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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, 2021

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 28, 2021: 26,707,43025,770,998



Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal Second Quarter Ended December 31, 2021
TABLE OF CONTENTS
 
    Page
Part I.
    Item 1.
1
1
2
3
4
6
7
    Item 2.
33
    Item 3.
48
    Item 4.
48
Part II.
    Item 1.
49
    Item 1A.
49
    Item 2.
51
    Item 3.
52
    Item 4.
52
    Item 5.
52
    Item 6.
53
54



PART I. FINANCIAL INFORMATION


Deconsolidation of the Joint Venture ("the JV Company") effective December 2, 2021

As fully discussed in Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements provided herein, effective December 2, 2021, Alpha and Omega Semiconductor ("AOS" or the “Company”) deconsolidated the Joint Venture ("the JV Company") due to the reduction of AOS's percentage of equity interest in the JV Company to below 50%. Prior to that date, the JV Company was a majority-owned and consolidated subsidiary of the Company. On December 2, 2021, AOS’s equity ownership percentage of the JV Company decreased to below 50% as a result of a sale by the Company of its equity interest in the JV Company to a third-party investor. Also, the Company’s right to designate directors on the board of the JV Company was modified to three (3) out of seven (7) directors, instead of four (4) directors prior to the transaction. These, among other factors discussed in Note 1, resulted in a loss of control of the JV Company under generally accepted accounting principles. Accordingly, since December 2, 2021, AOS has accounted for its investment in the JV Company using the equity method of accounting.

AOS’s audited Consolidated Balance Sheet at June 30, 2021 included the JV Company’s assets and liabilities, after intercompany eliminations. However, the JV Company's assets and liabilities were not included in AOS’s unaudited Consolidated Balance Sheet at December 31, 2021 due to the deconsolidation of the JV Company on December 2, 2021.

AOS’s unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2021 included the JV Company's results of operations for the period through December 1, 2021, the day immediately preceding the deconsolidation. For the three and six months ended December 31, 2020, AOS's unaudited consolidated results included the JV Company's results for the full periods presented.
Since the Company is unable to obtain accurate financial information from the JV Company in a timely manner, the Company records its share of earnings or losses of the JV Company on a one quarter lag. Therefore, the Company’s share of earnings or losses of the JV Company for the period from December 2, 2021 to December 31, 2021 has not been recorded in the Consolidated Statement of Operations for the three and six months ended December 31, 2021. Such equity earnings or losses will be recorded in the Company’s Consolidated Statement of Operations for the three and nine months ended March 31, 2022.







1

ITEM 1. FINANCIAL STATEMENTS

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
  December 31,
2021 		June 30,
2021
ASSETS
Current assets:
Cash and cash equivalents $ 269,306  $ 202,412 
Restricted cash 314  233 
Accounts receivable, net 31,661  35,789 
Other receivable, equity investee 25,030  — 
Inventories 129,084  154,293 
Other current assets 11,312  14,595 
Total current assets 466,707  407,322 
Property, plant and equipment, net 196,743  436,977 
Operating lease right-of-use assets, net 22,263  34,660 
Intangible assets, net 11,730  13,410 
Equity method investment 376,061  — 
Deferred income tax assets 440  5,167 
Restricted cash - long-term —  2,168 
Other long-term assets 37,931  18,869 
Total assets $ 1,111,875  $ 918,573 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 62,175  $ 80,699 
Accrued liabilities 95,212  69,494 
Income taxes payable 7,337  2,604 
Short-term debt 8,960  58,030 
Finance lease liabilities —  16,724 
Operating lease liabilities 4,293  5,679 
Total current liabilities 177,977  233,230 
Long-term debt 13,707  77,990 
Income taxes payable - long-term 1,345  1,319 
Deferred income tax liabilities 27,742  2,448 
Finance lease liabilities - long-term —  12,698 
Operating lease liabilities - long-term 19,430  30,440 
Other long-term liabilities 77,684  44,123 
Total liabilities 317,885  402,248 
Commitments and contingencies (Note 12)
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at December 31, 2021 and June 30, 2021
—  — 
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 33,329 shares and 26,706 shares, respectively at December 31, 2021 and 32,975 shares and 26,350 shares, respectively at June 30, 2021
67  66 
Treasury shares at cost: 6,623 shares at December 31, 2021 and 6,625 shares at June 30, 2021
(66,046) (66,064)
Additional paid-in capital 275,410  259,993 
Accumulated other comprehensive income 1,260  2,315 
Retained earnings 583,299  176,895 
Total Alpha and Omega Semiconductor Limited shareholder's equity 793,990  373,205 
Noncontrolling interest —  143,120 
Total equity 793,990  516,325 
Total liabilities and equity $ 1,111,875  $ 918,573 

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,
  2021 2020 2021 2020
Revenue $ 193,319  $ 158,830  $ 380,354  $ 310,381 
Cost of goods sold 124,954  110,081  247,422  219,109 
Gross profit 68,365  48,749  132,932  91,272 
Operating expenses
Research and development 16,516  15,423  34,328  30,114 
Selling, general and administrative 24,132  19,736  45,938  37,241 
Total operating expenses 40,648  35,159  80,266  67,355 
Operating income 27,717  13,590  52,666  23,917 
Interest expense and other income (loss), net (68) (381) (2,260) (930)
Gain on deconsolidation of the JV Company 399,093  —  399,093  — 
Loss on changes of equity interest in the JV Company, net (7,641) —  (7,641) — 
Net income before income taxes 419,101  13,209  441,858  22,987 
Income tax expense 34,096  669  35,416  1,680 
Net income 385,005  12,540  406,442  21,307 
Net gain (loss) attributable to noncontrolling interest 2,007  (363) 20  (1,170)
Net income attributable to Alpha and Omega Semiconductor Limited $ 382,998  $ 12,903  $ 406,422  $ 22,477 
Net income per common share attributable to Alpha and Omega Semiconductor Limited
Basic $ 14.40  $ 0.50  $ 15.35  $ 0.88 
Diluted $ 13.54  $ 0.47  $ 14.53  $ 0.84 
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income per share
Basic 26,593  25,672  26,479  25,506 
Diluted 28,287  27,353  27,963  26,834 

See accompanying notes to these condensed consolidated financial statements.

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

Three Months Ended December 31, Six Months Ended December 31,
2021 2020 2021 2020
Net income including noncontrolling interest $ 385,005  $ 12,540  $ 406,442  $ 21,307 
Other comprehensive income, net of tax
Foreign currency translation adjustment 1,587  6,814  1,487  12,517 
  Cumulative translation adjustment removal due to deconsolidation of the JV Company (3,642) —  (3,642) — 
Comprehensive income 382,950  19,354  404,287  33,824 
Less: Noncontrolling interest 921  2,824  (1,080) 4,739 
Comprehensive income attributable to Alpha and Omega Semiconductor Limited $ 382,029  $ 16,530  $ 405,367  $ 29,085 
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) including noncontrolling interest —  —  —  —  12,903  12,903  (363) 12,540 
Foreign currency 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) including noncontrolling interest —  —  —  —  22,477  22,477  (1,170) 21,307 
Foreign currency 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, 2021 $ 66  $ (66,052) $ 264,321  $ 2,229  $ 200,307  $ 400,871  $ 141,119  $ 541,990 
Exercise of common stock options and release of restricted stock units —  —  301  —  —  301  —  301 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs —  6  —  —  (6) —  —  — 
Withholding tax on restricted stock units —  —  (448) —  —  (448) —  (448)
Issuance of shares under ESPP 1  —  2,422  —  —  2,423  —  2,423 
Share-based compensation —  —  8,414  —  —  8,414  —  8,414 
Restricted stock units settlement in connection with service —  —  400  —  —  400  —  400 
Net income including noncontrolling interest through December 1, 2021 —  —  —  —  382,998  382,998  2,007  385,005 
Foreign currency translation adjustment —  —  —  824  —  824  763  1,587 
Deconsolidation of the JV company —  —  —  (1,793) —  (1,793) (143,889) (145,682)
Balance, December 31, 2021 $ 67  $ (66,046) $ 275,410  $ 1,260  $ 583,299  $ 793,990  $ —  $ 793,990 
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, 2021 $ 66  $ (66,064) $ 259,993  $ 2,315  $ 176,895  $ 373,205  $ 143,120  $ 516,325 
Exercise of common stock options and release of restricted stock units —  —  301  —  —  301  —  301 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs —  18  —  —  (18) —  —  — 
Withholding tax on restricted stock units —  —  (622) —  —  (622) —  (622)
Issuance of shares under ESPP 1  —  2,422  —  —  2,423  —  2,423 
Share-based compensation —  —  12,916  —  —  12,916  —  12,916 
Restricted stock units settlement in connection with service —  —  400  —  —  400  —  400 
Net income including noncontrolling interest —  —  —  —  406,422  406,422  20  406,442 
Foreign currency translation adjustment —  —  —  738  —  738  749  1,487 
Deconsolidation of noncontrolling interest —  —  —  (1,793) —  (1,793) (143,889) (145,682)
Balance, December 31, 2021 $ 67  $ (66,046) $ 275,410  $ 1,260  $ 583,299  $ 793,990  $ —  $ 793,990 


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,
2021 2020
Cash flows from operating activities
Net income including noncontrolling interest through December 1, 2021 $ 406,442  $ 21,307 
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on deconsolidation of the JV Company (399,093) — 
Loss on changes of equity interest in the JV Company, net 7,641  — 
Deferred income tax on deconsolidation and changes of equity interest in the JV Company 29,292  — 
Depreciation and amortization 25,660  25,689 
Share-based compensation expense 13,182  6,100 
Deferred income taxes, net 728  278 
Loss on disposal of property and equipment 57  40 
Changes in operating assets and liabilities, net of effects of a divestiture
Accounts receivable 3,936  (11,662)
Inventories (28,460) (8,779)
Other current and long-term assets (8,858) (1,793)
Other receivable, equity investee (5,826) — 
Accounts payable 11,639  (370)
Income taxes payable 1,269  824 
Income taxes payable on deconsolidation and changes of equity interest in the JV Company 3,490  — 
Accrued and other liabilities 70,275  14,299 
Net cash provided by operating activities 131,374  45,933 
Cash flows from investing activities
Proceeds from sale of equity interest in the JV Company 26,347  — 
Deconsolidation of cash and cash equivalents of the JV Company (20,734) — 
Purchases of property and equipment excluding the JV Company (39,547) (14,842)
Purchases of property and equipment in JV Company (15,026) (9,926)
Proceeds from sale of property and equipment 9  10 
Government grant related to equipment 1,242  119 
Net cash used in investing activities (47,709) (24,639)
Cash flows from financing activities
Withholding tax on restricted stock units (622) (953)
Proceeds from exercise of stock options and ESPP 2,724  3,197 
Proceeds from borrowings 14,262  31,008 
Repayments of borrowings (31,353) (29,912)
Principal payments on finance leases (4,176) (8,119)
Net cash used in financing activities (19,165) (4,779)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 307  4,120 
Net increase in cash, cash equivalents and restricted cash 64,807  20,635 
Cash, cash equivalents and restricted cash at beginning of period 204,813  162,704 
Cash, cash equivalents and restricted cash at end of period $ 269,620  $ 183,339 
Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid $ 23,182  $ 12,621 

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, 2021. 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 six months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022 or any other interim period. The consolidated balance sheet at June 30, 2021 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, 2021.

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 Condensed Consolidated Financial Statements. See Note 11.

Joint Venture and Deconsolidation

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 1, 2021, the Company owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company. The Joint Venture was accounted under the provisions of the consolidation guidance since the Company had controlling financial interest until December 1, 2021.

Effective December 1, 2021, the Company entered into a share transfer agreement (the “STA”) with a third-party investor (the “Investor”), pursuant to which the Company sold to the Investor approximately 2.1% of outstanding equity interest held by the Company in the JV Company for an aggregate purchase price of RMB 108 million or approximately $16.9 million (the “Transaction”). The Transaction was closed on December 2, 2021 (the “Closing Date”). As a result of the Transaction, as of the Closing Date, the Company’s equity interest in the JV Company decreased from 50.9% to 48.8%, Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors from four (4) directors prior to the Transaction. As a result of the Transaction, AOS no longer has a controlling financial interest in the JV Company under generally accepted accounting principles. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding equity interest in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain or represent, a majority of the subsidiary’s Board of Directors. Because of these factors, as of December 2, 2021, the Company ceased having control over the JV Company. Therefore, the Company deconsolidated the financial
7
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
statements of the JV Company as of that date. Subsequently, the Company has accounted for its investment in the JV Company using the equity method of accounting.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by the Company in the JV Company for an aggregate purchase price of RMB 60 million, or approximately $9.4 million. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash. As a result, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate financing agreement (the “Financing Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Financing Agreement, the New Investors purchased newly issued equity interest of JV for a total purchase price of RMB 509 million (or approximately $80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Immediately following the closing of the Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was further reduced to 42.2% (see Note 13).

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 increasing demand of consumer electronics and PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax and terminate COVID-19 related restrictions and consumer behaviors change. 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 full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the spread of new variants of COVID-19; the continued or renewed imposition of protective public safety measures and government mandates; the continuing disruption of global supply chain affecting the semiconductor industry; and the impact of the pandemic on the global economy and demand for consumer products.

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, 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
8
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. The Company elected to combine its lease and non-lease components as a single lease component for all asset classes.

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 product revenue at a point in time when product is shipped to the customer, net of estimated stock rotation returns and price adjustments that it expects to provide to certain distributors. The Company presents revenue net of sales taxes and any similar assessments. Our standard payment terms range from 30 to 90 days.

