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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
(MARK ONE)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the quarterly period ended December 31, 2020

OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission file number 001-34717
__________________________
Alpha and Omega Semiconductor Limited

(Exact name of Registrant as Specified in its Charter)
Bermuda 77-0553536
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
Clarendon House, 2 Church Street
Hamilton HM 11, Bermuda
(Address of Principal Registered
Offices including Zip Code)
(408) 830-9742
(Registrant's Telephone Number, Including Area Code)
__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒     No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐
    (Do not check if a smaller reporting company)
Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares AOSL The NASDAQ Global Select Market


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Number of common shares outstanding as of January 25, 2021: 25,770,99825,770,998



Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal Second Quarter Ended December 31, 2020
TABLE OF CONTENTS
 
    Page
Part I.
    Item 1.
1
1
2
3
4
6
7
    Item 2.
30
    Item 3.
43
    Item 4.
43
Part II.
    Item 1.
44
    Item 1A.
44
    Item 2.
45
    Item 3.
46
    Item 4.
46
    Item 5.
46
    Item 6.
47
48



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
  December 31,
2020 		June 30,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 180,966  $ 158,536 
Restricted cash 230  2,190 
Accounts receivable, net 24,934  13,272 
Inventories 144,307  135,528 
Other current assets 10,833  8,807 
Total current assets 361,270  318,333 
Property, plant and equipment, net 430,808  412,340 
Operating lease right-of-use assets, net 34,395  32,948 
Intangible assets, net 15,090  16,770 
Deferred income tax assets 4,852  4,766 
Restricted cash - long-term 2,143  1,978 
Other long-term assets 4,607  5,804 
Total assets $ 853,165  $ 792,939 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 83,859  $ 86,181 
Accrued liabilities 60,483  54,986 
Income taxes payable 2,166  1,360 
Short-term debt 43,574  30,114 
Finance lease liabilities 16,535  15,258 
Operating lease liabilities 4,896  4,159 
Total current liabilities 211,513  192,058 
Long-term debt 93,096  99,775 
Income taxes payable - long-term 921  903 
Deferred income tax liabilities 860  496 
Finance lease liabilities - long-term 20,821  26,842 
Operating lease liabilities - long-term 31,102  30,254 
Other long-term liabilities 20,196  10,723 
Total liabilities 378,509  361,051 
Commitments and contingencies (Note 10)
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at December 31, 2020 and June 30, 2020
—  — 
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 32,394 shares and 25,765 shares, respectively at December 31, 2020 and 31,944 shares and 25,305 shares, respectively at June 30, 2020
65  64 
Treasury shares at cost: 6,629 shares at December 31, 2020 and 6,639 shares at June 30, 2020
(66,097) (66,184)
Additional paid-in capital 254,980  246,103 
Accumulated other comprehensive income (loss) 1,481  (5,127)
Retained earnings 141,289  118,833 
Total Alpha and Omega Semiconductor Limited shareholder's equity 331,718  293,689 
Noncontrolling interest 142,938  138,199 
Total equity 474,656  431,888 
Total liabilities and equity $ 853,165  $ 792,939 

See accompanying notes to these condensed consolidated financial statements.
1
Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
Revenue $ 158,830  $ 117,860  $ 310,381  $ 235,662 
Cost of goods sold 110,081  93,454  219,109  184,324 
Gross profit 48,749  24,406  91,272  51,338 
Operating expenses
Research and development 15,423  12,147  30,114  24,515 
Selling, general and administrative 19,736  15,629  37,241  30,814 
Total operating expenses 35,159  27,776  67,355  55,329 
Operating income (loss) 13,590  (3,370) 23,917  (3,991)
Interest expense and other income (loss), net (381) (635) (930) (1,462)
Income (loss) before income taxes 13,209  (4,005) 22,987  (5,453)
Income tax expense 669  568  1,680  978 
Net income (loss) including noncontrolling interest 12,540  (4,573) 21,307  (6,431)
Net loss attributable to noncontrolling interest (363) (3,568) (1,170) (6,435)
Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ 12,903  $ (1,005) $ 22,477  $ 4 
Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic $ 0.50  $ (0.04) $ 0.88  $ 0.00 
Diluted $ 0.47  $ (0.04) $ 0.84  $ 0.00 
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share
Basic 25,672  24,701  25,506  24,620 
Diluted 27,353  24,701  26,834  25,362 

See accompanying notes to these condensed consolidated financial statements.

2
Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)

Three Months Ended December 31, Six Months Ended December 31,
2020 2019 2020 2019
Net income (loss) including noncontrolling interest $ 12,540  $ (4,573) $ 21,307  $ (6,431)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 6,814  3,055  12,517  (3,096)
Comprehensive income (loss) 19,354  (1,518) 33,824  (9,527)
Less: Noncontrolling interest 2,824  (2,150) 4,739  (7,985)
Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited $ 16,530  $ 632  $ 29,085  $ (1,542)

See accompanying notes to these condensed consolidated financial statements.

3
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands)

Common Shares
Treasury Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss) Retained Earnings
Total AOS Shareholders' Equity Noncontrolling Interest Total Equity
Balance, September 30, 2020 $ 64  $ (66,171) $ 248,967  $ (2,146) $ 128,394  $ 309,108  $ 140,114  $ 449,222 
Exercise of common stock options and release of restricted stock units —  —  1,495  —  —  1,495  —  1,495 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units —  74  —  —  (8) 66  —  66 
Withholding tax on restricted stock units —  —  (541) —  —  (541) —  (541)
Issuance of shares under ESPP 1  —  1,635  —  —  1,636  —  1,636 
Share-based compensation —  —  2,424  —  —  2,424  —  2,424 
Restricted stock units settlement in connection with service —  —  1,000  —  —  1,000  —  1,000 
Net income (loss) —  —  —  —  12,903  12,903  (363) 12,540 
Cumulative translation adjustment —  —  —  3,627  —  3,627  3,187  6,814 
Balance, December 31, 2020 $ 65  $ (66,097) $ 254,980  $ 1,481  $ 141,289  $ 331,718  $ 142,938  $ 474,656 
Common Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total AOS Shareholders' Equity Noncontrolling Interest Total Equity
Balance, June 30, 2020 $ 64  $ (66,184) $ 246,103  $ (5,127) $ 118,833  $ 293,689  $ 138,199  $ 431,888 
Exercise of common stock options and release of restricted stock units —  —  1,495  —  —  1,495  —  1,495 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units —  87  —  —  (21) 66  —  66 
Withholding tax on restricted stock units —  —  (953) —  —  (953) —  (953)
Issuance of shares under ESPP 1  —  1,635  —  —  1,636  —  1,636 
Share-based compensation —  —  4,700  —  —  4,700  —  4,700 
Restricted stock units settlement in connection with service —  —  2,000  —  —  2,000  —  2,000 
Net income (loss) —  —  —  —  22,477  22,477  (1,170) 21,307 
Cumulative translation adjustment —  —  —  6,608  —  6,608  5,909  12,517 
Balance, December 31, 2020 $ 65  $ (66,097) $ 254,980  $ 1,481  $ 141,289  $ 331,718  $ 142,938  $ 474,656 
4
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands)
Common Shares
Treasury Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss) Retained Earnings
Total AOS Shareholders' Equity Noncontrolling Interest Total Equity
Balance, September 30, 2019 $ 62  $ (66,227) $ 236,683  $ (5,876) $ 126,481  $ 291,123  $ 146,430  $ 437,553 
Exercise of common stock options and release of restricted stock units —  —  26  —  —  26  —  26 
Withholding tax on restricted stock units —  —  (99) —  —  (99) —  (99)
Issuance of shares under ESPP 1  —  1,700  —  —  1,701  —  1,701 
Share-based compensation —  —  2,487  —  —  2,487  —  2,487 
Net loss —  —  —  —  (1,005) (1,005) (3,568) (4,573)
Cumulative translation adjustment —  —  —  1,637  —  1,637  1,418  3,055 
Balance, December 31, 2019 $ 63  $ (66,227) $ 240,797  $ (4,239) $ 125,476  $ 295,870  $ 144,280  $ 440,150 
Common Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total AOS Shareholders' Equity Noncontrolling Interest Total Equity
Balance, June 30, 2019 $ 62  $ (66,240) $ 234,410  $ (2,693) $ 125,485  $ 291,024  $ 152,265  $ 443,289 
Exercise of common stock options and release of restricted stock units —  —  26  —  —  26  —  26 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units —  13  —  —  (13) —  —  — 
Withholding tax on restricted stock units —  —  (195) —  —  (195) —  (195)
Issuance of shares under ESPP 1  —  1,700  —  —  1,701  —  1,701 
Share-based compensation —  —  4,856  —  —  4,856  —  4,856 
Net income (loss) —  —  —  —  4  4  (6,435) (6,431)
Cumulative translation adjustment —  —  —  (1,546) —  (1,546) (1,550) (3,096)
Balance, December 31, 2019 $ 63  $ (66,227) $ 240,797  $ (4,239) $ 125,476  $ 295,870  $ 144,280  $ 440,150 


See accompanying notes to these condensed consolidated financial statements.

5
Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended December 31,
2020 2019
Cash flows from operating activities
Net income (loss) including noncontrolling interest $ 21,307  $ (6,431)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 25,689  21,754 
Share-based compensation expense 6,100  4,856 
Deferred income taxes, net 278  (148)
Loss on disposal of property and equipment 40  89 
Changes in assets and liabilities:
Accounts receivable, net (11,662) (9,576)
Inventories (8,779) (4,856)
Other current and long-term assets (1,793) 940 
Accounts payable (370) (5,676)
Income taxes payable 824  453 
Accrued and other liabilities 14,299  6,306 
Net cash provided by operating activities 45,933  7,711 
Cash flows from investing activities
Purchases of property and equipment excluding JV Company (14,842) (20,354)
Purchases of property and equipment in JV Company (9,926) (12,067)
Proceeds from sale of property and equipment 10  — 
Government grant related to equipment 119  1,254 
Net cash used in investing activities (24,639) (31,167)
Cash flows from financing activities
Withholding tax on restricted stock units (953) (195)
Proceeds from exercise of stock options and ESPP 3,197  1,727 
Proceeds from borrowings 31,008  33,708 
Repayments of borrowings (29,912) (20,863)
Principal payments on finance leases (8,119) (3,403)
Net cash provided by (used in) financing activities (4,779) 10,974 
Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,120  (347)
Net increase (decrease) in cash, cash equivalents and restricted cash 20,635  (12,829)
Cash, cash equivalents and restricted cash at beginning of period 162,704  124,295 
Cash, cash equivalents and restricted cash at end of period $ 183,339  $ 111,466 
Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid $ 12,621  $ 18,165 

See accompanying notes to these condensed consolidated financial statements.
6
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The Company and Significant Accounting Policies
The Company

Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”, "AOS", "we" or "us") design, develop and supply a broad range of power semiconductors. The Company's portfolio of products targets high-volume applications, including personal and portable computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, quick chargers, home appliances, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment. The Company conducts its operations primarily in the United States of America (“USA”), Hong Kong, China, and South Korea.
Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X, as amended. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods. Operating results for the three and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021 or any other interim period. The condensed consolidated balance sheets at June 30, 2020 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Reclassification

The Company has reclassified certain amounts previously reported in its financial statements to conform to the current presentation. These reclassifications did not have a material impact on our consolidated financial statements.

Joint Venture

On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility ("Fab") in the LiangJiang New Area of Chongqing, China (the “JV Transaction”). The Fab is being built in phases.  As of December 31, 2020, the Company owns 51%, and the Chongqing Funds own 49% of the equity interest in the JV Company. The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has controlling financial interest. If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10% simple annual rate prior to distributing the balance of the JV Company's assets to the Company. The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication.

Certain Significant Risks and Uncertainties Related to Outbreak of Coronavirus Disease 2019 (“COVID-19”)

The COVID-19 pandemic has had and continues to have a negative impact on business and economic activities across the globe. As a result of the COVID-19 pandemic and the global economic downturn and changing consumer behaviors due to various restrictions imposed by governments, the Company has experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone and industrial products, as more consumers are staying at and working from home. While the Company has recently benefited from the
7
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax COVID-19 related restrictions. Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persists, consumer spending may slow down substantially, in which case the Company may experience a significant decline of customer orders for its products, including those designed for PC-related applications, and such decline will adversely affect its financial conditions and results of operations. The extent to which the COVID-19 pandemic may impact the Company's business will depend on future developments which are uncertain, such as the duration of the outbreak, travel restrictions, governmental mandates issued to mitigate the spread of the disease, business closures, economic disruptions, and the effectiveness of actions taken to contain and treat the virus. Accordingly, the COVID-19 pandemic may have a negative impact on the Company's sales and results of operations, the size and duration of which is difficult to predict.

Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. To the extent there are material differences between these estimates and actual results, the Company's condensed consolidated financial statements will be affected. On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as the economic implications of the COVID-19 pandemic.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and long-term operating lease liabilities on the Company's condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current finance lease liabilities and long-term finance leases liabilities on the condensed consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease expense is generally recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation. The Company does not record leases on the condensed consolidated balance sheet with a term of one year or less.

Revenue recognition

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied. The Company recognizes revenue when product is shipped to the customer, net of estimated stock rotation returns and price adjustments to certain distributors.

Packaging and testing services revenue is recognized upon shipment of serviced products to the customer.

Share-based Compensation Expense

The Company maintains an equity-settled, share-based compensation plan to grant restricted share units and stock options. The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. The fair value of restricted share units is based on the fair value of the Company's common share on the date of grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model. The fair value of stock options is estimated
8
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period.
Restricted Cash

As a condition of the loan agreement, the Company is required to keep a compensating balance at the issuing bank (see Note 5). In addition, the Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations including the possibility of a dispute with a vendor. These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s condensed consolidated balance sheets. As of December 31, 2020 and June 30, 2020, the amount of restricted cash was $2.4 million and $4.2 million, respectively.
Fair Value of Financial Instruments

The fair value of cash equivalents is categorized in Level 1 in the fair value hierarchy. Cash equivalents consist primarily of short-term bank deposits. The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term maturities. The carrying value of the company's debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities, structure, credit risk and terms of the debts.

Government Grants

The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China. These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits, as well as business expansion credits. Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant. As a result of such grants, during the three and six months ended December 31, 2020, the Company reduced interest expense by $0.7 million and $1.5 million, property, plant and equipment by $0.1 million and $0.1 million, and operating expenses by $1.7 million and $3.6 million, respectively. During the three and six months ended December 31, 2019, the Company reduced interest expense by $1.1 million and $3.4 million, property, plant and equipment by $1.3 million and $1.3 million, and operating expenses by $0.5 million and $0.5 million, respectively.

Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes indicate that the carrying amount of such assets may not be recoverable. Due to the COVID-19 pandemic, the Company assessed the changes in circumstances that occurred since the March 2020 quarter. These factors included operating losses, a decrease in the Company's share price in February and March of 2020, which reduced its market capitalization, expectation of lower business growth for the coming quarters, increased and prolonged economic and regulatory uncertainty in the global economies, and the expectation of higher supply chain costs and increased competition. Therefore, the Company performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of its long-lived assets to their carrying amount as of June 30, 2020. Some of the more significant assumptions used in the estimated future cash flows include net sales, cost of goods sold, operating expenses, working capital, capital expenditures, income tax rates, and long-term growth rates that appropriately reflects the risks inherent in the future cash flow stream. The Company selected the assumptions used in the financial forecasts by referencing to historical data, supplemented by current and anticipated market conditions, estimated product growth rates and management's plans. These estimated future cash flows were consistent with those the Company uses in its internal planning. The result of the recoverability test indicated that the sum of the expected future cash flows (undiscounted and without interest charges) was greater than the carrying amount of the long-lived assets. Therefore, the Company concluded that the carrying amount of the long-lived assets is recoverable as of June 30, 2020.

9
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments. Total comprehensive income (loss) is presented in the condensed consolidated statements of comprehensive income (loss).

Recent Accounting Pronouncements
    
Recently Issued Accounting Standards not yet adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher than shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No. 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12") by removing certain exceptions to the general principles. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impacts of adoption of the new guidance to its consolidated financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 had no material impact on the Company's consolidated financial statements.

10
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13”). ASU 2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 had no material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326). Topic 326 adds to U.S. GAAP the current expected credit loss ("CECL") model, a measurement model based on expected losses rather than incurred losses. Under this new standard, an entity recognizes its estimate of expected credit losses as an allowance. The new standard is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit loss models that entities use to account for debt instruments. The new guidance significantly changes the accounting for credit losses. The Company adopted ASU 2016-13 using the modified-retrospective approach in the first quarter of fiscal 2021 with no impact to its condensed consolidated financial statements.

The adoption of Topic 326 did not significantly change the Company's approach to the valuation of trade receivables. The Company determines whether there is an expected loss on its accounts receivable by reviewing all available data, including its customers' latest available financial statements, their credit standing and historical collection experience, as well as current and future market and economic conditions. As of December 31, 2020, the allowance for credit losses on the Company's trade receivables remained immaterial.


11
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Net Income (Loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited
The following table presents the calculation of basic and diluted net income (loss) per share attributable to common shareholders:
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
(in thousands, except per share data)
Numerator:
Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ 12,903  $ (1,005) $ 22,477  $ 4 
Denominator:
Basic:
Weighted average number of common shares used to compute basic net income per share 25,672  24,701  25,506  24,620 
Diluted:
Weighted average number of common shares used to compute basic net income per share 25,672  24,701  25,506  24,620 
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares 1,681  —  1,328  742 
Weighted average number of common shares used to compute diluted net income per share 27,353  24,701  26,834  25,362 
Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited:
Basic $ 0.50  $ (0.04) $ 0.88  $ 0.00 
Diluted $ 0.47  $ (0.04) $ 0.84  $ 0.00 
The following potential dilutive securities were excluded from the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
(in thousands) (in thousands)
Employee stock options and RSUs 7  2,040  66  337 
ESPP 35  868  134  597 
Total potential dilutive securities 42  2,908  200  934 

3. Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application and review of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.
Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.

