the information presented below.]

| | [removed: Fiscal] Years Ended June 30, | | | | | | | | | | | | [removed: Fiscal Years Ended June 30,] | | | | | | | [removed: | | | Fiscal Years Ended June 30, | | | | | | | | |]

| | [removed: 2017 | | | | 2016 | | | | 2015 | | | | 2014] [added: 2019] | | | | [added: 2018] | | | | [added: 2017] | | [removed: 2013] | | [added: 2016] | | | | [added: 2015] | | |

| | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Consolidated Statements of Operations Data: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Operating expenses: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Research and development | [removed: 143,992 | | | | 124,223 | | | | 101,402 | | | | 84,257] [added: 179,907] | | | [removed: 917] | [added: 165,104] | | [removed: 85,174] | | [added: 143,992] | | [removed: 75,208] | | [added: 124,223] | [removed: 60] | | | [removed: 75,268] [added: 101,402] | | |

| Sales and marketing | [removed: 66,445 | | | | 58,338 | | | | 47,496 | | | | 38,012] [added: 77,154] | | | [removed: 264] | [added: 71,579] | | [removed: 38,276] | | [added: 66,445] | | [removed: 33,785] | | [added: 58,338] | [removed: 108] | | | [removed: 33,893] [added: 47,496] | | |

| General and administrative | [removed: 44,646 | | | | 40,449 | | | | 25,040 | | | | 23,017] [added: 141,228] | | | [removed: (192] | [added: 98,597] | [removed: )] | [removed: 22,825] | | [added: 44,646] | | [removed: 23,902] | | [added: 40,449] | [removed: 4] | | | [removed: 23,906] [added: 25,040] | | |

| Income from operations | [removed: 94,875 | | | | 107,491 | | | | 132,646 | | | | 80,259] [added: 97,233] | | | [removed: (7,416] | [added: 94,714] | [removed: )] | [removed: 72,843] | | [added: 94,875] | | [removed: 27,158] | | [added: 107,491] | [removed: (3,016] | | [removed: )] | [removed: 24,142] [added: 132,646] | | |

| Other income (expense), net | [removed: (1,287] [added: (1,020] | | ) | | [removed: 1,507 | | | | 956 | | | | 92 | | | — |] [added: (773] | | [removed: 92] [added: )] | | [added: (984] | | [removed: 48] [added: )] | | [added: 1,507] | [removed: —] | | | [removed: 48] [added: 956] | | |

| Interest expense | [removed: (2,300 | | ) | | (1,594 | | ) | | (965] [added: (6,690] | | ) | | [removed: (757] [added: (5,726] | | ) | [removed: —] | [removed: | | (757] [added: (2,300] | | ) | | [removed: (610] [added: (1,594] | | ) | [removed: —] | [removed: | | (610] [added: (965] | | ) |

| Income before income tax provision | [removed: 91,288 | | | | 107,404 | | | | 132,637 | | | | 79,594] [added: 89,523] | | | [removed: (7,416] | [added: 88,215] | [removed: )] | [removed: 72,178] | | [added: 91,591] | | [removed: 26,596] | | [added: 107,404] | [removed: (3,016] | | [removed: )] | [removed: 23,580] [added: 132,637] | | |

| Income tax provision | [removed: 24,434 | | | | 35,323 | | |] [added: (14,884] | [removed: 40,082] | [added: )] | | [added: (38,443] | [removed: 25,437] | [added: )] | | [removed: (1,342] [added: (24,434] | | ) | [removed: 24,095] | [removed: | |] [added: (35,323] | [removed: 5,317] | [added: )] | | [removed: (473] [added: (40,082] | | ) | [removed: 4,844 | | |]

| Net income per common share: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Basic | $ | [removed: 1.38 | | | $ | 1.50 | | | $ | 1.99] [added: 1.44] | | | $ | [removed: 1.24 | |] [added: 0.94] | | | $ | [removed: 1.10] [added: 1.38] | | | $ | [removed: 0.50 | |] [added: 1.50] | | | $ | [removed: 0.45] [added: 1.99] | |