The Company sells its products primarily to distributors, who in turn sell the products globally to various end customers. The Company allows stock rotation returns from certain distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period. The Company records an allowance for stock rotation returns based on historical returns and individual distributor agreements. The Company also provides special pricing to certain distributors, primarily based on volume, to encourage resale of the Company’s products. Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the Condensed Consolidated Balance Sheets.

The Company’s performance obligations relate to contracts with a duration of less than one year. The Company elected to apply the practical expedient provided in ASC 606, “Revenue from Contracts with Customers”. Therefore, the Company is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company recognizes the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer. Applying the practical expedient, the Company recognizes commissions as expense when incurred, as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.

Packaging and testing services revenue is recognized at a point in time 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 on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period. The Employee Share Purchase Plan (the “ESPP”) is accounted for at fair value on the date of grant using the Black-Scholes option valuation model.
Restricted Cash

As a condition of certain loan agreement, the Company is required to keep a compensating balance at the issuing bank (see Note 6). 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, 2021 and June 30, 2021, the amount of restricted cash was $0.3 million and $2.4 million, respectively.
9
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity method investment
The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined in accordance with general accepted accounting principles, over the operating and financial policies of the investee. Effective December 2, 2021, the Company reduced its equity interest in the JV Company and experienced a loss of control of the JV Company. As a result, beginning December 2, 2021, the Company records its investment under equity method of accounting. Since the Company is unable to obtain accurate financial information from the JV Company in a timely manner, the Company records its share of earnings or losses of such affiliate on a one quarter lag. Therefore, the Company’s share of earnings or losses of the JV Company for the period from December 2, 2021 to December 31, 2021 has not been recorded in the Consolidated Statement of Operations for the three and six months ended December 31, 2021. Such equity earnings or losses will be recorded in the Company’s Consolidated Statement of Operations for the three and nine months ended March 31, 2022. The Company discloses and recognizes intervening events at the JV Company in the lag period that could materially affect our consolidated financial statements, if applicable.

The Company records its interest in the net earnings of its equity method investees, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Operations. Profits or losses related to intra-entity sales with its equity method investees are eliminated until realized by the investor and investee. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them. Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment. The Company reviews for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Condensed Consolidated Statements of Operations.
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, 2021, the Company reduced interest expense by $0.9 million and $0.9 million, property, plant and equipment by $0.1 million and $1.2 million, and operating expenses by $0.2 million and $0.2 million, respectively. During the three and the 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.

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 during the March and June 2020 quarters. These factors included continued 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 involve net sales, cost of goods sold, operating expenses, working capital, capital expenditures, income tax rates, long-term growth rates that appropriately reflect the risks inherent in the future cash flow stream and terminal value. The Company selected the assumptions used in the
10
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Since this recoverability test was performed during fiscal 2020, circumstances have improved such that there are no indicators that the Company’s long-lived assets may not be recoverable.

Comprehensive Income
Comprehensive income 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 consists of cumulative foreign currency translation adjustments. Total comprehensive income is presented in the Condensed Consolidated Statements of Comprehensive Income.

Recent Accounting Pronouncements
    
Recently Issued Accounting Standards not yet adopted

In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605. The ASU is effective for all entities within their scope for
financial statements issued for annual periods beginning after December 15, 2021. 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 August 2020, the FASB issued 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.
Recently Adopted Accounting Standards
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. The adoption of ASU 2020-01 had no material impact on the Company's Consolidated Financial Statements.
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 Company adopted ASU 2019-12 as of July 1, 2021. ASU 2019-12 had no material impact on the Company's Consolidated Financial Statements.

11
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. Deconsolidation of the JV Company and Equity Method Investment in Equity Investee

On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH” and, together with AOS SH, the “Sellers”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement ("STA") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”). The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%. Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.
In connection with the deconsolidation and in accordance with ASC 810-10-40-5, the Company recorded a gain on deconsolidation of $399.1 million during the three months ended December 31, 2021 in the Condensed Consolidated Statements of Operations. The gain on deconsolidation of the JV Company was calculated as follows:
(in thousands)
Cash received for sales of shares in the JV Company $ 16,924 
Fair value of retained equity method investment 393,124 
Carrying amount of non-controlling interest 143,889 
Cumulative translation adjustment removal 1,793 
Carrying amount of net assets of the JV Company at December 1, 2021 (156,637)
Gain on deconsolidation of the JV Company $ 399,093 
The Company retained significant influence over the operating and financial policies of the JV Company and measured the fair value of the retained investment based on their share of the fair value of the JV Company, which was calculated using the market approach based on the Transaction.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by the Company in the JV Company. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash. As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021. The net loss associated with these two sales of JV Company equity interest held by the Company were recorded in the three months ended December 31, 2021 as follows:
(in thousands)
Gain on 1.1% equity interest sold $ 475 
Loss on diluted equity interest due to employee equity incentive plan issued (8,116)
      Loss on changes on equity interest of the JV Company, net $ (7,641)
The Company accounts for its investment in the JV Company as an equity method investment and reports its equity in earnings or loss of the JV Company on a three-month lag due to an inability to timely obtain financial information of the JV Company. Because the Company will record its equity in earnings or loss of the JV Company using lag reporting, there is no equity in earnings or loss of the JV Company included in the Company’s results of operations for the three and six months ended December 31, 2021. The Company plans to begin including its equity earnings or loss related to the JV Company in the three months ended March 31, 2022, at which time the Company expects to also provide summary financial information for the JV Company.

12
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company recorded $29.3 million of deferred tax and $3.5 million of income tax payable associated with these transactions during the three months ended December 31, 2021.

3. Related Party Transactions
As of December 31, 2021, AOS owned 45.8% equity interest in the JV Company, which, by definition, is a related party to AOS. The JV Company supplies 12-inch wafers and provides assembly and testing services to AOS. AOS also sells 8-inch wafers to the JV Company for further assembly and testing services. Due to the right of offset of receivables and payables with the JV Company, as of December 31, 2021, AOS recorded the net amount of $25 million presented as other receivable, equity investee, in the Condensed Consolidated Balance Sheet. The purchases and sales by AOS since the December 2, 2021 deconsolidation of the JV Company for the three months ended December 31, 2021 were $15.6 million and $4.2 million, respectively.





13
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Net Income Per Common Share Attributable to Alpha and Omega Semiconductor Limited
The following table presents the calculation of basic and diluted net income per share attributable to common shareholders:
  Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 2021 2020
(in thousands, except per share data)
Numerator:
Net income attributable to Alpha and Omega Semiconductor Limited $ 382,998  $ 12,903  $ 406,422  $ 22,477 
Denominator:
Basic:
Weighted average number of common shares used to compute basic net income per share 26,593  25,672  26,479  25,506 
Diluted:
Weighted average number of common shares used to compute basic net income per share 26,593  25,672  26,479  25,506 
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares 1,694  1,681  1,484  1,328 
Weighted average number of common shares used to compute diluted net income per share 28,287  27,353  27,963  26,834 
Net income per share attributable to Alpha and Omega Semiconductor Limited:
Basic $ 14.40  $ 0.50  $ 15.35  $ 0.88 
Diluted $ 13.54  $ 0.47  $ 14.53  $ 0.84 
The following potential dilutive securities were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:
  Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 2021 2020
(in thousands) (in thousands)
Employee stock options and RSUs 1  7  255  66 
ESPP 30  35  32  134 
Total potential dilutive securities 31  42  287  200 

5. 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.
14
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 2021 2020 2021 2020
Customer A 22.8  % 28.4  % 25.1  % 28.6  %
Customer B 40.7  % 36.4  % 38.7  % 34.8  %

  December 31,
2021 		June 30,
2021
Percentage of accounts receivable
Customer A 17.3  % 12.4  %
Customer B 14.9  % 22.1  %
Customer C 21.1  % 21.9  %


15
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Balance Sheet Components

The Company’s audited consolidated balance sheet at June 30, 2021, as reported, included the JV Company’s assets and liabilities, after intercompany eliminations. However, the JV Company's assets and liabilities were not included in the Company’s unaudited Condensed Consolidated Balance Sheet at December 31, 2021 due to the deconsolidation of the JV Company on December 2, 2021 as discussed in more detail in Notes 1 and 2 above.
Accounts receivable, net:
  December 31,
2021 		June 30,
2021
(in thousands)
Accounts receivable $ 45,485  $ 48,234 
Less: Allowance for price adjustments (13,794) (12,415)
Less: Allowance for doubtful accounts (30) (30)
Accounts receivable, net $ 31,661  $ 35,789 

Inventories:
  December 31,
2021 		June 30,
2021
(in thousands)
Raw materials $ 46,045  $ 68,900 
Work in-process 63,362  68,824 
Finished goods 19,677  16,569 
  $ 129,084  $ 154,293 

Other current assets:
December 31,
2021 		June 30,
2021
(in thousands)
VAT receivable $ 365  $ 1,539 
Other prepaid expenses 2,475  1,465 
Prepaid insurance 2,001  2,615 
Prepaid maintenance 982  1,670 
Prepayment to supplier 2,129  2,540 
Prepaid income tax 2,692  2,221 
Interest receivable —  2,207 
Customs deposit —  270 
Other receivables 668  68 
$ 11,312  $ 14,595 



16
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property, plant and equipment, net:
  December 31,
2021 		June 30,
2021
(in thousands)
Land $ 4,877  $ 4,877 
Building 14,785  71,454 
Manufacturing machinery and equipment 255,652  515,320 
Equipment and tooling 25,616  27,017 
Computer equipment and software 35,118  41,518 
Office furniture and equipment 2,648  3,814 
Leasehold improvements 34,655  74,733 
Land use rights —  9,319 
  373,351  748,052 
Less: accumulated depreciation (221,178) (348,749)
  152,173  399,303 
Equipment and construction in progress 44,570  37,674 
Property, plant and equipment, net $ 196,743  $ 436,977 

Intangible assets, net:
December 31,
2021 		June 30,
2021
(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 (7,994) (6,314)
11,461  13,141 
Goodwill 269  269 
Intangible assets, net $ 11,730  $ 13,410 

Estimated future minimum amortization expense of intangible assets is as follows (in thousands):
Year ending June 30,
2022 (Remaining) $ 1,680 
2023 3,286 
2024 3,249 
2025 3,246 
$ 11,461 
17
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other long-term assets:
December 31,
2021 		June 30,
2021
(in thousands)
Prepayments for property and equipment $ 27,661  $ 14,882 
Investment in a privately held company 100  100 
Customs deposit 1,802  1,120 
Deposit with supplier 6,495  — 
Other long-term deposits 20  927 
Office leases deposits 1,131  1,100 
Other 722  740 
  $ 37,931  $ 18,869 
Accrued liabilities:
December 31,
2021 		June 30,
2021
(in thousands)
Accrued compensation and benefits $ 41,058  $ 32,756 
Warranty accrual 2,320  2,795 
Stock rotation accrual 3,765  3,917 
Accrued professional fees 2,499  3,017 
Accrued inventory 2,142  1,138 
Accrued facilities related expenses 1,843  2,536 
Accrued property, plant and equipment 12,735  8,688 
Other accrued expenses 4,215  6,793 
Customer deposit 23,592  7,139 
ESPP payable 1,043  715 
  $ 95,212  $ 69,494 
18
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The activities in the warranty accrual, included in accrued liabilities, are as follows:
Six Months Ended December 31,
2021 2020
(in thousands)
Beginning balance $ 2,795  $ 709 
Additions 287  239 
Utilization (762) (181)
Ending balance $ 2,320  $ 767 
The activities in the stock rotation accrual, included in accrued liabilities, are as follows:
Six Months Ended December 31,
2021 2020
(in thousands)
Beginning balance $ 3,917  $ 3,358 
Additions 1,756  4,180 
Utilization (1,908) (3,645)
Ending balance $ 3,765  $ 3,893 
Other long-term liabilities:
  December 31,
2021 		June 30,
2021
(in thousands)
Deferred payroll taxes $ —  $ 1,219 
Customer deposits 77,684  42,000 
Other —  904 
Other long-term liabilities $ 77,684  $ 44,123 

Customer deposits are payments received from customers for securing future product shipments. As of December 31, 2021, $64.4 million were from Customer A and Customer B, and $13.3 million were from other customers. As of June 30, 2021, $42.0 million were from Customer A and Customer B.
19
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Bank Borrowings

Short-term borrowings

On June 29, 2021, the JV Company entered into a one-year loan agreement with China CITIC Bank in China to borrow a maximum of $7.7 million. Interest payments are due on the 20th of each quarter commencing on September 20, 2021, and the entire principal is due on June 29, 2022. As of December 1, 2021, the outstanding balance of this loan was $7.7 million at an interest rate of 3.49% per annum. On December 2, 2021, the JV Company was deconsolidated from the Company, thus this loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

On April 19, 2021, the JV Company entered into a loan agreement with China Everbright Bank in China to borrow a maximum of Chinese Renminbi (“RMB”) 100 million. The borrowing can be in RMB or U.S. Dollar (“USD”). The loan consists of RMB 50 million for working capital borrowings in Chinese yuan and RMB 50 million for borrowing in USD. The loan is collateralized by eligible accounts receivable. On April 19, 2021, the JV Company borrowed RMB 50.0 million, or $7.7 million based on the currency exchange rate between RMB and USD on April 19, 2021, at an interest rate of 5.1% per annum. The interest payments are due quarterly with the entire principal due no later than May 19, 2022. As of December 1, 2021, the total outstanding balance of the loans was $15.4 million including $3.4 million borrowed on September 22, 2021 and $4.2 million borrowed on November 23, 2021, at interest rate of 2.7% per annum, with principal due on December 12, 2021 and February 15, 2022, respectively. On December 2, 2021, the JV Company was deconsolidated from the Company, thus these loans were no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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 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 $7.6 million, at an interest rate of 5.25% per annum. As of December 1, 2021, there was no outstanding balance under the loan. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

On 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 September 2021, this line of credit was renewed with maximum borrowings up to RMB 140.0 million with the same terms and a maturity date of September 18, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $1.7 million, at an interest rate of 3.85% per annum, with principal due on November 18, 2022. As of December 31, 2021, the total outstanding balance of this loan was $1.7 million.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China. The purpose of the credit facility was to provide short-term borrowings. The Company could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018. The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $0.8 million, at an interest rate of 3.7% per annum, with principal due on September 12, 2022. As of December 31, 2021, the total outstanding balance of this loan was $0.8 million.