12
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the past, the Company shipped its product indirectly to Huawei and its affiliates (collectively, “Huawei”) through distributors. Typically, the Company sold its products to distributors who then sold to original design manufacturers (“ODMs”) that incorporated our products into end applications that were then shipped to Huawei. While distributor point of sale reports summarize distributor sales to ODMs, the Company must make certain assumptions and estimates in order to determine the amount of revenues attributed to indirect shipment to Huawei.  During the fiscal year ended June 30, 2019, the estimated revenues attributed to indirect shipments to Huawei were approximately 2% of total revenues. During the period from May 2019 to December 2019, estimated revenues earned by the Company from shipments indirectly made to Huawei were in the range of $11 million to $13 million. The Company has not shipped any products to Huawei after December 31, 2019. See Note 10.
Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:
Three Months Ended December 31, Six Months Ended December 31,
Percentage of revenue 2020 2019 2020 2019
Customer A 28.4  % 31.3  % 28.6  % 30.0  %
Customer B 36.4  % 37.0  % 34.8  % 36.0  %

  December 31,
2020 		June 30,
2020
Percentage of accounts receivable
Customer A 17.4  % *
Customer B 14.4  % *
Customer C 23.6  % 29.8  %
Customer D 10.0  % *
Customer E * 20.1  %
Customer F * 10.4  %
Customer G * 10.3  %
Customer H * 10.9  %

* Less than 10%
13
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Balance Sheet Components
Accounts receivable, net:
  December 31,
2020 		June 30,
2020
(in thousands)
Accounts receivable $ 47,995  $ 43,394 
Less: Allowance for price adjustments (23,031) (30,092)
Less: Allowance for doubtful accounts (30) (30)
Accounts receivable, net $ 24,934  $ 13,272 

Inventories:
  December 31,
2020 		June 30,
2020
(in thousands)
Raw materials $ 58,903  $ 55,377 
Work in-process 65,680  61,863 
Finished goods 19,724  18,288 
  $ 144,307  $ 135,528 

Other current assets:
December 31,
2020 		June 30,
2020
(in thousands)
VAT receivable $ 2,194  $ 1,639 
Other prepaid expenses 2,976  1,900 
Prepaid insurance 1,956  1,520 
Prepaid maintenance 746  587 
Prepayment to supplier 990  938 
Prepaid income tax 1,790  1,991 
Customs deposit —  163 
Other receivables 181  69 
$ 10,833  $ 8,807 



14
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property, plant and equipment, net:
  December 31,
2020 		June 30,
2020
(in thousands)
Land $ 4,877  $ 4,877 
Building 63,696  58,875 
Manufacturing machinery and equipment 493,487  447,079 
Equipment and tooling 26,661  25,398 
Computer equipment and software 40,004  38,779 
Office furniture and equipment 3,744  3,529 
Leasehold improvements 73,716  68,224 
Land use rights 9,213  8,502 
  715,398  655,263 
Less: accumulated depreciation (324,344) (291,515)
  391,054  363,748 
Equipment and construction in progress 39,754  48,592 
Property, plant and equipment, net $ 430,808  $ 412,340 

Intangible assets, net:
December 31,
2020 		June 30,
2020
(in thousands)
Patents and technology rights $ 18,037  $ 18,037 
Trade name 268  268 
Customer relationships 1,150  1,150 
19,455  19,455 
Less: accumulated amortization (4,634) (2,954)
14,821  16,501 
Goodwill 269  269 
Intangible assets, net $ 15,090  $ 16,770 

Estimated future minimum amortization expense of intangible assets is as follows (in thousands):
Year ending June 30,
2021 (Remaining) $ 1,680 
2022 3,360 
2023 3,286 
2024 3,249 
2025 3,246 
$ 14,821 
15
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other long-term assets:
December 31,
2020 		June 30,
2020
(in thousands)
Prepayments for property and equipment $ 1,140  $ 2,242 
Investment in a privately held company 100  100 
Customs deposit 1,184  1,662 
Other long-term deposits 916  850 
Office leases deposits 1,103  766 
Other 164  184 
  $ 4,607  $ 5,804 
Accrued liabilities:
December 31,
2020 		June 30,
2020
(in thousands)
Accrued compensation and benefits $ 29,115  $ 19,968 
Warranty accrual 767  709 
Stock rotation accrual 3,893  3,358 
Accrued professional fees 2,678  5,868 
Accrued inventory 1,157  775 
Accrued facilities related expenses 1,682  1,831 
Accrued property, plant and equipment 9,924  11,039 
Other accrued expenses 5,757  8,017 
Customer deposit 4,663  2,813 
ESPP payable 847  608 
  $ 60,483  $ 54,986 
The activities in the warranty accrual, included in accrued liabilities, are as follows:
Six Months Ended December 31,
2020 2019
(in thousands)
Beginning balance $ 709  $ 623 
Additions 239  130 
Utilization (181) (102)
Ending balance $ 767  $ 651 
The activities in the stock rotation accrual, included in accrued liabilities, are as follows:
Six Months Ended December 31,
2020 2019
(in thousands)
Beginning balance $ 3,358  $ 1,921 
Additions 4,180  5,990 
Utilization (3,645) (4,075)
Ending balance $ 3,893  $ 3,836 
16
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other long-term liabilities:
  December 31,
2020 		June 30,
2020
(in thousands)
Customer deposits $ 15,000  * $ 8,000  *
Computer software liabilities 960  1,897 
Equipment liabilities 1,804  — 
Deferred payroll taxes 2,432  826 
Other long-term liabilities $ 20,196  $ 10,723 

* Customer deposits are from Customer A and Customer B for securing future product shipments from the Company.
17
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Bank Borrowings

Short-term borrowings

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China. The JV Company can borrow up to Chinese Renminbi ("RMB") 50.0 million, or $7.6 million, based on the currency exchange rate between RMB and U.S. Dollar on November 13, 2020. The loan's interest rates are based on the China one-year loan prime rate ("LPR") plus 1.4% per annum. Interest payments are due quarterly with the entire principal due not later than November 19, 2021. During the three months ended December 31, 2020, the JV Company borrowed RMB 50.0 million, or $7.7 million, at an interest rate of 5.25% per annum. As of December 31, 2020, the outstanding balance of this loan was $7.7 million.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow a maximum of RMB 100.0 million (approximately $14.3 million based on the currency exchange rate between RMB and U.S. Dollar on April 15, 2020), in the amount in RMB or USD. Interest payments are due on the 20th of each month, and the entire principal is due on April 16, 2021. The loan consists of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that is collateralized by eligible accounts receivable. During the three months ended December 31, 2020, the JV Company borrowed $12.1 million at a fixed interest rate of 2.7% per annum. As of December 31, 2020, the total outstanding balance under the loan was $15.2 million which included RMB 20 million or $3.1 million borrowed during the three months ended June 30, 2020.

In October 2019, the Company's subsidiary in China entered into a line of credit facility with Bank of Communications Limited in China. This line of credit matures on February 14, 2021 and is based on the China Base Rate multiplied by 1.05, or 4.99% on October 31, 2019. The purpose of the credit facility is to provide short-term borrowings. The Company could borrow up to approximately RMB 60.0 million or $8.5 million based on the currency exchange rate between the RMB and the U.S. Dollar on October 31, 2019. In October 2020, this line of credit was renewed with the same terms and a maturity date of April 21, 2022. As of December 31, 2020, there was no outstanding balance under the loan.

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million, respectively, or $14.5 million in total based on the currency exchange rate between RMB and U.S. Dollar on December 31, 2018, at varying interest rates. On January 20, 2020, the JV Company renewed the loan agreements with the same terms. Interest payments are due monthly and quarterly with the entire principal due not later than January 21, 2021. As of December 31, 2020, there was no outstanding balance under the loan.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expired on September 30, 2019. The purpose of the credit facility was to provide short-term borrowings. The Company could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018. In December 2020, this line of credit was renewed with the same terms and a maturity date of December 31, 2021. As of December 31, 2020, there was no outstanding balance under the loan.

Accounts Receivable Factoring Agreement

On August 9, 2019, one of the Company's wholly-owned subsidiaries (the "Borrower") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited ("HSBC"), whereby the Borrower assigns certain of its accounts receivable with recourse. This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million. The interest rate is based on one month London Interbank Offered Rate ("LIBOR") plus 1.75% per annum. The Company is the guarantor for this agreement. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing. This agreement, with certain financial covenants required, has no expiration date. The Borrower was in compliance with these covenants as of December 31, 2020. During the three and six months ended December 31, 2020, the Company borrowed $7.0 million and $36.7 million, respectively, and repaid each amount in full. As of December 31, 2020, there was no outstanding balance and the Company had unused credit of approximately $30.0 million.


18
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Credit Facilities

On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”).  Pursuant to the Agreements, the Lenders agreed to provide an aggregate of RMB 400.0 million, or $62.8 million based on the currency exchange rate between RMB and U.S. Dollar on the Effective Date, of financing to the JV Company (the “Lease Financing”). In exchange for the Lease Financing, the JV Company agreed to transfer title of its assembly and testing equipment to the Lenders, and the Lenders leased such equipment to the JV Company under a five-year lease arrangement, pursuant to which the JV Company makes quarterly lease payments to the Lenders consisting of principal and interest based on a repayment schedule mutually agreed by the parties.  The interest under the Lease Financing is accrued based on the China Base Rate multiplied by 1.15, or 5.4625% on the Effective Date.  Under the Agreements, at the end of the five-year lease term, the Lenders agree to sell such equipment back to the JV Company for a nominal amount (RMB 1).  The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”).  The proceeds from the Lease Financing were used primarily for the acquisition and installation of the 12-inch fabrication equipment and other expenses of the JV Company relating to the completion of the fabrication facility located in Chongqing. The Agreements contain customary representation, warranties and covenants, including restrictions on the transfer of the Collateral. The Agreements also contain customary events of default, including but not limited to, failure to make payments and breach of material terms under the Agreements. The Agreements include certain customary closing conditions, including the payment of deposit by the JV Company. On June 28, 2020, the parties entered into a modification to this agreement, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125%, or 5.4625%. Other terms of this agreement remain the same. As of December 31, 2020, the outstanding balance of the Lease Financing of 244.0 million RMB (equivalent of $37.4 million based on the currency exchange rate as of December 31, 2020) was recorded under short-term and long-term finance lease liabilities.

See future minimum lease payment table for finance lease liabilities in Note 6.

Long-term debt

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million (approximately $35.7 million based on the currency exchange rate between RMB and U.S. Dollar on April 26, 2020). The obligation under the loan agreement is secured by certain assets of the JV Company. Beginning December 18, 2020, the JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024. Interest payments are due on March 20, June 20, September 20 and December 20 of each year based on the LPR plus 1.3%. The JV Company drew down RMB 250 million (approximately $35.3 million based on the currency exchange rate between RMB and U.S. Dollar on June 30, 2020) in April 2020. As of December 31, 2020, the outstanding balance of the loan was $36.0 million.

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $24.0 million. The obligation under the loan agreement is secured by certain assets of the JV Company. Beginning December 18, 2020, the JV Company will make consecutive semi-annual payments of principal until December 8, 2024. The interest is accrued based on the LIBOR rate plus 2.8%. The interest is required to be paid on March 21 and September 21 each year. As of December 31, 2020, the outstanding balance of the loan was $21.6 million.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $29.8 million based on currency exchange rate between RMB and U.S. Dollar on March 31, 2019). The loan will mature on February 20, 2025. The JV Company drew down RMB 190 million and RMB 10 million in March 2019 and December 2019, respectively. The loan withdraw window expired on February 28, 2020. The interest is accrued based on the China Base Rate multiplied by 1.1, or 5.39%. The loan requires quarterly interest payments. The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019. This loan is secured by the buildings and certain equipment owned by the JV Company. As a condition of the loan arrangement, 14 million RMB (approximately $2.0 million) of cash is held as restricted cash by the JV Company as a compensating balance at the bank until the principal is paid. On June 24, 2020, a modification of this loan was signed, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74%, or 5.39%. Other terms
19
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of this loan remain the same. As of December 31, 2020, the outstanding balance of the loan was 189 million RMB (equivalent of $28.9 million based on the currency exchange rate as of December 31, 2020).

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in the amount of $17.8 million. The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company.  The loan has a five-year term and matures on June 1, 2023. Beginning June 1, 2018, Jireh made consecutive monthly payments of principal and interest to the Bank. The outstanding principal accrues interest at a fixed rate of 5.04% per annum on the basis of a 360-day year. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios. The Company was in compliance with these covenants as of December 31, 2020. As of December 31, 2020, the outstanding balance of the term loan was $15.5 million.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for the Company's fabrication facility located in Oregon.  The obligation under the credit agreement is secured by substantially all assets of Jireh and guaranteed by the Company.  The credit agreement has a five-year term and matures on August 15, 2022. In January 2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million and $16.7 million, respectively. Beginning in October 2018, Jireh is required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments.  The loan accrues interest based on an adjusted LIBOR as defined in the credit agreement, plus a specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan.  The credit agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio. The Company was in compliance with these covenants as of December 31, 2020. As of December 31, 2020, the outstanding balance of the term loan was $13.0 million.

Maturities of short-term debt and long-term debt were as follows (in thousands):
Year ending June 30,
2021 (Remaining) $ 24,784 
2022 35,127 
2023 38,256 
2024 24,125 
2025 15,566 
Total principal 137,858 
Less: debt issuance costs (1,188)
Total principal, less debt issuance costs $ 136,670 
Short-term Debt Long-term Debt
Principal amount $ 44,060  $ 93,798 
Less: debt issuance costs (486) (702)
Total debt, less debt issuance costs $ 43,574  $ 93,096 

20
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Leases

The Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date. Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities and operating lease liabilities - long-term on the Company's condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the condensed consolidated balance sheets. The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate at lease commencement. The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments. Operating leases are primarily related to offices, research and development facilities, sales and marketing facilities, and manufacturing facilities. In addition, long-term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term. The finance lease is related to the RMB 400.0 million of lease financing of the JV Company with YinHai Leasing Company and The Export-Import Bank of China. See Note 5 - Bank Borrowings for details. The Company does not record leases on the condensed consolidated balance sheets with a term of one year or less.
The components of the Company’s operating and finance lease expenses are as follows for the periods presented (in thousands):

Six Months Ended December 31,
2020 2019
Operating Leases:
     Fixed rent expense $ 3,407  $ 2,614 
     Variable rent expense 419  421 
Finance Lease:
     Amortization of equipment 1,149  1,716 
     Interest 1,187  1,457 
Short-term leases
     Short-term lease expenses 107  152 
               Total lease expenses $ 6,269  $ 6,360 

21
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental balance sheets information related to the Company’s operating and finance leases is as follows (in thousands, except lease term and discount rate):

December 31,
2020 		June 30,
2020
Operating Leases:
     ROU assets associated with operating leases $ 34,395  $ 32,948 
Finance Lease:
     Property, plant and equipment, gross $ 113,108  $ 104,374 
     Accumulated depreciation (94,607) (86,540)
          Property, plant and equipment, net $ 18,501  $ 17,834 
Weighted average remaining lease term (in years)
     Operating leases 8.87 9.57
     Finance lease 2.22 2.72
Weighted average discount rate
     Operating leases 4.50  % 4.45  %
     Finance lease 5.46  % 5.46  %

Supplemental cash flow information related to the Company’s operating and finance lease is as follows (in thousands):

Six Months Ended December 31,
2020 2019
Cash paid from amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases $ 3,341  $ 2,541 
     Operating cash flows from finance lease $ 1,187  $ 1,457 
     Financing cash flows from finance lease $ 8,119  $ 3,403 
Non-cash investing and financing information:
    Operating lease right-of-use assets obtained in exchange for lease obligations $ 2,824  $ 16,088 

Future minimum lease payments are as follows as of December 31, 2020 (in thousands):

Operating Leases Finance Leases
The remainder of fiscal 2021 $ 3,088  $ 9,241 
2022 6,697  17,803 
2023 5,561  12,904 
2024 4,292  — 
2025 3,617  — 
Thereafter 21,458  — 
Total minimum lease payments 44,713  39,948 
Less amount representing interest (8,715) (2,592)
Total lease liabilities $ 35,998  $ 37,356 


22
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Shareholders' Equity and Share-based Compensation
Share Repurchase

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed the Company to repurchase its common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of the Company's common shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. From time to time, treasury shares may be reissued as part of the Company's share-based compensation programs. Gains on re-issuance of treasury stock are credited to additional paid-in capital; losses are charged to additional paid-in capital to offset the net gains, if any, from previous sales or re-issuance of treasury stock. Any remaining balance of the losses is charged to retained earnings.

During the six months ended December 31, 2020, the Company did not repurchase any shares pursuant to the Repurchase Program. Since the inception of the program, the Company repurchased an aggregate of 6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses.  No repurchased shares have been retired. Of the 6,784,648 repurchased shares, 155,670 shares with a weighted average repurchase price of $10.19 per share, were reissued at an average price of $5.37 per share pursuant to option exercises and vested restricted share units ("RSU"). As of December 31, 2020, approximately $13.4 million remained available under the Repurchase Program.
Time-based Restricted Stock Units ("TRSU")
The following table summarizes the Company's TRSU activities for the six months ended December 31, 2020:
  Number of Restricted Stock
Units 		Weighted Average
Grant Date Fair
Value Per Share 		Weighted Average
Remaining
Contractual
Term (Years) 		Aggregate Intrinsic Value
Nonvested at June 30, 2020 932,138  $ 11.36  1.66 $ 10,141,661 
Granted 211,635  $ 17.70 
Vested (181,460) $ 16.27 
Forfeited (13,375) $ 10.47 
Nonvested at December 31, 2020 948,938  $ 11.85  1.29 $ 22,432,894 

Market-based Restricted Stock Units ("MSUs")

During the quarter ended September 30, 2018, the Company granted 1.3 million market-based restricted stock units ("MSUs") to certain personnel. The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the recipients remaining in continuous service with the Company through such period. The MSUs vest in four equal annual installments after the end of each performance period. The Company estimated the grant date fair values of its MSUs using a Monte-Carlo simulation model. On August 31, 2020, the Compensation Committee of the Board approved a modification of the terms of MSU to (i) extend the performance period through December 31, 2022 and (ii) change the commencement date for the four-year time-based service period to January 1, 2023. The fair value of these MSUs was recalculated to reflect the change as of August 31, 2020 and the unrecognized compensation amount was adjusted to reflect the increase in fair value. The incremental expenses for the three and six months ended December 31, 2020 were immaterial. The Company recorded approximately $0.4 million and $0.6 million of expenses for MSUs during the three and six months ended December 31, 2020, respectively, and approximately $0.1 million and $0.3 million during the three and six months ended December 31, 2019, respectively.