| Diluted | $ | [removed: 1.29 | | | $ |] 1.39 | | | $ | [removed: 1.85 | | | $ | 1.16 | |] [added: 0.89] | | | $ | [removed: 1.03] [added: 1.29] | | | $ | [removed: 0.48 | |] [added: 1.39] | | | $ | [removed: 0.43] [added: 1.85] | |

| Shares used in per share calculation: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Basic | [removed: 48,383 | | | | 47,917 | | | | 46,434 | | | | 43,599] [added: 49,917] | | | | [added: 49,345] | | [removed: 43,599] | | [added: 48,383] | | [removed: 41,992] | | [added: 47,917] | | | | [removed: 41,992] [added: 46,434] | | |

| Diluted | [removed: 51,679 | | | | 51,836 | | | | 50,094 | | | | 46,512] [added: 51,716] | | | | [added: 52,151] | | [removed: 46,512] | | [added: 51,679] | | [removed: 43,907] | | [added: 51,836] | | | | [removed: 43,907] [added: 50,094] | | |

| Stock-based compensation: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Cost of sales | $ | [removed: 1,382 | | | $ | 1,157 | | | $ | 962] [added: 1,663] | | | $ | [removed: 941 | | $] [added: 1,812] | [removed: (21] | [removed: )] | $ | [removed: 920] [added: 1,382] | | | $ | [removed: 953 | | $] [added: 1,157] | [removed: (21] | [removed: )] | $ | [removed: 932] [added: 962] | |

| Research and development | [removed: 12,559 | | | | 10,651 | | | | 9,195 | | | | 6,783] [added: 12,981] | | | [removed: 147] | [added: 13,893] | | [removed: 6,930] | | [added: 12,559] | | [removed: 6,527] | | [added: 10,651] | [removed: (144] | | [removed: )] | [removed: 6,383] [added: 9,195] | | |

| Sales and marketing | [removed: 2,144 | | | | 1,934 | | | | 1,601 | | | | 1,260] [added: 1,805] | | | [removed: (26] | [added: 1,980] | [removed: )] | [removed: 1,234] | | [added: 2,144] | | [removed: 1,541] | | [added: 1,934] | [removed: (34] | | [removed: )] | [removed: 1,507] [added: 1,601] | | |

| General and administrative | [removed: 3,580 | | | | 3,188 | | | | 2,678 | | | | 2,078] [added: 4,735] | | | [removed: (100] | [added: 6,971] | [removed: )] | [removed: 1,978] | | [added: 3,580] | | [removed: 2,340] | | [added: 3,188] | [removed: (52] | | [removed: )] | [removed: 2,288] [added: 2,678] | | |

| Total stock-based compensation | $ | [removed: 19,665 | | | $ | 16,930 | | | $ | 14,436] [added: 21,184] | | | $ | [removed: 11,062 | | $] [added: 24,656] | [removed: —] | | $ | [removed: 11,062] [added: 19,665] | | | $ | [removed: 11,361 | | $] [added: 16,930] | [removed: (251] | [removed: )] | $ | [removed: 11,110] [added: 14,436] | |

| | As of June 30, | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| | (in thousands) | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Cash and cash equivalents | $ | [removed: 110,606 | | | $ | 178,820 | | | $ | 92,920] [added: 248,164] | | | $ | [removed: 96,872 | | $] [added: 115,377] | [removed: (1,390] | [removed: )] | $ | [removed: 95,482] [added: 110,606] | | | $ | [removed: 93,038 | | $] [added: 178,820] | [removed: (1,306] | [removed: )] | $ | [removed: 91,732] [added: 92,920] | |

We derived the selected consolidated balance sheet data as of June 30, 2019 and 2018, and the consolidated statement of operations data for the years ended June 30, 2019, 2018 and 2017 from our audited consolidated financial statements and accompanying notes included in this Annual Report.

The consolidated balance sheet data as of June 30, 2017, 2016 and 2015, and the consolidated statement of operations data for the years ended June 30, 2016 and 2015 are derived from our audited consolidated financial statements which are not included in this Annual Report.

Operating results for any year are not necessarily indicative of results to be expected for any future periods.