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. On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $8.0 million with certain financial
20
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
covenants required. Other terms remain the same. As of December 31, 2021, the Borrower was in compliance with these covenants. As of December 31, 2021, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

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 1, 2021, the outstanding balance of the Lease Financing of 163.0 million RMB (equivalent of $25.5 million based on the currency exchange rate as of December 1, 2021) was recorded under short-term and long-term finance lease liabilities on balance sheets. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the lease financing was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

Long-term debt

On August 18, 2021, Jireh Semiconductor Incorporated (“Jireh”) entered into a term loan agreement with a financial institution (the "Bank") in an amount up to $45.0 million for the purpose of expanding and upgrading the Company’s fabrication facility located in Oregon. The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company. The agreement has a 5.5 year term and matures on February 16, 2027. Jireh is required to make consecutive quarterly payments of principal and interest. The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan. This agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain. As of December 31, 2021, there was no outstanding balance under the loan.

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. The obligation under the loan agreement is secured by certain assets of the JV Company with a carrying value of $104.1 million as of December 1, 2021. 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 250.0 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 1, 2021, the outstanding balance of the loan was $31.3 million. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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 with a carrying value of $104.1 million as of December 1, 2021. The JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024. The interest is accrued based on the LIBOR rate plus 2.8%. The interest is required to be paid on March 21 and September 21 each year. As of December 1, 2021, the outstanding balance of the loan was $16.8 million. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.
21
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 200.0 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 190.0 million and RMB 10.0 million in March 2019 and December 2019, respectively. 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 with a carrying value of $88.3 million as of December 1, 2021. As a condition of the loan arrangement, 14.0 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 of this loan remain the same. As of December 1, 2021, the outstanding balance of the loan was 171.0 million RMB (equivalent of $26.7 million based on the currency exchange rate as of December 1, 2021). On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

On May 1, 2018, Jireh entered into a loan agreement with 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. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company was in compliance with these covenants as of December 31, 2021. As of December 31, 2021, the outstanding balance of the term loan was $14.6 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. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company was in compliance with these covenants as of December 31, 2021. As of December 31, 2021, the outstanding balance of the term loan was $5.6 million.

Maturities of short-term debt and long-term debt were as follows (in thousands):
Year ending June 30,
2022 (Remaining) $ 4,170 
2023 18,540 
Total principal 22,710 
Less: debt issuance costs (43)
Total principal, less debt issuance costs $ 22,667 
Short-term Debt Long-term Debt Total
Principal amount $ 8,989  $ 13,721  $ 22,710 
Less: debt issuance costs (29) (14) (43)
Total debt, less debt issuance costs $ 8,960  $ 13,707  $ 22,667 

22
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. 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 7 - 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 Company’s unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2021 include the JV Company's results for the period through December 1, 2021, the day immediately preceding the deconsolidation. For the three and six months ended December 31, 2020, AOS's unaudited consolidated results include the JV Company's results for the full periods presented. 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,
2021 2020
Operating leases:
     Fixed rent expense $ 3,476  $ 3,407 
     Variable rent expense 615  419 
Finance lease:
     Amortization of equipment 772  1,149 
     Interest 681  1,187 
Short-term leases
     Short-term lease expenses 106  107 
               Total lease expenses $ 5,650  $ 6,269 

23
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,
2021 		June 30,
2021
Operating Leases:
     ROU assets associated with operating leases $ 22,263  $ 34,660 
Finance Lease:
     Property, plant and equipment, gross $ 115,564  $ 114,404 
     Accumulated depreciation (98,038) (96,470)
          Property, plant and equipment, net $ 17,526  $ 17,934 
Weighted average remaining lease term (in years)
     Operating leases 6.71 8.44
     Finance lease 0.00 1.72
Weighted average discount rate
     Operating leases 4.23  % 4.67  %
     Finance lease —  % 5.46  %
226

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

Six Months Ended December 31,
2021 2020
Cash paid from amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases $ 3,516  $ 3,341 
     Operating cash flows from finance lease $ 410  $ 1,187 
     Financing cash flows from finance lease $ 4,176  $ 8,119 
Non-cash investing and financing information:
    Operating lease right-of-use assets obtained in exchange for lease obligations $ 1,903  $ 2,824 

Future minimum lease payments are as follows as of December 31, 2021 (in thousands):

Year ending June 30, Operating Leases
The remainder of fiscal 2022 $ 2,990 
2023 4,978 
2024 3,709 
2025 2,828 
2026 2,780 
Thereafter 10,296 
Total minimum lease payments 27,581 
Less amount representing interest (3,858)
Total lease liabilities $ 23,723 

24
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. 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, 2021, 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, 161,895 shares with a weighted average repurchase price of $10.12 per share, were reissued at an average price of $5.16 per share pursuant to option exercises and vested restricted share units (“RSU”). As of December 31, 2021, 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, 2021:
  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, 2021 1,053,524  $ 21.60  1.73 $ 32,016,594 
Granted 117,095  $ 36.06 
Vested (71,284) $ 21.04 
Forfeited (41,376) $ 22.12 
Nonvested at December 31, 2021 1,057,959  $ 23.21  1.36 $ 64,069,997 

Market-based Restricted Stock Units (“MSU”)

In December 2021, the Company granted 1.0 million market-based restricted stock units ("MSUs") to its 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, 2022 to December 31, 2024 as well as the recipients remaining in continuous service with the Company through such period. The MSU vests in four equal annual installments after the end of performance period. The Company estimated the grant date fair values of its MSU with derived service periods of 4.1 to 7.1 years using a Monte-Carlo simulation model with the following assumptions: Risk-free interest rate of 1.0%, expected term of 3.1 years, expected volatility of 62.8% and dividend yield of 0% . The Company recorded approximately $0.5 million of expenses for these MSUs during the three and six months ended December 31, 2021.

During the quarter ended September 30, 2018, the Company granted 1.3 million 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 the 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 Company recorded approximately $0.4 million and
25
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
$0.8 million of expenses for MSUs during the three and six months ended December 31, 2021, respectively, and approximately $0.4 million and $0.6 million during the three and the six months ended December 31, 2020, respectively.

Performance-based Restricted Stock Units (“PRSUs”)

In March each year since year 2017, the Company granted 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 goals were met. The Company recorded approximately $1.0 million and $2.0 million of expense for these PRSUs during the three and six months ended December 31, 2021, respectively and approximately $0.4 million and $0.8 million during the three and six months ended December 31, 2020.
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, the Company reported such expenses 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. As of December 31, 2021 and June 30, 2021, the Company recorded nil and $0.1 million such expenses in the other current liabilities, respectively. The Company recorded $0.2 million and $0.3 million such non-cash compensation expense during the three and six months ended December 31, 2021, respectively, and $0.8 million and $1.4 million during the three and six months ended December 31, 2020, respectively. As of December 31, 2021, the Company granted RSUs valued at $4.0 million 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, 2021:

  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, 2021 353,824  $ 22.69  1.74 $ 10,752,711 
Vested (750) $ 16.22 
Forfeited (1,000) $ 16.22 
Nonvested at December 31, 2021 352,074  $ 22.72  1.24 $ 21,321,601 
Stock Options
The Company did not grant any stock options during the six months ended December 31, 2021 and 2020. The following table summarizes the Company's stock option activities for the six months ended December 31, 2021:

Weighted
Weighted Average
Average Remaining
Number of Exercise Price Contractual Aggregate
Shares Per Share Term (in years) Intrinsic Value
Outstanding at June 30, 2021 487,875  $ 7.99  2.32 $ 10,928,653 
Exercised (36,600) $ 8.21 
Outstanding at December 31, 2021 451,275  $ 7.97  1.81 $ 23,731,985 
Options vested and expected to vest 451,275  $ 7.97  1.81 $ 23,731,985 
Exercisable at December 31, 2021 451,275  $ 7.97  1.81 $ 23,731,985 
26
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 End December 31,
2021
Volatility rate 66.4%
Risk-free interest rate 0.3%
Expected term 1.3 years
Dividend yield 0%
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,
2021 2020 2021 2020
(in thousands) (in thousands)
Cost of goods sold $ 1,709  $ 383  $ 2,278  $ 768 
Research and development 1,912  1,243  2,955  2,323 
Selling, general and administrative 4,926  1,598  7,949  3,009 
$ 8,547  $ 3,224  $ 13,182  $ 6,100 

As of December 31, 2021, total unrecognized compensation cost under the Company's equity plans was $65.3 million, which is expected to be recognized over a weighted-average period of 4.1 years.

10. Income Taxes

The Company recognized income tax expense of approximately $34.1 million and $0.7 million for the three months ended December 31, 2021 and 2020, respectively. The income tax expense of $34.1 million for the three months ended December 31, 2021 included a $32.8 million discrete tax expense related to the Company’s $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture. The income tax expense of $0.7 million for the three months ended December 31, 2020 included a $0.01 million discrete tax expense. Excluding the discrete income tax items ($391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as well as other items), the effective tax rate for the three months ended December 31, 2021 and 2020 was 4.7% and 5.0%, respectively. The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $419.1 million ($27.6 million of pretax book income excluding the $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the three months ended December 31, 2021 as compared to a pretax book income of $13.2 million for the three months ended December 31, 2020.

The Company recognized income tax expense of approximately $35.4 million and $1.7 million for the six months ended December 31, 2021 and 2020, respectively. The income tax expense of $35.4 million for the six months ended December 31, 2021 included a $32.8 million discrete tax expense related to the Company’s $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture as well as $0.1 million of other discrete income tax items. The income tax expense of $1.7 million for the six months ended December 31, 2020 included a $0.02 million discrete tax benefit. Excluding the discrete income tax items ($391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as well as other discrete items), the effective tax rate for the six months ended December 31, 2021 and 2020 was 5.0% and 7.4%, respectively. The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $441.9 million ($50.4 million of pretax book income excluding the $391.5 million of income from the sale of equity interest in a joint
27
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
venture and the related deconsolidation gain) for the six months ended December 31, 2021 as compared to a pretax book income of $23.0 million for the six months ended December 31, 2020.

The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2021 remain open to examination by U.S. federal and state tax authorities. The tax years 2013 to 2021 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, 2021, the gross amount of unrecognized tax benefits was approximately $7.7 million, of which $4.8 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. 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.

“The American Rescue Plan Act of 2021”, Enacted March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the American Rescue Plan Act of 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 2021. The Company will continue to monitor ongoing developments and potential impact to its financial statements.


28
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. 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,
  2021 2020 2021 2020
(in thousands) (in thousands)
Hong Kong $ 159,189  $ 132,204  $ 307,844  $ 257,712 
China 27,235  22,877  60,075  46,140 
South Korea 3,263  2,422  6,117  3,596 
United States 3,165  1,139  5,470  2,595 
Other countries 467  188  848  338 
  $ 193,319  $ 158,830  $ 380,354  $ 310,381 

During the three months ended December 31, 2021, the Company corrected an immaterial error to reduce revenues in Hong Kong by $2.3 million, and to increase the revenues in South Korea by $2.3 million for the three months ended December 31, 2020. During the six months ended December 31, 2021, the Company corrected an immaterial error to reduce revenues in Hong Kong by $3.4 million, as well as to increase the revenues in China and South Korea by $0.1 million and $3.3 million, respectively, for the six months ended December 31, 2020.

The following is a summary of revenue by product type:
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 2021 2020
  (in thousands) (in thousands)
Power discrete $ 134,975  $ 118,500  $ 265,663  $ 232,872 
Power IC 55,093  37,381  107,423  71,839 
Packaging and testing services 3,251  2,949  7,268  5,670 
  $ 193,319  $ 158,830  $ 380,354  $ 310,381 


29
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-lived assets, net consisting of property, plant and equipment and land use rights, net, as well as operating lease right-of-use assets, net by geographical area are as follows:
  December 31,
2021 		June 30,
2021
(in thousands)
China $ 84,602  $ 350,387 
United States 130,352  118,756 
Other countries 4,052  2,494 
  $ 219,006  $ 471,637 


12. Commitments and Contingencies
Purchase Commitments
As of December 31, 2021 and June 30, 2021, the Company had approximately $92.3 million and $81.8 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, 2021 and June 30, 2021, the Company had approximately $119.6 million and $90.0 million, respectively, of capital commitments for the purchase of property and equipment.
Other Commitments
        See Note 7 and Note 8 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for descriptions of commitments including 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, information and interviews 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.  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
30
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2020 and Defendants filed their reply brief on January 25, 2021. On September 27, 2021, the Court entered an opinion and order granting Defendants’ motion and dismissing the amended complaint in its entirety. In so doing, the Court found, among other things, that Plaintiff failed adequately to allege that any of AOS’s indirect sales to Huawei were illegal, and therefore none of the Company’s statements regarding its positive performance or its efforts to contend with a difficult geopolitical climate and trade tensions could plausibly be seen as “inaccurate, incomplete, or misleading.” The Court’s order allowed Plaintiff an opportunity to file a second amended complaint by October 27, 2021, attempting to cure the various deficiencies, barring which the matter would be dismissed with prejudice. As of that date, however, no such filing was made and the Joint Stipulation and Order of Dismissal was entered on November 9, 2021, dismissing the case with prejudice and directing the Clerk of Court to close the case.
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, 2021 and June 30, 2021.
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 acquire, maintain or renew such insurance coverage in the future under favorable terms or at all.