Performance-based Restricted Stock Units ("PRSUs")

In March each year since year 2017, the Company granted performance-based RSUs (“PRSUs”) to certain personnel. The number of shares to be earned under the PRSUs is determined based on the level of attainment of predetermined financial goals. The PRSUs vest in four equal annual installments from the first anniversary date after the grant date if certain predetermined financial
23
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
goals were met. The Company recorded approximately $0.4 million and $0.8 million of expense for these PRSUs during the three and six months ended December 31, 2020, respectively, and approximately $0.5 million and $0.7 million during the three and six months ended December 31, 2019, respectively.

During the three months ended June 30, 2019, the Company announced an incentive program. Under this program, each participant’s award is denominated in stock and subject to achievement of certain objective goals within certain timelines. In June 2020, the Company believed it was most likely that predetermined goal measures would be met. Therefore, started June 2020 quarter the Company recorded $0.6 million of non-cash compensation expense each quarter for these awards. The expense was reported in the other current liabilities line on the condensed consolidated balance sheets as the amount of bonus is to be settled in variable number of RSU’s at the completion of the objective goals. Such non-cash compensation expense was recorded as part of share-based compensation expense in the condensed consolidated statements of operations. During the three and six months ended December 31, 2020, the Company granted RSUs valued at $1.0 million and $2.0 million, respectively, to participants, which were fully vested due to achievement of certain objective measures.
The following table summarizes the Company's PRSUs activities for the six months ended December 31, 2020:

  Number of Performance-based Restricted Stock
Units 		Weighted Average
Grant Date Fair
Value Per Share 		Weighted Average
Remaining
Contractual Term
(Years) 		Aggregate Intrinsic Value
Nonvested at June 30, 2020 342,775  $ 12.38  1.60 $ 3,729,392 
Forfeited (1,750) $ 16.61 
Nonvested at December 31, 2020 341,025  $ 12.36  1.09 $ 8,061,831 
Stock Options
The Company did not grant any stock options during the three and six months ended December 31, 2020 and 2019. The following table summarizes the Company's stock option activities for the six months ended December 31, 2020:

Weighted
Weighted Average
Average Remaining
Number of Exercise Price Contractual Aggregate
Shares Per Share Term (in years) Intrinsic Value
Outstanding at June 30, 2020 643,978  $ 8.79  2.89 $ 1,544,664 
Exercised (134,559) $ 11.60 
Outstanding at December 31, 2020 509,419  $ 8.05  2.81 $ 7,940,606 
Options vested and expected to vest 509,419  $ 8.05  2.81 $ 7,940,606 
Exercisable at December 31, 2020 509,419  $ 8.05  2.81 $ 7,940,606 
Employee Share Purchase Plan ("ESPP")
The assumptions used to estimate the fair values of common shares issued under the ESPP were as follows:
Six Months Ended December 31,
2020
Volatility rate 63.1%
Risk-free interest rate 0.2%
Expected term 1.3 years
Dividend yield 0%
24
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Share-based Compensation Expense
The total share-based compensation expense recognized in the condensed consolidated statements of operations for the periods presented was as follows:
Three Months Ended December 31, Six Months Ended December 31,
2020 2019 2020 2019
(in thousands) (in thousands)
Cost of goods sold $ 383  $ 404  $ 768  $ 840 
Research and development 1,243  472  2,323  996 
Selling, general and administrative 1,598  1,611  3,009  3,020 
$ 3,224  $ 2,487  $ 6,100  $ 4,856 

As of December 31, 2020, total unrecognized compensation cost under the Company's equity plans was $12.4 million, which is expected to be recognized over a weighted-average period of 2.4 years.

8. Income Taxes

The Company recognized income tax expense of approximately $0.7 million and $0.6 million for the three months ended December 31, 2020 and 2019, respectively. The income tax expense of $0.7 million for the three months ended December 31, 2020 included a $0.01 million discrete tax expense. The income tax expense of $0.6 million for the three months ended December 31, 2019 included a $0.01 million discrete tax expense. Excluding the discrete income tax items, the effective tax rate for the three months ended December 31, 2020 and 2019 was 5.0% and (13.8)%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $13.2 million for the three months ended December 31, 2020 as compared to a pretax book loss of $4.0 million for the three months ended December 31, 2019.

The Company recognized income tax expense of approximately $1.7 million and $1.0 million for the six months ended December 31, 2020 and 2019, respectively. The income tax expense of $1.7 million for the six months ended December 31, 2020 included a $0.02 million discrete tax benefit. The income tax expense of $1.0 million for the six months ended December 31, 2019 included a $0.03 million discrete tax expense. Excluding the discrete income tax items, the effective tax rate for the six months ended December 31, 2020 and 2019 was 7.4% and (17.4)%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $23.0 million for the six months ended December 31, 2020 as compared to a pretax book loss of $5.5 million for the six months ended December 31, 2019.

The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2020 remain open to examination by U.S. federal and state tax authorities. The tax years 2013 to 2020 remain open to examination by foreign tax authorities.

The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. As of December 31, 2020, the gross amount of unrecognized tax benefits was approximately $7.2 million, of which $4.3 million, if recognized, would reduce the effective income tax rate in future periods. If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.
"U.S. Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), which made the changes to existing U.S. tax laws, including, but not limited to, (1) allowing U.S. federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the
25
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
prior five years, (2) eliminating the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense.

As a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S. federal tax rate were revalued to the U.S. tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years. Accordingly, the Company reported a discrete tax benefit of $1.1 million in the quarter ended March 31, 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

“U.S. Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.

On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S. Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision. In July 2019, Altera petitioned U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. The petition was subsequently denied by the Ninth Circuit. Altera appealed the case to the U.S. Supreme Court in February 2020, but the U.S. Supreme Court declined to hear the case in June 2020, leaving intact the U.S. Court of Appeals for the Ninth Circuit’s decision. AOS has not recorded any benefit related to the Altera Corporation Tax Court decision in any period through December 2020. The Company will continue to monitor ongoing developments and potential impact to its financial statements.


26
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Segment and Geographic Information
The Company is organized as, and operates in, one operating segment: the design, development and supply of power semiconductor products for computing, consumer electronics, communication and industrial applications. The chief operating decision-maker is the Chief Executive Officer. The financial information presented to the Company's Chief Executive Officer is on a consolidated basis, accompanied by information about revenue by customer and geographic region, for purposes of evaluating financial performance and allocating resources. The Company has one business segment, and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment.
The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. Because the Company's distributors sell their products to end customers which may have a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets.

The revenue by geographical location in the following tables is based on the country or region in which the products were shipped to:
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
(in thousands) (in thousands)
Hong Kong $ 134,506  $ 97,244  $ 261,106  $ 190,346 
China 22,851  16,571  46,060  33,083 
South Korea 146  2,279  282  8,269 
United States 1,139  898  2,595  1,999 
Other countries 188  868  338  1,965 
  $ 158,830  $ 117,860  $ 310,381  $ 235,662 

The following is a summary of revenue by product type:
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
  (in thousands) (in thousands)
Power discrete $ 118,500  $ 99,321  * $ 232,872  $ 198,001  *
Power IC 37,381  16,825  71,839  34,410 
Packaging and testing services 2,949  1,714  5,670  3,251 
  $ 158,830  $ 117,860  $ 310,381  $ 235,662 

* Certain products were reclassified from power discrete to Power IC.
 
Long-lived assets, net consisting of property, plant and equipment and land use rights, by geographical area are as follows:
  December 31,
2020 		June 30,
2020
(in thousands)
China $ 329,404  $ 310,600 
United States 100,672  100,984 
Other countries 732  756 
  $ 430,808  $ 412,340 

27
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Commitments and Contingencies
Purchase Commitments
As of December 31, 2020 and June 30, 2020, the Company had approximately $45.6 million and $43.9 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, packaging and testing services and others.
As of December 31, 2020 and June 30, 2020, the Company had approximately $38.1 million and $18.0 million, primarily for the JV Company, respectively, of capital commitments for the purchase of property and equipment.
Other Commitments
        See Note 1, Note 5 and Note 6 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for descriptions of commitments including Joint Venture, bank borrowings and leases.
Contingencies and Indemnities
The Company has in the past, and may from time to time in the future, become involved in legal proceedings arising from the normal course of business activities.  The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. Irrespective of the validity of such claims, the Company could incur significant costs in the defense of such claims and suffer adverse effects on its operations.
In December 2019, the U.S. Department of Justice ("DOJ") commenced an investigation into the Company's compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” maintained by the Department of Commerce (“DOC”) on May 16, 2019.  The Company is cooperating fully with federal authorities in the investigation, including responding to requests for documents and information from DOJ in connection with the investigation. The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations.  In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019 (see Note 3).  The Company is currently working with DOC to resolve this issue.  Given the case is in still ongoing and neither DOJ nor DOC have provided the Company with any clear indication of the timing and schedule for the investigation, the Company cannot estimate the reasonably possible loss or range of loss that may occur.  Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, although the Company expects to incur additional professional fees as a result of this matter.  In addition, the Company is unable to predict what, if any, further action that may be taken by the government in connection with the investigation, or what, if any, penalties, sanctions or remedial actions may be sought.
On March 19, 2020, Darryl Gray, a stockholder of the Company (the “Plaintiff”), filed a putative class action complaint in the United States District Court for the Southern District of New York (the “Gray Action”), alleging that the Company and its management members made material misstatements or omissions regarding the Company’s business and operations, including its export control practices relating to business transactions with Huawei and its affiliate. The Gray Action asserts claims under Section 10(b) of the Exchange Act against the Company, its Chief Executive Officer and Chief Financial Officer (collectively, the Defendants”), as well as claims under Section 20(a) of the Exchange Act against the Chief Executive Officer and Chief Financial Officer. Among other remedies, the Gray Action seeks to recover compensatory and other damages as well as attorney’s fees and costs.
On May 18, 2020, Plaintiff moved for an order appointing him as Lead Plaintiff pursuant to Section 21D of the Exchange Act and approving Glancy Prongay & Murray LLP as Lead Counsel for the putative class (the “Motion”). On July 1, 2020, the Court entered an order granting the Motion and requiring that: (i) Lead Plaintiff file an amended complaint or designate the current complaint as operative within sixty days; (ii) Defendants answer the complaint or otherwise move within sixty days of such filing or designation; (iii) Lead Plaintiff file an opposition, if any, within forty-five days; and (iv) Defendants file a reply, if any, forty-five days thereafter. On August 28, 2020, Plaintiff filed an amended complaint asserting the same claims against the Defendants, and adding the Company’s Executive Vice President of Product Line as a defendant on both claims. On October 27, 2020, the Defendants moved to dismiss the action in its entirety. Plaintiff filed his opposition on December 11,
28
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2020 and Defendants filed their reply brief on January 25, 2021. The Company believes the claims in the Gray Action are without merit and intends to vigorously defend this litigation. Given the case is in its early stages and still on going, the Company cannot estimate the reasonably possible loss or range of loss that may occur.
The Company is a party to a variety of agreements that it has contracted with various third parties. Pursuant to these agreements, the Company may be obligated to indemnify another party to such an agreement with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes. In these circumstances, payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claim. Further, the Company's obligations under these agreements may be limited in time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements. The Company has not historically paid or recorded any material indemnifications, and no accrual was made at December 31, 2020 and June 30, 2020.
The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its Bye-laws, and has entered into indemnification agreements with its directors and executive officers. The Company has not recorded a liability associated with these indemnification arrangements, as it historically has not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains. However, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay. In addition, the Company may not be able to maintain such insurance coverage in the future.

29

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements include, but are not limited to, statements regarding future financial performance of the Company; the expected ramp up timeline of the 12-inch fab at the JV Company; the impact of government investigation and coronavirus on our financial performance; and other statements and information set forth under the heading “Factors Affecting Our Performance”. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. The Company undertakes no obligation to publicly release the results of any revisions to its forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “AOS,” the “Company,” “we,” “us” and “our” refer to Alpha and Omega Semiconductor Limited and its subsidiaries.

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

We are a designer, developer and global supplier of a broad portfolio of power semiconductors. Our portfolio of power semiconductors includes approximately 2,300 products, and has grown significantly with the introduction of over 160 new products in the fiscal year ended June 30, 2020, and over 200 new products in each of the fiscal year ended June 30, 2019 and 2018, respectively. During the six months ended December 31, 2020, we introduced an additional 96 new products. Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics. We have an extensive patent portfolio that consists of 845 patents and 67 patent applications in the United States as of December 31, 2020. We also have a total of 876 foreign patents, which were based primarily on our research and development efforts through December 31, 2020. We differentiate ourselves by integrating our expertise in technology, design and advanced manufacturing and packaging to optimize product performance and cost. Our portfolio of products targets high-volume applications, including personal and portable computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, game consoles, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

Our business model leverages global resources, including research and development and manufacturing in the United States and Asia. Our sales and technical support teams are localized in several growing markets. We operate an 8-inch wafer fabrication facility located in Hillsboro, Oregon, or the Oregon fab, which is critical for us to accelerate proprietary technology development, new product introduction and improve our financial performance. To meet the market demand for the more mature high volume products, we also utilize the wafer manufacturing capacity of selected third party foundries. For assembly and test, we primarily rely upon our in-house facilities in China. In addition, we utilize subcontracting partners for industry standard packages. We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.

We formed a joint venture (the “JV Company”) which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”). We currently own 51%, and the Chongqing Funds own 49%, of the equity interest in the JV Company.  While the JV Company is our consolidated subsidiary for purpose of financial reporting, it operates as an independent and separate legal entity. As a result, the JV Company’s assets and liabilities are generally segregated from our company's assets and liabilities. For example, the JV Company incurs debt through its own financing and bank loan agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for the JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements. As part of our strategic plan, we formed the JV Company to fulfill growing customer demand. We expect the joint venture to provide much needed capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures. During the six months ended December 31, 2020, the additional capacity at the JV Company contributed
30


significantly to meeting the increasing demand for our products. The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication. During the three and six months ended December 31, 2020, we recorded $0.4 million and $1.2 million in net loss attributable to the noncontrolling interest in the JV Company. Our current goal is to achieve Phase I target run rate in the quarter ending September 30, 2021, but our goal may be affected by the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions between China and U.S., logistical difficulties and other factors beyond our control. We will continue to monitor and evaluate market conditions closely during this period and react quickly to the changing environment as necessary to achieve an optimal production level at the JV Company. 

During the fiscal quarter ended December 31, 2020, we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products. Our metal-oxide-semiconductor field-effect transistors, or MOSFET, and power IC product portfolio expanded significantly. Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to us achieving our record high quarterly revenue of $158.8 million for the three months ended December 31, 2020, a 34.8% growth compared to the same quarter last year.

Impact of COVID-19 Pandemic to our Business

Our business operations have been impacted, and expect to continue to be impacted, by the global COVID-19 pandemic and the resulting economic downturn. Numerous governmental jurisdictions, including the States of California, Oregon and Texas in the U.S. and countries throughout the Asia Pacific region have imposed “stay-at-home” orders, quarantines, travel bans and similar governmental orders and restrictions to control the spread of COVID-19. Such orders and restrictions have resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions, including "stay-at-home" orders, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone products. While we have recently benefited from the increasing demand for PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax COVID-19 related restrictions. Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persist, consumer spending in general may slow down substantially, in which case we may experience a significant decline of customer orders for our products, including those designed for PC-related applications, and such decline is expected to adversely affect our financial conditions and results of operations.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we took proactive actions to adopt policies and protocols at our locations around the world, including social distancing guidelines, working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel. In the U.S., federal and state authorities imposed “stay-at-home” orders or similar restrictions, we have taken proactive actions in California, Oregon and Texas where we have business activities in order to protect the health and safety of our employees, while maintaining our core operations. These measures may result in difficulties and logistical challenges in our business operations, and in some cases, reduce the productivity of our workforce and cause disruptions and delays in shipping products to our customers. This may impact our ability to respond quickly and effectively to changing market demands as the COVID-19 pandemic continues to cause economic disruption and recession around the globe. In addition, the COVID-19 pandemic and related events have slowed the pace of ramp-up activities at the JV Company, and we have modified our goal and currently we expect to achieve Phase I target run rate in the quarter ending September 30, 2021.

We cannot predict the long-term economic impact of the COVID-19 pandemic, but we will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. The ultimate effects that any such alterations or modifications may have on our business are not clear, including the effects on our customers, employees, and prospects, or on our financial results.
31


Other Factors affecting our performance

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

Manufacturing costs:  Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the production mixtures of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials. Capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities at our Oregon fab and our Chongqing fabrication facility operated by the JV Company. We expect that in the long term our JV Company will reduce our cost of manufacturing. If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected. In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand of our customers. While we can mitigate such constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

Erosion and fluctuation of average selling price: Erosion of average selling prices of established products is typical in our industry. Consistent with this historical trend, we expect our average selling prices of existing products to decline in the future. However, in the normal course of business, we seek to offset the effect of declining average selling price by introducing new and higher value products, expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products. These strategies may cause the average selling price of our products to fluctuate significantly from time to time, thereby affecting our financial performance and profitability.