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| Net sales | $ | 3,500,360 | | | $ | 3,360,492 | | | $ | 2,484,929 | | | $ | 2,225,022 | | | $ | 1,954,353 | |

| Cost of sales | 3,004,838 | | | | 2,930,498 | | | | 2,134,971 | | | | 1,894,521 | | | | 1,647,769 | | |

| Gross profit | 495,522 | | | | 429,994 | | | | 349,958 | | | | 330,501 | | | | 306,584 | | |

| Total operating expenses | 398,289 | | | | 335,280 | | | | 255,083 | | | | 223,010 | | | | 173,938 | | |

| Share of loss from equity investee, net of taxes | (2,721 | | ) | | (3,607 | | ) | | (303 | | ) | | — | | | | — | | |

| Net income | $ | 71,918 | | | $ | 46,165 | | | $ | 66,854 | | | $ | 72,081 | | | $ | 92,555 | |

| | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| Working capital | 815,802 | | | | 719,321 | | | | 588,636 | | | | 544,698 | | | | 438,144 | | |

| Total assets | 1,682,594 | | | | 1,769,505 | | | | 1,515,130 | | | | 1,191,483 | | | | 1,122,031 | | |

| Long-term obligations | 135,449 | | | | 114,296 | | | | 68,754 | | | | 85,200 | | | | 26,062 | | |

| Total stockholders’ equity | 941,176 | | | | 843,652 | | | | 773,846 | | | | 696,653 | | | | 593,585 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | (As Revised) (1) | | | | (As Revised) (1) | | | | As Reported | | | Adjustments (2) | | | As Adjusted | | | | As Reported | | | Adjustments (2) | | | As Adjusted | | |

| Net sales | $ | 2,484,929 | | | $ | 2,225,022 | | | $ | 1,954,353 | | | $ | 1,467,202 | | $ | (17,037 | ) | $ | 1,450,165 | | | $ | 1,162,561 | | $ | (15,332 | ) | $ | 1,147,229 | |

| Cost of sales | 2,134,971 | | | | 1,894,521 | | | | 1,647,769 | | | | 1,241,657 | | | (10,610 | | ) | 1,231,047 | | | | 1,002,508 | | | (12,488 | | ) | 990,020 | | |

| Gross profit | 349,958 | | | | 330,501 | | | | 306,584 | | | | 225,545 | | | (6,427 | | ) | 219,118 | | | | 160,053 | | | (2,844 | | ) | 157,209 | | |

| Total operating expenses | 255,083 | | | | 223,010 | | | | 173,938 | | | | 145,286 | | | 989 | | | 146,275 | | | | 132,895 | | | 172 | | | 133,067 | | |

| Net income | $ | 66,854 | | | $ | 72,081 | | | $ | 92,555 | | | $ | 54,157 | | $ | (6,074 | ) | $ | 48,083 | | | $ | 21,279 | | $ | (2,543 | ) | $ | 18,736 | |

__________________________

(1) See Part II, Item 8, Note 19, "Restatement of Previously Issued Consolidated Financial Statements", in our notes to the consolidated financial statements.

(2) The adjustments are similar in nature to those discussed in Part II, Item 8, Note 19, "Restatement of Previously Issued Consolidated Financial Statements", in our notes to the consolidated financial statements.

| | | | | | (As Revised) (1) | | | | (As Revised) (2) | | | | As Reported | | | Adjustments (2) | | | As Adjusted | | | | As Reported | | | Adjustments (2) | | | As Adjusted | | |

| Working capital | 588,636 | | | | 544,698 | | | | 438,144 | | | | 343,195 | | | (14,255 | | ) | 328,940 | | | | 281,528 | | | (9,437 | | ) | 272,091 | | |

| Total assets | 1,515,130 | | | | 1,191,483 | | | | 1,122,031 | | | | 796,325 | | | 29,970 | | | 826,295 | | | | 632,257 | | | 38,412 | | | 670,669 | | |

| Long-term obligations | 68,754 | | | | 85,200 | | | | 26,062 | | | | 16,208 | | | 4,710 | | | 20,918 | | | | 16,869 | | | 2,121 | | | 18,990 | | |

| Total stockholders’ equity | 773,846 | | | | 696,653 | | | | 593,585 | | | | 469,231 | | | (17,072 | | ) | 452,158 | | | | 373,724 | | | (10,999 | | ) | 362,725 | | |

| | |

| --- | --- |

| (1) | See Part II, Item 8, Note 19, "Restatement of Previously Issued Consolidated Financial Statements", in our notes to the consolidated financial statements. |

| (2) | The adjustments are similar in nature to those discussed in Part II, Item 8, Note 19, "Restatement of Previously Issued Consolidated Financial Statements", in our notes to the consolidated financial statements. |