31
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Subsequent Event

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate financing agreement (the “Financing Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Financing Agreement, the New Investors purchased newly issued equity interest of JV for a total purchase price of RMB 509 million (or approximately $80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%.


32

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, 2021, filed with the Securities and Exchange Commission on August 30, 2021.
Overview

We are a designer, developer and global supplier of a broad portfolio of power semiconductors. Our portfolio of power semiconductors includes approximately 2,400 products, and has grown significantly with the introduction of over 160 new products in each of the fiscal years ended June 30, 2021 and 2020, respectively, and 200 new products in the fiscal year ended June 30, 2019. During the six months ended December 31, 2021, we introduced an additional 50 new products. Our teams of scientists and engineers have developed extensive intellectual property 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 874 patents and 57 patent applications in the United States as of December 31, 2021. We also have a total of 918 foreign patents, which were based primarily on our research and development efforts through December 31, 2021. 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.

During the fiscal quarter ended December 31, 2021, we continued our product diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products. Our metal-oxide-semiconductor field-effect transistors, or MOSFET, and power IC product portfolio expanded significantly. Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to the achievement of our record high quarterly revenue of $193.3 million for the three months ended December 31, 2021, a 21.7% growth compared to the same quarter last year.

On March 29, 2016, we formed a joint venture (the “JV Company”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), 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 Fab is being built in phases.  As of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company. The Joint Venture was accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021.
33



Effective December 1, 2021, we entered into a share transfer agreement (the “STA”) with a third-party investor (the “Investor”), pursuant to which we sold to the Investor approximately 2.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 108 million or approximately $16.9 million (the “Transaction”). The STA contained customary representations, warranties and covenants. The Transaction was closed on December 2, 2021 (the “Closing Date”). As a result of the Transaction, as of the Closing Date, our equity interest in the JV Company decreased from 50.9% to 48.8%. Also, our right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. As of December 2, 2021, we no longer have a controlling financial interest in the JV Company under generally accepted accounting principles. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain or represent, a majority of the subsidiary’s Board of Directors. All of these loss of control factors were present for us as of December 2, 2021. Accordingly, since December 2, 2021, we have deconsolidated the JV Company in our Consolidated Financial Statements and accounted for our investment in the JV Company using the equity method of accounting.

On December 24, 2021, we entered into a share transfer agreement with another third-party investor, pursuant to which we sold to this investor 1.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 60 million or approximately $9.4 million. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash. As a result, we owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate financing agreement (the “Financing Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Financing Agreement, the New Investors purchased newly issued equity interest of JV for a total purchase price of RMB 509 million (or approximately $80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%. See Note 1 and Note 2 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of deconsolidation of the JV Company and equity method of the JV Company.

We reduced our ownership of the JV Company to below 50% to increase the flexibility of the JV Company to raise capital to fund its future expansion. Following the Transaction and the successful ramp up to its Phase I target run rate in the September quarter of 2021, as planned, the JV Company intends to raise up to $200 million through private funding rounds for its Phase II expansion. In addition to immediate private funding rounds, the JV Company is also contemplating an eventual listing on the Science and Technology innovAtion boaRd, or STAR Market, of the Shanghai Stock Exchange. The Transaction assists the JV Company in meeting certain regulatory listing requirements. A potential STAR Market listing may take several years to consummate and there is no guarantee that such listing by the JV Company will be successful or will be completed in a timely manner, or at all. In addition, the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products.

Impact of COVID-19 Pandemic to our Business

Our business operations have been impacted by the global COVID-19 pandemic and the resulting economic downturn. Numerous governmental jurisdictions, including the States of California, Oregon and Texas in the U.S. and countries throughout the Asia Pacific region have imposed various restrictions on commercial activities, resulting in business closures, work stoppages, labor shortage, disruptions to ports, vaccine mandates and other shipping infrastructure, border closures, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions and the growing trend to provide remote-working options by employers, , we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs, gaming devices and other products. While we have benefited from the increasing demand for PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline if government authorities relax or terminate COVID-19 related restrictions and consumer behaviors change in response to the reopening of certain economic activities. In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we also took proactive actions to adopt policies and protocols at our locations around the world, including social distancing guidelines, vaccine and testing protocols,

Since the start of the second quarter of calendar year 2021, there have been increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and
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functions, and a gradual resumption of economic activities and consumer spending in our industries. On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus remain a risk, including the recent surge of COVID-19 cases and hospitalization due to the spread of Omicron variants. In addition, there are ongoing global impacts resulting from the pandemic, including disruption of the product supply chains, shortages of semiconductor components, and delays in shipments, product development, and product launches and rising inflation rates. The full extent of the future impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the spread of new variants of COVID-19; the continued and renewed imposition of protective public safety measures; the disruption of global supply chain; and the impact of the pandemic on the global economy and demand for consumer products. Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our business operations and financial expenditures in response to continued uncertainty.

Other Factors affecting our performance

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

The global, regional economic and PC market conditions: Because our products primarily serve consumer electronic applications, any significant change in global and regional economic conditions could materially affect our revenue and results of operations. A significant amount of our revenue is derived from sales of products in the personal computing (“PC”) markets, such as notebooks, motherboards and notebook battery packs, therefore a substantial decline or downturn in the PC market could have a material adverse effect on our revenue and results of operations. The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products. However, we recently have experienced a significant increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behaviors. We cannot predict whether and how long this trend will continue due to the uncertainty and unpredictability of COVID-19 pandemic. 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.

Manufacturing costs and capacity availability:  Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the product mixes 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 at our Shanghai facilities and our Oregon fab. 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. For example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands. While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations. In addition, we recently commenced a plan to enhance the manufacturing capability and capacity of our Oregon fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity. We also rely substantially on the JV Company to provide foundry capacity to manufacture our products, therefore it is critical that we maintain continuous access to such capacity, which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company’s operation. As a result of recent sales of our JV equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our equity interest in the JV Company was reduced to 42.2%, which reduced our control and influence over the JV Company. While we continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity, and we are currently negotiating a foundry agreement for the JV Company to provide guarantee level of capacity, the JV Company may take actions or make decisions that adversely impact our ability to access required capacity, and our lack of control and influence may prevent us from eliminating or mitigating such risk.

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
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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.

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.

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, 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 Matters: As previously disclosed, the DOJ commenced an investigation into our compliance with export control regulations relating to business transactions with Huawei, which were added to the “Entity List” by the DOC in May 2019. We continue to cooperate fully with federal authorities in the investigation. We have 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. However, DOJ and DOC have not provided us any clear or definitive response regarding the timeline of the investigation and potential resolutions or outcome. In the meantime, we continue to incur significant costs and expenses, including legal and professional fees, in connection with the government investigation, which may reduce our profitability and operating 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.
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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 valuation of inventories. As the volume of sales increases, we expect cost of goods sold to increase. 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.
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. Tax Cuts and Jobs Act, Enacted December 22, 2017

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changes the existing U.S. tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a shift from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

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The company is not currently subject to the Base Erosion and Anti-Abuse ( BEAT) tax , which is a tax imposed on certain entities who make payments to their non US affiliates, where such payments reduce the US tax base . The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities. It is an incremental tax over and above the corporate income tax and is recorded as a period cost. It is
possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes.

“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.

“The American Rescue Plan Act of 2021”, Enacted March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the American Rescue Plan Act of 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, 2021 and 2020. 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,
  2021 2020 2021 2020 2021 2020 2021 2020
(in thousands) (% of revenue) (in thousands) (% of revenue)
Revenue $ 193,319  $ 158,830  100.0  % 100.0  % $ 380,354  $ 310,381  100.0  % 100.0  %
Cost of goods sold 124,954  110,081  64.6  % 69.3  % 247,422  219,109  65.1  % 70.6  %
Gross profit 68,365  48,749  35.4  % 30.7  % 132,932  91,272  34.9  % 29.4  %
Operating expenses
Research and development 16,516  15,423  8.5  % 9.7  % 34,328  30,114  9.0  % 9.7  %
Selling, general and administrative 24,132  19,736  12.5  % 12.4  % 45,938  37,241  12.1  % 12.0  %
Total operating expenses 40,648  35,159  21.0  % 22.1  % 80,266  67,355  21.1  % 21.7  %
Operating income 27,717  13,590  14.4  % 8.6  % 52,666  23,917  13.8  % 7.7  %
Interest expense and other income (loss), net (68) (381) —  % (0.3) % (2,260) (930) (0.6) % (0.3) %
Gain on deconsolidation of the JV Company 399,093  —  206.4  % —  % 399,093  —  104.9  % —  %
Loss on changes of equity interest in the JV Company, net (7,641) —  (4.0) % —  % (7,641) —  (2.0) % —  %
Net income before income taxes 419,101  13,209  216.8  % 8.3  % 441,858  22,987  116.2  % 7.4  %
Income tax expense 34,096  669  17.6  % 0.4  % 35,416  1,680  9.3  % 0.5  %
Net income 385,005  12,540  199.2  % 7.9  % 406,442  21,307  106.9  % 6.9  %
Net gain (loss) attributable to noncontrolling interest 2,007  (363) 1.0  % (0.2) % 20  (1,170) —  % (0.4) %
Net income attributable to Alpha and Omega Semiconductor Limited $ 382,998  $ 12,903  198.2  % 8.1  % $ 406,422  $ 22,477  106.9  % 7.3  %

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Share-based compensation expense was recorded as follows:
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 2021 2020 2021 2020 2021 2020
(in thousands) (% of revenue) (in thousands) (% of revenue)
Cost of goods sold $ 1,709  $ 383  0.9  % 0.2  % $ 2,278  $ 768  0.6  % 0.2  %
Research and development 1,912  1,243  1.0  % 0.8  % 2,955  2,323  0.8  % 0.7  %
Selling, general and administrative 4,926  1,598  2.5  % 1.0  % 7,949  3,009  2.1  % 1.0  %
Total $ 8,547  $ 3,224  4.4  % 2.0  % $ 13,182  $ 6,100  3.5  % 1.9  %

Three and Six Months Ended December 31, 2021 and 2020
Revenue
The following is a summary of revenue by product type:
Three Months Ended December 31, Six Months Ended December 31,
2021 2020 Change 2021 2020 Change
(in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Power discrete $ 134,975  $ 118,500  $ 16,475  13.9  % $ 265,663  $ 232,872  $ 32,791  14.1  %
Power IC 55,093  37,381  17,712  47.4  % 107,423  71,839  35,584  49.5  %
Packaging and testing services 3,251  2,949  302  10.2  % 7,268  5,670  1,598  28.2  %
$ 193,319  $ 158,830  $ 34,489  21.7  % $ 380,354  $ 310,381  $ 69,973  22.5  %

Total revenue was $193.3 million for the three months ended December 31, 2021, an increase of $34.5 million, or 21.7%, as compared to $158.8 million for the same quarter last year. The increase was primarily due to an increase of $16.5 million and $17.7 million in sales of power discrete products and sales of power IC products, respectively. The increase in power discrete and power IC product sales was primarily due to an 19.5% increase in average selling price and an 2.1% increase in unit shipments 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, 2021, as compared to same quarter last year, was primarily due to increased demand.

Total revenue was $380.4 million for the six months ended December 31, 2021 an increase of $70.0 million, or 22.5%, as compared to $310.4 million for the same period last year. The increase was primarily due to an increase of $32.8 million and $35.6 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 an 26.0% increase in average selling price, partially offset by a 3.2% decrease in unit shipments 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, 2021, 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,
  2021 2020 Change 2021 2020 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Cost of goods sold $ 124,954  $ 110,081  $ 14,873  13.5  % $ 247,422  $ 219,109  $ 28,313  12.9  %
  Percentage of revenue 64.6  % 69.3  % 65.1  % 70.6  %
Gross profit $ 68,365  $ 48,749  $ 19,616  40.2  % $ 132,932  $ 91,272  $ 41,660  45.6  %
  Percentage of revenue 35.4  % 30.7  % 34.9  % 29.4  %

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Cost of goods sold was $125.0 million for the three months ended December 31, 2021, an increase of $14.9 million, or 13.5%, as compared to $110.1 million for the same quarter last year. The increase was primarily due to 21.7% increase in revenue. Gross margin increased by 4.7 percentage points to 35.4% for the three months ended December 31, 2021, as compared to 30.7% for the same quarter last year. The JV Company continued its ramp during the three months ended December 31, 2021, which resulted in an increase in the capacity utilization and contributed to the increase in gross margin during the three months ended December 31, 2021. In addition, the JV Company was deconsolidated from our Condensed Consolidated Statements of Operations effective as of December 2, 2021.