The global, regional economic and PC market conditions: Because our products primarily serve consumer electronic applications, a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations. For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations. The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products. However, we recently have experienced an increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behavior. We cannot predict whether and how long this trend will continue. A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures. We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures. While making efforts to reduce our reliance on the computing market, we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share.

Product introductions and customers' product requirements: Our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers' specifications and performance requirements. Both factors, timeliness of product introductions and conformance to customers' requirements, are equally important in securing design wins with our customers. As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and seek and acquire design wins. If we were to fail to introduce new products on a timely basis that meet customers' specifications and performance requirements, particularly those products with major OEM customers, and continue to expand our serviceable markets, then we would lose market share and our financial performance would be adversely affected. We believe that the JV Transaction will increase and diversify our customer base, particularly in China, in the long term. However, the ramp-activities and production schedule of our JV Company have been impacted by the COVID-19 pandemic and related events, as discussed above. Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies and the general economic conditions in Chongqing and China.

Distributor ordering patterns, customer demand and seasonality: Our distributors place purchase orders with us based on their forecasts of end customer demand, and this demand may vary significantly depending on the sales outlook and market and economic conditions of end customers. Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly, which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us. As a result, our revenue and operating results may fluctuate significantly from quarter to quarter. In addition,
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because our products are used in consumer electronics products, our revenue is subject to seasonality. Our sales seasonality is affected by numerous factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons. In recent periods, broad fluctuations in the semiconductor markets and the global and regional economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations than seasonality. Furthermore, our revenue may be impacted by the level of demand from our major customers due to factors outside of our control. If these major customers experience significant decline in the demand of their products, encounter difficulties or defects in their products, or otherwise fail to execute their sales and marketing strategies successfully, it may adversely affect our revenue and results of operations.

Regulatory Development: The U.S. Department of Justice commenced an investigation into the Company’s compliance with export control regulations relating to certain business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019.  In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019. The Company continues to work with DOC to resolve this issue and requested DOC to grant permission to reinstate the Company’s shipments to Huawei. As part of this process and in response to DOC’s request, the Company provided certain documents and materials relating to the Company’s supply chain and shipment process to DOC for its review. DOC has not informed the Company of any specific timeline or schedule under which DOC will provide a response to the Company’s request. There is no guarantee that DOC will agree to permit us to resume shipment to Huawei on a timely basis, or at all, and we may not be able to acquire new or additional customers or demand to offset such loss of shipment. Our failure to do so may negatively impact our revenue and profitability. Furthermore, the Company is expected to incur significant costs and expenses, including legal and professional fees, in connection with the government investigation, which may reduce our profitability and margin.
Principal line items of statements of operations
The following describes the principal line items set forth in our condensed consolidated statements of operations:
Revenue

We generate revenue primarily from the sale of power semiconductors, consisting of power discretes and power ICs. Historically, a majority of our revenue has been derived from power discrete products. Because our products typically have three-year to five-year life cycles, the rate of new product introduction is an important driver of revenue growth over time. We believe that expanding the breadth of our product portfolio is important to our business prospects, because it provides us with an opportunity to increase our total bill-of-materials within an electronic system and to address the power requirements of additional electronic systems. In addition, a small percentage of our total revenue is generated by providing packaging and testing services to third parties through one of our subsidiaries.

Our product revenue is reported net of the effect of the estimated stock rotation returns and price adjustments that we expect to provide to our distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by the distributor during a specified period. At our discretion or upon our direct negotiations with the original design manufacturers ("ODMs") or original equipment manufacturers ("OEMs"), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors. In these situations, we will grant price adjustments to the distributors reflecting such special pricing. We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.
Cost of goods sold

Our cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costs associated with yield improvements, capacity utilization, warranty and inventory reserves. As the volume of sales increases, we expect cost of goods sold to increase. Our Oregon fab was running at full capacity during the quarter ended December 31, 2020. We continued to ramp up the 12-inch fab at the JV Company to meet the increasing demand on our products. While our utilization rates cannot be immune to the market conditions, our goal is to make them less vulnerable to market fluctuations. We believe our market diversification strategy and product growth will drive higher volume of manufacturing which will improve our factory utilization rates and gross margin in the long run.
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Operating expenses

Our operating expenses consist of research and development, selling, general and administrative expenses and impairment of long-lived assets. We expect our operating expenses as a percentage of revenue to fluctuate from period to period as we continue to exercise cost control measures in response to the declining PC market as well as align our operating expenses to the revenue level.

Research and development expenses.  Our research and development expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, expenses associated with new product prototypes, travel expenses, fees for engineering services provided by outside contractors and consultants, amortization of software and design tools, depreciation of equipment and overhead costs. We continue to invest in developing new technologies and products utilizing our own fabrication and packaging facilities as it is critical to our long-term success. We also evaluate appropriate investment levels and stay focused on new product introductions to improve our competitiveness. We expect that our research and development expenses will fluctuate from time to time.

Selling, general and administrative expenses.  Our selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services. We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.
Income tax expense

We are subject to income taxes in various jurisdictions. Significant judgment and estimates are required in determining our worldwide income tax expense. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations of different jurisdictions globally. We establish accruals for potential liabilities and contingencies based on a more likely than not threshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more likely than not to be realized upon settlement with a taxing authority. If the actual tax outcome of such exposures is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Changes in the location of taxable income (loss) could result in significant changes in our income tax expense.

We record a valuation allowance against deferred tax assets if it is more likely than not that a portion of the deferred tax assets will not be realized, based on historical profitability and our estimate of future taxable income in a particular jurisdiction. Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the deferred tax assets may increase or decrease, resulting in corresponding changes in income tax expense. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.

“U.S. Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), which made the changes to existing U.S. tax laws, including, but not limited to, (1) allowing U.S. federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the prior five years, (2) eliminating the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense.

As a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S. federal tax rate were revalued to the U.S. tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years. Accordingly, we reported a discrete tax benefit of $1.1 million in the quarter ended March 31, 2020
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related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

“U.S. Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.

Results of Operations
The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three and six months ended December 31, 2020 and 2019. Our historical results of operations are not necessarily indicative of the results for any future period.
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019 2020 2019 2020 2019
(in thousands) (% of revenue) (in thousands) (% of revenue)
Revenue $ 158,830  $ 117,860  100.0  % 100.0  % $ 310,381  $ 235,662  100.0  % 100.0  %
Cost of goods sold 110,081  93,454  69.3  % 79.3  % 219,109  184,324  70.6  % 78.2  %
Gross profit 48,749  24,406  30.7  % 20.7  % 91,272  51,338  29.4  % 21.8  %
Operating expenses
Research and development 15,423  12,147  9.7  % 10.3  % 30,114  24,515  9.7  % 10.4  %
Selling, general and administrative 19,736  15,629  12.4  % 13.3  % 37,241  30,814  12.0  % 13.1  %
Total operating expenses 35,159  27,776  22.1  % 23.6  % 67,355  55,329  21.7  % 23.5  %
Operating income (loss) 13,590  (3,370) 8.6  % (2.9) % 23,917  (3,991) 7.7  % (1.7) %
Interest expense and other income (loss), net (381) (635) (0.3) % (0.5) % (930) (1,462) (0.3) % (0.6) %
Income (loss) before income taxes 13,209  (4,005) 8.3  % (3.4) % 22,987  (5,453) 7.4  % (2.3) %
Income tax expense 669  568  0.4  % 0.5  % 1,680  978  0.5  % 0.4  %
Net income (loss) including noncontrolling interest 12,540  (4,573) 7.9  % (3.9) % 21,307  (6,431) 6.9  % (2.7) %
Net loss attributable to noncontrolling interest (363) (3,568) (0.2) % (3.0) % (1,170) (6,435) (0.4) % (2.7) %
Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ 12,903  $ (1,005) 8.1  % (0.9) % $ 22,477  $ 4  7.3  % —  %

Share-based compensation expense was recorded as follows:
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019 2020 2019 2020 2019
(in thousands) (% of revenue) (in thousands) (% of revenue)
Cost of goods sold $ 383  $ 404  0.2  % 0.3  % $ 768  $ 840  0.2  % 0.4  %
Research and development 1,243  472  0.8  % 0.4  % 2,323  996  0.7  % 0.4  %
Selling, general and administrative 1,598  1,611  1.0  % 1.4  % 3,009  3,020  1.0  % 1.3  %
Total $ 3,224  $ 2,487  2.0  % 2.1  % $ 6,100  $ 4,856  1.9  % 2.1  %

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Three and Six Months Ended December 31, 2020 and 2019
Revenue
The following is a summary of revenue by product type:
Three Months Ended December 31, Six Months Ended December 31,
2020 2019 Change 2020 2019 Change
(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Power discrete $ 118,500  $ 99,321  $ 19,179  19.3  % $ 232,872  $ 198,001  $ 34,871  17.6  %
Power IC 37,381  16,825  20,556  122.2  % 71,839  34,410  37,429  108.8  %
Packaging and testing services 2,949  1,714  1,235  72.1  % 5,670  3,251  2,419  74.4  %
$ 158,830  $ 117,860  $ 40,970  34.8  % $ 310,381  $ 235,662  $ 74,719  31.7  %

Total revenue was $158.8 million for the three months ended December 31, 2020, an increase of $41.0 million, or 34.8%, as compared to $117.9 million for the same quarter last year. The increase was primarily due to an increase of $19.2 million and $20.6 million in sales of power discrete products and sales of power IC products, respectively. The increase in power discrete and power IC product sales was primarily due to a 16.6% increase in unit shipments and a 14.7% increase in average selling price as compared to same quarter last year due to a shift in product mix. The increase in revenue of packaging and testing services for the three months ended December 31, 2020, as compared to same quarter last year, was primarily due to increased demand.

Total revenue was $310.4 million for the six months ended December 31, 2020, an increase of $74.7 million, or 31.7%, as compared to $235.7 million for the same period last year. The increase was primarily due to an increase of $34.9 million and $37.4 million in sales of power discrete products and sales of power IC products, respectively. The increase in power discrete and power IC product sales was primarily due to a 27.7% increase in unit shipments and a 2.8% increase in average selling price as compared to same period last year due to a shift in product mix. The increase in revenue of packaging and testing services for the six months ended December 31, 2020, as compared to same period last year, was primarily due to increased demand.
Cost of goods sold and gross profit
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 Change 2020 2019 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Cost of goods sold $ 110,081  $ 93,454  $ 16,627  17.8  % $ 219,109  $ 184,324  $ 34,785  18.9  %
  Percentage of revenue 69.3  % 79.3  % 70.6  % 78.2  %
Gross profit $ 48,749  $ 24,406  $ 24,343  99.7  % $ 91,272  $ 51,338  $ 39,934  77.8  %
  Percentage of revenue 30.7  % 20.7  % 29.4  % 21.8  %

Cost of goods sold was $110.1 million for the three months ended December 31, 2020, an increase of $16.6 million, or 17.8%, as compared to $93.5 million for the same quarter last year. The increase was primarily due to 34.8% increase in revenue. Gross margin increased by 10 percentage points to 30.7% for the three months ended December 31, 2020, as compared to 20.7% for the same quarter last year. Our JV Company continued its ramp during the three months ended December 31, 2020, which contributed to gross margin increased.

Cost of goods sold was $219.1 million for the six months ended December 31, 2020, an increase of $34.8 million, or 18.9%, as compared to $184.3 million for the same period last year. The increase was primarily due to 31.7% increase in revenue. Gross margin increased by 7.6 percentage points to 29.4% for the six months ended December 31, 2020, as compared to 21.8% for the same period last year. The increase in gross margin was primarily due to a reduction of production ramp-up costs in our JV Company during the six months ended December 31, 2020.
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Research and development expenses
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 Change 2020 2019 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Research and development $ 15,423  $ 12,147  $ 3,276  27.0  % $ 30,114  $ 24,515  $ 5,599  22.8  %
Research and development expenses were $15.4 million for the three months ended December 31, 2020, an increase of $3.3 million, or 27.0%, as compared to $12.1 million for the same quarter last year. The increase was primarily attributable to a $1.2 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $0.8 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.2 million increase in professional services expense as a result of higher consulting fees, as well as a $0.8 million increase in share-based compensation expense due to an increase in stock awards granted during the current quarter.
Research and development expenses were $30.1 million for the six months ended December 31, 2020, an increase of $5.6 million, or 22.8%, as compared to $24.5 million for the same period last year. The increase was primarily attributable to a $1.8 million increase in employee compensation and benefits expense mainly due to higher bonuses, a $1.6 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.5 million increase in professional services expense as a result of higher consulting fees, partially offset by lower recruiting fees, as well as a $1.3 million increase in share-based compensation expense due to an increase in stock awards granted during the current period.
Selling, general and administrative expenses
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 Change 2020 2019 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Selling, general and administrative $ 19,736  $ 15,629  $ 4,107  26.3  % $ 37,241  $ 30,814  $ 6,427  20.9  %
Selling, general and administrative expenses were $19.7 million for the three months ended December 31, 2020, an increase of $4.1 million, or 26.3%, as compared to $15.6 million for the same quarter last year. The increase was primarily attributable to a $3.5 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses. The increase was also attributable a $0.6 million increase in legal expenses related to the government investigation and a $0.4 million increase in audit costs. These increases were partially offset by a $0.5 million decrease in employee business expenses due to decreased travel expenses as a result of the COVID-19 pandemic.
Selling, general and administrative expenses were $37.2 million for the six months ended December 31, 2020, an increase of $6.4 million, or 20.9%, as compared to $30.8 million for the same period last year. The increase was primarily attributable to a $5.1 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses. The increase was also attributable to a $1.8 million increase in legal expenses related to the government investigation and $0.5 million increase in audit and tax related costs. These increases were partially offset by a $0.9 million decrease in employee business expenses due to decreased travel expenses as a result of the COVID-19 pandemic.
Interest expense and other income (loss), net
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 Change 2020 2019 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Interest expense and other income (loss), net $ (381) $ (635) $ 254  (40.0) % $ (930) $ (1,462) $ 532  (36.4) %

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Interest expense was primarily related to bank borrowings. The increase in interest expenses during the three and six months ended December 31, 2020 as compared to the same period last year was primarily due to an increase in bank borrowings, partially offset by interest refund from the Chinese government in the JV Company in the same period last year.
Interest income and others were primarily related to interest earned from cash and cash equivalents, as well as foreign exchange gains (losses). The decrease in interest income and others, net during the three and six months ended December 31, 2020 as compared to the same period last year was primarily due to higher foreign currency exchange gains as a result of the depreciation of USD against RMB.
Income tax expense
Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 Change 2020 2019 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Income tax expense $ 669  $ 568  $ 101  17.8  % $ 1,680  $ 978  $ 702  71.8  %

The Company recognized income tax expense of approximately $0.7 million and $0.6 million for the three months ended December 31, 2020 and 2019, respectively. The income tax expense of $0.7 million for the three months ended December 31, 2020 included a $0.01 million discrete tax expense. The income tax expense of $0.6 million for the three months ended December 31, 2019 included a $0.01 million discrete tax expense. Excluding the discrete income tax items, the effective tax rate for the three months ended December 31, 2020 and 2019 was 5.0% and (13.8)%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $13.2 million for the three months ended December 31, 2020 as compared to a pretax book loss of $4.0 million for the three months ended December 31, 2019.

The Company recognized income tax expense of approximately $1.7 million and $1.0 million for the six months ended December 31, 2020 and 2019, respectively. The income tax expense of $1.7 million for the six months ended December 31, 2020 included a $0.02 million discrete tax benefit. The income tax expense of $1.0 million for the six months ended December 31, 2019 included a $0.03 million discrete tax expense. Excluding the discrete income tax items, the effective tax rate for the six months ended December 31, 2020 and 2019 was 7.4% and (17.4)%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the Company reporting pretax book income of $23.0 million for the six months ended December 31, 2020 as compared to a pretax book loss of $5.5 million for the six months ended December 31, 2019.
Liquidity and Capital Resources
Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business. To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.

In October 2019, our subsidiary in China entered into a line of credit facility with Bank of Communications Limited in China. This line of credit matures on February 14, 2021 and is based on the China Base Rate multiplied by 1.05, or 4.99% on October 31, 2019. The purpose of the credit facility is to provide short-term borrowings. We could borrow up to approximately Chinese Renminbi ("RMB") 60.0 million or $8.5 million based on the currency exchange rate between the RMB and the U.S. Dollar on October 31, 2019. In October 2020, this line of credit was renewed with the same terms and a maturity date of April 21, 2022. As of December 31, 2020, there was no outstanding balance under the loan.
On November 16, 2018, our subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expired on September 30, 2019. The purpose of the credit facility was to provide short-term borrowings. We could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018. In December 2020, this line of credit was renewed with the same terms and a maturity date of December 31, 2021. As of December 31, 2020, there was no outstanding balance under the loan.

On August 9, 2019, one of our wholly-owned subsidiaries (the "Borrower") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited ("HSBC"), whereby the Borrower assigns certain of its accounts
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receivable with recourse. This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million. The interest rate is based on one month London Interbank Offer Rate ("LIBOR") plus 1.75% per annum. We are the guarantor for this agreement. We are accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing. This agreement, with certain financial covenants required, has no expiration date. The Borrower was in compliance with these covenants as of December 31, 2020. During the three and six months ended December 31, 2020, the Borrower borrowed $7.0 million and $36.7 million, respectively, and repaid each amount in full. As of December 31, 2020, there was no outstanding balance and the Borrower had unused credit of approximately $30.0 million.