INDEX TO CONSOLIDATED FINANCIAL [removed: STATEMENTS*][added: STATEMENTS]

| [Report of Independent Registered Public Accounting [removed: Firm](#sF65EA4B02BED66BCF46C899870022A8C)] [added: Firm](#s1ED6CD27F0875B9A9E7E469F34243E0E)] | [removed: [52](#sF65EA4B02BED66BCF46C899870022A8C)] [added: [67](#s1ED6CD27F0875B9A9E7E469F34243E0E)] |

| [Consolidated Balance [removed: Sheets](#sB65DAF4FAF6CBBBA9F238998235E34F2)] [added: Sheets](#sDF5D7330ABF95F7EB0D0F26052214326)] | [removed: [53](#sB65DAF4FAF6CBBBA9F238998235E34F2)] [added: [71](#sDF5D7330ABF95F7EB0D0F26052214326)] |

| [Consolidated Statements of [removed: Operations](#s85346E6DA5F9DB22CE09899823CDB27E)] [added: Operations](#s233F7B56E9325431BFCE3EE7A7DADFA2)] | [removed: [54](#s85346E6DA5F9DB22CE09899823CDB27E)] [added: [72](#s233F7B56E9325431BFCE3EE7A7DADFA2)] |

| [Consolidated Statements of Comprehensive [removed: Income](#s52559EF33EB1C546C37D89982452D9FB)] [added: Income](#s7034767BE92E5EE895DABA98BC650A3B)] | [removed: [55](#s52559EF33EB1C546C37D89982452D9FB)] [added: [73](#s7034767BE92E5EE895DABA98BC650A3B)] |

| [Consolidated Statements of Stockholders’ [removed: Equity](#sC721A6349C115E66F9218998246C6957)] [added: Equity](#s043B781422A15B5FAA46E3C16122F410)] | [removed: [56](#sC721A6349C115E66F9218998246C6957)] [added: [74](#s043B781422A15B5FAA46E3C16122F410)] |

| [Consolidated Statements of Cash [removed: Flows](#s49E208E2C2449863057089982540D15B)] [added: Flows](#s13D5F7E5983D5CBA808FFC1522B23EF1)] | [removed: [57](#s49E208E2C2449863057089982540D15B)] [added: [75](#s13D5F7E5983D5CBA808FFC1522B23EF1)] |

| [Notes to Consolidated Financial [removed: Statements](#s6D344B54E34E6794B9A18998721DAE1C)] [added: Statements](#s10233E1EF33C5358B01764C9E4BCA980)] | [removed: [58](#s6D344B54E34E6794B9A18998721DAE1C)] [added: [77](#s10233E1EF33C5358B01764C9E4BCA980)] |

To the [added: Stockholders and the] Board of Directors [removed: and Stockholders] of [added: Super Micro Computer, Inc.]

We have audited the accompanying consolidated balance sheets of Super Micro Computer, Inc. and subsidiaries (the [removed: “Company”)] [added: "Company")] as of June 30, [removed: 2017 and 2016,] [added: 2019] and [added: 2018,] the related consolidated statements of operations, comprehensive income, [removed: stockholders’] [added: stockholders'] equity, and cash [removed: flows] [added: flows,] for each of the three years in the period ended June 30, [removed: 2017.][added: 2019, and the related notes (collectively referred to as the "financial statements").]