Cost of goods sold was $247.4 million for the six months ended December 31, 2021, an increase of $28.3, or 12.9%, as compared to $219.1 million for the same period last year. The increase was primarily due to 22.5% increase in revenue. Gross margin increased by 5.5 percentage points to 34.9% for the six months ended December 31, 2021, as compared to 29.4% for the same period last year. The JV Company continued its ramp up activities during the six months ended December 31, 2021, which resulted in an increase in the capacity utilization and contributed to the increase in gross margin during the six months ended December 31, 2021. In addition, the JV Company was deconsolidated from our Condensed Consolidated Statements of Operations effective as of December 2, 2021.
Research and development expenses
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 Change 2021 2020 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Research and development expenses $ 16,516  $ 15,423  $ 1,093  7.1  % $ 34,328  $ 30,114  $ 4,214  14.0  %
Research and development expenses were $16.5 million for the three months ended December 31, 2021, an increase of $1.1 million, or 7.1%, as compared to $15.4 million for the same quarter last year. The increase was primarily attributable to a $0.4 million increase in employee compensation and benefits expense mainly due to higher salary related expenses and higher bonuses accrual, and a $0.7 million increase in share-based compensation expense due to an increase in stock awards granted during the quarter.
Research and development expenses were $34.3 million for the six months ended December 31, 2021, an increase of $4.2 million, or 14.0%, as compared to $30.1 million for the same period last year. The increase was primarily attributable to a $3.2 million increase in employee compensation and benefits expense mainly due to higher salary related expenses and higher bonuses, a $0.6 million increase in share-based compensation expense due to an increase in stock awards granted, a $0.2 million increase in depreciation expense, as well as a $0.1 million increase in professional services as a result of higher consulting fees and recruiting fees during the current period.
Selling, general and administrative expenses
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 Change 2021 2020 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Selling, general and administrative $ 24,132  $ 19,736  $ 4,396  22.3  % $ 45,938  $ 37,241  $ 8,697  23.4  %

Selling, general and administrative expenses were $24.1 million for the three months ended December 31, 2021, an increase of $4.4 million, or 22.3%, as compared to $19.7 million for the same quarter last year. The increase was primarily attributable to a $1.8 million increase in employee compensation and benefits expenses mainly due to higher salary related expenses, higher bonus expenses accrual and increased business insurance expenses, as well as $3.3 million increase in share-based compensation expense due to an increase in stock award granted, partially offset by a $0.7 million decrease in legal expense related to the government investigation during the current quarter.
Selling, general and administrative expenses were $45.9 million for the six months ended December 31, 2021, an increase of $8.7 million, or 23.4%, as compared to $37.2 million for the same period last year. The increase was primarily attributable to a $6.0 million increase in employee compensation and benefits expenses mainly due to higher salary related expenses, higher bonus expenses and business insurance expenses, as well as $4.9 million increase in share-based compensation expense due to an increase in stock award granted, partially offset by a $1.4 million decrease in legal expenses related to the government investigation, a $0.5 million decrease in marketing demo and trade shows costs as a result of the COVID-19 pandemic, and a $0.2 million decrease in audit fees during the current period.
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Interest expense and other income (loss), net
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 Change 2021 2020 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Interest expense and other income (loss), net $ (68) $ (381) $ 313  (82.2) % $ (2,260) $ (930) $ (1,330) 143.0  %

Interest expense and other income (loss), net decreased by $0.3 million during the three months ended December 31, 2021 as compared to the same quarter last year was primarily due to a $1.1 million decrease in interest expenses as a result of higher interest refund from the Chinese government in the JV Company and one month less interest expense in the JV Company due to deconsolidation during the current quarter, offset by $0.8 million increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Interest expense and other income (loss), net increased by $1.3 million during the six months ended December 31, 2021 as compared to the same period last year was primarily due to a $1.8 million increase in foreign currency exchange loss as a result of the depreciation of RMB against USD, offset by a $0.5 million decrease in interest expenses as a result of one month less interest expense in the JV Company due to deconsolidation.
Gain on deconsolidation of the JV Company
Effective December 1, 2021, we entered into a share transfer agreement (the “STA”) with a third-party investor (the “Investor”), pursuant to which we sold to the Investor approximately 2.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 108 million or approximately $16.9 million (the “Transaction”). The STA contained customary representations, warranties and covenants. The Transaction was closed on December 2, 2021 (the “Closing Date”). As a result of the Transaction, as of the Closing Date, our equity interest in the JV Company decreased from 50.9% to 48.8%, Also, our right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. We no longer have a controlling financial interest in the JV Company under generally accepted accounting principles. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain, a majority of the subsidiary’s Board of Directors. All of these loss of control factors were present for us as of December 2, 2021. Accordingly, since December 2, 2021, AOS has accounted for its investment in the JV Company using the equity method of accounting. On December 24, 2021, we entered into a STA with another third-party investor, pursuant to which we sold to this investor 1.1% of outstanding equity interest held by us in the JV Company for an aggregate purchase price of RMB 60 million or approximately $9.4 million. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash. As a result, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021. On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate financing agreement (the “Financing Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Financing Agreement, the New Investors purchased newly issued equity interest of JV for a total purchase price of RMB 509 million (or approximately $80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the Investment, the percentage of outstanding JV equity interest beneficially owned by us was reduced to 42.2%.

During the three months ended December 31, 2021, we recorded a $399.1 million of gain on deconsolidation of the JV Company and a $7.6 million of net loss on changes of equity interest in the JV Company.

Income tax expense
Three Months Ended December 31, Six Months Ended December 31,
  2021 2020 Change 2021 2020 Change
  (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Income tax expense $ 34,096  $ 669  $ 33,427  4,996.6  % $ 35,416  $ 1,680  $ 33,736  2,008.1  %

The Company recognized income tax expense of approximately $34.1 million and $0.7 million for the three months ended December 31, 2021 and 2020, respectively. The income tax expense of $34.1 million for the three months ended December 31, 2021 included a $32.8 million discrete tax expense related to the Company’s $391.5 million of income from the sale of equity
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interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture. The income tax expense of $0.7 million for the three months ended December 31, 2020 included a $0.01 million discrete tax expense. Excluding the discrete income tax items ($391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as well as other discrete items), the effective tax rate for the three months ended December 31, 2021 and 2020 was 4.7% and 5.0%, respectively. The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $419.1 million ($27.6 million of pretax book income excluding the $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the three months ended December 31, 2021 as compared to a pretax book income of $13.2 million for the three months ended December 31, 2020.

The Company recognized income tax expense of approximately $35.4 million and $1.7 million for the six months ended December 31, 2021 and 2020, respectively. The income tax expense of $35.4 million for the six months ended December 31, 2021 included a $32.8 million discrete tax expense related to the Company’s $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture as well as $0.1 million for other discrete income tax items. The income tax expense of $1.7 million for the six months ended December 31, 2020 included a $0.02 million discrete tax benefit. Excluding the discrete income tax items ($391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as well as other discrete items), the effective tax rate for the six months ended December 31, 2021 and 2020 was 5.0% and 7.4%, respectively. The changes in the tax expense and effective tax rate between the periods resulted primarily from the Company reporting pretax book income of $441.9 million ($50.4 million of pretax book income excluding the $391.5 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the six months ended December 31, 2021 as compared to a pretax book income of $23.0 million for the six months ended December 31, 2020.
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.
On August 18, 2021, Jireh entered into a term loan agreement with a financial institution (the "Bank") in an amount up to $45.0 million for the purpose of expanding and upgrading the Company’s fabrication facility located in Oregon. The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company. The agreement has a 5.5 year term and matures on February 16, 2027. Jireh is required to make consecutive quarterly payments of principal and interest. The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan. This agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain. As of December 31, 2021, there was no outstanding balance under the loan.
On 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 September 2021, this line of credit was renewed with maximum borrowings up to RMB 140.0 million with the same terms and a maturity date of September 18, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $1.7 million, at an interest rate of 3.85% per annum, with principal due on November 18, 2022. As of December 31, 2021, the total outstanding balance of this loan was $1.7 million.
On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China. The purpose of the credit facility was to provide short-term borrowings. The Company could borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018. The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $0.8 million, at an interest rate of 3.7% per annum, with principal due on September 12, 2022. As of December 31, 2021, the total outstanding balance of this loan was $0.8 million.

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
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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. On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $8.0 million with certain financial covenants required. Other terms remain the same. As of December 31, 2021, the Borrower was in compliance with these covenants. As of December 31, 2021, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

On May 1, 2018, Jireh entered into a loan agreement with 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. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company was in compliance with these covenants as of December 31, 2021. As of December 31, 2021, the outstanding balance of the term loan was $14.6 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. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company was in compliance with these covenants as of December 31, 2021. As of December 31, 2021, the outstanding balance of the term loan was $5.6 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, 2021. 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, 2021, of the 6,784,648 repurchased shares, 161,895 shares with a weighted average repurchase price of $10.12 per share, were reissued at an average price of $5.16 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, 2021.

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. Prior to the deconsolidation on December 2, 2021, the JV Company incurred debt through its own financing agreements, and our parent company and other subsidiaries were 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. Following the deconsolidation, the JV Company’s debts and liabilities were removed from our Condensed Consolidated Balance Sheet as of December 31, 2021.

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 1, 2021, the outstanding balance of the Lease Financing of 163.0 million RMB (equivalent of $25.5 million based on the currency exchange rate as of December 1, 2021) was recorded under short-term and long-term finance lease liabilities on balance sheets. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the lease financing was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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 200.0 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 190.0 million and RMB 10.0 million in March 2019 and December 2019, respectively. 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 with a carrying value of $88.3 million as of December 1, 2021. As a condition of the loan arrangement, 14.0 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 of this loan remain the same. As of December 1, 2021, the outstanding balance of the loan was 171.0 million RMB (equivalent of $26.7 million based on the currency exchange rate as of December 1, 2021). On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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 with a carrying value of $104.1 million as of December 1, 2021. The JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024. The interest is accrued based on the LIBOR rate plus 2.8%. The interest is required to be paid on March 21 and September 21 each year. As of December 1, 2021, the outstanding balance of the loan was $16.8 million. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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
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on April 26, 2020). The obligation under the loan agreement is secured by certain assets of the JV Company. The obligation under the loan agreement is secured by certain assets of the JV Company with a carrying value of $104.1 million as of December 1, 2021. 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 250.0 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 1, 2021, the outstanding balance of the loan was $31.3 million. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

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 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 $7.6 million, at an interest rate of 5.25% per annum. As of December 1, 2021, there was was no outstanding balance under the loan. On December 2, 2021, the JV Company was deconsolidated from the Company, thus the loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

On April 19, 2021, the JV Company entered into a loan agreement with China Everbright Bank in China to borrow a maximum of Chinese Renminbi (“RMB”) 100 million. The borrowing can be in RMB or U.S. Dollar (“USD”). The loan consists of RMB 50 million for working capital borrowings in Chinese yuan and RMB 50 million for borrowing in USD. The loan is collateralized by eligible accounts receivable. On April 19, 2021, the JV Company borrowed RMB 50.0 million, or $7.7 million based on the currency exchange rate between RMB and USD on April 19, 2021, at an interest rate of 5.1% per annum. The interest payments are due quarterly with the entire principal due no later than May 19, 2022. As of December 1, 2021, the total outstanding balance of the loans was $15.4 million including $3.4 million borrowed on September 22, 2021 and $4.2 million borrowed on November 23, 2021, at interest rate of 2.7% per annum, with principal due on December 12, 2021 and February 15, 2022, respectively. On December 2, 2021, the JV Company was deconsolidated from the Company, thus these loans were no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

On June 29, 2021, the JV Company entered into a one-year loan agreement with China CITIC Bank in China to borrow a maximum of $7.7 million. Interest payments are due on the 20th of each quarter commencing on September 20, 2021, and the entire principal is due on June 29, 2022. As of December 1, 2021, the outstanding balance of this loan was $7.7 million at an interest rate of 3.49% per annum. On December 2, 2021, the JV Company was deconsolidated from the Company, thus this loan was no longer on the Company’s Condensed Consolidated Balance Sheet as of December 31, 2021.

Cash, cash equivalents and restricted cash
As of December 31, 2021 and June 30, 2021, we had $269.6 million and $204.8 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 $269.6 million and $204.8 million cash, cash equivalents and restricted cash, $223.6 million and $134.6 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,
  2021 2020
  (in thousands)
Net cash provided by operating activities $ 131,374  $ 45,933 
Net cash used in investing activities (47,709) (24,639)
Net cash used in financing activities (19,165) (4,779)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 307  4,120 
Net increase in cash, cash equivalents and restricted cash $ 64,807  $ 20,635 
   
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Cash flows from operating activities
Net cash provided by operating activities of $131.4 million for the six months ended December 31, 2021 resulted primarily from net income of $406.4 million and net changes in assets and liabilities using cash of $47.5 million, partially offset by non-cash expenses of $322.5 million. The non-cash expenses of $322.5 million primarily included $399.1 million of gain on deconsolidation of the JV Company, partially offset by $7.6 million of loss on changes of equity interest in the JV Company, $29.3 million of deferred income tax on deconsolidation and changes of equity interest in the JV Company, $25.7 million of depreciation and amortization expenses, $13.2 million of share-based compensation expense, and $0.7 million of deferred income taxes. The net changes in assets and liabilities of $47.5 million were primarily due to a $70.3 million increase in accrued and other liabilities, a $3.5 million of income taxes payable on deconsolidation and changes of equity interest in the JV Company, a $11.6 million increase in accounts payable due to timing of payments, a $1.3 million increase in income taxes payable, and a $3.9 million decrease in accounts receivable as a result of timing of the shipments and payments collected, partially offset by a $28.5 million increase in inventories as a result of preparation of uncertainty of supply chains, a $8.9 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $5.8 million decrease in other receivable from equity investee.
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.
Cash flows from investing activities    
Net cash used in investing activities of $47.7 million for the six months ended December 31, 2021 was primarily attributable to cash disposed upon deconsolidation of the JV Company of $20.7 million, purchases of property and equipment of $15.0 million for the JV Company, and purchases of property and equipment of $39.5 million for other than the JV Company, partially offset by proceeds from the sale of equity interest in the JV Company of $26.3 million and government grants related to fixed assets of $1.2 million.
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.
Cash flows from financing activities
Net cash used in financing activities of $19.2 million for the six months ended December 31, 2021 was primarily attributable to $31.4 million in repayments of borrowings, $4.2 million in payment of finance lease obligations, and $0.6 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, partially offset by $2.7 million of proceeds from exercise of stock options and ESPP and $14.3 million proceeds from borrowings.
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.