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in the amount of $17.8 million. The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company.  The loan has a five-year term and matures on June 1, 2023. Beginning June 1, 2018, Jireh made consecutive monthly payments of principal and interest to the Bank. The outstanding principal accrues interest at a fixed rate of 5.04% per annum on the basis of a 360-day year. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios. We were in compliance with these covenants as of December 31, 2020. As of December 31, 2020, the outstanding balance of the term loan was $15.5 million.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for our fabrication facility located in Oregon.  The obligation under the credit agreement is secured by substantially all assets of Jireh and guaranteed by us.  The credit agreement has a five-year term and matures on August 15, 2022. In January 2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million and $16.7 million, respectively. Beginning in October 2018, Jireh is required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments.  The loan accrues interest based on an adjusted LIBOR as defined in the credit agreement, plus a specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan.  The credit agreement contains customary restrictive covenants and includes certain financial covenants that require us to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio. We were in compliance with these covenants as of December 31, 2020. As of December 31, 2020, the outstanding balance of the term loan was $13.0 million.

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed us to repurchase our common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. We did not repurchase any shares pursuant to the Repurchase Plan during the six months ended December 31, 2020. Since the inception of the program, we repurchased an aggregate of 6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses.  As of December 31, 2020, of the 6,784,648 repurchased shares, 155,670 shares with a weighted average repurchase price of $10.19 per share, were reissued at an average price of $5.37 per share pursuant to option exercises and vested restricted share units. We had $13.4 million remained available under the Repurchase Program as of December 31, 2020.

We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months. In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations. We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

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JV Company Financing Transactions

From time to time the JV Company entered into financing and loan agreements with banks and other third parties to fund capital expenditures and other operational expenses in connection with the constructions and ramp-up of the manufacturing facility in Chongqing. The JV Company incurs debt through its own financing agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

 On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”).  Pursuant to the Agreements, the Lenders agree to provide an aggregate of RMB 400.0 million, or $62.8 million based on the currency exchange rate between RMB and U.S. Dollar on the Effective Date, of financing to the JV Company (the “Lease Financing”). In exchange for the Lease Financing, the JV Company agrees to transfer title of its assembly and testing equipment to the Lenders, and the Lenders lease such equipment to the JV Company under a five-year lease arrangement, pursuant to which the JV Company makes quarterly lease payments to the Lenders consisting of principal and interest based on a repayment schedule mutually agreed by the parties.  The interest under the Lease Financing is accrued based on the China Base Rate multiplied by 1.15, or 5.4625% on the Effective Date.  Under the Agreements, at the end of the five-year lease term, the Lenders agree to sell such equipment back to the JV Company for a nominal amount (RMB 1).  The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”).  The proceeds from the Lease Financing were used primarily for the acquisition and installation of the 12-inch fabrication equipment and other expenses of the JV Company relating to the completion of the fabrication facility located in Chongqing. The Agreements contain customary representation, warranties and covenants, including restrictions on the transfer of the Collateral. The Agreements also contain customary events of default, including but not limited to, failure to make payments and breach of material terms under the Agreements. The Agreements include certain customary closing conditions, including the payment of deposit by the JV Company. On June 28, 2020, the parties entered into a modification to this agreement, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125%, or 5.4625%. Other terms of this agreement remain the same. As of December 31, 2020, the outstanding balance of the Lease Financing was approximately $37.4 million based on the currency exchange rate as of December 31, 2020.

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million, respectively, or $14.5 million in total based on the currency exchange rate between RMB and U.S. Dollar on December 31, 2018, at varying interest rates. On January 20, 2020, the JV Company renewed the loan agreements with the same terms. Interest payments are due monthly and quarterly with the entire principal due not later than January 21, 2021. As of December 31, 2020, there was no outstanding balance under the loan.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $29.8 million based on currency exchange rate between RMB and U.S. Dollar on March 31, 2019). The loan will mature on February 20, 2025. The JV Company drew down RMB 190 million and RMB 10 million in March 2019 and December 2019, respectively. The loan withdraw window expired on February 28, 2020. The interest is accrued based on the China Base Rate multiplied by 1.1, or 5.39%. The loan requires quarterly interest payments. The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019. This loan is secured by the buildings and certain equipment owned by the JV Company. As a condition of the loan arrangements, 14 million RMB (approximately $2.0 million) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid. On June 24, 2020, a modification of this loan was signed, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74%, or 5.39%. Other terms of this loan remain the same. As of December 31, 2020, the outstanding balance of the loan was 189 million RMB (equivalent of $28.9 million based on the currency exchange rate as of December 31, 2020).

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $24.0 million. The obligation under the loan agreement is secured by certain assets of the JV Company. Beginning December 18, 2020, the JV Company will make consecutive semi-annual payments of principal until December 8, 2024. The interest is accrued based on the LIBOR rate plus 2.8%. The interest is required to be paid March 21 and September 21 each year. As of December 31, 2020, the outstanding balance of the loan was $21.6 million.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow a maximum of RMB 100.0 million (approximately $14.3 million based on the currency exchange rate between RMB and U.S. Dollar on April 15, 2020) in the amount in RMB or USD. Interest payments are due on the 20th of each month, and
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the entire principal is due on April 16, 2021. The loan consists of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that is collateralized by eligible accounts receivable.  During the three months ended December 31, 2020, the JV Company borrowed $12.1 million at a fixed interest rate of 2.7% per annum. As of December 31, 2020, the total outstanding balance under the loan was $15.2 million which included RMB 20 million or $3.1 million borrowed during the three months ended June 30, 2020.

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million, (approximately $35.7 million based on the currency exchange rate between RMB and U.S. Dollar on April 26, 2020). The obligation under the loan agreement is secured by certain assets of the JV Company. Beginning December 18, 2020, the JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024. Interest payments are due on March 20, June 20, September 20 and December 20 of each year based on China one-year loan prime rate ("LPR") plus 1.3%. The JV Company drew down RMB 250 million (approximately $35.3 million based on the currency exchange rate between RMB and U.S. Dollar on June 30, 2020) in April 2020. As of December 31, 2020, the outstanding balance of the loan was $36.0 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China. The JV Company can borrow up to RMB 50.0 million, or $7.6 million, based on the currency exchange rate between RMB and U.S. Dollar on November 13, 2020. The loan's interest rates are based on the LPR plus 1.4% per annum. Interest payments are due quarterly with the entire principal due not later than November 19, 2021. During the three months ended December 31, 2020, the JV Company borrowed RMB 50.0 million, or $7.7 million, at an interest rate of 5.25% per annum. As of December 31, 2020, the outstanding balance of this loan was $7.7 million.
Cash, cash equivalents and restricted cash
As of December 31, 2020 and June 30, 2020, we had $183.3 million and $162.7 million of cash, cash equivalents and restricted cash, respectively. Our cash, cash equivalents and restricted cash primarily consist of cash on hand, restricted cash, and short-term bank deposits with original maturities of three months or less. Of the $183.3 million and $162.7 million cash, cash equivalents and restricted cash, $159.7 million and $120.3 million, respectively, are deposited with financial institutions outside the United States.
The following table shows our cash flows from operating, investing and financing activities for the periods indicated:
  Six Months Ended December 31,
  2020 2019
  (in thousands)
Net cash provided by operating activities $ 45,933  $ 7,711 
Net cash used in investing activities (24,639) (31,167)
Net cash provided by (used in) financing activities (4,779) 10,974 
Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,120  (347)
Net increase (decrease) in cash, cash equivalents and restricted cash $ 20,635  $ (12,829)
   
Cash flows from operating activities
Net cash provided by operating activities of $45.9 million for the six months ended December 31, 2020 resulted primarily from net income of $21.3 million and non-cash expenses of $32.1 million, partially offset by net changes in assets and liabilities using cash of $7.5 million. The non-cash expenses of $32.1 million primarily included $25.7 million of depreciation and amortization expenses, $6.1 million of share-based compensation expense and $0.3 million of deferred income taxes. The net changes in assets and liabilities of $7.5 million were primarily due to a $11.7 million increase in accounts receivable as a result of higher revenue, a $8.8 million increase in inventories due to a continued ramp of the JV Company, a $1.8 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $0.4 million decrease in accounts payable due to timing of payments, partially offset by a $14.3 million increase in accrued and other liabilities and a $0.8 million increase in income taxes payable.
Net cash provided by operating activities of $7.7 million for the six months ended December 31, 2019 resulted primarily from non-cash expenses of $26.6 million, partially offset by net loss of $6.4 million and net changes in assets and liabilities using cash of $12.4 million. The non-cash expenses of $26.6 million primarily included $21.8 million of depreciation and
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amortization expenses and $4.9 million of share-based compensation expense. The net changes in assets and liabilities of $12.4 million were primarily due to a $4.9 million increase in inventories, a $9.6 million increase in accounts receivable from timing of billings and collection of payments, and a $5.7 million decrease in accounts payable due to timing of payment, partially offset by a $6.3 million increase in accrued and other liabilities, a $0.9 million decrease in other current and long-term assets due to decrease in advance payments to vendors, and a $0.5 million increase in income taxes payable.
Cash flows from investing activities    
Net cash used in investing activities of $24.6 million for the six months ended December 31, 2020 was primarily attributable to $24.8 million purchases of property and equipment, including $9.9 million purchased by the JV Company.
Net cash used in investing activities of $31.2 million for the six months ended December 31, 2019 was primarily attributable to $32.4 million purchases of property and equipment, including $12.1 million purchased by the JV Company, partially offset by $1.3 million government grant related to equipment in the JV Company.
Cash flows from financing activities
Net cash used in financing activities of $4.8 million for the six months ended December 31, 2020 was primarily attributable to $29.9 million in repayments of borrowings, $8.1 million in payment of finance lease obligations, and $1.0 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $31.0 million proceeds from borrowings and $3.2 million of proceeds from exercise of stock options and ESPP.
Net cash provided by financing activities of $11.0 million for the six months ended December 31, 2019 was primarily attributable to $33.7 million proceeds from borrowings and $1.7 million of proceeds from ESPP, partially offset by $20.9 million in repayments of borrowings, $3.4 million in payment of finance lease obligations, and $0.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.
Commitments
See Note 10 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.
Contractual Obligations
There were no material changes outside of our ordinary course of business in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

Recent Accounting Pronouncements
See Note 1 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on September 2, 2020.

ITEM 4. CONTROLS AND PROCEDURES
Management's Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2020 have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the six months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitation on Effectiveness of Controls
While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance that their respective objectives will be met, we do not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously disclosed, U.S. Department of Justice (“DOJ”) commenced an investigation into the Company’s compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019. The Company is cooperating fully with federal authorities in the investigation. The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ. In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei. The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019. The Company continues to work with DOC to resolve this issue and requested DOC to grant permission to reinstate the Company’s shipments to Huawei. As part of this process and in response to DOC’s request, the Company provided certain documents and materials relating to the Company’s supply chain and shipment process to DOC for its review. DOC has not informed the Company of any specific timeline or schedule under which DOC will provide a response to the Company’s request.

On March 19, 2020, Darryl Gray, a stockholder of the Company (the “Plaintiff”), filed a putative class action complaint in the United States District Court for the Southern District of New York (the “Gray Action”), alleging that the Company and its management members made material misstatements or omissions regarding the Company’s business and operations, including its export control practices relating to business transactions with Huawei and its affiliate. The Gray Action asserts claims under Section 10(b) of the Exchange Act against the Company, its Chief Executive Officer and Chief Financial Officer (collectively, the Defendants”), as well as claims under Section 20(a) of the Exchange Act against the Chief Executive Officer and Chief Financial Officer. Among other remedies, the Gray Action seeks to recover compensatory and other damages as well as attorney’s fees and costs.

On May 18, 2020, Plaintiff moved for an order appointing him as Lead Plaintiff pursuant to Section 21D of the Exchange Act and approving Glancy Prongay & Murray LLP as Lead Counsel for the putative class (the “Motion”). On July 1, 2020, the Court entered an order granting the Motion and requiring that: (i) Lead Plaintiff file an amended complaint or designate the current complaint as operative within sixty days; (ii) Defendants answer the complaint or otherwise move within sixty days of such filing or designation; (iii) Lead Plaintiff file an opposition, if any, within 45 days; and (iv) Defendants file a reply, if any, forty-five days thereafter. On August 28, 2020, Plaintiff filed an amended complaint asserting the same claims against the Defendants, and adding the Company’s Executive Vice President of Product Line as a defendant on both claims. On October 27, 2020, the Defendants moved to dismiss the action in its entirety. Plaintiff filed his opposition on December 11, 2020 and Defendants filed their reply brief on January 25, 2021. The Company believes the claims in the Gray Action are without merit and intends to vigorously defend this litigation.

We have in the past, and may from time to time in the future, become involved in legal proceedings arising from the normal course of business activities.  The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. Irrespective of the validity of such claims, we could incur significant costs in the defense thereof or could suffer adverse effects on our operations.

ITEM 1A. RISK FACTORS

Item 1A of Part I of our Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on September 2, 2020, contains risk factors identified by the Company. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed us to repurchase our common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares. There is no guarantee that such repurchases under the Repurchase Program will enhance the value of our shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. During the three months ended December 31, 2020, we did not repurchase any shares under the Repurchase Program. As of December 31, 2020, approximately $13.4 million remained available under the Repurchase Program.








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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
Not applicable.


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ITEM 6. EXHIBITS

10.1
10.2
31.1
31.2
32.1
32.2
101.INS Inline XBRL Instance
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation
101.DEF Inline XBRL Taxonomy Extension Definition
101.LAB Inline XBRL Taxonomy Extension Labels
101.PRE Inline XBRL Taxonomy Extension Presentation
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)








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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
February 8, 2021
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
By: /s/  YIFAN LIANG
  Yifan Liang
  Chief Financial Officer and Corporate Secretary
  (Principal Financial Officer)

 

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DB2/21688765.1 ALPHA AND OMEGA SEMICONDUCTOR LIMITED Exhibit 10.1 April 28, 2010 Mr. Yifan Liang c/o Alpha and Omega Semiconductor Incorporated 475 Oakmead Parkway Sunnyvale, California 94085 Dear Yifan: We are pleased to inform you that the Company's Board of Directors has approved a new severance benefit program for you. The purpose of this letter agreement is to set forth the terms and conditions of your severance benefits and to explain certain limitations that may govern their overall value or payment. Your severance package will become payable should your employment terminate under certain circumstances prior to or following certain changes in ownership or control of the Company. To understand the full scope of your benefits, you should familiarize yourself with the definitional provisions of Part One of this letter agreement. The benefits comprising your severance package are detailed in Parts Two and Three, and the dollar limitations on the overall value of your benefit package and other applicable restrictions are specified in Parts Four and Five. PART ONE – DEFINITIONS For purposes of this Agreement, the following definitions shall be in effect: Board means the Company’s Board of Directors. Change in Control means a change in control of the Company effected through any of the following transactions: (i) a merger, consolidation or other reorganization approved by the Company’s shareholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor Company are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction, or (ii) a shareholder-approved sale, transfer or other disposition of all or substantially all of the Company’s assets in liquidation or dissolution of the Company, or (iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is

 
DB2/21688765.1 -2- controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders. Change in Control Severance Period means the period commencing with the Company’s execution of the definitive agreement for a Change in Control transaction and continuing until the end of the twelve (12)-month period measured from the closing date of that Change in Control. Code means the Internal Revenue Code of 1986, as amended. Common Share means the Company’s common share. Company means Alpha and Omega Semiconductor Limited, a company incorporated and existing under the laws of the Islands of Bermuda. Executive means the undersigned executive. Good Reason means the Executive’s voluntary resignation within ninety (90) days following one or more of the following events that occur without the Executive’s written consent: (A) a material diminution in the Executive’s authority, duties or responsibilities, (B) a material reduction in his base compensation, with a reduction of fifteen percent (15%) or more to be deemed material for such purpose, (C) a material relocation of his principal place of employment, with a relocation that is more than fifty (50) miles from the location of his principal office in Sunnyvale, California to be deemed material for such purpose, or (D) a material breach by the Company of any of its obligations under this Agreement; provided, however, that none of the events specified above shall constitute Good Reason unless the Executive first provides written notice to the Company describing the applicable event within thirty (30) days following the occurrence of that event and the Company fails to cure such event within thirty (30) days after receipt of such written notice. Involuntary Termination means (i) the Company’s termination of the Executive’s employment for any reason other than a Termination for Cause or (ii) the Executive’s voluntary resignation for Good Reason. 1934 Act shall mean the U.S. Securities Exchange Act of 1934, as amended. Plan means (i) the Company’s 2000 Share Plan, (ii) the Company’s 2009 Share Option/Share Issuance Plan, as amended or restated from time to time, and (iii) any successor stock incentive plan subsequently implemented by the Company. Separation from Service means the Executive’s cessation of Employee status and shall be deemed to occur at such time as the level of the bona fide services the Executive is to perform in Employee status (or as a consultant or other independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services the Executive rendered in Employee status during the immediately preceding thirty-six (36) months (or such

 
DB2/21688765.1 -3- shorter period for which the Executive may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. For purposes of determining whether the Executive has incurred a Separation from Service, the Executive will be deemed to continue in “Employee” status for so long as he remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Company and any other corporation or business controlled by, controlling or under common control with, the Company as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(a)(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Executive is on a sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which the Executive is provided with a right to reemployment with the Company by either statute or contract; provided, however, that in the event of a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes the Executive to be unable to perform his duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Executive is not provided with a right to reemployment by either statute or contract, then the Executive will be deemed to have Separated from Service on the first day immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period. Termination for Cause means the termination of the Executive’s employment due to (i) the commission of any act of fraud, embezzlement or dishonesty by the Executive or his conviction of a felony, (ii) any unauthorized use or disclosure by the Executive of confidential information or trade secrets of the Company (or any parent or subsidiary), (iii) any other misconduct by the Executive adversely affecting the business or affairs of the Company in a material manner, (iv) the Executive’s failure to cure any breach of his obligations under this Agreement or his Proprietary Information and Inventions Agreement with the Company after written notice of such breach from the Company and a reasonable cure period of at least thirty (30) days or (v) the Executive’s breach of any of his fiduciary duties as an officer or director of the Company. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any parent or subsidiary) may consider as grounds for the dismissal or discharge of the Executive or any other individual in the service of the Company (or any parent or subsidiary), but a dismissal for such other acts or omissions shall not constitute a Termination for Cause for purposes of this Agreement unless otherwise described above.