Our responsibility is to express an opinion on [removed: these] [added: the Company's] financial statements based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

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

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of [removed: Super Micro Computer, Inc. and subsidiaries] [added: the Company] as of June 30, [removed: 2017] [added: 2019] and [removed: 2016,] [added: 2018,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended June 30, [removed: 2017,] [added: 2019,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the Company's internal control over financial reporting as of June 30, [removed: 2017,] [added: 2019,] based on [removed: the] criteria established in Internal Control [removed: -Integrated] [added: - Integrated] Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission [added: (COSO)] and our report dated [removed: May 16, 2019] [added: December 19, 2019,] expressed an adverse opinion on the [removed: Company's] [added: Company’s] internal control over financial reporting because of material weaknesses.

| Prepaid expenses and other current assets (including receivables from related parties of [removed: $13,327] [added: $21,302] and [removed: $9,622] [added: $24,016] at June 30, [removed: 2017] [added: 2019] and [removed: 2016,] [added: 2018,] respectively) | [removed: 89,213] [added: 109,795] | | | | [removed: 79,427] [added: 110,856] | | |

| Investment in equity investee | [removed: 6,067] [added: 1,701] | | | | [removed: —] [added: 2,376] | | |

| Deferred income taxes, net | [removed: 39,119] [added: 41,126] | | | | [removed: 33,678] [added: 25,583] | | |

| Income taxes payable | [removed: 1,364] [added: 13,021] | | | | [removed: 5,054] [added: 7,191] | | |

[removed: | Long-term debt | — | | | | 40,000 | | |][added: Short-term Debt]

| Other long-term liabilities (including related party balance of [removed: $4,900] [added: $3,000] and [removed: $0] [added: $3,500] at June 30, [removed: 2017] [added: 2019] and [removed: 2016,] [added: 2018,] respectively) | [removed: 68,754] [added: 26,183] | | | | [removed: 45,200] [added: 24,565] | | |

| Commitments and contingencies (Note [removed: 14)] [added: 15)] | | | | | | | |

| Treasury stock (at cost), 1,333,125 [removed: and 445,028] shares at June 30, [removed: 2017] [added: 2019] and [removed: 2016, respectively] [added: 2018] | (20,491 | | ) | | [removed: (2,030] [added: (20,491] | | ) |

| Accumulated other comprehensive [removed: loss] [added: (loss) income] | [removed: (77] [added: (80] | | ) | | [removed: (85] [added: 165] | | [removed: )] |

| Total Super Micro Computer, Inc. stockholders’ equity | [removed: 773,676] [added: 941,015] | | | | [removed: 696,469] [added: 843,495] | | |

| [removed: Total liabilities and stockholders’ equity] [added: LIABILITIES AND STOCKHOLDERS' EQUITY] | [removed: $] | [removed: 1,515,130] | | | [removed: $] | [removed: 1,191,483] | | [added: | | | |]

| | Years Ended June 30, | | | | | | | | | [added: 2019 over 2018] | | [added: | 2018 over 2017 | |]

| Net sales (including related party sales of [removed: $33,821, $29,110] [added: $69,906, $68,637] and [removed: $47,684] [added: $33,821] in fiscal years [removed: 2017, 2016] [added: 2019, 2018] and [removed: 2015,] [added: 2017,] respectively) | $ | [removed: 2,484,929] [added: 3,500,360] | | | $ | [removed: 2,225,022] [added: 3,360,492] | | | $ | [removed: 1,954,353] [added: 2,484,929] | |

| Cost of sales (including related party purchases of [removed: $236,062, $242,638] [added: $276,843, $262,747,] and [removed: $227,661] [added: $236,062] in fiscal years [removed: 2017, 2016] [added: 2019, 2018] and [removed: 2015,] [added: 2017,] respectively) | [removed: 2,134,971] [added: 3,004,838] | | | | [removed: 1,894,521] [added: 2,930,498] | | | | [removed: 1,647,769] [added: 2,134,971] | | |

| Sales and marketing | [removed: 66,445] [added: 77,154] | | | | [removed: 58,338] [added: 71,579] | | | | [removed: 47,496] [added: 66,445] | | |

| General and administrative | [removed: 44,646] [added: 141,228] | | | | [removed: 40,449] [added: 98,597] | | | | [removed: 25,040] [added: 44,646] | | |

| Income from operations | [removed: 94,875] [added: 97,233] | | | | [removed: 107,491] [added: 94,714] | | | | [removed: 132,646] [added: 94,875] | | |

| Interest expense | [removed: (2,300] [added: (6,690] | | ) | | [removed: (1,594] [added: (5,726] | | ) | | [removed: (965] [added: (2,300] | | ) |