Commitments
See Note 12 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, 2021, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.
Contractual Obligations
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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, 2021.

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, 2021, filed with the SEC on August 30, 2021.

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, 2021 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, 2021 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, the 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 DOC in May 2019. The Company is cooperating fully with federal authorities in the investigation. The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ, and DOJ has not provided the Company with any specific timeline or indication as to when the investigation will be concluded or resolved. In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei. The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019. The Company continues to work with DOC to resolve this issue 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, and DOC is currently reviewing this matter. 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 affiliates. 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. On September 27, 2021, the Court entered an opinion and order granting Defendants’ motion and dismissing the amended complaint in its entirety. In so doing, the Court found, among other things, that Plaintiff failed adequately to allege that any of AOS’s indirect sales to Huawei were illegal, and therefore none of the Company’s statements regarding its positive performance or its efforts to contend with a difficult geopolitical climate and trade tensions could plausibly be seen as “inaccurate, incomplete, or misleading.” The Court’s order allowed Plaintiff an opportunity to file a second amended complaint by October 27, 2021. As of that date, however, no such filing was made and the a Joint Stipulation and Order of Dismissal was entered on November 9, 2021, dismissing the case with prejudice and directing the Clerk of Court to close the case.

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 its 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 August 30, 2021, contains risk factors identified by the Company. Except as noted below, there have been no material changes to the risk factors we previously disclosed in our filings with the SEC. 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.

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

49


The JV Company consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing. The JV Company is our subcontractor, we rely and expect to continue to rely substantially on the JV Company to provide us with foundry capacity to develop and manufacture our products and to enhance our market position in China. Since the formation of the JV Company, we have retained control over the business operation of the JV Company through our majority equity ownership and board representation. In December 2021, we relinquished control over the JV Company through a series of transactions, including the sale of a portion of our equity interests in the JV Company and issuance of additional equity interests by the JV Company to raise capital. As a result of these transactions, we currently own approximately 42.2% of outstanding equity interest in the JV Company and has the right to designate three (3) out of seven (7) directors, instead of four (4) directors prior to such transaction. The reduction of our equity ownership of the JV Company is part of a plan to enable the JV Company to raise capital more easily and to facilitate a future public listing on the Science and Technology innovAtion boaRd, or STAR Market, of the Shanghai Stock Exchange (the “China IPO”). Such reduction also caused the deconsolidation of the JV Company’s financial statements from our Consolidated Financial Statements.

Because we no longer have a controlling interest in the JV Company, the JV Company is operating and will continue to operate more independently, and our influence on all aspects of the JV Company’s business operations will be diminished. Accordingly, we might not be able to prevent the JV Company from taking actions adverse to our interests. For example, while we remain a major customer of the JV Company, the JV Company may decide to enter into business relationships with other customers and allocate foundry capacities to such customers, which may prevent us from securing a desirable or sufficient level of manufacturing capacity for our products. Even if the JV Company agrees to continue allocating sufficient manufacturing capacity to us, we may not be able to negotiate or obtain favorable pricing or service terms, which may increase our expenses and adversely affect our results of operations.

Our lack of control over the JV Company may also make it more difficult for us to execute our broader business strategies in China, including our R&D, sales and marketing, product innovation efforts and protection of intellectual property rights, because the JV Company may decide not to cooperate with us in these matters. In addition, while we expect to achieve financial return for our investment in the JV Company as a result of the China IPO, the China IPO process is complex, time-consuming and subject to a number of risks and there is no guarantee that the China IPO will be completed in a timely manner, or at all, and the JV Company’s failure to close the China IPO will negatively affect our investment in the JV Company.

In order to fund its capital expenditures and cost of operation, the JV Company has incurred a significant amount of indebtedness from third-party lenders under several loan and lease financing agreements, some of which are secured by substantially all of the assets of the JV Company. If the JV Company is not able to generate sufficient cash flow to make payments under these loans, the JV Company may be in default, which will adversely affect its ability to continue operations and provide foundry services to us. In addition, the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness. There is no guarantee that the JV Company will be able to obtain financing on favorable terms, or at all, and any such failure may negatively impact our ability to access its wafer manufacturing capacity.

50


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, 2021, we did not repurchase any shares under the Repurchase Program. As of December 31, 2021, 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.
52


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)
* Portions of this exhibit have been omitted pursuant to item 601(b)(10)(iv) of Regulation S-K.







53


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 9, 2022
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
By: /s/  YIFAN LIANG
  Yifan Liang
  Chief Financial Officer and Corporate Secretary
  (Principal Financial Officer)

 

54
English version for reference only        
Exhibit 10.1
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.


[*]
(Purchaser)
And
Alpha & Omega Semiconductor (Shanghai) Ltd.
And
Agape Package Manufacturing (Shanghai) Limited
(Seller)
IMAGE_0.JPG

Regarding Chongqing Alpha and Omega Semiconductor Limited
IMAGE_1.JPG Equity Transfer Agreement

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.
English version for reference only
This Agreement regarding the Equity Transfer of Chongqing Alpha and Omega Semiconductor Limited (hereinafter referred to as this “Agreement”) is executed on December 1, 2021 (hereinafter referred to as the “Execution Date of This Agreement”)by and among the following parties in Shanghai:
1.[*] (hereinafter referred to as the “Purchaser"), a limited partnership duly incorporated and effectively existing according to the laws of China, with its registered number [*] and registered address located at [*]; and
2.Alpha & Omega Semiconductor (Shanghai) Ltd. (hereinafter referred to as “AOS SH”), a company duly incorporated according to the laws of the People’s Republic of China, with its registered number 913100006643782762 and registered address located at Building 8/9, No. 91, 109 nong, Rongkang Rd., Xiaokunshan township, Songjiang District, Shanghai.
3.Agape Package Manufacturing (Shanghai) Limited（“APM SH”）, a company duly incorporated according to the laws of the People’s Republic of China, with its registered number 91310000769412899J and registered address located at B1 Standard Workshop, Dongkai Real Estate, Zone B, Songjiang Export Processing District, Shanghai.

In this Agreement, the aforesaid parties shall be referred to individually as a "Party" and collectively as the "Parties", and AOS SH and APM SH shall hereinafter be collectively referred to as "Seller", and such term shall include its successors and permitted assigns.

Whereas：
1.Chongqing Alpha and Omega Semiconductor Limited (“JV Company”), a limited company duly incorporated and validly existing under the laws of the PRC, with unified social credit code of 91500000MA5U5MLK89 and with registered address at 288 Yuefu Avenue, Beipei District, Chongqing.
2.The AOS SH, APM SH, Alpha and Omega Semiconductor Limited (“collectively referred to as the "AOS Parties") and Chongqing Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Strategic Industry Fund”), Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Liangjiang Strategic Fund”, together with Strategic Industry Fund are hereinafter collectively referred to as the "Fund Parties") have executed the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (the “JV Company”) (the "JV Contract"), the Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, the Second Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, the Third Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (The above-mentioned supplementary agreements are collectively referred to as the "Supplementary Agreement to JV Contract")
3.As of the Execution Date of this Agreement, the registered capital of JV Company is USD 379 million, AOS SH directly holds 8.2% equity interest in JV Company and APM SH directly holds 11.3% equity interest in JV Company;
2

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
4.AOS SH and APM SH intend to respectively transfer their 1.05263% of equity interest in JV Company, and the Purchaser intends to acquire such equity interest transferred by AOS SH and APM SH by cash payment.

THEREFORE, the Parties hereby agree as follows:
1.Definition
In this Agreement, unless otherwise specified herein, the following terms have the meanings set forth below:
1.1.“Affiliate” means, with respect to any party, any other party that directly or indirectly controls, is controlled by, or is under common control with such party, where "control" used means the direct or indirect ownership of fifty percent (50%) or more of the voting shares, registered capital or other equity interest of the relevant party; or having the direct or indirect right to dominate the (general) shareholder meeting, appoint or elect a majority of the members of the board of directors or otherwise determine the management of the relevant party;
1.2."AMR" means the State Administration for Market Regulation of the PRC or its corresponding local authorities or departments;
1.3."Other Relevant Authorities" means the local authorities or departments other than the AMR that are relevant to the processing of the Equity Transfer Transaction;
1.4."Amendment to the AOA" means the amendment to the articles of association executed by the Purchaser, the Seller and all the other shareholders of JV Company based on the Equity Transfer Transaction after the execution of this Agreement;
1.5.“Business Day” means any day other than Saturday, Sunday or national holidays in the PRC;
1.6."PRC" means the mainland of the People's Republic of China, excluding Hong Kong, Macau and Taiwan, for the purpose of this Agreement;
1.7."Closing " is defined in Article 4.1 of this Agreement;
1.8."Closing Date of Equity Interest " is defined in Article 4.1 of this Agreement;
1.9."Closing Conditions" means all of the conditions as set forth in Article 3.1 of this Agreement;
1.10."Execution Date of this Agreement" means the date set forth at the beginning of this Agreement;
1.11."Day" means a calendar day;
1.12."Encumbrance" means any mortgage, debt encumbrance, pledge, lien, option, restriction, preference, pre-emptive right, third-party right or interest, other encumbrance or security interest in any kind or any other preferential arrangement with similar effect (including ownership transfer or ownership retention arrangement);
1.13.“Equity Interest” means the 1.05263% equity interest in JV Company held by AOS SH at the Closing which shall be transferred to the Purchaser pursuant to this Agreement and the 1.05263% equity interest in JV Company held by APM SH at the Closing which shall be transferred to the Purchaser pursuant to this Agreement;
1.14."Equity Transfer Transaction" means the transaction in which the Purchaser and the Seller perform their respective obligations in accordance with this Agreement and the Purchaser purchases the Equity Interest held by the Seller in accordance with the conditions and requirements stipulated in this Agreement;
3

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
1.15.The "JV Contract" refers to the joint venture contract executed by the AOS Parties and the Fund Parties with respect to the investment to and establishment of JV Company;
1.16.The "Supplementary Agreement to JV Contract" refers to the supplementary agreements executed by the AOS Parties and the Fund Parties on the basis of the JV Contract as described in Article 2 of the Whereas Section;
1.17.“The Fourth Supplementary Agreement to the JV Contract" refers to the fourth supplementary agreement to the JV Contract executed by the Purchaser, AOS Parties and the Fund Parties regarding this Equity Transfer Transaction on December 1, 2021;
1.18.“Deadline" means the day of December 6,2021.
1.19.“Material Adverse Event" means any event, circumstance or matter arising or occurring during the period between the Execution Date of this Agreement and the Closing Date of the Equity Interest that has a material adverse effect on the business, operations, assets, liabilities, financial condition or prospects of JV Company or that has a material adverse effect on the ability of Seller to perform its obligations under this Agreement;
1.20."Month" means a calendar month;
1.21."Yuan" or "RMB" means the legal currency of the PRC;
1.22.“Dollar” or “USD” means the legal currency of the United States of America;
1.23."Warranty" means the representations and warranties set forth in Article 5 of this Agreement.
2.Equity Transfer
2.1Equity Transfer
Subject to the terms and conditions of this Agreement, the Seller agrees to sell, and the Purchaser agrees to purchase, the Equity Interest and with all the rights attaching thereto, which is free and clear of any encumbrances.
2.2Consideration
The total amount of consideration of the Equity Interest (hereinafter referred to as the " Consideration ") payable by the Purchaser to the Seller in respect of the transfer of Equity Interest shall be RMB108,000,000, of which, the amount payable to AOS SH shall be RMB 54,000,000 and the amount payable to APM SH shall be RMB 54,000,000.
2.3Payment
After the Execution of this Agreement, the Purchaser shall pay full amount of the Consideration to the Seller before December 6, 2021 (excluding the day of December 6).
2.4Other expense
The expenses for the registration of ownership change of equity interest with the AMR related to the Equity Transfer Transaction shall be borne by each Party respectively in accordance with the laws. All taxes and fees arising out of the Closing of the Equity Interest shall be borne by the Parties respectively in accordance with the laws. Each Party shall use its utmost good faith and effort to assist the other Party in
4