 
DB2/21688765.1 -4- PART TWO – NORMAL SEVERANCE BENEFITS 1. Entitlement. Should the Company terminate the Executive’s employment (other than a Termination for Cause) at any time other than during the Change in Control Severance Period, then the Executive shall become entitled to receive the payments and benefits set forth in Paragraph 2, subject to the Executive’s compliance with the following requirement:  The Executive shall, within twenty-one (21) days (or such longer period as required by law) following the date of such Involuntary Termination execute and deliver to the Company a general release (“Release”) in the form attached hereto as Exhibit A which becomes effective in accordance with applicable law following the expiration of the applicable revocation period. This requirement shall hereinafter be referred to as the “Release Condition”. The payments and benefits provided under this Part Two shall be in lieu of any other severance benefits to which the Executive might otherwise, by reason of the termination of the Executive’s employment, be entitled under any other severance plan, program or arrangement of the Company. 2. Severance Payments. The severance payments and benefits which the Executive shall receive under this Part Two shall consist of the following: A. Salary Continuation Payments . The Executive shall be eligible to receive continued payment of the Executive’s then-current base salary for a period of six (6)- month. The first such payment shall be made on the sixtieth (60th) day following the date of the Executive’s Separation from Service provided the Release is effective, and subsequent payments will be made in accordance with the Company’s normal payroll schedule for salaried employees. Such cash payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. B. Health Care Coverage . Provided the Executive and his or her spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, his or her spouse and eligible dependents until the earlier of (i) the expiration of the six (6)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs or (ii) the first date on which the Executive and the Executive’s eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition. Any additional medical care coverage to which the Executive and the Executive’s spouse and dependents may be entitled under COBRA following the period of such Company-paid coverage shall be at the Executive’s sole cost and expense. During the period the Company-provided medical care coverage remains in effect hereunder, the following provisions shall govern the arrangement: (a) the amount of such benefits in any one calendar year of such coverage shall not affect the amount of benefits in any other calendar year for which such benefits are to be provided hereunder and (b) the Executive’s right to the benefits cannot be liquidated or exchanged for any other benefit.

 
DB2/21688765.1 -5- C. No Vesting Accelera tion. All vesting of the Executive’s outstanding options and other equity awards granted under the Plan shall cease at the time of the Executive’s termination, and the Executive shall not have more than the period of time specified in the applicable option agreement in which to exercise those outstanding options following such termination for any Common Shares which are vested and exercisable at the time of such termination. PART THREE - CHANGE IN CONTROL SEVERANCE BENEFITS 3. Entitlement. Should the Executive’s employment terminate by reason of an Involuntary Termination within the Change in Control Severance Period, then the Executive shall become entitled to receive the payments and benefits set forth in Paragraph 4, subject to the Executive’s compliance with the Release Condition. The payments and benefits provided under this Part Three shall be in lieu of any other severance benefits to which the Executive might otherwise, by reason of the termination of the Executive’s employment during the Change in Control Severance Period, be entitled under any other severance plan, program or arrangement of the Company. 4. Severance Payments. The severance payments and benefits which the Executive shall receive under this Part Three shall consist of the following: A. Salary Continuation Payments . The Executive shall be eligible to receive continued payment of the Executive’s then-current base salary for a period of six (6) months. The first such payment shall be made on the sixtieth (60th) day following the date of the Executive’s Separation from Service provided the Release is effective, and subsequent payments will be made in accordance with the Company’s normal payroll schedule for salaried employees. Such cash payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. B. Health Care Coverage . Provided the Executive and his or her spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, his or her spouse and eligible dependents until the earlier of (i) the expiration of the six (6)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs or (ii) the first date on which the Executive and the Executive’s eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition. Any additional medical care coverage to which the Executive and the Executive’s spouse and dependents may be entitled under COBRA following the period of such Company-paid coverage shall be at the Executive’s sole cost and expense. During the period the Company-provided medical care coverage remains in effect hereunder, the following provisions shall govern the arrangement: (a) the amount of such benefits in any one calendar year of such coverage shall not affect the amount of benefits in any other calendar year for which such benefits are to be provided hereunder and (b) the Executive’s right to the benefits cannot be liquidated or exchanged for any other benefit.

 
DB2/21688765.1 -6- C. Accelerated Vesting. Each outstanding option and other equity award granted under the Plan held by the Executive at the time of the Executive’s Involuntary Termination shall immediately vest with respect to the number of additional Common Shares that would have vested had the Executive continued in employment with the Company for an additional period of one (1) year following the Involuntary Termination. The Executive shall not have more than the period of time specified in the applicable option agreement in which to exercise those outstanding options following such Involuntary Termination for any Common Shares which are vested and exercisable at the time of such termination, including any shares which become vested as a result of this Paragraph 4C. PART FOUR - LIMITATION ON BENEFITS 5. No Duplication of Benefits . In no event shall the Executive be entitled to severance benefits under both Parts Two and Three of this Agreement. 6. Benefit Limit. The benefit limitations of this Part Four shall be applicable in the event the Executive receives any benefits under this Agreement which are deemed to constitute parachute payments under Code Section 280G. In the event that any payments to which the Executive becomes entitled in accordance with the provisions of this Agreement would otherwise constitute a parachute payment under Code Section 280G, then such payments will be subject to reduction to the extent necessary to assure that the Executive receives only the greater of (i) the amount of those payments which would not constitute such a parachute payment or (ii) the amount which yields the Executive the greatest after-tax amount of benefits after taking into account any excise tax imposed on the payments provided to the Executive under this Agreement (or on any other benefits to which the Executive may be entitled in connection with any change in control or ownership of the Company or the subsequent termination of the Executive’s employment with the Company) under Code Section 4999. Should a reduction in benefits be required to satisfy the benefit limit of this Section 6, then the salary continuation payments shall accordingly be reduced to the extent necessary to comply with such benefit limit. Should such benefit limit still be exceeded following such reduction, then the number of shares which would otherwise vest under the vesting-accelerated portion (if any) of each equity award (based on the amount of the parachute payment attributable to such equity award under Code Section 280G) shall be reduced to the extent necessary to eliminate such excess. 7. Restrictive Covenants. For the entire period during which the Executive is entitled to severance payments under Part Two or Part Three of this Agreement, the Executive shall not: (i) anywhere in the United States render any services or provide any advice, assistance or support to any Competing Business, whether as an employee, agent, representative, consultant, partner, officer, director or stockholder or in any other capacity; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than five percent (5%) of an outstanding class

 
DB2/21688765.1 -7- of publicly-traded securities of any corporation or other enterprise which may constitute a Competing Business hereunder; (ii) contact, solicit or call upon any customer or supplier of the Company on behalf of any person or entity other than the Company for the purpose of selling any products or providing or performing any services of the type normally sold, provided or performed by the Company; (iii) induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with the Company; or (iv) encourage or solicit any of the Company’s employees to leave the Company’s employ for any reason or interfere in any other manner with employment relationships at the time existing between the Company and its employees. For purposes of this Agreement, a Competing Business means any business which is or, to the best of the Executive’s knowledge, is expected to become, competitive with the business or any contemplated business of the Company, or any direct or indirect subsidiaries of the Company or any of their affiliates. 8. Cessation of Benefits. In the event of a material breach by the Executive of any of the Executive’s obligations under Paragraph 7 of this Agreement or any of the Executive’s obligations under the Executive’s Proprietary Information and Inventions Agreement with the Company, the Executive shall cease to be entitled to any further payments or benefits under Part Two or Part Three of this Agreement. PART FIVE -MISCELLANEOUS PROVISIONS 9. Section 409A. A. It is the intention of the parties that the provisions of this Agreement comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder. Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section 409A, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder. In no event may Executive, directly or indirectly, designate the calendar year of a payment. B. Notwithstanding any provision to the contrary in this Agreement (other than Section 6(C) below), no payments or benefits to which the Executive becomes entitled under Part Two of this Agreement shall be made or paid to the Executive prior to the earlier of (A) the expiration of the 6-month period measured from the date of his or her Separation from Service or (B) the date of the Executive’s death, if the Executive is deemed at the time of such Separation from Service a “specified employee” within the meaning of that term under Section 409A of the code and the Treasury Regulation s thereunder and such delayed commencement is

 
DB2/21688765.1 -8- otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments deferred pursuant to this Section 6(B)shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein. 10. Employment at Will . The Executive’s employment with the Company shall remain at will. Nothing in this Agreement is intended to provide the Executive with any right to continue in the employ of the Company (or any affiliate) for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any affiliate) or the Executive, which rights are hereby expressly reserved by each, to terminate the Executive’s employment at any time for any reason or for no reason. 11. Other Termination. The Executive shall not be entitled to receive any severance payments or benefits if there is a Termination for Cause or his employment with the Company ends due to death, disability, retirement or voluntary termination (other than as specified in Part Three). Upon any such termination, the Company shall only be required to pay the Executive (i) any unpaid compensation earned for services rendered through the date of such termination and (ii) the value of any accrued but unpaid vacation benefits or sick days, and no benefits will be payable under Part Two or Part Three of this Agreement. In addition, all vesting in the Executive’s outstanding options and other equity awards, if any, shall cease at the time of such termination, and the Executive shall not have more than the period of time specified in the applicable option agreement for each option in which to exercise that option following such termination of employment for the Company’s Common Shares which are vested and exercisable at the time of such termination. 12. Successors and Assigns . The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, (i) the Company and its successors and assigns, including any successor entity by merger, consolidation or transfer of all or substantially all of the Company’s assets (whether or not such transaction constitutes a Change in Control), and (ii) the Executive, the personal representative of the Executive’s estate and the Executive’s heirs and legatees. 13. General Creditor Status . The benefits to which the Executive may become entitled under Part Two or Part Three of this Agreement shall be paid, when due, from the Company’s general assets, and no trust fund, escrow arrangement or other segregated account shall be established as a funding vehicle for such payments. Accordingly, the Executive’s right (or the right of the executors or administrators of the Executive’s estate) to receive such benefits shall at all times be that of a general creditor of the Company and shall have no priority over the claims of other general creditors. 14. Governing Documents. This Agreement, together with (i) the agreements evidencing the Executive’s currently outstanding options and any future option grants or other equity awards under the Plan and (ii) the Executive’s existing Proprietary Information and Inventions Agreement, shall constitute the entire agreement and understanding of the Company and the Executive with respect to the payment of severance benefits to the Executive and shall supersede all prior and contemporaneous written or verbal agreements and understandings

 
DB2/21688765.1 -9- between the Executive and the Company relating to such subject matter. This Agreement may only be amended by a written instrument signed by the Executive and an authorized officer of the Company. Any and all prior agreements, understandings or representations relating to the Executive’s severance benefits, other than (i) the agreements evidencing the Executive’s currently outstanding options under the Plan and (ii) the Executive’s existing Proprietary Information and Inventions Agreement, are hereby terminated and cancelled in their entirety and are of no further force or effect. 15. Governing Law. The provisions of this Agreement shall be construed and interpreted under the laws of the State of California applicable to agreements executed and wholly performed within the State of California. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken, and the remainder of this Agreement shall continue in full force and effect. 16. Arbitration. A. Each party agrees that any and all disputes which arise out of or relate to the Executive’s employment, the termination of the Executive’s employment or the terms of this Agreement shall be resolved through final and binding arbitration. Such arbitration shall be in lieu of any trial before a judge and/or ju ry, and the Executive and Company express ly waive all rights to have such disp utes resolved through trial before a judge and/or jury. Such disputes shall include, without limitation, claims for breach of contract or of the covenant of good faith and fair dealing, claims of discrimination, claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of the Executive’s employment with the Company or its termination. B. Arbitration shall be held in Santa Clara County, California and conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA Rules”), provided, however, that the arbitrator shall allow the discovery authorized by California Code of Civil Procedure section 1282, et seq., or any other discovery required by applicable law in arbitration proceedings. To the extent that any of the AAA Rules conflict with applicable law, the arbitration procedures required by applicable law shall govern. C. During the course of the arbitration, the Company will pay the arbitrator’s fee and any other type of expense or cost that the Executive would not otherwise be required to bear if he were free to bring the dispute or claim in court and any other expense or cost that is

 
DB2/21688765.1 -10- unique to arbitration. The Company and the Executive shall each bear its or his own respective attorneys’ fees incurred in connection with the arbitration. D. The arbitrator shall issue a written award that sets forth the essential findings of fact and conclusions of law on which the award is based. The arbitrator shall have the authority to award any relief authorized by law in connection with the asserted claims or disputes. The arbitrator’s award shall be subject to correction, confirmation, or vacation, as provided by applicable law setting forth the standard of judicial review of arbitration awards. Judgment upon the arbitrator’s award may be entered in any court having jurisdiction thereof. 17. Legal Representation. The Executive acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 18. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

 

 
DB2/21688765.1 EXHIBIT A FORM OF GENERAL RELEASE THIS DOCUMENT IS INTENDED AS A FORM OF THE GENERAL SETTLEMENT AND RELEASE. PURSUANT TO PARAGRAPH 1 AND PARAGRAPH 3 OF THE LETTER AGREEMENT, EXECUTION OF A RELEASE, IN SUBSTANTIALLY THE SAME FORM AS THIS EXHIBIT A IS A CONDITION FOR EXECUTIVE’S RECEIPT OF CERTAIN BENEFITS PURSUANT TO PARAGRAPH 2 AND PARAGRAPH 4. THE FORM MUST BE FINALIZED BY ALPHA AND OMEGA SEMICONDUCTOR LIMITED PRIOR TO EXECUTION.

 
DB2/21688765.1 -2- GENERAL SETTLEMENT AND RELEASE AGREEMENT This General Settlement and Release Agreement (the “Agreement”) is by and between Alpha ad Omega Semiconductor Limited, for itself and for all of its affiliated, related, parent and direct and indirect subsidiary companies, joint venturers and partnerships, successors and permitted assigns and each of them (collectively, “AOS”), on the one hand, and __________________, for himself, and his agents, representatives, heirs and assigns (“Executive”), on the other hand. 1. Payments. In full and complete consideration for Executive’s promises and undertaking set forth in this Agreement, following the eighth (8th) day following receipt by AOS of a fully executed Settlement and Release Agreement from Executive, AOS will provide Executive the consideration, if any, to which Executive is entitled pursuant to the Letter Agreement between the parties, dated ________, 2010, at the times specified in Paragraph 2 or Paragraph 4 (as applicable) of that Agreement unless the signature on this Agreement is revoked pursuant to Paragraph 7 below. 2. Release of Known and Unknown Claims. (a) It is understood and agreed by the parties to this Agreement that in consideration of the mutual promises and covenants contained in this Agreement, and after consultation with counsel, Executive irrevocably and unconditionally releases and forever discharges AOS and each of the other Released Parties from any and all causes of action, claims, actions, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character, which Executive may have against AOS or any of the Released Parties, or any of them, by reason of or arising out of, touching upon or concerning Executive’s employment, separation of his employment and reapplication for employment with AOS, or any statutory claims, or any and all other matters of whatever kind, nature or description, whether known or unknown, occurring prior to the date of the execution of this Agreement. Executive acknowledges that this release of claims specifically includes, but is not limited to, any and all claims for fraud; breach of contract; breach of the implied covenant of good faith and fair dealing; inducement of breach; interference with contractual rights; wrongful or unlawful discharge or demotion; violation of public policy; sexual assault and battery; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; defamation; unlawful effort to prevent employment; discrimination or harassment on the basis of age, race, color, sex, national origin, ancestry, religion, disability, handicap, medical condition or marital status; any claim under: Title VII, ADA, ADEA OWBPA, FMLA, COBRA, OSHA, ERISA, IRC, FEHA, CalOsha, or any other wrongful conduct, based upon events occurring prior to the date that this Agreement is executed by Executive. Notwithstanding anything to the contrary herein, this Agreement shall not release Executive’s right, if any, to indemnification pursuant to the Company’s Bylaws or insurance policies, for any claims arising out of Executive’s conduct as an employee or officer of the Company during his employment.