| Income tax provision | [removed: 24,434] [added: (14,884] | | [added: )] | | [removed: 35,323] [added: (38,443] | | [added: )] | | [removed: 40,082] [added: (24,434] | | [added: )] |

| Net income | $ | [removed: 66,854] [added: 71,918] | | | $ | [removed: 72,081] [added: 46,165] | | | $ | [removed: 92,555] [added: 66,854] | |

| Diluted | $ | [removed: 1.29] [added: 1.39] | | | $ | [removed: 1.39] [added: 0.89] | | | $ | [removed: 1.85] [added: 1.29] | |

| Basic | [removed: 48,383] [added: 49,917] | | | | [removed: 47,917] [added: 49,345] | | | | [removed: 46,434] [added: 48,383] | | |

| Other comprehensive [removed: income (loss),] [added: (loss) income,] net of tax: | | | | | | | | | | | |

Opinion on the Financial Statements

Change in Accounting Principle

As discussed in Note 1 to the financial statements, effective July 1, 2018, the Company has changed its method of accounting for revenue due to adoption of Accounting Standards Codification Topic 606 (ASU No. 2014-09), Revenue from Contracts with Customers, and all subsequent amendments (collectively, “ASC 606”).

The Company adopted ASC 606 using the modified retrospective approach.

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Related Party Transactions - Variable Interest Entity Primary Beneficiary Determination - Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company has a variety of business relationships defined by various agreements with Ablecom Technology, Inc. (“Ablecom”) and its affiliate, Compuware Technology, Inc. ("Compuware").

Purchases from Ablecom and Compuware were $144.5 million and $139.6 million, respectively, for the fiscal year ended June 30, 2019.

Net sales to Compuware as a distributor were $17.7 million for the fiscal year ended June 30, 2019.

The Company concluded that Ablecom and Compuware are variable interest entities (VIEs) and that it is not the primary beneficiary as it does not have the power to direct the activities that are most significant to Ablecom and Compuware.

Therefore, the Company does not consolidate Ablecom and Compuware.

The Company considered its explicit arrangements with Ablecom and Compuware, including its supplier arrangements, and as a result of the substantial related party relationships between the Company, Ablecom and Compuware, the Company also considered whether any implicit arrangements exist that would cause the Company to protect those related parties’ interests from suffering losses.

We identified management’s conclusion that it is not the primary beneficiary as a critical audit matter because of the judgments necessary for management to determine whether any explicit and implicit arrangements exist that would cause the Company to protect those related parties’ interest from absorbing losses, as well as the material weaknesses identified by the Company in all five components of Internal Control - Integrated Framework (2013) issued by COSO.

This required extensive audit effort due to the complexity and variety of related party relationships with Ablecom and Compuware and required a high degree of auditor judgment when performing audit procedures to audit the Company’s conclusion that it is not the primary beneficiary.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s conclusion that it is not the primary beneficiary included the following, among others:

| • | We evaluated and tested whether the arrangements are accurately considered and that arrangements have been included in the consideration by comparing those related parties we had identified during our audit procedures for proper inclusion in the Company’s evaluation and performed inspection of source documents on a sample basis. |

| • | We tested management’s assertion that it does not have the power to direct the activities that are most significant to, or obligation to absorb the losses of, Ablecom and Compuware by reviewing all agreements and transactions between the parties. |

| • | We obtained confirmations directly from Ablecom and Compuware regarding the nature of their business relationships with the Company, the extent of power, if any, held by the Company over the most significant activities of Ablecom and Compuware’s businesses, and the existence of any implicit arrangements that may have a bearing on the Company’s ability to have power over Ablecom and Compuware. |

As a result of the material weaknesses identified by the Company in all five components of Internal Control - Integrated Framework (2013) issued by COSO, we increased the extent of testing around the Company’s procedures for assessing whether the arrangements with Ablecom and Compuware are off market or whether they force Ablecom and Compuware to absorb losses.

We also increased the extent of testing to determine if there are any agreements that provide the Company with power to direct the activities that are most significant to Ablecom and Compuware.

Inventories - Excess and Obsolescence Reserve - Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The Company’s inventories are stated at weighted average cost, subject to lower of cost or net realizable value, and as necessary, the Company writes down the valuation of inventories for excess and obsolescence.