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
communications and other procedures with respect to taxation, to control the relevant tax cost to the greatest extent possible.
3.Closing Conditions
3.1Closing Conditions
The Parties hereby irrevocably acknowledge that Seller’s obligations in respect of the Closing of the Equity Interest under this Agreement are subject to the satisfaction of all of the following Closing Conditions:
3.1.1The Purchaser, the Seller and all the other shareholders of JV Company have agreed on and executed the Fourth Supplementary Agreement to the JV Contract and the Amendment to the AOA with respect to this Equity Transfer Transaction;
3.1.2The Purchaser has performed its obligation to pay the Consideration hereunder on time and in full as set forth in Article 2.3 hereof;
3.1.3With respect to the Equity Transfer Transaction, the Purchaser and the Seller have obtained all necessary approvals from the internal authority of its company for the execution of this Agreement and the processing of the Equity Transfer Transaction;
3.1.4The transaction documents relating to the Equity Transfer Transaction have been duly executed;
3.1.5The representations and warranties of the Parties in material respects are true, accurate and not misleading;
3.1.6There is no Material Adverse Event and no Material Adverse Event will be reasonably expected to occur.
3.2Satisfaction or Non-satisfaction of Closing Conditions
The Seller and the Purchaser shall use their best efforts to satisfy all the Closing Conditions specified in Article 3.1. With respect to the Closing conditions which need to be cooperated by the Parties, the Parties agree to cooperate fully and reach an agreement as soon as possible.
If all Closing Conditions are not able to be satisfied by the Deadline, this Agreement shall terminate automatically. Any rights, obligations and liabilities of the Parties under this Agreement shall be invalid immediately. If the Closing Conditions are not fulfilled due to the default of any party, the non-breaching party shall have the right to hold the defaulting party liable for breach of contract in accordance with provisions hereof.
4.Closing and Registration of Ownership Change of Equity Interest
4.1Closing Date of Equity Interest and Closing
The date on which all the Closing Conditions stipulated in Article 3.1 of this Agreement are all fulfilled shall be the Closing Date of Equity Interest. The arrangements for signing, handover, delivery of all the documents and payment under Article 3.1 are collectively referred to as "Closing". Except for above-mentioned arrangements stipulated in Article 3.1, the Seller does not need to hand over to the
5

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
Purchaser any information, documents, materials and its original of JV Company or transfer and deliver the operating properties or any other matters.
4.2Registration of Ownership Change of Equity Interest
JV Company and the Seller shall deal with the Registration of Ownership Change of Equity Interest with AMR regarding this Equity Transfer Transaction within 20 Business Days after Closing Date of Equity Interest, including without limitation, (i) the Purchaser is registered as a shareholder of JV Company holding 2.1053% equity interest; (ii) the appointment of new directors; and (iii) the Amendment to AOA executed by the Purchaser, the Seller and the other shareholders of JV Company is registered with AMR (hereinafter referred to collectively as the "Registration of Ownership Change of Equity Interest").
The Purchaser shall actively cooperate with the JV Company and the Seller to execute and prepare all the documents and materials required by AMR or Other Relevant Authorities for the completion of Registration of Ownership Change of Equity Interest regarding this Equity Transfer Transaction.
From the date of obtaining the new business license or other confirmation documents issued by AMR, the Registration of Ownership Change of Equity Interest should be deemed as completed.
4.3Shareholding structure after the Registration of Ownership Change of Equity Interest
After completion of the Registration of Ownership Change of Equity Interest, the shareholders and percentage of capital contribution of JV Company shall be changed as follows:
6

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
No. Name of Shareholder Contribution (USD)
Percentage of Capital Contribution（%）
1 Chongqing Strategic Emerging Industry Equity Investment Fund Partnership 124,000,000 32.7177%
2 Alpha and Omega Semiconductor Limited 119,000,000 31.3984%
3 Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) 62,000,000 16.3588%
4 Agape Package Manufacturing (Shanghai) Limited 39,010,526 10.2930%
5 Alpha & Omega Semiconductor (Shanghai) Ltd. 27,010,526 7.1268%
6 [*]
7,978,948
2.1053%
Total
379,000,000 100%

4.4Corporate governance structure after the Registration of Ownership Change of Equity Interest
The corporate governance structure of JV Company after the Registration of Ownership Change of Equity Interest shall be implemented in accordance with the provisions of the Fourth Supplementary Agreement to the JV Contract and the Amendment to AOA separately executed by the shareholders set forth in Article 3.1.1.
5.Representation and Warranty
The Party represents and warrants to the other Party of this Agreement as follow:
5.1Each Party is an enterprise duly incorporated and effectively existing in accordance with the laws and regulations of the country in which it was established;
5.2The representations and warranties of each Party are true, complete and accurate;
5.3Upon the effective date of this Agreement herein, each of Purchaser and the Seller has obtained all power, authorizations and approvals necessary for the execution of this Agreement and has obtained all power, authorizations and approvals to fully perform each of their obligations hereunder;
5.4The execution, delivery and performance by each Party of this Agreement, the Fourth Supplementary Agreement to the JV Contract and the Amendment to AOA shall not constitute any violation of any agreement, contract, memorandum, letter of intent or any other document of any nature entered into with any other third party.
7

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
5.5The execution, delivery and performance by each Party of this Agreement, the Fourth Supplementary Agreement to the JV Contract and the Amendment to AOA, or each Party performing the transaction or obligations hereunder shall not constitute any violation of its own articles of association or applicable laws, regulations and policies or enter into a circumstance which would prevent such party from performing its obligations under this Agreement, will not conflict with its obligations under any other agreement or shall not constitute any violation of any material agreement, which such Party is bound, and will not violate any approval, order, judgment or ruling by any court, governmental authority;
5.6To the best of its knowledge, there is no pending or threatened lawsuit, arbitration or other legal, administrative or other proceedings, or governmental investigation with respect to the matters set forth in this Agreement or that could adversely affect the execution of this Agreement or the performance of the obligations hereunder;
5.7The Purchaser warrants that the source of funds used for the Consideration of the Equity Interest is lawful and the payment of the Consideration will be performed in a timely manner in accordance with this Agreement;
5.8The Purchaser warrants that none of the Purchaser, the investor, the shareholder, the beneficiary, the actual controlling person or affiliate of the Purchaser is involved in any business, area, source of fund or investor related to military or intelligence of any country;
5.9From the Execution Date of this Agreement until the date on which all the rights and obligations of the Parties have been fully performed, each Party shall immediately notify the other Party in writing upon the occurrence or possible occurrence of any of the following circumstances:
5.9.1cause any representation or warranty of such Party under this Agreement inaccurate or incomplete in any material respect;
5.9.2constitute or result in a breach or a failure by such Party to comply with any agreement or representation or warranty applicable to it under this Agreement;
5.9.3the occurrence of any event or circumstance that results in such Party unable to satisfy any of the Closing Conditions set forth in this Agreement.
6.Other post-closing agreement
6.1The Parties acknowledge that the Parties will endeavor to promote the listing process of the JV Company and for the purpose of listing, subject to the relevant requirements of the PRC laws, the JV Company will implement the Employee Stock Ownership Plan by increasing the registered capital and intend to issue no more than USD 19,947,400 of capital contribution to Employee Stock Ownership Partnership.The equity interest of Parties will be diluted in proportion to their respective percentage of equity interests in JV Company.
After the subscription of the newly increased registered capital in the first round, the Employee Stock Ownership Partnership will hold certain equity interest of the JV Company, which represents USD 16,556,300] of the capital contribution to the JV Company at the price of 1USD per 1USD of capital contribution (the "First Round Employee Stock Ownership Plan");
After the subscription of the newly increased registered capital in the second round, the Employee Stock Ownership Partnership will hold certain equity interest of the JV Company, which totally represents USD 19,947,400 of the capital contribution to the JV Company, and the subscription price shall be subject to the approval by the internal authority of JV Company.
8

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
If the JV Company fails to establish the Employee Stock Ownership Partnership and complete capital increase to the JV Company with the contribution of USD 19,947,400 within 24 months from the date hereof, AOS Parties shall have the right to request the Purchaser to perform in any of the following:
6.1.1request the Purchaser at its own expense to transfer certain percentage of the equity interest in the JV Company as calculated below to an entity designated by AOS Parties without consideration: 0.1053% of the equity interest in the JV Company (representing USD 399,087 of the registered capital of the JV Company)*N; or
6.1.2request Purchaser to pay the entity designated by AOS Parties a compensation in cash calculated as follows: Total Amount of Cash Compensation = RMB5.4 billion * 39.9087/37,900*N.
For the purpose of the above calculation, N = (1 - the amount of capital contribution made by the Employee Stock Ownership Partnership to JV Company within 24 months from the date hereof/USD 19,947,400). When N is zero or negative, Purchaser does not need to compensate AOS Parties.

7.Termination and Liability for Breach
7.1Right of Termination
7.1.1This Agreement shall be automatically terminated if the Closing Conditions are not fully satisfied by the Deadline, unless otherwise agreed in writing by the Parties.
7.1.2This Agreement shall be terminated upon the unanimous written consent of the Parties.
7.2Effect of Termination and Liability for Breach
7.2.1In the event that any party constitutes a breach of this Agreement, the performing party shall be entitled to take one or more of the following remedies to defend its rights:
(a)require the breaching party to perform as agreed;
(b)suspend the performance of obligations and resume the performance after the breach is cured. Suspension of performance by the performing party according to the terms hereof shall not constitute any non-performance or delay of performance by the performing party;
(c)unilaterally terminate this Agreement by giving a written notice in the event of any unilateral termination as stipulated under this Agreement. However, giving the unilateral termination notice by the performing party shall not be construed as a waiver of any rights against the breaching party's liabilities for breach of this Agreement in accordance with the law.
(d)request the breaching party to indemnify the performing party for all direct and indirect losses caused by its breach (including the costs actually incurred for the execution and performance of this Agreement, other foreseeable economic losses, and the costs of courts and attorneys' fees incurred in any litigation raised by the performing Party);
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[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

English version for reference only
(e)other remedies available under the PRC Laws or this Agreement.
7.2.2Unless otherwise agreed herein, the termination of this Agreement as set forth above shall not affect the rights, obligations and legal situation of the Parties arising from the implementation of this Agreement prior to its termination, including the right of the performing party to claim compensation from the breaching party.
7.2.3If the Purchaser fails to pay the Consideration on schedule as stipulated in Article 2.3 hereof, the Seller shall have the right to request the Purchaser to pay the Seller 30% of the amount payable but unpaid as liquidated damages.
7.2.4If the breaching party fails to pay the liquidated damages within the time limit, it shall pay the performing party additional liquidated damages at a daily rate of 0.3% of the Consideration. The breaching party paying the liquidated damages as set forth herein shall not prejudice the rights of the performing party to require the breaching party to indemnify its losses, to continue to perform this Agreement, or to terminate this Agreement.

8.Force Majeure
8.1For the purpose of this Agreement (including the supplementary agreement), force majeure(“Force Majeure”) is limited to earthquake, typhoon, flood, fires, war, riot, terrorist acts, Coronavirus prevention and control or other epidemic prevention and control caused by others, or any objective circumstances which are unforeseeable, unavoidable and insurmountable by the Parties, and the change in any laws, regulations and rules, or the promulgation of new laws, regulations and rules, which directly affect the performance of this Agreement or lead to failure to perform as agreed herein. Any change of domestic and foreign macroeconomic situation, or any change of national policies and legal systems that do not affect the performance of this Agreement, or change of industrial environment, change of domestic and foreign markets or any event caused by operation of any Party shall not be deemed as Force Majeure.
8.2In the event that the performance of this Agreement is affected by Force Majeure, the party affected by such Force Majeure shall immediately notify the other party in writing thereof, provide detailed information of such Force Majeure and valid documents for supporting the reasons for the failure to perform this Agreement fully or partially or delay the performance of this Agreement within five days thereafter.
8.3In the event of any Force Majeure, the Parties shall immediately negotiate for fair solution in accordance with laws, regulations and regulatory documents and other binding documents and use best efforts to mitigate the consequences of such event.