 
DB2/21688765.1 -3- (b) Executive represents and warrants that he has not assigned or subrogated any of his rights, claims or causes of action, including any claims referenced in this Agreement, or authorized any other person or entity to assert such claims on his behalf, and he agrees to indemnify and hold harmless AOS and each of the Released Parties against any assignment of said rights, claims and/or causes of action. 3. Waiver of Unknown Claims. (a) Executive does hereby expressly waive and relinquish all rights and benefits afforded to him under law, and does so understanding and acknowledging the significance and consequences of such a waiver. (b) Releases of Unknown Claims/Waiver of Civil Code Section 1542 . The parties agree that this Agreement is a full and final release of any and all claims and Executive expressly waives the benefit of Section 1542 of the California Civil Code, which provides: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR” (c) Executive acknowledges and understands that he is being represented in this matter by counsel, and acknowledges that he is not required to release unknown claims but that he expressly acknowledges and agrees that this Agreement is also intended to include in its effect, without limitation, all such claims which he does not know or suspect to exist at the time of the execution of this Agreement, and that this Agreement contemplates the extinguishment of those claims. (d) Executive acknowledges and agrees that he may later discover facts different from or in addition to those he now knows or believes to be true in entering into this Agreement. Executive agrees to assume the risk of the possible discovery of additional or different facts, including facts which may have been concealed or hidden, and agrees that this Agreement shall remain effective regardless of such additional or different facts. Executive further acknowledges and agrees that neither AOS nor any of the other Released Parties had any duty to disclose any fact to him prior to the execution of this Agreement. 4. Non-Admission of Liability . Executive expressly recognizes that this Agreement shall not in any way be construed as an admission by AOS or any of the other Released Parties of any unlawful or wrongful acts whatsoever against Executive or any other person or entity. AOS and each of the Released Parties expressly denies any violation of any policy or procedure, or of any state or federal law or regulation. AOS and each of the Released Parties also specifically denies any liability to or wrongful acts against Executive, or any other person, on the part of themselves or any other employees or agents of AOS. This Agreement shall not be admissible in any proceeding as evidence of or any admission by AOS of any violation of any law or regulation or wrongful act. This Agreement may, however, be introduced in any proceeding to enforce this Agreement. 5. No Filing of Claims . Executive specifically represents that he has no pending complaints or charges against AOS or any of the other Released Parties with any state or federal

 
DB2/21688765.1 -4- court or any local, state or federal agency, division or department based on any events occurring prior to the date of execution of this Agreement. 6. Advice of Counsel . Executive acknowledges that he has been given twenty-one days (21) to seek the advice of counsel and to consider the effects of this Agreement upon his legal rights (the “Consideration Period”). To the extent that Executive has signed the Agreement without obtaining the advice of counsel or before expiration of the Consideration Period, Executive acknowledges that he has done so voluntarily with a full understanding of the Agreement and its effect upon his legal rights. Any discussion between Executive and AOS or any of the Released Parties concerning the terms and conditions of this Agreement does not extend the Consideration Period. 7. Revocation Period. Executive acknowledges that he has been informed that, after he signs this Agreement, he has the right to revoke his signature for a period of seven days (7) from the date that he signs the Agreement. To be effective, the revocation must be in writing, signed by Executive, and delivered to Vice President of Human Resources at 475 Oakmead Parkway, Sunnyvale, California 94085 before the close of business on the seventh day (7th) day following the date Executive signs this Agreement. Executive acknowledges and agrees that AOS has no obligation to comply with the terms of this Agreement until the Revocation Period has expired without revocation. 8. Confidentiality. Executive consents and agrees that he will not, at any time, disclose the existence of this Agreement, the terms of his severance benefits and/or the alleged facts or circumstances giving rise to any actual or alleged claims or the Action to any person, firm, Company, association, or entity or the press or media for any reason or purpose whatsoever, other than to his attorney, his immediate family and to his accountant or financial advisor for tax purposes. If Executive is served with any subpoena, court order, or other legal process seeking disclosure of any such information, Executive shall promptly send to AOS, within forty-eight (48) hours, via facsimile at (408) 830 9749, such subpoena, court order, or other legal process so that AOS may exercise any applicable legal remedies. Executive agrees and acknowledges that a violation of this paragraph by Executive shall be a material breach of this Agreement. 9. Delivery of Documents. Executive represents and warrants that he has not removed any documents, records or other information, including any such documents, records or information that are or were electronically stored, from the premises of AOS. Executive acknowledges that such documents, records and other information are the exclusive property of AOS or its subsidiaries or affiliates. 10. Remedies For Breach Of This Agreement. (a) Injunctive Relief. In the event of a breach of the provisions of this Agreement, Executive agrees that any remedy at law for any breach or threatened breach of the provisions of such paragraphs and the covenants set forth therein, will be inadequate and, accordingly, each party hereby stipulates that the other is entitled to obtain injunctive relief for any such breaches or threatened breaches (without the necessity of posting a bond). The injunctive relief provided for in this paragraph is in addition to, and is not in limitation of, any and all other remedies at law or in equity otherwise available to the applicable party.

 
DB2/21688765.1 -5- (b) Remedies Cumulative. The remedies in this paragraph are not exclusive, and the parties shall have the right to pursue any other legal or equitable remedies to enforce the terms of this Agreement. (c) Governing Law; Consent to Jurisdiction. This Agreement shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of the State of California, without giving effect to conflict of laws principles thereof. All questions concerning the construction, validity, and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of California, without giving effect to any choice of law or conflict of law provision that would cause the application of the laws of any jurisdiction other than the State of California. Each of the parties hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of California or the United States District Court for the Northern District of California for any litigation, proceeding or action arising out of or relating to this Agreement (and agrees not to commence any litigation, proceeding or action relating thereto except in such courts). Each of the parties hereby irrevocably and unconditionally waives any objection to the laying of venue of any litigation, proceeding or action arising out of this agreement or thereby in the courts of the State of California or the United States District Court for the Northern District of California and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such litigation, proceeding or action brought in any such court has been brought in an inconvenient forum. 11. Counsel. The parties hereby acknowledge that they have had the reasonable opportunity to consult with attorneys of their own choice concerning the terms and conditions of this Agreement, that they have read and understand this Agreement, that they are fully aware of the contents of this Agreement and that they enter into this agreement freely and knowingly and with a full understanding of its legal effect. 12. Entire Agreement. This is the entire agreement between Executive and AOS with respect to the subject matter hereof and the Agreement supersedes any previous negotiations, agreements and understandings. Executive acknowledges that he has not relied on any oral or written representations by AOS (or its counsel) or any of the other Released Parties to induce him to sign this Agreement, other than the terms of this Agreement. No modifications of this Agreement can be made except in writing signed by Executive and AOS. 13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under existing or future laws effective during the term of this Agreement, such provisions shall be fully several, the Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 14. Ambiguities. Attorneys for both parties have participated in the negotiation of this Agreement and, thus, it is understood and agreed that the general rule that ambiguities are to be

 
DB2/21688765.1 -6- construed against the drafter shall not apply to this Agreement. In the event that any language of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language. 15. Waiver. No waiver by any party of any breach of any term or provision of this Agreement shall be a waiver of any preceding, concurrent or succeeding breach of this Agreement or of any other term or provision of this Agreement. No waiver shall be binding on the part of, or on behalf of, any other party entering into this Agreement. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument, THE SIGNATORIES HAVE CAREFULLY READ THIS ENTIRE AGREEMENT. ITS CONTENTS HAVE BEEN FULLY EXPLAINED TO THEM BY THEIR ATTORNEYS. THE SIGNATORIES FULLY UNDERSTAND THE FINAL AND BINDING EFFECT OF THIS AGREEMENT. THE ONLY PROMISES MADE TO ANY SIGNATORY ABOUT THIS AGREEMENT, AND TO SIGN THIS AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. THE SIGNATORIES ARE SIGNING THIS AGREEMENT VOLUNTARILY. PLEASE READ CAREFULLY. THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS

 
DB2/21688765.1 IN WITNESS WHEREOF , the parties have executed this General Settlement and Release Agreement on the dates set forth below. ALPHA AND OMEGA SEMICONDUCTOR LIMITED: DATE: EXECUTIVE: DATE:

 
DB2/21688780.1 ALPHA AND OMEGA SEMICONDUCTOR LIMITED Exhibit 10.2 April 28, 2010 Dr. Yueh-Se Ho c/o Alpha and Omega Semiconductor Incorporated 475 Oakmead Parkway Sunnyvale, California 94085 Dear Yueh-Se: We are pleased to inform you that the Company's Board of Directors has approved a new severance benefit program for you. The purpose of this letter agreement is to set forth the terms and conditions of your severance benefits and to explain certain limitations that may govern their overall value or payment. Your severance package will become payable should your employment terminate under certain circumstances prior to or following certain changes in ownership or control of the Company. To understand the full scope of your benefits, you should familiarize yourself with the definitional provisions of Part One of this letter agreement. The benefits comprising your severance package are detailed in Parts Two and Three, and the dollar limitations on the overall value of your benefit package and other applicable restrictions are specified in Parts Four and Five. PART ONE – DEFINITIONS For purposes of this Agreement, the following definitions shall be in effect: Board means the Company’s Board of Directors. Change in Control means a change in control of the Company effected through any of the following transactions: (i) a merger, consolidation or other reorganization approved by the Company’s shareholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor Company are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction, or (ii) a shareholder-approved sale, transfer or other disposition of all or substantially all of the Company’s assets in liquidation or dissolution of the Company, or (iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is

 
DB2/21688780.1 -2- controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders. Change in Control Severance Period means the period commencing with the Company’s execution of the definitive agreement for a Change in Control transaction and continuing until the end of the twelve (12)-month period measured from the closing date of that Change in Control. Code means the Internal Revenue Code of 1986, as amended. Common Share means the Company’s common share. Company means Alpha and Omega Semiconductor Limited, a company incorporated and existing under the laws of the Islands of Bermuda. Executive means the undersigned executive. Good Reason means the Executive’s voluntary resignation within ninety (90) days following one or more of the following events that occur without the Executive’s written consent: (A) a material diminution in the Executive’s authority, duties or responsibilities, (B) a material reduction in his base compensation, with a reduction of fifteen percent (15%) or more to be deemed material for such purpose, (C) a material relocation of his principal place of employment, with a relocation that is more than fifty (50) miles from the location of his principal office in Sunnyvale, California to be deemed material for such purpose, or (D) a material breach by the Company of any of its obligations under this Agreement; provided, however, that none of the events specified above shall constitute Good Reason unless the Executive first provides written notice to the Company describing the applicable event within thirty (30) days following the occurrence of that event and the Company fails to cure such event within thirty (30) days after receipt of such written notice. Involuntary Termination means (i) the Company’s termination of the Executive’s employment for any reason other than a Termination for Cause or (ii) the Executive’s voluntary resignation for Good Reason. 1934 Act shall mean the U.S. Securities Exchange Act of 1934, as amended. Plan means (i) the Company’s 2000 Share Plan, (ii) the Company’s 2009 Share Option/Share Issuance Plan, as amended or restated from time to time, and (iii) any successor stock incentive plan subsequently implemented by the Company. Separation from Service means the Executive’s cessation of Employee status and shall be deemed to occur at such time as the level of the bona fide services the Executive is to perform in Employee status (or as a consultant or other independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services the Executive rendered in Employee status during the immediately preceding thirty-six (36) months (or such

 
DB2/21688780.1 -3- shorter period for which the Executive may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. For purposes of determining whether the Executive has incurred a Separation from Service, the Executive will be deemed to continue in “Employee” status for so long as he remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Company and any other corporation or business controlled by, controlling or under common control with, the Company as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(a)(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Executive is on a sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which the Executive is provided with a right to reemployment with the Company by either statute or contract; provided, however, that in the event of a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes the Executive to be unable to perform his duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Executive is not provided with a right to reemployment by either statute or contract, then the Executive will be deemed to have Separated from Service on the first day immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period. Termination for Cause means the termination of the Executive’s employment due to (i) the commission of any act of fraud, embezzlement or dishonesty by the Executive or his conviction of a felony, (ii) any unauthorized use or disclosure by the Executive of confidential information or trade secrets of the Company (or any parent or subsidiary), (iii) any other misconduct by the Executive adversely affecting the business or affairs of the Company in a material manner, (iv) the Executive’s failure to cure any breach of his obligations under this Agreement or his Proprietary Information and Inventions Agreement with the Company after written notice of such breach from the Company and a reasonable cure period of at least thirty (30) days or (v) the Executive’s breach of any of his fiduciary duties as an officer or director of the Company. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any parent or subsidiary) may consider as grounds for the dismissal or discharge of the Executive or any other individual in the service of the Company (or any parent or subsidiary), but a dismissal for such other acts or omissions shall not constitute a Termination for Cause for purposes of this Agreement unless otherwise described above.

 
DB2/21688780.1 -4- PART TWO – NORMAL SEVERANCE BENEFITS 1. Entitlement. Should the Company terminate the Executive’s employment (other than a Termination for Cause) at any time other than during the Change in Control Severance Period, then the Executive shall become entitled to receive the payments and benefits set forth in Paragraph 2, subject to the Executive’s compliance with the following requirement:  The Executive shall, within twenty-one (21) days (or such longer period as required by law) following the date of such Involuntary Termination execute and deliver to the Company a general release (“Release”) in the form attached hereto as Exhibit A which becomes effective in accordance with applicable law following the expiration of the applicable revocation period. This requirement shall hereinafter be referred to as the “Release Condition”. The payments and benefits provided under this Part Two shall be in lieu of any other severance benefits to which the Executive might otherwise, by reason of the termination of the Executive’s employment, be entitled under any other severance plan, program or arrangement of the Company. 2. Severance Payments. The severance payments and benefits which the Executive shall receive under this Part Two shall consist of the following: A. Salary Continuation Payments . The Executive shall be eligible to receive continued payment of the Executive’s then-current base salary for a period of six (6)- month. The first such payment shall be made on the sixtieth (60th) day following the date of the Executive’s Separation from Service provided the Release is effective, and subsequent payments will be made in accordance with the Company’s normal payroll schedule for salaried employees. Such cash payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. B. Health Care Coverage . Provided the Executive and his or her spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, his or her spouse and eligible dependents until the earlier of (i) the expiration of the six (6)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs or (ii) the first date on which the Executive and the Executive’s eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition. Any additional medical care coverage to which the Executive and the Executive’s spouse and dependents may be entitled under COBRA following the period of such Company-paid coverage shall be at the Executive’s sole cost and expense. During the period the Company-provided medical care coverage remains in effect hereunder, the following provisions shall govern the arrangement: (a) the amount of such benefits in any one calendar year of such coverage shall not affect the amount of benefits in any other calendar year for which such benefits are to be provided hereunder and (b) the Executive’s right to the benefits cannot be liquidated or exchanged for any other benefit.

 
DB2/21688780.1 -5- C. No Vesting Accelera tion. All vesting of the Executive’s outstanding options and other equity awards granted under the Plan shall cease at the time of the Executive’s termination, and the Executive shall not have more than the period of time specified in the applicable option agreement in which to exercise those outstanding options following such termination for any Common Shares which are vested and exercisable at the time of such termination. PART THREE - CHANGE IN CONTROL SEVERANCE BENEFITS 3. Entitlement. Should the Executive’s employment terminate by reason of an Involuntary Termination within the Change in Control Severance Period, then the Executive shall become entitled to receive the payments and benefits set forth in Paragraph 4, subject to the Executive’s compliance with the Release Condition. The payments and benefits provided under this Part Three shall be in lieu of any other severance benefits to which the Executive might otherwise, by reason of the termination of the Executive’s employment during the Change in Control Severance Period, be entitled under any other severance plan, program or arrangement of the Company. 4. Severance Payments. The severance payments and benefits which the Executive shall receive under this Part Three shall consist of the following: A. Salary Continuation Payments . The Executive shall be eligible to receive continued payment of the Executive’s then-current base salary for a period of six (6) months. The first such payment shall be made on the sixtieth (60th) day following the date of the Executive’s Separation from Service provided the Release is effective, and subsequent payments will be made in accordance with the Company’s normal payroll schedule for salaried employees. Such cash payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code. B. Health Care Coverage . Provided the Executive and his or her spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, his or her spouse and eligible dependents until the earlier of (i) the expiration of the six (6)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs or (ii) the first date on which the Executive and the Executive’s eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition. Any additional medical care coverage to which the Executive and the Executive’s spouse and dependents may be entitled under COBRA following the period of such Company-paid coverage shall be at the Executive’s sole cost and expense. During the period the Company-provided medical care coverage remains in effect hereunder, the following provisions shall govern the arrangement: (a) the amount of such benefits in any one calendar year of such coverage shall not affect the amount of benefits in any other calendar year for which such benefits are to be provided hereunder and (b) the Executive’s right to the benefits cannot be liquidated or exchanged for any other benefit.

 
DB2/21688780.1 -6- C. Accelerated Vesting. Each outstanding option and other equity award granted under the Plan held by the Executive at the time of the Executive’s Involuntary Termination shall immediately vest with respect to the number of additional Common Shares that would have vested had the Executive continued in employment with the Company for an additional period of one (1) year following the Involuntary Termination. The Executive shall not have more than the period of time specified in the applicable option agreement in which to exercise those outstanding options following such Involuntary Termination for any Common Shares which are vested and exercisable at the time of such termination, including any shares which become vested as a result of this Paragraph 4C. PART FOUR - LIMITATION ON BENEFITS 5. No Duplication of Benefits . In no event shall the Executive be entitled to severance benefits under both Parts Two and Three of this Agreement. 6. Benefit Limit. The benefit limitations of this Part Four shall be applicable in the event the Executive receives any benefits under this Agreement which are deemed to constitute parachute payments under Code Section 280G. In the event that any payments to which the Executive becomes entitled in accordance with the provisions of this Agreement would otherwise constitute a parachute payment under Code Section 280G, then such payments will be subject to reduction to the extent necessary to assure that the Executive receives only the greater of (i) the amount of those payments which would not constitute such a parachute payment or (ii) the amount which yields the Executive the greatest after-tax amount of benefits after taking into account any excise tax imposed on the payments provided to the Executive under this Agreement (or on any other benefits to which the Executive may be entitled in connection with any change in control or ownership of the Company or the subsequent termination of the Executive’s employment with the Company) under Code Section 4999. Should a reduction in benefits be required to satisfy the benefit limit of this Section 6, then the salary continuation payments shall accordingly be reduced to the extent necessary to comply with such benefit limit. Should such benefit limit still be exceeded following such reduction, then the number of shares which would otherwise vest under the vesting-accelerated portion (if any) of each equity award (based on the amount of the parachute payment attributable to such equity award under Code Section 280G) shall be reduced to the extent necessary to eliminate such excess. 7. Restrictive Covenants. For the entire period during which the Executive is entitled to severance payments under Part Two or Part Three of this Agreement, the Executive shall not: (i) anywhere in the United States render any services or provide any advice, assistance or support to any Competing Business, whether as an employee, agent, representative, consultant, partner, officer, director or stockholder or in any other capacity; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than five percent (5%) of an outstanding class