The provision for excess and obsolete inventory for the fiscal year ended June 30, 2019, was $28.5 million.

We identified the excess and obsolescence reserve as a critical audit matter because of the judgments management makes to estimate the excess and obsolescence reserve, as well as the material weaknesses identified by the Company in all five components of Internal Control - Integrated Framework (2013) issued by COSO.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of the excess and obsolescence reserve.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s excess and obsolescence reserve included the following procedures, among others:

| • | We gained an understanding and evaluated the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process. |

| • | We evaluated the assumptions used by the Company to define what is considered aged inventory by assessing historical trends in the Company’s product life cycle as well as evaluating the underlying calculations applied to the aged inventory. |

| • | We evaluated the inventory valuation utilizing the methodology above to assess the inventory reserve rate applied to different aging buckets. |

As a result of the Company’s material weaknesses identified by the Company in all five components of Internal Control - Integrated Framework (2013) issued by COSO, we increased the extent of testing on reports derived from the Company’s systems and applications.

Revenue - Refer to Note 3 to the financial statements

*The consolidated financial statements for the fiscal years ended June 30, 2016 and 2015 have been restated as further discussed in Note 19, "Restatement of Previously Issued Consolidated Financial Statements."

Super Micro Computer, Inc.

San Jose, California

As discussed in Note 19 to the consolidated financial statements, the accompanying 2016 and 2015 consolidated financial statements have been restated to correct misstatements.

As discussed in Note 11 to the consolidated financial statements, the Company has significant purchases from and sales to two related parties.

May 16, 2019

| | 2017 | | | | 2016 | | |

| | | | | | (As Restated- see Note 19) | | |

| Cash and cash equivalents | $ | 110,606 | | | $ | 178,820 | |

| Accounts receivable, net of allowances of $2,699 and $2,413 at June 30, 2017 and 2016, respectively (including amounts receivable from related parties of $6,877 and $49 at June 30, 2017 and 2016, respectively) | 324,004 | | | | 174,933 | | |

| Inventories | 736,668 | | | | 516,807 | | |

| Prepaid income taxes | 675 | | | | 4,341 | | |

| Total current assets | 1,261,166 | | | | 954,328 | | |

| Long-term investments | 2,625 | | | | 2,643 | | |

| Property, plant and equipment, net | 195,576 | | | | 187,949 | | |

| Other assets | 10,577 | | | | 12,885 | | |

| Total assets | $ | 1,515,130 | | | $ | 1,191,483 | |

| Accounts payable (including amounts due to related parties of $55,928 and $44,941 at June 30, 2017 and 2016, respectively) | $ | 396,895 | | | $ | 267,391 | |

| Accrued liabilities (including amounts due to related parties of $8,450 and $5,354 at June 30, 2017 and 2016, respectively) | 112,824 | | | | 83,596 | | |

| Short-term debt and current portion of long-term debt, net of debt issuance costs | 161,447 | | | | 53,589 | | |

| Total current liabilities | 672,530 | | | | 409,630 | | |

| Total liabilities | 741,284 | | | | 494,830 | | |

| Issued shares: 50,273,527 and 48,999,717 at June 30, 2017 and 2016, respectively | 308,271 | | | | 279,465 | | |

| Retained earnings | 485,973 | | | | 419,119 | | |

| Noncontrolling interest | 170 | | | | 184 | | |

| Total stockholders’ equity | 773,846 | | | | 696,653 | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 2017 | | | | 2016 | | | | 2015 | | |

| | | | | | (As Restated- see Note 19) | | | | (As Restated- see Note 19) | | |

| Gross profit | 349,958 | | | | 330,501 | | | | 306,584 | | |

| Research and development | 143,992 | | | | 124,223 | | | | 101,402 | | |

| Total operating expenses | 255,083 | | | | 223,010 | | | | 173,938 | | |

| Other income (expense), net | (1,287 | | ) | | 1,507 | | | | 956 | | |

| Income before income tax provision | 91,288 | | | | 107,404 | | | | 132,637 | | |

| Basic | $ | 1.38 | | | $ | 1.50 | | | $ | 1.99 | |

| Diluted | 51,679 | | | | 51,836 | | | | 50,094 | | |

| Unrealized gains (losses) on investments | (11 | | ) | | 5 | | | | (8 | | ) |

| Balance at June 30, 2014 (As previously reported) | 45,739,936 | | | $ | 199,062 | | | (445,028 | ) | | $ | (2,030 | ) | | $ | (63 | ) | | $ | 272,087 | | | $ | 175 | | | $ | 469,231 | |

| Cumulative restatement adjustments | — | | | 531 | | | | — | | | — | | | | — | | | | (17,604 | | ) | | — | | | | (17,073 | | ) |