9.Applicable Law and Jurisdiction
9.1Applicable Law
This Agreement shall be governed by and construed in accordance with the laws of the People's Republic of China.
9.2Negotiation and Dispute Resolution
The Seller and Purchaser shall use their reasonable efforts to negotiate the resolution of any dispute that may arise under or in connection with this Agreement (including any dispute as to the existence, validity or termination of this Agreement). Such negotiation shall commence immediately upon the time that the Purchaser or Seller
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notify the other Parties which requests a negotiation in written pursuant to this Agreement.
If the dispute can not be resolved within thirty (30) business days from the date of one Party notifying the other Parties in writing, either Party shall have the right to file a lawsuit to resolve the dispute in the People's Court where the Seller is located.
10.General Provisions
10.1Notice
10.1.1Any notice required to be given hereunder shall be delivered by hand, or by reputable courier or email to the address of the recipient set forth in Article 10.1.3 hereof, or to other address and person designated by the receiving party by giving prior written notice to the other Party not less than five (5) business days.
10.1.2Unless it is proved that the notice was received at an earlier time, each notice shall be deemed to have been served in the following manner at the following time:
(a)if delivered by hand, upon receipt of the receipt voucher;
(b)if delivered by email, upon the successful transmission of such email;
(c)if delivered by recognized courier, upon receipt of the delivery confirmation.
10.1.3The address and email address described in Article 10.1.1 are as follows
Address Email Address Atten
Seller (AOS SH)
[●] [●] [●]
Seller (APM SH) [●] [●] [●]
Purchaser
[●] [●] [●]
10.2Confidentiality
10.2.1Each Party hereto shall be comply with confidentiality obligation with respect to the commercial secrets of other Parties obtained as a result of execution and performance of this Agreement.
10.2.2The entire terms of this Agreement and this Agreement shall be deemed as confidential information and neither Purchaser nor Seller shall disclose such information to any third party without the written consent of the other party, which consent shall not be unreasonably withheld or delayed.
10.2.3Disclosure of this Agreement by a Party to officers, directors, employees, agents and professional advisors who has connection with the relevant project related to this Agreement shall not be subject to the restrictions in Article 10.2.1, provided that it is necessary for such persons to know this Agreement and related information, and they agree not to disclose to any other third party.
10.2.4If any Party hereto discloses this Agreement and information described herein as required by relevant stock exchange, any other governmental or regulatory authority, according to rules issued by a court of
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competent jurisdiction (whether such rules have the legal force or not) or as required by other public administrative authority, such disclosure shall not be subject to Article 10.2.1.
10.2.5Submission of this Agreement to the AMR or Other Relevant Authorities is not subject to Article 10.2.1.
10.2.6The Parties agree that the confidentiality obligation hereunder shall survive the rescission or termination of this Agreement or the invalidity of some articles in whole or in part.
10.3Amendment
Any amendment under this Agreement shall not be effective unless it is made in writing and executed by all Parties.
10.4Failure or delay to exercise any right
Failure or delay in exercising any right or remedy conferred by this Agreement or by law will not impair or constitute a waiver of that right or remedy or a waiver of any other right or remedy. Any separate or partial exercise of any right under this Agreement or stipulated by law, will not prevent such party from further exercising such right or remedy or any other right or remedy. The failure of either Party hereto to pursue or delay in pursuing the liability of the other Party hereto under this Agreement shall not constitute a waiver of such liability.
10.5Survival
Except for those obligations that have been performed and otherwise specified herein, the obligations in this Agreement shall survive after the Closing Date.
10.6Severability
If any term or provision of this Agreement becomes invalid, illegal or incapable of being enforced, and such invalidity, illegality or unenforceability has no fundamentally effect on the performance of this Agreement and the attachments hereto, the validity and enforceability of the other provisions of this Agreement shall not be affected.
10.7Counterparts
This Agreement shall be executed and delivered in six (6) counterparts, each of which shall be deemed an original and equally authentic.
10.8Assignment
Unless otherwise agreed by the Parties, neither Party may assign any of its rights and obligations under this Agreement. Each Party acknowledges that either Party has the right to assign part or all of its rights and obligations under this Agreement, to its Affiliate with the written consent of the other Party.
10.9Entire Agreement
This Agreement constitutes the entire agreement between the Parties with respect to the Equity Transfer Transaction contemplated hereby and fully replace any prior agreements, memoranda, intentions, unilateral representations or understandings between the Parties with respect to the Equity Transfer Transaction, and may only be
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amended or supplemented by written documents executed by authorized representatives of the Parties.
For the purpose of completing the administrative approval, permit or filing relating to the Equity Transfer Transaction contemplated hereby, the Parties agree to unconditionally cooperate with the Seller in the execution, submission and delivery of all necessary legal documents (including, without limitation, the legal documents as required by AMR and Other Relevant Authorities), and use their best efforts to cooperate with the JV Company in completing the relevant administrative approval, permit or filing (including, without limitation, registration of change of shareholders, filing of amendments to the Articles of Association, etc.). The contents of the aforesaid legal documents shall be consistent with the contents or principles of this Agreement.
10.10Effectiveness
This agreement shall be effective after being executed and sealed by the Parties and its duly authorized representatives.

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No text below, the following is the signature page of The Agreement regarding Chongqing Alpha and Omega Semiconductor Limited.


Purchaser: [*]

(By): _____________________                 
(Signature of Authorized Representative):





Seller: Alpha & Omega Semiconductor (Shanghai) Ltd.

(By): _____________________    
(Signature of Authorized Representative):



Seller: Agape Package Manufacturing (Shanghai) Limited

(By): _____________________    
(Signature of Authorized Representative):


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Exhibit 10.2

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

The fourth Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited

This Supplementary Agreement (this " Supplementary Agreement ") is entered into in and becomes effective on December 1, 2021 (the "Effective Date") by and among the following Parties in Chongqing:

1.Alpha and Omega Semiconductor Limited（“AOS”）, a company duly incorporated according to the laws of Bermuda.
2.Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”), a company duly incorporated in Shanghai according to the laws of the People’s Republic of China (“China”).
3.Agape Package Manufacturing (Shanghai) Limited（“APM SH”）, a company duly incorporated in Shanghai according to the laws of China.
4.Chongqing Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Strategic Industry Fund”), a partnership duly established in Chongqing according to the laws of China.
5.Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Liangjiang Strategic Fund”), a partnership duly established in Chongqing according to the laws of China.
6.[*], a partnership duly incorporated in [*] according to the laws of China.
The above six parties are hereinafter collectively referred to as the "Parties" and, individually, a "Party." Strategic Industry Fund and Liangjiang Strategic Fund are hereinafter collectively referred to as the "Fund Parties". AOS, AOS SH, and APM SH are hereinafter collectively referred to as the "AOS Parties".

Whereas:

1.The AOS Parties and the Fund Parties have executed the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (the “JV Company”) (the "JV Contract"), the Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, the Second Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, the Third Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, (The above-mentioned supplementary contracts are collectively referred to as the "Supplementary Agreement to JV Contract"), and the effective articles of association of the JV Company ("Articles of Association") was executed on December 19, 2018.
2.In order to optimize the shareholding structure of the JV Company, AOS SH and APM SH intend to respectively transfer 1.05263% of their equity interest in the JV Company (representing USD 3,989,474 of the registered capital of the JV Company) to [*]. The shareholders and shareholding structure of the JV Company will change upon the completion of such transaction.
3.The JV Company intends to establish an Employee Stock Ownership Plan and the Employee Stock Ownership Partnership intends to hold certain equity interest of the JV Company, which totally represents USD 19,947,400 of the capital contribution of the JV Company by subscribing the newly- increased registered capital of JV Company in two rounds.
NOW, THEREFORE, to clarify the rights and obligations of the Parties after the completion of the above-mentioned changes in shareholders and shareholding structure and the adjustment relating
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

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to the corporate governance of JV Company, the Parties have reached an agreement through negotiation and entered into this Supplementary Agreement as follows:

1.The Parties agree that AOS SH and APM SH will transfer to [*]an aggregate of 2.1053% of the equity interests in JV Company as of November 30, 2021 (representing USD 7,978,948 of the registered capital of the JV Company), AOS SH will transfer 1.05263% of the equity interest in the JV Company to [*], representing USD 3,989,474 of the registered capital of the JV Company. APM SH will transfer 1.05263% of the equity interest in the JV Company to [*], representing USD 3,989,474 of the registered capital of the JV Company. [*] will acquire 2.1053% of equity interests by cash payment (this "Equity Transfer Transaction"; specific terms relating to this Equity Transfer Transaction shall be separately agreed upon by and among AOS SH, APM SH and [*]). The transferor shall provide the other shareholders with a prior written notice, which shall contain at least key terms, such as the amount of the registered capital to be transferred, the proposed transfer price, basic information of the potential transferee, payment term, method of payment, special covenants etc. AOS and the Fund Parties acknowledge that they will waive their pre-emptive rights with respect to the aforesaid aggregate 2.1053% of the equity interest transferred by AOS SH and APM SH.
2.After the completion of this Equity Transfer Transaction, the registered capital of JV Company shall remain unchanged as USD 379 million and the shareholders, shareholding structure and percentage of capital contribution of JV Company shall be changed as follows:

No.
Name of Shareholder
Contribution (USD) Percentage of Capital Contribution
1 Strategic Industry Fund 124,000,000 32.7177
2 Liangjiang Strategic Fund
62,000,000
16.3588
3 AOS 119,000,000 31.3984
4 APM SH 39,010,526
10.2930
5 AOS SH 27,010,526 7.1268
6 [*] 7,978,948
2.1053
Total 379,000,000 100%

3.The Parties confirm that the composition of the Board of Directors stipulated in the Article 8 Clause 8.2 of the JV Contract shall be amended as follows:
The Parties agree that the Board of Directors is composed of seven (7) directors, three (3) of whom will be appointed by AOS, three (3) of whom will be appointed by the Fund Parties and one (1) of whom will be jointly appointed by AOS and the Fund Parties, who shall be the general manager of the JV Company. Upon the establishment of the Employee Stock Ownership Partnership by the JV Company, the abovementioned director jointly appointed by AOS and the Fund Parties shall be replaced by the director appointed by the Employee Stock Ownership Partnership. During the term hereof, if the percentage of capital contribution of each Party changes, the Parties may amend this JV

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Contract accordingly, including but not limited to making appropriate modifications to the composition of the board of directors and the number of directors appointed by each Party according to the agreement otherwise reached by the Parties at that time.

4.The Parties confirm that the composition of the Senior Officers of JV Company stipulated in the Article 8 Clause 8.15 of the JV Contract shall be amended as follows:
The senior officers include the general manager, the deputy general manager, the financial officer, secretary of the board of directors (if any) and the other personnel as stipulated in the Article of Association of the JV Company. The general manager shall be the legal representative of JV Company. The general manager and other senior officers of JV Company shall be appointed by the Board of Directors of JV Company.

5.The Parties acknowledge that they will endeavor to promote the listing process of the JV Company, and for the purpose of the listing, subject to the relevant requirements of the PRC laws, the JV Company will implement the Employee Stock Ownership Plan by increasing the registered capital and intend to issue no more than USD 19,947,400 of capital contribution to Employee Stock Ownership Partnership. The equity interest of Parties will be diluted in proportion to their respective ratio of equity interests in JV Company.
After the subscription of the newly increased registered capital in the first round, the Employee Stock Ownership Partnership will hold certain equity interest of the JV Company, which represents USD 16,556,300 of the capital contribution to the JV Company at the price of 1USD per 1USD of capital contribution (the "First Round Employee Stock Ownership Plan");

After the subscription of the newly increased registered capital in the second round, the Employee Stock Ownership Partnership will hold certain equity interest of the JV Company, which totally represents USD 19,947,400 of the capital contribution to the JV Company, and the subscription price shall be subject to the approval by the internal authority of JV Company.

If the JV Company fails to establish the Employee Stock Ownership Partnership and complete capital increase to the JV Company with the contribution of USD 19,947,400 within 24 months from the date hereof, AOS Parties shall have the right to request [*] to perform in any of the following:

5.1request [*] at its own expense to transfer certain percentage of the equity interest in the JV Company as calculated below to an entity designated by AOS Parties without consideration: 0.1053% of the equity interest in the JV Company (representing USD 399,087 of the registered capital of the JV Company)*N; or
5.2request [*] to pay the entity designated by AOS Parties a compensation in cash calculated as follows: Total Amount of Cash Compensation = RMB5.4 billion * 39.9087/37,900*N.
For the purpose of the above calculation, N = (1 - the amount of capital contribution made by the Employee Stock Ownership Partnership to JV Company within 24 months from the date hereof/USD 19,947,400). When N is zero or negative, [*] does not need to compensate AOS Parties.

6.After the execution of this Supplementary Agreement, the JV Company shall amend the corresponding clauses of the JV Company’s Articles of Association and issue Amendments to the Articles of Association regarding the shareholding structure, percentage of capital contribution, and composition of the Board of Directors of the JV Company, and submit it to relevant administration for market regulation, or other competent government authorities for the filing of Amendments to the Articles of Association.
7.The Parties unanimously undertake to actively cooperate with and complete the adjustment of non-actual controller state of JV Company, including, without limitation, prior to December 31, 2021, to complete the adjustment of shareholding,

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the First Round Employee Stock Ownership Plan, the adjustment of seats of the board of directors and execution of new shareholders' contract and articles of association or amendments thereto.
8.[*] confirms that it has received copies of the JV Contract and the Supplementary Agreement to JV Contract sent by the AOS Parties and the Fund Parties and undertakes that it acknowledges all the terms and contents of the JV Contract and Supplementary Agreement to JV Contract, unless otherwise provided herein. [*] further acknowledges that from the date on which [*] is registered with the Company Registration Authority as a shareholder of JV Company under the Equity Transfer Transaction, it shall automatically become a party to the JV Contract and Supplementary Agreement to JV Contract and be bound thereby and undertakes to perform its obligations under the JV Contract and the Supplementary Agreement to JV Contract in accordance with the provisions thereof.
9.This Supplementary Agreement shall be deemed as an integral part of the JV Contract and Supplementary Agreement to JV Contract; in case of any conflict between the Supplementary Agreement and the JV Contract and Supplementary Agreement to JV Contract, this Supplementary Agreement shall prevail; any matters not stipulated herein, the relevant stipulation made in the JV Contract and Supplementary Agreement to JV Contract shall apply.
10.This Supplementary Agreement will become effective on the effective date after being executed by all parties.
11.This Supplementary Agreement is made in twelve copies, each party holds one copy, and six copies shall be kept for the JV Company.

(The following is intentionally left blank. It is the signature page of the fourth Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited)



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Alpha and Omega Semiconductor Limited （“AOS”）

Signature：
Name：
Title：


Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”)

Signature：
Name：
Title：


Agape Package Manufacturing (Shanghai) Limited （“APM SH”）

Signature：
Name：
Title：















































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Chongqing Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Strategic Industry Fund”)

Signature：
Name：
Title：


Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) (“Liangjiang Strategic Fund”)

Signature：
Name：
Title：


[*]
Signature：
Name：
Title：




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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 9, 2022
 
/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 9, 2022
 
/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, 2021 (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 9, 2022
 
/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, 2021 (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 9, 2022
                                
/s/    Yifan Liang       
Yifan Liang
Chief Financial Officer and Corporate Secretary