 
DB2/21688780.1 -7- of publicly-traded securities of any corporation or other enterprise which may constitute a Competing Business hereunder; (ii) contact, solicit or call upon any customer or supplier of the Company on behalf of any person or entity other than the Company for the purpose of selling any products or providing or performing any services of the type normally sold, provided or performed by the Company; (iii) induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with the Company; or (iv) encourage or solicit any of the Company’s employees to leave the Company’s employ for any reason or interfere in any other manner with employment relationships at the time existing between the Company and its employees. For purposes of this Agreement, a Competing Business means any business which is or, to the best of the Executive’s knowledge, is expected to become, competitive with the business or any contemplated business of the Company, or any direct or indirect subsidiaries of the Company or any of their affiliates. 8. Cessation of Benefits. In the event of a material breach by the Executive of any of the Executive’s obligations under Paragraph 7 of this Agreement or any of the Executive’s obligations under the Executive’s Proprietary Information and Inventions Agreement with the Company, the Executive shall cease to be entitled to any further payments or benefits under Part Two or Part Three of this Agreement. PART FIVE -MISCELLANEOUS PROVISIONS 9. Section 409A. A. It is the intention of the parties that the provisions of this Agreement comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder. Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section 409A, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder. In no event may Executive, directly or indirectly, designate the calendar year of a payment. B. Notwithstanding any provision to the contrary in this Agreement (other than Section 6(C) below), no payments or benefits to which the Executive becomes entitled under Part Two of this Agreement shall be made or paid to the Executive prior to the earlier of (A) the expiration of the 6-month period measured from the date of his or her Separation from Service or (B) the date of the Executive’s death, if the Executive is deemed at the time of such Separation from Service a “specified employee” within the meaning of that term under Section 409A of the code and the Treasury Regulation s thereunder and such delayed commencement is

 
DB2/21688780.1 -8- otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments deferred pursuant to this Section 6(B)shall be paid in a lump sum to the Executive, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein. 10. Employment at Will . The Executive’s employment with the Company shall remain at will. Nothing in this Agreement is intended to provide the Executive with any right to continue in the employ of the Company (or any affiliate) for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any affiliate) or the Executive, which rights are hereby expressly reserved by each, to terminate the Executive’s employment at any time for any reason or for no reason. 11. Other Termination. The Executive shall not be entitled to receive any severance payments or benefits if there is a Termination for Cause or his employment with the Company ends due to death, disability, retirement or voluntary termination (other than as specified in Part Three). Upon any such termination, the Company shall only be required to pay the Executive (i) any unpaid compensation earned for services rendered through the date of such termination and (ii) the value of any accrued but unpaid vacation benefits or sick days, and no benefits will be payable under Part Two or Part Three of this Agreement. In addition, all vesting in the Executive’s outstanding options and other equity awards, if any, shall cease at the time of such termination, and the Executive shall not have more than the period of time specified in the applicable option agreement for each option in which to exercise that option following such termination of employment for the Company’s Common Shares which are vested and exercisable at the time of such termination. 12. Successors and Assigns . The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, (i) the Company and its successors and assigns, including any successor entity by merger, consolidation or transfer of all or substantially all of the Company’s assets (whether or not such transaction constitutes a Change in Control), and (ii) the Executive, the personal representative of the Executive’s estate and the Executive’s heirs and legatees. 13. General Creditor Status . The benefits to which the Executive may become entitled under Part Two or Part Three of this Agreement shall be paid, when due, from the Company’s general assets, and no trust fund, escrow arrangement or other segregated account shall be established as a funding vehicle for such payments. Accordingly, the Executive’s right (or the right of the executors or administrators of the Executive’s estate) to receive such benefits shall at all times be that of a general creditor of the Company and shall have no priority over the claims of other general creditors. 14. Governing Documents. This Agreement, together with (i) the agreements evidencing the Executive’s currently outstanding options and any future option grants or other equity awards under the Plan and (ii) the Executive’s existing Proprietary Information and Inventions Agreement, shall constitute the entire agreement and understanding of the Company and the Executive with respect to the payment of severance benefits to the Executive and shall supersede all prior and contemporaneous written or verbal agreements and understandings

 
DB2/21688780.1 -9- between the Executive and the Company relating to such subject matter. This Agreement may only be amended by a written instrument signed by the Executive and an authorized officer of the Company. Any and all prior agreements, understandings or representations relating to the Executive’s severance benefits, other than (i) the agreements evidencing the Executive’s currently outstanding options under the Plan and (ii) the Executive’s existing Proprietary Information and Inventions Agreement, are hereby terminated and cancelled in their entirety and are of no further force or effect. 15. Governing Law. The provisions of this Agreement shall be construed and interpreted under the laws of the State of California applicable to agreements executed and wholly performed within the State of California. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken, and the remainder of this Agreement shall continue in full force and effect. 16. Arbitration. A. Each party agrees that any and all disputes which arise out of or relate to the Executive’s employment, the termination of the Executive’s employment or the terms of this Agreement shall be resolved through final and binding arbitration. Such arbitration shall be in lieu of any trial before a judge and/or ju ry, and the Executive and Company express ly waive all rights to have such disp utes resolved through trial before a judge and/or jury. Such disputes shall include, without limitation, claims for breach of contract or of the covenant of good faith and fair dealing, claims of discrimination, claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of the Executive’s employment with the Company or its termination. B. Arbitration shall be held in Santa Clara County, California and conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA Rules”), provided, however, that the arbitrator shall allow the discovery authorized by California Code of Civil Procedure section 1282, et seq., or any other discovery required by applicable law in arbitration proceedings. To the extent that any of the AAA Rules conflict with applicable law, the arbitration procedures required by applicable law shall govern. C. During the course of the arbitration, the Company will pay the arbitrator’s fee and any other type of expense or cost that the Executive would not otherwise be required to bear if he were free to bring the dispute or claim in court and any other expense or cost that is

 
DB2/21688780.1 -10- unique to arbitration. The Company and the Executive shall each bear its or his own respective attorneys’ fees incurred in connection with the arbitration. D. The arbitrator shall issue a written award that sets forth the essential findings of fact and conclusions of law on which the award is based. The arbitrator shall have the authority to award any relief authorized by law in connection with the asserted claims or disputes. The arbitrator’s award shall be subject to correction, confirmation, or vacation, as provided by applicable law setting forth the standard of judicial review of arbitration awards. Judgment upon the arbitrator’s award may be entered in any court having jurisdiction thereof. 17. Legal Representation. The Executive acknowledges that he has had the right to consult with counsel and is fully aware of his rights and obligations under this Agreement. 18. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

 

 
DB2/21688780.1 EXHIBIT A FORM OF GENERAL RELEASE THIS DOCUMENT IS INTENDED AS A FORM OF THE GENERAL SETTLEMENT AND RELEASE. PURSUANT TO PARAGRAPH 1 AND PARAGRAPH 3 OF THE LETTER AGREEMENT, EXECUTION OF A RELEASE, IN SUBSTANTIALLY THE SAME FORM AS THIS EXHIBIT A IS A CONDITION FOR EXECUTIVE’S RECEIPT OF CERTAIN BENEFITS PURSUANT TO PARAGRAPH 2 AND PARAGRAPH 4. THE FORM MUST BE FINALIZED BY ALPHA AND OMEGA SEMICONDUCTOR LIMITED PRIOR TO EXECUTION.

 
DB2/21688780.1 -2- GENERAL SETTLEMENT AND RELEASE AGREEMENT This General Settlement and Release Agreement (the “Agreement”) is by and between Alpha ad Omega Semiconductor Limited, for itself and for all of its affiliated, related, parent and direct and indirect subsidiary companies, joint venturers and partnerships, successors and permitted assigns and each of them (collectively, “AOS”), on the one hand, and __________________, for himself, and his agents, representatives, heirs and assigns (“Executive”), on the other hand. 1. Payments. In full and complete consideration for Executive’s promises and undertaking set forth in this Agreement, following the eighth (8th) day following receipt by AOS of a fully executed Settlement and Release Agreement from Executive, AOS will provide Executive the consideration, if any, to which Executive is entitled pursuant to the Letter Agreement between the parties, dated ________, 2010, at the times specified in Paragraph 2 or Paragraph 4 (as applicable) of that Agreement unless the signature on this Agreement is revoked pursuant to Paragraph 7 below. 2. Release of Known and Unknown Claims. (a) It is understood and agreed by the parties to this Agreement that in consideration of the mutual promises and covenants contained in this Agreement, and after consultation with counsel, Executive irrevocably and unconditionally releases and forever discharges AOS and each of the other Released Parties from any and all causes of action, claims, actions, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character, which Executive may have against AOS or any of the Released Parties, or any of them, by reason of or arising out of, touching upon or concerning Executive’s employment, separation of his employment and reapplication for employment with AOS, or any statutory claims, or any and all other matters of whatever kind, nature or description, whether known or unknown, occurring prior to the date of the execution of this Agreement. Executive acknowledges that this release of claims specifically includes, but is not limited to, any and all claims for fraud; breach of contract; breach of the implied covenant of good faith and fair dealing; inducement of breach; interference with contractual rights; wrongful or unlawful discharge or demotion; violation of public policy; sexual assault and battery; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; defamation; unlawful effort to prevent employment; discrimination or harassment on the basis of age, race, color, sex, national origin, ancestry, religion, disability, handicap, medical condition or marital status; any claim under: Title VII, ADA, ADEA OWBPA, FMLA, COBRA, OSHA, ERISA, IRC, FEHA, CalOsha, or any other wrongful conduct, based upon events occurring prior to the date that this Agreement is executed by Executive. Notwithstanding anything to the contrary herein, this Agreement shall not release Executive’s right, if any, to indemnification pursuant to the Company’s Bylaws or insurance policies, for any claims arising out of Executive’s conduct as an employee or officer of the Company during his employment.

 
DB2/21688780.1 -3- (b) Executive represents and warrants that he has not assigned or subrogated any of his rights, claims or causes of action, including any claims referenced in this Agreement, or authorized any other person or entity to assert such claims on his behalf, and he agrees to indemnify and hold harmless AOS and each of the Released Parties against any assignment of said rights, claims and/or causes of action. 3. Waiver of Unknown Claims. (a) Executive does hereby expressly waive and relinquish all rights and benefits afforded to him under law, and does so understanding and acknowledging the significance and consequences of such a waiver. (b) Releases of Unknown Claims/Waiver of Civil Code Section 1542 . The parties agree that this Agreement is a full and final release of any and all claims and Executive expressly waives the benefit of Section 1542 of the California Civil Code, which provides: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR” (c) Executive acknowledges and understands that he is being represented in this matter by counsel, and acknowledges that he is not required to release unknown claims but that he expressly acknowledges and agrees that this Agreement is also intended to include in its effect, without limitation, all such claims which he does not know or suspect to exist at the time of the execution of this Agreement, and that this Agreement contemplates the extinguishment of those claims. (d) Executive acknowledges and agrees that he may later discover facts different from or in addition to those he now knows or believes to be true in entering into this Agreement. Executive agrees to assume the risk of the possible discovery of additional or different facts, including facts which may have been concealed or hidden, and agrees that this Agreement shall remain effective regardless of such additional or different facts. Executive further acknowledges and agrees that neither AOS nor any of the other Released Parties had any duty to disclose any fact to him prior to the execution of this Agreement. 4. Non-Admission of Liability . Executive expressly recognizes that this Agreement shall not in any way be construed as an admission by AOS or any of the other Released Parties of any unlawful or wrongful acts whatsoever against Executive or any other person or entity. AOS and each of the Released Parties expressly denies any violation of any policy or procedure, or of any state or federal law or regulation. AOS and each of the Released Parties also specifically denies any liability to or wrongful acts against Executive, or any other person, on the part of themselves or any other employees or agents of AOS. This Agreement shall not be admissible in any proceeding as evidence of or any admission by AOS of any violation of any law or regulation or wrongful act. This Agreement may, however, be introduced in any proceeding to enforce this Agreement. 5. No Filing of Claims . Executive specifically represents that he has no pending complaints or charges against AOS or any of the other Released Parties with any state or federal

 
DB2/21688780.1 -4- court or any local, state or federal agency, division or department based on any events occurring prior to the date of execution of this Agreement. 6. Advice of Counsel . Executive acknowledges that he has been given twenty-one days (21) to seek the advice of counsel and to consider the effects of this Agreement upon his legal rights (the “Consideration Period”). To the extent that Executive has signed the Agreement without obtaining the advice of counsel or before expiration of the Consideration Period, Executive acknowledges that he has done so voluntarily with a full understanding of the Agreement and its effect upon his legal rights. Any discussion between Executive and AOS or any of the Released Parties concerning the terms and conditions of this Agreement does not extend the Consideration Period. 7. Revocation Period. Executive acknowledges that he has been informed that, after he signs this Agreement, he has the right to revoke his signature for a period of seven days (7) from the date that he signs the Agreement. To be effective, the revocation must be in writing, signed by Executive, and delivered to Vice President of Human Resources at 475 Oakmead Parkway, Sunnyvale, California 94085 before the close of business on the seventh day (7th) day following the date Executive signs this Agreement. Executive acknowledges and agrees that AOS has no obligation to comply with the terms of this Agreement until the Revocation Period has expired without revocation. 8. Confidentiality. Executive consents and agrees that he will not, at any time, disclose the existence of this Agreement, the terms of his severance benefits and/or the alleged facts or circumstances giving rise to any actual or alleged claims or the Action to any person, firm, Company, association, or entity or the press or media for any reason or purpose whatsoever, other than to his attorney, his immediate family and to his accountant or financial advisor for tax purposes. If Executive is served with any subpoena, court order, or other legal process seeking disclosure of any such information, Executive shall promptly send to AOS, within forty-eight (48) hours, via facsimile at (408) 830 9749, such subpoena, court order, or other legal process so that AOS may exercise any applicable legal remedies. Executive agrees and acknowledges that a violation of this paragraph by Executive shall be a material breach of this Agreement. 9. Delivery of Documents. Executive represents and warrants that he has not removed any documents, records or other information, including any such documents, records or information that are or were electronically stored, from the premises of AOS. Executive acknowledges that such documents, records and other information are the exclusive property of AOS or its subsidiaries or affiliates. 10. Remedies For Breach Of This Agreement. (a) Injunctive Relief. In the event of a breach of the provisions of this Agreement, Executive agrees that any remedy at law for any breach or threatened breach of the provisions of such paragraphs and the covenants set forth therein, will be inadequate and, accordingly, each party hereby stipulates that the other is entitled to obtain injunctive relief for any such breaches or threatened breaches (without the necessity of posting a bond). The injunctive relief provided for in this paragraph is in addition to, and is not in limitation of, any and all other remedies at law or in equity otherwise available to the applicable party.

 
DB2/21688780.1 -5- (b) Remedies Cumulative. The remedies in this paragraph are not exclusive, and the parties shall have the right to pursue any other legal or equitable remedies to enforce the terms of this Agreement. (c) Governing Law; Consent to Jurisdiction. This Agreement shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of the State of California, without giving effect to conflict of laws principles thereof. All questions concerning the construction, validity, and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of California, without giving effect to any choice of law or conflict of law provision that would cause the application of the laws of any jurisdiction other than the State of California. Each of the parties hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of California or the United States District Court for the Northern District of California for any litigation, proceeding or action arising out of or relating to this Agreement (and agrees not to commence any litigation, proceeding or action relating thereto except in such courts). Each of the parties hereby irrevocably and unconditionally waives any objection to the laying of venue of any litigation, proceeding or action arising out of this agreement or thereby in the courts of the State of California or the United States District Court for the Northern District of California and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such litigation, proceeding or action brought in any such court has been brought in an inconvenient forum. 11. Counsel. The parties hereby acknowledge that they have had the reasonable opportunity to consult with attorneys of their own choice concerning the terms and conditions of this Agreement, that they have read and understand this Agreement, that they are fully aware of the contents of this Agreement and that they enter into this agreement freely and knowingly and with a full understanding of its legal effect. 12. Entire Agreement. This is the entire agreement between Executive and AOS with respect to the subject matter hereof and the Agreement supersedes any previous negotiations, agreements and understandings. Executive acknowledges that he has not relied on any oral or written representations by AOS (or its counsel) or any of the other Released Parties to induce him to sign this Agreement, other than the terms of this Agreement. No modifications of this Agreement can be made except in writing signed by Executive and AOS. 13. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under existing or future laws effective during the term of this Agreement, such provisions shall be fully several, the Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 14. Ambiguities. Attorneys for both parties have participated in the negotiation of this Agreement and, thus, it is understood and agreed that the general rule that ambiguities are to be

 
DB2/21688780.1 -6- construed against the drafter shall not apply to this Agreement. In the event that any language of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to any such ambiguous language. 15. Waiver. No waiver by any party of any breach of any term or provision of this Agreement shall be a waiver of any preceding, concurrent or succeeding breach of this Agreement or of any other term or provision of this Agreement. No waiver shall be binding on the part of, or on behalf of, any other party entering into this Agreement. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument, THE SIGNATORIES HAVE CAREFULLY READ THIS ENTIRE AGREEMENT. ITS CONTENTS HAVE BEEN FULLY EXPLAINED TO THEM BY THEIR ATTORNEYS. THE SIGNATORIES FULLY UNDERSTAND THE FINAL AND BINDING EFFECT OF THIS AGREEMENT. THE ONLY PROMISES MADE TO ANY SIGNATORY ABOUT THIS AGREEMENT, AND TO SIGN THIS AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. THE SIGNATORIES ARE SIGNING THIS AGREEMENT VOLUNTARILY. PLEASE READ CAREFULLY. THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF KNOWN AND UNKNOWN CLAIMS

 
DB2/21688780.1 IN WITNESS WHEREOF , the parties have executed this General Settlement and Release Agreement on the dates set forth below. ALPHA AND OMEGA SEMICONDUCTOR LIMITED: DATE: EXECUTIVE: DATE:

 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mike F. Chang, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 8, 2021
 
/s/    Mike F. Chang   
Mike F. Chang
Chief Executive Officer



Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Yifan Liang, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 8, 2021
 
/s/    Yifan Liang        
Yifan Liang
Chief Financial Officer and Corporate Secretary



Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mike F. Chang, chief executive officer of Alpha and Omega Semiconductor Limited (the "Company"), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

a.the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended December 31, 2020 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

b.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 8, 2021
 
/s/    Mike F. Chang    
Mike F. Chang
Chief Executive Officer





Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Yifan Liang, chief financial officer of Alpha and Omega Semiconductor Limited (the "Company"), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

a.the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended December 31, 2020 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

b.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 8, 2021
                                
/s/    Yifan Liang       
Yifan Liang
Chief Financial Officer and Corporate Secretary