[removed: In August 2017, prior] [added: Prior] to the issuance of the Company’s consolidated financial statements for the fiscal year ended June 30, 2017, the audit committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) [removed: commenced an investigation (the “Investigation”) into] [added: investigated and assessed] certain accounting and internal control matters at the Company, principally focused on certain revenue recognition matters.

[removed: Concurrently with these additional procedures,] [added: Concurrently,] new members of the Company’s management, under the direction of the Audit Committee, performed a thorough analysis of the Company’s historical financial statements, accounting policies and financial reporting, as well as the Company’s disclosure controls and procedures and its internal control over financial reporting.

In connection with the preparation and filing of this Annual Report on Form 10-K, we have conducted the requisite evaluations of the effectiveness of our disclosure controls and procedures and of our internal control over financial [removed: reporting] [added: reporting,] both as of June 30, [removed: 2017.][added: 2019.]

Under the supervision, and with the participation, of our [removed: current] management, including our [removed: CEO] [added: Chief Executive Officer (“CEO”)] and [removed: CFO,] [added: Chief Financial Officer (“CFO”),] we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, [removed: 2017.][added: 2019.]

Based on this evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of June 30, [removed: 2017] [added: 2019] because of certain material weaknesses in our internal control over financial reporting, as further described below.

Notwithstanding the conclusion by our CEO and CFO that our disclosure controls and procedures as of June 30, [removed: 2017] [added: 2019] were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Annual Report [removed: on Form 10-K] fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Management, including our CEO and CFO, assessed our internal control over financial reporting as of June 30, [removed: 2017.][added: 2019.]

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in [added: its] Internal Control - Integrated Framework (2013) (the “COSO Framework”).

Based on this assessment, management has determined that we did not maintain effective internal control over financial reporting as of June 30, [removed: 2017] [added: 2019] because of the material weaknesses described below.

In connection with management’s assessment of the Company’s internal control over financial reporting described above, management has identified the deficiencies described below that [removed: constituted] [added: constitute] material weaknesses in our internal control over financial reporting as of June 30, [removed: 2017.][added: 2019.]

[removed: We have] [added: The Company has] identified deficiencies in the control environment component of the COSO Framework that [removed: constitute] [added: constituted] material weaknesses, either individually or in the aggregate.

Due to the interdependencies between the COSO Framework components, the [removed: weaknesses] [added: material weakness] in our control environment contributed to other material weaknesses within our system of internal control over financial reporting.

We [removed: have] identified deficiencies in the risk assessment component of the COSO Framework that [removed: aggregate] [added: aggregated] to a material weakness.

These deficiencies related to the principles associated with the risk assessment component of the COSO Framework, specifically principles within the component related to: (i) identifying, assessing, and communicating appropriate control objectives, (ii) identifying and analyzing risks to achieve these objectives, (iii) contemplating fraud risks, and (iv) identifying and assessing changes in the business that could impact [removed: our] [added: the] system of internal controls.

We [removed: have] identified deficiencies in the control activities component of the COSO Framework that [removed: aggregate] [added: aggregated] to a material weakness.

These deficiencies related to principles associated with the control activities component of the COSO Framework, specifically principles within the component related to (i) selecting and developing control activities that mitigate [removed: risks] [added: risks,] (ii) selecting and developing general controls over technology and (iii) deploying control activities through policies that establish what is expected and procedures that put policies into action.

Deficiencies in control activities contributed to [removed: material accounting errors, and] the potential for there to have been material accounting [removed: errors,] [added: errors] in substantially all financial statements account balances and disclosures.

We [removed: have] identified deficiencies in the information and communication component of the COSO Framework that [removed: aggregate] [added: aggregated] to a material weakness.